Non-bank lenders make up the largest share of the student refinancing market today. These financial institutions have taken advantage of banks’ unwillingness to take risks involved in offering student loans. Let’s see how student lending can benefit non-bank lenders.
1. Greater Access to Customers
Banks typically avoid student lending since they are more risk-averse than non-bank financial institutions. They are concerned about the ability of students to repay their loans in time. Non-bank lenders understand these risks. However, they have designed advanced ways to mitigate them. They do the following to minimize the threats:
- Accurately determine the borrowers’ employability
- Ask for qualified loan cosigners
- Help the borrowers to understand the consequences of defaulting on loans, which includes a decrease in credit score
Through various initiatives such as these, student lending can give non-bank lenders access to millions of qualified customers that banks are working hard to avoid.
2. Higher Chances of Understanding Customer Needs
When non-bank institutions advance student loans, they create more opportunities to understand and meet the customers’ needs. Some of the things they typically evaluate to understand their customers are:
- Repayment patterns
- Default rate
- Past repayment behavior
- Repayment ability
- Credit score
Non-bank lenders who study the clients for a few years can better understand the student lending market. They can use the information to custom-make products for various categories of these lenders, which can directly impact their income after a short duration.
3. Less Overhead Costs
Students are tech-savvy and are more than happy to apply for loans online. Moreover, most of them own tablets, laptops, and smartphones that they can use conveniently to access the service and receive and repay the loans.
Non-bank lenders can reduce the following expenses when dealing with student-borrowers:
- Cost of Furniture
While banks are already creating digital platforms to serve their customers, they must have large offices and halls. They must also hire officers who can help the clients fill the correct forms, make the right decisions, and the likes. Most of the customers can’t use the internet to access most of their services. Due to this, student lending gives non-bank lenders a significant advantage over banks. They can process loan applications remotely and send the money via electronic means, which is essential for increasing the bottom line.
4. Increased Ability to Attract and Retain Young, Energetic Customers
The future of all organizations depends on the reliability of their critical stakeholders like clients. The older generation can be more financially stable but may not have the resources a few years from now. In other words, the decision of banks to avoid student lending might negatively affect their future operations.
On the other hand, non-bank lenders that advance loans to the younger generations can win their hearts today. When this happens, the institutions can trust in their long-term financial and moral support.
5. Greater Opportunity to Make More Profits
Student loans are sometimes costly. Some of the major factors that often determine the cost of these loans are:
- Amount borrowed
- Repayment duration
- Interest charged
- Availability of a consigner
- Credit score
Remember, non-banks endeavor to accurately factor in the default rate when assigning the interest and other costs. This way, if a few individuals default, they can continue realizing their projected income goals. With all these factors, including the high interest, in mind, you can see that student lending offers non-bank lenders the best opportunity to make decent profits.
Now you have it. Student lending comes with several risks but offers non-bank lenders the best opportunity to achieve their business goals. Banks avoid student lending, giving these institutions a more fantastic opportunity to access lots of customers. With proper preparation, non-bank lenders can take advantage of the market’s viability and flourish.