Private Student Loans and Refi Products Can Help Community FIs Tilt Toward a Younger Demographic

You’re probably missing the boat if you’re not searching for fresh winds in mid-February 2025 because if we aren’t in a season of reassessment now — about a month into the Trump administration — then we probably never will be.

One potential action item those in the community bank and credit union space ought to reassess is whether private student loans need fresh emphasis in their product portfolios. With total federal student loan debt standing at $1.62 trillion as of Q4 2024, President Donald Trump and the Republican majority in Congress favor significant changes to the current system.

Those changes start but don’t end with the dissolution of the Department of Education. Significant revisions to deferment programs, repayment structures, and more are also to come. The gist is that the federal student loan system under Trump promises far more stringency than before.

Private student loans and student loan refinancing products can help community banks and credit unions reach the next generation of customers.

How does that impact the subprime industry? We spoke about the implications for community financial institutions with Vince Passione, Founder and CEO of LendKey, a digital platform that connects borrowers with community banks and credit unions to offer private student loans, student loan refinancing, and home improvement loans.

LendKey isn’t the only lending outsourcing partner for community financial institutions looking to get into private student loans. But it stands out as a comprehensive white-label provider that directly markets and facilitates student loans on behalf of its clients.

Passione told us community financial institutions gain a rare dual benefit in building a presence around private student loans and student loan refinancing products. The loans are profitable, he said. But they also point institutions with customer and member bases that are growing older toward the customers and members of the future.

“Credit unions need to get young,” Passione said. “The smart ones are seeing that substantial numbers of student loan originations will eventually turn around and take more product — a student checking account and probably a credit card.”

Passione said a consistent need for a private student loan product has existed since the days when the government allowed private lenders to make federally guaranteed loans. LendKey entered the market in 2009, a year before Congress and the Obama administration transferred student lending to the Treasury and consolidated the number of servicers — ostensibly to reduce costs.

“I’m not going to get into whether they were ever successful — that’s for somebody else to deal with,” Passione said.

Enhanced federal aid options likely reduced reliance on private student loans during the Obama years. Demand increased during Trump’s first term due to policy changes and a general atmosphere of doubt around the federal program’s future.

President Biden had grand designs about student loan forgiveness, which was dashed in the Supreme Court but still managed to forgive more than $180 billion in student loans during his term. But borrowers went on the hook for an additional $300 billion during those years, setting the stage for what looks to be profound change under Trump.

Passione said decision-makers in the community bank or credit union space should think of their student loan products as typical unsecured personal loans from an underwriting perspective. LendKey and others are there to make the opportunity for your organization happen.

 It sets up a perfect generational business transfer, Passione said.

“It all goes back to the fact that regardless of whether federal loans exist or don’t exist, there’s a genuine need for private student loans — there always has been,” he said. “Many of your customers or members are parents who will inevitably start searching for a solution if you don’t offer it.”

Passione said student loans and student loan refinancing products can provide the kind of demographic impetus that can keep deposits coming in as one generation transfers its wealth to another.

He said one of LendKey’s largest and longest-lived clients reported that two-thirds of education loan customers took out another kind of loan within five to seven years. Another had a goal to cross-sell student checking accounts within a year after instigating a loan.

“You understand if you’re a parent — you’re getting your child ready to go off to school,” Passione said.

Meanwhile, once student loan recipients leave school for the real world, they become the up-and-coming jobholders of the future. In that mode, they may apply for refinancing to lower payments during their early, lean-earning years in anticipation of the windfall to come as their careers progress.

Student loan holders often refinance to obtain lower payments during their family- and career-building years.

“Two products our education-refinance clients target for cross-selling are auto loans and mortgages,” Passione said. “Their customers are trying to reduce the expense of their education loans to make room for the next life event.”

You’ll find a lot of talk on the web about how retaining existing customers is less expensive than acquiring new ones. This article even argues that creative retention strategies can make acquisition easier. Passione said the basic concept holds in financial services no matter what stat you attach to the phenomenon.

Savvy marketing and customer loyalty strategies can only go so far before customers and members search for the products and services they need to take the next step in life. Then, it comes time for financial institutions to deliver.

“I hear people ask all the time about how they’re going to get deposits,” Passione said. “You’re going to have to farm — and farming means you have to start earlier.”