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CUs fill void as student-loan lenders retrench
CHICAGO (7/9/09)--Credit unions' student lending programs have gained the attention of The Chronicle of Higher Education. With traditional student loans in short supply as lenders retrench through the economy, credit unions are stepping into the opportunity of private student lending, Credit Union National Association Senior Economist Mike Schenk, told the publication (July 10). "It's very clear that in general, while other lenders are retrenching and scaling back, credit unions are lending more and more," Schenk said. Twenty-two credit unions in Connecticut have signed onto private loans since June, when Connecticut passed a law providing a partial guarantee for private loans credit unions make to students who are state residents or who attend college there. Fifteen credit unions in New Jersey pooled $50 million so they could make private student loans, New Jersey Credit Union League President/CEO Paul Gentile told the Chronicle. Very few of them were offering private loans before the group collaborated. Several other states' credit unions have expressed interest in the program, he said. Others offering the loans include USC CU at the University of Southern California, Los Angeles; Harvard University Employees CU and MIT FCU, both of Cambridge, Mass.; and Stanford FCU, Palo Alto, Calif., (News Now April 17, Jan. 26, June 11). Some of the programs offer specialized graduate student loan programs for international students who don't qualify for federal aid. And Credit Union Student Choice, a credit union service organization (CUSO) that provides turnkey private student lending services to more than 82 credit unions nationwide, has noticed the uptick in interest among credit unions. Those 82 credit unions have made about 3,000 loans, with an average rate of 5.8%. None of the credit unions charged origination fees. Other lenders typically charge 0% to 6% in origination fees, said Michael J. Weber, vice president of marketing at Credit Union Student Choice. In the Chronicle's article, Weber noted that there's been more discussion and activity among credit unions about student lending that ever before. On Tuesday, Credit Union Student Choice announced the creation of two new staff positions to help develop its program and accommodate the increase in business, according to a press release from the CUSO. Why the interest in student lending?
* Credit unions' membership is aging. Student loans help attract the younger set. * Credit unions didn't sell loans on the secondary market, so now they're in good position to offer the loans--unlike the big banks that watched their secondary market dry up. * Credit unions realize it's yet another opportunity in a bad economy to show how they come through to meet their members' needs.
Meanwhile, 31 Democrats said in a letter Tuesday that rather than ending the Federal Family Education Loan (FFEL) program--the major federal student lending program--Congress should look at alternatives. President Barack Obama's Fiscal Year 2110 budget would end the program and shift all federally backed student loans into the government-funded Direct Loan Program. It would make funding for Pell Grants mandatory (Congress Daily AM July 8). Among those signing the letter were Reps. Paul Kanjorski (D-Pa), Stephanie Herseth Sandlin of South Dakota, and Allen Boyd of Florida. The letter said that jobs in the legislators' states were at stake. The congressional publication said the letter could boost an alternative plan from a coalition of student lenders that includes nonprofit, state-based guaranty agencies. The alternative plan, based on a proposal that Sallie Mae made earlier this year, would preserve an originating and servicing role for private lenders but use capital from the federal government to make student loans.
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