A Tale of Two Credit Unions (in San Antonio)

I had heard through the grapevine that Sallie Mae was looking to expand their referral programs to boost their Smart Option Loan volumes.  As blog readers are aware, Sallie Mae significantly missed their origination expectations for the private credit Smart Option loan product in the third quarter.  As I was researching these referral arrangements, I saw that a credit union in San Antonio, Security Service Federal Credit Union was promoting the Sallie Mae Smart Option loan.  In case there was any doubt about the relationship, this footnote was helpful in describing the referral arrangement:  "Sallie Mae Smart Option Student Loans are made by Sallie Mae Bank®. Security Service Federal Credit Union is compensated for the referral of Smart Option Student Loan customers."

What's interesting about San Antonio is the fact that another credit union in town, San Antonio Credit Union, also offers private student loans through the Credit Union Student Choice program.  Here is the tale of the tape on the two loan programs:

Features	San Antonio Federal CU	Security Services Federal CU
Name of private credit product	Credit Union Student Choice	Sallie Mae Smart Option
Interest Rate Range	LIBOR + 1% to LIBOR + 4%	LIBOR + 4% to LIBOR + 14%
Current Starting Rates	6% Floor Rate	4.25% to 14.25%
Avg. Interest Rate	6.0%	10.25%
Fees	None	0% to 5% Disbursement Fee
Repayment Options
Full deferral during in-school period	Yes	No
Interest payments in-school	Yes	Required
Pay principal + interest immed.	Yes	Yes

Seems like a pretty easy choice for consumers, doesn't it? 

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This recent article in Credit Union Times suggests that many credit unions are weighing the pros/cons of having their own private loan product versus a referral program.  Many seem to be thinking that a referral program gives them the opportunity to "try out" having a private loan product. 

Here are some other credit unions that have referral programs with the Sallie Mae Smart Option Loan product:

• River Cities Community Credit Union
• Local 170 Teamsters Federal Credit Union
• Purdue Employees Federal Credit Union
• Lanier Federal Credit Union

Comments

[Doug S.]

Any idea what the approval rate is on these loans? Low rates are great but the question is how many applicants actually get approved for those rates.

Given that Libor is currently at 0.25% it looks like the San Antonio Federal Credit Union rates are a little misleading. Given the 6% floor rate it appears that students are going to pay at least 5.75% over the libor rate (higher than their stated range of Libor+1% to Libor +4%). In fact a Libor+1% borrower would need Libor to go up to 5% before they would not be limited by the floor, Libor has not been at that level since 2007.

[Scott P.]

The standard CU Student Choice program goes down to 620 fico on the student (660+ for co-borrower) so you can compare that to other programs and determine which approval rate will be higher.

As stated, the floor for SACU is at 6%. Meaning, for example, a LIBOR + 5% will automatically start at 6%. In this example, it will remain at 6% until libor is greater than 1.0%. Given interest rate forecasts, what happens when LIBOR "normalizes" to somewhere between 2% and 4%?

Given the above data presented, your interest rate outlook, and the expected life for these loans...which loan would you rather have? Pretty clear to me.

Scott @ CU Student Choice

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Two credit unions are providing free access to home banking via mobile consumer devices, the latest ploy for retaining their online customers.

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