Fate of Student Lending Law Uncertain
Though credit unions lost a battle over student loans in the House, they may have another chance to prevail in the Senate.
No senator has introduced a bill that would implement the Obama administration's proposal to replace the Federal Family Education Loan Program with direct student lending. Last September, the House passed a bill that would have accomplished that.
According to several sources, Sen. Tom Harkin (D-Iowa), who chairs the Senate committee with jurisdiction over the issue, has expressed interest in the issue but hasn't introduced legislation. His office did not return a phone call seeking comment.
"We expect something to be introduced and will wait to see what it looked like, but we strongly opposed it in the House," said CUNA Vice President for Legislative Affairs Ryan Donovan.
According to CUNA, approximately 1,000 credit unions offer these loans, but the Obama administration contends that replacing them with direct lending will save $87 billion over 10 years.
Many of those credit unions offer private loan programs and originate those loans. According to the most recent Callahan analysis, the total amount of credit union funded private student loans is between $190 million and $220 million
The House bill, which was passed 253-171 mostly along party lines, shifted some of the funds to Pell Grants.
In its letter to lawmakers, CUNA said changing the loan program would deprive students of a key option for receiving financing for their higher education and noted that many credit unions specialize in that kind of lending.
NAFCU said the shift would "create new challenges for credit union members to get the aid that they need to attend schools in the United States."
In the past few years, credit unions have had increased opportunities in the student lending field because some larger banks have left the field.
Credit unions received more opportunities to enter the student loan market last year when Congress passed legislation making credit unions with assets of less than $1 billion exempt from the rule that a financial institution can't have more than 50% of its loan portfolios in student loans. It gave credit unions parity with similar-sized banks, which had previously had that exemption.