Bankrate via yahooshould college students consider personal loans?2 days ago

Personal loans have shorter repayment times and often higher interest rates than typical student loans. While taking out a personal loan to help cover college costs may be tempting, student loans — particularly federal ones — are almost always the better option. To ensure fairness and transparency, the Higher Education Opportunity Act of establishes strict guidelines that lenders must follow to offer loans to pay for college tuition.

Because of this, personal loan lenders abstain from allowing borrowers to use the loans for educational expenses and offer student-specific loans instead if they want to target that demographic. Even if you find a personal loan lender that offers loans to cover some of your other college expenses, there are reasons to reconsider.

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With student loans, there are more options open to you. The U. Department of Education issues Federal Direct Loans. Private student loans require a stable source of income and excellent credit to qualify — just like personal loans — but they tend to have more favorable terms. The same goes for most private student loans, with some private student loan companies extending that grace period even further to nine or 12 months.

Financial Management.

Although some personal loans have repayment terms of up to 12 years, most lenders limit their repayment terms to five years. This, coupled with a higher interest rate, will make your payments much higher than if you take out a federal or a private student loan, which often have a standard repayment term of 10 years or more. Personal loans interest rates can range anywhere from 5 percent to 36 percent.

Federal student loans for undergraduate students have a 4. Private student loans can have both fixed and variable interest rates, ranging from about 1 percent to 14 percent, based on credit. If you have federal student loans, you can always apply for an income-driven repayment plan to make your payments more affordable.