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June 13, 2008 - A new law is making it easier for credit unions to provide student loans to its members. During the past year, narrowing margins and the disruption in the marketplace may have pushed some credit unions out of the student lending market.
The President signed the “Ensuring Continued Access to Student Loans Act of 2008” which improves the availability of loan capital for lenders to ensure access to the federal student loan program for students and families.
Provisions in the new law may make it more practicable for credit unions to continue participating in student lending. Last fall, a provision was added to the “College Cost Reduction and Access Act” that left credit unions out of the definition of a not-for-profit institution. Consequently, they could not receive the special allowance for not-for-profit institutions. Combined with current market constraints, it can be challenging for a credit union to provide student loans.
The new law provides:
● Temporary authority to the Department of Education to purchase loans from eligible lenders if there is inadequate availability of loan capital to meet the demand for loans;
● Increased unsubsidized Stafford loan limits for undergraduate students, providing students access to more federal monies;
● Provides parents a deferment while children are in school;
● Enables a temporary exception for extenuating circumstances, including when a borrower is delinquent on a mortgage loan or medical bill payments.
While the two pieces of legislation referenced are separate and distinct laws with different purposes, the latest bill the President signed into law could help credit unions with student lending programs at a time when financing may be drying up. Currently, nearly 2,000 credit unions offer the Federal Family Education Loan Program.
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