Sarah. Cooke, Tuesday, February 12
As credit unions and community banks look to expand their loan portfolios, student loan refinancing is one another way to help consumers.
Student loans are making headlines as they soar into prominence in the consumer debt universe, due in large part to the rising cost of education. In total, 44 million people in the U.S. owe a combined $1.44 trillion in student loans. The average student loan total is $28,650 and carries with it an average monthly payment of $393, according to Student Loan Planner .
It’s true that federal student loans have protections, and sometimes even rates with which private lenders cannot compete. Federal loans can be placed in forbearance or offer different repayment options based on income. But the real target market community banks and credit unions should be analyzing for refinance opportunities is private student loans. As of 2017, outstanding private student loan debt was $113.2 billion, Value Penguin reported – nothing to sneeze at.
The rates on these aren’t great either. According to SoFi, which is eating traditional lenders’ lunch in student loan refinancing, rates on private student loans averaged 10% on fixed-rate loans and 8% on adjustable-rate loans as of March 2018. More than one million students take out private loans each year with an average credit score of 739 as of 2017, according to LendEDU . Generally, borrowers will need a credit score close to 700 to qualify for a private student loan.
Ser Tech clients are running student loan refi programs at rates as low as 3.25% and averaging 4.4%. Definitely a sizeable savings any consumer would consider. These community financial institutions were making these offers to borrowers with credit scores as low as 650.
Ser Tech only recently launched its student loan refi program offering, so we don’t have actual statistics yet from our clients. However, Mike Weber, CMO and SVP of CU Student Choice , a Ser Tech strategic partner, said credit unions can generally expect a 3% ROA for these loans, which is on par with other asset classes.
Another clear benefit to helping these generally young borrowers out is that they are at the beginning of their banking and borrowing lives, plus they’ve only started tapping their professional earning potential. Getting in early with them, engaging and educating, can keep them coming back to your credit union or community bank for more. Financial institutions would do well to bring them in early and help them start on solid financial footing.
What else might recent graduates need? A checking account for direct deposit from their new job, and along with that comes a debit card and interchange fees. Perhaps a new car to get to that job or a credit card for travel. Of those with college debt, 69% told Guardian their personal finances were a major stressor in their lives versus 43% of those with no college debt. Whatever their needs, you can be there for them.