Using Personal Loans to Pay for College

[Mar 24, 2009.]

 

Students struggling to pay for college tuition and other costs may find themselves turning to personal loans. However, it’s important to exhaust all federal financial aid before going the personal loan route.

With the cost of college continuing to rise, many families are struggling to come up with the funds to pay for their kids’ education. In fact, public colleges have increased tuition by 4% a year over the past 10 years, according to Next Student. While some schools are increasing financial aid to help families during these tough economic times, many students still don’t have enough money to pay college bills.

That’s where personal loans can help. Personal loans for students often require that students be enrolled in a degree program at least half-time and have good credit or use a co-signer.

It’s important for borrowers to become familiar with all the terms of a personal loan before applying. Lenders may have different limits for how much can be borrowed and short periods of repayment. Interest rates on personal loans are also likely to be variable. It pays to shop around for the best deal.

Borrowers can apply for personal loans at banks that provide student loans, as well as lenders in their community. Many students who don’t have much of a credit history may have more of a chance to get approved if they have a co-signer.

Students who have a difficult time getting approved by commercial lenders may want to consider seeking a loan through a peer-to-peer (P2P) lending site like Prosper or Lending Club. Social lending networks have become a popular way for people to obtain a loan even after they’ve been turned down by banks.

By signing up with a P2P lender, borrowers can state how much interest they’re willing to pay for a loan. Many lenders can agree to fund only part of the person’s request, limiting their risk. Depending upon the site, borrowers usually need to have good credit to qualify.

The advantage to using a social lending network is that the borrowers and lenders don’t have to know each other. Also, P2P lenders usually have set fees so it’s easy for borrowers to figure out the total cost of their loan.

Another alternative is to get a personal loan from a friend or family member who wants to help pay for education costs. GreenNote allows students to set up a formal loan agreement with family and friends, which can help avoid friction down the line.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.