Can I Use My Student Loans to Pay Off My Debts?

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. 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.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

loans to pay off debt
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

When it comes to consumer debt, it’s not uncommon to feel fixated on making it go away fast. High interest rates can make it feel like your minimum payments are doing nothing toward paying down the principal, and somehow, each monthly bill looks larger than the last. Whether you’ve leaned on credit cards to cover you between paychecks or took out a personal loan for an emergency, debt can feel all-consuming.

You may be thinking of creative fixes for how to lose the debt — and the accompanying stress. And if you’re a college student, lower student loan interest rates are probably starting to look pretty good. You may be wondering, could you use your student loans to pay off debt, such as credit cards or personal loans?

The numbers: Interest rates for student loans vs. credit cards and personal loans

Using student loans to pay off credit cards or other high-interest debts may seem like a good idea when it comes to saving on interest.

Federal student loan interest rates are generally designed to keep college affordable and accessible. Currently, the fixed interest rate for undergraduate Direct Loans (subsidized and unsubsidized) is set at 5.05%. That is likely significantly lower than the interest rates most college students would qualify for on credit cards or personal loans.

A typical credit card interest rate is 16.91%, but some evidence suggests that the average APR of a student credit card may be even higher. That’s more than three times higher than federal student loan interest rates, which means these balances will grow three times faster than student loans.

The average credit card balance for a college student is $1,183, according to a 2019 Sallie Mae report. With a 17% APR, if you paid $100 a year toward the principle, you would accrue $121 in interest in a year. If it were switched to a student loan, however, and you paid $100 toward the principle, the annual interest charge would be $33.

Should you use student loans to pay off debt?

While the numbers may seem convincing, there are reasons to hold off on using student loans to pay down consumer debt — that’s because there are some key differences between credit cards, personal loans and student debt.

Federal student loans offer some unique perks. They offer options like income-driven repayment plans that can help keep payments affordable if your income is low. Interest paid on student debts is also tax-deductible, saving you more money in the long-run.

On the other hand, student loans are much more difficult to discharge in bankruptcy than consumer debts. This means that student loans are more likely to follow you throughout your life, as turning consumer debt into student loan debt may make it harder for you to ever get out of debt if you need to turn to bankruptcy as a last resort.

Additionally, sticking with a credit card or personal loan and working to pay it off could be a more effective way to build credit. Rather than moving debt, it may be a smarter strategy to focus on paying down consumer debt, and then coming up with ways to pay down your student loan as well. Low interest is still interest, and that interest will accumulate over time. While using student loans to pay off debts may seem like a smart short-term strategy, you’re still dealing with debt and a large balance can quickly become overwhelming.

Using student loans to pay off debts could be considered misuse of student loan funds

Additionally, there are legal guidelines for how student loans may be used. The Federal Student Aid (FSA) Offices directs students that loan funds are “only to pay for education expenses at the school that awarded your loan.” Educational expenses include a wide range of costs, such as tuition, room and board, transportation and a personal computer — debts, however, are not mentioned.

This means that using student loans to pay down debt may technically fall under the categorization of misuse of student loans. That said, misuse of student loans is difficult to track and enforce. But if your loan originator finds out that this is how you’ve used your loans, you might get in trouble for violating your lending agreement.

Consequences could include fines and being liable to the school for any funds that are retroactively taken back. Misusing student loans can also have a negative effect on other students, as they may be missing out on funding they need for their education because of the funds you requested to cover your bills.

Note that there might be some gray area if your debt was incurred during college while paying for expenses that could fall under the FSA’s definition of educational expenses, such as travel related to school or a car used to get to class. But if you want to stay on the safe side, it’s probably best to limit your student loan use to covering these kinds of debts.

Alternatives ways to pay down high-interest debts

Paying down high-interest debts now, with cash, could save you more in the long-run than just bumping it over to your student loan balance. There are a number of ways you could work toward paying off your debts.

One option is to get a side job and put the extra funds you earn towards paying off your debt. Or, depending on your relationship, you could consider asking relatives for an interest-free loan. If graduation is around the corner, it may be a good idea to earmark any financial gifts toward paying down credit card debt. You could also look into transferring the balance to a new credit card with a 0% introductory rate.

If you are able to pay down those debts, try and work toward pre-paying your student debt once you’ve graduated. Getting ahead on payments will help you save on interest so you can work toward being completely debt-free.

In the meantime, suss out what got you into debt in the first place. A budget can help you stay on track and avoid these issues in the future. It also may be a good idea to come up with a plan to build an emergency savings account to cover unexpected expenses. While you may have been on a tight budget as a student, having good financial habits can help you manage a salary and stop debt from spiraling out of control in the future.

Anna Davies contributed to this report.

Need a student loan?

Here are our top student loan lenders of 2019!
LenderVariable APREligibility 
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

2 Important Disclosures for College Ave.

CollegeAve 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.

(1)All rates shown include the auto-pay 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.

(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.

Information advertised valid as of 9/3/2019. Variable interest rates may increase after consummation.


3 Important Disclosures for Discover.

Discover Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at DiscoverStudentLoans.com/AutoDebitReward.
  3. Aggregate loan limits apply.
  4. Lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. The interest rate ranges represent the lowest interest rate offered on the Discover Undergraduate Loan and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.50% as of July 1, 2019. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please visit discover.com/student-loans/interest-rates for more information about interest rates.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

4 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).

  1.  Rates are as of July 1, 2019 and include auto-pay discount. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment. Variable rates may increase after consummation.

5 Important Disclosures for Citizens.

Citizens Disclosures

  1. Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of September 1, 2019, the one-month LIBOR rate is 2.14%. Variable interest rates range from 3.24% – 11.50% (3.24% – 11.35% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school 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. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
  2. Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school. 

    Please Note: International Students are not eligible for the multi-year approval feature.

  3. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Borrowers whose loans were funded prior to reaching the age of majority may not be eligible for co-signer release. Note: co-signer release is not available on the Student Loan for Parents or Education Refinance Loan for Parents.
3.25% – 10.65%*,1Undergraduate and Graduate

Visit SallieMae

3.70%
11.98%
2
Undergraduate, Graduate, and Parents

Visit College Ave

3.37%
11.87%
3
Undergraduate and Graduate

Visit Discover

3.52% – 9.50%4Undergraduate and Graduate

Visit CommonBond

3.24% – 11.50%5Undergraduate and Graduate

VISIT CITIZENS

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.

You're on your way...

We'll take you to Lendingtree.com where you'll be able to fill out one form to get multiple personal loan offers, based on your creditworthiness.