LendKey creates a new market for student loans
A financial commitment from Apollo Global Management, a leading alternative investment manager, will make available up to $1 billion through its subsidiary MidCap Financial for the redemption of refinanced private student loans issued by credit unions through LendKey, the New York-based technology platform that serves 305 community financial institutions.
The agreement, announced today, creates a first-of-its-kind private secondary market for loans that already meet credit union underwriting standards and will retain the identity, brand and member relationship of the issuing credit union even after the sale of the loans. , according to Vince Passione, CEO of LendKey.
“We have created a liquidity market for some of our credit union customers that allows them to maintain their longevity in the student loan market,” Passione said. “We think it’s a big win for everyone.”
Beginning in 2009, LendKey provided origination and consolidation loans to private students on an exclusive and participation basis for credit unions. The ability to sell a portion of these loans in the secondary market provides participating credit unions with a third option that provides fee income to the lending institution while freeing up credit union capital for additional uses, explained Passionate.
“About 650 credit unions sell their student loans to Sallie Mae, which is a bank that then begins to market other financial services to borrowers,” Passione said. “Apollo is a financial buyer and treats its assets as such. To the best of our knowledge, this is the largest financial commitment of its kind in the secondary market. »
The $100 billion student loan market needs more refinancing options, Passione said. Since 1999, student debt has increased by more than 500%. Average student debt is at an all-time high of $33,000 per student with interest rates above 7%. In addition to helping credit unions, Apollo’s commitment of $160 billion in assets through MidCap will allow LendKey to develop new products and expand online offerings.
The partnership began with a survey of Apollo executives about investment opportunities in credit unions, Passione said. Offering student loan refinances initially made the most sense, and the quality of credit union assets made member-owned financial institutions an attractive target.
By targeting student loan refinancing first, LendKey can help borrowers reduce high interest rates and bring more assets to credit unions. Since its founding six years ago, the company has also brought about 20,000 new members into the credit union fold through its marketing efforts for student loans at more attractive rates, Passione added.
“Credit unions have the lowest cost of funds and the best member relationships,” Passione said. “Apollo said it will continue to work with credit unions with any other lending vehicles they wish to offer.”
Read more: Partnerships like LendKey’s latest can be difficult to form…
The LendKey executive noted that such relationships are difficult to establish, which is why the company chose to explore refinanced loans first. The move is also intended to provide critical assistance to borrowers and co-signers looking for more reasonable loan rates while attracting them to the credit union market, Passione said.
“We reach some seven million members with the 305 community financial institution relationships we have, and the last thing we want to see our credit unions do is lose their members to other service companies,” said he added. “We believe this service is just in time.”
Part of the draw is the increased interest in online loan options, especially for Millennials who have student debt, as well as their baby boomers and older parents and relatives who co-sign loans. Consolidating and refinancing student loans offers the ability to combine multiple higher-interest loans into single loans with more reasonable rates, making them more reliable and attractive assets for the secondary market, Passione said. .
In addition to private student origination and consolidation loans, LendKey has begun to expand into other loan products. On April 3, the company launched an auto loan program in partnership with TrueCar Inc., a Santa Monica, Calif.-based auto shopping concierge service that offers car buyers guaranteed discounts based on national average prices of the make and model.
Participating borrowers receive coupons representing guaranteed prices from TrueCar and coupons with loan amounts approved by LendKey credit unions which they then bring to the dealership at the time of purchase.
LendKey has also expanded its New Jersey-tested “Green Loans” construction loan program into a true unsecured home improvement loan program. The company plans to relaunch the program nationwide later this year, Passione said.
“We followed the request from our credit unions and listened carefully to what they wanted,” Passione said. “They are great partners.”