Regions Financial Corp. has joined the list of banking companies in the fast-growing private student loan market.
On Monday the Birmingham, Ala., banking company said that it will start offering products originated and serviced by First Marblehead Corp. of Boston in mid-March.
Bruce E. Austin, the executive vice president of student loans at Regions Bank, said in an interview that the $84.8 billion-asset parent company would eventually start originating such loans. The renewable three-year contract with First Marblehead lets Regions create and market its own private student loans, he said.
"We are working on an in-house model," but Regions would not be ready to offer its owns loans until next year at the earliest as it ensures that its systems can handle such loans, he said. "We needed a product to fill this gap for students today."
For now the loans will be marketed largely to Regions' customers within its 16-state market, Mr. Austin said, though there is the possibility that Regions will start advertising the products more widely in the future.
First Marblehead will pay Regions a fee for loan referrals; Mr. Austin would not say how big that fee would be.
Demand for private student loans has risen steadily as tuition has risen more quickly than household income, he said.
During the 2004-05 school year the volume of private loans rose 32% from a year earlier, to $13.8 billion, according to the College Board, a New York nonprofit that offers college admissions, guidance, assessment, and financial aid services. Such loans grew faster than any other form of student aid.
Private loans also grew because the government had not increased federal loan limits for more than 10 years until last year, when legislators increased the limits by a third, to $3,500, for first-year students and by 28.6%, to $4,500, for other students.
However, Mr. Alston said the increase in federal limits would not have "enough of an impact" on private lending, given the steady increases in tuition. The private loan market, which is roughly a third the size of the federal student loan market, has room to grow, he said.
Jeff Davis, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp., said in an interview that it would make sense for Regions to expand its consumer loan offerings, since it has said it is looking to be more cautious with some types of commercial loans.
Private student loans would be "another tool in their tool kit, as far as product goes," Mr. Davis said.
Originating such loans probably would not significantly "move the needle" for Regions' bottom line, he said.
Mr. Austin said Regions is not expecting private student loans to become a major bottom-line contributor. Its Federal Family Education Loan Program accounts for only 0.3% of its $58 billion loan portfolio. However, he said that student loans offer interest rates that are more attractive than many other consumer loans, and that the loans are harder to waive if a borrower files for bankruptcy protection.
Mr. Austin said most other banking companies are offering some type of private student loan; the market's largest participants include Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp.
Regions first discussed a relationship with First Marblehead two years ago, he said. The decision to implement the program was delayed by Regions' acquisition and integration of Union Planters Corp. of Memphis. The acquisition was completed in July 2004.
