Personal loans: Should they be used for college?
Tuition costs at private and public universities are rising across the nation. Potential college students now, more than ever, are seeking financial aid to help support them through their college years. While student loans are usually the go-to for this type of financing, some students are considering personal loans to help offset education costs.
Here’s an outline of what personal loans entail, and if students should take advantage of them.
The Scoop on Personal Loans
While student loans must be used for education and mortgage loans for buying a home, personal loans can be used for just about anything. Most lenders want to know what the intended purpose of the loan is, but they won’t get too involved in how you spend your borrowed cash.
There is some risk with personal loans, though. With other loans, such as a mortgage, your house serves as collateral. Personal loans often do not have any collateral, marking them “unsecured.” Unsecured loans typically come with higher interest rates.
Can You Pay Tuition with Personal Loans?
No, you cannot pay tuition with personal loans. This is because personal loan lenders are not regulated as much as educational lenders. Luckily, there are plenty of other financial options available to pay for tuition.
First, complete the Free Application for Federal Student Aid, or FAFSA, form. This will give you the opportunity to secure financial aid such as grants, scholarships, and work-study. Better yet, this type of financial aid doesn’t have to be repaid.
If you still need to borrow money after completing the FAFSA form, stick with student loans. Student loans have lower interest rates than personal loans, which will benefit you in the long run.
Work It Out
Instead of taking out a personal loan for college-living expenses, consider applying for a part-time job. On or off-campus work will help offset costs while eliminating the need to take out loans, student or personal. If you absolutely need to borrow money for your living expenses, stick with student loans.
Student loans are better for this situation than personal loans. Student loans allow you to repay your debts over a longer period, therefore lowering your monthly payment. Student loans also allow students to wait six months after leaving school to begin repayment. Personal loans, however, begin repayment immediately and usually carry higher interest rates with less repayment term flexibility.
While a personal loan may benefit you in the future, student loans are the far better option for your educational financial needs.