Why You Can't Use Some Personal Loans to Pay Tuition
Why You Can’t Use Some Personal Loans to Pay Tuition

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A personal loan can be used to cover a variety of expenses, including an unexpected bill, vacation, or even home repairs. And it can be a more cost-effective way to cover those expenses, because some personal loans have lower interest rates than most credit cards, and you can be approved for up to $100,000.

However, some uses of personal loans are more of a gray area, and tuition is one of them.

Can you really use a personal loan to pay tuition? The short answer is: you will need to check the lender’s terms of use, as some of them do not allow borrowers to use personal loans to pay tuition.

Restrictions on the use of personal loans

There is a thin line between being able to use a personal loan to tuition fees and the prohibition on doing so – and it really depends on which loans follow certain federal regulations.

Regulations mentioning “private student loans” refer to a form of credit that is not federally insured, does not include a line of credit or any other loan that must be secured and is provided to a borrower for educational expenses, according to the Federal Register.

Personal loans are not subsidized or insured by the government, often do not require a borrower to back them up with collateral, and borrowers can request the loan explicitly for the purpose of education expenses.

But under the Higher Education Opportunities Act 2008, lenders who provide private education loans must do special disclosures, have a 30-day cooling-off period, must give borrowers the option to cancel within three days of receiving funds, and cannot affiliate with schools. These are just a few of the regulations that loans for educational purposes must follow.

Not all lenders offer personal loans that meet all of these requirements. Because they don’t adhere to these strict rules, many lenders simply prohibit the use of their personal loans for tuition.

Other financing options for students

Alternatives to Personal Loans

If you have exhausted federal financial aid and private student loan options and still need additional funding to cover expenses such as school supplies and textbooks, there are still other loan products that are more suitable for students.

A student credit card like the Discover it® Student Cash Back has no annual fee, a short introductory APR period of 0% on purchases for 6 months (13.24% – 22.24% variable thereafter) and is aimed at students with fair credit or non-existent. But if you’re a student who’s successfully built up a good credit history, you can apply for Bank of America® Student Travel Rewards, which also has no annual fee and a generous 0% APR introductory period, so you can defer paying off a big expense (or better yet, break it up into smaller payments over several months). Additionally, new cardholders can earn 25,000 bonus points if they spend $1,000 within the first 90 days of account opening.

Discover it® Student Cash Back

On Discover’s secure site

  • Awards

    Earn 5% cash back on your everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay with PayPal, up to the quarterly maximum when you activate. Plus, automatically earn unlimited 1% cash back on all other purchases.

  • welcome bonus

    Discover will match any Cash Back you have earned at the end of your first year

  • Annual subscription

  • Enter APR

    0% for 6 months on purchases

  • Regular APR

  • Balance Transfer Fee

    3% initial balance transfer fee, up to 5% fee on future balance transfers (see terms)*

  • Foreign transaction fees

  • Credit needed

Bank of America® Travel Rewards for Students Credit Card

  • Awards

    1.5 unlimited points for every dollar spent on all purchases

  • welcome bonus

    25,000 bonus points after spending at least $1,000 on purchases within the first 90 days of account opening, which can be redeemed for a statement credit of $250 toward qualifying travel purchases

  • Annual subscription

  • Enter APR

    0% APR for the first 12 billing cycles on purchases

  • Regular APR

    13.99% to 23.99% variable

  • Balance Transfer Fee

    Either $10 or 3%, whichever is greater

  • Foreign transaction fees

  • Credit needed

At the end of the line

While you may not be able to use some personal loans to cover tuition, consider exhausting your other funding options first, such as federal student aid and private student loans. The terms are often much better for students and you can feel more confident about having a reasonable repayment plan in place.

For Discover it® Student Cash Back card rates and fees, click here.

Information about Bank of America® travel rewards for students was independently collected by Select and was not reviewed or provided by the issuer prior to publication.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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