It Pays to Shop Around for Student Loans
Topping the $1.5 trillion mark, student loan debt is now the second highest type of household debt (after mortgages) in the U.S. Along with the burgeoning growth of student debt is a steep climb in student loan delinquency rates. Economists at the Federal Reserve Bank of New York set out to learn more about the patterns associated with both of these growth trends.
As they grow, the importance of each multiplies, so it shouldn't be a surprise that student debt has become a topic of debate for presidential hopefuls. How it affects the borrower is that, delinquent loans (or default) could limit his or her ability to obtain other loans or find a job or even housing, as many require credit checks. But it also affects the economy. As the debt sours, it can put a drag on personal consumption and, ultimately GDP.
According to the New York Fed's Quarterly Report on Household Debt and Credit, student loan balances grew by $10 billion in the fourth quarter 2019 alone, $51 billion for all of calendar 2019. What's more, 11.1% of aggregate student loan debt was 90 days or more delinquent or in default.
Student loans in the Fed's quarterly report include loans to finance educational expenses provided by banks, credit unions and other financial institutions as well as federal and state governments. And while student loan delinquencies have surpassed both credit card and mortgage delinquencies, they are likely understated because about half are currently in deferment, grace periods or forbearance.
Curiously, borrowers in their 40s seem to be having the hardest time keeping current. Those age 18-29 appear to be doing the best, but it's hard to say as many are temporarily not included in the repayment cycle (see above). Delinquent student loans for borrowers age 30-39 and 50+ are both hovering around 9%.
Other recent reports indicate possible discrimination against Associates Degree seekers as well as bias against colleges that are traditionally for minorities. We cannot verify those claims. But, we can suggest an often overlooked avenue for a private student loan-a credit union. Granted, you have to be a member, and not all credit unions offer student loans. But they are worth a look.
4-Star Honea Federal Credit Union in Hawaii (see page 7), for example, launched its student loan program in 2014, and after just six years, those student loans account for almost 60% of its entire loan portfolio. According to its September 2019 call report, the current rate on these loans is just 4.80%, but there are two caveats:
- the rate is variable; and
- Membership in Honea FCU is very limited: Check here to see if you qualify.
5-Star Navy FCU, Vienna, VA (not listed on page 7) has the most $ outstanding in non-federally-guaranteed student loans at $727.5 million (but less than 1% of its total loans). As of this writing, Navy FCU is granting these private student loans for as little as 4.62% variable or 5.99% fixed. It also offers to refinance existing student loans (either private or federal) starting at 3.14% variable or 4.29% fixed. Find out if you are eligible here: Navy FCU Membership.
Unlike banks, you have to be a member of a credit union to take advantage of most products (which is why we don't list their CD rates in Jumbo Rate News), but if you are in the market for a private student loan (i.e. not federally guaranteed), it may be worth your time effort to see if you are eligible to join one that offers these loans.
The most recent call report data available indicates that only about 13% of the nation's credit unions do offer them, but the interest rates can be very attractive. While the range is anywhere from 1.99% to 13.62%, over 75% are running from 4% to 8%. Like any kind of loan, it pays to do your homework.
For a report of all credit unions offering private student loans, including websites (if available) and phone numbers, consider Bauer's Credit Union Student Loan Report.