Private student lending isn’t traditional credit union turf – they had generally left that kind of work up to the giant lenders who, until recently, dominated the market. But with those lenders felled by the credit meltdown or their own financial woes, credit unions are creeping in to put down some roots of their own.

Mark Kantrowitz, publisher of popular lending Web site FinAid.org, said he’d rarely heard anything about credit unions doing such lending – until this year.

“All the sudden, they are moving into private student loans in a very big way,” he said.

Massachusetts credit unions have jumped into the action; at least six have joined Credit Union Student Choice, a nationwide collective that facilitates credit union private student lending, said Michael Weber, organization spokesman, who added that another five or six Bay State institutions were awaiting approval to join the group.

CUSC launched in May 2008 with 10 credit unions on board, he said, and good timing, too, as the next few months brought lending markets crashing down and left major banking and lending institutions stepping out of new private lending entirely. Now, he said, the credit union group has about 60 institutions to its ranks.

Kantrowitz said credit unions are too small to make up for the massive demand for loans created by sidelined banks: “It’s a drop in the bucket.”

Not Convinced

And there’s no telling if this is a short-term venture while the market is open, or if credit unions plan to stay in the game for years to come. Still, Kantrowitz said, private student loans look attractive right now, and they’re reacting.

Student lending makes sense for credit unions for a few reasons, Weber said: Some students, especially those at four-year nonprofit universities, tend to be excellent risks. Also, this is a great way for credit unions to make connections with younger members, who will then be more likely to stick with the credit union after graduation.

Besides, said Richard Kump, UMass Five Credit Union chief operating officer, the market is pretty open right now.

“You lose $8 billion of funding in a $23 billion industry, something has to fill the gap,” he said, alluding to the lenders who either pulled back or stopped doing such loans altogether.

“We were able to get in fairly early on the ground floor, and there’s a number of credit unions lining up behind us.”

UMass Five, which serves University of Massachusetts system employees and students, announced this month it would now offer private student loans. It recently joined the CUSC, but had made a previous foray into private student lending last year. Its original partner: Lehman Brothers.

That did not work out, Kump said: “Before we even funded a loan, Lehman Brothers ran out of money. Their financials looked good, almost until the end.”

Joining a credit union organization allows UMass to use the group’s expertise to make loans, but retain a modicum of independence in how it sets up the loans.

UMass’ loans are for up to $75,000 with a current interest rate of 5.5 percent, although the rate can vary. Like many credit union student lenders, borrowers from UMass have to have a co-signer with a strong credit score. The loans are open-ended lines of credit so students can just apply once and draw from it when they need to, instead of re-applying every semester, Kump said.

UMass Five’s lending program is a general undergraduate offering, but many Massachusetts credit unions are delving into more specialized, graduate-school territory. Digital Federal Credit Union, for example, announced in April it has set up a program for international students attending the Wharton School of Business at Pennsylvania State University.

DCU is also a member of the CUSC group, and spokesman John LaHair said it got connected to Wharton through that organization – and because DCU has national reach, it’s not a stretch for the Marlborough-based institution to support such students.

Credit unions such as UMass and DCU urge students to seek out federal loans or scholarships before going to a private student loan alternative, Kump said.

Kantrowitz cautions that students still need to do thorough research. Credit unions are nonprofits, but they’re still trying to make money, and they might not discuss the best loan alternatives if it’s not as advantageous to the credit union.

Still, credit unions have helped get more money flowing in the student loan market, he said: several state-funded loan agencies were able to re-enter the market because credit unions stepped in to loan money.

“They’re looking at a relatively safe area in which to lend money, and private student loans are attractive,” he said.n