March 3, 2024


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Can You Use A Personal Loan To Pay Off Student Loan Debt?

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Sometimes, it’s easy to feel like you’ll never pay off your entire student loan debt balance. In fact, respondents to a One Wisconsin Institute survey said on average, it took them 21 years to pay off their student loan debt. So it can be pretty tempting to look for creative ways to pay down your debt a little quicker.

Personal loans can generally be used on any large expense (like a wedding, a home renovation or an emergency expense), but for many people, they are an instrumental way to consolidate debt or pay down high-interest debt a little faster.

On average, personal loans have a lower interest rate compared to credit cards — according to the Federal Reserve, the current average APR for a two-year personal loan is 9.58% while the average APR for a credit card is 16.30%. 

Of course, the interest rate on a personal loan will depend on your credit score. And, generally, the higher your credit score, the more likely you are to receive a lower interest rate among other more favorable terms for a personal loan. Some lenders, like LightStream, actually offer interest rates as low as 2.49%. And peer-to-peer lenders like LendingClub can also offer lower-than-average interest rates (LendingClub’s rates start around 7.04%).

LightStream Personal Loans

On LightStream’s secure site

  • Annual Percentage Rate (APR)

    2.49% to 19.99%* when you sign up for autopay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, wedding and others

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

By contrast, interest rates on federal student loans will depend on the type of loan (undergraduate, graduate or parent PLUS loan), but the average rate across the board is 5.8%. And when it comes to private student loans, average interest rates can range from 6% to 7% but can be as high as 12.99% among major private lenders. So the idea of using a lower-interest personal loan to pay off a student loan can seem like a chance to save on interest.

So can you use a personal loan to pay off student loan debt? It depends. Here’s what you should consider before trying this strategy.

Terms of use for the personal loan

Interest rates on student loans vs. personal loans

Prosper Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation/refinancing, home improvement, auto/motor, medical or dental, big purchase and more

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

     2.41% to 5%, deducted from loan proceeds

  • Early payoff penalty

  • Late fee

    5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)

Federal student loan protections

Bankruptcy protections

Bankruptcy is a process where a person can seek relief from some or all of their debts if they are unable to repay them. Chapter 7 bankruptcy can completely eliminate any debts you have. And while it can damage your credit score, filing for bankruptcy provides something of a financial reset — by improving your financial habits, you can work to rebuild your credit score over time.

But most student loans aren’t discharged when you file for bankruptcy. According to the American Bar Association, both private and federal student loans are unable to be discharged in bankruptcy unless a borrower can prove that the loan payment is an “undue hardship.” However, it is notoriously difficult to prove the standards for undue hardship (here’s more on what you need to know about filing bankruptcy on student loans).

Personal loans, though, can be discharged in bankruptcy. This is arguably one of the few advantages to paying off a student loan using a personal loan.

Other options

SoFi Student Loan Refinancing

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans

  • Loan types

  • Variable rates (APR)

    From 2.24%; from 2.37% for medical/dental residents (rates include a 0.25% autopay discount)

  • Fixed rates (APR)

    From 2.99%; from 3.12% for medical/dental residents (rates include a 0.25% autopay discount)

  • Loan terms

  • Loan amounts

    From $5,000; over $10,000 for medical/dental residency loans

  • Minimum credit score

  • Minimum income

  • Allow for a co-signer

If you worry you’ll have trouble making on-time loan payments, you should contact your student loan servicer to discuss the possibility of extending forbearance on an individual basis. Oftentimes, you can ask for a payment plan that better suits your circumstances.

Bottom line

Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.99% APR with a term of three years would result in 36 monthly payments of $295.20.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.