When you’re looking for funds to pay for your college education, you’re likely to go after federal funds and all of their benefits first — and, if that isn’t enough, then you’ll seek private loan funding. One option for private funding is a signature student loan.
Keep reading to learn more on what a signature student loan is, how it can be used, pros and cons of signature student loans, and more.
Key Points
• A signature student loan, also known as a “sig student loan,” is a type of unsecured private loan used to cover educational expenses without requiring collateral.
• These loans are typically utilized for tuition, books, and housing costs when other forms of financial aid, such as grants and federal loans, are insufficient.
• Borrowers must qualify for a signature student loan based on credit score and income, as lenders evaluate these factors to determine eligibility and loan terms.
• While private loans provide additional funding and flexible repayment options, they also come with risks, including potentially higher interest rates compared to federal loans.
• Exploring all available financial aid options, including federal loans and work-study programs, is crucial before considering a private signature student loan for educational expenses.
What Are Student Signature Loans?
Student signature loans, also known as “sig student loans,” are private loans that typically don’t require collateral, relying instead on the borrower’s creditworthiness or that of a cosigner. These loans can cover tuition, housing, and other educational costs, offering flexible repayment options.
Understanding the terms and conditions is crucial before choosing a signature student loan.
What Type of Loan Is a Signature Student Loan?
There are two main types of student loans: federal and private student loans. Federal loans require the filling out of a FAFSA to see if a student qualifies for any type of aid from the federal government. They come with certain benefits and protections not offered by private lenders. Private loans, on the other hand, are given by banks, credit unions, and online lenders to help students pay for college. They should be used after all federal aid options have been considered.
A student signature loan is a form of private funding, one where collateral is not needed, making it an unsecured private loan for college expenses.
Recommended: How to Complete the FAFSA Step by Step
Common Uses of a Signature Student Loan
Common uses of a signature student loan include for tuition/attendance, books, and housing. Here’s more about each.
Tuition/Attendance
The average cost of tuition and fees for the 2024-25 school year at a public in-state university was $11,610. Those at private universities paid an average of $43,350 for the same school year. A student may decide to use a sig student loan to cover costs of tuition/attendance that aren’t covered by grants, scholarships, and federal student loans.
Books
The average college student spends $1,212 annually to pay for their books and supplies during college. One single hardback textbook can now cost as much as $400, although the average is between $100 and $150. Students may need to resort to loans to cover the cost of books each semester.
Housing
Although some students continue to live at home during college, many pay for room and board. At a public, four year institution, the average cost for room and board is $12,639 a year. At a private, nonprofit institution, the average cost is $14,406 annually.
Should You Get a Signature Student Loan?
Deciding whether to get a signature student loan will depend on your unique circumstances. As general guidance, students who don’t receive enough funding through grants, scholarships, and federal student loans often look to private funding to make up the difference. Private student loans, sometimes called signature student loans, can help bridge funding gaps, but they may come with higher interest rates than federal loans.
Pros and Cons of Signature Student Loans
Signature student loans come with both advantages and drawbacks. Understanding the pros and cons can help borrowers make informed choices about their education financing.
Pros of Signature Student Loans
Pros of signature student loans include the following:
• Extra source of funds
• Variety of repayment terms
• Flexibility of usage
Extra Source of Funds
Student signature loans can provide a source of funding for college after grants, scholarships, and federal options have been exhausted. Grants and scholarships typically do not have to be repaid. Federal loans and signature student loans do need to be repaid, but payments won’t start until six months after the student graduates or drops below half-time enrollment.
Variety of Repayment Terms
With a private student loan, funds are obtained from a private lender. Some offer better rates and terms than others, with some of them deferring payments while the student is attending college classes. Compare rates and terms to choose which route is best for you.
Flexibility of Usage
In general, a private loan can offer flexibility with how the funds are used. For example, this funding can be used as one of the undergraduate student loan options or one of the graduate student loan options: for tuition, books and supplies, and/or housing expenses.
Cons of Signature Student Loans
Unlike a federal student loan, private lenders of student signature loans don’t rely upon information found in the FAFSA. Instead, a student interested in receiving private funding would fill out an application with the lender and must qualify for the loan.
Qualifying for a Sig Student Loan
Loan terms can vary by lending institution. This includes the interest rates offered, borrowing limits allowed, and the length of the loan. Some require payments while the student is in school, while others will defer payments until the student is out of school. Choose parameters that fit your needs, with the understanding that you’ll need to qualify for the loan program.
Credit Score
Private lenders may require you to have a certain credit score to obtain the loan or to get the best rates and terms. The three main credit bureaus that issue scores are Equifax, Experian, and TransUnion. A private lender will likely have a certain credit bureau that they use to get an applicant’s credit scores, and yours will need to fit within their lending guidelines to get loan approval.
Income
The lender will also want to see proof of a steady income, one that’s sufficient to pay back the loan. If you don’t have enough on your own, adding a cosigner could help you qualify. This can help reassure the private lender that the loan will be appropriately paid back.
Other Ways to Pay for College
Ways to pay for college include:
• Financial aid
• Federal loans for students
• Federal PLUS Loans for parents
• Work-study jobs
• Part-time jobs
• Private student loans
Financial Aid
Student financial aid can be a combination of grants and scholarships, federal student loans, private student loans, and federal work-study programs.
Federal Loans for Students
Federal Direct Loans, also known as Stafford Loans, can be either subsidized or unsubsidized. With subsidized loans, the government covers the interest while the student is in school; with the latter, the interest accrues while the student is in school. In either case, finding out what you qualify for in federal funding can be a logical first step.
Federal PLUS Loans for Parents
Parents can take out a Parent PLUS Loan for an undergraduate with fixed interest rates and flexible repayment methods. These loans do require a credit check and can also be taken out by graduate/professional students. The maximum amount that can be borrowed is the full cost of tuition minus other financial assistance the student receives.
Work-Study Jobs
There is a federal work-study program that allows students with financial need to earn income to pay their education-related expenses. Ideally, the work will be connected to community service and/or the student’s academic study courses. This program is managed by the colleges themselves, so check with yours to see if they participate and if you qualify.
Part-time Jobs
If you don’t qualify for work study, you can still seek part-time employment in the general location of your university. You could work at a restaurant or coffee shop, babysit, or walk dogs. This allows the student to earn income, hopefully on a schedule that is flexible enough to work around college commitments.
Private Student Loans
Private student loans can be a source of funding for college expenses when grants, scholarships, and federal funding options have been exhausted. Keep in mind, though, that private student loans do not offer the same protections and benefits as federal student loans. Private lenders can have different loan programs, so compare carefully before making a decision.
The Takeaway
A signature student loan is a type of unsecured (no collateral) private funding to help with educational expenses. Signature student loans rely on the borrower’s or cosigner’s creditworthiness for approval. In addition to signature student loans, students can rely on grants, scholarships, cash savings, and federal student loans to pay for college.
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
Is a signature student loan a good idea?
A signature student loan can be a good idea if you need funding beyond federal aid and have strong credit or a cosigner. However, they often come with higher interest rates and stricter repayment terms, so carefully compare options and consider your ability to repay before committing.
Is it easy to get a signature student loan?
Getting a signature student loan depends on your creditworthiness or having a creditworthy cosigner. It can be easier for those with strong credit and steady income, but students with limited credit history may face challenges. Loan approval criteria vary by lender, so researching options is essential.
When do you have to start paying a sig student loan back?
Repayment for a signature student loan typically begins after graduation or dropping below half-time enrollment, following a grace period of about six months. Some lenders may require immediate payments or offer flexible repayment plans. Always review loan terms carefully to understand when repayment begins.
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