Paying for college is expensive. According to the College Board, the average cost of in-state tuition for one year at a public university is $22,600, while an average private university costs more than $40,000.
This does not even include the cost of room and board, books and other college costs. As a result, many students turn to loans to manage these expenses.
While personal loans from private lenders are an option, they typically are not a great help for student debt.
How do personal loans work for student debt?
Banks offer personal loans to help students deal with college costs. Applying for this type of loan is the same as getting a loan for a business or a car.
You contact the lender and let them know how much you want to borrow. The lender will review your credit score and make a decision based on your application.
If you do not have any credit history, you may need to get a family member or close friend to co-sign your loan so you qualify. Once you qualify, you will get a check for the approved amount that you can use for your college expense.
“Personal loans are the most
expensive student debt to pay off.”
Why other sources are better:
While personal loans are available for students, they typically are not a good type of student debt. Government loans or loans from your school are usually a better deal.
These loans have lower interest rates and better repayment terms than private loans. Government student loans in particular are subsidized to make college more affordable for Americans.
Many lenders also offer private loans with a variable interest rate, meaning your future payments could change over time. This can be unpredictable and create problems for your budget.
Best use of personal loans:
There are some situations when a personal loan can make sense for student debt. If you can’t qualify for any government loans, or the loans you qualify for do not provide enough money, you can turn to personal loans for the rest of the money.
Personal loans are also less restrictive. A government loan might only be applicable for tuition, but you could use the money from a personal loan for other items like paying for rent or a study abroad trip.
While personal loans can be a help for your student debt, they really should be a last resort compared to other sources of funds. If you do not have any other options, a personal loan could be the way to pay for the rest of your college expenses.
Photo source: rawstory.com.