Unsecured Student Loans

facts on unsecured 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 American Student Assistance 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.

Secured 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:

  • Houses

  • Boats

  • Cars

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.

Financial Aid

Unsecured Loans

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.



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.

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Types of Student Loans