Should You Tap Credit Unions for College Loans?

Thanks to the ongoing credit crunch, nabbing a student loan from a bank is increasingly difficult. Since July 2007, 50 banks have suspended private student loans and only about a dozen still underwrite them, according to FinAid.org, which tracks college financing.
One alternative: your local credit union. More commonly associated with serving groups of teachers or employees, credit unions are stepping into the student loan business, hoping to pick up the slack – and profits – that banks are leaving behind. The unions are poised to do so because they never got into mortgages the way traditional banks did, and are now flush with cash. It is “a perfect way for them to get fairly significant return on an asset class,” says Jim Briggs, a financial aid advisor at WiseChoice, which provides students with personalized online college counseling.
This month, at least three credit unions are slated to start offering private student loans, including Southern Lakes Credit Union in Wisconsin, West Branch Valley Federal Credit Union and Merck, Sharp & Dohme Federal Credit Union, which are both in Pennsylvania. In November, New York State’s Higher Education Services Corporation, which offers private education loans to students, added the credit union SEFCU to its roster of choices. (It joined Discover Student Loans and PNC Bank.) The following month, it also added Fynanz, a company that originates, services and underwrites private student loans for credit unions. In total, since May 2008 at least 20 credit unions have entered the marketplace through Fynanz's network and at least 82 have entered through Credit Union Student Choice, which processes credit unions’ loans and provides regulatory compliance.
But beware of pitfalls. For the most part, interest rates on private student loans offered by credit unions are higher than subsidized federal-student-loan rates. What’s more, borrowers’ credit scores often impact the loan’s terms and there’s little leniency with repayment. In some cases, just to apply for the loan, you have to show a letter of acceptance from the college or university, so the timing isn’t always ideal.
Still interested? Here are five issues to consider before signing up for a credit union’s private student loan.


Source