Ray Birch
OAK HARBOR, Ohio—Commodore Perry FCU has introduced two new loans designed to help students pay for trade school. It believes it is one of the first lenders in the country to offer such a lending program.
The $43-million CDFI credit union has created two new loans, the Technical Skills Education Loan and the Wage Replacement Loan. Both are designed to fill the void between student loans and a standard unsecured loan or credit card.
CEO Michael Barr told CUToday.info there is nothing available in most markets to help a student pay for trade school tuition. Student loans, Barr said, are typically only granted for traditional four-year colleges.
“We saw the void in the market, here and around the country,” explained Barr, adding that when the credit union searched online for loans to pay for trade school, few results turned up. “We found maybe two or three large banks doing these, but no one else—not even a credit union, to our knowledge. That surprised us because these loans align with the mission of credit unions. So we assessed the situation and asked ourselves if is there something we can do to help fill this gap.”
Additional Challenges
Barr said Commodore Perry FCU recognized the problem facing those who want to attend trade school, noting not only are these students often older than the typical college freshman, they are often also working and bringing up a family.
“That means not only do they need help to pay for trade school, they need help to cover their time away from work when they are focused on their education,” Barr said. “These are often hardworking people who want to improve their lives and start a career that pays them and their family more money.”
Barr said the only option these students have had is to turn to signature loans or even credit cards, which can be costly, especially compared to the price for a traditional student loan.
“We are not in the business of finding people jobs, but we also recognize there are potential financial barriers that can prevent people from getting to these educational programs and through these programs,” said Barr.
Removing a Key Barrier
The key barrier, reminded Barr, is trade schools are not traditional secondary education programs and are typically not eligible for student loan programs or Pell Grants.
“So students borrow somewhere or pay out of their pockets,” he said.
Barr said average cost for trade school tuition is $3,000 to $5,000.
“In developing the Technical Skills Education Loan, we said there are features about a traditional student loan that are designed to help students afford the loan, so we applied some of those same helpful concepts to our product,” explained Barr. “So, with our loan we are offering deferred payments while students are going through their program. And it has a low 6.5% fixed interest rate for all borrowers, much lower than what they would get with a signature or personal loan, or credit card.”
Risk-Priced Loan
Barr explained the Wage Replacement Loan is a traditional risk-priced unsecured loan.
“If students experience a reduction in wages as a result of having to go through this education program, we will issue a loan for the duration of the program to supplement their wages,” said Barr. “We will disperse the loan just like their current paycheck—the same frequency. But we won’t make this loan unless there is a real need, a true reduction in wages. And loan payments are deferred while the students are in school.
“We recognize the issue is not just the cost of the program, it's overcoming additional financial barriers as well,” continued Barr.
The loan program is backed by an $875,000 grant from the Treasury’s Community Development Financial Institutions Fund, which was awarded to Commodore Perry in October of last year.
“A couple month ago we began rolling these loans out to the community,” said Barr, who added CPFCU has struck partnerships with local trade schools and a community college.
Two Million Dollars Projected
The credit union has granted one Technical Skills Education Loan to a young man, a Millennial, who is headed to school for truck driving.
“We're projecting over the course of three years to make about $2 million in these loans, both Technical Skills Education Loans and Wage Replacement Loans,” said Barr.
The CEO emphasized that not much has been done in the past to help people afford trade school costs.
“I am not sure lenders or even the schools have recognized the unique challenges that some of these older folks have when they want to change their careers and improve their lives,” said Barr. “I think these loans will be well received in our community.”