Are Student Loans Secured or Unsecured? All You Need to Know

Student loans are typically unsecured, meaning you don’t need to guarantee them with collateral. That said, it may be possible to borrow a secured loan in the form of a home equity loan or home equity line of credit (HELOC) to help pay for education expenses. However, while borrowing against the equity of your home might be an affordable option, it also involves real risk.

Read on to learn more about secured vs. unsecured student loans, the differences between the two types of loans, and the student loan that may be right for your education needs. 

Secured Loans for Education Expenses 

Secured loans are guaranteed by collateral, such as a home, car, or another asset of value. While most student loans are not secured, a borrower could consider borrowing against the equity of their home to pay for school. If they qualify for this type of secured loan, an individual can usually borrow up to 80% of the value of their home. 

Home equity loans work like a traditional loan — you get a lump sum amount upfront and pay it back with monthly payments over time. A HELOC, on the other hand, is a revolving line of credit that works more like a credit card. You can draw on it as you need to and pay it back as you go. 

For homeowners, tapping into equity could be an affordable way to access funds. If you’re a college student or the parent of one, you might consider leveraging the value of your home to cover costs. However, this can be very risky. If you fall behind on payments, you could lose your home through foreclosure — a risk you wouldn’t face with an unsecured loan.

Unsecured Student Loans - Credit Cards, Student Loans, and Personal Loans

Most student loans are unsecured, meaning you don’t need to put up any collateral to borrow one. There are two types of student loans: federal student loans and private loans. 

Federal Student Loans 

Federal student loans are available to U.S. citizens or eligible noncitizens who are attending a school that participates in the federal financial aid program. To apply for a federal student loan, you need to submit the Free Application for Student Aid (FAFSA®). 

Federal subsidized and unsubsidized loans have fairly simple eligibility requirements and fixed interest rates, but they also come with borrowing limits. If you hit your limit and need additional funding, you might consider a private student loan. 

Private Student Loans 

With private student loans, lenders look at a borrower’s credit and income before approving them. Since most college students don’t have a lengthy credit history, they often must apply with a cosigner, such as a parent or other trusted adult, to qualify. 

Personal Loans 

You might also be able to borrow an unsecured personal loan to pay for education expenses. As with private student loans, you’ll need to meet a lender’s criteria for credit and income to qualify. 

Typically, personal loans must be used for an approved purpose. Some lenders may not allow you to use a personal loan to pay for tuition, for instance. However, you might be able to take out a personal loan to cover living expenses, depending on the lender.

Credit Cards 

Credit cards are another example of unsecured debt (except secured credit cards that require an upfront deposit of funds). You can charge purchases on an unsecured credit card and pay them off at a future date. 

While you may be able to charge tuition to a credit card, though, it could be costly. Credit cards come with high annual percentage rates (APRs), and you would need to pay off your balance in full each month to avoid these high interest charges. Plus, the college may charge a convenience or transaction fee for using a credit card to make your tuition payments, which could cost you an additional 2% to 3% per transaction.

Key Differences Between Secured and Unsecured Student Loans

The primary difference between secured and unsecured loans comes down to collateral — secured loans require collateral, unsecured loans don’t. In addition, most secured loans are not specifically designed to pay for education, but rather offer general funding that you may or may not be able to use for education expenses, depending on the lender.

Borrowing Requirements 

When you apply for a secured loan, a lender will require collateral to back it, such as your home or car. An unsecured loan doesn’t involve collateral, so a lender will look closely at your credit and income. As a college student, you might need to apply with a cosigner to qualify. 

Note that federal student loans are an exception. Most federal student loans don’t involve a credit check, allowing a student to borrow in their own name. The only student loans that do have a credit component are Direct PLUS loans.

Interest Rates

Secured loans, such as home equity loans and HELOCs, generally tend to come with lower interest rates than unsecured loans, making them a more affordable borrowing option. With unsecured loans, your interest rate generally depends on your credit. Borrowers with excellent credit will get better rates than those with weaker credit. 

By comparison, federal student loans offer relatively low, fixed interest rates. For the 2025-26 academic year, for example, the interest rate on Direct subsidized and unsubsidized loans is 6.39% for undergraduates and 7.94% for graduate students (unsubsidized only).

Repayment Tenure

Whether you opt for a secured or unsecured loan, your repayment tenure will depend on the terms you agree to when you borrow. As mentioned, you typically pay back a home equity loan in fixed monthly installments, while you pay back a HELOC similarly to the way you pay off a credit card. 

If you borrow federal student loans, you can select from a variety of repayment plans, including the standard 10-year plan or an income-driven repayment (IDR) plan that bases your monthly payments on your discretionary income and family size and has a repayment term of 20 to 25 years. Private student loans typically involve fixed monthly payments over 5 to 20 years.

Consequences of Default 

Missing loan payments often has severe consequences. With secured loans, because the loan is backed by collateral such as your house or car, you could lose your collateral if you default on the loan. 

With unsecured loans, a lender can bring you to court, but it can’t seize your assets without a court judgment. 

However, it’s important to note that federal student loans are an exception, since the government has wide-reaching powers of collection. Federal student loans have no statute of limitations, and the government can garnish your wages, tax refunds, or even Social Security benefits in the event you fail to repay. A federal student loan default is also reported to the credit bureaus, damaging your credit rating. 

Whether you borrow secured or unsecured loans, one consequence of defaulting is the same — severe damage to your credit for years.

Can You Discharge Student Loan Debt in Bankruptcy?

Discharging federal student loan debt in bankruptcy is historically difficult to achieve. To do it, you must file for bankruptcy and also go through a separate legal process called an adversary proceeding to try to prove that repaying your student loans would create an undue hardship on you and your dependents.

A bankruptcy court typically reviews several factors to determine whether repaying your loan would create undue hardship:

• If forced to repay the loan, you would not be able to maintain a minimal standard of living.

• Evidence that this hardship would continue for a significant portion of the loan repayment term

• You made good faith efforts to repay the loan before filing for bankruptcy.

If the court determines that repaying your loans would cause undue hardship they have three options: They may fully discharge the loan, partially discharge it (meaning you would be required to repay part of it), or require you to repay the loan with different terms, such as a lower interest rate. 

If the court finds that you don’t meet the undue hardship requirement, you will need to repay the loan.

It’s important to understand that filing for bankruptcy has serious consequences. It can leave a negative impact on your credit for years, making it difficult to borrow other loans or credit cards. Bankruptcy should generally be used as a last resort.

Secured vs Unsecured Student Loans: Which Is Better?

When it comes to paying for school, unsecured federal student loans are an appealing option for many borrowers. Students can typically qualify on their own, and they’ll reap the benefits of a fixed interest rate and flexible repayment options. Federal student loans are also eligible for forgiveness programs and other federal programs and protections, including deferment. 

If you need additional funding for school, consider the pros and cons of secured vs. unsecured loans to choose the best loan type for you. If you’re worried about your ability to repay a loan, for instance, it likely wouldn’t make sense to tap into your home’s equity. 

But if a home equity loan or HELOC would be significantly more affordable than a private student loan or personal loan, one of these financial products might be a viable option. Ultimately, the decision of whether to pursue a secured or unsecured loan comes down to what’s the best fit for an individual’s personal situation. 

Also, make sure you are taking advantage of all the options that could help you pay for school, such as grants, scholarships, getting a part-time job while in school, or applying for tuition reimbursement from an employer, if applicable.

The Takeaway

The type of loan you borrow, secured or unsecured, can impact your interest rates, repayment terms, borrowing limits, and other factors. 

If you choose student loans, you’ll likely borrow an unsecured loan. But there may be alternative ways to get funding for school, such as a home equity loan or personal loan. 

If you borrow student loans to pay for college or graduate school, you might explore refinancing those loans for better rates, especially if you have good credit. However, be aware that refinancing federal student loans with a private lender means you’ll lose access to federal benefits, such as income-driven repayment plans and Public Service Loan Forgiveness.

If you’re interested in restructuring your student debt, Lantern by SoFi can help you find and compare student loan refinancing options.

Explore your student loan refinancing options with Lantern.