Student Loan Nightmare: The 15-Year Barrier


NEW YORK (MainStreet) — The Credit Union National Association (CUNA) is proposing that its members be allowed to offer student loans that go beyond the 15-year payoff mark, the current limit for student loans offered by credit unions.

"The 15-year standard student loan made sense in years past when the total debt taken out was much lower," said Paul Gentile, CUNA's executive vice president. "Now students are borrowing more. They need more time to pay off these loans." CUNA representatives met with officials from the Consumer Financial Protection Bureau (CFPB) last month to make the case for the longer loan.

"The value of a longer term is that you can structure the loan to allow for smaller payments in the early years after graduation," Gentile stated. "That is typically when most borrowers struggle—when their careers are just beginning. Once their careers pick up, they are better able to manage the debt, so a longer term helps marry up those two realities." Even if the loan ultimately costs more, a default and its repercussions could become less likely.

Jane Glickman, spokesperson for the Department of Education, acknowledged that the workarounds currently available for federal loans went beyond 15 years; the variety of pay-off scenarios essentially means that there is no hard bench mark in the federal student loan space.

"We have numerous repayment options for federal loans, some extending to 30 years, so there is no real traditional duration," she said. Glickman cited the graduated, extended, pay-as-you-earn, and income-based plans, spelled out at

Except for mortgages, credit unions, whose main regulator is the National Credit Union Association along with the CFPB, primarily make loans with a 15-year term.

Extending the time frame would also let credit unions consolidate multiple federal student loans.

"Given the large dollar amounts likely to be involved in federal student loans," said Gentile, "it would be an advantage if credit unions could offer consolidation loans ranging from 20 to 30 years, also giving borrowers with multiple loans time to pay them back as their careers advance." Gentile said the CUNA was also lobbying to obtain access to the derivative markets as a tool to hedge fixed-rate instruments.

"To be clear, credit unions today can consolidate federal student loans," said Gentile. However, he added, since many students have multiple federal student loans that go beyond 15 years, the ability to include longer-term loans in a consolidation would expand the number of borrowers for whom credit unions are an option.

How would credit union interest rate then look compared to other private lenders such as Sallie Mae, PNC Bank or Wells Fargo, for example?

"Pricing tiers between credit unions and traditional lenders look similar in rate tables, but the lower-rate tiers of credit unions are generally much more accessible to typical consumers than traditional lenders," said Gentile. "This is because credit union loans are designed to benefit their members; predominantly middle class and blue-collar Americans."

Gentile said that the average rate for private student loans through credit unions is 6.25%. But the interest rate climate is likely to become volatile throughout the rest of the decade. According to, the best private student loan rates will be roughly equal to the prime rate, charged to the most credit-worthy customers, plus 0.50% with no fees, similar to the Federal PLUS Loan. Last weeks rate was 3.25% But scoring one of these loans requires a top-notch credit score—something which FinAid says that only about 20% of borrowers have. Some private loans charge variable rates that can range from low single digits to low double digits.

Borrowers seeking a student loan from a credit union can expect to have their credit scores checked, also. A low rate, or even a loan, is not guaranteed.

--Written by John Sandman for MainStreet

Show Comments

Back to Top