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If you’re thinking about buying a car, it’s important to consider how the purchase will fit into your overall financial responsibilities, including student debt. You’ll want to be sure you can afford both the cost of the car and the ongoing expense of driving and maintaining it.

Refinancing student loans to buy a car is one option that may allow you to free up money to put toward the cost of a car or monthly car payments. Here’s what to know about refinancing student loans to buy a car, if you can use student loans to buy a car, and how to make the choice that’s right for you.

Can I Use Student Loans to Buy a Car?

Federal student loans (and many private ones) are for “qualified” educational expenses, such as tuition, room and board, and books and supplies. And while the cost of transportation (for example, commuting to school) is considered a qualified expense, purchasing a car is not.

So can you use student loans to buy a car if you’re using the car to drive to class? No – only an allowance for the cost of driving the car to school would be an eligible expense. It’s an important distinction: A borrower caught misusing student loan funds can face serious repercussions, including having their loan revoked and the balance becoming immediately due.

Some private loans may have broader criteria for what constitutes an educational expense, and fewer penalties for how you use the loans. Still, using a private student loan to buy a car may not be the most efficient or smartest use of funds. You may end up paying more interest than you would on a typical car loan, and then have fewer funds to go toward the educational expenses you need.

So what do you do if you have student debt and need to buy a car? Refinancing may be an option, and can free up money in your budget to open a car loan. Here’s what to consider before refinancing student loans to buy a car.

Recommended: Should I Buy a New or Used Car?

Refinancing Student Loans to Buy a Car

When you refinance a student loan, you pay off all or some of your loans with a new loan with new terms from a private lender. The primary benefit of refinancing is that you can save money over the life of the loan if you’re able to lower your interest rate.

You can also change the terms of your payment, potentially spreading your payment over a longer period of time, and paying less each month. If you go this route, however, you may end up paying more in interest over the life of your loan.

Refinancing student loans can help lower your monthly payments and have more room in your budget to cover the costs of a car. However, it’s important to understand that if you refinance federal student loans, you’ll lose access to federal benefits and protections, such as income-driven repayment plans and forgiveness. If you’re planning to take advantage of any of these federal programs, refinancing is likely not a good option for you.

Pros of Refinancing Student Loans to Buy a Car

Considering the pros and cons of refinancing student loans to buy a car can help you decide if this choice is right for you. You’ll want to be able to cover the costs of the car as you continue to pay your student loans back. Some of the pros of refinancing a student loan to buy a car include:

Lower Monthly Student Loan Payments Can Offset Car Costs

Refinancing your student loans can lower your monthly student loan payment if you’re able to secure a lower interest rate or extend your loan term. A lower monthly student loan payment can mean that you have more funds to cover the costs of buying or maintaining a new car.

Recommended: Guide to Student Loan Refunds

As mentioned, lowering your interest rate can save you money over the life of a loan. Extending your loan term may not save you money, but it can free up cash to have more funds to put toward the costs of a car.

Simplified Payments Can Make Tracking Car Expenses Easier

When you refinance multiple loans into a single new loan, you’ll have one new monthly payment. This can make it easier to keep track of your student loan payments and be sure you’re making them on time.

And if you’re looking for ways to get a car loan, having a simplified student loan payment can make budgeting easier as you add a new loan to the mix. As mentioned earlier, you may find lower interest rates on car loans than what you’re paying on your student loans — another reason using student loans funds toward car expenses may not be the best choice even if they’re allowed according to your loan terms.

Saving Money on Student Loans Can Help Pay for a Car

Many people explore refinancing even when they don’t need to make an immediate purchase like a car. That’s because refinancing may help save money over the life of the loan if you can lower your interest rate.

And while applying for student loans can be arduous, applying to refinance student loans is relatively straightforward. You can check your rate and get an estimate of loan terms before you officially apply, and an application can generally be completed online. You can also compare refinancing rates without triggering a hard credit check—a credit check is only done once a formal loan application is submitted.

Cons of Refinancing Student Loans to Buy a Car

While refinancing student loans to buy a car can be one way to cover car payments when you have existing student debt, there are cons to this option as well. Here are some of the cons of refinancing a student loan to buy a car.

Recommended: How To Save Up For a Car

Losing Access to Original Loan Terms

If you refinance your loans, you lose access to the terms of the original loan. This may be important to consider if you’re refinancing federal loans.

Refinancing federal loans not only means potentially missing out on federal forgiveness or repayment programs, but also the opportunity for deferment or forbearance if you qualify.

As mentioned earlier, if you plan to take advantage of federal programs, refinancing is likely not a good option for you. Some people may choose only to refinance private loans.

Repayment May Take Longer

If you extend the length of your student loan term when you refinance to lower your monthly payments to offset the costs of a new car, it will take longer to repay your loan and you may end up paying more in interest over the life of the loan.

Overstretching Your Budget

It’s important to make sure that you can afford any car loan that you take out. If you’re planning on getting a car loan or leasing a car, will you be able to comfortably cover your student loans, the car payment, and other bills? What would happen if you were to lose a job or source of income? Those questions can help you assess whether a car payment would stretch you financially.

A borrower who can’t make the payments risks having the car repossessed and damaging their credit. If you ever think you’ll miss a monthly car payment, reach out to your lender to find out what your options are. Down the road, refinancing your car loan is also an option if you’re able to secure better terms.

Recommended: Passive Income Ideas

Refinancing Your Student Loans With SoFi

When you need a new car, you may need to rethink your finances in order to cover the costs. Refinancing student loans to buy a car is one option that can help you free up funds. You may be able to lower your monthly payments and save money over the life of the loan if you qualify for a lower interest rate. You can calculate your potential savings using a student loan refinance calculator.

Refinancing can be a good option if you’re able to qualify for a lower interest rate and are not planning to use any federal programs. When you refinance a federal loan, you lose access to federal benefits and protections.

If you’re considering refinancing your student loans, SoFi offers flexible terms, competitive rates, and no fees.

Learn more about whether refinancing student loans with SoFi is right for you.

FAQ

Do car dealerships look at student loans?

Your student loans appear on your credit report. If you apply for a car loan from a dealership, then they may be able to see your payment history and your credit score on your credit report. Student loans also count toward your debt-to-income ratio which may affect your ability to secure a car loan.

Does financing a car affect student loans?

Financing a car won’t affect your current student loans, but consider how taking on another loan will impact your finances. It’s important to be certain that you’ll be able to pay both your student loan payments and any new car loan payments on time. Refinancing a student loan can help offset the costs of a new car if you can save money by qualifying for a lower interest rate. It can be a good option if you’re refinancing private loans or not planning to take advantage of any federal programs.

Is it smart to buy a car after college?

Buying a car after college is a personal decision. But keep in mind that a lot can change in a few years, and a new car or a lease may be a liability if your plans change. It may make sense to consider buying a used car or holding off on buying a car until you have a sense of what your commute and lifestyle will look like.

Photo credit: iStock/LeoPatrizi

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.

Do you know who oversees your student loans? If you’ve taken out loans from a variety of lenders, it can be hard to keep track. But it’s important to know who your student loan servicers and/or lenders are so you can make payments on time and reach out with any questions.

You’ll also want to contact your loan servicer or lender if you’re having trouble paying back your loan to discuss your options. Falling behind on payments or defaulting on a loan can have serious financial consequences. Here’s what to know about the different types of student loan servicers and lenders—and how to identify your own.

What Is a Student Loan Lender?

A lender is any individual or institution that loans money to someone and expects it to be paid back, usually with interest. In the case of private student loans, your lender is typically a bank or other financial institution.

When it comes to federal student loan providers, your lender is the federal government. But while you’re borrowing funds from the government, several different companies—called loan servicers—handle the administration of the loan and collect payments.

What Are Student Loan Servicers?

The federal government contracts with student loan servicers to take care of billing borrowers, setting up repayment plans, handling loan consolidation, and administering other tasks related to federal student loans.

The government currently works with nine different loan servicers to handle Direct Loans and Federal Family Education Loans (FFEL). If you’ve ever wondered, “who is my student loan servicer?” it’s likely one of the following companies:

•  FedLoan Servicing (PHEAA)

•  Great Lakes Educational Loan Services, Inc.

•  Edfinancial (HESC)

•  MOHELA

•  Aidvantage

•  Nelnet

•  OSLA Servicing

•  ECSI

•  Default Resolution Group

What Do Student Loan Servicers Do?

Loan servicers are the main point of contact for the administration of your loan. Here are some of the main functions of federal student loan servicers:

Collect Payments

The U.S. Department of Education assigns your loan to a loan servicer after it’s disbursed. As mentioned, your student loan servicer handles the billing and customer service for your student loans.

For federal loans, you can reach out to your loan servicer to confirm your balance and interest rate, or check your monthly payment. It’s helpful to register on the loan servicer’s site so you can stay on top of payments and understand what you owe. If you have any questions, it’s worth reaching out to ask.

In some cases, the department may decide to transfer your loans from one loan servicer to another. If this happens, you’ll receive a letter from the new servicer that will include the company’s contact information.

Execute Deferment or Forbearance Requests

If you run into financial hardship, contact your loan servicer to discuss options, such as applying for deferment or forbearance. One of the worst things to do is avoid contacting your lender or loan servicer because you’re embarrassed, confused, or overwhelmed.

These institutions are designed to help you understand your loan and pay it off according to schedule, and that means explaining things you don’t understand or working with you to come up with a more affordable repayment plan.

Handle Repayment Plan Changes

Loan servicers can help you figure out the best repayment plan for you and whether to consolidate your student loans. Federal borrowers can change their repayment plan at any time without any fees.

For example, if you’re hoping to lower your monthly student loan payment, you can extend your loan term. You’ll pay more in interest over the life of the loan, but it’s one way to get relief if you’re struggling to make payments.

On the flip side, you can shorten your loan term if you’d like to pay off your loan sooner. There are also income-driven repayment plans that tie the amount of a borrower’s income to their monthly payments.

Help Process Loan Consolidation Requests

If you’re looking to simplify your payments, your loan servicer can help you consolidate your federal loans through the Direct Loan Program, combining different federal loans into a single new loan with an interest rate that’s a weighted average of all of your existing federal loan rates. Keep in mind you’ll pay more interest over the life of the loan due to the rate change.

Your loan servicer can also help you determine if you’re eligible for Public Service Loan Forgiveness or other types of federal loan forgiveness and help you find out if you’re on the right repayment plan to qualify.

How To Find Your Student Loan Servicer or Lender

Finding your student loan servicer can vary depending on the types of student loans that you have. Here are some of the most common ones:

Private Student Loans

There generally aren’t private student loan servicers; your main point of contact is your lender. You can find contact information for your private student loan lender on the emails or billing statements you should be receiving each month once you enter repayment.

Some private lenders also send a welcome packet or call you once you begin repayment. You can also look for their contact details on the documents you received when you first took out the loan, such as a promissory note.

If you’ve completely lost sight of your private student loan lender, you can confirm who they are by checking your credit report. You can request one free credit report annually from each of the three major credit reporting agencies—Equifax, Experian, and TransUnion. The financial aid office at your school may also be able to help you track down your lender.

Federal Student Loan Lenders

For federal student loans, you can log in to the Federal Student Aid site in order to confirm the name of your loan servicers and retrieve their contact information.

Another option is to check the National Student Loan Data System (NSLDS). This Department of Education database is a centralized repository of information about your student loans, aggregating data from universities, federal loan programs, and more.

Federal Perkins Loans

For federal student loans outside of the Direct Loan and FFEL programs, you can find out information about your loan servicer in other ways.

For a Federal Perkins Loan, contact the school that issued it, which may also be your loan servicer. If your Federal Perkins Loan has been transferred to the Department of Education, contact the ECSI Federal Perkins Loan Servicer at 1-866-313-3797.

If you have a FFEL Program loan owned by a private lender and not the Department of Education, you can find the lender’s details on your credit report as well.

Contacting Your Lender or Loan Servicer

Most lenders and loan servicers make it easy for you to contact them. They want you to be able to get in touch easily to make sure repayment goes as smoothly as possible. You can find phone numbers and website URLs for the nine federal loan servicers on the Department of Education site.

Loan servicers are generally available by phone, mail, and email, and some are also accessible through live online chat. You can find contact information for a private lender by searching online or reviewing mail or email correspondence they have sent you.

Why Might You Need to Contact Your Student Loan Servicer?

As mentioned earlier, you can reach out to your federal loan servicer for payment questions or issues or to adjust your payment plan. You can also apply for deferment or forbearance or look into forgiveness options.

Ignoring payment problems, or neglecting your student loans, can backfire in the long term. If your student loans become delinquent or you default on your student loans, there can be serious financial repercussions, including the unpaid balance of the loan being due immediately.

If you’re having trouble making payments, contact your loan servicer to find out payment options that may be available to you.

Don’t try to reach out to a loan servicer for questions about the status of your loan application or disbursement amounts and timelines—those are queries best left to your financial aid office since they are the ones responsible for ultimately disbursing your loan.

The same goes for questions about the Free Application for Federal Student Aid (FAFSA®) should be directed to the Federal Student Aid Information Center (1-800-4-FED-AID).

Recommended: FAFSA Guide

The Takeaway

While you may borrow money from the federal government, student loan servicers—private companies that work with the Department of Education—oversee the administration of your loan. They collect payments, handle applications for deferment or forbearance, assist with repayment plan changes, and offer customer service and general assistance. When you have a private student loan, the lender generally oversees the administration of the loan.

If you have any questions about your loan or if you’re having trouble making payments on your loan, you should reach out as soon as possible to your student loan servicer or lender. They may be able to help you find solutions that will prevent you from defaulting on your loan.

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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Federal financial aid funds are generally referred to as Title IV under the Higher Education Act of 1965 (HEA) and are administered by the U.S. Department of Education. Title IV funds may come from grants, work-study, or student loans. It’s important that students understand all of their options when it comes to paying for college.

Here are some more details about Title IV financial aid, how it works and how these funds can help pay for school-related expenses.

What Is Title IV?

Under the HEA, Title IV refers to federal financial aid funds. Title IV of the HEA authorizes student financial aid programs of the federal government, which are the primary source of direct federal support to students attending certain institutions of higher education (IHEs). These institutions include public, private nonprofit, and proprietary institutions, which must meet a variety of criteria to participate in Title IV programs.

Federal aid awarded to students can be used to pay for tuition and fees, room and board, books and supplies, and transportation. Federal financial aid is mainly distributed to students through federal student loans, grants, and work-study.

In 2021, Federal Student Aid (FSA) processed more than 17.6 million FAFSA® forms — otherwise known as the Free Application for Federal Student Aid. In 2021, $112 billion was delivered via Title IV financial aid to more than 10.1 million postsecondary students and their families. These students attended 5,600 active institutions of postsecondary education that participate in federal student aid programs.

Different Types of Title IV Funds

Title IV doesn’t include all forms of financial aid that can be used to help pay for college. Here is what Title IV does cover.

•   Direct Subsidized Loans are a type of federal student loan available to undergraduates where a borrower isn’t generally responsible for paying interest while in school. Direct Subsidized Loans are only available to students who demonstrate financial need.

•   Direct Unsubsidized Loans are loans available to undergraduates and graduates where a borrower is fully responsible for paying the interest regardless of the loan status. Interest accrues from the date of disbursement and continues throughout the life of the loan.

•   Direct PLUS Loans are federal loans available to graduates or professional students and parents of dependent undergraduate students to help pay for college or career school.

•   Direct Consolidation Loans are federal loans that allow the borrower to combine multiple federal student loans into a single new loan.

•   Federal Grant Programs offer eligible students financial assistance by the U.S. government out of the general federal revenue. Title IV covers several federal grant programs, including Federal Pell Grants, the Federal Supplemental Educational Opportunity Grant Program, the Teacher Education Assistance for College and Higher Education (TEACH) Grant Program and the Iraq and Afghanistan Service Grant Program.

•   Federal Work-Study Program is a federally-funded program that offers part-time employment to students in financial need, allowing them to earn money to help pay for school-related expenses.

Who Is Eligible for Title IV?

To be eligible for federal student aid, you must meet basic eligibility requirements . Students must:

•   Demonstrate financial need for most programs.

•   Be a U.S. citizen or an eligible non-citizen.

•   Have a valid Social Security number.

•   Be enrolled or accepted for enrollment as a regular student in an eligible degree or certification program.

•   Enrolled at least half-time for Direct Loan Program funds.

•   Maintain satisfactory academic progress.

•   Sign the certification statement on the FAFSA stating that you are not in default on a federal student loan, you do not owe money on a federal student grant, and you will only use federal student aid for educational purposes.

•   Show you’re qualified to obtain a college or career school education by having a high school diploma or its equivalent or enrolling in an eligible career pathway program and meeting one of the “ability-to-benefit” alternatives.

Some Title IV programs have additional eligibility criteria specific to the program. Check with your school’s financial aid office for more information or questions on a particular program.

Recommended: FAFSA Guide

What Can Title IV Loans Be Used For?

Title IV loans can be used for tuition and fees, room and board, books and classroom supplies, transportation and even some eligible living expenses. Tuition is typically the largest expense. According to the College
Board , the average college tuition including fees for a private four-year nonprofit institution in 2021-2022 is $38,070 while the average for a public, out-of-state four-year institution is $27,560 and $10,740 for a public four-year institution with in-state tuition.

Beyond tuition, Title IV loans can also be used to purchase books and school supplies, like a backpack, laptop, and notebooks. To help reduce costs, you can purchase used textbooks or rent them through your school or other services. Title IV loans can also help cover housing expenses and food costs, even if you live off-campus, and pay for the maintenance of your car, fuel, or bus and taxi fares.

If Title IV loans are used inappropriately, the school can report it to the Department of Education via a hotline and you may be held liable for those funds.

Recommended: Using Student Loans for Living Expenses and Housing

Title IV Payments

As mentioned, grants, scholarships, and work-study attained through Title IV generally don’t need to be repaid. However, as mentioned, student loans do need to be repaid.

Once you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment and you must make Title IV payments. However, if you have a Direct Subsidized Loan or a Direct Unsubsidized Loan, there is a six-month grace period before you are required to start making regular payments. Graduate and professional student PLUS borrowers will be placed on an automatic deferment while in school and for six months after graduating, leaving school, or dropping below half-time enrollment.

When your loan enters repayment, your loan servicer will automatically enroll you on the Standard Repayment Plan, which spreads monthly payments over a 10-year period. This can be changed at any time for free. You can also make prepayments on your loan while you are in school or during your grace period.

Your loan servicer will provide you with a repayment schedule with the due date of your first payment, the number and frequency of payments and the amount of each payment. Your monthly payment depends on your chosen repayment plan. Most Title IV loan services will send out an email when your billing statement is ready to be viewed online.

What to Do if Your Title IV Loans Aren’t Enough

If your Title IV loans aren’t enough to cover all costs, there are other options.

You can apply for scholarships or grants, which are a form of gift aid that typically do not need to be repaid. Scholarships are awarded based upon various criteria, such as academic or athletic achievement, community involvement, job experience, field of study, financial need and more. Most grants for college are need-based.

Another option is a part-time job. Your school may have job boards that list on-campus jobs for students or you could check external job sites for part-time opportunities.

Once you’ve exhausted every other option, private student loans are another possibility to consider. Private student loans can be used to cover college costs, but they are issued by banks, credit unions, and online lenders rather than the federal government. Private student loans are also credit-based and the lender will have their own eligibility criteria. The lender will typically review factors including your credit history, income, debt, and whether you’re enrolled in a qualified educational program. If you don’t have enough credit history or enough proof of income, you may choose to apply with a cosigner. Adding a cosigner with an established credit history can help improve your application and potentially allow you to qualify for a more competitive loan.

If you take out student loans, you can refinance them after you graduate to save money when it’s time to repay. Refinancing involves taking out a new loan and using it to repay all your existing loans, which can include federal loans and private loans. Refinancing student loans with a private lender also means forfeiting federal loan benefits like deferment, forbearance or income-driven repayment plans.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

The Takeaway

Title IV financial aid has given millions of students the means to afford and attend college, university and trade school. And if you don’t receive enough Title IV aid, it doesn’t mean you’re out of luck when it comes to funding your college education. By applying for scholarships, taking on part-time jobs, applying for private student loans or refinancing, you can make your dreams a reality.

If refinancing seems like an option for you, consider SoFi. It only takes minutes to apply, even with a cosigner, and there are no fees, period.

FAQ

What is the purpose of Title IV?

Federal Student Aid is responsible for managing the student financial assistance programs under Title IV of the HEA. The FSA’s mission is to ensure that all eligible students benefit from federal financial assistance throughout postsecondary education.

What is included in Title IV?

Title IV provides grant, work-study, and loan funds to students attending college or career school.

Is Title IV a loan?

Title IV does include federal student loans such as Direct Unsubsidized and Subsidized loans. However, Title IV funds are also distributed to students through federal grants and work-study programs.

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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.

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SOSL0222012

Direct Stafford Loans (or simply Stafford Loans or Direct Loans) are the most common federal student loans available for students seeking financial aid for college. While there are Stafford Loan limits, most students who fill out the Free Application for Student Aid (FAFSA®) can receive some amount of financial aid, whether those Stafford Loans are subsidized or unsubsidized.

Students interested in getting federal aid—including grants, federal student loans, and federal work-study—must submit the FAFSA annually. Here are some other important facts, deadlines, and tips to get you ready to apply for federal financial aid.

What Is a Direct Stafford Loan?

A Stafford Loan is a common name for the federal student loans available to eligible students directly from the US Department of Education. These subsidized or unsubsidized federal loans are often referred to as Stafford Loans or Direct Stafford Loans, which are offered under the William D. Ford Federal Direct Loan (Direct Loan) Program.

In 1988, Congress changed the name of the Federal Guaranteed Student Loan program to the Robert T. Stafford Student Loan program in honor of higher education champion, Senator Robert Stafford. This is one reason why Stafford Loans are sometimes referred to by different names.

Direct Stafford Loans are taken out in the student’s (not a parent’s) name. Before one accepts any loans as part of a financial aid package, it’s important to understand the fundamental differences between the two types of Stafford Loans you can apply for: subsidized or unsubsidized.

Subsidized vs Unsubsidized Loans

There are two different types of Direct Stafford Loans: subsidized and unsubsidized. With a subsidized Stafford Loan, the government will pay the interest that adds up while the borrower is in school at least half-time, during the loan’s grace period (the first six months after graduating or dropping below half-time enrollment), and during a deferment—an official postponement of payments. In contrast, borrowers with unsubsidized student loans are responsible for all of the interest that accrues on the loan at all times.

To be eligible for a subsidized loan, borrowers must meet the income requirements for need-based aid. The school determines the amount a student is able to borrow. As of 2012, subsidized Stafford Loans were no longer available for graduate or professional students.

Related: Explaining Federal Direct Unsubsidized Loans

Unsubsidized Stafford Loans start to accrue interest as soon as the loan is disbursed. These loans are available to undergraduate, graduate, and professional students, and there is no requirement to demonstrate financial need.

Students are not required to start paying back unsubsidized Direct Stafford loans while they are in school, but they are responsible for the interest at all times—including before graduation and during the loan’s grace period.

Students can estimate their federal student aid eligibility before filling out the FAFSA. If students have the flexibility to only accept some of the financial aid package, it may be worth accepting subsidized loans before unsubsidized (if eligible) in order to take advantage of the potential interest savings.

Stafford Loan Limits and Rates

It is up to a student’s school to determine which loan type and loan amounts they receive every year. There are Direct Stafford Loan limits, which are determined by a student’s year in school and whether they are considered a dependent or independent student.

What Is the Direct Stafford Loan Interest Rate?

Interest rates for federal student loans are fixed for the life of the loan and are set annually.

For the 2024-2025 school year, the federal student loan interest rate is 6.53% for undergraduates, 8.08% for graduate and professional students, and 9.08% for parents. The interest rates, which are fixed for the life of the loan, are set annually by Congress.

What Are Direct Stafford Loan Limits For Undergraduates?

First-year undergraduate dependent students are eligible for Direct loans of up to $5,500, but only $3,500 of that amount can be subsidized. (Note: this excludes students whose parents are ineligible for Direct PLUS Loans.)

This amount can increase with each year you’re in school at least half-time, with even higher limits for eligible graduate students.

For undergraduate dependent students, the current annual loan limits are as follows :

•  First Year: $5,500 maximum, no more than $3,500 subsidized

•  Second Year: $6,500 maximum, no more than $4,500 subsidized

•  Third Year and Beyond: $7,500 maximum, no more than $5,500 subsidized

•  Total Direct Stafford Loan Limits: $31,000 max, $23,000 subsidized

The loan limit amounts vary based on a student’s year in school. Additionally, loan limits differ for dependent and independent students. Independent students are generally considered to be financially independent by meeting certain eligibility requirements. Graduate or professional students can take out a maximum of $20,500 annually, but only in unsubsidized loans.

Dependent students whose parents are not eligible for a Direct Parent PLUS Loan, might be able to take out additional Direct Unsubsidized Loans.

Additionally, students can’t receive Direct Subsidized Loans for more than 150% of the published length of their degree program. For instance, if you are in a four-year bachelor’s degree program, the maximum amount of time you can receive Direct Subsidized Loans is six years.

Applying for a Direct Stafford Loan

In order to qualify for Direct Loans, students must be a US citizen, permanent resident, or eligible non-citizen; enrolled at least part-time in an accredited college; and not in default on any other education loan.

Students can apply for all federal financial aid online via the FAFSA website. According to the Department of Education, almost every FAFSA applicant is eligible for some kind of student aid package that may include federal student loans. Unlike most private student loans, however, most federal student loans do not require a credit check or a cosigner.

Typically, a student’s school will apply their student loan funds to pay for tuition, fees, room and board, and other school charges. (They also factor in any scholarships, federal grants and work-study.) If any additional funds remain, the money will be returned to you, which is why it’s important to carefully consider the amount of loan funding you need.

While a loan refund may be nice in the moment, that money will still need to be repaid (with interest)—though some students might find the funds useful for other school-related items like books and technology. (All Direct Stafford Loan funds must be used for education expenses.)

When Do You Have to Pay Back Your Direct Stafford Loan?

The simple answer is: after the grace period. The grace period for Direct Stafford Loan repayment begins the day the borrower officially leaves school, and lasts for six months. Also, if you change your student status to less than half-time enrollment, that starts the clock on the grace period, too.

Take note: educational institutions define “half-time enrollment” in different ways. The status is usually, but not always, based on the number of hours and credits in which a student is enrolled. When in doubt, check with the school’s student aid office to confirm their official definition.

The total timeframe of the Direct Stafford Loan repayment grace period: six months, and not a day more (with a handful of exceptions ). Another thing to keep in mind about that grace period: students may want to start making payments on the loan during the grace period.

Even though grace periods are meant to give borrowers time to adjust to their post-school life, the interest on an unsubsidized loan is still accruing during the grace period. At the end of the grace period, the accrued interest is capitalized, or added to the principal amount of the loan.

One quick tip while on the subject of grace periods: Find out who the student loan servicer is so you know who to contact with any questions. Borrowers don’t get to choose their own federal student loan servicer. They’re assigned by the Department of Education to handle billing and other services.

Repaying Direct Stafford Loans

The default payment plan is the Standard Repayment Plan, which sets the monthly payment to the amount that will pay off the loan in 120 payments, or 10 years. However, there are alternative federal repayment plans to consider that can help lower monthly payments. (Note that lowering the monthly payments is generally the result of extending the repayment term, which will usually make the loan more expensive in the long run).

Direct Consolidation Loans

There are also Direct Consolidation Loans that allow borrowers to consolidate their federal student loans into one new loan, at an interest rate that’s the weighted average of all the existing interest rates (rounded up to the nearest eighth of a percent). That typically doesn’t help save money on interest but does streamline repayment (one loan, one lender, one payment to make each month).

Student Loan Refinancing

Another option is to refinance student loans with a private lender, which may be appealing to borrowers who are in a financially stable place and have federal and/or private student loans.

Refinancing lets you pay off the loans you already have with a brand-new loan from a private lender. This can be done with both federal and private loans. The new loan from a private lender may allow borrowers to breathe easier with interest rates and repayment terms that work better for them.

But refinancing isn’t without its downsides. Federal student loans that are refinanced with a private lender, will lose all the federal benefits and protections—like income-driven repayment options and loan forgiveness for public service work. Borrowers who want to keep their federal student loans as federal student loans could consider consolidation instead.

The Takeaway

Direct Stafford Loans are federal student loans offered to students to help them pay for college. There are two major types of direct loans, subsidized and unsubsidized. Students with subsidized student loans are not responsible for any accrued interest while they are enrolled at least half-time and during the loan’s grace period. Unsubsidized student loans begin accruing interest as soon as they are disbursed, and borrowers are responsible for repaying all of the accrued interest at all times.

The size of a Stafford Loan depends on such factors as education costs and financial aid eligibility. If your costs are higher than your awarded federal student loans and other financial aid, one way to cover the gap is with a private student loan.

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.

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

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

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

Benefits of Federal Perkins Loans

Perkins Loans Are Subsidized Loans

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

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

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

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

Perkins Loan Interest Rate

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

For the 2024-2025 school year, the federal student loan interest rate is 6.53% for undergraduates, 8.08% for graduate and professional students, and 9.08% for parents. The interest rates, which are fixed for the life of the loan, are set annually by Congress.

Extended Grace Period

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

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

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

Perkins Loan Forgiveness Programs

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

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

How Much Could You Borrow?

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

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

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

Refinancing Your Student Loans

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

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

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

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

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

The Takeaway

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

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

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.