NASHVILLE, Tenn.–The Fed’s efforts to push up interest rates could have an unexpected benefit: pushing more people into credit unions.
Jordan van Rijn, senior economist with CUNA, reminded credit unions gathered here that as “interest rates rise, we tend to see a bigger differential between credit unions and banks. So we might see more people shopping around for the best rates coming to credit unions.”
van Rijn’s comments came as part of a presentation during CU Student Choice’s Empower U Conference here, around the economy and its direction. Among his observations and points made:
- Economic growth in 2018 will be about 3%, and long term, growth is probably going to drop a bit to around 2%. The reason for this is two factors, he said: one is population growth, which has slowed, and productivity growth, which has also declined. Productivity growth from 1950-73 was nearly 4%; for 2017-27, it is projected that productivity growth will be closer to 1.8%.
- There is rising household debt, but mortgage origination volume by credit score data shows mortgages given to people with low credit scores, those below 620, has declined significantly since financial crisis. “It seems like it is much more sustainable now,” said van Rijn.
- In terms of auto loan origination volume by credit score, after declining following the recession the percentage of low-FICO score borrowers has rebounded, but remains below that of 2006-08.
- The Trade War. “We have seen concerns, but not a big impact yet. From the grand scheme of things, initially, it seemed small. But now we have just seen tariffs on $200 billion in goods from China, and China responded with tariffs on $60 billion. “Trade is a really important thing. It’s one of the few things where economists really agree it’s good for the economy. In general, countries open to free trade grow much more quickly and their incomes rise.”
- Consumer Prices. van Rijn pointed to a graph showing product categories where costs have gone down that share a commonality: they have all faced foreign competition. “The prices that have risen are those things that don’t face foreign competition (college, child care, medical care). The more we reduce foreign competition, the more we raise prices for all of us, and that’s our concern,” said van Rijn.
- There is a very strong relationship between what happens in the economy and what happens with credit unions, observed van Rijn, showing a chart highlighting how U.S. economic growth/decline and loan growth/decline walk in lock step. van Rijn said CUNA is forecasting 9.5% loan growth in 2018 for CUs, and 8% loan growth in 2019.
- CUNA Is projecting 4.1% membership growth in 2018, and 3.5% growth in 2019.
- Delinquency rates continue to decline at CUs, with MBL ratios the highest at approximately 1.40% (which has increased slightly recently).
Student Loan Data
On the issue of student loans, which is the focus of the Empower U meeting, van Rijn said approximately 13% of credit unions now offer private student loans, primarily at institutions of more than $1 billion in assets.
“Something to be proud of, I think, is that at credit unions the average annual interest rate on student loans has been around 6.3% in 2018,” he said.
Student loan charge-offs at credit unions have been the second lowest category in credit unions, trailing just first mortgages.
That has come even as overall tuition rates have risen by about 40% since 2000, a point that was raised several times during the Empower U meeting. van Rijn further noted that In 2009, 62% of parents were saving for children’s college; by 2018, that figure had declined to 48%.