If you’re taking out private student loans to help fund your education, be smart about which lender you choose. You have plenty of options to pick from, but finding the right lender can be challenging.
When you’re comparing options, there’s one type of loan you might overlook: credit union student loans. Credit unions are member-owned nonprofit organizations. This sets them apart from traditional banks and online lenders.
A financial institution that isn’t out to make a buck probably sounds pretty good. But while credit union student loans have their advantages, there are some downsides to consider, too. Take a look at the pros and cons before you decide if a credit union student loan is right for you.
Advantages of credit union student loans
When it comes to student loans, credit unions typically offer many of the same basic features as other private lenders. For instance, you might find a credit union that allows you to make low payments (or no payments) while in school. You might even reduce your interest rate by setting up automatic payments.
Here are a few other key ways credit union student loans might benefit you.
1. Interest rates could be lower
Just because credit unions are usually smaller than national banks doesn’t mean they can’t offer competitive interest rates to borrowers. Because credit unions are nonprofit institutions, they can often offer loans at cheaper rates.
As of March 30, 2018, for example, Alliant Credit Union offers student loans with interest rates as low as 3.96%. In contrast, Discover’s lowest advertised student loan rate is 4.62%.
That doesn’t mean every credit union will always have a lower interest rate than big banks or online lenders. You still need to comparison shop among all different types of private student loan lenders. But you might find the unique business model of credit unions means you can get a better deal.
2. Customer service might be better
Since credit unions are member-owned institutions, customers are treated fairly. In fact, members typically elect a volunteer board of directors to run the organization. That means you can get a say in how things are managed.
And because credit unions aren’t too big to fail, as many big banks that can weather scandals and multimillion-dollar penalties are, they know they have to treat their customers right to survive.
Again, this doesn’t mean every credit union is perfect. Before joining one, check out its reviews in the Consumer Financial Protection Bureau’s complaint database and on the Better Business Bureau website.
3. Lending standards are often more relaxed
Unlike federal student loans, your credit and income matter when applying for private student loans. If you don’t have a good credit score and proof of steady income, you’ll usually need a cosigner to get approved for a private loan.
Credit unions will also consider your credit and income when you apply for a loan. But if you or your cosigner are members of the credit union and have an established relationship, lending standards might not be quite as stringent.
You might be able to get approved for a loan when a big bank would deny you. Or you could get a better rate because the credit union takes your existing relationship into account.
Disadvantages of credit union student loans
The possibility of lower interest rates and better service might have you convinced that credit union student loans are an ideal choice, but there are also some disadvantages to consider. Here are three possible cons of using a credit union to fund your education.
1. You need to be a member
To use a credit union’s services, you must first become a member. Many credit unions might simply require you to make a small donation to a chosen charitable organization to become a member. Others might only accept members who live in a given area, work for a specific employer, or are affiliated with a local school, labor union, or another group.
Some credit unions also require you not just to become a member but to have other products with them, such as a checking account. If you don’t want to start a full banking relationship with a credit union, meeting these requirements might be inconvenient.
You can use MyCreditUnion.gov to research credit unions in your area and find out membership requirements.
2. Finding a student loan might be more challenging
Big banks typically operate in nearly every state, and almost everyone has heard of them. But with local credit unions spread across the country, finding the best deal on a loan can be a big challenge.
To complicate things further, not all credit unions will offer the kinds of loans you’re looking for. Some credit unions don’t offer student loans at all. Others might limit loan options to undergraduate students, or only offer refinancing loans.
However, services such as LendKey allow you to shop for loans among many different community banks and credit unions. This streamlines the process and makes it easier to find a credit union to borrow from. You could also check out this list of nationally available credit union student loans as you start your search.
3. Credit unions might not offer the same perks as other lenders
Big, private lenders have the revenue and customer base to support special programs and services that credit unions might not be able to match.
For example, private lender CommonBond offers the CommonBridge program, which can help you earn extra income if you find yourself unexpectedly unemployed. It matches members with consulting opportunities at CommonBond, helping you earn professional experience and a little extra cash.
Though help during unemployment is nice, the most important student loan features to look for include low interest rates, minimal fees, and flexible repayment terms. If a credit union offers these, it might be right for you.
Need a student loan?Here are our top student loan lenders of 2019!
|2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7% variable Annual Percentage Rate (“APR”): 96 monthly payments of $179.28 while in the repayment period, for a total amount of payments of $17,211.20. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 5/22/2019. Variable interest rates may increase after consummation.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
4 Important Disclosures for Discover.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.99% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.50% – 11.35%*,3||Undergraduate and Graduate|
|4.84% – 13.49%4||Undergraduate and Graduate|
|4.25% – 11.30%5||Undergraduate and Graduate|
|4.50% – 9.47%6||Undergraduate and Graduate|
|3.74% – 9.72%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.32%8||Undergraduate, Graduate, and Parents|