WASHINGTON – Representatives from three of the biggest student lenders among credit unions are scheduled to meet with key lawmakers next week in an effort to claim a place in last year’s carve-out for non-profits from the major cuts in federal student loan subsidies.
The representatives from USC FCU, University of Wisconsin CU and University (Texas) FCU hope to convince Congress to let credit unions replace the growing number of state agencies pulling out of the student loan market among the institutions exempt from the subsidy cuts, according to Michael Kim, head of student lending for USC FCU, which has been especially hard hit by last year’s cutbacks.
Last year’s legislative changes in the Federal Family Education Loan Program, which include a 55 basis point reduction in the federal subsidy and a reduction in lender yield cost USC FCU about $1 million, and other credit union participants in the guaranteed loan program also took major hits.
The credit unions hope to convince Congress to allow them to take advantage of last year’s exemption for non-profit lenders, who were afforded a lesser cut, 40 basis points on the federal loans, than private lenders, USC’s Kim told The Credit Union Journal yesterday.
The bid comes as growing numbers of lenders, both private and non-profit state agencies, are leaving the federal program, potentially leaving millions of students in the lurch. In recent weeks state agencies in Pennsylvania, Iowa and Michigan have halted making the federally guaranteed loans.
While lawmakers have told the credit union lobby they would have to come up with a way to pay the cost of the move, Kim said the loan volume of the state agencies that announced they are leaving the program is roughly equivalent to the amount of student loans made by credit unions–$1 billion a year, thus balancing the cost. He hopes this will convince Congress to include credit unions in the non-profit agency carve-out as they deliberate over this year’s reauthorization of a higher education bill.
