CHICAGO – Governor Rod R. Blagojevich today announced that Illinois college students returning to campus this semester will be protected from the credit crunch that has paralyzed student lending in other states, thanks to a groundbreaking financing partnership between eight credit unions and two state agencies.
Eight Illinois-based credit unions will invest $100 million in securities issued by the Illinois Student Assistance Commission (ISAC) to finance low-interest, federally secured loans to Illinois students and their families. These Stafford loans will be easily available to Illinois students at a time when students living in other states have been hard-pressed to find willing lenders.
“We have responded creatively and quickly to a problem that has crippled student lending in other states,” said Governor Blagojevich. “This financing package will enable thousands of students to attend college this year, knowing that they can pay their tuition. I salute the participating credit unions for investing in the young people of Illinois.”
The crisis has been brewing since last year’s sub-prime mortgage collapse. A lack of liquidity, steadily increasing tuition costs and changes in federal policy that cut lender profits have resulted in a perfect storm for student borrowers. The most vulnerable students are those from the lowest income levels. This financing makes college affordable for thousands of Illinois students.
As more lenders opt to leave the student loan program, many students are having difficulty in finding affordable loans. State student loan agencies in Minnesota, Massachusetts and Pennsylvania recently announced they have no money to lend this year. Other states may be have similar issues. Last month, the Governor of Kentucky ordered the State Treasurer to purchase $50 million in bonds to avert the crisis. Some private lenders have simply turned their backs on students and walked away.
Stafford loans offer students and their families several advantages including lower interest rates, more favorable terms and recourse to resolving disputes. Interest on a government-guaranteed loan is between 6 and 6.8 percent; interest on a private loan can be as high as 18 percent.
The Illinois Credit Union League played a critical role in pulling together the various credit unions. The credit unions involved in the partnership include Alliant Credit Union (Chicago), Baxter Credit Union (Vernon Hills), Citizens Equity First Credit Union (Peoria), Corporate America Family Credit Union (Elgin), Credit Union 1 (the State employees’ credit union based in Rantoul), I.H. Mississippi Valley Credit Union (Moline), Motorola Credit Union (Schaumburg), and Scott (AFB) Credit Union (Bethalto).
“We are pleased to team up with ISAC and back their efforts to help Illinois students get a quality education,” said Dan Plauda, President/Chief Executive Officer of Illinois Credit Union League.
A credit union is a not-for-profit financial cooperative that is owned by the members it serves. There are about 8,500 credit unions nationwide, counting more than 90 million consumers as members, and collectively hold about $800 billion in assets. In Illinois, there are more than 430 credit unions with $20.8 billion in assets, serving more than 2.7 million members.
“When the global credit markets turned their backs on Illinois students, these eight credit unions stood tall,” said Andrew Davis, ISAC Executive Director. “This deal is terrific news for Illinois students and their families, who have more important things to worry about as classes begin. They can rest assured that our commitment is to meet demand.”
The Illinois Department of Financial and Professional Regulation – the agency charged with regulating credit unions – concurred with the Illinois Credit Union League (ICUL), the primary trade association for credit unions in Illinois, on August 21, 2008 that credit unions could move forward with the investment.
“This nontraditional approach is consistent with the traditional mission of credit unions: to invest in everyday people,” said IDFPR Secretary Dean Martinez. “This is a win-win for the credit unions, the students and the entire State of Illinois.”
Students may inquire about federally-guaranteed loans at their financial aid offices or at ISAC’s lending arm, the Illinois Designated Account Purchase Program (IDAPP):
Financing for this agreement is subject to approval by the ISAC Commissioners at their September 19, 2008 Board meeting and by the Boards of Directors of the Credit Unions at their respective meetings.