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Personal loans hold appeal with their capacity to wipe out debts in a single stroke. With student loan debt hovering at, it may appear at first glance that a personal debt is the answer to the problem.

However, using a personal loan to pay off student debt is widely seen as not the best idea. We will break down the process of taking out personal loans to pay off student loans and explain the serious drawbacks.

Can You Use a Personal Loan to Pay Off Student Loans?

While it may sound possible to use a personal loan to pay off your student loans, either federal or private, many lenders may not approve your application if they know you will be using the loan for this purpose.

A personal loan is a loan for which the borrower receives a one-time, lump sum amount of money and repays it, with interest, over a set amount of time in equal installments, typically monthly. Some common uses of personal loans are for debt management, home repairs and maintenance, vacation expenses, and wedding expenses.

Personal loan lenders dictate terms on the uses for the money. Many of these lenders prohibit the use of a personal loan for paying off student loan debt. And you are required to sign a loan agreement that says you will abide by the lender’s terms and forbidden uses.

If you use the money for a prohibited purpose and the lender learns this, you could be held responsible for paying back the full amount immediately. Also, knowingly providing false information on a loan application is considered fraud and is a crime.

For many people looking to replace their federal student loan with another type of repayment, student loan refinancing presents more attractive options than getting a personal loan. Using other loans to pay off student loans requires careful consideration.

Why Refinancing Your Student Loans Might Be a Better Plan

When it comes to either reducing your monthly payment on your loans or paying less in interest, you may want to consider refinancing your student loans with private student loans. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

Refinancing your student loans means that you take out a new private student loan to pay off your existing student debt. When you do this, you might be able to save money if you qualify for a lower interest rate on your private student loan than on a personal loan. Interest rates vary but the average private student loan interest rate ranges from 4% to almost 15%. The national average on a personal loan was 11.48% in Q2 2023, according to the Federal Reserve.

You might also consider getting a longer-term private student loan with lower monthly payments. This will likely mean that you’ll pay more in interest over the life of your loan, but that could give your budget some breathing room. A student loan refinancing calculator can help show how much you may be able to save each month by refinancing your existing student loans.

While refinancing student loans may help students save money, refinancing federal student loans means forfeiting benefits that you might otherwise qualify for, such as deferment, forbearance, and income-driven repayment plans.

While private student loans don’t offer the same protections and benefits as federal student loans, some do offer deferment or forbearance in certain circumstances. Personal loans do not typically offer these benefits.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Pros of Using Personal Loans to Pay off Student Debt

Let’s say you have found a lender who doesn’t prohibit using a personal loan to pay off student debt and you want to go forward.

There are a few possible benefits in certain circumstances.

•  A potential reduction in the amount of interest that you’re paying if you manage to qualify for a lower rate on your personal loan than what you’re paying for the student loan.

•  You might qualify for a different loan term — or length — potentially reducing your monthly payments by spreading them out over a longer period of time.

•  It is difficult (though not impossible) to discharge a student loan in a bankruptcy. In some cases, it is easier to discharge a personal loan.

Cons of Using Personal Loans to Pay off Student Debt

There are some large drawbacks to consider. It doesn’t make much sense to trade in one loan for another with higher interest. The interest rate on a federal student loan is currently 5.5% for an undergraduate degree and 7% for a graduate degree. As stated above, the national average on a personal loan was 11.48% in Q2 2023, according to the Federal Reserve.

Here are other cons:

•  You’ll forfeit protections and benefits of federal student loans such as the six-month grace period after graduation and the ability to defer or forbear your loans.

•  If you have federal student loans, you also lose the opportunity to use income-driven repayment plans to repay your loans and to take part in any student loan forgiveness programs.

•  If you pursue a personal loan to pay for student loans even though the lender prohibits that use and it is discovered, the loan will be canceled if not yet disbursed, you may have to repay the full amount immediately, and you are open to criminal prosecution for fraud.

•  The lender will assess your creditworthiness, which typically includes checking your credit, during the approval process. A “hard check” usually deducts several points from your credit rating temporarily. Most federal student loans don’t require a hard credit check.

Starting to Repay Your Student Loan Debt

When you graduate from college, you don’t have to start repaying your federal student loans right away.

Some federal student loans have a student loan grace period of 6 months, but with some it can last as long as 9 months. Interest may accrue while your loans are in the grace period, so some people make interest-only payments so that the total loan balance does not increase.

If you’re unable to pay your federal student loans after the grace period ends, you may be able to defer your loans for a number of reasons including if you’re returning to school, are unemployed, or have recently been on active duty service in the military.

But what happens if you can’t afford your payments but don’t fit any of those criteria and don’t have any other help paying for school?

As your salary increases, you will likely be better financially able to pay your loans but, in the first few years after graduation your salary may not cover much more than basic expenses.

There are other ways you can lower your payments.

Recommended: Examining How Student Loan Deferment Works

Basing Student Loan Payments Off Your Monthly Income

After a three-year pause due to Covid-19 hardship, the Debt Ceiling Bill required federal student loan payments to resume, with interest accrual restarting on Sept. 1, 2023 and payments due starting in October.

If you’re struggling to cover your basic monthly living expenses, you might want to look into the “On-Ramp” created by President Joe Biden earlier this year. Running from October 1, 2023 to September 30, 2024, the plan specifies that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Another option is enrolling in an income-driven repayment program.

There are various repayment plans to choose from that allow you to limit your monthly payments to a percentage of your monthly discretionary income. That will often reduce your monthly payments to a more manageable level.

President Biden’s Saving on a Valuable Education (SAVE) Plan is replacing other IDR programs as the main offering of the Department of Education. Like other plans, it calculates your monthly payment amount based on your income and family size. The SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers, says the DOE.

After 20 to 25 years of on-time student loan payments — or 10 years if you’re enrolled in the Public Service Loan Forgiveness Program — your loans may qualify to be forgiven under these repayment plans. If you’re interested in enrolling in one of these plans, contact your student loan servicer for information on how to do so.

Recommended: The SAVE Plan: What Student Loan Borrowers Need to Know About the New Repayment Plan

The Takeaway

When deciding whether to use a personal loan or student loan refinancing to pay off existing student debt, there are many options to choose from. A good way to begin is to consider your current budget (how much money do you have to allocate toward student loan payments), what your goal is (e.g., lowering your interest rate, lowering your monthly payment, paying off the debt as soon as possible), and other overall financial goals.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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If you’re having trouble paying your student loans, you’re not alone. More than 43 million borrowers have federal student loan debt.

In fact, 20% of all American adults with undergraduate degrees have outstanding student debt and 24% of postgraduate degree holders report outstanding student loans, according to Educationdata.org. More than 7% of students use student loans from a private source, such as a bank or a credit union. The average federal student loan debt balance is $37,718, while the total average balance (including private loan debt) may be as high as $40,499.

If you’re among these borrowers, you may find it challenging to afford the payments on your loans—especially if you have other debt and financial obligations. Student loan debt is now the second-highest consumer debt category after mortgages.

If you are delinquent on your student loan for a certain period of time, your loan will go into what’s called default. One out of every ten Americans has defaulted on a student loan, and 5% of all student loan debt is currently in default. Another way to look at it is that roughly 4 million student loans enter default each year.

The consequences to student loan default can be serious–and if the student loan in question is private (rather than federal) there are particular factors to be aware of. We’ll look at what can happen if you don’t pay your private student loans, what your options are, and how best to avoid a default happening in the first place.

What Happens If You Don’t Pay Your Private Student Loans?

Each private student loan lender will likely be a little different, but generally, missing a student loan payment can put your loan into delinquency, and may incur late fees and/or penalties.

In addition, depending on the loan, interest can accrue on those penalties and on the unpaid principal loan amount, which then can get added to how much you owe. If you miss too many consecutive payments, you may be at risk of defaulting on the loan.

Each private lender has their own terms that trigger student loan default. That typically means multiple missed payments. Even if you declare bankruptcy, it’s unlikely your student loan debt goes away. It’s important to check the terms of your private student loans, since they vary by lender.

Once a student loan goes into delinquency or default, it will likely affect your credit score. That can possibly affect your ability to take out loans in the future or achieve other financial goals, like buying a house.

In addition, once a private student loan goes into default, the lender can send it to collections.
If you can’t pay your private student loans, you could ultimately face a judgment that could result in a garnishment of your wages. (There are, however, some protections and rights you have when it comes to debt collection on student loans.)

Ideally, if your student loan payments are too high, you might consider other options before risking delinquency or default.

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

What If You Can’t Pay Your Federal Student Loans?

The penalties and provisions attached to federal student loans are quite different than those for private student loans. If you have both federal and private loans it’s important to consider them separately when coming up with a plan to grapple with default.

Federal loans often come with more protections and options for repayment plans. One option is to pursue an income-driven repayment plan (IDR), which allows for more manageable payments based on your income and family size. Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. The percentage is different depending on the plan.

One such IDR plan is the SAVE Plan, which President Joe Biden announced in June 2023. According to the White House, the SAVE plan “forgives remaining balances after a certain number of years. The SAVE plan will cut many borrowers’ monthly payments to zero, will save other borrowers around $1,000 per year, will prevent balances from growing because of unpaid interest, and will get more borrowers closer to forgiveness faster.” Borrowers can sign up today by visiting StudentAid.gov.

Federal student loan payments were paused in March 2020, but the Debt Ceiling bill mandated that payments resume in October 2023. The Department of Education is instituting the “Fresh Start” program for people whose federal student loans are in default.

As part of the Fresh Start program, eligible defaulted loans will get the following collections relief:

•  Tax refunds (and child tax credits) will not be withheld.

•  Wages will not be garnished.

•  Social Security payments (including disability benefits) will not be withheld.

•  No collection calls will be placed.

•  Billing statements will not be sent out (until the borrower gets out of default).

Even though federal student loans (both subsidized and unsubsidized) are government-backed and originated by the U.S. Department of Education, they’re administered by a student loan servicer, which is a private company in charge of the loan. This does not make these loans “private” student loans.

It means you might be making your payments to a private loan company, but it’s still a federal student loan and it comes with federal student loan protections.

Options If You Can’t Pay Your Private Student Loans

If your private student loan repayment seems too high, however, the options are different. You can’t apply for an IDR or Fresh Start program. Every private loan lender sets its own terms and conditions. Getting private student loan help varies with each lender.

While there are fewer options if you can’t make your private student loan payments, there are still some things you can consider.

1. Talking to Your Lender

If your private student loan payments are too high, then it might be worth talking to your lender. You could start by getting a copy of your promissory note so that you know all the terms and conditions of your specific loan.

Each private lender sets out its own repayment and deferment options, so your loan may differ from your friends’ loans.

Lenders, however, want to get paid, and it’s not in their interest for you to default. Once you have the terms of your loan in hand, then you can try talking to your private lender about potential alternative student loan repayment plans to see if they’ll work with you on what you can afford or even if you might be able to put your loan payments on hold if you need to.

2. Exploring Deferment and Forbearance Options

In certain circumstances, deferment and forbearance are available to temporarily put payments for federal loans on hold. However, for private student loans, the forbearance and deferment options will be laid by your lender.

Private lenders may offer forbearance and/or deferment in certain circumstances, such as returning to grad school or entering active military duty. If you can’t pay your private student loans, then you may want to see if your lender offers these options.

It’s important to know, though, that in most cases, interest continues to accrue and compound during forbearance or deferment on private student loans. That means the interest on the amount you owe builds up and gets added to the loan principal (which then accrues its own interest), and could end up costing you more in the long run.

3. Making a Student Loan Repayment Budget

This may sound obvious, but it can be important to create a plan and budget for repaying your student loans. Cutting back on some expenses or looking for additional income to allocate towards student loan payments could pay off in the long run.

Because student loan interest accrues and compounds over time, every little bit paid off now can save more money later.

In addition, if a borrower makes as many payments as possible on time, it could save late fees or additional penalties.

There are a few principles for how to tackle student loan payment.

You could start with the loans that have the smallest balances and build momentum (Snowball Method), or start with the highest interest loans to save yourself the most money (Avalanche Method).

You can also benefit from prepaying more than the minimum monthly payment. If you allocate additional payment towards your loan principal, then you won’t accrue interest on that principal you paid down, and you could save yourself money.

4. Refinancing your Student Loans

If your private student loan payments are too high, one way to potentially lower your monthly payments could be to refinance your student loans by extending your term.

If you need lower monthly payments right away, extending your loan term is one way to accomplish this. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Once you’re on more solid financial footing, refinancing could qualify you for a lower interest rate, which could save you money in the long run (since interest adds up and compounds over time).

5. Declaring Bankruptcy

It is possible to declare bankruptcy when the majority of your debt is made up of student loans. However, the legal bar for having your student debt discharged is high.

You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an “adversary proceeding,” requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents in the future.

Private student loans can also be discharged in bankruptcy. Note that private student loans are exempt from bankruptcy discharge (similar to taxes and child support) without a separate application. In that application, you would have to prove in court that you are unable to pay the loan and make a case that it will be extremely difficult to do so in the foreseeable future.

However, if you can make a case for it financially, the court may rule to discharge the loan. “Some private loans for educational purposes can be discharged in a normal bankruptcy proceeding, just like most other consumer debts,” according to the Consumer Financial Protection Bureau.

It’s important to take into consideration the serious impact a bankruptcy will have on your credit rating and ability to borrow money in the future.

Recommended: Bankruptcy and Student Loans, Explained

Lowering Your Student Loan Payments

If you’re struggling to make your payments and need private student loan help, then refinancing your private student loans with a longer-term loan could lower your monthly payments—which could free up money you may need for bills and other necessities. (You may pay more interest over the life of the loan if you refinance with an extended term.)

If your credit score or financial outlook have improved since you first took out student loans, however, then you might be able to qualify for a new loan with better terms and a lower interest rate.

Consolidating federal loans with private loans, even at a new interest rate, however, does turn the federal loans into private loans. That means you would lose access to federal benefits, such as deferment, forbearance, or income-driven repayment plans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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If you’ve taken out a Parent PLUS loan to help your child through college, you may be wondering if it’s possible to transfer the loan into your child’s name now that they have an income. While there are no federal loan programs that allow for this, there are other options that allow your child to take over the debt.

How to Transfer a Parent PLUS Loan to a Student

In order to transfer a Parent PLUS loan to a child or student, the student can apply for student loan refinancing through a private lender. With a student loan refinance, the child takes out a refinanced student loan and uses it to pay off the Parent PLUS loan. The student is then responsible for making the monthly payments and paying off the loan.

To get a student loan refinance and use the funds to pay off a Parent PLUS loan, simply have your child fill out a student loan refinancing application. Make sure to include the Parent PLUS loan information in the application.
If approved, the student can pay off the Parent PLUS loan with their new loan and begin making payments on the new loan.

Advantages of Refinancing a Parent PLUS Loan

The main advantage of refinancing a Parent PLUS loan is to get the loan out of the parent’s name and into the student’s. However, there are other potential advantages to refinancing student loans, including:

•   Lowering your interest rate

•   Reducing your monthly payments

•   Paying off your loan quicker

•   Allowing the student to build a credit history

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

Disadvantages of Refinancing a Parent PLUS Loan

While it may be beneficial to get the loan out of the parent’s name and into the student’s, there are some disadvantages that should be considered, such as:

•   Losing federal student loan benefits, including income-driven repayment, deferment options, and Public Service Loan Forgiveness

•   Possibly getting a higher interest rate, especially if the student has poor credit

•   The student is now responsible for the monthly payment, which might become a hardship if their income is low

If you do choose to refinance your Parent PLUS loan by means of a student loan refinance, you should note that this process is not reversible. Once your child signs on the dotted line and pays off the Parent PLUS loan, the debt is now theirs.

Parent PLUS Loan Overview

The Department of Education provides Parent PLUS loans that can be taken out by a parent to fund their child’s education. Before applying, the student and parent must fill out the Free Application for Federal Student Aid (FAFSA®). Then the parent can apply directly for a Parent PLUS loan, also known as a Direct PLUS Loan.

The purpose of a Parent PLUS loan is to fund the education of the borrower’s child. The loan is made in the parent’s name, and the parent is ultimately responsible for repaying the loan. Parent PLUS loans come with higher interest rates and origination fees than federal student loans made to students. Further, these loans are not subsidized, which means interest accrues on the principal balance from day one of fund disbursement.

Parents are eligible to take out a maximum of the cost of attendance for their child’s school, minus any financial aid the student is receiving. Payments are due immediately from the time the loan is disbursed, unless you request a deferment to delay payment. You can also opt to make interest-only payments on the loan until your child has graduated.

💡 Quick Tip: Federal parent PLUS loans might be a good candidate for refinancing to a lower rate.

Pros and Cons of Parent PLUS Loans

Parent PLUS loans allow you to help your child attend college without their accruing debt.

Pros of Parent PLUS loans include:

You can pay for college in its entirety. Parent PLUS loans can cover the full cost of attendance, including tuition, books, room and board, and other fees. Any money left over after expenses is paid to you, unless you request the funds be given directly to your child.

Multiple repayment plans available. As a parent borrower, you can choose from three types of repayment plans: standard, graduated, or extended. With all three, interest will start accruing immediately.

Interest rates are fixed. Interest rates on Parent PLUS loans are fixed for the life of the loan. This allows you to plan your budget and monthly expenses around this additional debt.

They are relatively easy to get. To qualify for a Parent PLUS loan, you must be the biological or adoptive parent of the child, meet the general requirements for receiving financial aid, and not have an adverse credit history. If you do have an adverse credit history, you may still be able to qualify by applying with an endorser or proving that you have extenuating circumstances, as well as undergoing credit counseling. Your debt-to-income ratio and credit score are not factored into approval.

Cons of Parent PLUS loans include:

Large borrowing amounts. Because there isn’t a limit on the amount that can be borrowed as long as it doesn’t exceed college attendance costs, it can be easy to take on significant amounts of debt.

Interest accrues immediately. You may be able to defer payments until after your child has graduated, but interest starts accruing from the moment you take out the loan. Subsidized loans, which are available to students with financial need, do not accrue interest until the first loan payment is due.

Can a Child Make the Parent PLUS Loan Payments?

Yes, your child can make the monthly payments on your Parent PLUS loan. If you want to avoid having your child apply for student loan refinance, you can simply have them make the Parent PLUS loan payment each month. However, it’s important to note that the loan will still be in your name. If your child misses a payment, it will affect your credit score, not theirs. Your child also will not be building their own credit history since the debt is not in their name.

Parent PLUS Loan Refinancing

As a parent, you may also be interested in refinancing your Parent PLUS loan. Refinancing results in the Parent PLUS loan being transferred to another lender. By transferring your loan, you may be able to qualify for a lower interest rate. Securing a lower interest rate allows you to pay less interest over the life of the loan — and if you also shorten your loan term, you can pay off the loan more quickly.

When you refinance Parent PLUS loans, you do lose borrower protections provided by the federal government. These include income-driven repayment plans, forbearance, deferment, and federal loan forgiveness programs. If you are currently taking advantage of one of these opportunities, it may not be in your best interest to refinance.

At SoFi, you can refinance federal Parent PLUS loans and qualified private student loans into one new loan with one convenient payment. You can do this on your own and keep the Parent PLUS loan in your name, or you can have your child apply for student loan refinancing and use that money to pay off your Parent PLUS loan. With SoFi, there are no application fees, no origination fees, and no prepayment fees.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

What if I can’t pay my Parent PLUS loans?

If you are struggling to pay your Parent PLUS loan, we recommend getting in touch with your lender and asking for a deferment or forbearance to temporarily suspend your payments. Keep in mind, though, that interest will continue to accrue on your loan even if payments are postponed. You could also consider switching the repayment plan you are enrolled in to an extended repayment plan, or refinancing your loan in order to get a lower interest rate. If you’re able to consolidate your Parent PLUS loan with a federal Direct Consolidation loan, you can also make it eligible for the Income-Contingent Repayment plan. This plan adjusts your monthly payment to 20% of your discretionary income while extending your repayment terms to 25 years.

Can you refinance a Parent PLUS loan?

Yes, it is possible to refinance a Parent PLUS loan through a private lender. Doing so will make the loan ineligible for any federal borrower protections, but it might allow you to secure a more competitive interest rate or have the refinanced loan taken out in your child’s name instead of your own.

Is there loan forgiveness for parents PLUS loans?

It is possible to pursue Public Service Loan Forgiveness (PSLF) with a Parent PLUS loan. To do so, the loan will first need to be consolidated into a Direct Consolidation loan and then enrolled in an income-driven repayment plan. Then, you’ll have to meet the requirements for PSLF, including 120 qualifying payments while working for an eligible employer (such as a qualifying not-for-profit or government organization). Note that eligibility for PSLF depends on your job as the parent borrower, not your child’s job.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

A no-interest, or 0%, credit card means you won’t be charged any interest on your purchases for a certain period of time. In some cases, these cards also offer 0% interest on balance transfers for a set period of time.

But these cards also have some potential downsides. For one, the 0% annual percentage rate (APR) is only temporary. Once the promotional period ends, a potentially high APR will start accruing on any remaining balance you have on the card. In addition, you typically have to pay a fee to transfer your balance, which might negate any savings on interest.

Here are key things to know before signing up for a no-interest credit card.

Pros of No-Interest Credit Cards

Using a 0% APR credit card can create some breathing room within your budget. Here’s a look at some of the key perks, and how to make the most of them.

No Interest During the Promotional Period

Of course, one of the biggest advantages of a zero-interest card is that you’ll pay just that — zero interest — for a certain period of time, which may be anywhere from six to 18 months. If you use the card to make a large purchase and are able to pay it off in full before the end of the promotional period, it can be the equivalent of getting an interest-free loan.

Opportunity to Pay Down Debt Faster

In some cases, you also get the 0% APR on any balance you transfer over from another credit card. This can make a no-interest card a good option for consolidating and paying off high-interest credit card debt. If you have a plan in place to pay off the debt within the promotional period, a balance transfer could improve your financial situation.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

Perks and Bonus Rewards

Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. This might include a welcome offer and/or cash back or rewards points based on each dollar you spend. These extras can lead to even more savings.

For example, let’s say you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory 0% APR for 15 months and a $200 rewards bonus after you spend $500 on purchases within the first three months of opening the account. You decide this will work for your financial situation, so you apply and are approved. After buying the chair with the new credit card, you pay the balance in full before the promotional period ends.

With this example, not only would you have paid nothing in interest, you would also have netted $200 in rewards cash.

Cons of No-Interest Credit Cards

Some might look at no-interest credit cards as too good to be true. That’s not necessarily the case, but there can be some drawbacks to them. Here are some potential pitfalls to be aware of.

Temporary Promotional Rate

Alas, that 0% APR doesn’t last forever. If you use the card for a large purchase but are unable to fully pay it off before the end of the promotional period, any balance will start accruing the card’s regular APR.

At that point, the card may not have any advantages over any other card. In fact, the card could have an APR that is higher than average. When comparing 0% rate cards, it’s important to look at what the rate will be when the promo period ends and exactly when it will kick in.

Also keep in mind that you could lose the 0% intro APR before the end of the promo period if you are late with a payment. Here again, it pays to read the fine print.

Fees for Balance Transfers

Some — but not all — no-interest credit cards also feature a 0% APR on balance transfers. However, you typically still have to pay a balance transfer fee, often around 3% to 5% of the transferred balance. If you’re transferring a large balance from another card, the balance transfer fee could actually be significant. You’ll want to do the math before making the switch to be sure it will work in your favor.

Interest May Apply Retroactively

Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly used by individual retail stores. If you’ve been asked if you’d like to apply for a store’s credit card when you’re making a purchase, it might be one that comes with a deferred interest promotion.

Like no-interest credit cards, a deferred-interest card doesn’t charge interest as long as the balance is paid in full within a certain time period. The biggest difference between the two: If the balance is not paid in full before the promotional period ends, interest will be applied to the entire purchase — not just the remaining balance. And APRs on deferred-interest cards can be even higher than APRs charged by regular credit cards.

Can Credit Scores Be Affected by No-Interest Credit Cards?

Applying for a new credit card results in a hard inquiry on your credit report, which can have a minor, temporary negative impact on your credit scores. This is generally nothing to worry about.

However, repeatedly opening new credit cards and transferring balances to them can cause a lasting negative impact on your credit. That’s because too many hard inquiries too close together can lead lenders to believe you’re applying for more credit than you can pay back.

In some cases, a balance transfer can positively impact your credit by helping you pay off your debts faster than you would otherwise be able to. This lowers your credit utilization ratio, or how much of your available credit you are currently using, which is a key component of your credit score.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

The Takeaway

A 0% intro APR card can help you avoid paying interest on your purchases for a set period of time. It can also allow you to consolidate and pay down credit card debt faster.

Keep in mind, however, that cards with no interest often come with a balance transfer fee. Also be aware that your interest rate will likely be much higher when the intro APR offer ends if you haven’t paid off your balance by then.

No-interest credit cards aren’t the only option for paying off debt. You may also be able to pay off high-interest credit cards with a personal loan. A personal loan calculator can give you an idea of what your potential savings might be.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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’s website .

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A Master of Business Administration (MBA) is a highly valued degree in the business world and can put you on a path to a successful, and high-paying, career. However, these degrees don’t come cheap. In fact, the average cost of a top MBA in the U.S. in 2022 was a whopping $225,605, including tuition, fees, supplies and living costs.

Is it worth it? The answer depends on myriad factors, including what B-school you go to, your financial situation, what financial aid you qualify for, and your future career goals. Read on for a closer look at the real costs and benefits of getting an MBA.

MBA School Costs

How much an MBA costs will depend on a variety of factors, such as school ranking, tuition structure, enrollment status, cost of living, and fees. MBA costs are also influenced by a student’s ability to qualify for financial aid, scholarships, and employer assistance.

It’s helpful to consider these factors and your chance of acceptance when evaluating MBA programs.


💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

MBA School Requirements

To be accepted into an MBA program, students typically need to submit proof of a bachelor’s degree from an accredited institution, a personal statement, letters of recommendation, and a resume. Some schools require the GMAT or GRE and/or set GPA minimums for admission.

It’s worth noting that the acceptance rate at the top 10 business schools in 2022 averaged 22.2%. Working with an MBA application consultant could help fine-tune your writing and communication style to improve your candidacy for competitive programs.

Once enrolled, MBA students generally complete between 30 to 60 credits over two years of full-time study. Some accelerated MBA programs may be completed in as little as one year.

Private and Public MBA Tuition

Excluding scholarships and financial aid, public in-state tuition can be a student’s more cost-effective option for higher education. This rings true for prospective MBA students in certain states. For instance, the total MBA program cost for 2023-24 at the University of Washington’s Foster School of Business is $80,016 for in-state students, compared to $115,692 for out-of-state students.

However, the difference between in-state tuition and out-of-state or private tuition can be marginal at some high ranking public MBA programs. For example, 2023-24 tuition at the University of Michigan is $70,392 for in-state students vs. $75,392 for non-residents.

Total Cost of an MBA

The total cost of an MBA degree means more than just tuition expenses. Many MBA students will have to pay for textbooks, transportation, extracurricular activities, and other living expenses as part of their education. This more comprehensive expense list is used to calculate the cost of attendance.

A student’s enrollment status also impacts MBA cost. Studying part-time can allow students to pay per credit hour and continue working, though dropping below full-time enrollment status may impact eligibility for some scholarships.

To understand the true cost of an MBA, you also need to factor in the opportunity cost of not working, and not earning a salary, for the (typically) two years you are attending school full-time.

Recommended: Is Getting an MBA Worth It?

How Much Does an Online MBA Cost?

Relocating or commuting may not be feasible for all prospective MBA students. Choosing an online MBA program can offer more flexibility and a lower overall cost for some students.

Keep in mind that the cost of online MBA programs can vary greatly. Top ranking online MBA programs — UNC and Carnegie Mellon — cost over $125,000 and $140,000 in total tuition and fees, respectively. There are more affordable options, however. For example, an online MBA at Auburn University’s Harbert College of Business runs $35,100.

Recommended: The 14 Best Jobs for MBA Graduates

Cost-Benefit Analysis of Getting an MBA

At the lower end, tuition costs for business schools may come in around $52,000 a year (for an in-state student at a public university); at the higher end, it’s around $80,000 a year. Top schools like Yale and Duke University can leave students with over $104,000 in debt.

Even considering the increase in salary for those who went to prestigious programs — Yale graduates make a median base salary of $160,110 a year, plus a $30,000 signing bonus — those upfront costs of tuition can be intimidating. And let’s not forget, there are still costs that don’t factor into tuition.

Clubs, for instance, might be a necessary networking tool, and they come with a price tag that’s hard to factor in. And how about a trip to study in India? Traveling abroad pushes your costs up even further.

When weighing costs and benefits, you’ll want to also consider that many MBA programs offer scholarships, based both on merit and need. NYU reports awarding merit-based scholarships to up to 25% of students, while around 50% of MBA students at Stanford receive fellowship funds averaging $44,000 per year.

Keep scholarship availability in mind when researching schools, since aid varies widely. Stanford, for instance, has one of the highest costs of attendance (around $126,465 a year) but students can graduate with far less debt than most top tier MBA programs due to their need-based financial aid.

Ways to Pay for Your MBA

Assuming you don’t have six figures in savings you can tap to pay for business school, you may need to get creative to cover the costs. Beyond scholarships and fellowships, mentioned above, here are some other options to help pay for your MBA.

Employer Sponsorship

Sponsorship through a company is possible but relatively rare, and it can come with strings attached. For instance, you may be contractually obligated to stay with the company sponsoring you for a certain number of years, which may prove limiting if you don’t see a future with that company or in that field.

Many students choose to work summers, or even during the school year. However, some schools advise students not to take on part-time work due to the workload and the importance of extracurricular activities.

Student Loans

Depending on your financial situation, chances are it might be necessary to consider applying for MBA loans, whether private or federal, to pay for your MBA.

The interest rates for Federal Direct Plus Loans for graduate students disbursed between July 1, 2023, and July 1, 2024 is fixed at 8.05%.

Interest rates on private student loans may be fixed or variable and will vary depending on multiple factors, including the applicant’s credit history. These loans, which are available through banks, credit unions, and online lenders, are not need-based and generally require a credit check. Borrowers (or cosigners) with excellent credit tend to qualify for the lowest rates.

Keep in mind that private student loans may not offer the same borrower protections that federal student loans offer, such as Public Service Loan Forgiveness or income-driven repayment plans.


💡 Quick Tip: Master’s degree or graduate certificate? Private or federal student loans can smooth the path to either goal.

The Takeaway

In the business world, people with MBAs generally earn much higher salaries than those in comparable roles who don’t have an MBA. The median starting salary offered to 2022 MBA grads was $115,000. However, graduates from top business schools were offered significantly more — an average base salary and signing bonus of $193,159.

When thinking about whether the cost of an MBA is worth it, you’ll want to tally up all the expenses involved in attending a business school program, tap any sources of financial aid you are eligible for, plus do some research into how much graduates from your selected school tend to earn in the business world.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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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