The Clock Is Ticking: Credit Unions Can Help Struggling Borrowers

The Fed’s recent rate cuts mean both good and bad news for credit unions. Some good news is lower borrowing costs, which enables credit unions to offer more competitive loan rates and attract members seeking affordable options. The bad news is that, as we speak, your members with student loan debt are being aggressively targeted by competitors.

However, credit unions have a unique opportunity to fight back and help their members manage student loan debt through refinancing. By jumping into the fray now, you not only retain your existing members but also attract younger ones, grow your loan portfolios and provide a valuable way to manage their student loan debt so they can start saving for their next life event, like buying a home.

The Student Loan Debt Crisis Isn’t Slowing

Many credit union leaders don’t want to talk about student lending, but as of September 2023, U.S. borrowers collectively owed more than $128.8 billion in private student loans. The average student borrows over $30,000 to pursue a bachelor’s degree, and they need help managing that debt, according to the Education Data Initiative.

Recent data from Equifax reveals the significant impact of student loan debt on credit union members:

• About 20% of credit union members hold a student loan with another lender.
• On average, each credit union member with student loan debt has between three and four student loan accounts.
• The average student loan debt for credit union members ranges from $31,000 to $43,000.

These statistics underscore the growing need for credit unions to address their members’ student loan debt challenges. By not offering refinancing options, credit unions risk losing a substantial portion of their membership to competitors, including fintechs, which are actively targeting this market.

The Credit Union Advantage

Credit unions are well-positioned to offer attractive refinancing terms compared to traditional banks. Their not-for-profit status often allows them to provide lower interest rates and more favorable terms.

Benefits of refinancing with a credit union include:

1. Competitive interest rates and fewer fees;
2. Special perks like rate discounts for autopay;
3. Personalized service due to smaller customer base; and
4. Potential discounts on other financial products.

Partnering for Quick Implementation

For credit unions that lack the in-house resources to develop a student loan refinancing program, partnering with established fintech providers offers a quick and efficient solution. These partnerships allow credit unions to enter the market rapidly without significant resource investment at an appetite that works for them.

Key benefits of partnerships include:

1. Turnkey solutions that handle underwriting, servicing and compliance;
2. Ability to focus on member relationships rather than technical details;
3. Faster time-to-market, often within weeks;
4. Access to expertise in the student loan refinancing market;
5. Flexibility in program design allowing for easy adjustments; and
6. Gain new, young members in their footprint.

Through these partnerships, credit unions can leverage cutting-edge technology and underwriting expertise while maintaining their focus on member relationships. This approach enables credit unions to meet a crucial member need and attract younger demographics while effectively managing risk and resources.

Helping Struggling Borrowers Capitalize on Rate Cuts

It’s important to note that while the Fed’s 50 basis point cut followed by its 25 basis point cut may not directly lead to such a significant rate reduction, it can spark increased interest in refinancing. The perception that rates are trending downward often motivates borrowers to explore their options.

Consider a borrower with $50,000 in student loans at a 9% interest rate and a 10-year term, currently paying $633 monthly. By refinancing to a 15-year term at a new interest rate of 7% (reflecting a more significant drop than just the Fed’s rate cut), their monthly payment could decrease to $449. This adjustment provides $184 in monthly savings, which can make a substantial difference for borrowers managing day-to-day expenses.

Credit unions can further enhance these savings by:

1. Offering competitive rates that fully reflect the Fed’s cuts;
2. Providing flexible term options to suit individual needs; and
3. Minimizing or eliminating fees associated with refinancing.

Educating Members on Refinancing Options

Credit unions also have an opportunity to provide valuable financial education to their members about student loan refinancing.

This education can cover:

1. The pros and cons of refinancing federal vs. private loans;
2. How extending loan terms can provide immediate monthly relief;
3. The potential long-term costs of extending loan terms;
4. The impact of refinancing on credit scores; and
5. How to qualify for the best refinancing rates

Credit unions can help their members make informed decisions and build even stickier, long-lasting financial relationships by providing this education.

The Urgent Case for Action

The student loan refinancing market is poised for increased activity, and the clock is ticking. Credit unions must act now to seize this time-sensitive opportunity or risk losing members to competitors actively offering them refinancing solutions.

Moreover, credit unions can understand their members’ needs and financial situations better than large, impersonal lenders. This insight allows for more tailored refinancing solutions that can genuinely benefit members in the long run.

Whether through in-house programs or partnerships with established fintech providers, credit unions have the tools and resources to quickly implement effective student loan refinancing programs. These partnerships can enable credit unions to offer cutting-edge technology and competitive rates while maintaining the personalized service that sets them apart.

Don’t let this opportunity slip away – the urgent case for credit unions in student loan refinancing is clear, and the time to act is now. By taking swift action, credit unions can retain their existing members and attract new ones, solidifying their position as trusted financial partners for the long term.