By AnnaMaria Andriotis 

The largest credit union in the U.S. by assets has begun offering private student loans, making Navy Federal Credit Union the latest lender to enter a market that is seeing increased competition and innovation.

The Vienna, Va.-based credit union began accepting applications for new student loans on Saturday and is offering to refinance existing student loans. It is the first time the institution, which has more than $64 billion in assets and more than 5.5 million members, has ventured into the private student-loan arena.

The student-loan market has become less risky for lenders in recent years, as institutions tighten their requirements, and it offers the potential to develop relationships with young adults who may be looking for a broad range of banking services now or in the future. Other lenders that have expanded their activity in the student-loan business include Citizens Financial Group and Social Finance, better known as SoFi.

Refinancing especially has taken off as lenders look to poach the most desirable borrowers, those with high credit scores and cosigners, from other lenders. Citizens Financial began refinancing private student loans early last year and began replacing federal student loans with private ones in September. SoFi originated $1.25 billion in student loan refis in 2014, up from $224 million a year earlier. The firm, which refinances private and federal student loans into new private student loans, said it refinanced more than $500 million in student loans in the first quarter of this year.

Unlike federal student loans, which are available to all students and have high default rates, private student loans are exhibiting losses that are low and declining. Gross charge-off rates--the percentage of dollars in outstanding loans that lenders have written off as a loss because they don't expect repayment--fell to 2.42% in the third quarter of 2014 from 3.11% a year earlier, according to the latest data from MeasureOne, a San Francisco-based firm that tracks student loans. That was the lowest level since at least the third quarter of 2008, the furthest back the firm tracks the data.

For lenders including Navy Federal, it is also a market-share play. Nearly one million--or about 18%--of the credit union's members have federal or private student loans, says Aaron Aggerwal, assistant vice president of education lending. (The institution reviewed members' credit reports to come to that figure.) The credit union aims to offer many of them the opportunity to refinance into lower interest rates, thereby closing out a loan that is currently being paid to a competing lender and originating a new one with the credit union.

Navy Federal also expects many of its existing members will need student loans for themselves or their children in the coming years. About half of its members are under the age of 35 and, among that population, more than 500,000 are younger than 18, says Mr. Aggerwal.

Wells Fargo, the second largest private student lender by origination volume, has also been moving to increase originations, banking on the likelihood that its private-student-loan borrowers will come to it for mortgages and other loans when they need them. The lender rolled out loan modifications late last year to offer repayment options to some borrowers who were having a hard time keeping up with their payments--a rarity in the private-student-loan industry and a move Wells said it hoped would foster customer loyalty.

Wells Fargo says the dollar amount of its private student lending has been increasing 5% to 6% on average each year for at least the past three years. The lender sold its portfolio of federal student loans last year in order to grow its private-student-loan business and focus more on its existing customers.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

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