In addition to CUSC's partners behind the scenes, seven credit unions are serving as the test marketers for the student loan launch: Affinity Plus FCU, Digital FCU, NASA FCU, NuUnion CU, San Antonio FCU, Star One CU and Wright-Patt CU. Affinity Plus, NuUnion, and Wright-Patt went live with the solution on May 5. The other four founding credit unions are scheduled to go live this month, followed by a second wave of credit unions launching in June, Jeffreys said.

The idea of CUSC's tiered model sprang from the Callahan Credit Union Financial Services Limited Partnership, a group formed to create cooperative initiatives for credit unions, Jeffreys said. The CUFSLP founded and currently serves as administrator for the Trust for Credit Unions mutual fund family.

At press time, the $794 million NuUnion had processed its first loan and is sure that existing relationships with Central Michigan University, Grand Valley State University and other schools are fertile ground for its latest unveiling, said Teresa Mayer, vice president of lending. "One goal is to link student loans with rewards checking accounts and NuUnion's surcharge free ATMs," she said.

"Everywhere you look, the student loan business is in shambles. Funds for colleges are increasing so this is very relevant," Mayer said. "In today's economy, we're always looking for opportunities."

NuUnion started the due diligence process about a year ago, Mayer said. Through its research and a series of weekly conference calls, the credit union discovered a market ripe for picking. Jeffreys said they started with a feasibility study that explored the real value to members and a process to form the CUSO's operation. Connecting CUSOs across several layers is a breakthrough, Jeffreys offered, saying creating an independent CUSO from the ground up would have gone nowhere fast. A number of CUSO models were bandied about, said Scott Patterson, vice president of CUSC.

"The easiest way would have been to go through student lenders and in 10 days, we would have a product," Patterson said. "But we wanted to bring the costs down for members. Our service providers have a common mission–they're all owned by credit unions so there's no competing interests here."

Jeffreys said CUSC charges an annual management fee, which covers the operation of the organization, marketing support and bringing on new products. The fee is based on a credit union's loan volume. Rates are set by the credit union and the loans stay on the books.

Serving Gen Y members is a major focus of this initiative. Last year, undergraduate students received 49% of their funding in the form of loans, including alternative nonfederal loans, according to CUSC citing the College Board's trends in student aid 2007 data. Jeffreys said there are approximately 200 credit unions that offer federal student loans and a very small number that have private loans.

At press time, a handful of loans were processed through CUSC with most of them coming from credit union employees who have children heading off to school soon, Jeffreys said. Patterson said they wondered how many loans would come in during the first few days after CUSC's launch.

"Last year, we were seeing private student loans at 10% and up, plus origination fees," Patterson said. "Credit unions are blowing them out of the water."

Given the stalled mortgage market, people are no longer turning to home equity loans to pay for college expenses, Mayer said. "This can help fill in the gap."

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