An obscure book of business just a few years ago, student loan debt has roared past credit card debt and will surpass $1 trillion this year. Where did this student loan juggernaut come from?
In this economy, consumers are reluctant to borrow for just about everything except college. Many college students—and their parents—still consider an investment in a college education as “good debt” and a doorway to greater earnings potential.
The federal government, however, is less enthusiastic about subsidizing student loans. You could see this in the recent debt-ceiling debate.
As the long-term prospects for the federal student loan subsidy become less certain, the cost of a college education continues to rise. This increases demand for private student loans, which creates opportunities for credit unions.
Credit unions have responded. In the past two years, about 500 credit unions started offering private student loans through Fynanz Inc., a CUNA Strategic Services alliance provider.
Banks also are moving in. Both U.S. Bank and Wells Fargo recently announced 15-year, fixed-rate student loans in addition to their standard variable-rate versions.
U.S. Bank offers a 7.8% fixed-rate loan, but up-front fees could push the rate to 8.46%. Features include an auto-pay discount, deferred payments, and the option to add a co-signer for a lower rate.
Wells Fargo’s fixed-rate student loans have no origination fees and are as low as 7.29%, with discounts for current customers. But if you want to go to a trade school or community college and you don’t have excellent credit, your rate could jump as high as 14.21%.
Our cover story explains how credit unions are riding the wave of increased student lending while helping members manage their debt levels.