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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