Should I Get a Personal Loan or Student Loan Refinance?

Nadav Shemer
Anyone who’s been to college knows It’s always a good idea to have a backup plan. Whether it’s applying to more than one school, being open to multiple career paths after graduation, or looking at several homes before buying—almost everyone taps into their backup plan at least once in life.

When it comes to getting rid of that pesky student debt, student loan refinancing is one of the more attractive options. Countless Americans have used a student loan refinance to get a lower interest rate and lower monthly payments, making it easier to reduce and ultimately get out of debt.

Refinancing is a good way of handling student debt but it isn’t the only way. In some circumstances, it’s worth exploring the alternatives—one of which is an unsecured personal loan.

Read on for our comparison of student loan refinancing vs. personal loans.

Overview of Personal Loans


Easy to get approved

Higher rates

Consolidates everything into a single monthly payment

Interest isn’t tax-deductible

No obligation to use entire funds to pay off debt

Loss of rights attached to federal student loans

A personal loan is a fixed-rate unsecured loan that may be used for virtually any purpose, including credit card consolidation, home improvements, paying off an emergency expense, or consolidating student debt. Although a personal loan may be used to pay off student debts, it isn’t technically a refinance because it doesn’t involve having a lender take on your debts. A personal loan works like this: the lender transfers you a lump sum, you pay the lender back in monthly installments over a pre-agreed term (e.g. 5 years), and you get to use the sum however you want. Technically, you can use the sum however you want. If you have $25,000 in student debt, there’s nothing stopping you from applying for $30,000 and using the remaining $5,000 for another purpose.

Personal loans do have several drawbacks. According to LendingTree, even borrowers with very good or excellent credit can expect to be charged double-digit interest rates, whereas the top student loan refinance providers almost always charge single-digit rates. Using a personal loan to wipe out federal student loans means giving up on all the benefits of federal student loan debt, such as: being able to deduct up to $2,500 in student loans from your tax bill; having the option of applying for deferment or forbearance; and having the option of applying for loan forgiveness.

Overview of Student Loan Refinance


Lower interest rates

Most people don’t get approved

Consolidates everything into single monthly payment

Loss of rights attached to federal student loans

Option of dropping previous cosigner from loan

Application can impact credit score

A student loan refinance involves replacing one or more federal and/or state and/or private student loans with a single new loan from a private lender. With excellent credit, you may be eligible for a student loan refinance with an APR as low as 2.5%. The larger your debt and the longer the repayment term, the greater the savings you can accrue by securing a lower rate.

Why wouldn’t everyone choose a student loan refinance? Quite simply, it’s not that easy to qualify. Although official figures are hard to come by, it’s been estimated only around 10% of people with student debt would qualify for a student loan refinance. Student loan refinance providers are known for only accepting people with high credit and high income. If you have a 680+ credit score and 6-figure salary, you should be fine. If you have sub-620 credit and below-average income, a student loan refi probably isn’t a viable option. 

How to Decide Between a Student Loan Refinance or Personal Loan 

The correct answer to “student loan refinance vs. personal loan” depends more on your financial position than personal preference. A student loan refinance is great for those able to qualify, but it is quite an exclusive club.

So, if your credit score and financial position are far better today than they were when you took out your student loans, you may want to consider applying for a student loan refi. If you took out a loan 10-20 years ago when borrowing rates were much higher than they are today, the odds are a student loan refinance will greatly reduce your rate. Even if you took loans in the last decade, if your financial position has since improved, then you may be able to get a superior rate today.

If you have student debt and find yourself unable to qualify for a student loan refinance, a personal loan is one of the many alternatives to getting out of debt. It’s quick and easy to qualify for a personal loan. Most lenders have minimum credit scores of around 580-640, covering the majority of borrowers. Although the average rates tend to be in double digits, the top personal loan providers offer APRs as low as 3.99%. Best of all, online marketplaces like Credible and LendingTree let you compare rates from multiple lenders in minutes.


According to the latest reports from Experian and the Federal Reserve, 45 million Americans hold a combined $1.4-1.6 trillion in student loan debt. There are many causes behind this spiraling student debt, one of which is a reluctance of debt holders to refinance or consolidate. 

Most people sign up for student loans from age 18 to their early-20s when they have little to no credit history and have to rely on a parent or cosigner to help them get a loan. If you’re still struggling with student debt years after graduation, there is more than one way out. 

If you have a federal loan and meet certain conditions, you may be able to have the loan forgiven altogether. For most people, a student loan refinance or personal loan are 2 ways of making it easier to pay off that debt.

Nadav Shemer
Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. He enjoys writing about the latest innovations in financial services and products.