By Ray Birch
MADISON, Wis.—Credit unions should not be overly concerned about borrowers with federal student loans becoming delinquent on their CU obligations now that payments have restarted, says one company, which believes that, in fact, there is an opportunity to be had.
“NCUA just sent a Letter to Credit Unions acknowledging federal school loans are coming back into payment, and to be mindful and offer support to members that may be in need,” said Jim Holt, chief development officer at Credit Union Student Choice. “So, potentially loan modifications and so forth. That that was nice to see.”
But despite those cautionary words from the regulator, Holt does not see a reason for credit unions to brace for a wave of increased delinquencies on obligations these borrowers have with the CU.
“I don't see much impact on credit unions,” Holt said. “I would point out two things: credit unions hold less than one-half of 1% of all student loan balances. because the government holds the vast majority. Even when you narrow it down to just the private school market, credit unions carry just shy of 5%. So, it's minimal there.”
The Second Issue
The second point to consider, according to Holt, is something he said NCUA did not specifically speak to in its Letter to CUs.
“The agency did not address the very robust new repayment plan that was put forth by the government—the SAVE Plan, which stands for Saving on a Valuable Education,” Holt explained. “That new plan can reduce a payment rate down to 0% for anyone making less than $32,800 a year. That's mammoth. So, when you combine that SAVE Plan with the 12-month on-ramp that the Department of Education is already providing borrowers, where they are allowed to miss any number of payments during this 12-month period and the servicer will not report a delinquency…Borrowers have a set of tools that will dramatically ease the burden of making payments again and staying on track.”
What CUs Should Understand
Jim Holt
Holt pointed out CUNA’s economists also do not see a major shock to CU portfolios from the returning student loan payments.
“Credit unions should understand the Department of Education has done a really good job of mitigating any heartburn related to the restarting of federal school loans,” Holt explained.
Holt said he appreciates what NCUA stated in its Letter, for credit unions to be mindful and understand federal school loan repayments have restarted, and for CUs to be proactive in supporting their members.
“I don’t know how many credit union executives clicked on the links in the NCUA Letter that goes to Department of Education information,” Holt noted. “But if they did, they would see these plans the Department has put forward are very robust and will help those federal school loan borrowers ease back into repayment.”
The Opportunity for Credit Unions
Beyond that, however, Holt believes the new student loan landscape presents a business opportunity for some credit unions.
“There is one population of student loan borrowers who are not being helped by this new SAVE Plan, and this is where credit unions can play an active role,” Holt said. “This population is parents who borrowed under the PLUS Loan Plan. PLUS stands for Parent Loan for Undergraduate Student. It is a federal student loan that cannot be pulled into the SAVE Plan.
“For credit unions that's important to know. There are four million PLUS borrowers out there right now who owe about $112 billion for loans that carry some fairly high fixed-interest rates,” Holt continued. “That's the population credit unions can really support with a refinance.”
Holt estimates credit unions can refinance these loans and save borrowers 50 to 150 basis points.
“That’s hundreds of dollars back in parents’ pockets each month. There is opportunity here.”
Holt reminded that unlike federal student loans, private student loan payments were never put on pause.
“Members have continued to make payments, on-time, and the strong underwriting used will continue to make these loans an attractive asset for credit unions,” he said.
$2 Billion Paid Back
Holt pointed out that the CUSO CU Student Choice, which started in 2008, has disbursed more than $4 billion in private student loans on behalf of 300-plus credit unions.
“And half that money has already been paid back in full. The most important number for us is that we've helped over 120,000 members find lending solutions from their community credit union, as opposed to those consumers going somewhere else, such as a fintech,” he said. “We love being able to help credit unions find new members with a private student loan product that Filene research has proven to be very sticky, creating opportunities for other products and services.”