Credit unions target students

//June 26, 2008

Credit unions target students

//June 26, 2008

Need a student loan? Then your local credit union wants you.

The current money crunch and rising college costs aren’t
stopping area credit unions from promoting student loans. One reason is to
attract new members and keep the ones they have.

“We do student loans because we need to meet members’
needs,” said David Forbes, assistant vice president of marketing at Belco
Community Credit Union in Harrisburg.

Belco is assuring its members that it’s still in the
student-lending business.

Belco and other area credit unions have picked up borrowers
since the Pennsylvania Higher Education

Assistance Agency (PHEAA) suspended its major loan programs
in February.

“Students can still apply through PHEAA; it is just not
funding these loans,” said Jesus Cruz, Belco’s vice president of lending.

Students and their parents seeking assistance would have to
note a lender’s number on the application when they apply through PHEAA. That number
refers to the credit union or bank of choice. PHEAA processes the paperwork and
monitors the loan.

Belco wants to spread the word to college admission
counselors that loans are available.

“We’ve seen an increase in student lending in the last couple
of years,” Cruz said, although he didn’t provide an exact percentage.

Some credit unions see the market turmoil as an opportunity
to fill the lending gap.

“With PHEAA not doing direct lending, credit unions see it
as an opportunity,” said Mike Wishnow, senior vice president of communications
and marketing for the Pennsylvania Credit Union Association in Harrisburg. “There’s one less player in the
marketplace. A credit union’s meat and potatoes is consumer lending.”

And that’s because gaining and retaining members are the
main reasons credit unions offer student loans.

“Our members need a source for funding education,” said Paul
Wagner, loan manager with Hershey Federal Credit Union. “We want to attract new
members and service the members we have. We try to be a one-stop shop.”

There is little risk but not a lot of profit in student
lending. Interest rates and fees for student loans are usually lower than those
of traditional bank loans. If a borrower defaults, the government pays the
credit union 97-99 percent of the outstanding principal plus accrued but unpaid
interest. In 2012, credit unions will receive 95 percent.

Gregory A. Smith, president of the Pennsylvania State
Employees Credit Union in Harrisburg,
said his organization targets the student population for business. It views
young college students as individuals who will remain with the organization
through new-car buying, marriage and child rearing. That translates into more
lending business.

“We make loans,” Smith said. “That’s what we do. Student
loans give us a tie to the member. We hope to build on that relationship.”

PSECU’s student-loan program was the lead story in its
recent newsletter. The financial institution has a presence on about a dozen
college campuses, including Millersville
University and Elizabethtown College.
In the past six years, PSECU has recruited 55,000 student members.

But student loans are not a big priority for AmeriChoice
Federal Credit Union in Mechanicsburg. In light of current market turmoil and
changes at PHEAA, AmeriChoice has no plans to increase promotion of student

“It’s not a big part of our strategic plan,” said Carol
Fastrich Aranos, vice president of marketing. “We’re not doing anything
different when it comes to student loans.”

Nationally, there are only three credit unions in the Top
100 Stafford and PLUS loan lenders in fiscal-year 2007, said Mark Kantrowitz, a
financial-aid and college planning author, and publisher of the Web site
FinAid.org in Cranberry Township. The three represent less than 0.7 percent of
loan volume for those types of loans.

“To date, a total of 10 credit unions have suspended their
participation in the federal education loan programs,” Kantrowitz said. “While
credit unions may be part of the solution to the student-loan credit crunch,
they are not a complete solution.”

Members 1st starts student-loan program

While many lenders are cutting back on student loans due to
tightening credit, Members 1st Federal Credit Union is unveiling a new private
student-lending program, said Fred Ryerse, senior vice president of lending for
Cumberland County-based Members 1st.

“This is a brand-new
program and unique in the marketplace,” Ryerse said. “There aren’t any others
like it across the country as far as I know.”

The no-fee private loan program, called Credit Union Student
Choice Program, was scheduled to start June 16 and is designed for people not
taking federal loans, Ryerse said.

Members 1st has joined with eight other credit unions to
create the program through a Credit Union Service Organization, Ryerse said.
Combining with other credit unions allows for economies of scale in servicing
the loans, he said.

Students may borrow up to $75,000, at interest rates as low
as 6 percent, he said. Also, part of the program is a graduated repayment
option. Repayment for most student loans must begin within six months of
graduation or leaving school. With the Members 1st program, borrowers will pay
a lower amount the first two years, with a refinancing at the third year.

“Most new graduates are not making a lot of money right
away,” Ryerse said. “This gives them a chance to get established.”

Credit unions have traditionally been involved in student
loans, said Mike Wishnow, senior vice president of communications and marketing
for the Pennsylvania Credit Union Association.

“Credit unions saw an opportunity to attract student loans”
with the tightening credit, Wishnow said. “It is a higher-risk loan because it
is generally unsecured, with no property to collect if they default. But we see
it as an investment in people.”

There are about 600 credit unions in Pennsylvania, he said.

Members 1st can offer this program because it has not been
as affected by the tightening credit as other lending institutions, Ryerse

“All our members and funds are local,” he said. And we don’t
sell our loans on the secondary market, so we haven’t been affected by (the
credit tightening on) Wall Street as much as other financial institutions

The program is expected to benefit students in the short
term, Ryerse said. The credit union also has its own long-term interest in

“We are committed to our student borrowers,” he said. “We
see them as our future members.”

-Susan Wolf