An institutional student loan is a type of student loan you borrow from your college or university. Institutional loans are non-federal student loans, and the loan terms vary from school to school.
Institutional loans can help fill in the gaps other financial aid doesn’t cover. But it’s important to understand how these loans work to make sure they’re right for you.
Definition and Overview
Institutional loans are considered to be a type of private student loan. But unlike traditional private student loans, they are offered by your school rather than a private lender. Students may use these loans to help pay for college costs. However, some schools only allow the use of institutional loans for tuition and fees, and not for other education-related expenses.
Institutional loans are non-federal student loans. That means they don’t offer the same benefits that federal loans do, including deferment, forbearance, and student loan repayment options such as income-driven repayment plans.
How Institutional Student Loans Work
Institutional loans typically come in two types — short-term and long-term loans.
Short-term institutional loans generally have a low interest rate, but they may have a processing fee. These loans sometimes involve a credit check, and you’ll typically need to pay back student loans that are short-term within a few months. Check with your school about the specific repayment terms for the short-term institutional loans they offer.
Long-term institutional loans allow for longer repayment terms, such as 10 years, and payments may be deferred while you’re in school. The interest rates on these loans are usually higher, and the rate you get may depend on your creditworthiness.
Eligibility Criteria
To qualify for institutional student loans, borrowers typically must file the Free Application for Federal Student Aid (FAFSA). The eligibility criteria for these loans vary from institution to institution, so your best bet is to check with your school’s financial aid office.
Interest Rates and Fees
Interest rates for institutional loans range widely, depending on the school and whether the loan is short-term or long-term. Some colleges offer short-term loans with rates as low as 0% or 1%, while interest rates on long-term institutional loans may be 3% to 10%. Check with your school about the interest rates on these loans.
Repayment Terms and Options
The repayment term on an institutional loan is the amount of time the institution gives you to pay off your loan. Short-term loans typically need to be repaid quickly — in 90 days, say — while long-term loans have a repayment term of 10 years. Your school may offer different options for repayment, so be sure to inquire.
One option that you may not have with institutional loans is refinancing. With student loan refinancing, you replace your old student loans with a new loan that ideally has a lower interest rate or better terms. Refinancing might not be possible with institutional loans.
Pros and Cons of Institutional Student Loans
Institutional student loans may be a solution for students who need to bridge gaps in financial aid, but these loans have benefits and drawbacks to consider.
Pros of institutional loans:
• Quick payoff: Short-term institutional loans typically require repayment in several months. If you need financial assistance now and expect to have funds to repay the loans at the end of the term, they might be an option for you. By comparison, paying off federal student loans can take 10 years or more.
• Low interest rate: Some institutional loans have lower interest rates than federal or private student loans. But before committing to one of these loans, explore the different undergrad private student loan rates available to make an informed decision.
• May not require a credit check: You might not need to undergo a credit check to be approved for an institutional loan, especially if it’s a short-term loan.
Cons of institutional loans:
• No federal benefits. Institutional loans don‘t provide the same benefits that come with federal student loans, such as income-driven repayment plans and student loan forbearance.
• May require a credit check. With long-term institutional loans, your school may require a credit check to qualify. That could make these loans more difficult to obtain.
• May be tough to repay. Short-term loans typically need to be repaid in a few months. As a college student, that may not be feasible for you. In that case, you might want to consider low-income student loans instead.
• Refinancing might not be possible. Federal and private student loans can be refinanced, but institutional student loans may not be eligible for refinancing.
The Takeaway
Institutional student loans are offered by colleges and universities to help cover school costs like tuition and fees. They may be helpful to students who have reached their financial aid allotment for the semester or those who need financial help immediately and can repay the loan quickly.
But institutional loans do have drawbacks. Repaying them quickly can be challenging for college students. And borrowers may need to undergo a credit check to qualify for them. Before choosing an institutional loan, you may want to look into other financial aid options, such as grants and scholarships, or consider private student loans, which have the option of refinancing in the future, if that’s something you might be interested in. Weigh all the different choices to make the best decision for your situation.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What are the benefits of institutional student loans?
Institutional loans offered by colleges and universities can help you cover school costs like tuition and fees if you’re coming up short. They may also offer low interest rates, quick repayment, and no credit check. However, make sure you can repay an institutional loan on time — the repayment term might be as short as three months.
Can institutional student loans be used for living expenses?
Whether an institutional loan can be used for living expenses depends on the institution. Some colleges and universities require borrowers to use institutional loans for tuition and fees. Check with your school to find out what their requirements are.
How do institutional student loans compare to federal loans?
Federal student loans offer more repayment options than institutional loans, and they also come with federal programs and protections you may want or need, such as deferment and forbearance. In comparison, short-term institutional loans typically take less time to pay off, which could make them appealing to those looking to avoid long-term student loan debt. The interest rates for some institutional loans may be lower than the interest rates for federal loans, but others may have higher rates.
It’s wise to explore the different requirements, terms, and benefits of each type of loan before you opt for one over the other.
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