The statistics on national student loan debt are alarming:
As college tuition costs rise and federal financial aid declines, students are desperately looking for other financing options and financial management solutions. Many credit unions are moving to meet this need.
Private student loans are expected to be a strong growth area for credit unions, according to CUNA’s 2011-2012 Credit Union Environmental Scan. In the past two years, about 500 credit unions started offering private student loans, says Vince Passione, CEO of Fynanz Inc., a technology provider of custom private student lending programs. Fynanz is a CUNA Strategic Services alliance provider.
Banks are offering fewer loans than before the financial crisis, according to Reuters, citing recent Federal Reserve consumer credit data. Some trimmed or eliminated their student lending programs, particularly those highly dependent on securitization markets, Passione adds. Many of these banks still haven’t returned to previous lending levels.
The elimination of the Federal Family Education Loan Program (FFELP), part of The Health Care and Education Reconciliation Act of 2010, opens the market even further for private student lending options. FFELP offered federal student loans through government subsidies at private financial institutions. During the 2007-2008 academic year, more than 6.4 million students and parents at 5,000 higher education institutions originated $55.3 billion through FFELP, or 78% of all new federal student loans, reports America’s Student Loan Providers.
Today, direct loans are the only type of federal student loans offered. But whether these government-backed loans will remain available to all students is in doubt. Among the changes in the deficit reduction legislation President Obama signed last month were cuts to federal loan programs for graduate students, increasing costs for these students by about $18 billion over 10 years, the Congressional Budget Office estimates. The government’s Pell Grant program remains fully funded for now.
The $335 million asset Belco Community Credit Union, Harrisburg, Pa., is one of many that offered FFELP student loans. When the program was cut, the credit union explored new options.
“We had good success with the FFELP program, but when that went away we had a void that we needed to fill,” says Amey Walker, vice president of lending. “It did force us to take a long, hard look at a private student loan program.”
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