Can't Afford All Your Graduate School Expenses? Is A Personal Loan A Good Idea?

If you've recently returned to graduate school after some time in the workforce, you may find it challenging to balance your new school schedule (and expenses) with your current or reduced work schedule. Although student loans can often be a source of bridge income during these times, some can also come saddled with a higher-than-market interest rate and potentially onerous terms. When is a personal loan the better choice? Read on to learn more about some situations in which a personal loan may be a more appropriate option for you than a student loan, as well as the factors you'll want to consider when deciding how to finance the next step in your education process. 

When may a personal loan be a better option than a student loan? 

There are a couple of distinct advantages personal loans can hold over student loans when it comes to paying for education.

First, personal loans (unlike student loans) are dischargeable in bankruptcy. Because personal loans are unsecured, if you otherwise qualify for a Chapter 7 or Chapter 13 bankruptcy, you'll be permitted to discharge them or put them on a payment plan. However, there are only a few situations in which student loans can be discharged, and they generally require you to be permanently disabled and unable to earn an income (or deceased), potentially saddling you with debt for decades to come if you're unable to afford repayment. 

In addition, there are some circumstances that can prevent you from being able to take out student loans (or at least the federally-backed variety). For example, those who have been convicted of certain drug-related offenses may be barred from obtaining any federal student loans, like Stafford or PLUS loans. In these cases, a personal loan may provide a much more palatable option than credit card debt or a second mortgage.

What factors should you consider when choosing between a personal loan and a student loan? 

If you're debating between a personal loan and a student loan with comparable interest rates and terms, the right option will largely depend upon your perceived ability to repay and the career path you envision for yourself after graduation. In some cases, if you work in a public service or government position while repaying your student loans, you'll be eligible for forgiveness of these loans — whereas you'd be required to fully repay a personal loan. In other cases, taking out hefty student loan debt for a degree that may not add much to your income in the future may be a worse choice than taking out a personal loan for the same.

For more information, contact local professionals like Union State Bank.

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