Across America, many current and future college students are enjoying a brief respite from their academic pursuits, basking in the carefree days of summer as only a young adult can. Unfortunately, those “carefree days” will come to a crashing halt when their thoughts, and those of their parents, turn to the unenviable task of how they’re going to fill the financing gap that is often left behind after scholarships and federal student loans have been exhausted. With home equity loans drying up due to plunging home values and fewer student lenders in the market, the always difficult task of filling funding gaps has become even more challenging for families. Thankfully, thousands of students will find a new option this fall that has never before been offered to them: credit unions.
Gone are the days when a credit union only represented free checking and a good deal on a used car loan. By July 2009, more than 70 credit unions across the country will be offering private student loans as part of the Credit Union Student Choice network. And more importantly, these credit unions are bringing along the ideals, philosophy, and business model that will allow them to offer fair-value credit to a market that is in dire need of just such an offering.
“The collapse of the secondary market, ensuing credit crunch, and continued economic turmoil—coupled with the President’s proposed changes to the Federal student loan program—have delivered one hit after another to traditional student lenders,” said Jon Jeffreys, President of Credit Union Student Choice. “And at the end of the day, students and families are left paying the price. With their unique business model and commitment to serving their members and communities, credit unions have an incredible opportunity to fill this void.”
Opportunity Amidst Crisis
MIT, Harvard, Wharton, Stanford . . . while the names are synonymous with professional and political success, these premier institutions have also have also found themselves at the epicenter of student lending turmoil. Traditionally, the largest student lenders relied heavily on securitization to access funds. When those markets became dislocated, many lenders either retreated altogether or raised their rates and fees significantly to make a profit. According to Student Lending Analytics, a financial aid research and consulting firm, approximately one third of the private student loan volume disbursed in 2008 could be gone in 2009. If this transpires, students across the country could find themselves short roughly $6 billion. Despite these serious funding shortfalls, most U.S. students seeking a private student loan can still locate options with some additional legwork.
However, this is not the case for international students attending schools in the U.S. It is close to impossible to find a loan that doesn’t require a U.S. co-signer, effectively ensuring that many international students will go wanting for funds. For example, last November, Citibank canceled its Citiassist international student loan program which was the primary source of funding for international students at numerous schools nationwide. Citibank did not make exceptions for schools with historically low default rates—it simply canceled these programs across the board. Many schools including MIT, Harvard, Wharton, Stanford, University of Virginia’s Darden School of Business, and Emory’s Goizueta School of Business have been deeply impacted by business decisions of traditional student lenders and found themselves in a crisis—until credit unions stepped in.
Over the last three months, Credit Union Student Choice has worked with credit unions to develop custom private student lending programs for these hallowed names of higher education—places where a credit union has never before played such an integral role. In several situations, such as MIT and Harvard, long-term credit union relationships are being expanded in new directions, while in others, such as Stanford’s Graduate School of Business and Star One Credit Union, brand new relationships are being built.
According to Kevin Collins, Senior Vice President, Lending Services at Star One Credit Union in Sunnyvale CA, developing a custom loan program for Stanford University gave the credit union an amazing opportunity to leverage its balance sheet lending capability and cooperative structure to deliver superior economic value to Stanford students at a time of critical need while enhancing the credit union’s value to the entire Stanford community.
“As a credit union, we have a unique business model that makes us perfectly suited to meet the private loan needs of graduate students at the Stanford Graduate School of Business,” said Collins. “Credit unions haven’t been afforded opportunities like this in the past and we are thrilled at the chance to develop productive long-term relationships with students who will become tomorrow’s leaders .”
Historically, most colleges had never before considered credit unions as a source of financing for students. “The common impression that colleges had about credit unions was that they were small lending organizations with a mysterious business structure that wasn’t sophisticated enough to handle student loans,” said Scott Patterson, Executive Vice President of Credit Union Student Choice. “After all, the credit union model is not often studied within the walls of our nation’s business schools. Today though, because of the ever-increasing credit union presence and the need for alternative educational funding sources, colleges all over the country are learning that credit unions are nothing like large student lenders such as Sallie Mae, Student Loan Corp (Citigroup), or Wells Fargo. And in today’s environment, this differentiation in business models and philosophy make all the difference in the world.”
From the Ivy League to the Big Ten, and All Points In Between
Since launching in May 2008 with seven credit unions, CU Student Choice and its turn-key solution has now helped credit unions fund nearly $27 million in school-certified private student loans, helping more than 2,500 students attend the college of their choice. Students at nearly 600 different colleges and universities have borrowed from a credit union involved in the Student Choice network—a fact that is not lost on these institutions of higher learning.
In fact, credit unions are now seeing their lending and relationship-building efforts pay off as colleges begin to recognize the quality and value of their product. One such example is NuUnion Credit Union of Lansing, MI, who was one of the original seven credit unions that launched the Student Choice program. The credit union was recently informed by Michigan State University that the credit union would be listed as a recommended lender for current and future MSU students, alongside such names as Sallie Mae, Citibank, Wells Fargo, Chase, and PNC Bank.
“This is a huge step for our student lending program and a fantastic opportunity to elevate the role of NuUnion in this community,” said Teresa Mayer, Vice President of Lending at NuUnion. “We’ve always held a firm commitment to financial literacy, and now we’ve created a greater opportunity to connect with and educate young people and their parents in our communities. We’re getting affordable resources to the people who really need them.”