WASHINGTON—College is more important than it’s ever been—and so is getting the financing piece right, according to one person.
Yet on the part of both credit unions and potential student loan borrowers, there remain numerous misconceptions that can be costly to both parties.
One such myth that Mike Weber says often hears is, “College isn’t worth it anymore.”
Weber, chief marketing officer of Credit Union Student Choice, responds to that by saying, “That is completely not the case. College is more important than it’s ever been.”
As an example, he cites Labor Department statistics that show Americans with a four-year college education earn twice as much than those without one.
That means not obtaining a college degree can mean as much as a half-million dollar difference in earnings over a lifetime: $1.2 million for a college graduate as opposed to $580,000 for a high school graduate, said Weber.
As a result, Weber believes the ROI is apparent on student debt.
Weber’s remarks are part of a CUToday series on “fake news” in the credit union community—myths and misperceptions that may require some rethinking by industry executives.
“Is it expensive?” Weber asks of college. “Of course, it is.”
Mitigating the Cost
But there are ways to mitigate the cost, such going to a junior college for two years before transferring into a four-year school.
Another statistic Weber points to is that as of 2014, employment for those aged 20-24 was 20% higher for college graduates than high school grads, and unemployment was just 6.7% for college grads (though he grants some of those may have been underemployed) versus 19% for graduates of high school.
Another myth Weber said he often faces is “these loans are never going to get paid back.” That’s largely a hangover from days when the federal student loan program had no underwriting, he feels. But the reality is “the vast majority will be paid back.”
Credit union student lending is private, not public, he noted, adding, “Underwriting matters a lot.”
It’s important, too, he said, not to follow the model of a decade ago that resulted in a significant number of bad loans, which was the practice of pooling loans and securitizing them into what ultimately proved to be investments that performed in much the same way as many troubled mortgage loans.
Nearly 300 Credit Unions Involved
Credit Union School Choice, a CUSO, manages student lending (both in-school and refinancings) for 270 credit unions, and the important difference is that all those student loans remain in a credit union’s portfolio.
“Our portfolio performance is excellent,” Weber told CUToday.info. Ninety-day delinquencies are currently less than 1%, with charge-offs similarly low. More than 10,000 student loans have been paid in full.
“When done correctly, it’s a good loan for credit union members,” he said.
Another myth Weber said he frequently confronts is that student debt burdens are preventing young adults from getting other loans, he feels.
“The reality is much different,” Weber said, pointing to TransUnion data that indicate those aged 18-29 who have a student loan “have lower delinquency rates on new accounts than those without student loans.”
'Definitely Not True'
Credit union executives aren’t without misconceptions of their own, too, said Weber. Among those he said he hears is that “these borrowers are like having an indirect loan’’ that is, one relationship members.
“That’s definitely not true,” he said.
Student Choice researched 8,000 borrowers at ten of its credit union clients and found that 65% of these had checking accounts at the credit union, 21% had credit cards, and 10% had obtained car loans through their institution.
A better metaphor than indirect lending would be family lending, he said. About 95% of in-school loans have a co-borrower. In 90% of cases it is mom or dad, and mom or dad is likely to be a member of the credit union already.
Since the loan is on the books for the length of years it takes to be paid off, credit unions have plenty of time to market additional services or loans to the student loan borrower.
“It’s not an indirect situation,” he said. “It’s a real opportunity to develop that relationship.”
—Mark Fogarty