Are you all set to go to College and trying to sort out a new student loan? With so many options on the table including Federal Student Loans and Private Student loans there are so many questions around the best choice.
One question that is always asked is why student loans are unsecured. We’ve put together a little guide to help you understand why student loans are unsecured.
Why Are Student Loans Considered Unsecured Table of Contents
Why Are Student Loans Considered Unsecured Table of Contents
Why Are Student Loans Considered Unsecured?
What is an Unsecured Student Loan?
Different Types of Unsecured Student Loans
Federal Unsecured Student Loans
Private Unsecured Student Loans
Who Can Qualify for an Unsecured Student Loan?
How Much Money Can I Borrow With a Federal Unsecured Student Loan?
Why Are Student Loans Considered Unsecured Table of Contents
Why Are Student Loans Considered Unsecured?
What is an Unsecured Student Loan?
Different Types of Unsecured Student Loans
Who Can Qualify for an Unsecured Student Loan?
How Much Money Can I Borrow With a Federal Unsecured Student Loan?
Why Do People Get Unsecured Student Loans?
Why Are Student Loans Considered Unsecured?
Ever scratched your head wondering why student loans are classified as unsecured? Allow me to enlighten you.
First, let's put the 'secured' in secured loans. These loans require collateral, like your house, car, or if you're rolling in the dough, your Russian Yacht. You're too young for all that jazz.
Picture this: You pledge your house as collateral for your student loan. The job hunt post-graduation becomes a slow grind, and soon you're struggling to meet your monthly payments. Next thing you know, the Credit Union is knocking on your door to repossess your house, along with your course books, bed, and even your graduation gown! Not the best way to kickstart your post-college life, right?
And that, my friends, is why student loans are considered unsecured. You don't need to throw in collateral like a house or car to secure the loan. And let's face it, as a student, you probably don't have much to offer in that department anyway.
Credit Unions generally favor secured loans since they can simply repossess your collateral if you default on payments. On the flip side, unsecured student loans typically come with higher interest rates, since the lenders don't have a safety net. So while you may not have to worry about someone snatching away your valuables, you do need to brace yourself for a heftier interest tag.
What is an Unsecured Student Loan?
If you’re planning on going to College and don’t qualify for scholarships and grants, you could be able to get an unsecured student loan to support you with your studies. People usually use a student loan to:
- Cover their tuition fees (cost of attendance)
- Pay for school supplies
- Order books for their course
- Pay for their accommodation
- Pay for food expenses
- And “other” student (party) related living expenses
There are both undergraduate and postgraduate student loans.
Some postgraduate student loan deals are set up so that you only start paying back your student loan once you get a job and start earning a certain amount of money. This is called your repayment income threshold. Once you hit the income threshold, the Credit Union starts taking money out of your monthly paycheck.
You’re usually given your student loan in one lump sum at the start of your academic year, it’s always best to pay your tuition and accommodation fees straight away! We all know someone who has been kicked out of college, or says they have “dropped out” because they haven’t paid their tuition fees.
Different Types of Unsecured Student Loans
There are really only two types of unsecured student loans that you can get to help you pay your way through College, these are, Federal Student Loans and Private Student Loans.
Federal Unsecured Student Loans
The Government provides quite a bit of financial aid to help students pay their way through college, the main type of financial aid is called Federal Student Loans.
Federal Student Loans are usually the first place you should start looking at when you’re thinking of getting a loan to help you with your college fees.
There are four main types of Federal Student Loans, Direct Stafford Subsidized Loans, Direct Stafford Unsubsidized Loan, Direct PLUS Loans and Parent PLUS Loans.
Private Unsecured Student Loans
If you can’t get a Federal Student Loan or if it doesn’t fully cover your need for financial aid, you might be able to get a Private Student Loan from a private lender such as a Credit Union.
You will usually need to have a good credit score & good credit history to get a private student loan for a financial institution with a good interest rate.
In some cases you might need a cosigner such as your parents to support your private student loan application, this can help you access lower interest rates and a wider range of repayment options from Credit Unions.
You can find out more about Federal Student Loans and Private Student Loans here: How Is A Student Loan Different From A Scholarship?
Who Can Qualify for an Unsecured Student Loan?
If you are a US citizen and have a high school diploma or GED it is really likely that you can qualify for a student loan.
Most people can qualify for either a Federal Student Loan or a private student loan, depending on your need for financial aid.
The type of student loan you can qualify for really just depends on whether you are an undergraduate student or postgraduate student.
If you are an undergraduate student who can show that they need subsidized financial aid, you can qualify for the following federal loans: Direct Subsidised Student Loan.
All other students should be able to qualify for a Direct Unsubsidised Student Loan.
For a Federal Student Loan, there are also the following minimum eligibility criteria:
- You must have a high school diploma or GED
- You must be a US citizen or eligible non-US citizen
- You must be accepted into an eligible degree or certification program
How Much Money Can I Borrow With a Federal Unsecured Student Loan?
The amount of money you can borrow from an unsecured student loan really just depends on the type of student you are.
If you are an undergraduate student you can borrow between $5,500 and $12,500 in financial aid every year to support you with your studies.
If you are a graduate or professional student you can borrow up to $20,500 in financial aid every year.
Remember there are quite a few other financial aid options to help you pay your way through college:
- Scholarship providers - Private federal and state
- Academic excellence programs
- Pell grants
- Grants for athletic ability
- Grant for academic achievements
- Grants for low-income families
Why Do People Get Unsecured Student Loans?
If you don’t come from a really rich family, with two cars and a holiday home, and if scholarships are not an option, a Student Loan may be the only way you can pay your way through school. This is why people get student loans.
People usually use a student loan to:
- Cover their tuition fees,
- Pay for school supplies
- Order books for their course
- Pay for their accommodation
- Pay for food expenses
- And “other” student (party) related expenses
