LendKey: Insuring Student Loan Success without the Need for Insurance
Credit unions offer some of the most borrower-friendly loans on the market. LendKey – a Northwest Credit Union Association strategic business partner – enables credit unions to bring these loans to borrowers online. Lenders have the advantage of LendKey’s digital platform, automating much of the loan process, allowing credit unions to pass the savings on to borrowers.
“Based on LendKey’s long history of supporting credit unions, combined with its strong analytics team, we are excited to bring them together with Northwest credit unions,” said Jason Smith, NWCUA VP of Strategic Resources.
LendKey has generated over $850 million in student loan volume through custom programs with credit unions since 2009.
Credit unions have shown a growing interest in offering private student loans in recent years. Private student loans offer high yields, balance sheet diversification, and a means to attract new members. According to SNL Financial data, as of March 2018, credit unions held more than $4.4 billion in student loans, up 14 percent from the previous year.
As interest in education lending has increased, new credit union entrants are looking to non-insurance options to properly tailor a program based on their institutions’ risk tolerance. They can choose to sell by originating student loans and subsequently selling them to an institutional investor; invest by purchasing participation interests and spreading their exposure; or hold by keeping 100 percent of the loans that they originate.
For those that wish to serve their members’ needs for student loans or to attract new members, originating loans for sale is a way to gradually enter the market while learning the dynamics of the asset class. Under a forward sale program, the credit union originates loans that it later sells to investors in secondary market transactions. The originating lender maintains the member to cross-sell other products and services.
Alternatively, credit unions that wish to allocate some capital to student loans, while diversifying assets, can invest in this asset class by joining a participation network and purchasing 10 percent interests. A participation network can improve balance sheets by reducing the concentration risk potentially associated with lending in a small geographic region.
Finally, credit unions that wish to commit a greater level of capital to student lending have the option of tailoring a custom program and holding 100 percent of the balance sheet. The originating lender can specify its own underwriting, pricing, market, and brand the student loan products as it wishes. A custom program is a means to deploy balance sheets more efficiently in higher-yielding asset classes such as student loans.
Credit unions need to determine how best to serve and attract members, manage their balance sheets, and maintain appropriate risk exposure. As this asset class continues to expand, so will the opportunity to capture prime millennial borrowers at the beginning of their credit journey. Choosing the right level of commitment – sell, invest, or hold – allows a credit union to find a solution that meets its objectives while providing access to the education financing students need to realize their dreams.
For more information on how LendKey can help your financial institution enable digital lending solutions like these, contact Jason Smith at [email protected], email [email protected], or visit LendKey online.