You’ve tackled the FAFSA, explored scholarships and grants, and maybe qualified for some federal student loans. But there might still be a gap between the financial aid you’ve received and your total college costs. This is where funding options like a private education line of credit come into play.

Traditional Student Loan vs. Line of Credit – Understanding the Key Differences

So, how exactly does an education line of credit differ from a traditional student loan? The short answer is that a line of credit offers unique flexibility compared to traditional loans, making it a valuable tool for college financing.

• A traditional loan allows you to borrow one lump sum of money. For instance, you could borrow the amount needed to cover costs for your freshman year of college but will need to apply for another loan for your sophomore year. This requires another full application and credit check.
• A line of credit gives you ongoing access to a set pool of funds. With an education line of credit, you apply one time and secure funding for your entire undergraduate or graduate career! In future years, you’ll simply complete a “draw request” for the amount you need.*
  

  For example, if you are approved for a $20,000 line of credit to cover school expenses, you could utilize $5,000 each year for four years – or $5,000 your first year; $7,000 your second year; and $2,000 for each of your final two years. (This is where the flexibility comes into play!)

Let’s delve into some of the other key differences between these options.

The Provider

• Traditional student loans are offered by a financial institution such as a traditional bank, online bank, fintech, or some credit unions.
• A private education line of credit is offered exclusively by Student Choice credit unions. Credit unions are not-for-profit financial institutions that often offer more favorable rates, flexible terms, and more personalized service.

Amount Borrowed and Repayment

• Traditional student loans are taken out with a set loan amount (typically determined by your financial need and cost of attendance at your chosen school), meaning you will need to pay back and pay interest on the full amount.
• With an education line of credit, you are given a credit line that you can draw from as needed. This means if you only need to cover a small portion of your college costs to start, you can borrow less and only pay interest on that amount until you are ready to borrow more. This flexible option can be very beneficial for students who may not need the full amount in one lump sum.

Repayment options will vary by lender – both traditional student loans and lines of credit may offer deferred repayment (no payments during school – interest will still accrue); fixed repayment (paying a set amount throughout your years in school and beyond); interest-only repayment; or graduated repayment.

Making the Right Choice for Your College Funding

Remember, exhausting scholarships, grants, and federal loan options should be your first priority. However, an education line of credit can be a valuable tool to bridge any remaining gap in your college financing needs.

Check out our financial literacy resources and counseling services to help you make informed choices about paying for college.

*Subject to annual review and credit qualification. Must meet school’s Satisfactory Academic Progress (SAP) requirements.