Getting a Private Student Loan from a Credit Union
Many students take out private student loans to help with their college costs but fewer traditional lenders participate in private loan programs today than in years past. Traditional lenders also typically offer higher loan rates than credit unions. This has opened a business opportunity for credit unions, offering students another option for financing their educations.
Credit unions are nonprofit financial organizations that exist to serve their members rather than maximize corporate profits. Like banks, credit unions provide a variety of financial services, but as member-owned cooperatives, they focus on providing a safe place to save and borrow at reasonable rates while returning income to their members in the form of dividends.
An increasing number of credit union student loans are offered at competitive interest rates and lower fees which can be useful when students have exhausted federal loans and other types of financial aid.
Credit unions serve groups of people with a specific connection, such as a place of employment or a geographic location. Some colleges and universities may have their own credit union for students, alumni and employees, and these may be better equipped to serve your financial needs.
When credit unions work with specific groups or with certain states or geographic regions to make loans accessible, rates for these student loans can be considerably lower than what you can expect at a bank. Their rates are apt to be higher, however, than those for federal student loans, such as Stafford Loans.
These days, a credit union is a good resource for a student or parent loan. They tend to have more cash on hand than many lenders because they were not crushed in the same way banks were during the home-mortgage crisis. Credit unions typically partner with a central processing network like LendKey or Credit Union Student Choice, to offer loans for undergraduate and graduate students.
Getting Started with a Credit Union
If you plan on taking out a credit union student loan, you will be required to become a member of that financial institution. That means you will have to meet the criteria for membership. This could simply be the connection to the university you attend or it could be a credit union connected to your employer, or your mom/dad’s employer. You may have to pay a fee to become a member, which can range from $5 to $50.
A credit union may ask you to set up a checking or savings account and make deposits at the institution before it can move forward with offering you a student loan. Your credit score will be checked when you or your cosigner (if applicable) apply for a private student loan.
Similar to traditional lenders, the majority of credit unions won’t make you begin repaying your student loan until after you graduate or leave school. They will also most likely offer you a grace period. But, contrary to federal student loans, there are typically no loan forgiveness programs and there are fewer repayment plans to choose from. This may leave you with less flexibility on paying off the loans. To help you with repayment, credit union student loan consolidation may also be available. Be sure to check with the credit union you are considering about this possible option.
Credit Unions vs. Banks for Student Loans
Credit union student loans usually offer more competitive interest rates than banks. Credit unions also keep the loans on their own records, while banks do not. (Banks may sell their student loans to loan servicing companies.) A student may find it difficult to take out a loan from a bank because of the rigid restrictions required to qualify. Credit unions are generally more flexible for high-risk students or for people unable to get someone to cosign the loan with them.