How to Find the Best Credit Union Student Loan

By Elaine Rubin September 15, 2021

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Credit Unions can be a great option for obtaining a private student loan to help cover your educational costs.  Credit Unions are known for offering lower interest rates on loans, lower fees and for delivering great customer service.  While it’s recommended students should always seek out a federal student loan first, as they come with unique benefits, credit union student loans have some unique benefits of their own and are worth considering as a viable option to subsidize any financial gaps left after applying for federal student loans.

A student loan from a credit union might be the perfect solution to borrow for school at lower interest rate than some banks and cover any additional educational costs that exceed the maximum federal aid offered with federal student loans.   Federal loans have annual limits and sometimes do not fully cover the cost of attendance (COA) in a given school year.  In these cases, private student loans, such as those from a credit union are ideal to fill in the financial gap.

Is a Credit Union Student Loan different than other Student Loans?

Federal Student Loans

There are two general types of student loans, federal student loans and private student loans.  Federal student loans are funded by the government.  The interest rate (which is fixed) and other loan terms and conditions are defined by law.  Federal student loans can be subsidized (the interest is paid by the government if you are enrolled at least half-time or more) or unsubsidized (interest begins accruing the moment the loan is funded).  Federal student loans have more options for students who suffer financial hardship during the repayment process.

Private Student Loans

Private student loans are loans offered within the private sector.  Interest rates can be fixed or variable and terms and conditions will vary by lender.  Private student loans are likely to be unsubsidized loans.  This is an important consideration when you determine the type of interest rate for your loan.

You can choose between the fixed interest rate (the same interest rate will apply throughout the life of the loan) or a variable rate (this is likely to be lower than the fixed rate initially but can fluctuate with market conditions during the life of the loan).  With interest accruing immediately, choose the type of interest that makes the most sense for you.  You will want to have the lowest possible balance when you finish school and begin to repay your loan.

When the time does come to repay your student loan, many lenders, including some credit unions, will over an interest rate discount, usually .25% but it can be as much as .5%, for loans that are enrolled into an automatic payment plan.  This means the payment will automatically get deducted from your account each month, ensuring you make on-time, in-full payments.  Some lenders will require you have the account with the same institution you borrowed the money from, others don’t.  Be sure to check these terms before accepting a loan if you want to take advantage of this benefit.

Credit Union Student Loans

Credit unions offer private student loans.  They are unique from other private student loans in that credit unions are not banks.  Private student loans commonly come from banks.  Credit unions are non-profit financial institutions that require their customers be member-owners.  This structure is different from a bank and changes the mission of the credit union, to one of offering value and service to its member-owners versus a bank looking to grow profits (as any for-profit business might).  To become a member, certain criteria must be met such as working for a specific company, belonging to a unique group such as a union or community group or simply living within a given geographic area.

Private student loans from credit union, will look a lot like a student loan from a bank.  The main difference being the loan from the credit union may have a lower interest rate and lower fees.  However, to borrow a student loan from a credit union the student and/or parent will need to be a member of the credit union.  There will be some specific qualifications that need to be met to join and additional criteria such as good credit or a creditworthy cosigner to borrow money for school.

Credit Union Student Loan Cosigners

Many college students have limited or no credit history and will require a cosigner to borrow money for school.  Credit unions, like banks, want assurances the money will be repaid and individuals with strong credit scores help banks and credit unions feel more comfortable about loaning the money.  It’s possible the credit union you choose may require your cosigner also be a member, so make sure to research the requirements before determining where to borrow from.

You may also want to understand if credit union will allow you to release your cosigner at some point.  This will relieve them of the responsibility of paying the loan.  Different lending institutions have different requirements for this, but generally is some length of consistent on-time payments, usually around 24 months but can be shorter or longer, dependent on the lender.  It’s important to note that there are both federal and state credit unions.  Student loans generated from a federal credit union are not federal student loans.  Federal student loans are funded from the United States government.  If you receive a student loan from a federal credit union, know that’s it’s a private student loan, just as if you received it from a bank.

Benefits of Credit Union Student Loans 

Lower Interest Rates and Fees

Credit unions are known for offering great rates for loans and this would include student loans.  This is important as student loans can be sizable and every percentage point or fraction of a percentage point reduction in interest will translate into savings.  Additionally, student loans from credit unions are likely to enjoy lower fees.  As a benefit to its members, credit unions strive to offer manageable fees that are more affordable, than those charged at a bank.

Great Customer Service

Probably the most important benefit of a student loan from credit union is the service provided.  Students are typically new to the world of finance and borrowing and have many questions and concerns about the process, the various options available and about repayment of the loan once school is out.  Credit unions are more likely to offer students personalized information and advice as they proceed through the borrowing process.  The feeling of having a resource available can be invaluable when you are trying to negotiate the world of loans, interest rates, terms, and conditions.

Disadvantages of Credit Union Student Loans

Not all Credit Unions Offer Student Loans

There aren’t too many disadvantages of student loans from credit unions as compared to loans from banks or other private lenders.  This biggest disadvantage might be simply accessing these loans, which could in and of itself deter some people.  Not all credit unions offer student loans.

They may not be in the interest of the membership base, the credit union may not be large enough to fund these types of loans or the credit union may simply choose to allocate its assets to other types of loans such as automobiles, personal loans and lines of credit.  Whatever the reasons, be sure to ensure that the credit union you want to work with does in fact offer student loans and what the options are for you.

Membership is Required

To borrow money from a credit union, be it for a personal loan, automobile, or student loan, you must be a member of the credit union.  This is a non-negotiable term of eligibility to borrow.  To join a credit union, you need to meet specific membership criteria.  That criteria could mean working for a specific industry or company, belonging to a certain union or group, or even residing in a specific geography.

If you personally, do not meet any of these criteria, but have a family member that does, you still have a chance of getting a loan.  Most credit unions will extend membership to immediate family members of existing members and this could be one way of joining the credit union and obtaining a student loan.

Credit Union Reviews:

The real question of determining which is the best credit union to apply for a student loan is understanding which credit unions are available to you (given the membership requirements) and once you know that, comparing them against each other for specific interest rates, fees and other important factors that go into determining where to apply for a loan.

Below are a few select credit unions with a variety of membership criteria that offer student loans for consideration:

Navy Federal Credit Union – Best for Students with an Associates Degree

• Members much be personnel of the armed forces, Department of Defense, veterans, or their families
• Available for associate, undergraduate and graduate degrees
• Choose between variable or fixed interest rate student loans
• Cosigner release after 24 consecutive on-time payments
• 0.25% rate reduction with enrollment in automatic payments
• 10 year loan term

University Credit Union – Best for Students Attending School in SoCal

• Members much be personnel, students, alumni, or their families of select southern California educational institutions
• Available for undergraduate and graduate degrees
• Choose between variable or fixed interest rate student loans
• Cosigner release after 48 consecutive on-time payments
• 0.25% rate reduction with enrollment in automatic payments during repayment
• 5 to 10 year loan term

USAliance Federal Credit Union – Best for Borrowers Looking to Avoid Fees

• Members much live, work or worship in select counties in Massachusetts, Connecticut, and New York
• Available for undergraduate degrees
• No origination or repayment fees
• Easy online application

Lone Star Credit Union – Best for Borrowers who Know they will use the Same Lender Throughout College

• Members much live or work in select counties surrounding Dallas, TX or work for a company that is serviced by Lone Star Credit Union
• Available for undergraduate degrees
• Unique line of credit structure – apply once, borrow all 4 years
• Choose between variable or fixed interest rate student loans
• Cosigner release after 48 consecutive on-time payments

Which Credit Union Student Loan is Right for You?

There’s much to consider when choosing where to apply for a private student loan.  Credit unions certainly offer some unique benefits that make them worthy contenders for your business.  Lower interest rates and fees can translate into a lot of savings over the long haul.  Enrolling in automatic payments may make those already low interest rates, even lower.

Additionally, working with a credit union will also offer you great customer service, not that you can’t get great service at a bank, but with credit unions, it’s members serving members.  This comradery and community will ensure that everyone is valued in the same way.

When deciding to work with a credit union, be sure to check around and see which credit unions you, or a close family member, are eligible for membership with.  Remember you can’t borrow from a credit union unless you are a member.

Carefully read all the terms and conditions of any student loan you are considering applying for.  It’s important you understand all that you are committing to and agree.  These are big decisions and shouldn’t be taken lightly as they can impact your credit score and ability to borrow in the future.