Student Lending Can Be Enticing, But It Also Requires An Education

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WASHINGTON-Credit unions considering private student lending should first determine if they have the staff, expertise, and risk tolerance to make the move-or work with a partner.

That is the recommendation of Mike Weber, VP of marketing for Credit Union Student Choice, who stressed there are intricacies involved with making school-certified private student loans.

"Entering this business mandates working with a partner of sorts," said Weber. "Obviously risk is a huge concern. You really have to understand the risks that come with making these types of loans."

Wright-Patt CU in Fairborn, Ohio, and Apple FCU in Fairfax, Va., work with Student Choice and told Credit Union Journal it would not attempt private student lending without a skilled partner.

Making a school-certified loan cuts down the risk to both the credit union and the member, asserted Weber. "Obviously credit approval is the big part, but underlying documentation needs to be checked. You take the loan request, send it off to the school where the student is attending, and then the school financial aid office performs a certification to make sure the student is fully enrolled and making academic progress."

Weber pointed out that it is important the school certifies the amount of money being requested in the loan is in line with the price of tuition, less any subsidies the student is receiving, such as financial aid. "You are making sure students are not getting into debt they don't need. The schools tell you when they would like the money sent and money is dispersed to the school on the date they request."

The process also helps reduce fraud. "You are eliminating the situation where the student may not actually be going to the school or using the funds for other needs."

Weber contended that it is very difficult for a credit union to manage this process, and that Credit Union Student Choice, which recently signed its 200th credit union client, handles this for its partner CUs. "The higher education world uses a variety of methods to perform school certification. So as a lender you have to be able to work through the channels the school demands, which can be complicated."

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