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If you’re determined to pay off your student loan debt as quickly as possible, you might be looking for creative solutions — like using a personal loan to pay off student loans.
Personal loans can give you quick access to cash, which could be helpful if you’re struggling with your student loans. You also might qualify for a low interest rate on a personal loan if you have good credit.
However, while using a personal loan to pay off student loan debt can seem like a good plan, it could be an unrealistic repayment strategy.
Here’s what you need to know before considering using a personal loan to pay off a student loan:
- Paying off student loans with a personal loan
- Is using a personal loan to pay off student debt right for you?
Paying off student loans with a personal loan
Using a personal loan to pay off your student loans can be appealing. With many personal loan lenders, you can submit an application online, get an instant decision, and have money deposited into your bank account quickly.
But using a personal loan to repay your student loans usually isn’t a good idea. If you want to tackle your debt, student loan refinancing could be a better option.
With refinancing, you’ll likely get a lower interest rate than you would with a personal loan. Plus, refinancing also offers longer repayment terms compared to personal loans.
|Personal loans||Student loan refinancing|
|Fixed rates from (APR)||4.99%+ APR||2.79%+|
|Variable rates from (APR)||N/A||1.95%+|
|Rates from Credible personal loan and student loan refinancing lenders.|
Learn More: How to Refinance Your Student Loans
Taking out a personal loan to pay off student loans could be risky, but there are also some benefits to this approach:
- Personal loans are usually processed quickly: With student loan refinancing, it can take several days or even weeks for your existing loans to be paid off. Personal loan funds are typically disbursed much more quickly. After your loan is approved, you might get your money in as little as one business day, depending on the lender.
- You might qualify even if you didn’t finish college: Although some lenders will refinance student loans if you didn’t finish college, many require you to have graduated to qualify for refinancing. Personal loan lenders don’t have this requirement.
- You could release a cosigner from your student loan: If you use a personal loan to pay off a student loan, your student loan account will be closed. If you had a cosigner on your student loan, they’ll be released from the account.
- Personal loans can be discharged in bankruptcy: Student loans are notoriously difficult to discharge in bankruptcy. Personal loans, on the other hand, aren’t subject to the same restrictions as student loans. This makes them easier to discharge if you have to declare bankruptcy later on.
Learn More: Refinancing Your Federal Student Loans
While using a personal loan to pay off student loans could be tempting, here are some serious drawbacks to keep in mind:
- Most personal loan lenders prohibit using loans to repay student debt: When you apply for a personal loan, you have to sign a loan agreement that states you’ll abide by the lender’s terms. Most personal loan lenders have strict policies that prohibit paying for school with a personal loan or refinancing existing student loans with a personal loan.
- Personal loans have shorter repayment terms: Personal loans tend to have short repayment terms — often seven years or less. If you refinance your student loans instead, you might have as long as 20 years to repay your loans, depending on the lender and the term you choose. Federal student loan repayment options also typically come with much longer repayment terms.
- Personal loans typically have higher interest rates: Because personal loans can be discharged in bankruptcy, lenders see them as riskier forms of debt. To offset that risk, they charge higher interest rates than you’d get with student loan refinancing. This means you could likely get a lower interest rate by refinancing.
- Personal loans aren’t eligible for the student loan interest tax deduction: If you use a personal loan to pay off student loans instead of refinancing your debt, you’ll lose out on the student loan interest tax deduction. Depending on your income, you might be able to deduct up to $2,500 in student loan interest from your taxes, but personal loans aren’t eligible for this deduction.
If you decide to refinance your student loans, be sure to consider as many lenders as possible to find the right loan for you. You can do this easily with Credible — you can compare your rates from our partner lenders in the table below in just two minutes.
|Lender||Fixed rates from (APR)||Variable rates from (APR)|
|Compare personalized rates from multiple lenders without affecting your credit score. 100% free!
Is using a personal loan to pay off student debt right for you?
Using a personal loan to pay off student loan debt can sound like a good idea, but the downsides (like higher interest rates and shorter repayment terms) often make it an unrealistic strategy.
Refinancing your student loans is usually a better way to manage your student loan debt. Through refinancing or student loan consolidation, you could get a lower interest rate or a lower monthly payment with an extended repayment term.
If you decide to refinance, it’s a good idea to shop around and compare as many lenders as possible to find a loan that works for you. Credible makes this easy — you can see your prequalified rates from multiple lenders after filling out a single form.