College Students: Should You Apply for a Personal Loan?
Leverage Personal Loans to Your Advantage
Personal student loans are another financial option you have available if you still have an outstanding balance on your cost of college bottom line. Consider personal loans as a last resort, a subset of private student loans. This family of financial products is due some respect: approach them when you are completely apprised of their requirements and contingencies.
Personal loans specifically designed for you, the college student, are not as abundant as private student loans. Typical loan criteria:
- You must be enrolled at least halftime in a degree program.
- You must have a good credit history to be a sole borrower or you can borrow with a co-signor.
- Repayment terms could be limited.
- Maximum loan limits vary, but could be as much as the cost of your total tuition.
Want to know how versatile a personal student loan can be? Here’s an example from a well-known student loan lender:
Sallie Mae offers three loans that could be considered personal student loans: Signature Student Loan, Tuition Answer Loan, and Signature Student Loan for Community College. These products illustrate the variety of financial products to which you could have access. Each is packaged with distinctive features and slightly different requirements designed to give you financial flexibility.
Interest Rates and Personal Loans
Interest rates attached to personal student loans are almost exclusively variable. This means that there could be potentially significant fluctuations in the lending rate over the life of your loan. You have very little control in this respect.
Here’s why the interest rate is a really important loan feature you must not disregard when borrowing: it determines how much more you pay above and beyond the amount you wanted to borrow initially.
In plain English: when you borrow $10,000 in a personal loan, you will pay much more than this amount at the end of the 10 or 20-year repayment period. This is the fee for borrowing. Taking out a loan is not free.
Repaying Personal Student Loans
Let’s review the traditional student loan repayment choices you have available for your federal loans: standard, graduated, extended, and income sensitive. You also have deferment and forbearance options with your federal loan repayment. In contrast a personal loan for students could have arbitrary repayment terms and interest rates.
Shop for personal student loans that:
- Specifically are for students: they require you prove enrollment.
- Allow you the option to defer payments while you’re in school.
Personal Student Loan Providers
Your best bet for personal student loans is to shop within the population of student loan providers. Private banks all extend personal loans, but most are not specific to students. Loans could be less structured, have high limits and interest rates—generally much less borrower-friendly.
If you have a limited credit history and have not had much luck with banks, you may want to try one of the newer P2P lender services like Prosper which specialize in personal loans. While they are accepting of people with limited credit, they do not accept borrowers with poor credit history because they fear it might increase the perceived risk for lenders using their service.
A Best Strategy for Using Personal Student Loans
There is a good way and a bad way to use personal loans for education. Here is your best strategy:
- Always apply for your federal student loans before anything else. Squeeze as much financial aid as is possible.
- Find out how much money you may get from your college or university in grants and scholarships.
- Using a college cost calculator, add up your tuition, room and board and extra expenses you’ll be responsible for putting out for college. Subtract the value of your federal loans, then your college scholarships and grants, and finally any cash savings you’ve accrued for education. The balance you are left with is the amount of money you still must account for in order to make your college education doable. Will you have any income while you are in school? If so, subtract that right now.
- Armed with this final, leftover figure educate yourself on the many personal and private student loan products. At this point you may decide it’s necessary to turn to a personal or private loan.
Personal student loans can be useful tools when used appropriately. Shop with care and find one that works for you.
