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Can you use a personal loan to pay for college?

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In general, you shouldn’t use a personal loan to pay for college. For one, most lenders don’t allow personal loans to be used for educational expenses, and even if they did, most college students don’t have the income or credit score needed to qualify. While it may be tempting to take out a personal loan to help cover the costs of college, student loans – particularly federal ones – are almost always the better option.

Why you shouldn’t use a personal loan for college expenses

While personal loans and student loans are similar in concept — you’ll borrow money upfront and pay it back over a number of years with interest — that’s where their similarities end.

To ensure fairness and transparency, the Higher Education Opportunity Act of 2008 establishes strict guidelines that lenders must follow in order to offer loans to pay for college tuition. Because of this, personal loan lenders abstain from offering education loans altogether, as they’re not worth the hassle.

But even if you find a personal loan lender that does offers loans to cover some of your other college expenses, there are reasons to reconsider.

You’ll need excellent credit to qualify

Personal loans are based on financial health and credit history, so if you have a weak or thin credit history and don’t have a stable income, it’ll be hard to get a reasonable interest rate or even get approved at all.

With student loans, there are more options open to you. Federal Direct Loans are issued by the U.S. Department of Education and don’t require you to pass a credit check, so almost anyone who is enrolled in school at least half time is eligible for them. That’s why these loans should always be your first option when borrowing money to pay for school.

Private student loans, on the other hand, do require you to have a stable source of income and excellent credit to qualify — just like personal loans — but they tend to have more favorable terms.

Repayment starts immediately

When you take out a personal loan, you’re typically required to start making payments within 30 days of getting the funds, which could be a challenge if you’re not working full time.

With federal student loans, however, you’re not required to make any payments until six months after you graduate. The same goes for most private student loans, with some private student loan companies extending that grace period even further to nine or 12 months.

Higher monthly payments

Although some personal loans have repayment terms of up to 12 years, most lenders limit their repayment terms to five years. This, coupled with a higher interest rate, will make your payments much higher than if you take out a federal or a private student loan, which often have a standard repayment term of 10 years or more.

Interest rates can be on the higher side

Personal loans interest rates can range anywhere from 5 percent to 36 percent. If you don’t have the credit or income needed to qualify for a good rate, you could end up paying a hefty amount on interest alone.

Federal student loans for undergraduate students have a 4.99 percent fixed interest rate for the 2022-23 academic year. And if you qualify for Direct Subsidized Loans, this interest is absorbed by the government while you’re in school. Private student loans can have both fixed and variable interest rates, ranging from about 1 percent to 14 percent, based on credit.

No access to income-driven repayment or loan forgiveness

If you have federal student loans, you can always apply for an income-driven repayment plan to make your payments more affordable. Likewise, if you have federal loans and work for a nonprofit, a government agency or another eligible employer, you could get a portion of your student debt forgiven after 10 years through the Public Service Loan Forgiveness (PSLF) program.

Neither of these options are available if you take out a personal loan to pay for college; if you’re experiencing a reduction in income, it could be harder to stay current on your personal loan payments.

Interest may not be tax deductible

With both federal and private student loans, you can deduct up to $2,500 a year from your taxes on interest paid toward your loans. However, the same can’t be said for personal loans.

Unless you have solid proof that the entirety of your personal loan was used to cover business or qualifying education expenses, you won’t be able to deduct any interest paid in any given year.

What can I use a personal loan for in college?

While you can’t use personal loans to pay for your college tuition, you may be able to get one for some nonacademic expenses. Technically, you can use a personal loan to cover:

  • Rent.
  • Groceries
  • A personal laptop.
  • Emergencies.
  • Vacations.

However, keep in mind that student loans can cover almost all of these things — from textbooks and personal equipment to housing and transportation. Before taking out a personal loan, check whether the items you need could be covered under a student loan.

If you do decide to take out a personal loan, you’ll likely need an established credit history and stable income to get approved. You’ll also need to make sure that you have the funds available to make the monthly payments in full and on time. Try to minimize the amount you borrow, especially if you’re also taking out student loans.

Most importantly, read the fine print before you sign on the dotted line to ensure that you’re borrowing within your lender’s allowed use criteria.

Are there specific personal loans for college students?

Most personal loan lenders don’t offer personal loans specifically geared toward college students, since educational expenses often fall under prohibited use. However, there are personal loans created for those with poor credit or thin credit histories. Keep in mind that while you may get approved for these loans, your interest rate could be in the double digits.

The bottom line

When it comes to college expenses, always turn to student loans before personal loans. Student loans are created for financing a higher education, and they can cover almost everything you’ll need to purchase in your college career.

Borrowing a personal loan as a college student can lead to high-interest debt; if you do decide to apply for a personal loan, borrow for only the essentials.

Written by
Heidi Rivera
Heidi Rivera is a student loans writer for Bankrate. She began her journey in the personal finance space in 2018 and is passionate about collecting data and creating content around higher education and student loans.
Edited by
Student loans editor