Credit Union Student Loans: Pros, Cons, and How To Apply

There are roughly 4,500 federally insured credit unions serving about 142 million members in the United States, according to the latest data from the National Credit Union Administration. Credit unions offer many different financial products, and while those products may differ from one institution to the next, many offer student loans.

There are both pros and cons to credit union student loans. This guide will help you decide if they're right for you.

What are credit union student loans?

Credit unions are not-for-profit financial institutions that are owned by their members. You typically can't borrow from a credit union, or open any financial accounts with one, unless you meet its membership requirements and pay any membership fees the credit union charges.

Many credit unions offer student loans as one of the financial products available to members. These can include:

• Undergraduate loans
• Graduate loans
• Parent loans
• Medical and dental school loans

“Credit unions can be good places for student loans, as the rate may be a bit lower than their for-profit lending counterparts,” explains Jack Wang, a wealth adviser with Innovative Advisory Group specializing in college financial aid.

Since these are still loans, you must repay the amount you borrow — including student loan interest that accrues. Before you take on any debt from a credit union or other source, you should carefully consider the pros and cons to confirm you understand your payoff obligations.

Current private student loan rates

Who is eligible for credit union student loans?

Eligibility requirements for credit union student loans vary based on the specific institution. To determine if you're eligible, you'll need to apply with that lender. However, there are some common traits most credit unions require, including:

• Credit union membership (or a plan to become a member after approval)
• Current enrollment in, or graduation from, an eligible school
• U.S. citizenship or legal resident status
• Age of majority in your state
• Good or excellent credit
• Proof of income sufficient to repay the loan

If you're applying for a student loan with a credit union and you don't meet some of these requirements — especially those related to credit or income — you may be able to apply with an eligible cosigner who does meet the credit union's standards.

Benefits of credit union student loans

There are many benefits to getting your student loan from a credit union. These institutions typically offer a choice of fixed- or variable-rate student loans, so you have the flexibility to decide what's best for you. Rates are often lower on these loans, and they generally have lower fees.

Because credit unions are member-owned and more focused on customer service, they usually offer a more personalized customer experience. Plus, it can be easier to get approved to borrow with a credit union if you're already a member and have a relationship with the financial institution. In addition, you can visit your local branch if you want in-person customer support.

While you can often get a better rate and other perks, it's still important to compare all your choices. “As always, it pays for borrowers to shop around,” Wang advises.

Downsides of using a credit union for student loans

There are also some disadvantages to using a credit union for student loans.

Credit unions have membership requirements that banks don't — and if you don't want to become a member or aren't eligible to do so, then you won't be able to borrow.

One of the biggest downsides is that credit union loans are still private student loans, meaning you won't have access to federal borrower benefits.

“There are advantages to federal student loans,” says Clifford Cornell, a certified financial planner (CFP) and associate financial adviser at Bone Fide Wealth. “For undergraduate loans specifically, they can be subsidized, meaning no interest will accrue during your education and even six months after graduation. Any private loan will not qualify for any sort of loan forgiveness either.”

How to apply for a student loan from a credit union

Application processes vary by credit union. Most allow you to apply online, but you must provide basic information, including:

• The school you're attending
• The amount you want to borrow
• Your Social Security number, to make it possible to check your credit
• Details about your job or other income sources

If you can't qualify for a credit union student loan on your own, you'll also need to submit your cosigner's information.

Before applying, you should shop around and get quotes from several different private student loan lenders to make sure that you get the best loan terms for your situation.

Credit union vs. private lender student loans

The lower your rate and the better your loan terms, the easier it'll be to pay off student loans. That's why it's important to understand the difference between credit union loans and those from other private lenders.

Student loans from credit unions and lenders like banks are all private loans. These loans are issued by private organizations, rather than the government. As a result, borrowers won't receive the benefits federal student loans offer, including access to loan forgiveness options and income-driven repayment plans, as well as the ability to change repayment plans as needed.

The biggest difference between credit unions and other private student loan lenders is the ownership of each institution. If borrowing from a member-owned institution is appealing to you, then a credit union student loan may be best for you. However, if you don't want to be required to be a member to borrow, then a loan from a bank or online lender will likely be a better fit for you.

If more individualized customer service is a priority, then you may want to take out a credit union student loan. If you don't care about having access to a local branch for customer service, then other lenders could suit you more.