5 Reasons Grad Students Should Avoid Personal Loans for School

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. 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 understand what you are buying, and consult 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. Please do your homework and let us know if you have any questions or concerns.

two grad students reviewing notes, man, woman, hijabi, school, university

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.

If you have a low credit score from being credit invisible, you’re still likely to receive a Direct PLUS Loan. You’ll also get the same repayment flexibility options as with undergraduate loans.

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!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.199% APR to 15.365% APR (with AutoPay). Variable rates from 6.145% APR to 14.685% APR (with AutoPay). SoFi rate ranges are current as of June 15, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.145% APR assumes current 1-month LIBOR rate of 1.97% plus 4.175% margin minus 0.25% AutoPay discount. 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. 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.
  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)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.15% – 15.37%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. 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 understand what you are buying, and consult 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. Please do your homework and let us know if you have any questions or concerns.