Whether it’s for paying holiday bills or a new biology textbook, most college students are eventually bound to search out a loan. If so, borrowing from a credit union is an option that can offer advantages for first-time borrowers but frequently lacks consideration in comparison to traditional bank loans, credit experts say.
"Joe Student is always misspending with his debit card," says Dave DiCosola, a Generation Y Credit Union consultant. "Most students just need some money to get by and have never had a loan before."
DiCosola is also the president of First Miami Student Credit Union, at Miami (Ohio) University. One of two student-run credit unions in the country, First Miami offers students an education in financial literacy. Often though, students fail to consider credit unions when they are seeking loans, he says. His colleague has noticed the same thing.
"We use the analogy that credit unions are the Buicks of the financial world and banks are BMWs," says Doug Brackman, CEO of First Miami, and co-founder of Generation Y Credit Union Consulting. "Nobody wants to shop for a Buick."
A 2003 Harris Poll found that half of those eligible for credit unions say they’re either "not very familiar" or "not at all familiar" with what credit unions are or with what services they offer, according to Katye Long, a Credit Union National Association spokesperson.
"College students are often not considering a credit union as a loan source," says Long. "The reason for this is that they may not be aware of credit unions in general."
Unlike banks, a credit union is a cooperative financial institution, owned and controlled by the people who use its services – its members, who each hold an equal stake in the union. Operating as non-profit, credit unions are an option students should consider when funds run low, proponents say.
"They are designed for middle-to-low-income people," says DiCosola. "Banks treat millionaires the same way, and they charge them the same way."
Credit unions don’t serve the general public; instead they serve their members, the equivalent of bank customers, who qualify through employers and organizational affiliations. Profits are then turned into higher dividends (savings account interest) and members may receive lower rates on loans, Long says.
At First Miami, students are often looking for loans averaging around $1,500, says Brackman, to take a vacation or buy a laptop for class.
"We don’t get too many student loans, but we see some car loans," he says. "Credit unions are really the best for small loans."
However, Fritz Elmendorf, a spokesperson for the Consumer Bank Association, which represents banks nationwide, warns that while credit unions are enticing to students because they offer lower fees, it is not always the case.
"Students are particularly interested in ATM access," he says. "Credit unions typically only have one office. It’s a question of where are the ATMs and how much do you pay to use them."
Online banking also attracts students; and even though credit unions offer the service, banks have more options, such as e-mail account alerts, he says. Still, credit unions offer their own advantages, such as lower rates on credit cards and a chance for young people to learn about the financial process.
"At credit unions we realize it is almost an education process," says DiCosola. "Sometimes we give members a break on fees; they will pile up and you have to help the kid out."
He likens credit scores and loans to a life-long game. "If you don’t know the rules how do you plan on winning? This is a game you play if you want to or not, and you have to be educated early."
The first step to learning the game is establishing credit, done most easily by getting a credit card with a small spending limit.
"Buy a t-shirt, use your credit card and pay it off right away," says Brackman. "It is so much easier to get a loan when you start off with higher credit."
Long says there are marked advantages to getting an initial credit card at a credit union. According to CUNA’s 2004 Credit Union Fees Survey, credit unions also charge less in fees for their credit cards. The average late fee for a regular card at a credit union is $15.68 vs. $36.50 at a bank, while the average over-credit-limit fee is $15.50 at a credit union vs. $29.23 at a bank, the survey found.
"Furthermore, the average grace period at a credit union is 24 days vs. only 21 days at a bank," says Long.
Most of the new members walking into First Miami have a thin grasp of financial issues and, as a student once "hammered by credit cards," DiCosola explains that makes him nervous.
"Young people think short-term," he says. "They don’t realize what its like to have credit left over in 40 years. It’s frustrating as a person who is involved in the [finance industry]. It is also why I’m doing my part to help."
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