Can I borrow a personal loan for education?

Group of students in class
Personal loans can be used for educational purposes ranging from a singular training class fee to common college expenses.

Although student loans comprise the majority of educational-based lending, some smaller expenses can be paid for with personal loans. Most federal student loans are disbursed to a borrower’s university or college, but personal loans are given directly to the borrower. This allows the student to use the funds as they please, whether for school supplies, housing, or unexpected expenses.

Aside from accessibility, alternative consumer funding, such as personal loans and credit cards, help to eliminate the financial void left by certain student loans.

“Personal loans fill the gap that may remain due to borrowing limits on federal loans,” said Carrie Fellon, a certified financial planner and president of Life Stage Financial Solutions.

The consumer loans come with both positive and negative features.

Jim Holtzman, an advisor and shareholder with Legend Financial Advisors, told that when he advises his clients about financing an education, he simply wants them to understand each type of loan available.

On the plus side, Holtzman said that personal loans can offer more variable terms depending on the borrower’s credit history. If the borrower has a positive credit score, the repayment period could stretch to a longer term, such as a maximum of 10 years. If the borrower has poor credit, the lender will likely request that either a co-signer is added or a form of collateral is linked to the loan.

If a co-signer is required, Fellon warned that they should be wary of linking their credit history because they will be liable if the loan goes into default.

For most lenders, the ability to repay trumps everything else.

“They are looking at your ability to repay whether it’s furniture or a car or an education,” Holtzman said.

Another factor to consider is the limited repayment allowances with personal loans. Unlike federal student loans that allow income-based repayments, personal lenders offer few repayment options outside of the originally agreed upon contract.

A final variable for the consumer loan is the amount available to borrow. Unlike federal student loans that typically have standard caps, personal loan amounts depend, once again, on credit score. Due to the competitive lending field, borrowers can access a loan for the amount needed if they apply and review loan options from multiple lenders.

Borrowers should remember that their personal loans should finance smaller educational expenses and not large tuition costs. Most student loans, whether private or federal, offer interest rates lower than your average personal loan, which reduces the long-term cost.

But personal loans can be more favorable than other methods used to supplement the growing cost of a college education. Interest rate costs for personal loans fall between a spectrum ranging from the lower cost of student loans to the higher cost of credit cards. Over the long term, paying off a personal loan will likely be higher than most federal student loans, but less costly than charging the expenses on a credit card.

“You are going to get more flexibility out of it because it’s based on your specific situation,” Holtzman said.

Personal loans are not a common resource for educational courses and expenses but if used properly, they can financially support a borrower.