Private loans are the worst type of student debt, but the best place to get them may be your local credit union. Like most credit union products, their loans are usually a better deal with more favorable terms than similar loans from bigger banks.
Some credit unions participate in the federal loan program and, in the last six months, a growing number also have started offering private loans because of member interest. In some instances, the credit unions are working in groups or with states to make the loans available, often with better rates than other private lenders.
For example, more than 80 credit unions nationwide are participating in the Credit Union Student Choice, which provides undergraduate loans. The average rate for a variable loan was 5.8%. None had origination fees, which typically range from zero to 6%. A borrower needs to belong to a credit union to apply for a loan. Unlike many big banks, credit unions often keep the loans on their own books.
Don’t even consider private loans until you’ve exhausted all other options. Federally backed loans are always the gold standard, in the following order: subsidized loans, unsubsidized loans, and then PLUS loans. If you need to take out a private loan, go over the terms with a fine-toothed comb and pay special attention to the sections dealing with interest rates and repayment options.