By CityTownInfo.com Staff
August 20, 2009
As families struggle with rising tuitions and shrinking credit, some are taking out student loans through credit unions.
"The banks have exited the student loan market in a big way," explained Paul Gentile, president and CEO of the New Jersey Credit Union League, who was quoted in The Wall Street Journal [from an article originally located at http://online.wsj.com/article/BT-CO-20090806-717790.html]. "The amount of applications we're getting is overwhelming."
Some credit unions participate in the federal loan program, but recently many have started offering private loans, and often with better rates than other private lenders. More than 80 credit unions, for example, are participating in the Credit Union Student Choice, a student lending program where the average rate for a variable loan is 5.8 percent, with no origination fee.
Credit unions differ from banks in that they are often smaller, and their owners are their members. Borrowers need to belong to the credit union in order to apply for a loan.
In New Jersey, credit unions recently created a network of pooled capital and uniform loan pricing. Applicants can even get better rates for good grades they receive in college.
Meanwhile, a law recently signed in Connecticut gives credit union student loans the backing of a state bonding agency, meaning that credit unions can offer more student loans at lower rates. The legislation guarantees 20 percent of the credit union student loans, reports The Herald in New Britain, Connecticut.
"It's a unique program," said Tony Emerson, president and CEO of the Credit Union League of Connecticut, but emphasized that it's not intended to replace traditional student lending--only to supplement it. Twenty-four credit unions throughout Connecticut are signed up for the program.
Emerson told the Journal that the credit unions have agreed not to charge more than 5.75 or 6 percent for the first five years, and some are maintaining those rates for ten years or more.
Mark Kantrowitz, publisher of FinAid.org, told the Journal that credit union loans may be worthwhile after exhausting government loan options. He pointed out that unlike federal Stafford or PLUS loans, private loans almost always offer variable rates, which can change dramatically over a term.