Student loan debt can be overwhelming, especially as interest builds and payments drag on for years after graduation. For borrowers seeking relief, one strategy that sometimes comes up is using a personal loan to pay off student loans. On the surface, it may seem like a simple debt-swap — replace one loan with another and, ideally, secure better terms. But is it a smart idea?
While personal loans can be used for many things, they are generally not the best option for paying off student loans. Many lenders prohibit using personal loans for educational costs (including SoFi), which includes paying off student loans. Even if you can find a lender that does allow it, there are pros and cons to using a personal loan to pay off your student loan balance. Here’s what you need to know.
Table of Contents
Key Points
• Many lenders do not allow you to use a personal loan for paying off student loans.
• Personal loans often have higher interest rates and shorter terms than student loans.
• A lower interest rate can sometimes be secured, potentially reducing overall debt costs.
• Federal protections like deferment and forgiveness are lost when using a personal loan.
• Other repayment options, such as federal consolidation loans, student loan refinancing, and income-driven repayment plans, may be a better fit.
Personal Loans vs. Student Loans
At first glance, personal loans and student loans might seem similar. Both provide a lump sum of money up front, require you to pay it back in monthly payments, and charge interest. But the structure, purpose, and protections of each are different.
Student loans are specifically designed to help finance education. They often feature relatively low interest rates and deferred repayment while in school. In the case of federal student loans, they also offer unique benefits like income-driven repayment (IDR) plans, forbearance during hardship, and potential forgiveness programs.
Personal loans, by contrast, are loans that can be used for virtually any legal purpose. Common uses for personal loans include home renovations, unexpected emergencies, medical expenses, major events like weddings, and debt consolidation (when you combine multiple high-interest debts into a single loan with a potentially lower interest rate).
Personal loans tend to carry shorter repayment terms (often two to seven years), and their interest rates can vary widely based on your credit score. Importantly, they don’t offer any of the protections or flexible repayment options that federal student loans provide.
Note: While SoFi personal loans cannot be used for post-secondary education expenses, we do offer private student loans with great interest rates.
Can You Use a Personal Loan to Pay Off Student Loans?
It depends. While it may technically be possible to use a personal loan to pay off your student loans, either federal or private, many lenders do not allow you to use the proceeds of a personal loan for this purpose.
This restriction exists largely due to regulatory and risk concerns. Education-related lending in the U.S. is heavily regulated, and lenders that want to offer student loan refinancing must meet specific legal and compliance standards. To avoid those complications, many personal loan providers choose not to allow their products to be used for anything related to student loans or education.
If you are unsure if a lender will allow you to use the funds to pay off your student debt, it’s a good idea to let them know this is your intent at the outset. This could be a reason why you would be denied for a personal loan. However, if you use the proceeds of a personal loan for a prohibited use, you’ll be violating the loan agreement and might face legal consequences or be required to repay the full amount of the loan immediately.
So while using a personal loan to pay off student debt is theoretically possible, finding a lender that allows it — and does so under favorable terms — could be a major challenge.
Private vs. Federal Student Loans
If you do happen to find a lender that permits this use, it’s crucial to consider what kind of student loans you’re dealing with.
Private student loans often come with fewer borrower protections and may carry higher interest rates than federal loans. If your credit is excellent and the new personal loan offers a better rate and shorter term, using it to pay off private loans could make financial sense — if permitted by the lender.
Federal student loans, however, come with significant advantages that you will lose if you switch to a personal loan. These include access to IDRs, deferment and forbearance options, and the possibility of forgiveness through Public Service Loan Forgiveness (PSLF). Giving up these benefits for a loan that’s less flexible could be risky.
Pros and Cons of Using a Personal Loan to Pay off Student Loans
If you can find a lender that allows it, here are some pros and cons of using a personal loan to pay off student debt.
Pros
• Potentially lower interest rate: If you took out private student loans with a relatively high rate and currently have strong credit, you may be able to qualify for a personal loan with a lower rate than your student loans.
• Predictable payments: If you have a private student loan with a variable interest rate, using a fixed-rate personal loan to pay it off will provide you with a fixed monthly payment, which can make budgeting simpler.
• Faster repayment timeline: Because personal loans usually have shorter terms, using a personal loan to pay off your student debt could help you eliminate your student loan debt more quickly — provided you can afford the higher payments.
Cons
• Loss of federal protections: If you’re paying off federal student loans, you’ll forfeit benefits like IDR plans, deferment, forbearance, and forgiveness opportunities, which can provide a valuable safety net.
• Higher monthly payments: Because personal loans generally have shorter repayment terms than student loans, your monthly payments may be higher, even if the interest rate is lower.
• No tax benefits: You can generally deduct student loan interest, up to $2,500, from your taxable income each year. Interest on personal loans, on the other hand, doesn’t qualify for a similar tax break.
Other Ways to Pay Off Student Loans
If using a personal loan to pay off your student loans isn’t feasible or cost-effective, here are some other student loan repayment options to consider.
Student Loan Refinancing
Student loan refinancing involves taking out a new student loan from a private lender to replace one or more existing loans, ideally at a lower interest rate. Unlike personal loans, there are numerous options available when it comes to finding a lender that will refinance your student loans.
Be aware, though: Refinancing federal loans with a private lender will still eliminate federal protections. Also keep in mind that refinancing student loans for a longer term can increase the overall cost of the loan, since you’ll be paying interest for a longer period of time.
Recommended: Online Personal Loan Calculator
Income-Driven Repayment Plans
If you have federal loans and your payments are unaffordable, you may qualify for an IDR plan. Generally, your payment amount under an IDR plan is a percentage of your discretionary income and remaining debt may be forgiven after decades of consistent repayment.
Keep in mind that under the new domestic policy bill, many existing federal IDR plans will close by July 1, 2028. After those plans are eliminated, borrowers whose loans were all disbursed before July 1, 2026, can choose between the Repayment Assistance Plan (RAP) and Income-Based Repayment (IBR) plan.
Federal Loan Consolidation
Federal loan consolidation allows you to combine multiple federal loans into a single loan with a weighted average interest rate. Consolidation can simplify repayment and may help you qualify for certain forgiveness programs, but you won’t necessarily save on interest.
Loan Rehabilitation
If your federal loans are in default, loan rehabilitation allows you to make a series of consecutive, agreed-upon payments (usually nine over ten months) to bring your loan current. This also removes the default status from your credit report and restores eligibility for federal benefits. To begin the loan rehabilitation process, you must contact your loan holder.
Currently, borrowers can only use a rehabilitation agreement to remove their loans from default once. Starting July 1, 2027, borrowers will be able to use rehabilitation to exit default twice.
The Takeaway
While the idea of using a personal loan to pay off student loans might seem appealing, it may not be a viable nor an advisable solution. Many lenders prohibit using personal loan funds for education-related expenses, including paying off student loans. Even if you find a lender that allows it, the trade-offs can be significant, especially if you’re dealing with federal student loans.
Instead, you might explore options designed specifically for managing student debt, such as student loan refinancing, consolidation, or enrolling in an income-driven repayment plan. These programs may offer benefits that are better fit to your situation.
Debt repayment strategies are not one-size-fits-all. It’s important to carefully evaluate your options — and read the fine print — before making a move that could impact your financial future for years to come.
While SoFi personal loans cannot be used for post-secondary education expenses, they can be used for a wide range of purposes, including credit card consolidation. SoFi offers competitive fixed rates and same-day funding for qualified borrowers. See your rate in minutes.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Can you consolidate student loans with a personal loan?
Technically, you might be able to use a personal loan to pay off student loans, but it’s not true consolidation — and many lenders don’t allow it. Personal loan lenders will often explicitly prohibit using loan funds for education-related expenses, including paying off existing student loans. Even if permitted, this route eliminates federal protections like income-driven repayment and forgiveness programs. Alternatives such as federal consolidation or student loan refinancing can be safer and more effective ways to manage or streamline student loan repayment.
What are the risks of using a personal loan to pay off student debt?
Using a personal loan to pay off student debt carries several risks, starting with the fact that many lenders prohibit this use altogether. If you find a lender that allows it, keep in mind that using a personal loan to pay off federal student loans will mean losing federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. Personal loans also typically have higher interest rates and shorter repayment terms than student loans, which could increase your monthly payments.
Does paying off student loans with a personal loan hurt your credit?
Many personal loan lenders don’t allow you to use a personal loan to pay off student loans. But if you can find one that does, paying off student loans with a personal loan may impact your credit in several ways.
Initially, your credit could dip temporarily due to the new account and hard inquiry. However, if you make regular, on-time payments, the loan could have a positive influence on your credit profile over time. On the other hand, missed payments could negatively affect your credit. It’s important to consider lender rules and your ability to manage repayment before using a personal loan to pay off student loans.
Are there better options than personal loans for student debt?
Yes, there are a number of options that may be better than personal loans for paying off student loans. Federal consolidation loans can combine multiple federal loans into one, simplifying repayment. Income-driven repayment plans for federal loans adjust payments to your earnings, making them more manageable. Refinancing with a private lender might reduce rates and monthly payments Additionally, some employers offer student loan repayment assistance, which can significantly ease the financial burden.
Can using a personal loan to pay student loans disqualify you from forgiveness programs?
Yes. If you pay off your federal student loans with a personal loan, you’ll forfeit federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. The same is true if you refinance your federal student loans with a private student loan lender.
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