If you’re continuing your education beyond undergraduate studies, you’re going to need more money to cover the cost. If you don’t have anything saved up for graduate school, you might look into personal loans.
If you’ve exhausted all your other financial options, getting a personal loan can be helpful to fill any funding gaps you have. But it isn’t the best option for you. Here are a few reasons to avoid personal loans for grad students.
5 reasons to avoid personal loans for grad students
Personal loans are widely available. You can get a personal loan from a bank or private lender and use the money for more than just tuition and books. While that might sound like a quick and easy option, there are a few reasons why personal loans shouldn’t be your first choice.
1. High interest rates
Personal loans have some of the highest interest rates among student loan options.
Federal student loans for grad students have interest rates of 6.00% and 7.00% for loans disbursed before July 1, 2018, while personal loan interest rates vary greatly depending on your creditworthiness, ranging in average from 10.00% to 28.00%.
Federal student loans have fixed rates, while personal loans can have fixed or variable interest rates.
Fixed interest means the rate doesn’t change for the duration of a loan term, while variable interest can fluctuate depending on market conditions. The higher the interest rate, the more money you owe in the long term. It’s best to find a loan with the lowest possible interest rates.
While interest paid on federal loans is tax-deductible, it’s not the same for private student loans or personal loans. This means you can’t claim your interest as a deduction on your taxes. Doing so reduces the money you owe the government or helps you get more money back in your tax refund.
2. Short loan terms
Repayment terms are how long it takes you to pay back your loan.
For personal loans, repayment terms are typically shorter. They vary depending on the lender but can be as short as two years or as long as seven years. This is short considering federal student loan terms are typically 10 years.
That’s important because the longer the repayment term, the lower your monthly payments can be. Keep in mind, though, that lower monthly payments might mean you’re paying more in interest over the life of the loan.
3. Less flexible repayment options
You typically don’t have to start paying back federal student loans until six months after graduation or until you’ve dropped below half-time enrollment.
This can help you concentrate on school and other work without having to manage your loan payments. But personal loans require you to start paying back immediately, regardless of your enrollment status.
If you’re having trouble making payments, federal loans offer a slew of repayment assistance, including income-driven repayment plans, deferment and forbearance, and loan forgiveness programs. That’s not the case with personal loans, which don’t offer these.
4. Credit check required
Credit checks are done on federal graduate loans to make sure you don’t have any delinquencies, debt in collections, foreclosures, repossessions, or tax liens, among other things, according to Investopedia.
For personal loans, though, credit checks are required. A minimum credit score that shows you’re in good standing is also required for most personal loan lenders.
5. Must have a cosigner
While Direct PLUS Loans don’t require a cosigner, you might have to get one if your credit check shows some issues.
If you’re having trouble getting approved, you can also get an endorser who doesn’t have an adverse credit history. Keep in mind that they become liable for paying your loans if you can’t.
For personal loans, cosigners are a must if you don’t meet the minimum credit score requirements determined by your lender. It might be difficult for you to find someone with a solid credit history who agrees to be your cosigner.
Personal loans should be a last resort
If you’ve exhausted all other resources for free money, such as grants and scholarships, you can turn to loans to fund your graduate education.
Fill out the Free Application for Federal Student Aid, also known as FAFSA, and try federal student loans first since they tend to have lower interest rates and friendlier repayment terms. Next, shop around for private student loans, but research all your options before deciding.
Personal loans for grad students should be one of your last resorts to fund college. With higher interest rates, shorter repayment terms, and fewer options when there are repayment difficulties, personal loans aren’t the best choice for grad students.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
|7.73% – 29.99%||$1,000 - $50,000|
|6.15% – 15.37%1||$5,000 - $100,000|
|6.87% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%||$5,000 - $35,000|
|4.99% – 29.99%||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%2||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%||$2,000 - $25,000||Visit LendingPoint|
|5.99% – 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.49% – 18.24%||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%||$2,000 - $35,000||Visit Avant|