In 2009, just as many banks were walking away from student lending and the federal government was planning to cut private banks’ role in its lending system, Citizens Bank entered the student loan business.
“Inside of our branches every day this was a very common conversation and our bankers were unable to help,” said Brendan Coughlin, head of consumer lending at Citizens, which has branches all over Fairfield County. “That was really the driving force behind getting in.”
Since then, the bank has expanded its offerings from loans to refinancing substantially. Its student loan portfolio grew approximately 64 percent over the past year alone — to $5.5 billion as of June 30 from $3.3 billion a year before.
With tuition rising faster than inflation and about 42 million Americans now owing more than $1.3 trillion in student debt, Citizens has carved out a niche for itself.
It is one of several banks that saw an opportunity to increase its student lending options in the last few years in Connecticut, according to Christopher Wolfe, managing director at Fitch Ratings, who oversees analysis of North American banks.
Another of these banks is Darien Rowayton Bank, which has focused its efforts on growing its student loan refinancing options.
“They are good loan transactions for us,” said Robert Kettenmann, president and chief operating officer of the bank. “It’s the first piece of what we hope is an ongoing relationship with young people.”
He noted once students graduate and enter the workforce, they are able to build up credit that can help them get lower interest rates. A refinancing relationship can then lead to a future mortgage or other type of loan.
Coughlin said the average customer who chooses to refinance a loan with Citizens is 33 years old and has relatively strong credit. “If you were to draw up a customer we would love to have, that’s it,” he said.
Student debt report
Lend.EDU.com recently created a student debt report using Peterson’s financial aid data released earlier this month for the Class of 2015.
Connecticut ranked first in the nation for average debt per borrower, at $36,865. Here is the average debt for borrowers at area schools:
Yale University – $15,521
University of Bridgeport – $21,200
University of Connecticut – $24,999
Southern Connecticut State University – $27,617
Fairfield University – $38,780
Sacred Heart University – $47,715
Quinnipiac University – $47,873
Citizens has the opportunity to find those refinancing customers in any state, especially in Connecticut. The state was recently ranked first in the nation by LendEdu.com for average debt per borrower, based on Class of 2015 financial aid data released by Peterson’s earlier this month; Connecticut students left school with an average of $36,865 in debt.
Yale University reported the lowest average student debt per borrower of those universities in the state that provided data, at $15,521. And the school had the lowest percentage of graduates with student debt at 17 percent.
Nate Matherson, co-founder and CEO of LendEdu.com, said Connecticut’s ranking was affected by the number of private colleges in the state. “Private colleges are leaving students with more student loan debt at graduation than public colleges,” he said. “I think our study shows student loans are as big a problem as ever.”
Wolfe said there was a shift in how banks saw student lending after federal legislation in 2010 that eliminated private banks’ roles in the federal government’s student lending system.
“With the changes in legislation, they were cut out of it,” he said. “Some banks might have been very active in the federal program, but once that changed, they exited. Some banks have said, ‘Is it really worth it?’ What’s left for the private sector has been small.”
Some banks, like U.S. Bancorp and JP Morgan Chase, have walked away or scaled back their student lending, while lenders such as SoFi, as well as traditional lenders like Rhode Island-based Citizens, have seen the potential for growth.
“We had the ability to kind of come in eyes wide open with some of the common mistakes banks had made and really learning from that,” Coughlin said.
With student lending growth, however, comes increased oversight, Wolfe said. The Consumer Financial Protection Bureauhas been strict in regulating student lending. “They have been tough on the industry,” Wolfe said.
Last week, the bureau fined Wells Fargo Bank for its private student loan practices, including charging customers illegal fees and not updating inaccurate credit report information. The company was ordered to pay a $3.6 million civil penalty and $410,000 in restitution to borrowers.
Also entering the fray are new banks, like digital-only BankMobile. A subsidiary of Customers Bancorp founded in 2015, BankMobile recently purchased New Haven-based Higher One Holdings, which specialized in student checking accounts and is used by entities like the University of Bridgeport for its financial aid refund management.
A web-only bank, BankMobile has no branches, but thousands of free ATMs for its customers, which, thanks in part to the Higher One purchase, is made up mostly of college students and recent graduates. The bank also offers no minimum balances and no fees.
Ash Exantus, director of financial education at BankMobile, said the bank tries to help this population, mostly made up of millennials, navigate the world of student loans.
“We have a financial curriculum that will allow our customers to be educated,” he said. “Student debt is definitely a big issue that needs to be controlled.”
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