AUSTIN, Texas-Credit unions that have had large and successful student loan programs through the Federal Family Education Loan Program (FFELP) are expressing disappointment, but said they will survive the move by the federal government to cut credit unions and banks out of the program.
But many of them also questioned whether Uncle Sam can really deliver on the cost savings it is projecting.
For James Nastars, SVP of lending for University FCU, here, the new law marks the end of the credit union's participation in a program that meant funding $120 million in loans annually for students attending 200 colleges and universities across the country.
"We were the largest student lender for the University of Texas," Nastars told Credit Union Journal. "We are disappointed we will not be able to continue to serve these members. Students benefitted from incentives by different lenders. We offered to pay their origination fees. There were early forgiveness programs. There were a lot of good borrower benefits that will be lost with the elimination of this program."
Mike Long, chief credit officer for University of Wisconsin CU, Madison, Wis., said the end of the FFEL Program means a transition to other products. UWCU has had a private student lending program since 2006. Long said it will continue to serve its student members with private loans, checking accounts and other assistance "as they move through their years at the university."
"We weren't surprised by the bill becoming a law as it has been talked about for many months," Long said. "In fact, we were planning to exit the FFEL program on July 1, anyway, because the incentives the government was paying us were becoming less; plus the current interest rate environment. Certainly it will impact our student lending program, but this is going into our fourth season doing private student loans. We have $40-million of them on our books and we are happy with the growth in that category."
A Transition, Not an Ending
Gary Perez, president and CEO of USC Credit Union in Los Angeles, the emphasis is on a transition, not an end.
"We have had sufficient time to prepare for the demise of FFELP," Perez said. "We lobbied very aggressively against the change, but it was obvious last summer this was a fait accompli. So we have reallocated the very talented people we have in the student loan department. We don't want to lose them, and we are very proud of the fact this credit union has never laid off anyone. We are looking to move them into development roles," which Perez said would mean outside sales and personal banking, something USC CU has not done in the past.
"We are not going to replace $150 million a year in student loans, and we realize that," Perez continued. "We won't replace that volume in year one, or year two or year three, either. We will be looking to other loans-such as mortgages, consumer loans or commercial loans. But we want to dispel the notion it will be ruinous to USC Credit Union. People are approaching us as if we are going to die. We still are a very fortunate credit union because we have a university charter. We have the faculty, staff and students of USC, and we are planning to meet their needs, even though we don't have another niche product in our back pocket ready to roll out in 30 days."
Muted Optimism on Viability of Private Student Loans
In addition, in contrast to University of Wisconsin CU, optimism elsewhere was muted as to the viability of CUs continuing to offer private student loans. Perez said USC Credit Union is investigating private lending, but noted there is limited demand for those loans at his school.
"We have done some private loans-we have a $15 million portfolio-but our concern is these represent a level of risk that credit unions, I believe, should be a bit wary of," he said. "Unemployment for recent grads is very high right now. I have seen it reported at 25% to 40%, and graduation is the time of repayment. These are unsecured loans being made to young people full of promise, but the fact is they are having a hard time finding meaningful jobs. For that reason, we have pulled back on the reins until we can evaluate our appetite for these products and reduce our exposure."
University FCU's Nastars was more blunt, stating flatly, "There are not any alternatives to participate in student loans."
Nastars said his CU has been debating participating in private student loans, but have not yet made a decision for the same reasons cited by Perez-such loans are unsecured, meaning any lender takes on significant risk.
Nastars said management wishes to avoid a situation where the credit union launches a private student loan program that will be overhauled by the government in a few months. "Also, we want to add a product that will add value to our members," he said.
