A credit union student loan for parents is a type of loan meant for parents who want to help their child pay for college but may not have enough money in savings or a 529 plan to cover all the costs. The loan can be used to pay for tuition, books, living expenses and other costs associated with attending college.
Typically, to get this type of loan, you must be a member of the credit union when you apply for the loan as well as meet credit requirements. Your child must also be enrolled in college. Sometimes, a cosigner may be required if you are unable show a strong credit score and history to qualify for the loan.
The first step to a credit union parent student loan is to apply for a credit union membership. Start by going to the credit union's website or visiting their local branch to see if you qualify for membership. Check around, because different credit unions will have different membership requirements and not meeting the requirements at one, does not mean you will not eligible at another. The loan amount you can borrow will depend on the cost of attendance for your child’s school, less any other aid received.
The loan will start to accrue interest upon disbursement, and this is important to keep in mind when choosing when to you will begin making payments. It’s recommended you begin repayment immediately to minimize interest costs; however in some cases the loan payments can be deferred until after your child graduates or falls below half-time enrollment at college. If you opt for this, keep in mind that interest accrued during deferment will be added to the principal each month, and when repayment does begin, this will ultimately make the loan more costly.
What is a Credit Union
Credit unions are financial institutions that offer many of the same services as traditional banks. However, there are some key differences between credit unions and banks. Credit unions are not-for-profit organizations that are owned by their members, while banks are for-profit organizations owned by shareholders. This means that credit unions can focus on providing better services to their members, rather than generating profits for shareholders.
Credit unions provide a wide range of services to their members including savings accounts, checking accounts, loans, and other financial products. They also offer lower fees and interest rates than traditional banks because they don’t need to generate profits for shareholders. Additionally, many credit unions have community-focused initiatives such as financial education programs or low-income housing projects that benefit their members and local communities alike.
How to Apply for a Credit Union Student Loan for Parents
To apply for a credit union student loan for parents, you'll need to follow these general steps:
- Find a credit union that offers student loans for parents. You can do this by searching online, contacting your local credit union, or asking for recommendations from friends or family members.
- Check the eligibility requirements for membership first (as this is necessary to apply for the loan) as well as ensure you understand what is needed to qualify the loan itself, such as credit score, income and credit history.
- After becoming a member of the credit union. Fill out the loan application, which will ask for information about your income, employment, and credit history. You may also need to provide information about your child and the school they will be attending.
- If needed, provide a cosigner for the loan. A cosigner is someone who agrees to be responsible for repaying the loan if you are unable to do so.
- Wait for the credit union to review and approve your application. This process may take a few days up to several weeks.
- If approved, sign the loan agreement, and provide any additional paperwork that may be required, such as proof of income or identity.
- Once the loan is disbursed, make sure to make timely payments according to the terms of the loan agreement.
Pros of Credit Union Student Loans for Parents
Here are some of the potential benefits of using credit student loans to finance your child's education:
- Lower interest rates: Credit union student loans may offer lower interest rates than other loans from traditional banks, which can save you money over time.
- Membership benefits: Credit unions can offer perks for members like great customer service or resources to help you learn more about managing your money.
- Reduced or no loan fees: Credit unions may not charge the same fees or any fees vs other parent loans, which can come with fees adding to the cost of the loan.
Cons of Credit Union Student Loans for Parents
Some disadvantages of credit union student loans for parents may include:
- Limited availability: Some credit unions do not offer student loans, much less parent student loans.
- Membership requirements: To apply for a credit union parent student loan, you need to join the credit union first, which will have membership requirements that you need to meet.
- Credit requirements: Credit unions will be mindful of who they lend money to, so if you don’t have a strong credit, you may need a cosigner who has good credit and who can responsibly take over the loan if you’re unable to pay it yourself.
- Fewer online tools: Some credit unions might not have as many online tools as other larger traditional banks that are useful to help you manage your loan .
Direct PLUS Loans for Parents
Before going straight to a credit union you will want to compare credit union parent loans to Federal Direct PLUS Loans offered to parents to ensure you’re making the right choice for your situation.
Parents of dependent undergraduate students can take out a Direct PLUS Loan to help pay for college or career school. These loans are issued by the federal government, and they allow parents to borrow up to the full cost of attendance for their child's education minus other financial aid received.
To be eligible for a Direct PLUS loan, the parent must meet the general requirements for any federal student aid as well as not have an adverse credit history. The student must also be enrolled at least half-time in an eligible degree or certificate program at an accredited college or university.
The application process for a Parent PLUS loan is relatively straightforward. Parents will need their child to complete the Free Application for Federal Student Aid (FAFSA®) first, which will determine how much financial aid their child is eligible to receive.
Then, you will need to apply for the Direct PLUS Loan for parents, if approved for the loan you will need to sign a Direct PLUS Loan Master Promissory Note (MPN) stating that you agree to the terms of the loan.
Taking out a Parent PLUS loan can be beneficial if it helps you cover your child's college expenses without having to take out a potentially more expensive private loan or use other forms of debt such as credit cards.
Credit Union Parent Loans vs. Federal Parent PLUS Loans
Here are the main differences between credit union parent student loans and Direct PLUS parent loans that you should keep in mind while comparing your options:
- FAFSA: Your child MUST complete the free application for federal student aid (FAFSA) before you can apply for a Parent PLUS Loan, this application may not be required if you are applying for a credit union parent student loan. All federal student loans (parent or otherwise) will require the FAFSA to be completed by the student.
- Interest rates: Federal Parent PLUS loans have a fixed interest rate that is set by federal law each year. Credit union parent loans may have either a fixed or variable interest rate, and the amount of interest charged will vary by lender, current market conditions and your creditworthiness.
- Fees: Federal Parent PLUS loans have an origination fee of 4.228 of the loan amount, that is deducted from the loan before it is dispersed to the school or in some cases directly to you the parent. Credit unions may or may not charge fees, the decision to do so will depend on the lender.
- Repayment options: Federal Parent PLUS loans offer several repayment plans for parents. Credit union parent loans may offer different repayment terms to adjust the payment amount but will not likely have as many options as the federal loans.
Overall, Federal Parent PLUS loans offer more flexibility and protections than credit union parent loans, but they may also have higher fixed interest rates and an origination fee.
Eligibility requirement for Credit Union Student Loans for Parents
Each credit union will have different rules and requirements for approval. But in general, you’ll most likely need to meet the following:
- Membership: You need to join the credit union first, which might have certain rules or fees associated with becoming a member.
- Good credit: You or your co-signer should have good credit and a strong credit history to be eligible for a loan.
- Income: You will need to show proof of income to get a loan.
- Citizenship or residency: Typically you will need to be a U.S. citizen or legal resident of the United States to be eligible for a loan.
- Education program: Your child must be enrolled in a qualified educational program at a recognized institution.
Depending on the credit union you're working with, more specific eligibility requirements may also apply. In general, though, anyone with at least average credit should be able to access a loan like this to help cover educational expenses.
Interest Rates and Repayment Terms for a Credit Union Student Loan for Parents
Credit union student loans for parents have different interest rates and repayment terms depending on the credit union and the specific loan product selected. Compared to traditional bank loans, these loans tend to offer lower interest rates, which can potentially save parents a significant amount of money in the long run.
Interest rates offered are typically tied to current market conditions and will most likely be competitive with other credit unions and may be better than those offered by traditional banks. Loans will have the option of either a fixed or variable interest rate. Fixed rates will not change over the life of the loan, while variable rates can fluctuate with the market, meaning they could go up or down during the loan and this could impact your ability to pay if you are working within a tight budget.
Repayment terms for credit union student loans for parents can vary from potentially as few as 5 years to upwards of 10-15 years or more depending on the lender . Regardless of the repayment terms, interest will begin accruing immediately upon disbursement. Some credit unions allow parents to defer payments until their child finishes college or drops below half-time enrollment. Others may not allow a deferment period at all but may allow interest only payments while your child is in school.
Credit Unions That Offer Parent Student Loans
Not all credit unions will offer student loans including parent student loans. Make sure to shop around and find a credit union that not only you can join, but one that also offers the parent student loan for you to apply for. Below a just a few credit unions that offer parent student loans but surely there are more if you look.
Harvard University Employees Credit Union
- Benefits: No application or origination fees, zero pre-payment penalties, and funds are sent straight to your school.
- Considerations: Having a cosigner is an option, but keep in mind that this credit union requires a strong credit score and history to qualify.
First Credit Union
- Benefits: First Credit Union offers no origination or prepayment penalty fees, multiple repayment options and competitive rates.
- Considerations: In order to qualify, the you, and/or your cosigner must be U.S. citizens. Other eligibility requirements include a credit check and students must be studying at an eligible school or study-abroad program.
Texas Credit Union
- Benefits:. Borrowers will have a choice of fully deferred, interest only, or immediate repayment plan.
- Considerations: The you must be a permanent Texas resident and must share proof of income. Other loan requirements will include, a credit check, employment history and proof of income.
Overall, credit union parent student loans can be a great option if you want to help your child pay for college. However, it's important to carefully consider the potential risks and benefits before taking out a loan. With careful planning and consideration, you can help your child achieve their educational goals without sacrificing your financial stability.