Lending

Student Loans: ‘What Are You Waiting For?’

Determine how private student loans fit into your business model and strategy.

November 14, 2013
KEYWORDS credit , loans , private , student
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Student loans

From left: CUNA's Paul Gentile moderates a student lending panel with Jon Jeffreys, Alice Stevens, Mike Long, Rohit Chopra, and Tim Segerson.

Mike Long’s first thought when UW Credit Union, Madison, Wis., introduced private student loans: “Will any of these kids pay us back?”

The answer has been a resounding yes. Currently, 45% of the credit union’s student loans are in repayment, with a charge-off ratio of just 0.2%, says Long, executive vice president/chief credit officer for the $1.7 billion asset institution and head of its credit union service organization, CU Campus Resources.

The return on assets on these loans is in the range of 5.5% to 6%, prompting Long to ask his credit union colleagues, “What are you waiting for?”

Long participated in a private student lending panel during the recent CUNA Lending Council Conference in Phoenix.

UW Credit Union launched a student loan consolidation product this year due to the huge need, Long says. “Regulators are open to this as long as borrowers know they’ll be giving up some benefits when changing from a federal to a private student loan,” he says. “But the interest rate probably will be lower.”

Plus, student loan borrowers tend to use more than one service with the credit union, says Jon Jeffreys, president of Credit Union Student Choice. So do their parents.

“Mom and dad are the ones getting loans,” he says. “We work with them.”

Just make sure you work with the right schools, warns Alice Stevens, chairman of Member Student Lending LLC and chief operations officer for First Financial Federal Credit Union in Wall Township, N.J.

“In particular, work with those that have high graduation rates,” she says. That makes it more likely that students will pay you back.

Default insurance is another way to reduce losses, says Stevens, who is looking into the prospect of securitizing its private student loans.

Rohit Chopra is bullish about the future for small financial institutions’ private student loan prospects, but he’s concerned about borrowers’ finances.

“There has been a decline in real wages while students’ debt load is growing,” says Chopra, student loan ombudsman for the Consumer Finance Protection Bureau. “People are entering the workplace with much higher debt-to-income levels. But there are a lot of student loan opportunities for lenders that work with the right schools.”

Above all, determine how student loans fit into your overall portfolio before entering into this line of business, advises NCUA Deputy Director Tim Segerson. “Take the time to see how they fit into your business model and strategy. There won’t be specific limits on the percentage of these loans in your portfolio. But a higher percentage will increase [regulator] focus on it.”

The key, he adds, is providing proper oversight. “Be sure to ask whether this is the right thing for the member.”

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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