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With private lenders fleeing the scene, thanks to ongoing lousy credit conditions, credit unions are increasingly picking up the slack in a market they’ve long avoided – student loans. Here’s a road map on how to get the best student loan deal from credit unions.

One road to credit union loans leads to Cambridge, Mass. At Harvard University, school administrators have inked a pact with the Harvard University Employees Credit Union to make student loans available to international graduate and professional students.

The Ivy League giant is hardly alone. Currently, more than 80 credit unions are plugged into Credit Union Student Choice – a financial lending consortium that makes loans to college students.

It’s a pretty good deal for college students. The CUSC loans have an average interest rate of 5.8% and don’t have any origination fees attached (but you do have to be a member to get a loan).

In addition, the quality of the credit union deal you get could well depend on the state where you reside. New Jersey, for example, sets a good example with $50 million in student loans pooled among a network of credit unions. Connecticut recently passed legislation that offers partial guarantees for loans made to college students via credit unions (but only to students who reside in the state or who go to school there). The state has set aside $3.5 million to guarantee 20% of student loans offered by participating members of the Credit Union League Connecticut.

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By and large, government-sponsored student loans may still be your best bet. Terms are usually more favorable for borrowers and loans from Uncle Sam are usually easier to get than from banks. But credit union loans could narrow the gap between government-backed student loans and private student loans.

Other advantages? Credit union borrowers usually get lower APRs on student loans (along with more favorable rates on savings and checking accounts. And credit unions, once again by and large, didn’t take the big credit risks that banks did in the economic collapse, and are in a somewhat more stable financial position to work with students on college loan deals.

You’ll have to be a member of a participating credit union to qualify for a loan. Credit unions, especially those tied to state-sponsored credit union loan deals, may also ask that you complete a Free Application for Federal Student Aid (FAFSA). You may have to fill one out for each academic year that you request federal aid.

Credit union loans for college students are all about supply and demand – in other words, the supply is there because the demand is there. With more and more private lenders leaving the student loan market, credit unions are simply filling the gap.

Expect to see even more credit unions enter the student loan market – it seems like a good deal for both parties. Credit unions get access to newer, younger customers and students get even better deals than they did from banks.

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