The high cost of college has many young graduates reeling under the burden of student loan debt in a sluggish economy that no longer promises a job as a result of a college degree.
Even so, the traditional American pathway to success – a college education – continues to spawn substantial borrowing for student loans, and some banks see the relatively small market for private student loans as an important segment of lending.
Most notably in Rhode Island, one of those banks is Citizens Financial Group Inc., parent of Citizens Bank, which bought a $59 million portfolio of private student loans from Boston-based First Marblehead Corp. in two transactions this year.
The first sale of $39.8 million closed March 28. The second sale of $19.2 million closed at the end of June. The sale was through First Marblehead’s subsidiary Union Federal Savings Bank, which is based in North Providence.
“We jumped at the chance to work with Union Federal and First Marblehead on this,” said Brendan Coughlin, president of auto and education finance for Citizens Financial Group, who is based in Dedham, Mass.
“We’re very bullish in this marketplace, and we have an appetite to grow in this space,” said Coughlin. “Citizens got into the private student loan space, which is a consumer loan, in 2009.
“It’s a bit of a contradiction because the secondary markets evaporated, but consumers still needed to go to school and some returned to school because they didn’t have a job,” said Coughlin. “We saw a void in the marketplace.”
Still, he said, “it’s a very complicated industry. About 95 percent of student loans are from the government. The remaining 5 percent is from the private student loan space. It’s a small industry, but a very important one to our customers.”
Banks long have been offering student loans, said Charles Kelley, executive director of R.I. Student Loan Authority, a nonprofit, quasi-public agency.
“Banks have always seen student loans as a way of developing relationships with students and families for other products,” said Kelley, who has been with RISLA for 22 years.