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Six Reasons for Banks and Credit Unions to Consider Creating a Private Student Loan Asset Class

Posted by YourLoanAdviser Staff

The Private Student Loan asset class, often overlooked by banks and credit unions, is actually a valuable, low-risk asset class that offers solid returns and can help banks/credit unions promote long-term relationships with their current customers. Below are six reasons to consider creating a student loan asset class.

1) Banks and credit unions seek good return on investment with minimal risk, and this asset class can help meet both goals.

How? Private student loan assets can deliver immediate cash flow and ROI, including building diversification to a lender’s portfolio by providing a refinancing option for student borrowers. Also, the strict underwriting criteria in place for private student loans foster a less-risky asset for lenders. A recent report by MeasureOne about private student loans revealed that the percentage of loans more than 90 days delinquent is at just 2.5%. Lenders can self-reserve money to cover such defaults or can turn to YourLoanAdviser to insure for these defaults. In fact, insurance can provide up to 100% principal and interest of the loans in default.

2) Private student loan programs help banks and credit unions attract new customers and then retain them, introducing them to additional products.

Lender-customer relationships have to start somewhere, and they often do so with student loans, paving the way for the lender and customer to grow together as the student becomes a graduate, an employee, and perhaps an entrepreneur, car buyer, homeowner and parent. The time to embrace and support the next generation is now, when they’re students.

3) There’s no denying to the gap in financing higher education; in fact, after tallying federal money, scholarships and grants, there remains an average $9,000 gap that parents and students must fill.

Helping to fill those gaps provides banks and credit unions a tremendous opportunity to secure a customer for the long run, especially as that average gap continues to grow on an annual basis. Little known fact: Private student loans are a growth market, as current federal student loans exceed $120 billion to just $8 billion in private loans.

4) Private Student Loans consistently perform better in terms of repayment than federal student loans.

The default rates on federal student loans are higher than those of private student loans. Why? Private student loans are based on solid underwriting standards, with funds based on the cost of education and distributed directly to the educational institution.

5) Students and parents need to fill the gap.

They should come to you – and not your competition. The reality is that many lenders have shied away from entering the student loan market either due to inexperience or the complexity of providing student loans. YourLoanAdviser offers lenders a low-risk solution that spans from origination and servicing through to program design, analytics, default prevention, claims payments and insurance.

6) Ease of implementation is vital.

Choosing the right third-party provider will enable your institution to offer a complete student loan product, from origination and servicing to default prevention and insurance… without having to build the infrastructure. That’s where YourLoanAdviser comes in. YourLoanAdviser is the only all-in-one provider, supporting lenders from beginning to end.

“As the capital markets continue to search for quality investments, banks and credit unions can take advantage of how they want to position themselves in this market,” said Mike VanErdewyk, CEO and Chairman of the Board at YourLoanAdviser. “They can make and hold loans on their balance sheet and, when and if appropriate, sell them to an investor. The time is now and YourLoanAdviser can bring all the players to the same table where everyone wins, most importantly the students.”

Check out the The YourLoanAdviser(R) Solution.

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