Underwriting Loans to Members with Outstanding Student Loans

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BY BOB SCHROEDER

Screen Shot 2014-11-18 at 3.00.10 PMBefore Lending Solutions Consulting Inc. (LSCI) provides on-site consulting services with credit unions, we conduct a portfolio analysis. We review loan policies, pricing and approximately seventy-five loan files including delinquencies and charge offs. This is where we identify opportunities to make a positive impact on a credit union’s net income.

We like to compare our portfolio analysis to the exam one receives at the doctor’s office prior to a diagnosis. When conducting reviews of delinquencies and charge offs, I see a much higher percentage of members with student loans than in the general population. This tells me that these members are struggling, and credit unions may not be addressing student loans properly in their underwriting.

Are student loans a bubble? I’m hearing this concept discussed in the media. As I travel around the country it is not unusual to see borrowers having $100,000 or more in student loans. According to the Federal Reserve statistics 3.5 percent of the 37.5 million student loan borrowers owe more than $100,000 in student loans. The average student loan debt per borrower is $25,000. Outstanding student loans are now greater than credit card debt and auto loans in America. How do you address student loan obligations in your loan underwriting? When you see a member with student loans, what guidance do you offer your staff or the member? 

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