Should You Use a Personal Loan to Pay Off Student Loan Debt?

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When you’re in student loan repayment mode, it’s likely you’re hungry for solutions – anything to make paying off debt easier. One lesser-known option is using a personal loan to pay off the remaining debt.

Personal loans are typically unsecured loans. This means they aren’t backed by any collateral, such as a home or car.

The beauty of personal loans is that unlike with a mortgage, car loan, or even student loan, you can use the money how you like. It can fund a home renovation or even help consolidate credit card debt, as most personal loans offer better interest rates than credit cards.

But should you use a personal loan to pay off student loans? Here’s what you need to know if you’re considering getting a personal loan to pay off student loan debt.

Using a personal loan to pay off a student loan: Pros and cons

There are some options you should weigh before deciding to use a personal loan to pay off student loans. Overall, using a personal loan to refinance student debt can cause some issues.

Pros of paying off student loans with a personal loan

If you want to pursue a personal loan to pay off your student loans, consider these advantages:

  • You can consolidate your student loans and have one monthly payment.
  • You will have a fixed interest rate and a fixed repayment term, which could be beneficial.
  • By paying off your student loans, you can release your cosigner (if you have one) from your loans.

However, using a personal loan to pay off student loan debt isn’t the only way to get these benefits.

Cons of paying off student loans with a personal loan

Personal loan interest is not tax-deductible

You will not be eligible to deduct student loan interest if you pay off your loans with a personal loan. Your new debt will be a personal loan, which is classified differently than student debt and has no tax benefits.

Currently, student loan borrowers can deduct up to $2,500 in student loan interest with a modified adjusted gross income of less than $80,000.

You forfeit federal student loan protections

The process of using a personal loan to pay off student loan debt is not reversible. You can’t go back to having federal student loans – you forfeit your borrower protections such as income-driven plans and loan forgiveness.

Jamie Block, a certified financial planner at Wealth Design Retirement Services, said, “The federal student loan program offers various repayment schedules that provide flexibility personal loans cannot offer. Federal loans offer payment plans based on income, allows deferment if the borrower returns to college, and debt forgiveness under certain circumstances. Unfortunately, personal loans are not as generous.”

As Block pointed out, if you are having trouble making payments on federal student loans, you have several options to lower or pause payments. No such options exist for personal loan borrowers experiencing financial hardship.

Personal loan rates are usually higher than student loan rates

Student loan rates are typically lower than those offered on personal loans. For instance, student loan refinancing rates start around 1.95%. By comparison, the lowest personal loan rates start around 3.99%. Those are just the lowest rates, however. More typical rates for student loan refinancing are usually around 4-6%, while average personal loan rates for borrowers with good credit are around 15% – or higher.

Even if a personal loan rate is lower than your current student loan rate, you might save even more by refinancing with new private student loans, instead. You’re likely to get a much better deal refinancing a student loan with a new student loan, than trying to replace it with a personal loan.

It might be tricky to get a personal loan for student debt

One thing to keep in mind: not all lenders will allow you to pay off student loans with your personal loan. Before you apply, be sure to check and make sure the lender issuing the personal loan allows you to use the funds to pay student loan debt.

Note that you will also need to qualify for a personal loan. Personal loans usually require good credit or better, as well as good income and steady employment. You’ll have to meet all underwriting requirements to get a personal loan and qualify for the lowest personal loan rates.

Alternatives to using a personal loan to pay off student loans

If you’re not sure about using a personal loan to pay off student loan debt, there are other options.

Federal student loan repayment plans and options

If you have federal student loans, you have a variety of repayment options available. You can go with the Standard Repayment Plan and pay off your student loans in 10 years.

You can apply for an income-driven repayment plan if your income doesn’t support your student loan payments. These plans match your monthly payments to your income and are specifically designed to ensure they are affordable. Switching to an income-driven repayment plan can lower payments and help free up cash for other necessities.

Public Service Loan Forgiveness is also an option if you work in the public sector. If you use a personal loan to pay off federal student debt, you would give up those federal protections and flexibility. Personal loans have fixed repayment terms and don’t have the same repayment options.

Consider refinancing before using a personal loan for student debt

If you’re dreaming of paying off debt quickly and saving money on interest, consider refinancing your student loans into a new student loan before turning to a personal loan.

Student loan refinancing companies help borrowers consolidate their student loans and save money on interest through a lower interest rate. Depending on your credit, you could shave off a few percentage points in interest, resulting in big savings.

In addition, some refinancing companies such as SoFi and CommonBond have unemployment protection, which allows you to put your payments on pause while looking for a job.

Using a personal loan to pay off student debt won’t afford you these types of benefits specific to student loan borrowers. Plus, you might not get a better interest rate through a personal loan.

Final Word

If you’re thinking about using a personal loan to pay off student debt, consider all of your other options first and understand what benefits you are giving up. If you do pursue a personal loan, find a reputable lender and read the fine print to make sure you’re not agreeing to terms that will interfere with your financial success later on down the road.

Elyssa Kirkham contributed to this article.

Interested in refinancing student loans?

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LenderVariable APREligible Degrees 
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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of September 6, 2019, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 09/06/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.49% APR to 7.94% APR (with AutoPay). Variable rates from 2.14% APR to 7.84% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.14% APR assumes current 1 month LIBOR rate of 2.14% minus 0.15% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.  
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for Laurel Road.

Laurel Road Disclosures

FIXED APR
Fixed rate options consist of a range from 3.50% per year to 5.55% per year for a 5-year term, 4.00% per year to 6.00% per year for a 7-year term, 4.30% per year to 6.40% per year for a 10-year term, 4.60% per year to 6.80% per year for a 15-year term, or 5.05% per year to 7.02% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan). The monthly payment for a sample $10,000 loan at a range of 3.50% per year to 5.55% per year for a 5-year term would be from $184.00 to $193.00. The monthly payment for a sample $10,000 loan at a range of 4.00% per year to 6.00% per year for a 7-year term would be from $138 to $148. The monthly payment for a sample $10,000 loan at a range of 4.30% per year to 6.40% per year for a 10-year term would be from $104 to $115. The monthly payment for a sample $10,000 loan at a range of 4.60% per year to 6.80% per year for a 15-year term would be from $79 to $91. The monthly payment for a sample $10,000 loan at a range of 5.05% per year to 7.02% per year for a 20-year term would be from $68 to $80.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.

VARIABLE APR
Variable rate options consist of a range from 2.43% per year to 6.05% per year for a 5-year term, 3.75% per year to 6.10% per year for a 7-year term, 4.00% per year to 6.15% per year for a 10-year term, 4.25% per year to 6.40% per year for a 15-year term, or 4.50% per year to 6.65% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.25% to 3.80% for the 5-year term loan, 1.50% to 3.85% for the 7-year term loan, 1.75% to 3.90% for the 10-year term loan, 2.00% to 4.15% for the 15-year term loan, and 2.25% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 2.43% per year to 6.05% per year for a 5-year term would be from $179 to $195. The monthly payment for a sample $10,000 loan at a range of 3.75% per year to 6.10% per year for a 7-year term would be from $137 to $148. The monthly payment for a sample $10,000 loan at a range of 4.00% per year to 6.15% per year for a 10-year term would be from $103 to $114. The monthly payment for a sample $10,000 loan at a range of 4.25% per year to 6.40% per year for a 15-year term would be from $77 to $88. The monthly payment for a sample $10,000 loan at a range of 4.50% per year to 6.65% per year for a 20-year term would be from $65 to $77.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.


4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.19% effective August 10, 2019.


6 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.


7 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 08/01/2019. Variable interest rates may increase after consummation.

2.14% – 6.79%1Undergrad
& Graduate

Visit Earnest

2.14% – 7.84%2Undergrad
& Graduate

Visit SoFi

2.43% – 6.65%3Undergrad
& Graduate

Visit Laurel Road

2.43% – 7.60%4Undergrad
& Graduate

Visit Splash

2.14% – 8.01%5Undergrad
& Graduate

Visit CommonBond

2.06% – 8.93%6Undergrad
& Graduate

Visit Lendkey

2.74% – 7.24%7Undergrad
& Graduate

Visit College Ave

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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