Why you can’t use some personal loans to pay for tuition

A personal loan can be used to cover various expenses, including an unexpected bill, vacations, or even home repairs. And it can be a more cost effective way to cover these expenses because some personal loans have lower interest rates than most credit cards, and you can be approved for up to $ 100,000.

However, some uses of personal loans fall more into a gray area, and tuition fees are one of them.

Can you actually use a personal loan to pay for tuition? The short answer is, you will need to check the lender’s terms of service as some of them do not allow borrowers to use personal loans to pay for tuition.

There is a thin line between being able to use a personal loan for tuition and not being able to do so – and it really depends on loans that follow certain federal regulations.

Regulations referring to “private education loans” refer to a form of credit that is not insured by the federal government, does not include a line of credit or any other loan that must be secured and is provided to a borrower for education costs, according to the Federal Register.

Personal loans are not subsidized or insured by the government, often do not require a borrower to secure them with collateral, and borrowers can apply for the loan explicitly for the purpose of educational spending.

But under the Higher Education Opportunities Act 2008, lenders offering loans for private education must make special statements, provide a 30-day rumination period, give borrowers the option to cancel in three days after disbursement of funds and cannot join schools. These are just a few of the rules educational loans must follow.

Not all lenders offer personal loans that meet all of these requirements. Since they do not follow these strict regulations, many lenders simply prohibit the use of their personal loans for tuition related expenses.

As long as the lender does not prohibit the use of their personal loan for education costs, borrowers are technically free to use one to cover education costs.

“The exact uses can be found in the loan agreement itself,” says Leslie Tayne, founder and director of Tayne Law Group. “If the loan is designed for you to use it as you wish, then it is generally okay to use the money to pay for your education.”

At the same time, however, Tayne explains that it’s highly unlikely that a student straight out of high school will even have a credit history large enough to be approved for a personal loan. Additionally, there are some advantages to private student loans that personal loans simply do not offer.

According to Tayne, you will generally have to pay a lower interest rate on private student loans. If you take out a personal loan, you will need to start repaying it immediately. But you may have the option of deferring private student loan repayments while you are still in school.

Personal loans generally have shorter repayment terms than private student loans. You only have seven years to pay off a personal loan, but with a private student loan, you usually have up to 20 years to pay it off. This could mean that your monthly personal loan payments will be higher.

If you’ve exhausted federal financial aid and private student loan options and still need additional funds to cover expenses such as school supplies and textbooks, there are still other loan products that are more suitable. to students.

A student credit card like the Discover it® Student Cash Back Card has no annual fee, a short introductory period of 0% APR, and is intended for students with fair credit or no credit. But if you are a student who has successfully built up a good credit history, you can apply for Bank of America® Student Travel Rewards, which also has no annual fee and a generous 0% APR introductory period, so you can defer paying off a large expense (or better yet, split it into smaller payments over several months). In addition, new cardholders can earn 25,000 bonus points if they spend $ 1,000 within 90 days of opening the account.

While you may not be able to use some personal loans to cover tuition costs, first consider exhausting your other funding options, such as federal student assistance and private student loans. The terms are often much more advantageous for students, and you can feel more confident that you have a reasonable repayment plan in place.