Credit union student loan refinancing: does it make sense for you?
After graduation, you have 6 months before you have to start chipping away at your student loans. Once there’s some financial stability in your life, you might start milling around whether it makes sense to refinance, with one option being at a local credit union. Refinancing can help shrink your debt mountain into a hill by lowering the interest rate to what’s currently available.
Below, we will briefly go over the pros and cons of getting a credit union student loan.
Pros with credit union student loan
- Credit unions are not-for-profit entities. That means they prioritize people over profits, so the chances of one committing financial crimes at the cost of customers is pretty low. If you aren’t familiar with big banks committing financial crimes, here’s a refresher with Wells Fargo’s fake account scandal last year. Better yet, take a look at the LIBOR rate scandal, which would have likely affected your variable rate loan (if you had one) a few years ago.
- They are member-owned. Everyone who’s a part of one is actually a part owner, kind of like a country club. Membership fees are typically very low (think $10 or so).
- The fail rate of credit unions during our last financial crisis was only 1/5 that of commercial banks, according to this research. Even though a lender failure would not affect much with your actual loan, it may come as a surprise if the name on your bills suddenly changes.
- You can potentially get the lowest starting variable interest rate with a credit union student loan.
- They are local, so, likely to support organizations in your area.
- Their local status also holds them to a higher ethical standard than bigger banks. If they do something questionable. they answer to the community.
Cons with a credit union
- While it won’t affect your actual loan much, the technology at a credit union likely won’t stack up to that of a big bank. I can verify since we do our banking with a local CU and comparatively it’s not even close to Wells Fargo.
- Refinancing your loan with a private one causes you to lose federal loan benefits. Right now, because of the COVID-19 pandemic, there are some extra benefits that a lot of people can’t afford to give up. These include the 0% interest rates on federal loans, no payments coming due right now, access to possible loan forgiveness, flexible repayment plans, and loan discharge options.
- You may need to live in the same state as one or the state next door to use a credit union. The good news is that there are companies and technologies out there that can match you with a fitting credit union for refinancing so there’s no guesswork.
- While some people like local, others want the national and international presence of big banks, which CU’s just don’t have.
As with any refinancing process, you would begin by checking your best rate (without affecting your credit score) and start there. Then, once you find a credit union that makes sense, you’ll need to provide things like your income, credit score (typically, lenders like to see something around at least 650) and debt-to-income ratio, among other personal information in the application process.
If you think that it makes sense to find a local credit union as your refinancing partner, you can save a lot of time in the process with a company called Lendkey.
Their platform allows you to enter some brief information, like where you live, what you earn, your loan amount and what school you went to. Then, they match you up with all of the different options out there for where you could refinance with the lowest rate.