Paying off student loans with a personal loan But it's generally not a good idea to use a personal loan to pay off your student loans. If you want to pay off your debt, student loan refinancing might be a better option. With refinancing, you're likely to get a lower interest rate than you would with a personal loan. You can repay student loans with a personal loan if the lender allows it.
If you have student loans, you might be looking for some way to pay them off as soon as possible. If you've wondered if you can use a personal loan to pay off student loans, the answer is generally no. Even if you could, you'll likely end up paying more money than if you refinanced your student loans. You cannot consolidate private student loans or personal debts, such as credit cards, with a federal direct consolidation loan.
Only federal student loans are eligible, including direct federal loans, federal direct PLUS loans, Stafford loans, and Perkins loans. However, there are a few exceptions. A limited number of lenders allow you to use personal loan proceeds to refinance loans. Therefore, the answer to the question: “Can I use a personal loan to pay off student loans? It is, it depends.
Here's what you need to know about using a personal loan to pay off student loans and why it's a bad idea. Money borrowed for educational expenses, including paying off existing student loans, comes with additional requirements that lenders must meet. You may get a lower interest rate on a personal loan than you currently pay on a private student loan, which could have an interest rate of up to 13%. The interest rates for refinancing a SoFi loan start at 3.49% if you choose a fixed-rate refinancing and make your monthly payments using automatic payment.
You may not want to refinance your federal student loans, as that means losing access to all federal payment options, borrower protections, and forgiveness programs. Personal loans are best for consolidating higher-interest debts, such as credit card debt, in order to set a lower rate. A shorter term may seem attractive because you'll pay off loans sooner, but it can also lead to a higher monthly bill that is further increased by the higher interest rate on a personal loan. In addition to interest charges, many debt consolidation loans come with opening fees, one-time amounts that are deducted from the top when you get the loan.
Finally, while student loan interest is deductible on your tax return to a certain extent, you won't get the same benefit on personal loan interest. Carefully consider the advantages and disadvantages before applying for a personal loan to consolidate your student loans with your other debts. And while private student loans don't offer the same benefits as federal loans, most allow you to defer payments while you study and have forbearance options. The only time you'll actually save money by using a personal loan to pay off your student loans is if you definitely receive a lower interest rate on the loan.
Personal loans are incredibly versatile, as lenders allow you to use your funds for just about anything you want. If you're considering debt consolidation as a way to pay off your debt as quickly as possible, you may think that you don't need these options. For example, if loan payments continue to prevent you from creating an emergency fund, you may be forced to reapply for credit cards the next time a financial emergency occurs.