With college costs inflating and many parents having to tighten their belts, students need alternative student funding now more than ever before.
Earlier this month The New York Times reported that overall private college tuition and housing expenses rose by 4.6% this year, despite some schools’ pledge to freeze rates.
Regardless of whether your child’s school maintains tuition fees from last year or increased rates in 2012, going to college has become downright expensive. Twenty or thirty years ago parents dug deeply into their pockets to produce a few thousand dollars in order to front their child’s education. While still expensive, going to college was a little more affordable for the vast majority.
Today, the kids who attended schools for less than $10,000 to $15,000 a year decades ago are facing costs for their own children more in the neighborhood of $50,000 plus a year. For example, although private college Mount Holyoke froze tuition and housing prices, the cost to attend this school is still within the $53,000 range--possibly comparable or even more than what some parents make in a year.
While government student loans are available, sometimes they can only carry the student so far, which produces a gap in funding. That’s where private student loans can help.
“A private student loan will help the student fill in any need above and beyond what the government will issue,” says Mike Long, EVP/Chief Credit Officer at UW Credit Union ($1.6 billion, Madison, WI). “When a gap exists the student will have to finance school some way and a private student loan can provide the necessary support.”
Long adds that private student loan needs appear to be on the rise, keeping pace with exploding college expenses. “Recent statistics show that student lending is the fastest growing loan type on a national level.”
According to a recent CBS News report, securing a credit union private student loan is one of the smartest moves for both students and parents because credit union private student loan programs typically offer lower rates and fees.
“One aspect that differentiates our private student loan program from some of the big lenders is that our rates typically tend to be better and we don’t charge fees,” Long says.
UW Credit Union offers both fixed and variable private student loans-- current variable private student loan rate is 3.78% and fixed sits at 7.49%. Long explains that students defer payments until either after graduation or if they drop down below half time status.
At UW, students can borrow up to $12,500 per year with a maximum amount of $40,000 while in school. “We are extremely mindful of maintaining a reasonable limit because we know how overwhelming it would be to graduate, get a job but then be faced with massive debt,” he says. “We want to make sure the student can cover the cost of college and then be able to make the payments after graduation.” Students have up to 12 years to pay off the private student loan.
Long adds that many students discover UW’s private student loan program through the preferred lender list maintained at numerous local colleges. “The student can go to his or her financial aid counselor to obtain a list of preferred lenders and then shop around for the financial aid situation that best meets their needs.”
What Makes Credit Unions A Preferred Lender with Students (and Parents)
Surprisingly, Long says that not as many credit unions offer private student loans. “There’s the misconception of risk that make some credit unions pull back when it comes to offering private student loans.”
However, Long says that risk is actually minimized at UW because 90% of the credit union’s student loans are cosigned, which means if the student hasn’t secured employment, a responsible adult on the loan can make payments in the interim.
“We’ve been offering private student loans for six years and this portfolio has a lower delinquency and charge off rate than our credit cards.” He adds that one benefit of borrowing through the credit union is that after 36 months of making on time payments, private student loan borrowers can release the cosigner from the agreement.
“It’s the little benefits and extra perks, in addition to low rates and no fees, that make credit unions a preferred lender,” Long adds.
Long believes more credit unions should consider offering private student loans. “Because how could people buy a house without a mortgage or a car without an auto loan? There’s a real need for private student loans and the more options through credit unions, the better.”
What to Consider When Shopping for a Private Student Loan
When shopping for any kind of loan, it’s always important to obtain several quotes to compare and contrast. Also, be wary of teaser rates. While most credit unions don't offer the bait and switch routine on private student loans, some lenders will so read the fine print before signing on the dotted line.
Also, during the application process ask certain questions to help you arrive at a private student loan situation that best serves your needs:
By Gina Ragusa