Students in America have found a saving grace in credit unions, as they help to alleviate the country’s student loans debt of US$1 trillion.
While many banks have began to shy away from the student loans market, credit unions are still committed to providing fixed rate loans for students struggling with debt.
Student loans have now surpassed credit cards as the biggest source of unsecured debt in America, it is estimated that approximately 27 per cent of student loans are in arrears and privately funded loans can have interests of up to 14 per cent.
USBancorp and JPMorgan Chase are just two of the traditional banks that have stopped or heavily reduced their student loan applications
Many students are also being caught up with financial companies that offer all-purpose debit cards that can come with devastating fees. Often these companies are hired by colleges to pay out students’ financial aid.
Private students loans are used to bridge the funding gap in higher-education after all federal options have been exhausted.
Through a big act of co-operation a network of over 130 credit unions launched cuStudentLoans nationwide in February last year as an alternative to the big banks that dominate the private lending market.
The credit unions all offer one loan with common underwriting and pricing, and students could be paying less than half the interest rates of the traditional banks, at 4.75 per cent to 7.25 per cent for consolidation loans.
"Students today face challenges in higher costs and less aid when financing their higher-education," said Alice Stevens, Chair of cuStudentLoans, LLC. "Credit unions are happy to answer the call and help these students reach their educational goals through responsible lending."
cuStudentLoans started in New Jersey to provide responsible higher-education financing to students and families living in the area. They linked with Fynanz, the leading technology provider of web-based student lending networks and now run programmes to help with debt cuScholar and cuGrad.
Through credit unions, students can save a large amount each year, one such student is Steven W, from Art Center College of Design, who had over US$100,000 in student debt, with loans up to 14.3 per cent, through consolidating his loans he is saving US$8,400 a year in payments.
Another student, Marissa P, from Purdue University said: “Refinancing my loan with cuStudentLoans was one of the smarter decisions I've ever made."
Recently, Sheryl Nance-Nash, a financial reporter for Forbes, wrote an article praising credit unions involvement with student finance, she said “For all those drowning in student debt, a credit union just might be a lifeboat."
cuStudentLoans now serves 2.1 million credit union members and has US$18 billion in combined total assets. Credit unions not only decrease the interest on student loans, but they actively encourage better debt management.
Kenneth O Connor, Director of Student Advocacy for Fynanz, explained that by using the cuScholar programme they have "revolutionized" the college loan business by being the first private loan provider to require the student to begin at least US$25 or interest-only payments towards their loan balance each month while currently enrolled in school.
He added: “This is a valuable credit building opportunity for the student before they even graduate college, and encourages good debt repayment habits for students that utilize the loan.”
City County Credit Union of Fort Lauderdale, a US$300 million credit union serving Florida residents in 21 counties, and Sooper Credit Union, a US$250 million credit union based in Colorado serving members in four states, have become the latest credit union lending partners to join the cuStudentLoans program.
"Offering a private student loans program was a natural fit for our credit union," said John Purcell, Vice President of Lending at Sooper Credit Union. "We believe there is a real need for private student loans.”
The number of credit unions offering student loans in continuing to rise and as the debt reaches such huge proportions, they could be leading many students out of the maze of crippling fees and costs.