Should I Use a Personal Loan to Pay for My Education?

Should I Use a Personal Loan to Pay for My Education? article image.

Personal loans are incredibly versatile, and most lenders allow you to use them for just about any legal purpose. But if you're a college student or a parent of one and need to finance college costs, student loans are a better option.

Here's what you need to know about how student loans and personal loans differ and how each could impact your financial situation.

Start With Federal Loans

There are two types of student loans you can get: federal and private. In most cases, federal loans are the better choice between the two. Here's why:

  • Federal student loans typically charge lower interest rates than private loans, especially for undergraduate students.
  • The U.S. Department of Education doesn't require a credit check for most borrowers.
  • Federal loans come with several benefits most private lenders don't offer, including access to loan forgiveness programs, income-driven repayment plans and generous forbearance and deferment options.
  • Undergraduate students with financial need may qualify for subsidized loans, which the federal government will pay the interest on as it accrues while you're in school at least half-time, during the six-month grace period after you leave school or fall below half-time enrollment and during future deferment periods.

You can find out how much federal loan money you qualify for by filling out the Free Application for Federal Student Aid (FAFSA). Your school's financial aid office will use the information listed on the application to provide a financial aid package, which will include your student loan eligibility for that school year.

That doesn't mean you should never consider private student loans, though. In some cases, federal loans and other forms of financial aid may not be enough to cover your full cost of attendance, and private loans can help bridge the gap—but proceed with caution.

Private loans may also be worth considering if you're a graduate student or a parent of a student and have excellent credit. In this scenario, you may be able to qualify for a lower interest rate than what the federal government charges.

The Difference Between a Private Student Loan and a Personal Loan

Private student loans and personal loans are similar in that they both require a credit check, and your interest rate and other loan terms depend on your credit and financial situation. However, there are some key differences to understand, especially if you're seriously considering both to help cover college costs or living expenses while you're in school.

Allowable Uses

Private student loans can be used for anything related to the cost of attending college. That includes tuition, fees, room and board, transportation, books, supplies and equipment.

However, they're not meant to be used for things like vacations, consolidating debt (unless it's from other student loans) and making repairs to your home or vehicle. For that, a personal loan would be a better choice for your situation.

Also note: Some lenders explicitly disallow using personal loans for education expenses.


Your interest rate for both private student loans and personal loans will depend on your creditworthiness. But in general, private student loans have a lower interest rate, which means you'll save money choosing one over a personal loan.

Repayment Terms

Personal loan companies may give you up to seven years to repay your debt with monthly payments that start immediately.

With private student loans, however, you may be able to get a repayment plan as long as 15 or even 20 years, which can make monthly payments more affordable.

What's more, some private student loan companies will typically give you the option to start making payments immediately, make interest-only payments while you're in school or simply defer your payments until after you graduate.


The federal tax code allows people with student loans—both federal and private—to deduct up to $2,500 in student loan interest paid each year on their tax returns. Depending on how much you borrow and your income situation when you start making payments, this could provide you with hundreds of dollars every year in tax savings.

In contrast, personal loan interest is never tax-deductible, so you'll miss out on more savings.

Can I Use a Personal Loan to Pay Off a Student Loan?

It is possible to use personal loan funds to pay off student loan debt, but it's generally not a good idea, especially if you have federal loans.

That's because personal loan companies typically don't provide the same deferment and forbearance options as private student loan companies, and they definitely don't offer access to the same benefits the Department of Education gives federal loan borrowers.

Also, personal loans typically come with higher interest rates than private student loans. So if your credit situation is excellent and you have a solid income, you may benefit from refinancing your student loans instead of consolidating them with a personal loan.

Alternatively, if you're struggling with monthly payments and have federal loans, consider an income-driven repayment plan, which can reduce your payment to 10% to 20% of your discretionary income.

Build Credit to Save Money on Student Loan

Even if you get low interest rates on federal loans while you're in school, you may have the opportunity to score a lower interest rate through refinancing after you graduate. If you don't already have a credit card, consider applying for a student credit card to start working on building a credit history. Also, be sure to monitor your credit score regularly to make sure you stay on track toward your goal.