Unsecured Student Loans
Of the 20 million Americans who attend college each year, 60 percent borrow money to pay for tuition, fees, textbooks, and other expenses. This statistic from the Chronicle of Higher Education demonstrates the intense demand for student loans, and it might also explain why so many banks offer private student loans. There is a large market for student loans, to be sure, but such loans can be a little risky for a bank, as most student borrowers have no credit history, and most students borrow what banks refer to as unsecured student loans.
Banks tend to place loans into two camps. On the one side are loans that are secured. These are the loans that are based on the value of an object that the bank could take back, if the loan wasn’t repaid. Typically, people place something big on the line when they take out a secured loan, such as:
The bank simply determines how much the item is worth, and the loan covers that amount. The borrower is then committed to pay the loan back, as the borrower typically doesn’t want to lose the item in question.
Unsecured loans, on the other hand, have no such collateral behind them. Instead, these are loans that are based only on the reputation of the person asking for money, as well as the factors that are impacting the economy at large. Obviously, most student loans fall into the unsecured category, as a student’s knowledge is the item being purchased here.
It’s important to remember that there are still consequences if you do not repay an unsecured student loan. Just because you don’t have to provide collateral to take out an unsecured loan doesn’t mean there will not be adverse affects if you default on your loan payments. Failing to repay a loan will result in an extremely negative impact on a borrower’s credit score, which would make borrowing in the future much, much more challenging.
- Delayed payment options due to illness or unemployment
- Fixed interest rates for the life of the loan
- Assistance with interest payments during a student’s time in school (in some cases)
- No credit check
Federal loans have borrowing limits, and some students may need to borrow more in order to cover all of their college costs. Students in this group may need to enter the private sector to find the financial assistance they need, and if they have no equity to put up, they may need to get an unsecured student loan from a bank or private lender.
Unsecured loans from private lenders usually come with higher-than-average interest rates, simply because of the risk the bank is taking on by providing a loan to someone who has not provided collateral. If you’re a student borrower looking to take out a private loan, odds are that you will need a cosigner when you apply for a loan(s). Because students usually have either an extremely limited or nonexistent credit history, banks often require students to have a credit-worthy cosigner apply with them, so the lender has the security of knowing that somebody will be able to repay the loan.
Unsecured student loans may also come with variable interest rates, meaning that the amount due is associated with the economy and the current interest rates. Sometimes, this is a bonus for borrowers, as they may not see their cost of borrowing rise over time. But a volatile market can lead to very high fees that are impossible for the borrower to control.
Benefits of Unsecured Student Loans
Unsecured federal student loans have some clear benefits, as they tend to provide borrowers with a decent amount of money with no credit check required. For some students, that’s a remarkable reason to sign up for these loans. But even unsecured student loans that come from the private sector can be helpful. These loans are often the best way for students in need to get help in a hurry with bills that are coming right now.
These loans might be just right for some. If you’d like to find out more, please check our “Compare Loans” feature and browse through the unsecured private student loan options available to you right now.
Types of Student Loans
- 911 GI Bill
- All Interest
- Credit Union
- Flight school
- For Bad Credit
- For Community College
- For Graduate School
- For Single Mothers
- GI Bill
- Interest Free
- Law School
- Low Interest
- Medical School
- No Cosigner
- No Credit
- Parent PLUS
- Post 911 GI Bill
- Private School
- Private with No Cosigner
- Without Cosigner