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.
- FinAid.org: Student Loans
- SimpleTuition: Secured Student Loans
- TIME: Why Can’t You Discharge Student Loans in Bankruptcy? Read more: Why Bankruptcy Won't Erase Student Loan Debt | TIME.com http://business.time.com/2012/02/09/why-cant-you-discharge-student-loans-in-bankruptcy/#ixzz2jJnBAhqn
- Experian. "Bankruptcy: How it Works, Types & Consequences." Accessed Aug. 27, 2020.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.