WASHINGTON -
CU lobbyists were urging Congress to look at credit unions differently than it does the giant monoline lenders, like Sallie Mae, and the giant banks which dominate the student loan market.
The move comes as the Senate was expected to pass a student loan reform package that would reduce subsidies, guarantees and insurance on student lenders. The initiative, which would cut revenues paid by the government to student lenders, was given high priority recently after disclosures that hundreds of colleges are accepting fees from lenders to push their products; and as Sallie Mae, the biggest player in the market, is being acquired by two of its giant competitors, JP Morgan Chase and Bank of America in a $25 billion takeover.
Those three players, and Citibank, own more than 80% of the student loan market, according to the Department of Education. While as many as 2,000 credit unions continue to offer some kind of student loans, only a handful: Purdue Employees FCU, University of Texas FCU, USC FCU, Navy FCU, Notre Dame FCU and University of Wisconsin CU, have significant portfolios over $25 million or so.
Dean Sagar, a senior lobbyist for CUNA, said they are trying to delineate credit unions, which hold a small portion of the market, from the giants. Under this strategy, credit unions would be exempt from some of the cuts. The credit unions hope to distinguish between monoline lenders, like Sallie Mae or NelNet, who only provide the single product to campuses; and credit unions which provide a full range of financial services to students and the surrounding communities.
CUNA has emphasized that only CUs 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, CEO of USC FCU, one of the biggest CU 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 volume to make up for the reduction in yields," he said. Perez believes the federal cuts, which are targeted at the Federal Family Education Loan Program, will provide new opportunities for credit unions to make private loans. In fact, USC FCU is about to launch its own pilot program to make private loans and they hope to market it to other credit unions.
The program will have the credit unions originating the loans, servicing them, then marketing them on the secondary market.
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 USC-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 10 years from now. The main reason, he believes, is the limits on the amounts of guaranteed loans to a fraction of the growing costs of college.
