Brother, Can You Spare a MBA? Why You Shouldn't Freak Out Over Student Loans

by Ron Daly

I knew it wouldn't be long before I had to say something folks wouldn't agree with. 

There's a new proposal suggested by the Obama administration that would extend student loans directly from the Government instead of pushing the 97% guaranteed loans through banks and CUs. Of course, I always like to look at things from a Taxpayer's point of view. And how good is it to hear the Government is trying to save $94 Billion over the next ten years? Considering the billions and billions spent on bailouts, it's a welcome relief to hear that they've found one area where they can save some money.

Of course, the proposal is under fire from financial institutions and trade groups, who argue that this will mean less lending (read the CU Journal article here). 

Or will it? 

See, here's what I'm thinking. As I talked about in the article  "Mind the Gap", the difference between federal aid limits and the cost of an average public school education (four years) is $29,356. The difference between federal aid and private school is $104,228. And not every student will be able to be fully funded through government lending. There's still some room for a willing credit union to make some money out of this, lending with better rates and better terms to a student who needs his or her bills paid. 

And then there's cars that students take to campus. And their computers and books and fees and room and board and...well, everything. Putting two kids through college has taught me that education is a recession-proof industry, as everything gets more expensive with each passing year. Credit unions can still fill in a wide gap between what students can squeeze out of Uncle Sam and what their university is going to demand. Will CUs or banks be able to have millions in guaranteed loans? No. But they can make loans that are more reflective of the cost of education and still make money, even without the Feds involved. 

What's really surprising to me is that Sallie Mae, the lender that stands to lose the most from all this, isn't sweating it so much. According to this Bloomberg article (click here), Sallie Mae wants to meet the Government half way, continuing its lending and selling the loans to the government at a markup. Sallie Mae tripped up a bit in the market, but is still confident it will be making loans and generating income even after the plan goes through.  

Here's the straight talk, folks - this thing will pass. It's going to fly through, most likely as a result of what the aforementioned Bloomberg article called "reconciliation". Also, name me one American who doesn't like the sound of the Government saving money.

The question is "What can I do, as the CEO/CFO of my credit union, to make private loans seem like a welcome substitute?" Articles like this one from the Wall Street Journal, which paint private student loan lending as a curse, aren't helping you any. Make it seem like there's a reason students should borrow from you. 

I look at it like the gap insurance of education lending. Students will only be able to afford so much, and the government can't pay for everyone to go to school - and that's where CUs will have to step in, playing the same song about fair lending and good customer service for which they're famous.

  

Comments

[Ron Shevlin]

Geez, wouldn't it just be easier if Obama capped private college tuition at, say, $30k per year?

I mean, have you taken a look at what these college presidents make? I bet I can name a bunch of former bank CEOs looking to get in on THAT action.

:)