What is an institutional loan, and should you consider one?

Written by

Ben Luthi,

Edited by

Published on February 10, 2025 | 3 min read

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Key takeaways

Institutional loans are a type of private student loan that’s distributed by the college or school you’re enrolled in.
If you don’t qualify for federal student aid or have borrowed up to the yearly allotment, an institutional loan may be worth considering.
Before taking out an institutional loan, make sure you know all of your school’s repayment details and terms.

An institutional loan is a type of non-federal financial aid a college or university provides for its students. They don’t have the same terms and benefits as federal student loans. An institutional loan may be serviced by the school or a third-party lender and is only offered to enrolled students. Because of this, it’s important to know the details of what your school offers and how these loans differ from other student aid options.

What is an institutional loan for education?

Institutional loans are a type of student loan offered by colleges and universities to bridge the gap between financial aid awards and the full cost of attendance. The loan servicer may be the school itself or an agency the school hires to manage its institutional loan portfolio.

As with private student loans, the terms for institutional loans can vary depending on the school. They may be short-term loans payable in just a few months or long-term loans that you have years to repay.

Institutional student loan interest rates can also vary widely. Bankrate reviewed institutional loans at a handful of top schools and found rates as low as 0 percent and as high as 9 percent.

For instance, the University of California, Berkeley provides a variety of institutional loans, each with distinct borrower criteria, grace periods, interest rates and repayment terms. The Summer Sessions Loan offers a nine-month grace period, a loan interest rate of 5.00 percent and a 60-month repayment term. Entomology students qualify for a special loan with a 0 percent interest rate and a 120-month repayment term.

Pros and cons of institutional loans

Institutional loans can come in handy if you’re not eligible for federal financial aid or you’ve reached your allotment for the current academic year and still have some expenses to pay. That said, there are potential pitfalls.

Pros

They may be more affordable than private student loans: Because institutional loan rates are often the same for all students, regardless of credit score, your college or university may offer better terms than what you can get with a different lender. In some cases, you could even get a lower interest rate than what federal loans offer.
Some may not require a credit check: In some cases, particularly if it’s a short-term loan, you may not need to undergo a credit check to get approved.

Cons

No federal benefits: Institutional loans don’t qualify for federal loan benefits, which means you can’t get your loans forgiven or get on an income-driven repayment plan if you’re struggling to make payments.
May require a credit check: If you’re applying for a long-term loan, it’s more likely that you’ll need to undergo a credit check, which means you may not be able to get the financing you need.
Can be difficult to repay: If you have a short-term loan, you may need to pay it back in just a few months, which could be challenging for some students. Even for long-term loans, you may not have the option to choose your own loan term.

Institutional loans vs. other student loans

When it comes to student loans, it’s always best to start with federal student loans because they generally have lower interest rates (especially for borrowers with fair or poor credit), are heavily regulated to protect borrowers and have income-based repayment options.

However, if you’ve run out of federal financial aid, you may want to compare institutional loans and private student loans. In particular, you’ll want to look at the following:

Credit and income requirements
Loan amounts
Interest rates
Fees
Repayment terms
Deferment and forbearance options
Grace periods
Discharge options
Cosigner options
Penalties for non-payment

It is important to note that many private lenders allow you to get prequalified with just a soft credit check, which won’t impact your credit score. Institutional loans may not offer this feature, but it can be a good way to compare what your school offers to rates on other types of student loans.

How to pay an institutional loan

How you repay your institutional loan will depend on your college or university’s loan program.

When you take out the loan, your school should provide you with the details for repayment. With a short-term loan, for instance, you may just make one payment through your student account with the school, but with long-term loans, you may be able to set up automatic monthly payments.

Bottom line

Institutional loans can be a valuable financial option with their competitive rates. They’re less often discussed than federal and private student loans, but if your school offers them, it’s worth taking a look. Contact your school’s financial aid office and gather as much information about the program as possible. Carefully review the terms and fine print of the loan agreement to see how your institution’s offerings compare with federal student loans and private student loans you’ve prequalified for. Also, look for opportunities to get financial aid you don’t have to repay, such as scholarships, grants, work-study jobs and more.