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New Jersey credit unions are tapping into what it means to be a cooperative movement with a new student loan program that pools funding and spreads risk.The loan program is powered by a statewide Web portal, nj.custudentloans.org, that will be going live on May 15. A student looking for a loan can visit the portal, take a field of membership test to determine which participating credit unions they can qualify for membership with, select a credit union, apply for membership and apply for the loan. Students who are already credit union members can state the credit union they are a member of and go directly to the loan process.The idea of a statewide Web portal was pitched by student lending platform developer Fynanz to various state leagues. The New Jersey Credit Union League picked up on the idea and worked with credit unions in the state to come up with the collaborative approach to student lending by aggregating capital and spreading the risk among participating credit unions. Each credit union will own 10% of the loan distributed and each credit union will be responsible for completing a part of the due diligence required by theNCUA. The credit unions also came up with the idea to participate loans at the pointof origination.“Everyone talks about how credit unions are collaborative, and it’s true, but there are a lot of groups doing the same thing in different ways and that hurts us. Imagine the impact we could make if we could do something like this on a nationwide level,” said Paul Gentile, New Jersey league CEO.Currently, the program has $50 million in pooled funding to distribute as loans from 12 participating credit unions. Gentile said that he hopes to have $100 million in funding by the end of the year.For Vince Passione, CEO of Fynanz, one thing that surprised him was that the credit unions wanted to implement common pricing on the loans.“We’ve been pitching this idea since the beginning of the year, and I was very surprised the participating credit unions didn’t want individual pricing. This is truly an experiment in cooperation in every way.”The portal designed by Fynanz offers integrated underwriting, origination and servicing. Fynanz gauges the member’s creditworthiness based on what it calls Fynanz Academic Credit Score. Fynanz uses the FICO score of the signer and the co-signer along with the member’s probability of graduation.Fynanz examines the student’s grade-point average, years of study and course of study to create pricing for the loan. The price is based on Libor, and each year Fynanz rewrites the loan so that as the student advances in academic achievement he or she can move up into a better pricing level.Fynanz also implements what it calls good faith payments. Each student is required to make a $25 good-faith payment every month that gets applied to the interest and principal on the loan. The payment can come directly out of the student’s checking account at the credit union each month, and the student receives an e-mail that the payment has been deducted from their account. If there is not enough money in the account for the payment, Fynanz notifies the co-signer that the payment is late and that it will attempt to withdraw the funds again in three days.“This is a way to remind them on a regular basis that they have a debt to the credit union, and it gets them used to making regular payments on the loan,” Passione explained.Fynanz also has a function where the member can view what they will have to pay back when the loan goes to repayment and get an idea of what it is going to cost them.Linda McFadden, president/CEO of one of the participating credit unions, Xcel Federal Credit Union in Secaucus, N.J., said that the good-faith payments and the fact that the member receives the loan payment in a check made out to the school directly were two aspects she really liked about the program. Having the member go to the school with the check is another way to remind them of their debt, McFadden said.For the past few years, McFadden said she’s been trying to get her $92 million credit union into student lending but found that her credit union wasn’t large enough to grab the attention of colleges and universities in the area.“This is a way for us to get $4 million to $5 million out there in student loans without having to take on the full risk of every loan. With $50 million available as a pool, we can now approach universities with some clout,” McFadden said.At the same time, McFadden said, the field of membership application part of the Web portal allows the credit union to attract and gain new members.The league will tie the loan program into its branding campaign and has adjusted its radio and television ads to include mention of the program. Gentile said they will also be visiting the top 20 to 30 schools in the area to get listed as a financing option on their Web sites.“This is a great story to tell the state politically that credit unions are helping the young go to school,” Gentile said about getting the word out about the program.For its part, Xcel will be notifying members of the loan product in its newsletter, promote it as a feature product at its 45th annual meeting and hold a staff promotion contest to encourage staff to get members signed up for the loan.“We’re going to put it out there and get as many loans with us as the originator as possible,” McFadden said.–[email protected]

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