Key takeaways

  • Institutional loans are a type of private student loan that's distributed by the college or school you're enrolled in.
  • If you don't qualify for federal student aid or have borrowed up to the yearly allotment, an institutional loan may be worth considering.
  • Before you sign on the dotted line, make sure you know all of your school's repayment details and terms.

An institutional loan is a type of non-federal financial aid that a college or university can provide for its students. The loan details will vary based on the school and don’t have the same terms and benefits as federal student loans.

An institutional loan may be serviced by the school or a third-party lender and is only offered to students enrolled. Because of this, it’s important to know what your school offers before relying on an institutional loan and how they differ from other student aid options.

What is an institutional loan for education?

Institutional loans are a type of student loan offered by colleges and universities that help bridge the gap between the cost of attendance and other forms of financial aid the student qualifies to receive. The loan servicer may be the school itself or an agency the school hires to manage its institutional loan portfolio.

As with private student loans, the terms for institutional loans can vary depending on the school that’s offering them. They can come in the form of short-term loans payable in just a few months or long-term loans that you have years to repay.

Interest rates can also vary wildly, with some colleges offering rates as low as 0% while others can charge upwards of 12%.

Pros and cons of institutional loans

Institutional loans can come in handy if you’re not eligible for federal financial aid or you’ve reached your allotment for the current academic year and still have some expenses to pay. That said, there are some potential pitfalls to watch out for, and it’s important to understand both angles to determine if one is right for you.


  • They can be preferable to other private student loans: Depending on your situation, your college or university may offer better terms than what you can get with a different lender. In some cases, you could even get a lower interest rate than what federal loans offer.
  • Some may not require a credit check: In some cases, particularly if it’s a short-term loan, you may not need to undergo a credit check to get approved.


  • No federal benefits: Institutional loans don’t qualify for federal loan benefits, which means you can’t get your loans forgiven or get on an income-driven repayment plan if you’re struggling to make payments.
  • May require a credit check: If you’re applying for a long-term loan, it’s more likely that you’ll need to undergo a credit check, which means you may not be able to get the financing you need.
  • Can be difficult to repay: If you have a short-term loan, you may need to pay it back in just a few months, which could be challenging for some students.

Institutional loans vs. other student loans

When it comes to student loans, it’s always best to start with federal student loans because they generally don’t require a credit check, have standardized interest rates for all who qualify and come with several features that can make repayment easier.

However, if you’ve run out of federal financial aid, you may want to compare institutional loans and private student loans to see how their features compare. In particular, you’ll want to look at the following:

  • Credit and income requirements
  • Loan amounts
  • Interest rates
  • Fees
  • Repayment terms
  • Deferment and forbearance options
  • Grace periods
  • Discharge options
  • Cosigner options
  • Penalties for non-payment

It is important to note that many private lenders allow you to get prequalified with just a soft credit check, which won’t impact your credit score. Institutional loans may not offer this feature, but it can be a good way to compare what your school offers to some alternatives.

How to pay an institutional loan

How you repay your institutional loan will depend on your college or university’s loan program.

When you take out the loan, your school should provide you with the details for repayment. With a short-term loan, for instance, you may just make one payment through your student account with the school, but with long-term loans, you may be able to set up automatic monthly payments.

Before you apply for an institutional loan, contact your school’s financial aid office and gather as much information about the program as possible. Carefully review the terms and fine print of the loan agreement to understand what you’re getting yourself into. Also, look for other opportunities to get financial aid, such as scholarships, grants, work-study jobs and more.