CU Carve-Out Sought From Student Loan Cuts

WASHINGTON – Credit union lobbyists are hoping to convince lawmakers to exempt them from the multi-billion dollar cuts in the guaranteed student loan program that are moving quickly through Congress. CUNA and a hand-full of credit union executives deeply involved in student loans are trying to delineate themselves from the four huge lenders–Sallie Mae and three banks–that dominate more than 75% of the student loan market. The credit union representatives are telling Congress that in cotrast, credit unions are owned by the students themselves, as well as by teachers, staff and alumni, which means that profits from the student loan program are cycled back into the student community. Gary Perez, president of USC FCU, one of the biggest credit union student lenders, said they are worried that a reduction in yields on the loans will fall more on smaller lenders, like credit unions. “Credit unions would be disproportionally impacted because, by and large, credit unions are very small student lenders and do not have the volume to make up for the reduction in yields,” he told The Credit Union Journal. The House passed a bill Wednesday to cut as much as $20 billion from the student loan program, money that will come out of the pockets of lenders in the form of lower rates, cutbacks in subsidies and guarantees. The Senate is expected to follow soon with its own cutbacks bill. The proposals were fueled by the recent scandals in the student loan business in which hundreds of schools were found to have given preferential access to students in exchange for gifts and money from lenders, like Sallie Mae. Sallie Mae, the largest player in the market, has agreed to be taken over by a group including JP Morgan Chase and Bank of America, which will combine the nation’s three-largest providers of student loans.