By AnnaMaria Andriotis
The nation's largest credit union by assets is venturing into
private student loans for the first time. The move comes as
competition heats up in a market that many lenders had fled amid a
spike in loan losses during the financial crisis.
Navy Federal Credit Union is accepting applications for new
private student loans. It also is offering to refinance loans made
by other private lenders and the federal government.
Lenders are turning to the private student-loan market in part
to find new, young customers to whom they can sell other
more-lucrative loans and services. The business became less risky
for lenders in recent years as they tightened requirements.
Citizens Financial Group Inc. and Social Finance Inc., better known
as SoFi, also have recently expanded their presence in this
market.
Unlike federal student loans, which are available to all
students and have high default rates, losses on private student
loans 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, based on data from major lenders. That was the
lowest level since at least the third quarter of 2008, the furthest
back the firm tracks the data.
The entrance of Vienna, Va.-based Navy Federal, with nearly $67
billion in assets, adds a significant new player to the market.
Almost one million of its more than 5.5 million members have
federal or private student loans from other sources, based on
information in their credit reports, said Aaron Aggerwal, assistant
vice president of education lending.
Navy Federal also expects many of its existing members will need
new student loans for themselves or their children in the
future.
Wells Fargo & Co., the second-largest private student lender
by origination volume behind SLM Corp., has also been moving to
increase originations. The lender rolled out loan modifications
last year to offer repayment options to some borrowers who were
having a hard time keeping up with payments, a rarity in the
private-student-loan industry and a move Wells said it hoped would
foster customer loyalty.
New private student loans for undergraduates and graduates
attending college totaled just over $7 billion for the 2013-14
academic year, the third consecutive increase since the market
bottomed out in 2010-11, according to MeasureOne.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
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