Tapping into the Student Loan Market can Result in Long-Term Credit Union Membership Loyalty
Northwest credit unions could find new market opportunities through the lifetime value of student loans. According to a 2018 report from Cornerstone Advisors, commissioned by Strategic Link Partner, LendKey, the student loan market is showing growth, improvement, and promise for future revenue streams.
According to the report, “The Lifetime Value of a Student Loan Relationship,” student debt in the U.S. saw a 146 percent increase from 2008 to 2018, with growth that made it the second largest category of debt in the consumer credit market, behind mortgages.
“Based on the trends we’re seeing, it makes sense for Northwest credit unions to further explore the student loan market. With its full-service student loan and refinancing solution, our strategic business partner, LendKey, offers credit unions what they need to quickly and cost-effectively expand their lending,” said Northwest Credit Union Association Vice President of Strategic Resources, Jason Smith.
While it comes as no surprise that 18 to 24-year-olds expect to increase their level of student debt or apply for new loans, research reveals that 8 percent of 55 to 64-year-olds will also be in the market for student loans, presumably to help their college-age children.
Additionally, the private student loan market has shown strong improvement in repayment and delinquency performance metrics. Cornerstone Advisors reported that after dipping to 54 percent in 2009, repayment has remained above 70 percent since 2011, and after surpassing the percentage of late-stage delinquency of credit cards in 2012, delinquencies have declined by half from 2013.
Looking to the future, the outlook for student loans is strong. Overall, digital student loan originations will more than double between 2016 and 2021 from $9.8 billion to more than $22.8 billion. As a share of all digital loan originations, student loans will grow from 33.5 percent to 36.3 percent of the loan volume by 2021, according to the report.
Despite the positive trends and strong overall demand for student loans, many credit unions remain cautious of the market. Cornerstone Advisors found that industry experts think these credit unions could be missing an opportunity, not only financially, but to build longer-term member relationships.
Research found that in the past 10 years, three-quarters of student loan borrowers took out a loan from federal sources, while 37 percent borrowed from a financial institution, and 5 percent from other sources, such as family or friends.
Of those that applied with a financial institution, 53 percent applied with the financial institution where they had their primary checking account at the time of the loan.
Among consumers who borrowed from their primary credit union after taking out a student loan, two-thirds opened a checking account, nearly six in 10 got a credit card, and roughly one in five took out a mortgage or home equity loan from that same institution.
But the additional business wasn’t limited to the consumers borrowing from their primary credit union.
Many student loan borrowers who took out a loan from a financial institution that wasn’t their primary credit union did more business with that institution after taking out the student loan, as well—six in 10 opened a checking account, half got a credit card, and 15 percent got a mortgage from that institution at some point after the student loan.
The overall lifetime value of a student loan borrower is dependent on how well your credit union cross-sells to that market, but the consumer research shows that many student loan borrowers continue their relationship beyond the loan. Over a 10-year period, one borrower could put more than $20,000 on a credit union’s bottom line.
Editor’s note: Want to learn more about how credit unions can benefit from tapping into the student loan market? Visit LendKey’s study online. For more information about Lendkey’s digital lending solutions, contact NWCUA VP of Strategic Resources, Jason Smith. To learn more about Strategic Link’s partnership with LendKey, visit its webpage.