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When it comes to affording college and living costs, students are burdened with a lot of expenses. Many students look for grants and scholarships, take out federal and private loans, and work part-time or full-time to afford college costs. But sometimes, students still come up short and need extra funds to pay for their expenses. Personal loans can help cover those costs, however, you should only use them as a last resort.
Personal Loans for Students
Personal loans can come in handy for students that need emergency funding, want to relocate or those that need money to pay for a program or boot camp tuition that student loans won't cover. However, taking out a personal loan should not be the first option for students, as these loans tend to have short repayment terms and relatively high interest rates, especially for borrowers with little credit history. It is best to exhaust all grant, scholarship and student loan options before taking out a personal loan.
If you're a student and you've exhausted all your other resources and need extra money, you should look into your personal loan options. Lenders don't generally provide specific personal loans for students. Personal loans are generally used for consolidating existing debt, emergency expenses, home improvement, relocation and, in some cases, to start or expand a business and for post-secondary education or continuing education (e.g., coding boot camps).
If you've exhausted all your other options, here are some personal loan lenders from our list of the best personal loans for all borrowers:
Lightstream is one of our top picks for personal loans, as it offers low rates and provides a wide range of loan amounts and terms. Same-day funding is available in some cases, which can help borrowers that need the money in emergency situations. Loans from LightStream are best for borrowers with at least a few years of credit history, who have good to excellent credit, a variety of account types, savings and a low debt-to-income ratio.
Pentagon Federal Credit Union
Pentagon Federal Credit Union (PenFed) is a good option for borrowers with fair to average credit, as it has an interest rate cap of 18% on its loans. PenFed provides personal loan amounts up to $25,000, and borrowers can use co-signers. Younger students will likely need a co-signer, as it may be difficult to qualify for a loan with little credit history, and using one may help them qualify for a lower rate, depending on the co-signer’s credit.
OneMain Financial is one of our top choices for borrowers with bad credit. It is among the few personal loan companies that lend to borrowers with credit scores under 620. However, rates are quite high, starting at 18%, but borrowers with bad credit would likely not qualify for the low rates of other lenders. It's important to note that if your credit score is particularly low, you may be required to put up collateral, but doing so could also lead to a lower interest rate.
Should Students Take Out Personal Loans?
Whether you should take out a personal loan will depend on your current situation and your credit history. Maximizing your free resources, including grants and scholarships, should be your first priority when trying to pay for your school tuition and living expenses. Then you should look to federal student loans and after, private student loans if your federal loan amount doesn't cover everything. Many private student lenders cover up to 100% of school costs. Only after going through all these resources should you turn to personal loans.
Undergraduate students should especially consider other options, including federal and private student loans, before taking out personal loans, as the loans tend to have short repayment terms and high interest rates, and they do not offer the repayment help that federal loans do. Also, most undergraduate students won't have enough credit history to qualify for a low rate, making personal loans cost even more.
Graduate and professional students should also look to other avenues to fund their schooling and personal expenses before resorting to personal loans. But with more experience, credit history and expenses, sometimes it's difficult to avoid taking out more loans. However, you can use private student loans, and many lenders offer to pay up to 100% of costs.
On the other hand, if you are looking to complete a boot camp or program that doesn't qualify for student or private loans, you should check out your personal loan options. Some lenders have partnered with schools to offer loans for these programs. Affirm partnered with General Assembly, Dev Bootcamp, Grand Circus and other companies to help students afford classes. But some of these schools provide their own programs to afford tuition, so always weigh your costs before settling on an option.
Alternative Options for Students
As stated above, there are several other resources to look into to afford college and living costs before resorting to personal loans. Some of these options, like scholarships and grants, may take more time to find than others, but the money you'll save in the long run will be worth it.
Scholarships and Grants
Scholarships and grants are a great way to get funding for college, as they are essentially free money. You can find these scholarships and grants by applying for federal aid, through your school or researching companies and organizations that offer them. If you have the time, look for and apply to as many scholarships and grants as you can to help lower the amount of debt you have when you graduate.
Federal Student Loans
Most students apply for federal student loans to afford college. Your FAFSA package may include federal grants, scholarships and loans. You will be required to pay back the federal loans plus interest after you graduate, however, the interest rate is fixed for all students and tends to be lower than what you would get on a personal loan, with no obligation to pay while you're in school and a longer repayment term. Also, federal loans offer multiple repayment options, and you can apply for deferment or forbearance if you need it.
Private Student Loans
If you still need money for your college and living costs, there are private student lenders that will provide you with funds to cover those expenses. Similar to federal loans, you will be required to pay back this money with interest after leaving school. In contrast, private student loans don't have the same interest rate for all borrowers, and you will be quoted a rate based on you or your co-signer’s credit history. These loans will generally cost more than federal loans and don't offer the same protections.