Navigating the world of student loans can feel overwhelming, especially when terms like ‘secured’ and ‘unsecured’ get thrown around. Let’s break it down in simple terms so you can understand where student loans fit and what your options are, whether you’re studying in Australia or heading overseas.
What Are Secured Loans?
Secured loans are those that require you to put up an asset, like your car or home, as collateral. This means if you can’t keep up with the repayments, the lender has the right to take that asset to recover their money. Because there’s less risk for the lender, these loans often come with lower interest rates.
What Are Unsecured Loans?
Unsecured loans, on the other hand, don’t require any collateral. Lenders assess you based on your creditworthiness and ability to repay, which is based on factors like your income and credit history. Since there’s no asset backing the loan, the risk is higher for lenders, which often means higher interest rates compared to secured ones.
Are Student Loans Secured or Unsecured?
In Australia, most student loans – including those under the Higher Education Loan Program (HELP) – are unsecured. That means you don’t need to provide an asset to qualify. Instead, the government provides HELP loans based on your enrollment in an eligible university course. Repayments are income-contingent, meaning you only start paying back your debt once you earn above the repayment threshold.
However, if you’re planning to study overseas, HELP isn’t an option. Students looking to study at universities abroad often turn to private student loans, which are also unsecured. Lenders like Spark Finance offer student loans for Australians and New Zealanders studying internationally.
What Are The Key Differences Between HELP and A Private Student Lender?
The major differences between HELP and a Private Student Loan is that HELP loans don’t charge interest – instead, they’re indexed to inflation, meaning the amount you owe increases with the cost of living. In contrast, private lenders charge interest, which covers their lending risk and funding costs. Government loans are subsidised to support education access, whereas private lenders operate as businesses that need to generate returns.
Comparison of HELP vs. Private Student Loans (e.g., Spark Finance)
| Feature | HELP (Government Loan) | Private Student Loan (e.g., Spark Finance) |
| Security Type | Unsecured | Unsecured |
| Eligibility | Australian uni students | Students studying overseas |
| Repayment Start | When income exceeds threshold ($51,550 for 2023-24) | Usually during or shortly after studies; for Spark Finance, postgraduate students can delay repayments until after graduation whereas undergrad students repay during their study (supported by a cosigner) |
| Interest Rate | No interest, but indexed to inflation (7.1% in 2023) | Interest-based (varies by lender) |
| Borrowing Limit | No cap for most courses | Dependent on lender’s assessment |
| Impact on Borrowing Power | Considered in home loan applications | Also considered but may carry higher weight due to repayments starting earlier |
| Flexibility | Income-based repayments, no credit checks | Can offer more flexibility on repayment structure |
If you’re deciding between HELP and a private student loan, the key considerations are where you plan to study, how soon you can afford to repay, and whether you can access HELP at all. For those heading overseas, private student loans can be a great option – just make sure to compare repayment terms, interest rates, and borrowing limits before signing up.
Why Are Student Loans Unsecured?
The government and private lenders both offer unsecured student loans because students typically don’t have valuable assets to use as collateral. Unsecured loans ensure students from all financial backgrounds can access education, though the trade-off is that private lenders charge higher interest rates to offset the increased risk.
Risks and Benefits of Unsecured Student Loans
Benefits:
✅ No Collateral Needed – You won’t risk losing personal assets if you struggle to repay.
✅ Access to Education – HELP makes uni more affordable, while private loans help those studying internationally.
✅ Flexible Repayments (HELP) – You only repay HELP when you earn above the threshold.
Risks:
⚠️ Debt Accumulation – HELP is indexed to inflation, and private loans charge interest, so your debt can grow over time.
⚠️ Early Repayments (Private Loans) – Unlike HELP, private student loans usually require you to start repaying sooner.
⚠️ Impact on Borrowing Power – Both HELP and private student loans are considered in home loan applications. Private loans, due to their repayment structure, may have a greater impact.
Understanding the type of student loan you need—and its long-term impact—can help you make informed choices about your education and finances. If you’re heading overseas, researching lenders like Spark Finance is essential to finding a loan that suits your future plans.
