WASHINGTON — Representatives from three of the biggest student lenders among credit unions are scheduled to meet with key lawmakers this 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 legislation, which cut both the yields and the subsidies for participants in the guaranteed loan program, provided an exemption — or carve-out — for non-profit lenders, like state agencies.
The credit union lobby's efforts to be included in the carve-out was rejected by Congress.
But the climate has changed significantly since then, with dozens of lenders, including several non-profit state agencies, having either halted or reduced their participation in the program, known formally as the Federal Family Education Loan Program.
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.
Lost Revenue
Last year's legislation, which included a 55 -basis point reduction in the federal subsidy and a reduction in lender yield, cost USC FCU about $1 million on its $110 million a year in student loans, according to Gary Perez, president of USC FCU, which is the largest provider of guaranteed student loans among credit unions. "It's made a very profitable program somewhat less so," said Perez.
Other credit union participants also reported lost revenue and expect even more reductions as the peak season for student lending approaches this fall.
"It hurt us a little bit, but it's coming," said Robert Falk, chief operating officer for Purdue Employees FCU, which made $110 million in guaranteed student loans last year. Compounding the problem for his credit union, said Falk, is the fact that Purdue University has added three new major competitors to its approved lender list; Fifth Third Bank, PNC Bank and Sallie Mae, under provisions of last year's bill that require greater choices for students.
"We're going to lose market share and revenue. That will have a very substantial impact," Falk said.
The credit union representatives hope to convince Congress, which is deliberating over the annual reauthorization of the higher education funding bill, to allow them to take advantage of last year's exemption for non-profit lenders.
The non-profits were afforded a lesser cut, 40 basis points on the federal loans, than private lenders, according to USC's Kim.
Leaving Students in the Lurch
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.
This provides a big opportunity for credit unions, which still make up half of the 2,200 approved lenders for the federal loan program, albeit a much smaller portion, less than 10%, of the dollar volume.
While lawmakers have told the credit union lobby they would have to come up with a way to pay the cost of the move under so-called Pay-Go rules, 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.
The credit union representatives hope to convince lawmakers that by allowing credit unions to claim the spots of those non-profit state agencies it would not require any additional revenues for legislative purposes.
(c) 2008
