Can You Use a Personal Loan to Pay Off Student Loans?

Paying off student loans with a personal loan would likely cost you more overall.

Ryan LaneDecember 2, 2020
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Many lenders won’t let you use a personal loan to pay off student loans. But even if they did, you likely wouldn’t want to.

Personal loans typically come with higher interest rates and shorter repayment terms than student loans do. If you’re looking for a loan to consolidate or pay off student debt, refinance into another student loan instead.

Can you pay student loans with a personal loan?

When you take out a personal loan, the lender usually sends the money directly to you. You can then use that cash to pay for pretty much anything — except for most education expenses.

You can use a personal loan for living expenses while you’re in school, but it’s an expensive option. Other college costs, like tuition and fees, usually aren’t eligible for funding. Most lenders say you can’t use their personal loans to pay off existing student loans, either.

That’s because lenders must meet additional regulations to offer “student” loans, including federal standards outlined in the Higher Education Act. Not all personal loans meet these criteria.

There are exceptions: For example, online lender Upstart says its personal loans can be used for education-related costs, but not in every state. First Republic Bank offers a personal line of credit, which is a variation of a personal loan, that you can use to refinance student loans.

If you’re not sure whether you can use a personal loan to pay off student loans, check the lender’s terms and conditions. Specific student loan refinancing products will be labeled as such and send their proceeds directly to your loan servicer.

Should you use a personal loan to pay off student loans?

You can use a personal loan to consolidate debt at a lower interest rate to save money. But those loans are intended for combining high-interest debts, like multiple credit cards.

Debt consolidation loans differ from private student loan consolidations, also known as refinancing. Here’s why refinancing is typically a better option for eligible borrowers:

  • Lower interest rates. Rates on personal loans can range from about 6% to 36%, while student loan refinance rates currently sit around 3% to 7%. That means that if you can qualify for refinancing, you’re likely to get a better interest rate — and pay less, as a result — than with a personal loan.

  • Longer repayment terms. Most personal loans offer repayment terms between two and seven years. For private student loans, a five-year term is often the minimum. A shorter term may sound appealing because you’d pay off loans earlier. But you’d face bigger monthly bills that would be further inflated by a personal loan’s high interest rate.

  • Better tax benefits. You can deduct student loan interest, up to $2,500, from your taxable income each year you repay eligible student loans. Interest on personal loans doesn’t qualify for a similar tax break.

Personal loans do have one advantage over student loans: They can be erased like most other unsecured debt during bankruptcy proceedings. While student loans can also be dismissed through bankruptcy, doing so requires an additional step that can be difficult and expensive.

Estimate your student loan refinance savings

Other ways to pay off student loans

You’ll typically need a credit score in at least the high 600s, steady income and enough cash to cover your monthly expenses to refinance your student loans.

If you can’t qualify for refinancing, a personal loan likely isn’t the answer for paying off student loans.

Personal loans are available if you have bad credit, but bad-credit borrowers can expect rates above 25%. That would make them far more expensive than your existing student loans.

Instead, you can try refinancing with a co-signer or wait until you’re in a stronger financial position. While you do that, additional strategies can chip away at your debt, like making biweekly payments and reducing your interest rate by enrolling in automatic payments.

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