Many students take out private loans to cover their college costs, but many lenders today have less credit to offer than in years past. This has opened a business opportunity for credit unions, giving students another option for financing their educations.
Credit unions are nonprofit financial organizations run on behalf of their members. An increasing number of credit unions are offering students loans at competitive interest rates, which can be useful when students have exhausted federal loans and other aid.
These days, a credit union is a good resource for a student loan. They have more cash on hand than many lenders because they weren’t crushed in the way banks were during the home-mortgage crisis.
Credit unions serve groups of people with a specific connection, such as a place of employment or a geographic location. Some universities may have a credit union particularly for students who attend the school, and these may be better equipped to serve your financial needs.
When credit unions work with specific groups or with certain states 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 federally subsidized student loans.
Dozens of credit unions across the country have signed up to be a part of the Credit Union Student Choice program, which offers loans for undergraduate students.
Getting a Student Loan from a Credit Union
If you plan on taking out a student loan with a credit union, you will be required to become a member of that institution. That means you will have to meet the criteria for membership, which could be the connection to the university you plan to enroll in as a student. 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 account and make deposits at the institution before it can move forward with offering you a student loan. Your credit score likely will be checked when you apply.
The majority of credit unions won’t make you pay off the loan until you graduate. But once the grace period ends, credit unions usually have strict repayment options. That may leave you with less flexibility on paying off the loans.
Credit Unions vs. Banks for Student Loans
Credit unions usually can offer more competitive interest rates than banks. They also keep the loans on their own records, while banks do not. 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 more flexible for high-risk students or for people unable to get someone to co-sign the loan with them.