Should You Take Out a Personal Loan to Pay Off a Student Loan?
It is usually not a good idea to take out a personal loan to pay off any type of student loan. In general, the interest rates on personal loans are higher than student loans. And personal loans usually come with a shorter payback time. Most have to be paid in full in five years.
A personal loan will not come with any grace period to begin making payments as federal student loans do. The interest on a personal loan isn’t tax-deductible. The interest on a student loan is.
Income Share Agreement
An Income Share Agreement, or ISA, is a non-traditional method for financing a college education. An ISA is an agreement between the student and the school that the student will repay the cost of the education after they have graduated and are out in the workforce. Instead of borrowing money upfront to pay for college, this is money paid on the back end.
In an Income Share Agreement, the school calculates what it believes to be the student’s future earning power based on what they studied and sets the payments accordingly. Tying the cost of college to a student’s major requires complete transparency on the part of the school and how it reports student success.
Income Share Agreements are only available at a limited number of colleges and universities.
Should I Put College Costs on a Credit Card?
When it comes to paying tuition with a credit card there isn’t one answer for everyone about whether it is right or wrong. If tuition is going to end up as a balance on a credit card that is subject to high interest and late payment fees, then taking out a student loan is a smarter choice. But if you are interested in capitalizing credit card rewards, charging tuition to a card might be a good strategy.
- If the credit card accumulates reward points based on each dollar spent, then paying for a chunk of college could rack up many rewards.
- Some cards will offer a sign-up bonus that increases the number of reward points exponentially.
- Some card issuers offer 0-percent interest for a limited time when the card is brand new.
- If your card has a minimum spending limit before rewards kick in, then putting tuition on that card may be the way to get to that threshold.
There are some things to watch out for that may erase the benefits of putting the cost of college on a credit card. Not all schools accept credit cards. But most of the ones that do will add a convenience fee on top of the payment. A convenience fee on a big purchase like tuition may erase any rewards or benefits that were earned. Another issue with putting college on a credit card is that the limit on the card might not be large enough for a tuition-sized expense.
If you use a credit card for educational costs treat it like it is a debit card. Completely pay the balance when it is due so that interest doesn’t begin to accumulate. Student loans offer a much better interest rate than credit cards.
Should I Consolidate My Student Loan Debt?
Consolidating multiple types of student loans into one loan can make it easier to track what has to be paid and when it is due. If your loans are all federal loans you can request that they are consolidated. The interest rate will be based on the interest rates of the original loans, so this isn’t a way to reduce payments by scoring really low-interest terms.
When private loans are consolidated it is usually referred to as refinancing. It is often done to capture a better interest rate. If you are consolidating federal loans and private loans into one package the federal loans lose some of the special considerations they once had like repayment options and forgiveness.