WASHINGTON - A bid to get credit union non-profit lender status for the federally guaranteed student loan program has been rejected by lawmakers, even as they struggle to stem the exodus of lenders from the Federal Family Education Loan Program.
“It came down to a cost issue, under the Pay-Go rules,” said Michael Kim, head of student lending at USC CU, one of several credit union executives who made the pitch to Congress.
The executives, representing the nation’s biggest credit union participants in the FFELP, asked Congress to give them the same status as state agencies and other non-profit student lenders, which would make them eligible for higher subsidy rates. The credit union representatives hoped that the exodus of dozens of non-profits from the program in recent months would let them assume the place of the exiting lenders.
But lawmakers couldn’t justify the cost, according to Kim. Under so-called Pay-Go, or pay as you go rules, new programs must be offset by cost reductions elsewhere.
Lenders have been pulling back or leaving the FFELP in recent months because of last year’s legislation, which set the higher subsidy for non-profit lenders. The bill lowered both the guaranteed interest rates and guaranteed portion of the loans, cutting margins for all lenders.
Credit unions make up about half the 2,200 lenders approved for participation in the federally guaranteed program, according to the Department of Education.
