Personal Loans vs Student Loans: Which Is Better?

The world of loans is almost as confusing as picking out first semester classes. Student and personal loans are common loan types, with US citizens holding around $210 billion in personal loan debt and even more in student loan debt. 

These are popular methods of getting access to funds fast. Here are the basics:

• Student Loans: This type of loan helps students pay for post-secondary schooling and associated fees, such as tuition, textbooks, and living expenses. 

• Personal Loans: These loans can apply to various purposes and require a set repayment period and consistent monthly payments. 

Why does this matter? Well, the funding source for college, living expenses, and needed items can seriously impact your financial future and current options. Loan types typically have varying interest rates, repayment periods, limitations for loan usage, and more.  

In this article, we will expand on the differences and similarities between personal loan and student loan options. Read on for financial insight that actually makes sense.  

Comparing personal loans vs student loans

The differences between personal and student loans can be extreme. Functionally, though, they both put the borrower in debt, and both loan options can be extremely helpful or hurtful. 

Choose a loan company that prioritizes financial success and financial education. Also, it helps to be aware of the fund usage requirements, lender types, and repayment schedules.  

Here’s all you need to know about these two loan types: 

How you receive the funds

How are you gonna get the money? That’s the big question, and for student loans, it’s a little more complicated. 

First, the student loans are disbursed to your educational institution. They are used for tuition, dorm living costs, and some other associated fees. Then, any remaining funding is transferred into your selected bank account or forwarded to your address. 

Note that your school may not auto pay all fees with your loan amount. Occasionally, costs like athletic fees, recreation fees, or student association fees may be excluded from the automatic loan application. You’ll still likely owe these fees later, so be mindful. 

Comparatively, personal loans are much simpler. A lump sum is usually deposited directly into your bank account. 

KoraCash is one personal loan option that deposits money directly into your bank account, so you can get started right away. (Plus, there are some even faster options in the Kora app.)

How you can use the funds

It’s crucial to know what exactly you can apply your loan money toward. After all, you want to make sure all education expenses are being taken care of throughout your college experience. These are the basic guidelines. 

Typical student loan usage options:

• cost of attendance 

• room and board

• textbooks and supplies

• study abroad expenses 

• transportation costs 

• child care costs 

Typical personal loan usage options:

• Almost anything 

This is one area where personal and student loans truly differ. The limiting aspect of student loans may seem excessive, but the fact is many students aren’t used to suddenly getting $10k+ in spending money. The temptation to buy a new shirt before paying tuition related-expenses may be too great. 

Alternatively, personal loans are more easily applied toward any general expenses rather than student fees, but offer more flexibility regarding the payments application and payment installments. 

Types of lenders

You can take out personal and student loans from a whole host of similar lenders. Banks, credit unions, and private lenders may offer personal loans and private student loans.

The main difference lies in federal student loans. Here are the five main types of government loans:

1. Education Loans

2. Veterans Loans 

3. Housing Loans

4. Agricultural Loans

5. Loan Repayment

The government is the largest holder of student loan debt at around 93% of total US student debt, and they often award loans based on financial need. You may notice that personal loans were not listed. The government does not offer any personal loans under any circumstances. 

Taking out student loans with the government can offer undergraduate students a whole host of benefits that other student loan lenders may not be able to match. This includes:

• special deferment options

• loan forgiveness programs for public service workers

• lower interest rates

• income-driven repayment plans

So pay special attention when filling out the Department of Education’s Free Application for Federal Student Aid (FAFSA). This form isn’t just for financial aid. It informs eligibility for federal government loan programs. 

How you repay the loan

This is the big one. How do you actually repay your loans? Method and time of repayment can make a significant impact on your living expenses and even your credit score. Repayment options are another area where student loans and personal loans really differ. 

Student loan repayment usually doesn’t start until after a six months post-graduation grace period. (Graduate students can usually continue to defer student loans.) 

Either way, these protections give you a decent buffer. This is the time to save up funds, start your new job, or take time finding yourself while backpacking across Europe. Plus, after the grace period is up, some loan borrowers qualify for interest-only payments. Pretty sweet, right?

With personal loans, there is usually no deferment. They follow the pattern of most other loans, and repayment terms kick in a month after fund disbursement. 

This leaves students with several factors to consider. Ask yourself the following questions:

• Could you handle regular loan repayments while in college, and is refinancing possible after college?  

• Are you in a position to take advantage of government loan perks? 

• How much in government loans do you qualify for? 

Interest rates available

Like credit cards, the interest rates on loans vary, and student loan interests and personal loan interest are usually very different. Additionally, these interest rates are often inconsistent from year to year. 

This isn’t just about fixed interest rates versus variable interest rates; the general interest of both personal and student loans can vary even from month to month. So, there are no guarantees until you sign the loan contract.   

Personal loan interest rates are usually higher than those offered for student loans. 5.8% is the average student loan rate, whereas the average personal loan rate is around 14.47%. Sometimes private or student loan refinancing or consolidation is an option. 

A higher interest rate is unfortunate, but some college students may have good reasons for taking out these loans. Think about your credit history and what you can actually qualify for! 

Discharging your debt

Discharging debt is when you are no longer legally required to repay your loan, even though the loan isn’t fully paid off. This may sound like a fun life hack, but it’s usually only possible when filing for bankruptcy. 

The process is long and complicated and should be avoided. (Bankruptcy is no fun.) For some people, though, bankruptcy is inevitable, and discharging loans is a good perk. 

Most private loans can be discharged through bankruptcy. However, the following loan types/liens cannot be discharged:

• student loans

• spousal support

• child support

• judgments for damages from influenced driving 

• most unpaid taxes

Hopefully, this isn’t relevant for any students, but it never hurts to be prepared. 

Pros and cons of personal loans and student loans

We’re thrown a lot of information at you, and as we all know, cramming isn’t always the best study method. So, here’s our quick overview of personal loans vs student loans.   

Pros: Personal Loan 

• More flexibility and choice in applying the loans toward general expenses 

• Repayment can start building an excellent credit score right away 

Pros: Student Loan

• Federal loans offer perks like flexible forbearance, good loan terms, and deferred loan payments  
• Student loans generally have lower rates than personal loans
  

Cons: Personal Loan

• Easy to blow the funds on non-essential purchases
• Higher interest rates than most student loans 

Cons: Student Loan

• Less flexibility when deciding where funding goes

• Most student loans cannot be discharged 

The best loan is the one that matches your situation and goals. Keep in mind that taking out a loan is a big undertaking, so a small cash advance for students may be a better option. 

Get money fast with KoraCash 

Choosing between personal and student loans is a complex decision based on a variety of factors, like disbursement options, interest rates, and repayment requirements. At Kora Financial, our mission is to offer great personal finance features that educate students and help them make the best financial decisions. 

Sometimes taking out a large personal or student loan isn’t what students really need. KoraCash is our solution! It’s a personal loan FOR students who need money fast with low rates on their terms. 

(And it helps build your credit history at the same time.) 

Check out how KoraCash can help solve your funding issues today!