The Private Student Loan Lender Value Proposition
Posted by Michael VanErdewyk
College students and their families have learned something the hard way: the average financial gap between federal loan programs and all the scholarship and grant monies that students can receive is about $9,000 a year. Students and families will acquire those funds somewhere, and as my associate Mark Payne, YourLoanAdviser Surety’s President and COO recently explained during a CBA Live panel, if it’s not from your institution, it will be at your competitor’s office down the street. And, yes, the value proposition is there for lenders… for you.
Private student lending is a $9 billion market today, but it’s not a zero-sum game by any means. There is an extraordinary family contribution opportunity in addition to this market that’s yet to be tapped fully. However, this is where students, families and even lenders can, well, learn a lesson no one teaches at school. Too many families are making costly mistakes in the process of making their contributions. How so? Credit cards, retirement savings, refinancing home mortgages and/or dipping into 401Ks are not necessarily the best options for financing higher education.
Lenders who offer their clientele a low-risk, fully integrated and supported private loan program can reach Millennials in an innovative, secure way. There are solid options for lenders to consider, including in-school loan programs or consolidation loan programs. These types of programs, even for those lenders with limited or no experience in student lending, will enable them to confidently meet more of their customers’ financial needs and begin forging life-long relationships with the next generation of customers. In other words, guide and help that college student correctly now and the payoff will extend far into the future.
Keep the ideas below in mind as you determine your strategy for offering a private student loan program:
- You can maintain your best customers by keeping them satisfied and, in the process, expand your customer base to the next generation.
- You can enhance your reputation personally and within the community by making loans to students who will be future customers. They will start out with student loans and then “graduate” to auto loans and home mortgages.
- This is your opportunity to participate and diversify into a customized asset class with in-school, refinancing or portfolio investment options.
Still have doubts? Consider the following:
- The average lifetime earnings of a college graduate is a massive $1.5 million more than a non-graduate
- College graduates have a 50% lower unemployment rate
- Households with incomes of $100,000 or more hold one-third of all student loan debt, which presents a huge opportunity
So, to summarize, you – rather than your competitors – can fill the financial gap between federal loan programs and the scholarship/grant monies students receive. There are safe and reputation-enhancing options for in-school and consolidation loan programs. And it’s a win-win because today’s students are tomorrow’s best customers.
It’s your turn, now. Please share your thoughts and comments below. I welcome your ideas on why lenders should get into private student loan programs.