Funding College With Personal Loans: Our Experts Weigh In

ByNathan Paulus
Reviewed bySarah Mattie

Updated: May 21, 2023

ByNathan Paulus
Reviewed bySarah Mattie

Updated: May 21, 2023

Advertising & Editorial Disclosure

Personal loans are sought-after for a reason. They can be applied in various ways, such as purchasing a major appliance or completing a home renovation project. If you’re wondering whether you can use it to pay for college, the answer is yes, assuming your lender allows it. However, federal loans or private student loans may be better options. Learn more about the potential benefits and drawbacks of using personal loans to fund college, providing more information allowing for better financial decisions.


Can You Use a Personal Loan to Fund College?

College is not cheap. The average annual cost of tuition and fees for a four-year degree program from an in-state public institution is $9,349. Private institutions are more expensive at $14,957 per year. These costs don’t include housing, books and other expenses, which can easily double the amount to $35,000 or more. When looking at these figures, it’s not surprising that most students take out loans to fund college.

A personal loan is sometimes an option, especially since you can use it for various expenses. However, some lenders don’t allow you to use your personal loan funds to pay for postsecondary education.

As a result, many students opt for private student loans, which generally have lower interest rates and better repayment terms than personal loans. These may go a long way to help students avoid financial stress and anxiety.

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Although personal loans aren’t monitored when you receive the funds in your bank account, it is not recommended to use them for tuition since other types of financial aid are available.

Key Differences Between Personal Loans vs. Private Student Loans

There are many types of student loans. The ones most commonly discussed are federal student loans and private student loans, though personal loans may sometimes be used. It’s best to understand these to determine how each type of loan impacts you and your financial situation.

Here, we'll be discussing the differences between private and personal student loans. Federal student loans are their own beast and constantly in flux.


What Can Students Use a Personal Loan For?

Personal loans for college students can be used in a variety of ways as determined by the lender. While personal loans aren't usually allotted for school tuition and fees, that doesn’t mean that a personal loan can’t help you with other expenses.

You’ll need to spend on housing, food and other needs. We break down how you can use your personal loan funds to cover these additional college expenses. These are general examples and may not apply in every situation. See your lender for specific restrictions and allowances.


Factors to Consider Regarding a Personal Loan in College

Taking out a personal loan may not be the most cost-effective way to pay for school. Still, you shouldn’t automatically exclude it from your options. If you’ve already used other channels, such as taking out a private or federal student loan, scholarships or grants, personal loans can fill in the gaps for additional expenses.

Taking out a personal loan comes with risks, such as needing to begin repayment soon after your lender disburses the funds.


Should Parents Take Out Loans for Higher Education?

A personal loan is a commitment, no matter how small it is. It's best to consider several factors before pursuing this course of action.

If your child doesn’t qualify for a personal loan, an alternative is to put it under your name. It may lead to a more positive outcome, especially if your credit score shows you manage your finances well.

On the other hand, a loan you take out — or even one you co-sign on — is your debt to repay. That loan shows up on your credit score, even if your child has agreed to make all payments. This could have repercussions on your financial well-being and mental health.

Reflect on your current financial situation and ask yourself the following questions. It may help you make the best financial decision.


Top 5 Personal Loan Lenders to Pay for School

Once you’ve reviewed your options and still feel that a personal loan is a solid option, start shopping for lenders. Comparing estimates from different companies increases your chances of finding one that meets your needs and preferences.

Remember, you may not be able to use funds for tuition, but you can still maximize it for other college costs.

Here are recommended personal loan lenders for students and relevant information to consider.

Loan Amounts
  • A credit score
    of 300 or higher
  • A source of
    regular income
  • A valid email
  • A personal U.S.
    bank account

5.35% to

$1,000 to


Three or
five years

  • A credit score
    of at least 640
  • A low debt-to-
    income ratio
  • A verifiable

5.99% to

$2,000 to


Three or
five years

  • A credit score
    of at least 650
  • A verifiable

5.49% to

$600 to


One to
five years

  • A credit score
    of at least 680
  • A verifiable
    source of income

6.99% to

$5,000 to


Two to
seven years

Qualifying for a Personal Loan as a College Student

Finding funding for college takes preparation. It’s best to know what most lenders look for in borrowers to increase your chances of getting your loan approved.

Remember, a personal loan may not be the best option in all situations. It's generally best reserved for when you’ve exhausted other means of getting funding and just looking at it as a way to pay for additional expenses. It’s best to understand what you’re entering. Explore the various types of personal loans you can consider and their qualifying factors.

Types of Personal Loans Available to Pay for College

A personal loan is one of your options to fund college or additional education expenses. If you choose to go in this direction, it’s crucial to understand that you can break it down further. You can use several types of personal loans to pay for college, and each comes with benefits and drawbacks. Not understanding their differences may cause you to choose the wrong one, bringing unforeseen risks.

Flat-Rate Personal Loans Under Your Name

Another option is to take out an unsecured loan, which means you don't need to put up any collateral and place it under your name. Having a flat interest rate means you’ll have a predictable repayment schedule and amount, making it easier to manage. It also helps you build credit as long as you pay on time and in full. However, you’ll need a verifiable source of income to qualify. Lenders will also look into your current credit standing. If you don’t have enough credit history or have a poor credit score, you may not qualify.

Co-Signed Personal Loans

Co-signers may be helpful if you don't qualify for a personal or private loan on your own, or if you qualify for one but the rates aren't acceptable for you. This creditworthy person may help you qualify or get a better deal by signing on the dotted line.

You can often check your rates without harming your credit to find out if you'll need this assistance.

Be sure your co-signer understands their role in the process. After all, they’ll be liable to pay the monthly dues if you can’t, and both of your credit scores are affected.

Applying for Loans With a Co-Borrower

Some lenders accept co-borrowers rather than co-signers. Co-borrowers, or co-applicants, share the responsibility of the loan with the person taking out the loan. They will help repay and have access to the assets of the loan, such as a home or a car.

Having a co-borrower can help you get a reasonable interest rate or receive a larger loan amount depending on the lender if you both have good credit scores. If you don’t have a good credit score, a co-borrower can still help you.

You can choose a spouse, close family member or friend with good credit, a high income and solid financial management skills. Remember that you will be working together to borrow and repay the loan.

Personal Loans Under Your Parents’ Name

You still have an alternative if you can’t find a co-signer or co-borrower (or your chosen lender doesn’t allow it). You can speak with your parents and have them take out the personal loan instead. They might have a better chance of qualifying because it’s easier to meet the requirements if you have a longer credit history.

However, your parents may already have other debts, and another loan may cause further financial stress. Also, you lose the opportunity of building your credit score, which may affect future loan applications.

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Applying for a personal loan may be a good thing. It can allow you to build credit and learn how to manage your finances responsibly. But first, you need to qualify. Here are several items to do before sending in your loan application.

  • Review lender requirements: The specific requirements between lenders vary. For example, some have a higher minimum credit score prerequisite than others. It’s best to do your research to know what you need to prepare.
  • Come up with a realistic loan amount and repayment terms: Most lenders will ask how you intend to use the funds. But more than that, borrowing an amount that’s too large and not having the means to pay it back may cause them to deny your application.
  • Check your credit score: Borrowers with good or excellent credit scores are more likely to qualify for personal loans. Also, lenders often charge creditworthy borrowers lower interest rates, making your monthly payments more manageable.
  • Find a co-signer or co-borrower: If your credit score won’t cut it or you don’t have enough credit history, try to look for someone who can co-sign or co-borrow a loan. Your interest rates might be lower because of their credit standing, and you can improve your credit standing by paying your monthly dues on time if approved.
  • Have a regular source of income: Most personal loan lenders require you to have a verifiable source of income to ensure you can pay your monthly dues. Having a job, even part-time, may allow you to fulfill this requirement.
  • Clarify reasons for a declined application: Don’t hesitate to reach out to a lender even if they reject your loan application. Ask for the specific reason why it happened. You may find that tweaking your application details (lowering the loan amount or shortening the repayment terms) may lead to a different outcome.

Common Pitfalls & Ways to Avoid Mistakes When Using Loans for College

Applying for a personal loan could be an excellent way to fund your college expenses. Still, it’s best to do the leg work before pursuing it.

Once lenders approve your application and disburse your funds, you must live up to that loan's obligation for the next several years of your life. Avoid sticky situations by exploring common mistakes, such as these below.


Borrowing more than you need

Have a clear idea of how much your expenses are. It might be tempting to apply for a higher amount than you need, but that may cause more challenges when you begin payments. Remember, the bigger the principal, the bigger the monthly due.


Focusing on the monthly payments only

The fine print is crucial, so don't gloss over it. There might be charges that you haven’t considered, such as application, origination or prepayment fees. You may pay more than your expected monthly due if you don’t include everything.


Failing to compare lenders

Lenders offer varying interest rates, payment terms and fees. It’s best to have multiple options before deciding, even if you have a preferred lender from the beginning. You might find a better deal in the process.


Not having a monthly budget

Having a monthly budget is an excellent way to understand your finances. Once your loan is approved, don’t forget to include it as an additional expense and review everything. You may need to adjust spending in other areas to ensure you have enough money to pay for your monthly dues.


Missing payments or paying late

The best way to have a good credit score is to pay your monthly dues on time and in full. Lenders typically charge a late fee for late payments, so it doesn’t just affect your credit standing — it also increases your costs.


Only paying the minimum

Technically, there’s nothing wrong with this, but if you have extra cash, you may want to pay a higher amount. It’s an excellent way to finish paying your loan early — but ensure your lender doesn’t charge a prepayment fee. You can also try applying debt management strategies, such as the debt snowball or the debt avalanche method can help you manage your finances.

5 Alternative Funding Sources to Help You Pay Your Tuition Fees

A personal loan is only one of the many options to pay for your college tuition. Others may come in handy if your preferred lender doesn't allow you to use your funds for post-secondary education or if a personal loan isn’t the best option, given your current situation. These other alternatives may even be favorable if they won't increase your debt.


Using Personal Loans for College FAQs

Can you use personal loans to pay off student loans?
Can you use a personal loan to refinance a student debt?
If I can’t use my personal loan funds for tuition, where should I allocate them?

Resources on Managing Your College Expenses

Several resources can help you manage your funds while you're in college. Explore the following tools to better understand your costs and financial needs. If a personal loan doesn’t work out, you can also find alternative funding sources, some of which we’ve included below.

Tools, Calculators and Mobile Apps

  • Cost Projector Calculator: This tool allows you to estimate how much college will cost. It considers inflation, giving you a good idea of costs several years down the line.
  • FAFSA Form: This is the first step if you're looking for federal financial aid. Follow the prompts and you’ll be well on your way.
  • Personal Loan Calculator: You can use this calculator to know how much a personal loan may potentially cost you. It even includes origination fees and factors in loan terms and interest rates.
  • Mint: A mobile app that allows you to track your spending and credit score. You can also set your own financial goal and see your progress as you work closer to it.
  • YNAB: If you’re looking for an app that uses a more proactive approach, YNAB might be a good fit. You don’t just use it to track your expenses; it allows you to plan your finances. It also provides detailed resources explaining its four-step method.

Alternative Funding Options

  • Learn the Different Types of Scholarships Available: MoneyGeek's guide on finding and applying for college scholarships can help your scholarship search. With over 6,000 scholarships available, you can narrow down scholarships to specific categories such as your area of study, ethnic background and identity.
  • CareerOneStop’s Scholarship Finder: This site allows you to search for possible scholarships you may apply for. It allows you to filter the information using several criteria, such as level of study, award type, where you live and where you want to study.
  • Federal Grant Programs: Details various federal grants that may help you pay for your college education. The document also provides contact information for readers who have questions or may want additional information.

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.