Is a Student Loan Considered Secured or Unsecured? Here’s What to Know

Is a student loan secured or unsecured? Here in this blog post, you will find out whether or not the student loan is secured.

You may have heard the terms “secured debt” and “unsecured debt.” Secured loans require the borrower to provide collateral in order to qualify. 

Unsecured debts, such as federal student loans, do not require collateral.

That said, not paying off the loan isn’t without consequences. 

In the rare cases when bankruptcy allows you to pay off your student loans, additional steps are required and you must prove that paying off the loans causes undue hardship.

Here we look at the difference between secured and unsecured debt and how federal student loans compare to other types of debt.

The larger the loan, the more risk the lender takes in providing it. Because of this, some loan types are more difficult to qualify for than others.

But strict eligibility requirements aren’t the only safety net for lenders to protect themselves. 

Some types of loans are collateralized. In other words, the loan has collateral that can be recovered if the borrower defaults.

What types of secured and unsecured loans are there, and what are the benefits of each type? 

We answer this question below and explain how it applies to your student loan situation

See Also: How to Beat National Collegiate Student Loan Trust in Court

What is Secured Debt vs. Unsecured Debt?

Secured debt is collateral that the lender will repossess if the borrower stops paying. 

Mortgages, home equity loans, and auto loans are the most common types of secured loans.

Unsecured loans have no collateral such as personal loans, credit cards, and student loans. 

When you default on an unsecured loan, the lender gets nothing in return. For example,

 if you default on your student loans, the lender can’t take away your diploma. Both private and state student loans are unsecured loans.

 Secured loans usually have lower interest rates than unsecured loans because the lender holds the collateral. 

Secured loans are easier to obtain than unsecured loans and may have lower income and creditworthiness requirements.

The Difference Between Secured and Unsecured Debt

Not all debts are created equal, and to qualify for certain types of debt you may need to take extra risks by presenting something of value to back it up. 

The main difference between secured and unsecured debt is that secured debt requires the lender to provide collateral.

 Examples of secured debt are:

  • Auto loans.
  • Home equity lines of credit (HELOCs).
  • Home equity loans.
  • Mortgage loan.

For auto loans, the vehicle is the collateral. Similarly, your home is collateral for a mortgage.

If you fail to pay, the lender can seize your car or house to get your money back.

Also Read: How to Apply for a Limited Waiver for Student Loan Forgiveness

Unsecured Debt

Unsecured loans do not require collateral. Instead, lenders base their eligibility decisions on the borrower’s positive credit history and use rigorous credit checks to scrutinize creditworthiness. Decide if it’s worth it.

 Because unsecured loans and borrowings carry greater risk, lenders often impose stricter requirements on the borrower’s creditworthiness.

 Common types of unsecured debt are:

  • Credit cards.
  • Medical bills.
  • Personal loans.
  • Student loans.

If you fail to pay your unsecured debt, the lender will have to take legal action to get your money back. 

You won’t lose any specific assets, but you still face negative consequences if you fail to repay your unsecured debt.

Unpaid unsecured debt may be purchased by a debt collector who can actively seek collection of the debt. 

Lenders and creditors also report non-payments and late payments to credit bureaus, hurting their credit scores in the long run.

Benefits of Secured Debt and Unsecured Debt

Whether you choose a secured or unsecured loan depends on your personal circumstances and preferences.

 Interest rates on secured loans are much lower. This is because there are specific items you can get back if your lender stops paying you. 

Unsecured loans are less risky as you may not give up anything if you default on your loan. The downside is that unsecured loans have higher interest rates.

Can You Convert Unsecured Loans to Secured Loans?

If you have an unsecured loan, such as a student loan, consider changing it to a secured loan. There are several ways to do this. 

For homeowners, the most common option is to take a home equity loan and use the proceeds to pay off student loans.

A home equity loan allows you to mortgage your home and get extra equity in cash that can be used for home improvement projects, vacations, or paying off student loans. 

Interest rates on home equity loans are usually higher than those on regular mortgages. 

A home equity loan uses your property as collateral. 

Banks can foreclose on your home if you default on your home equity loan.

Another option is refinanced cash-out housing. A home must have at least 20% equity to be eligible for a cash-out refinance. 

With payment refinancing, you can refinance your home with a new loan and get extra assets in cash. 

You can use the money from your Cash Out refinance to pay off your student loans.

 There are only mortgages with refinancing payments. However, the downside is that your mortgage balance will be higher than before.

 This means that you may pay more interest over the life of the loan.

Another risk of cash-out refinancing is that you may run into problems if house prices fall and your home is worth less than your mortgage. 

In this case, the house cannot be sold until the difference between the mortgage balance and the sale price is paid.

Read More: How Does Student Loan Forgiveness Affect Your Credit Score?

Managing your Unsecured Student Loans

If you’re on unsecured federal student loans, consider applying for government protection if you run into trouble.

 One of the best things about dealing with massive student debt is having the plan to pay off the loan. 

Check your loan balance, available repayment options, and whether you qualify for the Loan Forgiveness Program to determine the best course of action.

 If you have a personal loan, talk to your lender to find out about repayment options. 

It’s also helpful to take out term life insurance and disability insurance early in case you can’t pay off your debts. 

Insurance protects you and your family in the long run and keeps you on track with your loan repayments.

How Unsecured Federal Loans Differ from Other Types of Debt

Like other types of debt, federal student loans usually have to be repaid after a six-month grace period after you graduate or leave school.

In other respects, however, government student loans don’t have much in common with other private student loans and types of debt.

Check Also: South Carolina Student Loan Review | Financial Aid Programs & Scholarship Information

Federal Loans are Backed by the Government

Instead of the lenders funding the loans, the federal government funds and supports federal student loans. 

The Department of Education works with loan servicers to administer federal student loans.

Most Federal Loans don’t Require a Credit Check

Most federal student loans do not require a credit check. The Department of Education relies on FAFSA to determine the financial needs of borrowers. 

Borrowers who accept federal student loan offers must undergo initial counseling before their student loans are disbursed.

 In addition, it is necessary to consult with students about withdrawal after graduation or withdrawal.

 The exception to this rule is Direct PLUS loans. The government conducts a credit check on applicants seeking this type of loan. 

PLUS loan borrowers must not have a negative credit history. 

Even if he doesn’t meet the credit requirements, he can still qualify for the PLUS loan by meeting other credit requirements.

You might want to check this out: How to Get a Health Professions Student Loan

Federal Loans are very Rarely Discharged in Bankruptcy

When someone files for Chapter 7 bankruptcy, all unsecured debt is usually extinguished. 

However, this is not necessarily the case with federal student loans. 

Your federal student loan debt isn’t automatically discharged just because you filed for bankruptcy. 

Instead, an additional legal action known as an adversary lawsuit is required.

 An adversarial action is a separate lawsuit usually filed in connection with bankruptcy proceedings.

 In order to pay off student loans, you must prove to the court that paying off student loans will cause you and your family undue hardship.

 Unjustified hardship, as defined by the courts, means paying off debt:

 inability to maintain a minimum standard of living; and

Hardships that last for a good part of the loan repayment period.

The court must also agree that you made a good-faith effort to pay off your student loan debt before filing for bankruptcy.

 The pursuit of adverse proceedings does not guarantee credit relief. 

You may decide to pay off your federal loans in full. You can also offer alternative repayment terms as determined by the court.

Federal loans don’t have a statute of limitations

Unlike many private student loans and other loans, federal student loans do not have a statute of limitations. 

The government can collect federal loans no matter how long it takes. Borrowers can’t ignore student loan repayments and hope it goes away.

 Whether you switch to another repayment plan, seek loan forgiveness, or take advantage of federal protection, it’s best to have the plan to pay off your loan.

See Also: How to Complete Student Loan Exit Counseling | Ultimate Guide

Federal Loans offer many Protections for Struggling Borrowers

The federal government offers some protections to borrowers who are having trouble paying their loans. Government student loan protection includes:

  • Loan deferment.
  • Loan forbearance.
  • Income-driven repayment plans.
  • Student loan forgiveness.

Loan deferrals and deferrals temporarily stop loan payments while continuing to accrue interest. 

Borrowers can also ease the burden by switching to income-based repayment (IDR) plans. 

IDR plans are based on income and family size and may result in lower monthly payments.

 The federal government also offers several student loan forgiveness programs that ease the repayment burden for borrowers. Federal student loan programs include:

  • Public Service Loan Forgiveness (PSLF).
  • Teacher loan forgiveness.
  • Income-driven repayment forgiveness.

Each program has its own set of rules, but they typically require you to make a certain number of eligible monthly payments while also meeting other career requirements.

 You can also refinance student loans. Depending on your credit rating, you may qualify for a lower interest rate, saving interest costs over the life of the loan. 

However, when you refinance federal student loans, they become private student loans and are no longer eligible for federal protection.

Editor’s Desk: How to Apply for a National Student Loan in Canada | Review


Are student loans secured or unsecured? 

unsecured. Credit cards, school loans, and personal loans are a few examples of prevalent unsecured debt. Your property won’t be confiscated if you fall behind on your student loan payments because no collateral has been provided. There are methods around the higher interest rates that lenders normally impose on unsecured debt.

How do I tell if the loan I’m taking out is secured or unsecured? 

Collateral is the primary distinction between secured and unsecured loans: While an unsecured loan does not require collateral, a secured loan does. The more prevalent of the two personal loan types is an unsecured loan, but because your creditworthiness is the only security, interest rates may be higher.


 Nearly 20 million Americans seek higher education each year. 

A very high percentage of his 20 million citizens borrow money to pay for their education. As a result, more students than ever are graduating with student loans.

In most cases, students can choose between federal and private loans. It is not uncommon for students pursuing expensive courses of study to take out both federal and private loans. 

Federal loans are loans issued by the federal government that are widely available to students pursuing higher education. 

Every year, Congress sets interest rates on government student loans, which are often relatively low compared to private loans.

Personal loans are loans offered by private banks and financial institutions. 

Personal loan interest rates and borrowing capacity are typically limited by your credit history. 

However, using co-signatories can often increase your lending capacity. Personal loans are also offered in a variety of ways.

 First and foremost, private loans used to fund higher education come in the form of secured or unsecured loans.


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