Do You Have to Have Collateral to Take Out a Student Loan?

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You can divide student loans into two basic categories: secured and unsecured. A secured loan is a debt where something of value such as a car or home acts as collateral for the loan. If you fail to pay a secured loan, the lender can take the collateral to fulfill the debt. With an unsecured loan, there is no collateral. Student loans are typically unsecured debts.

Student Loans and Collateral

You do not have to have collateral to take out student loans. All federal student loans, such as Stafford Loans and Perkins Loans are unsecured. You can also get unsecured student loans from private lenders. Some private lenders do offer secured student loans, where you offer up something of value as collateral for benefits like a lower interest rate. Unlike other unsecured debts, you can't eliminate student loans in bankruptcy unless you can prove that they would cause you "undue hardship." Proving undue hardship generally requires some extenuating circumstances, such as a disability. In other words, you are usually stuck with student loans until you pay them off, so there’s little need for lenders to require collateral.