When ? and why ? to use a personal loan for back to school

Unexpected bills start stacking up around this time of year. Fresh bedsheets. Laptop case. So many books. And it turns out you need a mini-fridge in the dorm room after all (because, who doesn’t?).

While in most cases you can only use student loans to cover the cost of tuition, personal loans can be good option to help pay for all those unexpected necessities and extracurricular expenses.

Here’s how personal and student loans differ, and when it might be a good idea to opt for a personal loan to offset your back-to-school spending.

When you should use a student loan

Student loans can be used towards tuition and other expenses related to attending college: things like textbooks and dorm fees. They are a special category of loan, with specific rules for what they can be used for, and a longer timeline to pay them back in full (which we’ll get into below).

With something like an auto loan, the bank lending money knows that it can fall back on the value of the asset if loan repayments stop. In other words, if they’re not getting paid back any more, they can recoup the money they’re owed from the resale value of the car bought with the loan.

Education is harder to assign a dollar value to like that.

The basic logic of a student loan is that it takes a while to convert a college education into a career, so the amount of time you have to repay the loan is longer than with other types of loans. Student loans are typically repaid over a period of at least a decade, and it’s not unusual to see repayment terms stretching to 20 years or more.

The good news is you usually don’t have to start paying back a student loan until six months after graduation, when you’ve hopefully got a good job. The less good news is that the longer you’re in debt, the more you end up paying.

When to use a personal loan for school

A personal loan, unlike a student loan, can be used for both education- and non-education-related expenses. Personal loans are usually repaid on a much shorter timeline than student loans (from a couple of years to five or six at the higher end), and loan repayments begin right after the money's received, so you have to start paying it back immediately.

A shorter repayment schedule translates to money saved in most cases. In the simplest terms: a shorter repayment period means fewer payments, which means less interest paid over the course of the loan.

For that reason, taking out a personal loan to cover some college-related costs could get you to debt-free faster after graduation.

Though some lenders restrict their use for tuition, personal loans can be used to pay for a wide range of other expenses that tend to come along with a college degree. You may need money for a bus pass (and the occasional cab), a new gym membership, celebratory dinners out after finals, and trips back home for the holidays, to name a few common ones.

Since you pay less money the shorter your repayment period is, it might be wise to take out student loans only for the highest-cost elements of the college experience, like tuition and housing, and take out a personal loan to cover the non-tuition expenses mentioned above. You can also consider taking out a personal loan to cover one-time, big-ticket purchases, like a new laptop for class.

Other reasons to use a personal loan for college

If you’re a prospective grad student with a decent credit score and a steady job (or some savings in the bank), a personal loan to pay for your next degree might be the right call. The same goes if you’re a working professional pursuing a Master’s or certification in night school.

Personal loans might also be the right choice for international students, or if you don’t qualify for student loans for one reason or another.

A personal loan could make sense for you if you already have the major costs down but need a little extra cash to cover an unanticipated expense. Maybe you’re a parent whose junior wants to take a gap year, or your wide-eyed freshman couldn’t resist a study abroad opportunity they learned about on campus. A personal loan may be the best option to cover these kinds of unexpected costs that come along with the college experience and to fill gaps you didn’t know you’d have.

Choose the loan that’s right for you

Student loans are a good option for people who are taking their first steps toward a future career and don’t have much in the bank quite yet. They’re also a great way to build credit when you’re just starting out in your financial life.

Personal loans can be used for the extra expenses that inevitably rack up during the back-to-school season. As long as you’re able to repay them on time, they’ll save you money down the road.

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