College aid reform could be costly for some Utah banks, credit unions

SALT LAKE CITY — Utah's banks and credit unions are assessing the impact if and when historic sweeping changes to the current college student loan program take effect.

Reforms contained in separate legislation bundled with the House's health care bill that passed Sunday night would overhaul college aid for millions of students.

The House bill, which still must pass muster in the Senate later this week, eliminates private lenders from their role as middlemen in the process. Instead, student loans will be directly administered by the federal government.

Lenders currently supply low-interest loans to college students which in turn are guaranteed against default by Uncle Sam. The government also subsidizes private lenders whenever necessary to keep interest rates low.

"I think time will show it was the wrong move," said Howard Headlee, president of the Utah Bankers Association. "Either way, it's hard to understand what (this) has to do with health care. The only thing that's consistent is that we're pulling more activity out of the private sector and moving more activities to the public sector, and the associated risks. And that's what I don't think the government is good at."

Rob Brough, executive vice president of marketing and communications for Zions Bank, sees the impact on his bank — and the industry — as minimal, however.

"We actually got out of the direct student lending business about two years ago," Brough said, adding that many of Zions' larger regional competitors had already pulled out. "Most students were going through college financial aid office for loans rather than coming to the bank, and Congress has been pushing cutbacks that negatively impacted banks' ability to make money (on the loans)."

Scott Simpson, president of the Utah League of Credit Unions, said his membership shares a position with the banks on the matter. Although student loans aren't typically a major part of lending portfolios for most credit unions, Simpson says, several Utah institutions have picked up some of the student loan slack after the credit crunch caused banks to shy away.

"The impact remains to be seen," Simpson said. "It's the government taking away avenues for future earnings," thereby hampering the economic recovery.

Nationally, private lenders raised a ruckus, unsuccessfully lobbying to stop the legislation and pledged to carry the fight on to the Senate. They contend it puts private-sector jobs at risk in favor of broadening government involvement.