What is an Education Loan?

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  • Written By: wiseGEEK Writer
  • Edited By: O. Wallace
  • Last Modified Date: 28 February 2020
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An education loan is a loan taken to help pay for an education, usually at a college or trade school, but may also be used to pay for private schools or prep schools as well. These loans are available in several different types.

These are student loans, parent loans and private loans. Loans are also either guaranteed or unguaranteed. Student and parent loans are most likely to be guaranteed by the government, though many agencies work for the government in this respect. Unguaranteed or unsubsidized loans are usually from private lenders only, and usually can only be obtained if one has a good credit score or significant equity.

The student loan is usually the best choice education loan for a student whose parents cannot pay for his or her education. While the student remains in school, interest on this type of loan accrues and is paid for by the government. When the student stops attending school, the loan is usually paid off in payments. These payments can be quite large if the loan is large, so students should borrow only what they need.


A parent education loan is a good choice for parents who don’t want their children to end their college career in debt. These can also be guaranteed, meaning that parents don’t necessarily have to have great credit scores to get a loan. Unlike the student loan, parents usually begin payments right away. Interest rates tend to be relatively low, but a longer repayment schedule means paying quite a bit of interest.

The private education loan almost always requires good credit. Many people use the equity in their house to take out such a loan. Unlike the parent and student education loan, the private loan is not usually need based. Often when students apply for financial aid, they are told they, or their parents, make too much money to qualify. In these cases, those who do not have the money upfront to pay school costs may use equity to obtain loans.

The federal government does not guarantee the private education loan, and payments usually begin on the loan right away. These loans usually have the highest interest rates, as well. If they are taken as part of refinancing a home, they may be more economical. Some adults who work and re-enter school also find themselves needing to take out a private education loan, since they cannot qualify for any other type of loan. Most have to remain working, at least part time, in order to make payments.

Because students frequently leave college heavily burdened with debt, it is important to consider how much of a loan one really needs. The less debt contracted, the better. Before applying for an education loan, evaluate the other types of aid that may be available. There are numerous scholarships that go unclaimed each year because no one applies for them. Research into scholarships that are not need-based can often help defer some college expenses, lessening the amount one needs to borrow.


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