What are Unsecured Student Loans?

Nicole Madison
Nicole Madison

An unsecured student loan is a loan for which a student or a student’s parent has not provided collateral. Unsecured student loans may be offered by private lenders or government-sponsored programs. In many cases, it is easier to obtain an unsecured student loan through a government-sponsored program than it is to secure one through a private lender. Private lenders typically require borrowers to have good credit and significant income to qualify for a loan. Some government-sponsored programs do not set such requirements, however.

Unsecured student loans are a common source of financial aid for students who cannot afford to pay tuition outright.
Unsecured student loans are a common source of financial aid for students who cannot afford to pay tuition outright.

Funding education can be difficult, but unsecured student loans are among the most common tools students use to meet their expenses. Most students have yet to acquire property they could use to obtain secured loans. For example, most students do not own cars or homes before they graduate from college. As such, many students seek unsecured loans instead. This type of loan does not require the borrower to have any collateral.

The criteria a person must meet to qualify for an unsecured student loan depends on the lender. In many cases, lenders prefer to grant unsecured student loans to borrowers who have excellent credit and stable employment. This is due to the fact that a lender takes on more risk when granting unsecured loans. As such, lenders typically grant loans to borrowers they feel are likely to repay their loans according to the terms of the agreement. If a borrower is unable to meet the criteria on his own, he may ask a co-signer to help him qualify for it.

Since many students are unable to meet the typical requirements of obtaining an unsecured loan, some government agencies sponsor student loan programs. They guarantee the loans lenders provide to students eligible for these programs, which makes lenders more willing to provide loan money to students who do not have significant income, credit, or assets. In many cases, a student need only demonstrate financial need and remain in good standing with his educational institution to secure one of these loans. Often, students do not have to begin repaying guaranteed student loans until they have graduated or stopped taking the minimum number of credits required by the loan program.

If parents are willing to help students finance their education, they can make obtaining unsecured student loans easier. A parent with a stable job and good credit may serve as a cosigner on a student loan. In some cases, parents may even choose to apply for student loans on behalf of their children and take on the full responsibility of repaying them.

Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a wiseGEEK writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Forgot password?