Personal Loans For College Tuition
Trying to figure out and plan to pay for college can be difficult whether you’re a parent or a student. There are a lot of different loans and financing options available. Deciding on what’s the best loan option for you can be difficult.
Personal loans can be a great solution if you’ve miscalculated how much you need for a semester when you applied for other loans earlier in the year. For an unexpected, one-time tuition or college expense, personal loans are often a great option.
Understanding differences between loan options for college expenses can help you make an informed decision. A personal loan may come to mind as a good option for paying for college tuition. Before you decide on one financing option, there are a lot of things you should consider about different loan types.
Contact Arkansas Federal Credit Union today to learn more about all of our loan options for college tuition and how different financing options can help you.
What Is a Personal Loan?
A personal loan is a type of loan that allows you to get your loan amount in one lump sum. The biggest difference between personal loans and other types of loans is their flexibility. You can use a personal loan for almost anything.
With a personal loan, you receive all the loan money at once and then make monthly payments to repay the loan. You’ll have fixed payment amounts that pay off the loan amount and interest.
Personal Loan Restrictions
Lending institutions can set their own guidelines on what personal loans can and can’t be used for. There are strict guidelines on loans that can be used to pay for secondary education.
Because of the guidelines, it’s common for businesses that offer personal loans to restrict them from being used to pay for education. If you’re considering using a personal loan for tuition, it’s important to do your research about your lending institution and what they allow before applying for a personal loan.
Arkansas Federal Credit Unions allows personal loans to be used to pay for college tuition, unlike many other financial institutions. You can use an Arkansas Federal personal loan to pay for anything you need, from tuition to housing to school supplies.
Types of Student Loans
Student loans are one of the most common options for paying for college tuition. These loans are specifically designed to be used for tuition. It’s important to understand the differences in student loan options.
Federal Student Loans
Federal student loans are student loans offered by the federal government. A federal student loan is typically more affordable and easier to get. You most likely won’t have to have a credit check to get a federal student loan, and your loan should have a low fixed interest rate. There are certain requirements you and your parents need to meet to be eligible for federal student loans, however, so they may not be accessible to everyone.
Private Student Loans
Private student loans are offered by banks, credit unions, and other lending institutions. These loans can be more difficult to qualify for, with more stringent requirements. With a private student loan, you will likely have a higher interest rate, and your interest may accrue while you’re in college. Private student loans typically have different rules and regulations than a personal loan.
Using Personal Loans for Tuition
If you are able to find a personal loan that allows you to use it for college tuition, like Arkansas Federal’s personal loan, there are a few important things you should consider before you decide on using one.
With a weak credit score or thin credit history and no stable income, it may be difficult to get approved for a personal loan. Also, any personal loan you do qualify for may have a high-interest rate versus other types of student loans. Personal loans can be a good option if you qualify to cover additional college expenses that other loans don’t cover or if you’re ineligible for other financing options.
On the other hand, federal student loans don’t require a credit check, and almost anyone who is enrolled in school at least half the time is eligible. However, if your family’s income doesn’t allow you to qualify for federal loans or your parents are unwilling to participate, personal loans may be a better option.
Private student loans require a stable source of income and excellent credit to qualify and often take your parents’ income and credit history into account. If you are unable to qualify for a personal loan, a private student loan may also not be the best option for you. It’s important to note that private student loans may offer more favorable loan terms than personal loans.
The repayment period for a personal loan might be one of the biggest drawbacks of using a personal loan to pay for college tuition. With a personal loan, your payments typically start 30 days after receiving your disbursement. It might be difficult to consistently make your personal loan payments while in school.
Federal and private student loan repayment periods don’t start until after you’ve graduated, and both loan types offer various grace periods after graduation. With a federal student loan, you don’t have to start making loan payments until six months after graduation. Private student loans can vary depending on the lending institution. The grace period could be anywhere from six months to one year.
Being able to not worry about repaying your loan until after graduation can be a good thing because it allows you to focus more on your education and less on how you’ll repay your loan at the same time. Grace periods are a major benefit of student loans because they give you time to graduate and find a job so that you are better prepared to pay off your student loan.
Higher Monthly Payments
A general rule of thumb with loans is that the shorter a repayment term, the higher your monthly payments will be because you have to pay off your loan faster.
On average, personal loan term lengths tend to range from five to seven years. Student loan repayment terms average over ten years but can be as long as 25 years.
The difference in repayment periods means that with a student loan, you could have lower monthly payments than you’d have with a personal loan.
No Access to Income-Driven Repayment or Loan Forgiveness
If you have a federal student loan, after you graduate, you may be eligible to apply for an income-driven repayment plan. This takes your income into account to make your payments more affordable.
Partial loan forgiveness may also be available if you work for an eligible employer, like a government agency or a nonprofit organization. With loan forgiveness, after working for ten years, a portion of your student loans could be forgiven through the Public Service Loan Forgiveness (PSLF) program.
These programs are only available for federal student loans. If you use a personal loan or a private student loan to pay for college, you won’t be eligible.
No Tax Deductible Interest
The interest paid towards student loans can be tax deductible up to a certain amount. This isn’t an option if you use a personal loan unless you have proof that the entirety of your personal loan was used to pay for qualifying educational expenses.
Parents Using Personal Loans for College Tuition
Parents can use personal loans to pay for college tuition or college expenses. However, for a parent trying to find the money to pay for college tuition, using a personal loan regularly to pay off tuition expenses can create unmanageable debt. Using a personal loan for an unexpected, one-time expense can be useful, but for regular tuition payments, it might not be the best idea.
There are other options available for parents who are in need of financial assistance to make tuition payments.
Parent PLUS loans are specifically designed for parents paying for college tuition. These loans tend to have a higher interest rate than most federal student loans, but they also have lenient credit qualifications and longer repayment periods.
Home Equity Loan or HELOC
You could take out a home equity loan or home equity line of credit (HELOC) to finance college tuition payments. With increases in home values and competitive interest rates, these could be a good loan option.
Home equity loans and HELOCs are risky because they use your home as collateral for the loan. It’s important that you’re prepared in case there’s a decline in home values so you’re not left with equity debt levels higher than the value of your home.
IRA or 401k Withdrawals
You can tap into your 401k or individual retirement accounts to pay for college tuition. You will most likely have to pay income tax on this money, and you may have an additional 10% penalty on 401k withdrawals if you’re withdrawing the money early.
Using Personal Loans for Tuition
There are a lot of different loan options to help you pay for college. It’s important to consider all of your options and decide what’s best for you and your circumstances.
One of the most important things you can do is to look into the available interest rates you would qualify for for each available option. The repayment periods and monthly payments are also important factors to consider.
Applying for a personal loan with Arkansas Federal is easy. You can apply online today to get a personal loan with competitive rates and convenient terms.
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