Could Credit Unions Fill The Student Loan Gap for Some Furloughed Federal Workers?


NEW YORK (MainStreet) — While the credit union footprint isn't large, this could be a step in the right direction.

Last week Edwardsville, Illinois-based Scott Credit Union offered help to members who are furloughed federal employees that aren't being paid because of the government shutdown. The plan could help those with student loans who are about 24 hours away from their first payless payday. Scott, in partnership with Sallie Mae, offers the Smart Option Student Loan for undergraduates with variable interest rates from 2.25% to 9.37% APR, and fixed interest rates from 5.74% to 11.85% APR.

"We are offering a six month, 0% APR Government Shutdown Loan to members who are government employees and will be without pay during the Government shutdown," Scotts said in a press release on Friday. "We have developed a loan program that will help our members during this financial hardship."

Scott, which calls itself the official credit union of the St. Louis Rams, will let furloughed members borrow up to 100% of their most recent two-week net pay at 0% on a loan term of six months. The first payment is not due until 30 days after the loan closes.

"Members will need to have had their government payroll directly deposited into a Scott Credit Union account or provide a current paystub," Scott said in the statement. "To qualify, you must be a current member of Scott Credit Union in good standing."

For example, if $1,000 is borrowed and the rate is 0% APR for 6 months, the monthly payment would be $166.67, with a payoff amount of $1,000.02.

It was not clear if other credit unions were making similar offers or planned to in case the shutdown goes beyond this week. John Fairbanks, a Washington-based spokesperson for the National Credit Union Administration (NCUA), which was not affected by the government shutdown, could not comment on similar loan programs from other credit unions.

NCUA has been down this road before. In a letter to federally insured credit unions written four months before the government's near-shutdown of 2011, NCUA chairman Debbie Matz advised credit unions to "take steps to prudently work with members affected by shutdowns, including providing advances to individuals who received direct deposits from the federal government." There were 6,681 federally insured credit unions as of the second quarter 2013.

NCUA's Fairbanks did not disclose the number of student loans that are currently held by members of federally insured credit unions. The credit unions themselves are small players in the private student loan market. However, Fairbanks provided NCUA data indicating that the number of student loans made by its members in the last two and a half years went from 1,485 in December 2011 to 2,277 in June 2013, an annualized increase of 26%.

--Written by John Sandman for MainStreet

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