If you’re struggling with student loan payments, the idea of using a personal loan to pay them off might sound appealing. A personal loan could offer a lower interest rate, simplified repayment, or even some breathing room from federal loan servicers. But is it actually allowed—and is it a good idea?
Can You Use a Personal Loan to Pay Off Student Loans?
Technically, yes—but with some important caveats.
Personal loans are not specifically designed to pay off student loans. In fact, many lenders prohibit using the funds for educational purposes for two reasons:
Regulatory Requirements
Education loans are subject to specific federal and state regulations. If a personal loan is used for education, it might legally fall under these stricter rules—something most lenders want to avoid.
Higher Risk of Default
Borrowers using personal loans to manage educational debt might already be financially stressed. Lenders view this as a red flag, hat can lead to a higher risk of missed payments.
Some lenders, however, don’t ask how you’ll use the money. In that case, you’re free to use the funds for whatever you want. If you're interested in using a personal loan to pay off student debt, you’ll need to check your loan agreement carefully.
Pros of Using a Loan to Pay Off Student Debt
Refinancing student debt with a personal loan might offer a few advantages.
Lower interest rates – If you have excellent credit, you might qualify for a personal loan with a lower rate than your student loans.
Simplified payments – You can consolidate multiple loans into a single monthly payment.
Shorter repayment terms – Personal loans often have shorter repayment periods, helping you pay off debt faster.
Cons and Risks to Consider
Despite the potential benefits, there are several downsides to be aware of.
Loss of federal protections – You’ll forfeit income-driven repayment plans, deferment, forbearance, and loan forgiveness options.
Strict credit requirements – You’ll typically need excellent credit to qualify for favorable terms.
Higher monthly payments – Shorter loan terms can mean higher monthly bills, which might not fit your budget.
Should You?
Using a personal loan to pay off student loans could make sense if:
You have a stable income and a strong credit history with a high credit score.
Your student loans carry higher interest rates than the personal loan you qualify for.
You DON’T rely on federal loan benefits (e.g., income-driven repayment plans, deferment, forbearance, loan forgiveness).
Dig Deeper
Federal student loan benefits—such as forgiveness programs, repayment pauses, and interest subsidies—are often shaped by the policies of the current administration. While some protections are written into law, others can be expanded, suspended, or even ended based on executive decisions or changes in federal priorities. This means that borrowers relying on federal benefits may experience shifts in their repayment options depending on who holds office. Because these programs are not always permanent, it’s important for borrowers to stay informed and plan for potential changes over time.
Key Takeaways
Before you sign on the dotted line, compare loan offers carefully and think through both short-term relief and long-term consequences. If you're unsure, speak with a financial advisor who can help you weigh your options.
The experts at AMG Finance can help you determine if using a personal loan to pay off your student loans is in your best interest. Contact us today to schedule an appointment.
