Credit unions’ loan program adds financial literacy to college students’ yearly studies

Members Cooperative Credit Union in Cloquet is the first Minnesota credit union to join a cooperative student lending network,, which dispenses lessons in financial literacy as it hands out student loans.

While in school, students have to make a monthly $25 payment that is applied to interest and principal on their loans, getting them used to paying for their loans along with pizza and beer. In addition, the underwriting on the loan is rewritten each year, giving students the opportunity to lower their interest rates through their own academic performance.

“As a credit union, we have an obligation when giving loans, especially to young people, to educate them about borrowing and credit,” said Robbie Thompson, vice president and general counsel at Members Cooperative. “These loans not only help students fund their college education, they also make the student more knowledgeable about borrowing and establishing good credit in the future.”

Under traditional private student loan programs, students don’t begin repayment until after graduation and, by that time, “they’ve lost track of how much they owe,” said Vince Passione CEO of Fynanz Inc., the technology provider behind the loan network. Citing a recent Gallup Poll, Passione pointed out that 77 percent of students could not accurately estimate their future monthly loan payments once they graduated.

The credit union loan program also prices the loans based on several factors, including the FICO credit score of the signer and co-signer. It also looks at the member’s probability of graduation by examining the student’s major, years of study and grade-point average, as well as the repayment history of fellow students at the borrower’s school.

The cuStudentLoans network works as a cooperative student lending program with participating credit unions pooling funds and spreading risk. Each credit union typically owns 10 percent of the loans they distribute. Currently 21 credit unions in New Jersey, Pennsylvania, New York and now Minnesota participate in the network, providing loans for students in 479 schools in 47 states, according to Passione.

This past peak lending season, the program saw about $90 million worth of loan requests, and 90 percent of those approved for loans were new credit union members.

Passione said that he will be visiting schools and credit unions in Minnesota to expand the program as well as to credit unions in California, Illinois, Washington, Missouri and Nebraska. “The beauty of the program is that you can position it locally or nationally. I can go into schools and say that I can guarantee that their students will be eligible to join one of our participating credit unions.”

According to the U.S. Department of Education, annual undergraduate tuition, room and board were estimated to be $11,578 at public institutions and $29,915 at private institutions for the 2007-08 academic year.

Between 1998 and 2008, prices for undergraduate tuition, room and board at public institutions rose by 30 percent, and prices at private institutions rose by 23 percent, after adjusting for inflation. This fall, a record 18.4 million students are estimated to be attending the nation’s two-year and four-year colleges and universities, an increase of about 3.1 million since fall 2000.

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