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Federal student loans come from the government and offer perks like fixed interest rates and income-driven repayment plans, all set by law. Personal loans are issued by banks and other financial institutions with terms set by the lender, typically making them more expensive.

When it comes to paying for college, starting with federal loans is usually the most cost-effective option. However, if your federal loans aren’t enough, you still have options, from private student loans to scholarships and grants. While personal loans are a great resource for many large purchases, college tuition is not one of them.

Read on to understand the key differences between federal student loans and personal loans, including how they work and the purposes they’re best suited for.

What Are Student Loans?

A federal student loan is government-provided financial aid that covers educational expenses and requires repayment with interest. To apply, you must complete the FAFSA annually to assess your financial need. There is no credit check required for federal student loans.

Some federal student loans provide flexible repayment options, such as income-driven repayment plans that adjust payments according to post-college earnings, and forgiveness programs tied to specific occupations. Borrowers are free to modify their repayment plan after obtaining the loan.

There are several different federal student loan options, including:

•   Federal Direct Subsidized Loans: These loans are for undergraduates in need of financial assistance. The amount depends on college costs and family income, as determined by the FAFSA. The government usually covers interest while you’re in school.

•   Federal Direct Unsubsidized Loans: These are for undergraduates and graduate students. The amount you receive is determined by the cost of attending your school and not your financial need. Interest starts accruing immediately, and you can choose to pay it while in school or add it to your total repayment.

•   Parent PLUS Loans (Direct Parent Loans for Undergraduate Students): Allow parents to borrow on behalf of their undergraduate children. You must complete a separate application from other federal loans to qualify for these.

•   Grad PLUS Loans: Allow graduate and professional students to borrow money for education expenses.

What Are Personal Loans?

Personal loans are offered by banks and other individual lenders and can be used for just about anything. Common purposes include consolidating high-interest debt, home improvement, moving, family planning (think IVF or adoption costs), and major car repairs. Generally, a personal loan cannot be used for a down payment on a home, business expenses, investing, or college expenses. That’s right: Most lenders don’t allow borrowers to use personal loans to pay tuition and fees, or to pay down student loans. If you need funding for college outside of federal loans, it’s best to look into private student loans.

Personal loan lenders may offer variable or fixed interest rates, along with repayment periods typically ranging from one to seven years. To qualify for a personal loan, lenders review your financial history and credit score. It’s important to note that each lender has different terms and conditions, so it’s essential to understand the annual percentage rate (APR) and repayment terms before committing to a specific offer.

Student Loans vs Personal Loans: Key Differences

Purpose aside, here’s a breakdown of the key differences between student loans and personal loans.

Interest Rates

In general, federal student loans have fixed interest rates, meaning your rate remains the same throughout the entire loan term. For example, the average rate for Direct Subsidized and Unsubsidized Loans for undergraduates for the 2024-25 school year is 6.53%.

On the other hand, personal loans can have variable or fixed rates, and are often higher than federal student loan rates. Depending on the borrower’s creditworthiness, repayment term, principal amount, and the lender, personal loan rates vary widely, ranging from 7% to 36%.

Loan Forgiveness

With federal student loans, you may qualify for additional benefits, such as Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness (TLF). These programs can forgive your loan balance after a specific period or upon meeting certain criteria.

Personal loans, however, do not offer any loan forgiveness programs. Nonetheless, lenders may provide options to prevent default if you encounter difficulty making payments due to hardship.

Repayment Terms

Federal student loans provide several repayment plans ranging from 10 to 25 years, including options that allow you to lower your payments based on your income. Repayment can also be deferred while you’re enrolled at least half-time and immediately after graduation.

Personal loan lenders also offer different repayment terms, typically between five and 20 years, giving you the power to choose what works best for you.

Credit Requirements

Federal student loans are part of an overall financial aid package offered to students. To apply for these loans, you’ll need to fill out the FAFSA each year, typically between October and July. Federal loan approval is often based on financial need, and no credit check is required.

When applying for a personal loan, you’ll complete an application and undergo a credit check. Each lender sets its own criteria for approval, often requiring a credit score of at least 670. If you don’t meet the credit requirements independently, many private lenders allow you to apply with a cosigner. Having a cosigner with a strong credit history can improve your chances of approval.

Deferment and Forbearance Options

If you’re dealing with a short-term financial challenge, you might qualify for a deferment or forbearance on your federal student loans. During deferment, you can pause your payments temporarily. It’s important to note that subsidized loans won’t accrue interest, but unsubsidized loans will. This means any unpaid interest adds to your loan balance, increasing your debt. For forbearance, if you can’t make payments, interest continues to build on your loan balance.

Personal loans may also offer deferment and forbearance options, but each lender has different rules. Before taking out a personal loan, it’s important to understand these options in case you face financial difficulties.

When to Choose Student Loans

It’s a trick question to compare personal loans vs student loans for college expenses, since student loans are the only option. But even if personal loans were an alternative for college expenses, federal student loans make more sense due to their typically lower interest rate and additional borrower protections.

Those protections include income-driven repayment plans, loan forgiveness programs, and deferral and forbearance options, which can be really helpful if you hit a rough patch financially.

When to Choose Personal Loans

Personal loans are a good option if you have a major purchase coming up and want to avoid putting it on a high-interest credit card. Just be sure to compare personal loan options carefully to avoid piling up debt. To find the right loan and repayment choice, look for the one with the lowest overall cost by considering the loan amount, interest rate, term, and fees.

The Takeaway

When deciding between federal student loans vs. personal loans for funding college, personal loans are simply off the table due to lender restrictions. This shouldn’t pose a problem, though, because federal student loans offer a better deal for college students anyway, with fixed interest rates, income-based repayment plans, and forgiveness options. In the event that federal student loans don’t cover your total cost of attendance, consider a private student loan to bridge the gap.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Can I use both student and personal loans?

Most lenders don’t allow personal loans to be used for college expenses. However, if federal student loans don’t cover your full cost of attendance, you can apply for a private student loan to bridge the gap.

Do personal loans have borrowing limits for college?

Trick question! Personal loans can be used for just about anything, from home improvement to moving costs. However, there are a few exclusions, and college costs are one of them. Fortunately, private student loans exist for just that purpose, with borrowing limits up to your cost of attendance.

Are personal loan interest rates higher than student loans?

Personal loan interest rates are usually higher than federal student loan rates and private student loan rates.

Photo credit: iStock/Drazen Zigic

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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SOIS-Q224-1926103-V1

Figuring out how to live on one income, either by design or circumstance, can seem daunting. And it may put a lot of financial pressure on that one wage earner.

That said, plenty of American households live on a single income. According to the latest government statistics, only one spouse was employed in around a third of families with children and nearly one quarter of married couples without children. There’s strength in those numbers, proving that it can be done.

If you are learning how to live off one income, read on for 12 smart strategies that will help you make the most of your money and live well, including:

•   Making a realistic budget

•   Reducing food expenses but still eating well

•   Downsizing your home

•   Earning extra income

•   Focusing on what you have

Is It Possible to Live on One Income (After Living on Two?)

It’s certainly possible to live on one income, even after being accustomed to two. Maybe you or your spouse is now a stay-at-home parent or caring for an elderly relative, or one of you lost your job. Whatever the reason, going from a dual income to a single income household will likely take some careful planning and adjustments. For example, you may need to sit down and go through all of your household expenses, then make some adjustments — perhaps even consider downsizing your lifestyle. Adaptability and a proactive approach are key to successfully making this transition.

12 Tips for Living on a Single Income

How to make it on one income? Consider starting with a newly streamlined (but livable) budget and moving on to other changes one by one.

1. Making a Budget

First step, reality check. To successfully live off one income, you’ll want to document your household’s take-home pay. It’s also a good idea to take stock of the kinds of income you could count among your assets, such as money you might earn from a side hustle or dividends from any stocks you might own.

Then, tally all expenses that are musts, such as:

•   Mortgage or rent

•   Groceries (even that annual Costo membership fee)

•   Health insurance costs

•   Transportation, such as car payments, gas, insurance, and repairs

•   Utilities

•   Child care

•   Work-related expenses (commuting, clothing, etc.)

Discretionary income is what is left after your “fixed” or “necessary expenses” are covered. This would be money to use on a weekend brunch with friends, taking the kids to the theme park, or other moderate splurges. But you don’t necessarily want to spend all of that money; you also want to allocate some towards paying down debt and saving towards other financial goals, such as an emergency fund or retirement. For savings you may need in the next few months or years, consider opening a high-yield savings account, then setting up an automatic recurring transfer from checking into this account on the same day each month.

To streamline the budget-making process, you may want to use an online tool (many banks provide them) or try an app that helps with this process. If you’re raising kids on your own with one paycheck, it can be especially important to learn how to budget as a single parent.

2. Freezing Extra Food

This can save a lot of money and consolidate your food prep time, too. Consider taking a few hours a week to cook foods that freeze and reheat well, such as lasagna, chili, soup, or pot pie. You might also bake and stash muffins and bread for weekday or game-day breakfasts. The homemade food you prepare is likely to be more wholesome (no preservatives) and less expensive than store-bought.

To make freezing a breeze, make sure you have some containers and foil wrap on hand; then use masking tape or stickers to mark and date contents and reheating instructions.

3. Transitioning to One Car

Becoming a one-car household is not only better for your budget (gas, insurance, new tires, car repairs) but it helps the planet, too. Perhaps your partner can take public transportation to work and leave the car home for grocery runs, doctor appointments, and shuttling kids.

If one of you has to drive to work and thereby leaves the other without wheels, drill down on clear communication and scheduling. For instance, you need the car back by 6 p.m. to make a meeting. Otherwise, you might take public transportation or call the occasional Uber to get places. Carpools can also work for kids’ activities and work commutes.

If you’re a newly single parent balancing car costs along with everything else, you’ll want to create a reasonable post divorce budget to guide you. Transportation is often vital but can often be obtained at a reasonable price.

4. Monitoring Utilities and Electricity

Saving money on utilities is increasingly easy with tools like smart thermostats. A good rule of thumb is to lower your thermostat when the family is out (say, during school hours) and at night when everyone is under blankets in winter. In summer, consider keeping the house warmer if you’re at work; no need to cool an empty house.

It’s also wise to keep up with maintenance appointments for your home’s heating and cooling systems; just like a car, it needs tune-ups to run best. Teach the whole family to switch off lights and T.V. when they leave a room. Target “phantom” energy use, which is the energy appliances (especially electronics) use when “sleeping” but still plugged in. These dollars add up.

5. Downsizing Your Home

If you’re living on one income and housing costs are eating up a big chunk of your budget (which is common in today’s housing market), you might want to consider moving to a smaller house, apartment, or condo. You’ll be on trend with the tiny-house movement and the shift toward minimalist living.

When you shrink your footprint, you generally save money on property taxes, utilities, electricity, and lawn and snow care. In most cases (depending on location), the smaller the space, the lower the bills. All of this can feel freeing.

Another way to downsize (though not literally) can be to move to a home with fewer amenities or one that’s in a neighborhood a bit farther away from downtown. You may be able to get the same square footage for less.

Recommended: What’s Net Worth vs. Income?

6. Doing Meal Planning and Buying Groceries on Sale

Even on a budget, you can eat well — even better than grabbing unhealthy, overpriced takeout. Consider planning meals around what’s in your pantry and what’s on sale each week. It can be fun to explore the budget-priced recipes online; plenty of sites have “meals under $10” and similar categories to help provide inspiration.

You might enjoy scheduling meals by day of the week (Meatless Monday, Taco Tuesday, and Sunday Roast Chicken are a few examples), and shop based on what’s in season and on sale. Summer tomatoes (maybe from your garden) yield gazpacho or homemade spaghetti sauce. Winter vegetables like carrots are perfect for roasting and or adding to soups.

Recommended: 23 Tips to Help Save Money on Groceries

7. Paying Off High-Interest Debt

High-interest debt, the kind you accumulate on credit cards, can have steep annual percentage rates (APRs). The currently average APR on credit cards is 27.62%. If you carry a balance, that means everything you buy with plastic is costing you significantly more than what the receipt says because you take on that hefty APR.

If you’re dogged by this kind of debt, you’ll want to work whittling it down. You might also consider consolidating your debt with a lower-interest personal loan or making the switch to a balance transfer card that offers no or low interest for a period of time.

Recommended: How Does APR on Credit Cards Work?

8. Getting a Roommate

Sharing housing expenses by renting out a spare room can immediately free up funds in your budget. This option actually comes with more than one advantage. Many people get a budget boost by sharing the costs of rent, laundry detergent, coffee, utilities, and the cable bill. And you may also like having an additional member of the household with whom you can chat and bond.

9. Using Credit Cards Responsibly

The old rule still holds: Don’t use credit, generally not even for gas or food, unless you can pay off the balance every month. If not, you will incur interest that will build and build.

Before making a big, unplanned purchase, you might try the wait-and-see method, which means walking away for anywhere from 48 hours to 30 days (it’s your choice), and then seeing if, after some time has elapsed, you still feel you have to have it. In many cases, the desire has faded.

Still having trouble with debt? Consider working with a non-profit like the National Foundation for Credit Counseling (NFCC ).

10. Earning Extra Income

Another angle on being a single-income household is to see how you might bring in more money. It’s not just side hustles (moonlighting as a writer or web designer, for instance) or cleaning offices at night after your full-time job at school.

Consider new ideas for how to create your own passive income, from rental properties to advertising on your car.

Recommended: Ways to Create Residual Income

11. Finding a Travel Buddy

When budgeting for single-income life, you don’t have to give up vacations indefinitely. Instead, find ways to save money on travel. Whether you’re visiting the West Coast or the Mediterranean, sharing a hotel room or Airbnb with a friend can bring big savings.

A travel buddy can also chip in for the rental car, gas, tolls, park entrance fees, and taxi/Uber costs. Or you could consider camping with a friend or family member; that’s another great way to enjoy an inexpensive getaway.

12. Focusing on What You Have

As you trim expenses and get into your groove as a one-paycheck household, don’t lose sight of the gifts you have, riches that can supersede a second income. That includes more family time, good health, companionship, a roof over your head, heat, food in the freezer, a car that runs. Remember, wealth comes in many forms.

One last tip: If luxury-focused social media accounts are making you feel as if you’re missing out on the good life, unfollow them! Most are unrealistic representations that fail to reflect real life.

The Takeaway

Learning how to live on one income after having two may take practice and require some smart budgeting hacks, but it can often be done without major deprivation. By experimenting with a variety of strategies, you’ll find the ones that work best for you, financially and personally. You’ll also likely feel a surge of pride when you hit on the right combination of moves that lessen any money stress and enhance your financial well-being.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How do you budget for a single income?

To budget for a single income, start with the take-home earnings you will live on and subtract essential expenses, such as a roof over your head, food, debt, and health insurance. Then look at wrangling your negotiable costs, such as owning one car vs. two or how much you budget for meals, to make ends meet. An online budgeting tool or consumer finance app can help.

How many families live off of one income?

According to the latest government statistics, only one spouse is employed in 33% of families with children and 23.5% of married couples without children.

What is the average income for a single person in the U.S.?

The average U.S. annual salary in Q4 of 2023 was $59,384, according to government data.

Photo credit: iStock/insta_photos

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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