The Differences Between an Educational Loan and a Personal Loan

We can say that both an educational loan and a personal loan are means of assessing needed funds by a student. These loans are meant to cover academic and living expenses, and no one will debate that. But while one of these methods of financing is quarantined to solving a particular need or some streamlined needs, the other covers more grounds and could be described as the one that has a wider reach. Below, we will be looking at what brings them together and what separates them.

In terms of mere logic, educational loans and personal loans have no distinguished differences. According to the opinions of experts on Quora, if you take a personal loan for the major aim of offsetting your academic or educational bills, you can as well name it an educational loan. That is how related they are.

The Differences between an Educational Loan and a Personal Loan

Another thing that brings them together is the fact that in most cases, both methods of financing could be accessed without tangible assets in the form of collateral. So, whenever you have any of them, they are regarded as unsecured sources of funding. In some other cases, you can also have secured educational loans, especially if you want to go above the benchmark. In this case, you’ll have to provide some security. This is similar to the secured type of personal loan that is gotten with collateral.

There are also similarities in their repayment plan. Here, you will discover that one of the attributes of the former, which is allowing the borrower to pay very simple interest at the onset, only to increase it after the repayment holiday, is also applicable to an extent in the latter. The Flexi type of personal loan will let borrowers pay their interest in the form of an EMI at first, before paying the principal later when they’ve gotten a job.

With the private student loan, the personal type also shares the similarity of coming from private lenders and having good credit as one of the prerequisites for borrowers. Though, the federal student loan system may not have these characteristics.

Major Differences between the Two Loan Systems

When it comes to what sets the educational loan apart from the personal type of loan, the first thing that comes to mind is the method of disbursing the funds. When getting the former, the funds are sent to the student’s financial aid office first. It is left for the student to claim what remains after their tuition. But that is not the case with the later. From a personal angle, the entire funds are deposited directly into the borrower’s account once the paperwork is over and approval is granted. Additionally, borrowers have the right to spend the money any way they deem fit.

The next difference will come in terms of repayment. The options available for the former are more flexible than what you will get with the majority of cases with the latter. In the case of some student loans, the borrower will enjoy the option of deferment for as much as 60 months. While students are still studying, they can defer for some time until they are ready to start paying. But the later does not come with such conditions. Borrowers normally commence the repayment process after a few weeks. According to Micro Finance Congress, it is a case of a multipurpose loan and that of a streamlined loan. So, both are different from each other. Also, the fact that you can only get the other from private lenders, while the educational type comes from both private lenders and government bodies also separates them. Once you are ready to start the process, consider using comparison engines to find the best option for student loans for you and compare student refinance rates.

When it comes to the interest rates, they also point to the fact that when the educational type is gotten from the government, it comes with much lower rates as against the other. But apart from the government type, the educational loan has a generally lower rate than the personal type, says Money Control. You will have rates rotating around 8.30% and 24% for the former, while the latter normally comes with around 10.99% and 24% in rates.

The concessions available in the former are also not found in the later. There is a 0.5% concession for girls here. A 1% concession is also given when a student starts repaying their educational loan during the repayment holiday period.

When you come to the aftermath of the entire process, you will also see some tangible differences. Educational loans will normally not elicit any form of leniency when defaulted on. But the same could not be said about student loans. For instance, when one files for bankruptcy, and it is discovered that they truly can’t afford to pay off these debts; their personal loans could be forgiven. This is hinged on the fact that experts see it as a consumer loan. But for educational loans, the courts will normally not accent to any requests for forgiveness or striking out of such.

As found on the Money Control website, the loan amount is also a big factor when differentiating them. In most cases, the lenders will consider the educational fees and costs before granting educational funding to students. This is to say that students will get this based on the cost of the courses they are reading and the cost of living in the town or state. But when it comes to the personal type, the amount to be doled out will depend on the credit history of the borrower and the amount the borrower asked for. That is why people can go for the later and use it to fund their education and settle some other needs too. Here, you demand as much as you think you need. But in the former, you are given what they know you need.

There are also some benefits available to educational loans that can’t be found in the personal type. They include some amount of tax benefits. However, while students will need a guarantor or co-applicant like their parents for all educational loans, most personal loans won’t ask for this.


There are many things that differentiate the two methods of funding. The advice is for anybody who needs funding to check properly and see the one that holds more benefits for them if they are eligible for both. It is also good to use a loan specialist before taking out any.

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