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It is possible to take out a personal loan for school expenses. But that’s hardly ever a better option than a student loan. (iStock)
When financial aid, grants, and scholarships don’t cover the full cost of your college education, federal student loans should always be your first borrowing option. But if federal student loans, which have borrowing limits, aren’t enough, you might be wondering whether you should get a personal loan or a private student loan to cover any shortfall.
While you can get a personal loan with strong credit, a stable income, or a co-signer, personal loans are hardly ever a better option than a private student loan. This guide will help you understand the advantages of a student loan over a personal loan when it comes to paying for college expenses.
Can I get a personal loan for school expenses?
People consider personal loans for a number of reasons. Personal loans generally have lower interest rates than credit cards. And they’re flexible, which means you can use them for pretty much anything, even school expenses.
While it is possible to get a personal loan as a student, it probably won’t be easy. Most personal lenders require good credit, a stable job, and a stable income.
Credible makes it easy to find private student loans and compare rates from several lenders.
Advantages of student loans for education over personal loans for students
The biggest advantage of using student loans instead of personal loans as a student is that student loans generally offer lower rates. In fact, personal loan interest rates are typically in the double digits, while student loan rates are typically well below 10%. By choosing a student loan, you can potentially save thousands of dollars in interest.
Plus, it is much easier to qualify for student loans with no income or no credit history. And they have flexible repayment options and longer repayment terms. If you take out a student loan, you can have up to 10 years to pay it off. A personal loan, on the other hand, will likely need to be repaid within one to five years.
Why You Don’t Need a Personal School Loan: You Can Pay Your Living Expenses With Student Loans
University costs go far beyond tuition, accommodation, and school supplies. When your school decides how much you can borrow, it will look at what is called “the total cost of attendance”. This usually includes things that may not seem directly related to school, such as personal expenses and transportation.
This means that once you have paid your tuition, housing, books, and other school expenses directly from your student loan funds, you can use any remaining money to cover your personal expenses, even a few. something as ordinary as groceries for your dorm.
The difference between personal loans and student loans
Here’s a more in-depth look at how personal loans and student loans work, and how they differ.
Personal loans
With most personal loans, you get a lump sum up front. You repay it in monthly installments over an agreed period, which can range from a few months to several years or even more.
Personal loans can help pay for school expenses, car repairs, medical bills, vacations, or any other expense. But it can be difficult to get them approved, unless you have good credit and a consistent income.
Most personal loans are unsecured, which means that you don’t have to post any collateral to get the loan. Some, however, are unsecured, which means that you will need collateral to get the loan.
The interest rates for personal loans can be high, depending on your credit. For example, in the week of August 30, 2021, five-year fixed rate personal loans averaged 16.51% for borrowers with good credit (720 or higher) who used the Credible Market to select a lender. .
Student loans
Student loans are designed to help students meet the cost of school-related expenses. Although they can only be used for school, they are generally easy to obtain even if your credit is not at its best or you are low on income.
Federal direct loans should always be your first option for borrowing for school fees. If federal direct loans do not cover all of your expenses, you can opt for private student loans. The interest rates for private student loans tend to be lower than for personal loans. For example, in the week of August 30, 2021, 10-year fixed rate private student loans averaged only 5.29% for borrowers with good credit who used Credible.
Federal student loans to consider
If you need a loan for school-related expenses, always exhaust your federal student loan options first. These include:
Federal Direct Subsidized Loans
Federal Direct Subsidized Loans are intended for undergraduates in financial need. If you are eligible, the government will cover interest during certain periods, such as when you are enrolled in school at least part-time, and a six-month grace period after leaving school.
Federal direct unsubsidized loans
Federal Direct Unsubsidized Loans are very similar to Federal Direct Subsidized Loans, but they are available to undergraduates and graduates. You are also not required to demonstrate a financial need to benefit from it. With unsubsidized direct federal loans, you are responsible for paying all interest on the loan.
Federal direct loans PLUS
Graduate PLUS loans are intended for graduate or professional students, and the student is the primary borrower. Parent PLUS loans are for dependent parents of undergraduate students, and the parent is the primary borrower. These loans are designed to cover the remainder of education costs after borrowing the maximum limit of unsubsidized and subsidized loans.
Private student lenders to consider
Once you’ve exhausted your federal student loan options, you can turn to private student loans. These eight credible partner lenders offer private student loans that can help pay for education costs when federal loans aren’t enough.
Ascension
Loan amounts: $ 2,001 to $ 200,000
Loan term: five, seven, 10, 12, 15 or 20 years
Discounts: graduation reward, automatic payment discount
Fees: No application, origination or disbursement fees
Citizens
Loan amounts: $ 10,000 to $ 750,000
Loan term: five, seven, 10, 15 or 20 years
Discounts: Autopay discount, loyalty discount
Fees: No application, origination or disbursement fees
College Avenue
Loan amounts: $ 1,000 up to 100% of tuition fees certified by the school
Loan term: 5 to 15 years
Discounts: graduation reward, automatic payment discount
Fees: No application, origination or disbursement fees
Custom choice
Loan amounts: $ 1,000 to $ 99,999 per year
Loan term: Three or five years
Discounts: automatic payment discount, graduate principal discount
Fees: No application, origin or delay fees
EDvestinU
Loan amounts: $ 1,000 up to 100% of participation fees
Loan term: Seven, 10 or 15 years
Discounts: automatic payment discount
Fees: no application, origination or disbursement fees
INVESTED
Loan amount: $ 1,001 up to 100% of the cost of participation
Loan term: 5, 10 or 15 years
Discounts: automatic payment discount
Fees: late fees and return payment fees, but no request, origination or disbursement fees
MEFA
Loan amount: $ 1,500 up to the certified cost of participation
Loan term: 10 or 15 years (undergraduates), 15 years (graduates)
Discounts: None
Fees: No application, origination or disbursement fees
Sallie mae
Loan amounts: $ 1,000 up to 100% of tuition fees certified by the school
Loan term: 10 or 15 years
Discounts: automatic payment discount
Fees: No application, origination or disbursement fees
You can compare the private student loan rates of these lenders with the help of Credible.
When it makes sense to get a personal loan
While student loans are almost always the best option for paying for college expenses, personal loans can be invaluable financial tools in other situations.
After leaving school, a personal loan can be a good option for a number of uses. If you have a lot of high interest debt, for example, a personal loan could help you consolidate it into one affordable monthly payment. You can also use a personal loan to pay for medical bills, home repairs, or expensive purchases like furniture or appliances.
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