ALEXANDRIA, Va.—Despite CU private student loan delinquencies falling well below the overall private student loan market default rate, NCUA said it remains concerned over credit unions and student loan debt.
In its October issue of The NCUA Report, the agency states that total delinquency in the private student loan market is approximately 5%, and CUs stand at 1.3%, according to the latest Call Report data.
“However, most private student loans made by credit unions were in the last five years, and many haven’t reached the repayment phase, making a true picture of their delinquency and default rates difficult to determine,” the agency stated in its newsletter.
Credit union lenders and analysts have shared concerns about rising student loan debt, inability for graduates to find work or high-paying jobs, and have warned about the student lending bubble bursting.
The NCUA report outlined important steps credit unions should take to mitigate risk when making private student loans:
- Establish loan policies with sound underwriting and collection requirements, such as debt ratio limits for cosigners, if applicable; individual loan limits; and school certification of expenses.
- Implement an ongoing quality control process to ensure private student loans meet the credit union’s underwriting standards.
- Provide various limits on such things as the concentrations of loans per school, annual loan growth, and total size of the portfolio to control the level and concentrations of credit risk, especially as a credit union develops experience with this type of lending.
- Develop plans that include exit strategies for parts of the private student loan program, such as schools with high default rates and third parties that are not performing adequately.
- Conduct regular and ongoing portfolio analysis. In addition to evaluating and monitoring traditional portfolio metrics like delinquency rates, credit unions must have strong systems to monitor deferments, forbearances and restructurings, and the performance of specific segments of the student loan portfolio.