I spent the evening reviewing the private student loan interest rates at over 70 credit unions that are currently part of the Credit Union Student Choice network (there are 75 currently listed on their website ). Here is a spreadsheet that lists the credit unions, their min/max interest rates, their floor rates and their index and margins: Download CU_Student_Choice_Rates_Aug09 Note that none of these loans have an origination or repayment fee. This earlier post will be helpful in providing additional context about the structure of these loans.
A few observations after crunching all of these numbers:
- You cannot paint credit unions with one brush and say that they "always have the best deals." As the spreadsheet indicates the range of starting interest rates on these variable-rate loans start at 3.32% and goes up to 11.25%.
- Having said that, over half of the credit unions listed had a maximum starting interest rate at or below 6%, so there are quite a few competitive deals out there.
- Borrowers should not just look at starting interest rates when comparing credit unions since many of them employ a floor rate. This means that if the sum of the index (Prime or LIBOR) + the margin is below the floor rate, than the floor rate kicks in.
- Here is an example: Suppose CU#1 and CU#2 both have a floor rate of 6.0%. CU#1 has a margin of 1ML (one month LIBOR) + 4.0% while CU#2 has a margin of 1ML +2.0%. Even though both lenders would have the same starting rate of 6% (their floor), as interest rates climb CU#2's loan will be a superior choice.
- Credit unions do not utilize wide interest rate bands for risk-based pricing. Their bands had a median differential of 1.5% from lowest to highest. Contrast that with a lender like Sallie Mae where the range of rates runs from LIBOR + 4.0% to LIBOR + 14% or a 10% differential from top to bottom.
- Remember to review the membership requirements before applying for a credit union loan to be sure that you will be eligible.