This guiding principle has led USCCU to become the largest student loan originator in the country, making more than $500 million in student loans in the past decade, and $120 million in the past year.
Although USCCU has a community charter, it has targeted people associated with the university. Competing financial institutions do a pretty good job of serving the ordinary consumer, Perez says. A poll of the summit audience conformed this, with 90% to 100% providing personal loans, auto loans, and mortgage. Only one fifth offer student loans, the number one loan of necessity for 18-to-30 members, mainly through Federal Family Education Loan Program (FFELP).
In 1997, the credit union’s net spread jumped from 160 basis points to 240 basis points. And since then, says Perez, “We have not experienced a single loss—not one charged-off student loan. In fact, we’ve never even had a single delinquency.
The explanation for this is simple; USCCU holds its student loans for four years. When they go into repayment, it sells them to the secondary market without recourse. Until then, says Perez, they are a great source of revenue, comparable not to other loans, which have better margins, but to investments. “Student loans are investment quality loans,” says Perez.
With the collapse of the traditional secondary market, the federal government has stepped in. New legislation allows the U.S. Department of Education to act as a secondary market to purchase eligible Stafford and PLUS Loans.
What makes the FFELP, with student loans such as Federal Stafford Loans and Federal PLUS Loans for parents, such a solid book of business? They are:
• 3% origination fee
• 97% government guarantee
• Non-dischargeable in bankruptcy.
• Good return on extremely safe loan
• Primary source of student aid
• Attract younger members
• Ease of outsourced originations and servicing
Student lending is not the only area in which USCCU achieves relevance and dispels myths. In 1998, it added a student to the credit union’s board. “Students are the smartest, most engaged people on USC Credit Union’s board,” Perez asserts.
Far from being a loss leader or a slacker generation, says Perez, “Students are USCCU’s most profitable segment.”
IMHO: In a wildly shifting economy, training and education become more important daily. Seizing the student loan market is a way for credit unions to position themselves as partners for members who are entering the peak borrowing stage of their lives. Nothing could be more relevant than that.
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1 comments:
I would suggest that credit unions target more than the university community. With tuition always rising, more people are choosing alternative educational venues, and they need education loans too. I know a 25-year-old who has been working on a teacher certification in the Waldorff school system and it's expensive, and non-traditional.
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