Vanderbilt Credit Union is piloting a program under which it will make loans to college graduates using a job-offer letter in place of proof of income. The goal is to keep younger members with the credit union by taking on the small risk associated with that loan.
This sort of program is most typically done by credit unions with a strong tie to a university or employer, and thus has a clear window into the applicant's near-term employability.
Mario Avila, chairman of the $49 million-asset Vanderbilt, compared the lending program to graduates that are drafted into the National Football League and get salaries and bonuses based on expectations of what they can and will do rather than because of a strong credit or earnings history.
"We know what their potential is. We've seen it in the market. We know the write-off rates are almost nonexistent, plus we've seen what our alumni are doing in the market and so we're mitigating that risk because of that," he said. "On average they're making $160,000 a year and getting $50,000 bonuses, so we should be able to support them in that process."
The Nashville credit union's research showed that graduates from the school typically pay their loans back within three years, and there is less than a 1% write-off on the loans, Avila said.
"What we see is a need for the students to put a down payment on an apartment or they need to buy new suits. They have to do all these things that no one's thinking about," Avila said.
For some institutions, job-offer letters are problematic because there's no guarantee for lenders that the borrowers will stay with the new employer for an extended period of time, Avila said.
The $248 million-asset Landings discontinued the program when it expanded its field of membership, but its policies allow it to accept offer letters or employment contracts when the borrower is switching jobs in the same or similar line of work.
Landings also waives income verification a lot of the time if it has a personal history with the borrower and/or based on their credit score and credit history.
"For newer borrowers establishing work history and credit, like recent college grads, we have programs to help them establish credit responsibly. We know that not every borrower has a long work and credit history, so we find ways to help our members based on their unique situation," Lee said.
And from the credit union's perspective, it can help keep younger members in the fold.
CrossState Credit Union Association President and CEO Patrick Conway said anything credit unions can do to keep more young people as members is worth looking into.
The group represents credit unions in Pennsylvania and New Jersey, which were the two states that saw the
"Pennsylvania credit unions continue to create products and services that appeal to younger generations and meet consumer needs in a rapidly evolving marketplace. Post-pandemic, credit unions are making good strides to get in front of these populations through programs like financial reality fairs and with new partnerships," Conway said.
Curtis Onofri, chief lending officer for
He said those loans typically carry higher risk than normal, so Pathways sometimes looks for additional proof of income in those cases.
In general, Pathways has a lower review rate on proof of income compared to some other lenders, who apply requirements across the board for all products, Onofri said.
"We try to be more selective on when we require the collection of proof of income," he said. "That being said, it is not unusual for us [to accept an offer letter as proof].
Avila said Vanderbilt Credit Union will usually cap the loan at the borrower's annual salary, which is typically $160,000 or less.
The $89 million-asset
CEO Matt Selke said some employer group-based credit unions in particular do that type of lending because of the close relationship the credit unions have with their members and their jobs.
"That type of lending is old school stuff, but I can see where it could be applied in today's environment," Selke said.
