A personal loan can be used to cover various expenses, such as home repairs, vacations, and unexpected bills. It can be a very good way to cover expenses because some loans have lower interest rates compared to most credit cards. But can you use a personal loan to pay for college tuition?
If you need help paying for college, you may be considering taking out a personal loan. However, is this idea a good one? In this article, you will learn everything you need to know about using a personal loan to pay for college tuition.
Should I Use a Personal Loan to Pay for College?
Generally, you should not use a personal loan to pay for college. Most lenders do not allow personal loans to be used for educational expenses.
And even if they allow it, 90% of students do not have a credit score or income to qualify. They do have shorter repayment terms and very high interest rates than regular student loans.
While taking out personal loans to cover college costs may be very tempting, it is not a good idea. Federal ones are always better options.
Also, any lender that makes a financing option for educational purposes has to deal with regulatory red tape under federal law.
However, loans used for personal reasons do not have these rules. This is why most lenders don’t allow it to be used for college.
Why You Shouldn’t Use a Personal Loan for College Reasons
Student and personal loans are very similar because you will borrow money and repay it over several years with interest, but that is where their similarities end. To ensure transparency and fairness, the federal law established guidelines that lenders must abide by to offer loans to pay for college.
Due to these reasons, lenders do not allow students to use it for educational expenses. Even if you find a lender that provides these loans to cover part of your college expenses, there are reasons you will need to reconsider.
- If you do not have good credit and a stable income, it will be very hard to get approved or get a reasonable interest rate.
- When you take out this loan, you will be required to start paying it back within 30 days of getting the funds. And this could be very hard since you are not working full-time.
- It comes with high interest rates.
- You can’t apply for loan forgiveness or income-driven repayment.
- If you do not have good proof of how the loan was used, interest might not be tax-deductible.
Before visiting a personal loan lender, consider other options that fit your current financial situation. There are lots of alternatives to personal loans you can check out.
What Other Financing Option Can I Use for College Apart From Personal Loan?
You can get financial aid for college by submitting the FAFSA (Free Application for Federal Student Aid). This aid does not need repayment, so it is a good option for college.
If you plan to borrow, you should maximize your federal unsubsidized and subsidized loans first. This is because they carry more protections and lower rates. If you still need money and have borrowed all your federal loans, you can go for private loans from credit unions or banks.
If you need money for an emergency in college, you can contact your school’s financial aid office. And discuss the emergency aid options that are available.
Most schools offer completion scholarships, short-term emergency loans, grants, or vouchers. Emergencies that fall under these programs include natural disasters, health emergencies, and death in the family or family job loss.
What Can I Use Personal Loan for in College?
While it is not advisable to use these loans to pay for college, you may be able to use one for nonacademic reasons. You can use it to cover
- Rent
- Groceries
- A personal laptop
- Emergencies
- Vacations
However, know that student loans can cover almost all of these expenses. So, before taking out a personal loan, check out the items you need that could be covered under student loans.
If you decide to take out a personal loan, you will need a stable income and an established credit history. And it may be difficult to apply without a co-signer.
Also, you will need to ensure that you have enough funds available to make monthly payments on time and in full. Try to reduce the amount you want to borrow, especially if you also want to take out student loans.
Additionally, read the fine print before signing to make sure that you are lending within the lender’s allowed-use criteria.
Student Loans vs. Personal Loans: Which is a Better Choice for College?
When it comes to your college expenses, it is advisable to turn to student loans before thinking about personal loans. Student loans are designed to finance higher education. And they can help cover almost every expense you need to purchase in college.
Borrowing personal loans as a college student can lead to huge debt. If you still decide to go for it, it is advisable to borrow only essentials.
