Citizens Bank, Dort Federal Credit Union offer new student loan products

And just in time for back to school and the start of the fall semester.

At least two Genesee County financial institutions — Flint-based Citizens Bank and Flint-based Dort Federal Credit Union — have added student loan products in the past few months.Other banks such as Chase also offer private student loans.


“They’re a lot of lenders that are jumping into this marketplace,” said Mark Kantrowitz, publisher of financial aid website FinAid.org and fastweb.com, a resource on scholarships.

“Private student loans are a lucrative market, so I expect competition to heat up,” he added.

Private lenders are coming back into the market after the credit crunch two years ago forced many to forgo student loan programs and because of changes with the Federal Family Education Loan Program, Kantrowitz said.

As of July 1, private lenders haven’t been able to make federal student loans through the Family Education Loan Program. All new Stafford, PLUS and consolidation loans will be made by the U.S. Department of Education.

But they aren’t the only source of education funding, and that’s where some lenders are finding ways to gain students as loan customers.

This summer, Citizens Bank teamed up with Sallie Mae to offer the Sallie Mae Smart Option Student Loan, which requires students to pay as little as $25 per month while in school.

Applications are completed online and the program offers a minimum loan of $1,000 up to the cost of attendance, minus financial aid received, according to Sallie Mae’s website.

Citizens Bank had a private student loan program up until 2008, but it had to stop offering the loans when the company it had been working with discontinued the product during the credit crunch, said Charles Spilman, consumer product manager at Citizens Bank.

“We saw that as a real product gap once that went away for us,” he said.

Spilman said the bank already has several loans in the pipeline with Sallie Mae. He said Citizens Bank could receive a small referral fee per loan.

The loans, which are underwritten and serviced by Sallie Mae and don’t require a cosigner, are variable and currently range between 2.87 percent and 10.21 percent, Spilman said.

“We’re trying to let our clients know that this is the next step in the process for student loan financing,” he said, adding people should look into grants, scholarships and conventional federal loans first.

Dort Federal’s program — rates begin at 6 percent and can be lower if you’ve got good grades — allows members to borrow as little as $2,000 and as much as $30,000 per year.

Borrowers also get a 1 percent interest rate reduction when they repay 10 percent of their loan.While in school, students can make the interest payment per month, or can choose a deferred option, where they pay $25 a month.

The credit union began offering the loans in April in part because of the need students have in funding education beyond what is covered through federal loans, grants and scholarships, said Jenny Ludwigsen, director of marketing for Dort Federal Credit Union.

“We had several members coming in and asking for it and we just felt like the time was right,” she said, adding they have issued one already and have more in the hopper.

Anyone who can qualify for a Dort Federal membership can apply for a loan. Juniors and seniors don’t need cosigners on the loans, Ludwigsen said.

Financial institutions may be tapping into student loan lending because it is a lucrative market compared to auto lending or even mortgage lending and can open the door to a lifetime customer, Kantrowitz said.

“After they graduate they need checking accounts, a bank account and you end up establishing a long-term relationship,” he said.

And some college students are turning to private loans to help pay for the funding gap, in part due to the indefinite suspension of new loans through the Michigan Alternative Student Loan (MI-LOAN) Program.

The MI-LOAN program was popular at schools such as Kettering University in Flint, where the cost of tuition alone is about $28,000 a year.In 2008, for example, some 42 percent of students at Kettering had to use private loans.

Kantrowitz said it’s become more difficult with the credit crisis to land a private student loan, and 85 percent of private student loans require a “credit worthy cosigner.”

“Families should always try federal (loans) first because it’s cheaper,” he said.

And Kantrowitz warned about borrowing too much.

“If you’ve exhausted the federal student loan limit, there’s a good chance that you’re borrowing excessively,” he said. “You shouldn’t borrow more for your entire college education than your expected starting salary.”

Kantrowitz encouraged students to minimize debts, search for scholarships, save before going to college and to “live like a student when in college so you don’t have to live like a student when you graduate.”