What’s the Average Student Loan Interest Rate?

With college tuition on the rise, students may take out student loans as they pursue their education. Student loans come with interest and sometimes other loan fees. As you repay student loans, that interest can add up.

While there are options like scholarships, grants, and work-study, sometimes student loans can be necessary to help students fill the gaps as they finance their education. Before borrowing student loans, it’s important to understand how they work, what the average student loan interest rates are like, and how interest rates impact your loan.

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What Is The Average Student Loan Interest Rate?

So, what is the average student loans interest rate?

The interest rate on a student loan varies based on the type of student loan. Federal student loans have a fixed interest rate, meaning it is set for the life of the loan.

For the 2022-2023 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 4.99%, the rate on Direct Unsubsidized loans for graduate and professional students is 6.54%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 7.54%. The interest rates on federal student loans are fixed and are set annually by Congress.

Private student loan interest rates vary by lender and each has its own criteria for which rates you qualify for. Private lenders also may offer different interest rates if you have a cosigner on your student loan. Private student loans also may offer variable interest rates, meaning they can start lower than a fixed interest rate but then go up over time, based on market changes.

The interest rates on private student loans can vary anywhere from 1% to 13%, depending on the lender, the type of loan, and on individual financial factors including the borrower’s credit history.

Recommended: Types of Federal Student Loans

How Are Interest Rates Determined?

As mentioned previously, the interest rates on federal student loans are set annually by Congress. The rates are tied to the financial markets—Congress sets them based on the 10-year Treasury note. Since 2006, all federal student loans have fixed interest rates. Although federal student loans are serviced by private lenders selected by the federal government, the private lender has no say in the interest rate offered.

For private student loans, the lenders set their own rates, though they often take cues from federal rates. Each lender has their own algorithm and credit standards. The rates quoted for student loans vary based on each applicant’s individual situation—though generally the better a potential borrower’s financial history is, the better rate they may be able to qualify for. When considering a private student loan, shop around with a few different lenders to find the best rate and terms for your personal needs.

To learn more about private and federal student loans check out our student loan help center.

How Is Student Loan Interest Calculated?

The interest on federal student loans accrues daily. To calculate the interest as it accrue, the following formula can be used.

Interest amount = (outstanding principal student loan balance × interest rate factor) × days since last payment

In other words, you will multiply your outstanding loan balance by the interest rate factor. Then, multiply that result by the days since you last made a payment.

To calculate that interest rate factor you can divide the interest rate by the number of days of the year (365).
For example, let’s say you have an outstanding student loan balance of $10,000, an interest rate of 3.73%, and it’s been 30 days since your last payment. Here’s how to calculate your interest:

$10,000 x (3.73%/365)=1.02
1.02 x 30 days=$20.66

Interest amount $20.66

Many private student loans will also accrue interest on a daily basis, however, the terms will ultimately be determined by the lender. Review the lending agreement to confirm.

What to Look for in a Student Loan Interest Rate

When you take out a federal student loan, you’ll receive a fixed interest rate. This means that you’ll pay a set amount for the term of the student loan. In addition, all of the terms, conditions, and benefits are determined by the government. And, federal student loans provide some additional perks that you may not find with private lenders like income-driven repayment plans.

On the other hand, private loans tend to have higher interest rates since the lender sets them. Private lenders review your credit score, income, and other factors to determine the rate you receive. This way, they can ensure you’re financially stable and can repay your loan before loaning you the funds.

Because of the higher interest rates and potentially fewer perks, you should first take advantage of all federal student loans you qualify for before comparing private loan options.

Average Interest Rates for Student Loans FAQ

Here are some common questions about the average interest rates of student loans.

What Is a Good Fixed Interest Rate for Student Loans?

When it comes to cost, the lower the interest rate, the better. The lower the interest rate, the less a borrower will owe over the life of the loan, which could help individuals as they work on other financial goals. If you’re taking out federal loans, the student loan interest rate is set by federal law, so you don’t have a choice for what is and isn’t a reasonable interest rate.

When it comes to private student loans, it’s wise to shop around and compare your options to find the most suitable financing solution. Since every lender offers different terms, rates, and fees, getting quotes from multiple lenders may help you select the best option for your personal needs. But, keep in mind, private student loans do not have the same borrower protections as federal student loans, including income-driven repayment plans or deferment options, and should be considered only after all federal aid options have been exhausted.

Is 30k In Student Loans Bad?

If you owe $30,000 in student debt, you’re right in line with the outstanding balance of most borrowers. Roughly 42.9 million Americans have federal student loan debt, and each owes about $36,406.

Is a 4.75% Interest Rate Good?

With interest rates on private student loans ranging anywhere between 1% and 13%, a 4.75% interest rate is not too bad. But, when it comes to federal average student loan interest rates, you can expect to pay more than 4% for undergraduate direct subsidized loans and direct unsubsidized loans.

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How Can I Reduce the Interest Rates on my Student Loans?

The interest rate on federal student loans, while fixed annually for the life of the loan, does fluctuate over time. For example, for the 2021-2022 school year, Direct subsidized and unsubsidized loans for undergraduates increased to 3.73% from 2.75% for the 2020-2021 school year.

To adjust the rate on an existing student loan, borrowers generally have two options. They can refinance or consolidate the loans with hopes of qualifying a lower interest rate.

Refinancing a federal loan with a private lender eliminates them from federal borrower protections such as income-driven repayment plans or Public Service Loan Forgiveness. The federal government does offer a Direct Consolidation loan, that allows borrowers to consolidate their federal loans into a single loan. This will maintain the federal borrower protections but won’t necessarily lower the interest rate. When federal loans are consolidated into a Direct Consolidation Loan, the new interest rate is a weighted average of your original federal student loans’ rates.

Refinancing student loans with a private lender may allow qualifying borrowers to secure a lower interest rate or preferable loan terms. Note that extending the repayment term will generally result in an increased cost over the life of the loan.

To see how refinancing could work for your student loans, take a look at the student loan refinance calculator.

The Takeaway

The average student loan interest rate varies depending on the type of loan. The interest rate for federal Direct Unsubsidized and Subsidized loans is set annually by Congress and fixed for the life of the loan. The interest rate on private student loans is determined by a variety of factors including the borrower’s credit history and may range anywhere from 1% to up to 13%.

Refinancing with a private lender may allow borrowers to qualify for a lower interest rate, which could help them save money over the life of the loan. Remember that choosing to refinance with a private lender means the borrower will lose the protections of a federal loan (such as Income Based Repayment, Income Contingent Repayment, or PAYE), but if you don’t think you will use those programs, refinancing may be an option to consider.

There are absolutely no fees when refinancing with SoFi. See your interest rate in just a few minutes—with no pressure to sign up.


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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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What Is a Federal Perkins Loan?

Perkins Loans were designed for undergraduate and graduate students who demonstrated exceptional financial need. Although the program has ended, 1.6 million borrowers still owe $4.7 billion in Perkins Loans as of mid-2021.

The loans were meant to make going to school and repaying student loans easier for students whose financial situation may have prevented them from going to school at all.

The program expired on Sept. 30, 2017. If you were awarded a Perkins Loan before then, you still have to pay your loan back, in almost all cases.

Benefits of Federal Perkins Loans

Perkins Loans Are Subsidized Loans

With federal subsidized student loans like Perkins Loans, the government pays the interest on the loan while you’re in school, during your grace period, and if you need to defer your loan payments for an eligible reason.

That creates significant savings compared with federal unsubsidized student loans, when interest may continue to grow even if you are not currently required to make payments on the loan.

The benefit still exists for students who took out Perkins Loans.

Additionally, Federal Perkins Loans had no origination fee. In contrast, Direct Loans currently have an origination fee of 1.057%, and Direct PLUS Loans for parents and grad students have a fee of 4.228% until Oct. 1, 2021. (The percentages change on Oct. 1 every year.)

Perkins Loan Interest Rate

While other federal student loan rates are tied to the 10-year Treasury note, the Perkins Loan rate was fixed at 5%—which used to be lower than some other loan types.

For the 2022-2023 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 4.99%, the rate on Direct Unsubsidized loans for graduate and professional students is 6.54%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 7.54%. The interest rates on federal student loans are fixed and are set annually by Congress.

Extended Grace Period

Another benefit of Perkins student loans is their extended grace period.

Most federal student loans have a grace period of six months after graduation to begin payments. Perkins Loans give an extra three months, so borrowers don’t have to start repaying a Perkins Loan for nine months after they graduate, leave school, or drop below half-time enrollment.

That said, any borrower who is eager to start repaying student loans doesn’t have to wait until a grace period is over to begin.

Perkins Loan Forgiveness Programs

If you have Perkins Loans, you may also qualify for certain forgiveness programs, depending on your employment or volunteer status.

If you work as a Peace Corps volunteer, firefighter, law enforcement officer, nurse, librarian with a master’s degree at a Title I school, public defender, teacher who meets specific criteria, among several other jobs, you could be eligible to have all or part of your Perkins Loan forgiven.

How Much Could You Borrow?

If you were eligible for a Perkins Loan, you most likely were only able to take a portion of your federal loans out as Perkins Loans. The amount you were able to borrow in Perkins Loans was determined by your personal financial situation.

For dependent undergraduate students whose parents are eligible for Direct PLUS Loans, the aggregate federal student loan limit is $31,000, with no more than $23,000 of that for subsidized loans. Undergrads deemed independent can have an aggregate of $57,500 in federal student loans, with no more than $23,000 in subsidized loans.

The aggregate federal loan limit for graduate or professional students is $138,500, which includes federal loans received for undergraduate studies.

Refinancing Your Student Loans

You may now be seeking a lower interest rate for your outstanding student loan balance.

Since graduating from college and getting a job, you may be making significantly more money and have established good credit. If that’s the case, refinancing your federal and/or private loans may be a good choice.

Even though Perkins Loans have good repayment options and a steady, reasonably low-interest rate, not all student loans enjoy the same perks.

Before you refinance, which means paying off any or all current loans with a new, private loan, preferably with a lower interest rate, it is important to review the benefits of your current loans. Refinancing would eliminate federal benefits like deferment and income-driven repayment plans.

Depending on your credit history and earning potential, you may be able to qualify for lower monthly payments or a lower interest rate, which could potentially reduce the amount of money you pay in interest over the life of the loan.

The Takeaway

Federal Perkins Loans, for students of exceptional need, came with benefits and a fixed interest rate that was relatively low at the time. Billions are still owed on Perkins Loans, and a borrower may want to weigh the merits of seeking a lower rate.

SoFi is a leader in the student loan space, offering refinancing of both federal and private student loans with a fixed or variable rate and no application or origination fees.

See your student loan refinancing interest rate in just a few minutes. No strings attached.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Source: sofi.com

Student Loan Forgiveness Programs That Discharge or Reduce Debt

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If you’re living under the crushing burden of student loan debt, it’s natural to wonder how to get rid of it. I know I am. Who wouldn’t want to wake up one morning, log into their account, and see a balance of zero?

I don’t think I’m understating it to say it would change my life, and I’m sure many borrowers would say the same. 

While mass student loan cancellation from the federal government could still be a reality, it also may amount to nothing but wishing and hoping. Fortunately, plenty of programs already exist to help you eliminate your student loans.  


Federal Student Loan Forgiveness Programs

If you’re overwhelmed by student loan debt, forgiveness programs can help ease some of the burden. Forgiveness partially or fully cancels education debt. Forgiveness programs are only available on direct federal student loans. You may have to consolidate other types of federal loans for them to qualify. And private loans don’t qualify at all.


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Forgiveness won’t erase your debt overnight, as many student loan repayment programs take 10, 20, or 25 years before you can get any remaining balance forgiven. But they can reduce your monthly payments in the meantime. There are two types.


Standard Federal Student Loan Forgiveness

Standard forgiveness is available to all borrowers of federal direct loans, including federal direct consolidation loans. It requires you to be on an income-driven repayment plan.

There are four income-driven repayment plans. Each bases your monthly payments on a percentage of your income and your family size. Depending on the plan and whether you have undergraduate or graduate loans, you could qualify for loan forgiveness in 20 to 25 years.

However, be aware you may owe income tax on the forgiven amount. The American Rescue Plan, passed in March 2021, makes all student loan forgiveness tax-free through 2025. And in March 2022, President Biden included a provision in his budget plan to make this policy permanent. But it still has to pass both the House and Senate to become law, so it isn’t a guarantee beyond 2025 yet. 

The best way to know how much of your student loan balance could remain for forgiveness at the end of your repayment term is to use the loan simulator at StudentAid.gov. However, know that your payments and balance could fluctuate if you earn more or less throughout your career.

The Biden administration is also currently working to reform the income-driven repayment plan program. Current changes include recalculating borrowers’ forgiveness timelines to include certain past periods of deferment and forbearance, regardless of loan type or payment plan. 

These future changes could include streamlining income-based repayment so that all enrolled borrowers are paying only 5% of their discretionary income in monthly student loan payments instead of the 10% to 20% they’re paying now.

These changes may not seem like much, but they could be huge for some borrowers. For example, I had to forbear my loans for six years in an attempt to pay off the private loans I took out before grad PLUS loans existed and still afford things like rent, child care, and groceries on my meager teaching salary. 

This change alone puts me six years closer to forgiveness and could save me over $50,000. And the government estimates more than 3.6 million borrowers will get at least three years shaved off their clocks.  

See other changes they’re planning at StudentAid.gov. 


Public Service Loan Forgiveness

Perhaps the best known federal student loan forgiveness program, the Public Service Loan Forgiveness Program is for borrowers working in public service jobs. To qualify, you must:

  • Have federal direct loans
  • Work full-time for a nonprofit or government agency for 10 years
  • Make 120 qualifying payments on an income-driven repayment plan (while working for the nonprofit)

Unlike forgiveness through an income-driven repayment plan, forgiveness through public service loan forgiveness has always been tax-free. So borrowers don’t have to worry about getting hit with a huge tax bill on any forgiven balance.

Additionally, the Public Service Loan Forgiveness Program was the first to announce major changes to the payment counts. As a result of years of mismanagement, a temporary waiver allows past “payments” to count toward the required 120 total. That includes any nonpayments made during deferment or forbearance and even late, missed, or partial payments — pretty much anything as long as you weren’t in default on your loans. 

The only requirement is that you must have been working full time for a qualifying employer (a nonprofit or government agency) during the period for which you want the payment or nonpayment counted. And you must apply for the temporary waiver by Oct. 31, 2022.  


Loan Repayment Assistance Programs

Federal forgiveness is only one option you can leverage to get rid of student debt. Some government and nongovernment organizations offer loan repayment assistance programs.

While they can’t directly forgive your debt (only the loan-holder can do that), they can contribute money on your behalf, which acts as a sort of forgiveness, usually in exchange for your professional contributions to a company or society. Plus, you can use them to pay off any type of loan, including private loans. 

Generally, you have to work for a certain company or in a certain public service field, such as medicine or the military, for a set amount of time. In exchange, they contribute money toward paying off your loans.

The amounts they contribute vary, but they can be anywhere from several thousand to tens of thousands of dollars per year, depending on the program.

If federal forgiveness programs seem unlikely to benefit you, check into these options instead. 


Profession-Specific Loan Forgiveness

Though these exist primarily in public service professions, many career fields qualify for job-specific loan forgiveness programs over and beyond public service loan forgiveness.  

For example, there are organizations that repay student loans for health care professionals in exchange for working in shortage areas, such as for doctors working in rural locations or pharmaceutical scientists performing research in highly needed crisis subjects like opioid addiction. 

Professions with forgiveness programs include:

  • Doctors
  • Teachers
  • Nurses
  • Lawyers
  • Pharmacists
  • Dentists
  • Physicians Assistants
  • Physical Therapists
  • Law Enforcement Officers
  • Psychologists
  • Veterinarians
  • Automotive Workers   

Employer-Sponsored Programs

Even if you don’t work in one of these professions, many employers offer student loan repayment assistance as a job perk. Through 2025, they can offer up to $5,250 per year as a tax-free benefit thanks to COVID-19 pandemic relief measures. So it’s worth checking with your human resources office to see if your company offers this assistance. 

If your current company doesn’t offer this benefit, crunch the numbers to see if it’s worth changing jobs. If the benefit is high enough, it could even offset a salary decrease or the extra cost of driving further to work. 

Do an online search to find companies that repay student loans. Examples include Google, Ally Bank, and Fidelity Investments.  

But don’t give up if you can’t find this benefit info on a prospective employers’ webpage. Student loan repayment is a top sought-after perk. Thus, more and more employers are beginning to offer it. It never hurts to ask during a job interview if it’s an option. 


State-Sponsored Programs

Although most borrowers think of federal programs when they think about student loan forgiveness, all U.S. states and the District of Columbia have at least one forgiveness assistance program. State forgiveness programs typically take the form of loan repayment assistance programs, which states design to attract high-need professionals to shortage areas. 

Thus, they’re always for specific professions and typically require a work commitment for a specified period.

For example, the Massachusetts Loan Repayment Program for Health Professionals awards up to $50,000 ($25,000 per year for two years) to health professionals working in shortage areas. And the Rural Iowa Veterinarian Loan Repayment Program awards up to $60,000 ($15,000 per year for four years) to veterinarians who work in rural Iowa communities.

To discover what programs are available in your state, do an online search or contact your state’s department of higher education.


Military Programs

Every branch of the military offers various forms of student loan forgiveness, including programs for doctors, dentists, psychologists, veterinarians, and lawyers as well as both current members of the armed forces and veterans.

However, not all branches offer the same benefits or programs, and in some cases, benefits only apply to service members in certain fields. Examples include:

  • Army College Loan Repayment Program. The Army’s College Loan Repayment Program pays one-third of your loans every year up to $65,000 in exchange for a three-year commitment. There are also repayment benefits of up to $50,000 for those who join the Army Reserves or Army National Guard.
  • JAG Corps. JAG stands for “judge advocate general.” It’s essentially the military’s law firm. Law school graduates who join a JAG Corps in a participating branch, such as the Army or Air Force, can get up to $65,000 of their student loans repaid in exchange for a three-year commitment.
  • Health Professions Loan Repayment Program. The Navy repays up to $40,000 per year (minus 25% for income taxes) toward student loans for qualifying medical professionals through the Health Professions Loan Repayment Program in exchange for an agreed-upon commitment. And the Air Force repays $40,000 per year (minus 25% for income taxes) for a maximum of two years in exchange for a two-year commitment. 
  • Sign-On and Retention Bonuses. Professionals are often eligible for sign-on and retention bonuses they can use to repay student loans. For example, the Army Medical Department offers a $50,000 sign-on bonus, and the Navy JAG Corps offers $60,000 in total retention bonuses payable at the four-year, seven-year, and 10-year marks.   

Other programs may be available, and offerings may change without notice, so contact a recruiter for the branches you’re considering for more information. 


Other Types of Student Loan Relief

If you’re wondering about the difference between forgiveness, cancellation, and discharge, the answer is: not much. The only real difference is implementation. 

Forgiveness and cancellation apply when you’re no longer required to make payments because you fulfilled your program requirements. Discharge happens when your loans are eliminated because of your circumstances — for example, if you become permanently disabled and can no longer work or you win a bankruptcy or lawsuit. 

The other important difference is timing. If you qualify for one of the many cancellation or discharge programs for federal student loans, you won’t have to wait decades to see your loan balance disappear. Instead, you can be free of the burden as quickly as the Department of Education processes your case. 


Cancellation Programs

The term “cancellation” only applies to federal Perkins loans. A Perkins loan is a discontinued type of federal student loan that featured a low, fixed interest rate and was for low-income borrowers. Additionally, they were typically a school loan. Your school, and not the government, was the lender. 

Those who work in various public service fields can qualify to have some or all of their Perkins loans canceled under certain circumstances. These typically include working in shortage areas and high-need specialties, such as math or special education for a teacher.   

Perkins loan cancellation happens a little at a time. For each year of service, you get a percentage of your loan canceled. It can take up to five years to wipe out 100% of your loans.

Professions eligible for Perkins loan forgiveness include:

  • Preschool teacher
  • Employee at a child or family services agency
  • Faculty member at a tribal college or university
  • Firefighter
  • Law enforcement officer
  • Librarian with a master’s degree at a Title I school
  • Military service member
  • Nurse or medical technician
  • Provider of early intervention disability services
  • Public defender
  • Speech pathologist with a master’s degree at a Title I school
  • Volunteer with AmeriCorps VISTA or the Peace Corps

Discharge Programs

Meeting eligibility requirements for a student loan discharge is rare. But if you qualify, you can get some or all of your loans eliminated. 

There are many situations in which you could qualify for a federal student loan discharge. These include: 

  • Closed School. If your college or school closes while you’re enrolled or within 180 days of your graduation or withdrawal, you’re entitled to a discharge of your debt.
  • Total and Permanent Disability. If you become permanently disabled to the extent that you can no longer work, you’re entitled to a disability discharge.
  • Death. If you die, the government can’t collect against your estate. And if you borrowed parent PLUS loans, and your child dies, you no longer have to pay the debt.
  • Bankruptcy. This one’s tough to do, but if you can prove repaying the loans would cause undue financial hardship, you can get your student loans discharged in bankruptcy.
  • Borrower Defense to Repayment. If your school broke the law, such as lying to you to get you to enroll, you can get your loans discharged.
  • False Certification. If you had your identity stolen and someone took out the loans under your name without your knowledge or forged your signature on the documents, you’re entitled to have them discharged.
  • Unpaid Refund. If your school owed you a balance but never paid it to you or returned it to the U.S. Department of Education, you can have that amount discharged.

Final Word

If you’re searching for ways to wipe out your student debt, you may be susceptible to student loan forgiveness scams. So-called debt relief companies prey on desperate borrowers by charging high upfront fees and then failing to deliver the promised forgiveness. 

Be forewarned: Legitimate student loan forgiveness, cancellation, and discharge programs will never charge you a fee to apply. And you never have to pay to sign up for an income-driven repayment plan. 

Be skeptical of anything that sounds too good to be true. Additionally, never give out your personal information over the phone or pay fees to companies whose names you don’t recognize or programs you’ve never heard of. 

If you’re unsure if a program is legit, always ask for information in writing and contact your student loan servicer, who can tell you what programs your loans actually qualify for. 

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Sarah Graves, Ph.D. is a freelance writer specializing in personal finance, parenting, education, and creative entrepreneurship. She’s also a college instructor of English and humanities. When not busy writing or teaching her students the proper use of a semicolon, you can find her hanging out with her awesome husband and adorable son watching way too many superhero movies.

Source: moneycrashers.com

Examining the Different Types of Student Loans

With the average annual cost of college for the 2021-2022 school year $10,740 for public four-year in-state and $38,070 for private non-profit four-year schools, it’s not uncommon for students to use loans to help pay for their education.

The two major umbrellas to consider are federal student loans and private student loans. Federal student loans are those backed by the U.S. Department of Education, while private student loans are offered through financial institutions such as banks, online lenders, and credit unions.

Knowing what types of student loans are available to you and understanding your student loan statement can help you figure out the best way to save money in the long run.

What Are The Different Types of Student Loans?

One of the first things to understand is the difference between federal and private student loans.

Federal student loans are loans offered by the government, at a fixed interest rate and with certain restrictions. Depending on borrower needs, students could qualify for either subsidized or unsubsidized federal loans (more on those, later). Federal student loans come with protections for borrowers’ loans like income-driven repayment options, deferment, forbearance, and access to the Public Service Loan Forgiveness (PSLF) program. Most federal student loans also have annual lending limits .

For some students, federal student loans aren’t enough to cover the cost of a college education. Some turn to scholarships, grants, or a part-time job to fill in the gaps. Other students rely on private student loans, offered by lenders and financial institutions, to cover the cost of college.

Applying for Federal Student Loans

The first step in the federal student loan process is to fill out the Free Application for Federal Student Aid (FAFSA®). That will involve compiling some family financial history. Even students who don’t think they’ll qualify for financial aid will likely still want to fill out a FAFSA. All federal student loans require a FAFSA first. And some schools use information from the FAFSA to determine eligibility for other types of aid like scholarships or grants.

All federal student loans require a FAFSA first.

After filling out the FAFSA, students will receive a financial aid package which includes any federal aid awarded to the student including grants, work study, and loans. Depending on financial circumstances, the loans will either be subsidized or unsubsidized.

The Different Types of Federal Student Loans

Think of federal student loans as an overarching category. There are different types of federal student loans, each of which have different eligibility requirements, borrower maximums (or not), and interest rates. Understanding all your options means you’ll be better prepared to determine the best way to finance your education.

Recommended: Private Student Loans vs. Federal Student Loans

For the 2022-2023 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 4.99%, the rate on Direct Unsubsidized loans for graduate and professional students is 6.54%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 7.54%. The interest rates on federal student loans are fixed and are set annually by Congress.

Direct Subsidized vs. Unsubsidized Loans

Federal Direct loans, also known as Stafford Loans, can be either subsidized or unsubsidized. With a subsidized student loan, the government will cover the accrued interest while the borrower is enrolled in school, during the grace period, and during any periods of deferment. Not having to pay interest on your loans during school can really help—especially since interest accrues and capitalizes, or gets added to the principal loan amount, and then accrues more interest. There are no subsidized federal loans for graduate students—only for undergrads.

The government does not pay the interest on unsubsidized Direct loans. That means, even while you’re in school, the loans are accruing interest. You don’t have to make payments on the loans while you’re a full-time student, but interest is building up. As the interest accrues, it is added to the loan’s principal.

Recommended: Student Loan Grace Periods: What You Need to Know

That’s why it’s possible to have a higher remaining loan balance than the initial loan amount after graduation. Individuals with an unsubsidized student loan do have the option to make interest-only payments on the loan during periods of deferment, including while they’re in school, but are not required to do so.

Federal loans have fixed interest rates (that are set annually), meaning they don’t change over the life of the loan.

Federal student loan borrowing limits vary depending on factors like your year in school and whether or not you are a dependent student. For example, first-year undergrads who are considered independent or whose parents are not able to take out parent loans have a maximum borrowing amount of $9,500 (of which only $3,500 can be subsidized) annually. The maximum for dependent students is $5,500 in their first year, with the same $3,500 cap on subsidized loans.

PLUS Loans

Direct PLUS loans can be borrowed directly by a graduate student, or Parent PLUS loans can be taken out by an undergrad’s parents. PLUS loans, in both forms, have the same benefits as other federal loans in that the interest rate is fixed and there are flexible repayment options.

Unlike other federal loans, PLUS loans require a credit check. They’re designed for graduate and professional students, who have had more time to build up a credit score. The maximum PLUS loan amount you can borrow is the full cost of tuition less any other financial assistance.

When taking out student loans for college, a lot of the options depend on your FAFSA and what’s determined to be your family’s financial need or ability to pay. If you’re a dependent student , then there will likely be some expectation of parental contribution and your parents may be offered the option of taking out Parent PLUS loans.

Parent PLUS loans are similar to Direct PLUS loans, except parents are expected to begin repaying the loan while the student is still in school—though they can request a deferment until graduation.

Direct Consolidation Loans

After graduation, students might have a number of different federal student loans. That can obviously be confusing. If you want to consolidate all federal loans into one place, then you may be able to pool them into a Direct Consolidation Loan. This allows you to only make one monthly payment towards all your federal student loans.

A Direct Consolidation loan will not lower your overall interest rate.

A Direct Consolidation loan will not lower your overall interest rate. The interest rate on your new Direct Consolidation Loan is simply a weighted average of the interest rates, rounded up to the nearest eighth of a percent, of your existing federal loans. Consolidation could also wipe out any history of payments you were making toward PSLF. Only federal loans can be consolidated with a Direct Consolidation Loan.

Related: A Look Into the Public Service Loan Forgiveness Program

Repay your way. Find the monthly student loan
payment and rate that fits your budget.

Private Student Loans

Students who don’t receive enough funding from the federal government, may look to private student loans as an option to finance their education. Private loans are offered by lenders such as banks, online lenders, and credit unions.

Applying for Private Student Loans

Private lenders do not use the FAFSA to determine a potential borrower’s creditworthiness. Instead, students interested in borrowing private loans will fill out a loan application directly with a lender. Before applying, lenders will generally allow people to get a quote to see if they pre-qualify and at what rates. This can be helpful when evaluating different lenders.

The terms, interest rates, and borrowing limits on private loans may vary by lender. Lenders will use factors like the borrower’s credit score to determine the interest rate they qualify for. When borrowing a private student loan you’ll generally have the option to choose between a fixed or variable interest rate.

Student loan repayment options will be determined by your lender. Some offer deferment plans while the borrower is enrolled in school and others require payments to start as soon as the loan is disbursed.

Another private student loan option is to consolidate or refinance your existing student loans after graduation. This might be beneficial if it lowers your interest rate and saves you money over the life of your loan. Federal student loans offer unique borrower benefits and protections like income-driven repayment plans. Refinancing federal loans eliminates them from these benefits.

Understanding the Student Loan Statement

When you take out a loan, you sign a promissory note, which outlines the interest rate, loan amount, and repayment terms. If you hold federal student loans, when you graduate you select a repayment plan. If you don’t do anything, you’ll automatically be put on the Standard Repayment plan.

For most federal loans, the Standard Repayment plan is a set monthly payment for up to 10 years. There are a few other repayment plans to choose from, including four income-driven repayment plans. The different plans allow you to pay back your loan over different time periods. The longer the repayment term, the more you’ll pay in interest over the life of the loan.

When you look at your student loan statement, you’ll see each loan listed as the total loan amount, how much principal remains, how much interest has accrued since your last payment, your current interest rate, and how much your current monthly payment is—in addition to any fees, such as late fees, you might owe.

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The Benefits of Refinancing Student Loans

It’s possible to consolidate both federal and private student loans into one new loan when you refinance your student loans with a private lender. If an applicant qualifies for a lower interest rate and a shorter term, it could reduce the amount of money paid in interest over the life of the loan.

Make sure to weigh the benefits that come with your federal loans against the value of refinancing. When you refinance federal loans they will no longer be eligible for federal borrower protections.

Some private lenders offer similar borrower protections. For example, borrowers who refinance with SoFi may qualify for Unemployment Protection. This can help eligible borrowers pause their loan payments if they unexpectedly lose their job through no fault of their own. To see what refinancing could mean for you, take a look at SoFi’s student loan refinancing calculator.

The Takeaway

The two main categories of student loans are private and federal. Federal loans are awarded to students based on information they provide in their FAFSA annually. Federal loans have a fixed interest rate and are eligible for a variety of repayment plans, as determined by the U.S. Department of Education.

Undergrads may qualify for unsubsidized or subsidized federal loans, depending on their financial need. Graduate students may qualify for unsubsidized loans or PLUS loans. Parents of undergraduates may also borrow Parent PLUS loans.

Private student loans are offered by private financial institutions. In order to borrow a private student loan, individuals will generally need to file an application with a lender. The lender will review factors like the applicant’s credit history, among others, in order to determine the terms they qualify for.

Check out what kind of rates and terms you can get in just a few minutes.


We’ve Got You Covered


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.


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Source: sofi.com

Understanding the Parent Plus Loan Forgiveness Program

Parent PLUS loan forgiveness provides financial relief to parents who borrowed money to cover the cost of their children’s college or career school. It isn’t always a quick fix, but there are certain federal and private programs that might offer the financial assistance needed to help them get on track.

To receive federal relief for Parent PLUS loans, parent borrowers have a few options.

They can consolidate the loan in order to enroll in an Income-Contingent Repayment plan after 25 years, pursue Public Service Loan Forgiveness after 10 years, or choose from a number of private student loan assistance programs or refinancing options.

Keep reading to learn more about what the available student loan forgiveness possibilities are for Parent PLUS loans.

Will Parent Plus Loans Be Included in Student Loan Forgiveness?

Parent PLUS loans are eligible for several of the same student loan forgiveness programs as federal student loans for students, including:

•   Borrower Defense Loan Discharge

•   Total and Permanent Disability (TPD) Discharge

•   Public Service Loan Forgiveness (PSLF)

That said, Parent PLUS loans generally have fewer repayment options in the first place and the eligibility requirements for these forgiveness programs can be strict and may require borrowers to consolidate their PLUS loan, such as with PSLF. This can make it tricky for borrowers to navigate how to use these federal relief programs to their advantage.

Refinancing is another option for Parent PLUS loan borrowers — applying for a new private student loan with an, ideally, lower interest rate. That said, some lenders offer less flexibility for repayment and the fine print can be lengthy, so there’s an inherent risk associated with refinancing Parent PLUS loans. It’s also worth noting that refinancing a PLUS loan will eliminate it from any federal repayment plans or forgiveness options.

Recommended: What Is a Parent PLUS Loan?

Parent Student Loan Forgiveness Program

When it comes to student loan forgiveness, the programs aren’t just available for the students. Parents who are on the hook for student loan debt can also qualify for student loan forgiveness.

As previously mentioned, a Parent PLUS loan may be eligible for Parent Student Loan Forgiveness through two specific federal programs:

•   Income-Contingent Repayment

•   The Public Service Loan Forgiveness (PSLF) Program

There are also a few private student loan forgiveness options, which we’ll get into below.

Income-Contingent Repayment (ICR)

An Income-Contingent Repayment plan, or ICR plan, is the only income-driven repayment plan that’s available for Parent PLUS borrowers. In order to qualify, parent borrowers must first consolidate their loans into a Direct Consolidation Loan, then repay that loan under the ICR plan.

•   A Parent PLUS loan that’s included in a Direct Consolidation Loan could be eligible for Income-Contingent Repayment, but only if the borrower entered their repayment period on or after July 1, 2006.

•   A Parent PLUS loan that’s included in the Federal Direct Loan Program or the Federal Family Education Loan Program (FFELP) is also eligible for ICR if it’s included in the Federal Direct Consolidation Loan.

ICR determines a borrower’s monthly payment based on 20% of their discretionary income or the amount by which their AGI exceeds 100% of the poverty line. After a 25-year repayment term, or 300 payments, the remaining loan balance will be forgiven.

Typically, the IRS considers canceled debt a form of taxable income, but the American Rescue Plan Act of 2021 made all student loan forgiveness tax-free through 2025.

Public Service Loan Forgiveness (PSLF)

Borrowers with Parent PLUS loans may be eligible for Public Service Loan Forgiveness Program, but in order to pursue that option must first consolidate the Parent PLUS loan into a Direct Consolidation Loan.

Then, after they’ve made 120 qualifying payments (ten year’s worth), borrowers become eligible for the Public Service Loan Forgiveness Program (PSLF). The parent borrower (not the student) must be employed full-time in a qualifying public service job. PSLF also has strict requirements such as certifying employment so it’s important to follow instructions closely if pursuing this option.

The Temporary Expanded Public Service Loan Forgiveness (TEPSLF) is another option for Parent PLUS borrowers if some or all of their 120 qualifying payments were made under either a graduated repayment plan or an extended repayment plan. The catch here is that the last year of their payments must have been at least as much as they would if they had paid under an ICR plan.

Refinance Parent Plus Loans

Refinancing a Parent PLUS loan is another option that could provide some financial relief.

For borrowers who don’t qualify for any of the loan forgiveness options above, it may be possible to lower their monthly payments by refinancing Parent PLUS student loans with a private lender.

In doing so, you’ll lose the government benefits associated with your federal loans, as briefly mentioned above, such as:

•   Student loan forgiveness

•   Forbearance options or options to defer your student loans

•   Choice of repayment options

Refinancing a Parent PLUS loan into the dependent’s name is another option, which some borrowers opt for once their child has graduated and started working. Not all loan servicers are willing to offer this type of refinancing option, though.

Transfer Parent Plus Student Loan to Student

Transferring Parent PLUS loans to a student can be complicated. There isn’t a federal loan program available that will conduct this exchange, and, as mentioned above, some private lenders won’t offer this option.

That said, some private lenders, like SoFi, allow dependents to take out a refinanced student loan and use it to pay off the PLUS loan of their parent.

Alternatives to Student Loan Forgiveness Parent Plus

When it comes to Parent PLUS loans, there are a few ways to get out of student loan debt legally, including the scenarios outlined below.

Student Loan Forgiveness Death of Parent

Federal student loans qualify for loan discharge when the borrower passes away. In the case of Parent PLUS loans, they are also discharged if the student who received the borrowed funds passes away.

In order to qualify for federal loan discharge due to death, borrowers must provide a copy of a death certificate to either the U.S. Department of Education or the loan servicer.

Recommended: Can Student Loans Be Discharged?

State Parent PLUS Student Loan Forgiveness Programs

Many individual states offer some sort of student loan repayment assistance or student loan forgiveness programs for Parent PLUS loan borrowers.

For an overview of options available in different states, you can take a look at The College Investor’s State-by-State Guide to Student Loan Forgiveness . For information on student loan and aid available take a look at the SoFi guide on state-by-state student aid available for borrowers.

Disability

In the event of the borrower becoming totally and permanently disabled, a Parent PLUS loan may be discharged. To qualify for a Total and Permanent Disability (TPD) discharge , borrowers must complete and submit a TPD discharge application, as well as documentation showing that they meet the requirements for being considered totally and permanently disabled. Note that in order to qualify for TPD, the parent borrower must be considered disabled. This type of forgiveness does not apply to Parent PLUS loans in the event that the student becomes disabled.

Bankruptcy

If a borrower can demonstrate undue financial hardship upon repaying the student loan, they might be able to discharge their Parent PLUS loan. Note having student loans discharged in bankruptcy is extremely rare. Proving “undue hardship” varies depending on the court that’s granting it, but most rulings abide by the Brunner test, which requires the debtor to meet all three of these criteria in order to discharge the student loan:

•   Poverty – Maintaining a minimal standard of living for the borrower and their dependents is deemed impossible if they’re forced to repay their student loans.

•   Persistence – The borrower’s current financial situation will likely continue for the majority of the repayment period.

•   Good faith – The borrower has made a “good faith” effort to repay their student loans.

Closed School Discharge

For parent borrowers whose children attended a school that closed while they were enrolled or who withdrew from the school during a “lookback period” of 120 days before its closure, a Closed School Discharge is another available form of student loan forgiveness.

In some circumstances, the government may extend the lookback period even further. For example, The Department of Education has changed the lookback period to 180 days for loans that were issued after July 1, 2020.

Borrower Defense

Borrower Defense Loan Discharge is available to Parent PLUS borrowers whose children were misled by their college or university or whose college or university engaged in certain forms of misconduct or violation of state laws.

To make a case for borrower defense, the Parent PLUS borrower must be able to demonstrate that their school violated a state law directly related to their federal student loan.

Explore Private Student Loan Options for Parents

Banks, credit unions, state loan agencies and other lenders typically offer private student loans for parents who want to help their children pay for college and refinancing options for parents and students.

Refinancing options will vary by lenders and some may be willing to refinance a Parent PLUS loan into a private refinanced loan in the student’s name. In addition to competitive interest rates and member benefits, SoFi does allow students to take over their parent’s loan during the refinancing process. Interest rates and terms may vary based on individual criteria such as income, credit score, and history.

If you decide refinancing a Parent PLUS loan makes sense for you, SoFi makes it simple. The application process is entirely online and SoFi offers flexible repayment options to help you land a loan that fits your budget. You can find your rate in a few minutes and checking if you prequalify won’t affect your credit score.*

The Takeaway

Parent PLUS Loan forgiveness offers financial relief to parents who borrowed money to help their child pay for college.

To receive federal relief for Parent PLUS loans, parent borrowers can enroll in an Income-Contingent Repayment plan, pursue Public Service Loan Forgiveness, transfer their student loan to another student, take advantage of a state Parent PLUS student loan forgiveness program, or opt for private student loan assistance or refinancing.

Learn more about refinancing a Parent PLUS loan with SoFi.


*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/DragonImages
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Source: sofi.com

Thinking about Rolling Your 401(k) into an IRA? 7 Deciding Factors to Consider

The Department of Labor has outlined new rules for advisers to follow when rolling over retirement plans. Whether it is a 401(k) to an IRA or an IRA from one custodian to another, there are several considerations that need to be evaluated before making a change. If you are initiating a rollover on your own, it may be beneficial for you to evaluate these items as well.

You should be able to get all the information you need on your plan from your statements, Annual Participant Fee Disclosure and Summary Plan Description. If you do not have access to these documents, you can usually request them from your human resource department.

All-In Fees and Expenses

Before deciding whether to do a rollover, you will want to compare the fees within your 401(k) plan vs. the fees for the IRA. Fees in the 401(k) could include any mutual fund loads, plan expenses and any underlying fees. Sometimes the fees may be higher in your 401(k), but there may be additional benefits to keeping your funds in the 401(k) wrapper.

It would be up to you to decide whether any benefits are worth the fees. For example, if you are opening an IRA and moving over to an investment adviser there will be additional management fees paid to your adviser, but you may also receive financial advice, retirement planning or wealth management services.

Available Services

Some retirement plans, such as 401(k)s, provide added creditor protection, the ability to take out a loan or take hardship withdrawals, which are not available with IRAs. In certain circumstances you may be able to keep some asset protection if 401(k) funds are rolled into a separate IRA and not commingled with other IRA funds. Some 401(k) providers provide investment education to participants that may be valuable if you are a younger investor.  You will also want to look at your vesting schedule and company match to determine whether they may be affected. In addition, some retirement plans offer Roth 401(k) contributions, which may not be available to you otherwise.

Available Investments and/or Products

Several 401(k)s offer participants limited investment options. On one hand, that could be viewed as a positive, because when there are too many choices it can confuse participants and make it harder to manage the plan. However, some plans’ limited options may be  more expensive, such as actively managed funds, and they might not offer any low-cost index options.

If you roll over funds into an IRA you then have access to a much wider universe of investments. That said, this should not be your only decision criteria. Some company retirement plans offer a “BrokerageLink” option, which allows you to move funds from the “core” 401(k) account to a brokerage account –  another way to access more investment options. Some plans have restrictions on what can be invested in a BrokerageLink so you would want to consult the plan document before deciding.

Guaranteed Income/or Interest Rates

Are you invested in anything earning a guaranteed interest rate that you will lose by moving from a 401(k) to an IRA or other plan? For example, TIAA CREF’s 401(k) offering has TIAA Traditional, which could be earning 3%-4% –  a great return in this environment. You may not want to roll out funds into an IRA and lose access to this option.

Tax Considerations

If you are required distribution age but still working past retirement (providing you are not an over 5% owner in the company), you can defer taking money out of your 401(k). Unfortunately, if you have an IRA on the side, that IRA is subject to required distributions at age 72, even if you continue to work. If you leave the funds in the 401(k) you can still contribute and don’t have to take money out.

One caveat related to the Roth part of a 401(k): If you are age 72 and a greater than 5% owner or retired you have to take a distribution from the Roth side. A way to get around this is to roll the Roth 401(k) balance into a Roth IRA prior to age 72.

Also, if you happen to be in a zero-income year and all you have is retirement funds and need cash, it may make sense to take a taxable distribution rather than do a rollover.

Distribution Considerations

If your 401(k) retirement account is invested in an insurance product or annuity you will want to evaluate whether there are any surrender charges. Usually annuities cannot be moved to IRAs in kind. Some annuity products may have certain benefits that will be lost if liquidated, so you will want to make sure you understand how your product works before making a decision.

Some plans may offer annuity options rather than a lump sum, which would be lost if you roll your 401(k) over to an IRA. You will want to look at the financial implications of the lump sum vs. the annuity options to see which option is better for your situation, especially if you have a spouse who can receive survivor benefits.

You will also want to check if there are any in-service distributions options or guaranteed payment options.

Beneficiary Considerations

If you are married, your 401(k) must list your spouse as beneficiary unless your spouse signs a waiver. You can list anyone on an IRA as a beneficiary, so you may want to review your estate planning and beneficiaries if you make any changes.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.

Source: kiplinger.com

Guide to Refinancing Your Student Loans After Marriage

After getting married, you’ll start to merge your life, your home, and possibly your finances with your partner. As you plan for the future, it’s helpful to consider the implications of student loans and marriage—which can affect your credit, your ability to get a home mortgage, and even the repayment of your student debt.

Consolidating your federal loans or refinancing student loans after marriage may be options to consider as you begin handling finances in your marriage and working together to reach your financial goals

Student Loans and Marriage

There are currently over 45 million borrowers in the U.S. and the total amount of student loan debt is $1.7 trillion. So the odds are high that either you or your partner may have student loans. As you begin planning for your financial future together, it’s helpful to look at how marriage can affect student loan payments.

Recommended: What is the Average Student Loan Debt?

What Happens to Student Loans When You Get Married?

If you haven’t already had a conversation about student loans and marriage before tying the knot, you and your partner should sit down and discuss your individual student loan debt: how much you have, whether you have federal or private student loans, as well as what your balances, payment status, and monthly payments are. It’s important to share this information since getting married may change your debt repayment plans.

If someone has federal student loans and is on an income-based repayment (IBR) plan when they get married, for example, their monthly payments may increase post-marriage as income-based repayment plans are determined by household income and size. Depending on how a couple chooses to file their taxes, the government may take a new spouse’s salary into account when determining what the borrower’s monthly payments should be.

Because federal student loan borrowers on an income-based repayment plan have to recertify each year, the current year’s income is taken into account which may be higher after marriage if both spouses work. If the borrower’s new spouse doesn’t earn income then they may actually see their monthly payment requirements drop as their household size went up, but their household income remained the same.

Household income also affects how much student loan interest a borrower can deduct on their federal taxes. It’s worth consulting an accountant if a newly married couple needs help figuring out where they stand financially post-marriage.

It’s also important to be aware of how marriage affects your credit score as how someone manages their student loan debt is a factor. Since spouses don’t share credit reports, marrying someone with bad credit won’t hurt your credit score. That said, when it comes time to apply for a loan together, a bad credit score can make getting approved harder—which is another reason it’s key to get on the same page about repaying any debt on time.

Recommended: Types of Federal Student Loans

Refinancing Student Loans After Marriage

Refinancing student loans gives borrowers the chance to take out a new student loan with ideally better interest rates and terms than their original student loan or loans. Some borrowers may choose to consolidate multiple student loans into one newly refinanced loan to streamline their debt repayment process.

The result? One convenient monthly payment to make with the same interest rate and the same loan servicer instead of multiple ones.

As tempting as it may be to combine debt with a spouse and work toward paying it off together, married couples typically cannot refinance their loans together and each spouse would need to refinance their student loans separately. But even though a couple can’t refinance their student loan debt together, they’ll still want to be aware of what’s going on with their partner’s student loans.

Recommended: Top 5 Tips for Refinancing Student Loans in 2022

How to Refinance Student Loans After Marriage

Refinancing student loans after marriage looks the same as it does before marriage and is pretty straightforward. The student loan borrower will take out a new loan, which is used to repay the original student loan.

Ideally, this results in a better interest rate which will help borrowers save money on interest payments, but this isn’t a guarantee. Before refinancing, it’s important that borrowers shop around to find the best rates possible as factors like their credit score and income can qualify them for different rates.

Borrowers have the option of refinancing both federal and private student loans, but it’s worth noting that refinancing a federal student loan into a private one removes access to valuable federal benefits like income-driven repayment plans and loan forgiveness for public service employees.

Refinancing vs. Consolidating Student Loans After Marriage

Borrowers can choose to refinance or consolidate their student loans before or after marriage.

If a borrower has multiple federal student loans, then they can choose to consolidate their different loans into one Direct Consolidation Loan. This type of loan only applies to federal student loans and is offered through the U.S. Department of Education.

This type of loan takes a weighted average of all of the loans consolidated to determine the new interest rate, so generally this is an option designed to simplify debt repayment, not to save money. If a borrower chooses to consolidate through a private lender, they will be issued new rates and terms, which may be more financially beneficial.

Consolidating through a private lender is a form of refinancing that allows borrowers to take out one new loan that covers all of their different sources of student loan debt. While some private lenders will only refinance private student loans, there are plenty of private lenders that refinance both private and federal loans. As mentioned earlier, refinancing a federal loan means losing access to federal protections and benefits.

Refinancing can be advantageous if the borrower is in a better financial place than they were when they originally took out private student loans. If they’ve improved their credit score, paid down debt, and taken other steps to improve their financial picture, they may qualify for a better interest rate that can save them a lot of money over the life of their loan.

Another option in refinancing student loans after marriage is co-signing a partner’s loan. Doing so may mean that you can leverage greater earning power and possibly better credit, but it also means both partners are responsible for the loan, and can put one partner at risk in the event of death or divorce.

Student Loan Refinancing With SoFi

SoFi refinances both federal and private student loans, which can help borrowers save because of our flexible terms and low fixed or variable rates. Borrowers won’t ever have to worry about any fees and can apply quickly online today.

Learn more about refinancing student loans with SoFi.

FAQ

What happens when you marry someone with student loan debt?

If someone’s new spouse has student loan debt, this indirectly affects them. While the debt won’t be under their name or affect their credit score when it comes time to apply for credit products with their spouse (such as a mortgage loan) their credit score and current sources of debt will likely be taken into account.

Is one spouse responsible for the other’s student loans?

No one spouse is directly responsible for their spouse’s student loans, but it’s important to work together to pay off student loan debt. Again, once it comes time to apply for a joint loan, any student loan debt can have an effect on eligibility.

Does getting married affect student loan repayment?

Getting married can affect student loan repayment if a borrower is on an income-based repayment plan for their federal student loans. This type of repayment plan takes household size and income into account when determining what the borrower’s monthly payment should be. If their spouse brings in an income they may find their monthly payments are higher, but if their spouse doesn’t have an income their payments may become smaller.


Photo credit: iStock/South_agency

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Source: sofi.com

Guide to Extending Student Loan Repayment Terms

Did you know that you may be able to draw out student loan repayment for 20 or 30 years? That means lower monthly payments (cool!) but more total interest paid (less cool).

But if your payments are a strain, consolidating and refinancing student loans are two ways to stretch out repayment terms and tame those monthly bills.

Federal student loans may be consolidated into one. Both federal and private student loans can be refinanced into one new loan, preferably with a lower rate. A guide of student loan refinancing could be a helpful read.

How Long Are Student Loan Repayment Terms Usually?

Federal student loan borrowers are placed on the standard repayment plan of 10 years unless they choose a different plan. They enjoy a six-month grace period after graduating, leaving school, or dropping below half-time enrollment before repayment begins.

You won’t see a standard repayment plan for private student loans, but the general repayment term for private student loans is also ​10 years.

In the case of both private and federal student loans, you may be able to extend your student loan payments.

For example, if you have federal student loans, you can explore the following options:

•   Graduated repayment plan: You’d start with lower payments, and payments would increase every two years for up to 10 years, or up to 30 years for Direct Consolidation Loans. Consolidation combines all of your current federal student loans into one, with a weighted average of the loan interest rates, and often extends your repayment time frame.

•   Extended repayment plan: With this plan, you can repay loans for up to 25 years, though you must have $30,000 or more in Direct or Federal Family Education Loan Program loans.

•   Income-driven repayment plan: The four income-based repayment plans allow you to make payments based on your income, particularly if your income is low compared with your loan payments. You can become eligible for forgiveness of any remaining loan balance after 20 or 25 years of qualifying payments or as few as 10 years if you work in public service.

Private student loans and federal student loans may be refinanced by a private lender to a long term.

What Are the Pros and Cons of Extending Repayment Terms?

Let’s take a look at three pros and three cons of extending your student loan repayment terms:

Pros Cons
Allows for lower monthly payments You’ll pay more total interest
Gives you more flexibility Takes more time to pay off loans
Frees up cash for other things May have to pay a higher interest rate

Lower monthly payments can give you more flexibility and free up your money to go toward other things. However, you could pay considerably more interest over time. You’ll also spend more time paying off your loans.

Here’s an example of what extending student loan repayment can look like, using a student loan calculator:

Let’s say you have $50,000 of federal student loan debt at 6.28% on a standard repayment plan. Your estimated monthly payments are $562.16, the total amount you’ll pay in interest will be $17,459, and your total repayment amount will be $67,459.

•   Term: 10 years

•   Monthly payments: $562

•   Total interest amount: $17,459

•   Total repayment amount: $67,459

Now let’s say you choose to refinance. Refinancing means a private lender pays off your student loans with a new loan with a new interest rate and/or term. In this case, let’s say you opt to refinance to a 20-year term and qualify for a 5% rate. Your estimated monthly payments would be $329.98. You’d pay $29,195 in total interest, and the total repayment would be $79,195 over the course of 20 years.

•   Term: 20 years

•   Monthly payments: $330

•   Total interest amount: $29,195

•   Total repayment amount: $79,195

In this example, doubling the term but reducing the interest rate results in lower monthly payments — a relief for many borrowers — but a higher total repayment sum.

Can you achieve a 25- or 30-year student loan refinance with private lenders? Yes. It’s called consecutive refinances.

How Long Can You Extend Your Student Loans For?

You can extend your federal student loan repayment to 30 years on a graduated repayment plan if you consolidate your loans.

Most private lenders limit refinancing to a 20-year loan term, but borrowers who are serial refinancers may go beyond that.

Consecutive Refinances

You can refinance private or federal student loans as often as you’d like, as long as you qualify, for no cost. Doing so can benefit you when you find a lower rate on your student loans, but be aware of the total picture:

Pros Cons
May save money every time you refinance Will lose access to federal programs like loan forgiveness, income-driven repayment, and generous forbearance and deferment if federal student loans are refinanced
May allow for a lower interest rate and lower monthly payments
No fees are required (such as origination fees or prepayment penalties)

How do you know when to refinance student debt? If you find a lower interest rate, you could save money over the life of the new loan.

You can use a student loan refinancing calculation tool to estimate monthly savings and total savings over the life of the loan.

Refinancing Your Student Loans to a 30-Year Term

You cannot directly refinance your student loans into a 30-year term because almost all refinance lenders offer a maximum of 15 or 20 years. But you could take advantage of consecutive refinances to draw out payments for 30 years.

Or you could opt for consolidation of federal student loans for up to 30 years.

Consecutive Refinance Approach

Since there’s no limit on the number of times you can refinance your federal and private student loans, as long as you qualify or have a solid cosigner, you can refinance as many times as you need to in order to lengthen your loan term.

Direct Consolidation Approach

If you have multiple federal student loans, you can consolidate them into a Direct Consolidation Loan with a term up to 30 years. Because the loan remains a government loan, you would keep federal student loan benefits.

You’d apply on the Federal Student Aid website or print and mail a paper application form.

Other Ways to Reduce Your Monthly Student Loan Payments

One of the best ways to reduce your monthly student loan payments is to talk with your loan servicer to determine your options.

Some student loan servicers shave a little off your interest rate if you make automatic payments.

More employers are considering offering help with student loan payments as an employee perk.

And through 2025, employers can contribute up to $5,250 per worker annually in student loan help without raising the employee’s gross taxable income.

Ready to Refinance Your Student Loans?

Is a 30-year student loan refinance a thing? It can be, for serial refinancers. Then there’s the 30-year federal student loan consolidation option. The point of a long term is to shrink monthly payments.

SoFi refinances both federal and private student loans. Find out if one new loan with a new rate and term could help, again paying heed to the fact that refinancing federal student loans will remove access to federal programs like income-driven repayment plans.

It might be the right time right now to refinance student loans with SoFi.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/blackCAT
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Source: sofi.com

[Targeted] American Express Delta Spending Bonus: Spend $4,500 & Get 4,500 Bonus Miles

The Offer

  • American Express is offering some Delta cardholders 4,500 bonus miles when they spend $4,500 within 90 days of activating the offer.

The Fine Print

  • Can be done a total of three times
  • Can activate by 12/31/22

Our Verdict

Works out to be an extra 1x miles per $1 spent if you spend exactly $4,500. Not the most exciting offer unless you’re spending lots for the MQD waiver anyway.

Hat tip to MtM

Source: doctorofcredit.com