LOS ANGELES-At least a dozen credit unions specializing in student loans are licking their wounds as sponsoring universities are abandoning their key lending relationship for direct loans provided by the government.
"This is a blow. It's a big blow," said Gary Perez, president of USC FCU, of last week's announcement by the University of Southern California it was terminating its program that funneled as much as $130 million a year in guaranteed student loans through the credit union.
USC, the University of Texas and other big credit union partner universities are leaving the Federal Family Education Loan Program just as Congress is expected to abolish guaranteed loans, which have become barely profitable in recent years.
A bill to abolish the guaranteed loan program is expected to be joined this week with the controversial health care reform bill in the Senate, which will use a special parliamentary maneuver to pass over the objections of Republican senators. The maneuver, known as budget reconciliation, will allow the Senate to pass the bill with less than the 60 votes needed to overcome a Republican filibuster.
Southern Cal's move came as no surprise to Perez, who has been lobbying Congress against the bill with other student lending credit unions. "It will have a significant impact on USC Credit Union," he told Credit Union Journal last week. "We are, to a large extent, a niche credit union. It's tough when you lose your niche."
Another niche has been so-called private student loans that are not guaranteed but are issued directly to students or families. "We expect to continue that," said the credit union executive.
The $325 million credit union, which more than half of its $260 million loan portfolio in guaranteed student loans, is planning to shift its focus to make up for the loss. "We will make car loans. We will make mortgage loans. We make consumer loans. Just like any other credit union," said Perez.
The guaranteed loans under the FFELP have become less attractive in recent years, Perez pointed out. "The legislative changes made the program less profitable the way the market has been the last two years," he said. With the interest rates tied to various market indices yields have declined from around 6% to 7% to just 2% over the past decade, he explained. "So, it [the University's action] doesn't have the same kind of impact on us as it would have in years past."
