Personal loans for students are an option for borrowing funds, but other loan options may make more financial sense. Taking on any debt as a student is a risk that’s best avoided given the potential lack of income most students face.
Student loans must be used to pay for education expenses, like tuition and registration fees. Whereas you can use a personal loan for almost anything — except, typically, the educational expenses covered by student loans.
But you could bridge the gap and use a personal loan to pay for the expenses a student loan doesn’t include, such as room and board.
You can apply for student loans either through the government, as a federal loan, or through a financial institution like a bank, as a private student loan. The funds from these types of loans can only be used to pay for specific educational expenses, such as tuition, registration fees, and other costs associated with attending college.
A personal loan can be used for almost any purpose — with some exceptions. Lenders often place restrictions on using personal loans to pay for certain educational purposes, such as tuition. However, personal loans can be used to cover related educational costs, such as living expenses, books, and transportation.
Both federal and private student loans offer numerous advantages, including lower interest rates, so it usually makes more financial sense to tap these loans first. However, if your student loan falls short, you could cover your allowable education-related costs with a personal loan. While personal loans allow you more flexibility, they often include higher interest rates, which can make the overall loan much more costly.
| Type of loan | Required minimum credit score | Other requirements | Loan amounts | Time to disbursement | What you can use the loan for | Allows co-signers |
|---|---|---|---|---|---|---|
| Personal loans | Varies by lender | Minimum income requirements | Varies by lender | Anywhere from one to several business days, depending on lender | Expenses other than tuition | Depends on the lender |
| Private student loans | Varies by lender | Lender may use minimum income requirements | Varies by lender | Anywhere from one to several business days, depending on lender | Tuition, registration fees, room and board, books, and supplies | Depends on the lender |
| Federal student loans | N/A | Use the FAFSA form to determine eligibility | $5,500 to $12,500/year for Direct Subsidized and Unsubsidized loans for undergraduates, up to $20,500 for graduate loans | Up to 30 days | Tuition, registration fees, room and board, books, and supplies | Yes |
Yes, if you’re a student, you can apply for a personal loan while pursuing your studies. Unlike federal student loans, however, the lender will verify both your income and credit score to determine if you qualify.
If you’re a student, you may need a cosigner to get approved for a personal loan due to limited income and a thin credit profile. A cosigner is another individual — usually a close friend or family member — added to the loan who’ll be responsible for payments, should you be unable to pay. The lender will consider your cosigner’s credit score and income as well, which may increase your chances of approval.
Another method to increase your odds of approval for a personal loan is to obtain a secured loan, versus an unsecured one. A secured loan requires collateral, such as a vehicle or real estate, which can usually get you lower interest rates. But you risk losing your asset if you default on payments.
Personal loans can be expensive — in addition to the interest rate, you need to factor in other potential costs, such as origination fees, application fees, and prepayment penalties. You may want to look into less costly alternatives like federal and private student loans or credit cards with a 0% introductory annual percentage rate (APR). It’s usually best to consider a personal loan as a last resort.
To help you decide, use a personal loan calculator to determine the monthly payment and overall loan cost.
Students can choose to take out a small personal loan, if necessary. Many lenders offer smaller loans starting as low as $1,000.
A small personal loan is often a better alternative compared to short-term loans, such as a payday or pawn shop loan. It’s best to avoid these short-term loans due to the high APR and fees associated with them, plus the immediate payback required.
If you decide that a personal loan is the best choice for you, follow these four steps:
- Compare lenders. Shopping around and comparing lenders is necessary not only to find the best interest rate and repayment terms but also helps you understand any eligibility criteria and additional fees tacked on to the loan.
- Select a loan option. After you’ve compared several lenders, select the one that offers the best fit for your budget. It’s wise to only borrow the smallest amount possible, so you can keep your payment manageable.
- Complete and submit the application. Once you’ve narrowed down the lender, fill out the application and submit the required documentation, which usually includes tax returns for the last two years, income verification, and proof of residence.
- Get your funding. Once approved, you’ll sign the paperwork to release the funds. You could have your money in hand anywhere from the next business day to a week or longer, depending on the lender.
Related: Learn more about getting a personal loan on Credible.com
Both federal and private loans can be used for educational purposes, including tuition, registration fees, room and board, housing utilities, books, and supplies.
A personal loan offers greater flexibility with its uses, from emergencies to debt consolidation. Most lenders restrict using personal loans for tuition but allow you to use them for other education-related expenses. This flexibility can make a personal loan ideal for covering the expenses student loans can’t be used for.
The amount you can borrow depends on the federal student loan you’re applying for. As an undergraduate, the amount of Direct Subsidized and Direct Unsubsidized Loans you can borrow each academic year is between $5,500 and $12,500. Graduate students can borrow up to $20,500 in Direct Unsubsidized Loans annually.
Both private student loans and personal loans are limited by the amount set by the lender, so the loan limits vary from one lender to another.
It usually makes more financial sense to use either a federal student loan or private student loan first, instead of a personal loan. Federal student loans typically feature lower interest rates, don’t involve your credit score, and often offer more flexible repayment options.
You can benefit from lower interest rates with a private student loan as well. Whereas personal loans tend to feature higher interest rates, more fees, and no deferred-payment options.
Before taking out a personal loan for school expenses, it’s a good idea to research your potential eligibility for less expensive alternatives..
If you’re not eligible for a personal loan as a student, you can add a cosigner to the loan. Their income and credit score will be evaluated along with yours and could increase your odds of approval. It’s important that your cosigner understands that they’ll be responsible for the monthly payment if you default.
A secured loan is another option, where you offer collateral to borrow money. Examples of this include real estate or a vehicle, but the lender can seize your assets if you’re unable to repay.
Taking on any debt as a student is risky because of the lack of predictable income for repayment. Consider taking on a credit card or personal loan only after other alternatives — such as scholarships, federal student loans, or additional income options — have been exhausted.
Yes, you can use the funds from a personal loan to pay off student loans, but generally, it’s not a good strategy. Personal loans tend to have much higher interest rates and shorter repayment periods, which could make monthly payments harder to maintain. A better alternative might be refinancing the loan or enrolling in an income-driven repayment plan for your federal student loans.
Related: Learn more about getting a personal loan on Credible.com