Alternative to Federal Student Loan Program Launched

LOS ANGELES – With massive cuts to the federally guaranteed student loan program moving rapidly through Congress, one large credit union student lender is touting big advantages to private loans. USC FCU is about to launch its own pilot program to make private loans and they hope to market it to other credit unions, according to Gary Perez, president of the $330 million credit union. Launch of the pilot comes as the House last week approved $19 billion in cuts from the federal student loan program, with the Senate expected to follow soon with its own cuts; cuts that will come out of the pockets of lenders. The USC FCU program will have the credit unions originating the loans, servicing them, then marketing them on the secondary market. The loans would have stop-loss insurance while the students are in school. Perez believes they can deliver private loans as inexpensively as federally guaranteed loans, with comparable–if not a little higher–rates. USC FCU will launch the six-month pilot as soon as the end of this month for fall semester students. The pilot will be limited to students at the University of Southern California. The market for private student loans is exploding, according to Perez. From just $1 billion 10 years ago, to $15 billion this year, to an estimated $40--to--$50 billion in 10 years. The main reason, he believes, is the limits on the amounts of guaranteed loans to a fraction of the growing costs of college. “This represents an opportunity for credit unions to make a difference in the future of their members and their families,” Perez told The Credit Union Journal.