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Personal Loans for Students: Everything You Need to Know

Navigating student personal loans can be complex. Our guide demystifies this process, explaining how loans can cover not just tuition, but also living expenses. However, interest rates and eligibility vary, making loan comparison crucial. Also, learn how co-signing can improve loan terms.
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Updated:
27.02.2024
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The Legal Status of Loans for Students in the USA

In the United States, student loans are primarily regulated by federal laws and regulations. The main legislation governing student loans is the Higher Education Act (HEA) of 1965, which has undergone multiple updates. The HEA establishes the terms and conditions for federal student loans, including interest rates, repayment options, loan forgiveness programs, and borrower protections. Additionally, the Consumer Financial Protection Bureau (CFPB) plays a role in enforcing consumer protection laws related to student loans, ensuring fair lending practices and addressing borrower complaints.

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Personal Loans for Students: Everything You Need to Know

What are Personal Loans for Students?

Personal loans for students in the United States are designed specifically to help students manage the costs associated with education. These loans are typically unsecured, meaning they don't require collateral. They can be used for various purposes, such as paying tuition fees, buying textbooks, securing housing, covering transportation expenses, or even medical care. It's worth noting that over 50% of students in public four-year institutions have student loans, indicating that personal loans may add to the financial burden for students pursuing higher education.

Unlike government-issued student loans, personal loans for students are typically offered by private lenders like banks, credit unions, or online lenders. The approval of these loans is based on the borrower's creditworthiness or the presence of a cosigner.

Features

  1. Loan Amount. Personal student loans can range from a few thousand dollars to tens of thousands, depending on the lender and the borrower's creditworthiness. The loan amount should cover education-related expenses such as tuition fees, textbooks, housing, or other educational costs.

  2. Unsecured Loans. Personal loans for students are usually unsecured, meaning they do not require collateral. This reduces the risk for borrowers, as they don't need to provide assets as security for the loan.

  3. Credit History. Students often have a limited credit history, making qualifying for a personal loan challenging. Lenders may consider the student's credit history or require a good credit cosigner to approve the loan application.

  4. Cosigner Option. Many lenders offer the option to have a cosigner on the loan. A cosigner is typically a parent, guardian, or someone with good credit who agrees to be responsible for the loan if the student fails to repay it. Having a cosigner can improve the chances of loan approval and potentially lead to better loan terms.

  5. Interest Rates. Interest rates on personal loans for students can vary depending on factors such as the borrower's creditworthiness, the presence of a cosigner, and the lender's policies. Students with good credit and a reliable cosigner may be able to secure lower interest rates, while those with limited credit or no cosigner may face higher interest rates.

  6. Repayment Terms. Student personal loans typically have fixed repayment terms, meaning the loan is repaid over a specific period, usually several years. Repayment begins after the loan is disbursed, but some lenders may offer deferment options allowing students to repay the loan after graduation or leaving school.

  7. Application Process. To apply for a personal loan for students, borrowers need to apply to the lender. The application process may require providing personal and financial information, proof of enrollment in an eligible educational institution, income details, and potentially the cosigner's information. The lender evaluates the application, reviews the borrower's creditworthiness, and determines the loan terms and interest rate.

  8. Fees. Some lenders may charge an origination fee or other fees associated with the loan. It's important to review the terms and conditions of the loan to understand any applicable fees and factor them into the overall cost of borrowing.

Pros and cons

Pros

Flexibility. Personal loan for students offers flexibility in how the funds can be used. Students can utilize the loan amount for various educational expenses, including tuition fees, textbooks, housing, transportation, or other education-related costs.

Quick Access to Funds. Personal loans for students can provide quick access to funds, allowing students to cover their immediate financial needs without an extensive application process.

No Federal Loan Restrictions. Unlike a federal student loan, a personal loan for students does not come with restrictions on the loan amount, making it potentially useful for covering additional expenses beyond what federal aid covers.

Cosigner Option. Personal loans for students often include a cosigner. A cosigner with a good credit history can increase the chances of loan approval and help secure more favorable interest rates.

Cons

Higher Interest Rate. Personal loans for students typically have higher interest rates compared to federal student loans. Students with a limited credit history or no cosigner may face even higher interest rates, increasing the overall cost of borrowing.

Credit History Requirements. Students with limited or no credit history may struggle to qualify for personal loans without a cosigner. Lenders often evaluate creditworthiness, making it difficult for students to secure loans independently.

Cosigner Responsibility. If a cosigner is involved, they become legally responsible for repaying the loan if the student borrower defaults. This burdens the cosigner significantly and may strain their financial situation.

Lack of Federal Loan Benefits. Personal loans for students do not offer the benefits and protections provided by federal student loans. These benefits include income-driven repayment plans, loan forgiveness programs, deferment or forbearance options, and potential eligibility for federal loan consolidation.

Repayment Obligation. Personal loans for students require timely repayment, typically starting after the loan is disbursed. This can create financial pressure on students, especially if they are still studying and do not have a stable income source.

How can a student apply for a personal loan?

Apply for a loan

As a student in the US, applying for a personal loan may require some additional effort compared to other borrowers. Here is a guide on how a student can apply for a personal loan, including specific organizations that cater to student borrowers:

  1. Research Lenders That Cater to Students. Some lenders specialize in providing personal loans to students.

  2. Check With Your School's Financial Aid Office. Many educational institutions have partnerships with financial institutions that offer loans to students. Contact your school's financial aid office to inquire about any recommended lenders or loan programs available exclusively for students.

  3. Explore Credit Unions. Credit unions are nonprofit financial institutions that often have lower interest rates and more favorable terms than traditional banks. Some credit unions offer student loans or personal loans designed for young borrowers. Research local credit unions or those affiliated with your educational institution.

  4. Consider Online Lenders. Online lending platforms provide convenient access to personal loans. Some platforms specialize in lending to borrowers with limited credit history, including students.

  5. Gather Necessary Documentation. Before applying, gather the required documentation, which typically includes identification proof (e.g., driver's license, passport), proof of income (part-time job, scholarships, grants), proof of enrollment (school ID, acceptance letter), and bank statements.

  6. Check Your Credit Score. Although students may have limited credit history, it's important to know your credit score. Some lenders may have minimum credit score requirements. You can check your credit score for free through various credit bureaus or online platforms like Creditkarma.

  7. Find a Cosigner if Necessary. If your credit history is insufficient, consider finding a creditworthy cosigner, such as a parent or guardian. A cosigner with good credit can increase your chances of loan approval. However, remember that you and your cosigner will be equally responsible for repaying the loan.

  8. Compare Loan Offers. Once you have identified potential lenders, compare their loan offers. Consider factors such as interest rates, repayment terms, fees, and customer reviews. Pay attention to any special benefits or features that may benefit students, such as deferment options while still in school.

  9. Complete the Loan Application. Fill out the loan application accurately and provide all necessary information and documentation. Double-check for any errors or missing details that could delay the approval process.

  10. Review And Accept the Loan. If your loan application is approved, carefully review the loan terms and conditions before accepting the offer. Understand the interest rate, repayment schedule, and any associated fees. Be aware of the total amount you will repay over the loan term.

Requirements and conditions

The requirements and conditions of a personal loan for students can vary depending on the lender and the specific loan program. However, here are some general factors to consider:

Eligibility

  1. U.S. Citizenship or Permanent Residency. Most lenders require borrowers to be U.S. citizens or permanent residents. Some lenders may have options for non-U.S. citizens with proper documentation.
  2. Enrollment in an Eligible Educational Institution. You will typically need proof of enrollment in an accredited college, university, vocational school, or trade school.
  3. Age. You must meet the lender's minimum age requirement, typically 18 years or older.
  4. Creditworthiness. Lenders assess your credit history, credit score, and debt-to-income ratio to determine your creditworthiness. Limited credit history may be considered, and some lenders may accept alternative credit data.
  5. Income. Lenders may require proof of income or employment to ensure you have the means to repay the loan. A cosigner's income and creditworthiness may also be evaluated if you have a cosigner.

    Cosigner Option

    Many lenders offer the option to include a cosigner for the loan. A cosigner with a good credit history, often a parent or guardian, can increase the chances of loan approval and potentially result in better loan terms.

    Loan Amounts

    The loan amount available for personal loans for students can vary from a few thousand dollars to tens of thousands. The specific amount you qualify for depends on your creditworthiness, income, and the lender's policies.

    Interest Rates

    Interest rates on personal loans for students can vary based on factors such as credit history, income, and lender policies. Students with good credit scores and reliable cosigners may secure lower interest rates, while those with limited credit or no cosigner may face higher rates.

    Repayment Terms

    Personal loans for students typically have fixed repayment terms, meaning the loan is repaid over a specific period, often several years. Some lenders may offer flexible repayment or deferment options while you are still in school.

    Fees

    Personal loans for students may come with fees like origination fees or application fees. These fees vary among lenders, so reviewing the terms and conditions is important to understand any applicable fees.

    Best places to get Personal Loans for Students today 27.02.2024

    SoFi

    Apply for a loan

    SoFi is an online lender that offers personal loans for students. They provide competitive interest rates, no origination fees, and additional benefits like career coaching and networking events.SoFi

    Earnest

    Apply for a loan

    Earnest is an online lender known for its flexible eligibility criteria and personalized loan options. They consider various factors beyond credit scores, such as education, earning potential, and financial habits.Earnest

    LendingTree

    Apply for a loan

    LendingTree is an online loan marketplace that connects borrowers with multiple lenders, including those offering personal loans for students. By submitting a single application, you can receive loan offers from various lenders and compare them to find the most suitable option.LendingTree

    Citizens Bank

    Apply for a loan

    Citizens Bank offers personal loans for students with competitive interest rates and flexible repayment options. They provide loan options for both undergraduate and graduate students.Citizens Bank

    Sallie Mae

    Apply for a loan

    Sallie Mae is well-known for its student loan offerings, but they also provide personal loans for students. Their loans can cover education-related expenses, and they offer various repayment options.Sallie Mae

    PNC Bank

    Apply for a loan

    PNC Bank offers personal loans for students with no origination fees and flexible repayment terms. They have dedicated loan options for undergraduate and graduate students.PNC Bank

    Ways to receive the money

    1. Direct Disbursement to the Borrower. The lender deposits the loan funds directly into the borrower's bank account. This is the most common and convenient method, allowing the borrower direct access to the funds.

    2. School Certification and Disbursement. Some lenders work directly with educational institutions. In this case, the lender may require the borrower's school to certify the loan amount and disburse the funds to the school on behalf of the borrower. The school then applies the funds to the borrower's educational expenses, such as tuition, fees, or housing.

    3. Cosigner Release Option. If a cosigner is involved in the loan, the lender may offer a cosigner release option after certain conditions are met. Once the borrower meets those conditions (such as making a certain number of on-time payments), the lender releases the cosigner from their obligations, and the borrower becomes solely responsible for the loan.

    4. Check. Some lenders may provide the loan amount as a check. Depending on the lender's policies, the check can be mailed to your address or made available for pick-up at a branch. You can deposit the check into your bank account to access the funds.

    5. Prepaid Debit Card. Sometimes, the lender may issue a prepaid debit card loaded with the loan amount. You can use the card to make purchases or withdraw cash as needed.

    Things to pay attention to

    1. Interest Rates. Compare the interest rates offered by different lenders. A lower interest rate can save you money over the life of the loan. Look for fixed interest rates if you want predictable monthly payments.

    2. Repayment Terms. Review the repayment terms, including the length of the repayment period and the frequency of payments. Longer repayment periods may result in lower monthly payments but can increase the total interest paid over time.

    3. Fees and Charges. Take note of any fees associated with the loan, such as origination fee, prepayment penalty, or late payment fees. These fees can add to the overall cost of the loan.

    4. Loan Amounts. Consider the minimum and maximum loan amounts the lender offers. Ensure the loan amount is sufficient to cover your educational expenses without borrowing more than necessary.

    5. Eligibility Criteria. Understand the lender's eligibility requirements, such as credit score, income, and enrollment status. Be aware of any specific criteria, such as the need for a cosigner or a minimum age requirement.

    6. Flexibility and Options. Look for lenders that offer flexibility in repayment options, such as the ability to defer payments while in school or to make interest-only payments. Additional features like forbearance or loan forgiveness options can benefit student borrowers.

    7. Cosigner Requirements. If you have a poor credit history or limited income, check if the lender requires a cosigner for the loan. Understand the implications for both the borrower and the cosigner, including the potential impact on credit scores and responsibilities.

    8. Customer Service and Support. Consider the lender's reputation for customer service and support. Read reviews and testimonials to ensure the lender is responsive and helpful throughout the loan process.

    9. Total Cost of the Loan. Evaluate the overall cost of the loan by considering the interest rate, fees, and repayment terms. Use online loan calculators to estimate the total repayment amount and determine if it fits within your budget.

    How to repay personal loans for students?

    1. Monthly Payments. The most common repayment method is making monthly payments. You'll typically have a set amount due each month, which includes both principal (the loan amount) and interest. Ensure you make these payments on time to avoid late fees or negative effects on your credit score.

    2. Automatic Payments. Setting up automatic payments can be a convenient way to ensure you never miss a payment. You authorize the lender to deduct the monthly payment directly from your bank account on a specified date.

    3. Online or Mobile Banking. Many lenders offer online or mobile banking options allowing you to pay electronically. You can log in to your lender's website or use their mobile app to initiate payments from your bank account.

    4. Check or Money Order. Some lenders may accept check or money order payments. You can mail the payment to the lender's designated address, ensuring it reaches them before the due date.

    5. Refinancing or Consolidation. You may explore refinancing or loan consolidation options depending on your financial situation. This involves taking out a new loan with better terms to pay off the existing private loan(s), potentially lowering the interest rate or extending the repayment period.

    Alternatives

    Apply for a loan

    1. Line of Credit works similarly to a personal loan but provides more flexibility. It allows you to access funds up to a predetermined credit limit and borrow only what you need. Interest is charged on the amount borrowed, and you can make minimum monthly payments. Lines of credit may have lower interest rates than credit cards, making them a cost-effective option for ongoing or variable expenses.

    2. Student Credit Cards are specifically designed for students with limited credit history. They offer a lower credit limit, making them a manageable tool for building credit. Responsible use and timely payments can help establish a positive credit history. Some student credit cards also provide rewards or cashback programs, offering additional benefits.

    3. Starter Loans are small loans for individuals with limited or no credit history. Community banks or credit unions often offer them to help borrowers build credit. These loans typically have lower borrowing amounts and shorter repayment periods, making them more manageable for students. By making consistent, on-time payments, students can establish creditworthiness.

    4. Credit Builder Loans are designed to help individuals build or rebuild credit. The loan amount is typically held in a secured account and released to the borrower once the loan is repaid. Making timely payments on credit builder loans helps establish a positive credit history. These loans suit students looking to improve their credit scores over time.

    5. Scholarships and Grants. Unlike loans, scholarships, and grants do not need to be repaid. They are awarded based on academic achievements, financial need, or other specific criteria. Explore scholarship databases, consult your school's financial aid office, or research private organizations that offer scholarships and grants.

    Editorial opinion

    Personal loans for students offer a convenient way to cover education-related expenses and bridge financial gaps. When scholarships, grants, or federal loans fall short, they can be used for tuition, textbooks, housing, and other educational needs. However, students should approach personal loans cautiously and consider the long-term financial impact. Borrowing through personal loans means taking on debt and the responsibility to repay with interest. It's important to evaluate financial needs, borrow only what is necessary, and have a repayment plan. Exploring federal student loans is advisable before considering private personal loans. Federal loans often have better terms, such as lower interest rates and flexible repayment options. Exhausting federal loan options is wise, as private loans generally have higher interest rates and fewer borrower protections. Carefully reviewing loan terms, including interest rates, fees, and repayment conditions, is crucial. Comparing loan offers from multiple lenders helps find favorable terms and save money. Personal loans for students can be a viable option when used responsibly. Financial literacy is essential for informed decision-making, considering that 57% of students attending four-year private nonprofit institutions took on student loan debt.

    Important

    Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

    How to Choose a Lender

    1. Make sure to confirm whether the lender is licensed to operate in your state. You can verify this information with your state regulator or attorney general.
    2. Check if the lender is a member of a reputable association, such as the Community Financial Services Association of America. Membership in such organizations may provide an extra level of reliability.
    3. Carefully review all the terms and conditions of your loan contract.
    4. Thoroughly examine the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the loan.
    5. Take advantage of your right of rescission. Usually, you can rescind the loan within three days after signing the agreement. Alternatively, there is typically a "cooling-off" period, which allows you several days to thoroughly review the contract before making an informed decision to enter into a consumer loan agreement based on the terms specified by the lender.
    6. Choosing a lender is a significant decision that demands careful consideration and a good understanding of how such organizations operate.

    Methodology

    At Finanso, we've carried out a comprehensive analysis of over 50 microfinance organizations, assessing them based on 35 different parameters across six key categories: accessibility of loans, customer relations, quality of service, interest rates, and transparency of conditions.

    In each category, we carefully considered the most critical factors in selecting a lender. These factors include the interest rates, available loan amounts, minimum credit score, minimum income, application fees, and the speed at which funds are transferred.

    At Finanso, we highly value our users, which is why we also focus on the quality of customer service, user reviews, and additional features that can aid our users in making a well-informed decision.

    Our ultimate goal is to provide insightful recommendations and expert advice to assist you in selecting a lender that best caters to your specific needs.

    Additional recources

    To learn more about loans for students and best practices, check out some of the following resources:

    Sources

    FAQ

    Can an unemployed student get a personal loan?

    It can be challenging for an unemployed student to get a personal loan because lenders typically consider income and employment stability when assessing loan applications. Without a source of income, it can be difficult to demonstrate the ability to repay the student loan amount. However, some lenders may consider other factors such as credit history, cosigner support, or alternative sources of income like grants or scholarships.

    Which are the easiest type of student loans to get?

    Federal student loans are generally considered the easiest type of student loans to obtain. They have more relaxed eligibility criteria compared to private student loans. For undergraduate and graduate students, options like Direct Subsidized Loans and Direct Unsubsidized Loans are widely available. Additionally, Perkins Loans are offered to students with significant financial need. Students must complete the Free Application for Federal Student Aid (FAFSA) to apply for federal student loans. It's advisable to explore federal loan options before considering private loans since federal loans typically come with more favorable terms.

    How small of a student loan can I get?

    The minimum loan amount for student loans can differ based on the lender and loan type. Federal student loans generally have a minimum borrowing limit of approximately $5,500 per academic year for Direct Subsidized and Unsubsidized loans. Private lenders may offer smaller loan amounts, such as $1,000 or $2,000. However, it's crucial to consider the overall cost of borrowing, including potential fees and interest, and assess if taking out a small loan is practical.

    What are the top 5 best loan apps for students?

    There are some of the best loan apps that could be suitable for students seeking personal loans:

    1. SoFi is a mobile loan app that offers personal loans with competitive interest rates. They offer unsecured loans, meaning you don't need to provide any collateral. Their loans can be used for various purposes, including personal, family, or household use.

    2. Earnin is a unique app allowing you to access your paycheck before your payday. It's not a loan in the traditional sense, but it can help students manage their cash flow and avoid overdraft fees.

    3. Upstart offers personal loans based on more than just your credit score. They consider your education, job history, and several other factors. This can make it a good choice for students who may not have a long credit history.

    4. LendingClub is a peer-to-peer lending platform that connects borrowers with investors who fund their loans. It provides personal loans which students can use for various purposes.

    5. Prosper is another peer-to-peer lending platform that offers personal loans. Like LendingClub, it could be a good option for students since it considers various factors, not just credit score, in determining loan eligibility.

    Which loan is best for students?

    The best loan for students depends on individual circumstances and needs. However, federal student loans are often considered the best option for students due to their borrower protections, flexible repayment plans, and potential eligibility for loan forgiveness programs.

    What credit rating is needed to get a personal loan for students?

    The credit rating needed to get a personal loan as a student can vary depending on the lender and the specific loan requirements. As a student, you may have limited or no credit history, making qualifying for a personal loan more challenging. However, some lenders offer loans specifically designed for students with limited credit history.

    A good credit rating is generally beneficial when applying for a personal loan, as it demonstrates your ability to manage credit responsibly. A credit score above 670 is typically considered good, while scores below 580 are considered poor. However, remember that credit score requirements vary among lenders, and some lenders may consider factors beyond credit score when assessing loan applications.

    Options are still available if you have a limited credit history or a lower credit score. Some lenders may consider other factors such as income, employment history, and the presence of a cosigner. Having a cosigner with a strong credit history can increase your chances of loan approval.