CU Compliance Connection

NCUA Private Student Lending

Private Student Lending

Since 2011 credit unions have been increasingly engaging in private student lending: • Private student loan funding has

grown 33%, from $1.5 Billion to $2.0 Billion.

• Four credit union servicing organizations have been created.

Private Student LendingThe complexity of student loans includes:• Long-term maturities with unique

repayment structures;• Deferment periods; and• Origination as a line of credit while

the member is a student and convert to a closed-end loan once schooling is completed.

Private Student Lending

Private student loan risk features are unique:• They are exempt from discharge

during bankruptcy;• Minimal credit history; and• Repayment dependent on the

expectation of future employment and income.

Private Student Lending

Credit unions should mitigating PSL risk by:• Establishing loan policies;• Quality control procedures and

processes;• Loan limits to control concentration

risk;• Exit strategies for facets of the loan

programs; and• Regular and ongoing portfolio

analysis.

Private Student LendingCredit unions should conduct a risk analysis including:

• Field of study and degree;• School attended; and • Graduation year relative to the economic cycle.

The review by cohort should also include:• Graduation rates;• Employment prospects; and • Income potential for student members.

Private Student LendingThe NCUA Field staff is instructed in the guidance to ensure that credit unions meet the requirements of all regulations with specific attention to the credit union’s disclosures, advertising, marketing, lead generation, and referral fees.Truth in Lending Act

Electronic Funds Transfer Act

Fair Debt Collection Practices Act

Privacy Act

Equal Credit Opportunity Act

Unfair or Deceptive Practices

Higher Education Act

Bankruptcy Abuse Prevention and Consumer Protection Act

IRS Internal Revenue Code

US Bankruptcy Code

Private Student Lending

The credit union needs to assess third-party relationships:• Evaluate financial capacity;• Ensure the third party meets all

legal and regulatory requirements; and

• Contract provisions requiring adequate reporting to monitor and account for the PSL program.

Private Student Lending

The credit union must meet accounting and allowance for loan and lease loss requirements for private student loans:• All GAAP requirements; and• Financial Accounting Standards

Board (FASB) ASC 450-20 - Loss Contingencies

Private Student Lending

The credit union must understand default insurance policies.It is imperative that the credit union understands the insurance requirements and has policies, procedures and reporting for appropriate loan evaluation.

Thank you for joining me for this review of the NCUA Private Student Lending

Requirements - Stay Tuned…Shawn Wolbert, CIA, CUCEDirector CU System Relations

101 S. Washington Square, Suite 900Lansing, MI 48933-1703(800) 262-6285 Ext. 486(734) 658-5427 MobileFollow me on Twitter – Shawn Wolbert @ Go2CUGuru