In our previous article, 5 things college graduates should know about student loan debt, we gave an overview of some of the rules and requirements of repaying student loans. If you’ve done your homework and fully understand which loans can be repaid early and which ones are not subject to benefits such as deferment or forbearance, using personal loans to consolidate may be a viable option, though there are some caveats. You will need to make a decision after a case-by-case evaluation, but it still is worth running through the figurative pros-and-cons calculator.

Please keep in mind, you cannot pay for school or school-related costs with personal loans, but you can use them to consolidate loans after the fact. Check with your potential lenders to find out what their rules are for their personal loan programs. Personal loans usually have a set term and fixed payment through the life of the loan and rarely have prepayment penalties. Overall, student loans usually do have low rates, but if you are in a position to pay off a personal loan earlier, you may make up for those percentage points by saving months if not years of interest.

So, what are some reasons and drawbacks for opting for personal over student loans?


  • Debt consolidation with a (possibly) lower, fixed-rate interest. Again, evaluate every student loan to make sure you know your actual interest rate, if it adjusts or is fixed, and if there are any prepayment penalties before comparing to available personal loan products
  • Faster payoff can often be achieved once you have consolidated, and if your personal loan has no prepayment penalties, you can pay your entire debt off faster and stop accruing interest.
  • If your parents or a relative cosigned for your student loans, they can be taken off the debt and have no obligation. Personal loans are dischargeable in bankruptcy; most student loans are not.


  • Most student loans have the benefit of deferment, forbearance or can even be forgiven if you pursue certain career paths, so make sure that you don’t intend to use any of those advantages before paying off your student loan with a personal loan.
  • Since personal loans are unsecured, there is a maximum that lenders will consider. If you are a new graduate, you may not have the optimum credit history to warrant the highest loan amount.
  • You can receive a tax deduction for up to $2,500 of interest paid on your student loans, which you cannot claim for interest on personal loans.
Like with all financial decisions, there are many options with a lot of variation. Speak to your student loan servicer and your potential loan officers to make sure you understand the realities of all the components of your debt before you make a decision. Depending on your financial situation there are pros and cons to both refinancing and using a personal loan to pay off your student loans. Figure out what your repayment goals may be and explore your options.

Call today for more information.

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