Credit unions target students

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 lending.

"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."

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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 said.

"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 have."

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

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

-Susan Wolf