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In 2023, more than 43 million Americans collectively have over $1.76 trillion in student loan debt. If you are one of the millions with some form of student debt, you may have considered student loan consolidation, which allows you to combine all of your student loans into one loan with one monthly payment.

Simplifying the student loan repayment process might seem like a good idea, but there are a few things to consider before you consolidate your loans. In some cases, consolidating your loans may disqualify you from certain federal student loan repayment programs and forgiveness. But other times, consolidation can allow you to lower your interest rates or shorten the amount of time it takes you to pay off your loan.

Ahead, we review how student loan consolidation works and the pros and cons of the process.

Student Loan Consolidation Explained

Student loan consolidation is designed to combine some or all of your student loans and make repayment more manageable. There are both federal and private options when it comes to consolidating your student loans.

Private Student Loan Consolidation

Private student loan consolidation is when a lender pays off all or some of your student loan debt and creates a new loan, which you will then make payments on. This process is also known as student loan refinancing. If you consolidate or refinance through a private lender, the new loan will ideally have a lower interest rate and better terms than your previous student loans.

With a private lender, you can consolidate both federal and private loans. But if you refinance your federal loans with a private lender you will you lose access to federal student loan forgiveness programs, such as income-driven repayment plans. If you plan on using one of these programs now or at some point in the future, it’s best to hold off on consolidating federal loans through a private lender.

Federal Student Loan Consolidation

If you are hoping to consolidate federal loans only and want to keep access to federal forgiveness programs, you can consolidate with a Direct Consolidation Loan through the U.S. Department of Education.

Recommended: Types of Federal Student Loans

Consolidating through the federal student loan system doesn’t usually save you money; it simply combines multiple loans into one. Your new interest rate is a weighted average of all your loans’ interest rates, rounded up to the nearest eighth of a percentage point. Any unpaid interest on the loans you’re consolidating will be capitalized — that is, added to the principal of the new loan. There are no application fees for Direct Consolidation Loans, and the loans remain federal loans.

Consolidation may be particularly useful for borrowers who are pursuing federal student loan forgiveness or who are enrolled in one of the more flexible federal student loan repayment plans, such as an income-driven repayment plan.

You can also choose to just refinance your private loans and not consolidate both private and federal into a new private loan. If you go this route, you may be able to get the benefits of refinancing (lower interest rates, better terms) without losing the perks of having federal loans.

Before you consolidate or refinance your loans, you should consider the pros and cons of the process. Getting clarity on whether consolidation is right for you will help you make the right decision for your financial needs.


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

Benefits of Consolidating Student Loans

There are a few reasons to consider student loan consolidation either with a Direct Consolidation Loan or refinancing through a private lender.

Simplified Repayment

Whether you choose a Direct Consolidation Loan or choose to refinance through a private lender, your loan repayment may be simplified. Managing multiple student loan payments may increase your chances of missing a payment. If you miss even one payment, you may risk damaging your credit score. Late payments may also stay on your credit profile for up to seven years.

Consolidating multiple loans into one may help eliminate some of the stress of juggling multiple loan payments and may make repayment more manageable.

Fixed Interest Rate

When you refinance your loans through a private lender, your interest rate and terms will be based on your credit score, payment history, type of loan you’re seeking, and other financial factors. While requirements may vary by lender, applicants who meet or exceed the lender’s criteria may qualify for better interest rates and terms, thus saving money over the life of the loan. Borrowers can also switch from a variable to a fixed interest rate when refinancing through a private lender.

With federal Direct Loan Consolidation, as mentioned earlier, a borrower’s interest rate is a weighted average of current loan rates rounded up to the nearest one-eighth of a percentage point, which means this doesn’t typically result in savings for the borrower. The borrower does, however, keep their access to federal loan forgiveness programs.

Flexible Loan Terms

Student loan consolidation may allow you to change the duration of your loan. If you currently have a 10-year repayment plan, for example, when you consolidate or refinance, you may choose to shorten or lengthen the term of your loan. Typically, lengthening the term of your loan will reduce your monthly student loan payment but add up to more total interest in the long run.

Drawbacks of Student Loan Consolidation

Even though there are benefits of student loan consolidation, there are also drawbacks. Here are a few considerations to be aware of before consolidating student loans.

You Can’t Lower Interest Rates on Federal Student Loans When Consolidating

If you choose the Direct Consolidation Loan, generally you won’t see any savings. Because your new interest rate is a weighted average of your current loans rounded up to the nearest one-eighth of a percentage point, you will probably pay around the same amount you would have paid if you didn’t consolidate. Further, any unpaid interest on the loan you’re consolidating will be capitalized — that is added to the loan principal.

If you extend your term, you may see your monthly payment decrease, but your total interest payments will increase.

On the other hand, if borrowers choose to refinance with a private lender, they may qualify for a lower interest rate, thus saving money over the term of the loan. They could also opt for lower monthly payments by extending their loan term. But as mentioned above, you may pay more interest over the life of the loan if you refinance with an extended term.

Possible Disqualification from Federal Repayment Programs

Refinancing federal student loans with a private lender disqualifies you from federal repayment programs, including the Public Service Loan Forgiveness Program (PSLF) and income-driven repayment plans.

Borrowers will also be disqualified from federal benefits such as forbearance and deferment options, which allow qualifying borrowers to pause payments in the event of financial hardship.

Some private lenders may have hardship programs in place, but policies are determined by individual lenders.

Private Lenders May Charge Refinancing Fees

While there is no application fee for the federal Direct Consolidation Loan, private lenders may charge a fee to refinance loans. Fees associated with refinancing student loans are determined by the lender.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

Refinancing vs Consolidation

Consolidating or refinancing student loans are terms that are thrown around interchangeably, but they actually apply to two different types of loans. A federal student loan consolidation is when you combine federal loans through a Direct Consolidation Loan. This is done by the U.S. Department of Education only. A student loan refinance, on the other hand, allows you to combine private and/or federal loans into one new loan and is done by a private lender; while this does effectively “consolidate” your loans, it’s different in some key ways from federal student loan consolidation. Below are some differences and similarities between refinancing and consolidating student loans.

Key Takeaways

Understanding the benefits and drawbacks of student loan consolidation — as well as the difference between federal student loan consolidation and private refinancing — can help you make an informed decision about repaying student loans.

If you decide to consolidate your loans via private student loan consolidation, you might want to consider evaluating a few options from different lenders, because requirements — as well as interest rates and loan terms — can vary from lender to lender.

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

Can your student loans still be forgiven if you consolidate them?

Possibly. If you consolidate your federal student loans with a Direct Loan Consolidation, you are still eligible for federal loan forgiveness programs. However, if you choose to consolidate your loans through a private lender, which is also known as refinancing, you will no longer be eligible for forgiveness programs and other federal student loan benefits.

When is consolidating student loans worth it?

Consolidating student loans is worth it if you’re looking to combine multiple student loan payments into one, or you’re looking to lower your interest rate. You can use a Direct Consolidation Loan for your federal loans and keep your access to federal benefits like income-based repayment programs or forgiveness. Another option is to refinance through a private lender, which may give you a lower interest rate and lower monthly payment, but you do lose access to federal loan benefits like forgiveness and income-driven repayment plans.

What are some advantages of consolidating student loans?

The biggest advantage of consolidating your student loans is that you combine them into one loan so you only have one payment every month. This makes it easier to track your loans. If you choose to refinance your loans with a private lender, you may also receive a lower interest rate, which can help you save money. But if you refinance federal loans with a private lender, you lose access to federal programs like forgiveness and forbearance. While people use the terms “consolidation” and “refinance” interchangeably, they are not the same thing.

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.

College is expensive, and for many families, it’s a group effort to pay tuition, fees, and other expenses. Both parents and children may choose to take out student loans. And in some cases, parents might also help pay off their child’s student loan debt after graduation. But before you take out your checkbook, there are some things to be considered.

Ahead, we look at ways parents can help their children pay off their loans as well as pros and cons of helping with such a big financial expense.

Things to Consider Before Paying Off Your Children’s Student Loans

While there are no rules restricting parents from paying back their children’s student loans, there are a few things to think about before you do.

1. Gift Taxes

If you choose to pay off your child’s student loan in a lump sum, you may need to file a gift tax return and pay any applicable gift tax . The person who makes the payment as a gift pays the tax, not the recipient, according to IRS guidelines. In 2023, a parent may gift their child up to $17,000 before the gift tax comes into play (or two parents could gift one child up to $34,000). Even once that threshold is reached however, a tax is not immediately triggered; rather, the excess gift is added to the lifetime gift tax exclusion, which in 2023 is set at $12.92 million. In other words, paying off your children’s student loans is unlikely to lead to tax liability on its own.

2. Retirement

Parents should consider how helping their child (or children) pay off student loans might affect their retirement plans. Because parents are closer to retirement age than their adult children, it is often difficult for parents to build back up their nest egg if they deplete some or all of it helping pay back their children’s student loans.

3. Home Equity

Some parents decide to avoid using their retirement funds by tapping their home equity line of credit instead. But before you sign on the dotted line, you might want to consider the repercussions. You will want to make sure you have the necessary time to pay back that line of credit. Many borrowers opt for a 10- or 15- year home equity loan, but that may be risky if you are only 10 years from retirement.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

How Parents Can Help Their Children Pay Off Their Student Loans

There’s a lot of factors to consider if you want to help pay off your child’s college loans, especially if you’re nearing retirement. Here are several ways you may want to help your child repay their loan.

1. Making Small Payments During College

Although most student loans don’t need to be repaid until afer your child graduates, making small monthly payments — even as little as $25 a month — while your child is still in college may lower their debt by a few thousand dollars.

2. Making an Occasional Loan Payment as a Gift

When holidays and birthdays come around, instead of buying your child tickets to a concert or the shoes they’ve been coveting, consider making an extra payment on their student loan.

You can ask grandparents and aunts and uncles to do the same, if they are so inclined or have no idea what to give your child for their birthday or the holidays.

Any extra payments beyond the minimum monthly payment should be applied to the principal, not to their next monthly payment. By applying the payment to the loan’s principal balance, they may be able to save on interest payments in the long run. Most loan providers will allow you to make extra principal-only payments.

3. Paying Off Private Loans First

If your child has a mix of private and federal loans, you could offer to pay off the private loan while they continue to make monthly payments on their federal loan. Since private loans typically have higher interest rates, paying that loan off first might go a long way to helping your child pay back their loans quicker.

Not sure what your child’s monthly student loan payments will be? You can use our student loan calculator to estimate how much they could be paying each month. You can then decide if you want to give them money each month to go toward their payments, which in turn can help them pay off their student loans faster.

Furthermore, your child’s federal loans come with certain federal benefits such as income-driven repayment plans, deferment, forbearance, and access to certain loan forgiveness programs. Private loans don’t enjoy those same federal benefits, which may be another argument for paying off private loans first.

4. Helping with Other Expenses

If paying off your child’s student loans is too expensive, consider helping them with some of their other monthly expenses that aren’t as steep. Perhaps pay an unexpected medical bill for them, offer to buy a week’s worth of groceries, or maybe surprise them with dinner and a movie once a month.

5. Considering a Parent PLUS Loan

If your child is still in school, and you want to help them with tuition, you may want to consider a Parent PLUS loan, which is a federal student loan that is available to the parents of a dependent undergraduate student. The interest rate is 8.05% for a Parent PLUS loan disbursed between July 1, 2023, and before July 1, 2024.

While credit scores aren’t considered when determining eligibility for federal student loans, parents cannot typically qualify for these loans with “adverse credit history.”


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

6. Applying for a Private Parent Loan

If you don’t qualify for a federal loan for parents, you may want to consider taking out a private loan to help fund your child’s education. Keep in mind that you will be the only borrower. This is very different from having your child named as the borrower, and you named as the cosigner.

Parents who take out loans need to be careful they aren’t taking on more debt than they can pay back in their lifetime.

7. Refinancing the Student Loans

If you have a Federal Parent PLUS loan, you might be able to save money and simplify your payments by refinancing your Parent PLUS loan.

Or you can help your child refinance their student loans by cosigning and potentially save them money over the life of the loan if you qualify for a lower interest rate. (This is usually true provided you do not extend the loan term.) Borrowers should keep in mind that refinancing their federal loans will disqualify them from all federal benefits, including income-based repayment plans and potential forgiveness.

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.

Car payments can take a significant bite out of your monthly budget. According to Edmunds, the average monthly car payment in the second quarter of 2023 was $733 for a new vehicle and $569 for a used vehicle.

While knowing the average car payment can be helpful, keep in mind that the actual amount you’ll pay on a car loan will depend on multiple factors, including the loan amount, interest rate, type of car you buy, your credit score, and the length of the loan.

So how do you know if you’re getting (or you got) a good deal? Read on to learn more about average car payments and what to do if you’re paying too much — or more than you can currently afford.

What Is a Good APR on a Car?

Every auto loan has an annual percentage rate (APR), which is the annual cost you’re charged by the lender for borrowing money. A loan’s APR includes the loan’s base interest rate plus any added fees, so it represents the true cost of the loan.

In the second quarter of 2023, the overall average auto loan APR was 7.1% for new cars and 11% for used cars.

The actual APR you receive for an auto loan will be based on several factors, including your income, credit history, and credit score. Typically, your credit score will have the greatest influence over the rate you’ll get, since lenders use it to gauge how likely you are to repay the loan. Generally speaking, the higher your credit score, the lower your car loan APR will be.

For example, the average APR for someone with a credit score between 781 to 850 is 5.18%, whereas the average rate for someone with a credit score between 300 and 500 is 14.08%


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

What to Do if Your Car Payments Are Too High?

If you’re paying more than the average car loan payment, or simply more than you can comfortably afford, here are some ways you may be able to lower your payment.

•   Refinancing When you refinance a car loan, you replace your current loan with a new one and hopefully lower your car payment in the process. You may be able to qualify for a lower APR on a new loan and/or extend your loan term, which can lead to a lower monthly payment. Keep in mind, though, that if you extend your loan term, you may end up paying more in total interest over the life of the loan.

•   Selling or trading in your car If your car is beyond your budget, you might consider selling it and then buying a cheaper car. Trading it in at a dealership can be the simplest option, though you might get a better price with a private sale. Just keep in mind that selling a car that has a loan attached to it can be complicated. You‘ll want to check with your lender to make sure you aren’t breaking any terms of your loan contract.

•   Making extra payments whenever you can Consider putting the occasional windfall (such as a tax refund, bonus at work, or cash gift) toward your loan principal. This will reduce the total amount that you owe, which, in turn, can lower your monthly payments. Before you try this tactic, however, make sure your lender will apply extra payments directly to your loan’s principal and not to interest.

Recommended: Smarter Ways to Get a Car Loan

What if Your Car Payment is Lower Than Average?

If your car payment is lower than the average, that doesn’t necessarily mean you won’t benefit from refinancing. This is especially true. If your credit has improved or rates have dropped since you originally took out your car loan.

You might also be able to lower your monthly car payments if you initially received your loan from the dealer. APRs offered by car dealers tend to be higher than those offered by banks and credit unions. If you took out your initial loan through dealer-arranged financing, refinancing with a different lender could potentially get you a lower rate, and a lower monthly payment.

If your budget is stretched and you really need to lower your payments, refinancing to a longer repayment term can help lower your payments, even if you don’t get a lower interest rate. Just be aware that you’ll pay more in total interest because you are extending the length of the loan.


💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

Using a Personal Loan to Refinance an Auto Loan

Many people assume that the only way to refinance an auto loan is with another auto loan. But that’s not necessarily the case. In fact, taking out a personal loan can be an option worth considering, particularly if you have excellent credit and can qualify for low APRs.

Personal loans are available through banks, credit unions, and online lenders and can be used for virtually any use, including debt consolidation, home repairs, and other large purchases. This makes it different from an auto loan, which can only be used to pay for a car.

If your auto loan rate is higher than the rate you can receive on a personal loan, using a personal loan to refinance your auto loan may be a way to lower your car payments.

Another reason you might refinance with an unsecured personal loan is that these loans don’t require that you use your car as collateral. That means if you’re unable to make your payments, you won’t lose your vehicle (though your credit score will likely take a significant hit).

Also, if you plan to sell your car, it can be complicated to sell a car with an auto loan attached. If you use a personal loan to pay off your car, you’ll receive the title from your auto lender, which enables you to sell it more easily.

For a personal loan to make sense for an auto loan refinance, however, you’ll need to qualify for a low rate. Just like you shopped around for an auto loan, it’s a good idea to compare personal loan rates, terms, fees and borrowing limits to ensure you find a lender that will best fit your needs.

As you compare lenders, consider a SoFi Personal Loan. 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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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When it comes time to repay your federal student loans, you have to decide what kind of payment plan you want to be on. All borrowers qualify for the Standard Repayment Plan, which ensures you pay off your loan within 10 years.

But that’s not the only option available, and it might not be the best choice for your financial needs.

By learning more about the Standard Repayment Plan, you can decide if it’s the right choice for you or you want to go a different route.

What Is the Standard Repayment Plan for Student Loans?

Upon graduation from college or if you drop below half-time enrollment, you have a six-month grace period for a Direct Loan program loan (nine months for a federal Perkins Loan) when you don’t have to make payments.

Once that ends, you’ll begin the Standard Repayment Plan, the default for all federal student loan borrowers once they have left school. That’s unless you choose a different plan – perhaps one where you make lower monthly payments, extend your repayment period, or both.

Let’s start by looking at the standard plan, which sets your monthly payments at a certain amount so that you will have your loans paid off within 10 years.

Recommended: Getting to Know Your Student Loan Repayment Options

Standard Repayment Plan Eligibility

Unlike some other federal student loan repayment plans, all borrowers are eligible for the standard plan.

Loans That Are Eligible

Federal Family Education Loan (FFEL) Program loans and Direct Loans qualify for the Standard Repayment Plan. They include:

•   Direct Subsidized and Unsubsidized Loans

•   Direct PLUS Loans

•   Direct Consolidation Loans

•   FFEL consolidation loans

•   FFEL PLUS loans

Keep in mind that you will only be able to use the Standard Repayment Plan if you have federal student loans, not private student loans.


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

How Does the Standard Repayment Plan Work?

With the Standard Repayment Plan, borrowers pay fixed monthly payments for up to 10 years. Because the plan offers a relatively short repayment period and monthly payments don’t change, you will save more money in interest than longer repayment plans.

For example, if you just graduated with the average student loan debt of $37,718 at 5.8% interest, you’ll pay $12,078.27 in total interest. Expanding to 25 years at the same rate will lower your monthly payment by almost half, but you’ll end up paying nearly $33,810.20 in total interest.

There’s a variation on the 10-year plan: the graduated repayment plan. Under this plan, repayments start low, and every two years, your payments increase. This is a good option for recent graduates who may have lower starting salaries but expect to see their pay increase substantially over 10 years.

Recommended: Student Loan Payment Calculator

Payments on the Standard Plan

What may make the Standard Repayment Plan less appealing to some borrowers is that payments will likely be higher than on any other federal repayment plan because of the short loan term.

For people with a large amount of student debt or high interest rates, the monthly payments can be daunting or unmanageable. You might face sticker shock when you receive your first bill after your grace period, so don’t let it come as a surprise.

To determine if the Standard Repayment Plan is a good option for you, you can use the federal Loan Simulator to calculate student loan payments. Or contact your loan servicer before your first payment is due to see how much you will owe each month.

Changing Your Repayment Schedule

If you want to change your repayment schedule or plan, call your loan servicer and see what they can do.

You’ll need to contact each loan servicer if you took out more than one loan and want to change repayment schedules.

You can change your federal student loan repayment plan at any time, free of charge.

What Are the Pros and Cons of the Standard Repayment Plan?

There are upsides and downsides to weigh when considering the Standard Repayment Plan.

Pros

You will pay off your loans in less time than you would with other types of federal repayment plans, which may allow you to set aside money for things like purchasing a home.

You’ll save money on interest, since you’re paying your loan back faster than you would on other federal plans.

The plan offers predictability. Payments are the same amount every month.

You don’t need to recertify your loan every year to prove your eligibility.

Cons

Your monthly payments will probably be higher than payments made under other student loan repayment plans with extended repayment periods.

Your monthly payments are based on the number of years it will take you to repay the loan, not on how much you can afford, as with income-based repayment plans.

With some federal income-driven repayment plans, like SAVE or PAYE, your remaining balance will be forgiven after you make a certain number of eligible payments over 20 to 25 years.

The Takeaway

The federal Standard Repayment Plan of 10 years could be right for you if you’re able to keep up with payments and you want to pay off your debt quickly.

Another option is to refinance your student loans to improve your interest rate and possibly change your loan term. Just realize that refinancing federal student loans into a private student loan means giving up federal benefits like income-driven repayment and loan forgiveness.

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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Student loans can be discharged in certain circumstances. When federal student loans are discharged, your requirement to pay back some or the entire remaining amount of your debt due is eliminated. However, this usually only happens in unique life situations, such as school closure, permanent disability, or death. However, because of a new student loans bankruptcy process, it may be possible to discharge student loans in bankruptcy.

Ahead, we explain who may qualify for student loan discharge, and other options for managing student loan debt.

When You Can Discharge Student Loans

Interested in discharging your student loans? Wondering when can student loans be discharged during bankruptcy? Here are details about some of the circumstances under which you may qualify for student loan discharge.

Total and Permanent Disability Discharge

To qualify for a federal student loan discharge due to disability, you must have a “total and permanent” disability that can be verified by the U.S. Department of Veterans Affairs, the Social Security Administration, or a qualified doctor. You also must complete a discharge application available at studentaid.gov, which includes documentation showing you meet the government’s requirements for being considered disabled.

Veterans may be eligible for student loan discharge if they can provide paperwork from the VA demonstrating they either have a disability that is 100% disabling due to their service, or are totally disabled due to an individual unemployability rating.

For those borrowers who are eligible for Social Security Disability Insurance or Supplemental Security Income, you may also qualify for loan discharge by providing documentation of your Social Security award.

Not all private student lenders give you the option to discharge your loans if you’re permanently disabled. While you might be able to file an application to discharge your federal student loans because of disability, with private loans, you may have to consider legal action. You should speak to an attorney to determine if that’s the right course of action.


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

Student Loan Discharge Due to Death

Federal student loan discharge may also be granted if the borrower dies. Parents who have taken out Parent PLUS loans on behalf of a student may also have these loans forgiven if the student dies.

Proof of death, such as an original death certificate or certified copy, must be submitted in order for the loans to be canceled.

Declaring Bankruptcy and Discharging Student Loans

Can student loans be discharged during bankruptcy? And does bankruptcy clear student loans? The answer is yes to both questions, but the process can be lengthy and somewhat complicated.

Until late 2022, it was challenging and rare for federal student loans to be discharged through bankruptcy. But a new process unveiled by the Justice Department in November 2022, makes it easier. Those filing for bankruptcy must fill out what’s called an attestation form to verify that they fit the definition of “undue hardship.” Their request is then evaluated by the bankruptcy judge under new standards, and their debt may be fully or partially forgiven.

Borrowers must pass a three-part test to prove they qualify for “undue hardship” and should have their federal loans discharged:

1.    Is the borrower able to maintain a minimal standard of living while paying their student loans?

2.    Have they made a good faith effort to repay the loans?

3.    Will they continue to struggle to make payments during the remaining term of their loan?

It’s important to understand that filing for bankruptcy can have serious consequences. For instance, bankruptcy will impact your credit for years. It’s best to consult with a qualified professional, such as an attorney specializing in bankruptcy law, before making any decisions.

Closed School Discharge of Loans

If your school closes, you may be eligible for a 100% discharge of certain loan types, including Direct Loans, FFEL, and Federal Perkins loans. However, for this to apply, you must meet one of the following criteria:

•   You must have been enrolled at the time the school closed

•   You must have been on an approved leave when the school closed

•   Your school closed within 120 days after you withdrew if your loans were first disbursed before July 1, 2020 (180 days if your loans were first disbursed on or after July 1, 2020)

Only federal student loans can be discharged due to school closure and other circumstances. For private loans, you must contact your lender directly to see if you will qualify with them.

Loan Discharge Because You Were Misled By Your College

If you have federal loans, and you feel your school “misled” you — for instance, by promising you’d get certain jobs or certain salaries — you may qualify to apply for Borrower Defense Discharge through the Department of Education. The Biden administration has approved $14.7 billion in relief for 1.1 million borrowers who claim their colleges made such claims, or whose schools closed abruptly, as of July 2023. Note that this program has been challenged in court, and in August 2023, a federal court issued an injunction against the program. That’s delayed payments, but borrowers can still submit an application.

The application process is lengthy and submitting an application does not guarantee that your loans will be canceled.

False Certification Discharge

In very rare circumstances, you may be eligible for a discharge if loans were issued but they should not have been given out to you in the first place. For instance, this may apply if:

•   Your school falsely certified that you had a high school diploma or GED

•   You had a disqualifying status, such as a physical or mental condition, criminal record or other circumstance, at the time of the school certified your eligibility

•   Someone else or your school signed your name on the loan application or promissory note

In all of the above circumstances, your loans might be discharged.

Unpaid Refund Discharge

If you leave school after getting a loan, your school may also be required to return part of your loan money. You may be eligible for a partial discharge if you withdraw from school, and the college did not return the portion it was required to under the law.

In this case, only the amount of the unpaid refund would be discharged.

Alternatives to Discharging Student Loans

Since qualifying for a student loan discharge is only permitted under certain circumstances, it’s important to look at other options for federal loans. Here are some of the other choices you may have to help you pay off your student loan debt:

Forbearance: Forbearance temporarily allows you to stop making your federal student loan payments or reduce the amount you have to pay. You may qualify if you are unable to make monthly loan payments because of financial difficulties, medical expenses, or changes in employment. Usually interest will still accrue while your loan is in forbearance.

Deferment: You may be able to defer your loans in certain circumstances, such as going back to school. Depending on your loan type, your loans may still accrue interest while in deferment. However, if you qualify for deferment on federal subsidized loans, you generally will not be charged interest during deferment.

Income-based repayment: With income-driven repayment, you may be able to reduce your monthly student loan payments if you can’t afford your monthly payments on a Standard Loan Repayment plan. With an IDR plan, you’ll make monthly payments of 10% to 20% of your monthly discretionary income, and then after 20 or 25 years of on-time payments your remaining balance will be forgiven.

Cancellation: If you have a federal Perkins Loan, you may qualify for up to 100% cancellation if you served full-time in a public or nonprofit elementary or secondary school system as a teacher serving low income students or students with disability or teach in a certain field. In addition to teachers, the following jobs may qualify you for partial or whole Perkins Loan cancellation: early childhood education provider, employee at a child or family services agency, faculty member at a tribal college or university, firefighter, law enforcement officer, librarian with master’s degree at Title I school, military service, nurse or medical technician, professional provider of early intervention (disability) services, public defender, speech pathologist with master’s degree at Title I school, volunteer service (Americorps Vista or Peace Corps).

Forgiveness: For borrowers working certain qualifying public service jobs, student loan forgiveness may be an option. With this option, your remaining student loan balance will be forgiven after you make 120 qualifying monthly payments while working full-time for a qualifying employer, which can include government organizations and certain not-for-profit organizations.

When to Refinance Your Student Loan Debt

Unlike student loan forbearance or deferment, which are temporary, short-term solutions, student loan refinancing can be a long-term debt solution. If you don’t qualify for the options mentioned above, refinancing can help simplify your repayment process since all of your loans can be taken care of with one monthly payment. If you refinance with a private lender, you can also change the term length on your student loans.

Should you refinance your student loans? You’ll need to weigh the pros and cons. One very important consideration is that if you refinance your federal student loans with a private lender, you will forfeit your eligibility for federal loan benefits, including student loan forgiveness or deferment.

Recommended: Student Loan Refinancing Guide

The Takeaway

As you can see, it is possible to discharge student loans, but only in unique life circumstances, such as disability or false certification. If you do qualify, you may not have to pay some or all of your student loans, though you may have to pay taxes on the discharged balance.

If you don’t qualify for student loan discharge or one of the alternatives programs, refinancing your student loans with a private lender like SoFi can help get you a potentially lower interest rate, or a lower monthly payment if you extend your loan term. (You may pay more interest over the life of the loan if you refinance with an extended term.) Using a student loan refinance calculator can show you how much you might save. Plus, with SoFi, there are no fees, and you find out if you prequalify in two minutes.

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.