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Once you’ve decided it’s time to buy life insurance, the big question is whether a term or whole life insurance policy is right for you.

Both achieve the same goal: protecting your loved ones from financial hardship when you aren’t there to provide for them. But they go about doing this in very different ways. To decide which one to buy, a little knowledge is an important thing.

Let’s take a look at what each policy offers and highlight some considerations. By the end of this article, you should have a good idea of whether buying term or whole life insurance is right for you.

What Is Term Life Insurance?

Just as the name implies, term life insurance provides coverage for a set term or number of years. What that means is, if you die during the term of the policy, your beneficiaries receive a lump sum payment.

Here’s an example of how that works. Let’s say you take out $500,000 of term life insurance for 20 years. If you, the policy holder, were to die at year 19, your beneficiaries would receive the half-million dollars. But if the policy ends after 20 years, and you were to die a few months later, there’s no benefit at all.

What’s good about term life insurance is that it can offer coverage when you may need it most. With terms typically running between 10 and 30 years (though other variations are available), this kind of policy can give you the reassurance that, even in the worst-case scenario of your death, expenses like tuition, housing, and daily living costs can still be covered.

Many people purchase a term that will see them through the end of a mortgage or a child’s graduation from college. Some insurance providers offer the option of extending a policy as it comes to its conclusion. This is known as renewable term life insurance; check prices in advance as these extensions can be for a brief time period and tend to be costly.

It’s worth noting that if you buy, say, a 30-year term life insurance policy and are alive at the end of that time period, you don’t get a refund of the funds you’ve doled out. You have paid for protection but you didn’t use it. This may strike some people as “throwing away” their money.

For people who have that sentiment, there are options like “return-of-premium” policies that could help you recoup costs. This kind of life insurance is usually considerably more affordable than whole life, which we’ll explore in a minute. Because you are only buying protection for a specific time period, the premiums (the monthly fee you pay for coverage) are typically lower and are fixed.

What Is Whole Life Insurance?

Whole life insurance is a popular type of permanent life insurance that offers coverage for a lifetime.

Generally speaking, once you get a policy, it stays in effect for the rest of your life, unless you cancel it. When the policy owner passes away, their beneficiaries receive a lump sum payment. This can offer peace of mind and may feel like a necessity if, say, you have a loved one who has a chronic health condition and/or cannot live independently.

Whole life insurance is a more complex financial product than term life insurance. It’s essentially a bundled insurance policy plus a savings account. What’s known as “cash value” is built into the policy so you are building equity. Part of your premium is usually diverted into a separate account; that account can earn interest and may be tapped, as a loan.

This is not the only kind of life insurance policy with a cash account attached to it. For those who want their cash account to grow in different ways, there are also these kinds of permanent life insurance:

•   Universal life insurance, which earns interest on the cash value account and may allow for flexible monthly payments.

•   Variable life insurance, which allows you to invest the cash part of your policy in stocks, bonds, and mutual funds. While these can grow your money faster, they also bring some degree of financial risk if the market drops.

•   Variable universal life, which gives you the ability to invest your savings account in stocks, bonds, and the like, as well as flexible premiums depending on how your cash value performs.

•   Indexed universal life, in which your cash account is linked to a stock market index. It earns interest based on this index, but often there is a minimum rate of return (as well as a limit on how high the interest can go), which makes it less risky than a variable universal life plan.

In general, whole life and the other kinds of permanent life insurance usually have higher initial premiums than term life insurance (its cost may even be a multiple of what you would pay for term insurance). This is due to its lifelong “in effect” status and the way it can help you grow the money in your cash value account.

Recommended: 8 Popular Types of Life Insurance for Any Age

How Do Term and Whole Life Insurance Differ?

Some people hear the differences between term and whole life insurance policies and know in an instant which one is right for them. Other people have to mull the options for a while and maybe want to make a “pros vs. cons” list. If you fall into the latter camp, don’t worry. Let us help by summarizing some of the key differences right here.

Difference 1: Policy Features

Term Life Insurance	Whole Life Insurance
Only provides coverage for a specific time period	Provides coverage for your entire life
Monthly premium payments tend to be more affordable	Monthly premium payments tend to be more expensive
Only a lump sum death benefit is paid by the policy	These policies have both a lump sum death benefit and a cash value savings account
Monthly premium payments tend to be fixed	Monthly premium payments may be variable, and the cash value can sometimes be used to pay the premium

Difference 2: Costs

The cost of a policy is undoubtedly a huge factor in your decision. So let’s cut to the chase: Whole life insurance costs up to 15 times more than term life for the same amount of coverage.

That’s because whole life insurance provides lifelong coverage and also includes that “cash value” savings component. It’s a more complex financial product, while term insurance is just straightforward coverage for a certain number of years.

Also know that while the cash value portion of a whole life policy can be tax-deferred over the life of the policy, when you redeem the cash value, there are usually tax implications due to the interest accrued.

Recommended: How to Buy Life Insurance in 9 Steps

How to Choose Between Term and Whole Life Insurance

When deciding which kind of policy to buy, there is no hard and fast rule. All that matters is what’s right for you. Consider these questions to help figure out your best option.

1. How long do you need coverage to last?

Do you need coverage to last your entire life, perhaps to fuel a trust for your children or provide a death benefit for a family member with a disability? Then you may be happiest with whole life insurance, meaning a death benefit will be paid, even if you live well past age 100.

If, however, you only need to know that a certain time frame is covered (say, the length of your mortgage or until your youngest graduates from college), then term life may work best for you. A policy can usually be purchased in various increments between 10 and 30 years.

2. Do you want just coverage or savings too?

Some people are just shopping for a policy that offers protection and peace of mind. They want to know that, should they die within a certain time frame, their loved ones would receive money to help cover expenses. For this insurance shopper, a term policy may make sense. It will pay a lump sum benefit if the policy holder dies within the term.

But if you are looking for a product that doesn’t just offer coverage but also helps you save, then a whole life plan may be a good move. These policies also have a cash value account that can grow over the years.

3. How much can you spend on life insurance?

There’s a pretty big disparity in the price of the two main kinds of life insurance. Whole life policies, which deliver ongoing, permanent coverage, typically cost much more than term insurance, which is only active for a limited number of years. Estimates say that a person will have to spend anywhere up to 15 times more for whole life versus term insurance. Also, the interest on the cash value of a whole life policy is usually subject
to taxes as well.

4. Does my age determine whether I should get term or whole life insurance?

In general, your age doesn’t determine whether you should buy term or whole life insurance. For instance, people often purchase a policy when they marry or are expecting their first child. These milestone events mean you have people depending on you, and you may well think now is the time to get life insurance coverage. However, deciding on term insurance that runs until your child’s 21st birthday or whole life insurance which delivers permanent coverage is a matter of personal preference and finances.

There are some cases in which term insurance is likely to be the better bet. For instance, if you and your partner took out a mortgage together, you might want term insurance that covers the length of your home loan. That way, if anything were to happen to you, your spouse doesn’t wind up being solely liable for all that debt.

Another scenario is buying life insurance when you are quite old and want to get coverage. In this case, term life insurance is likely to again be a good bet. You could buy a term of 10 or 20 years if you are in good health.

For those with medical issues, what’s called simplified issue or guaranteed issue term insurance may be best. These are typically small policies that cover end-of-life expenses, and they require no medical exams.

5. What if I Already Have Life Insurance and Want to Change My Policy?

It’s human to change your mind. No matter how much research you do, time and circumstances can make you rethink your purchase. Some term life insurance policies can be turned into whole life or other types of permanent insurance. This may have to occur within a certain time window, and it’s likely to trigger pricier premiums. Talk to your insurance company about your options. Your term may also be renewable or extendable.

With whole life insurance, changes to the policy may result in surrender charges, since the policy is a permanent one. Check with the policy provider to know what to expect.

The Takeaway

While no one wants to think about their death, the silver lining to life insurance shopping is you know you’ll secure a way to provide for your loved ones when you’re no longer here.

To recap the two different approaches: Term life insurance has a time limit on coverage, and tends to be considerably more affordable. Whole life is a form of permanent life insurance that offers lifelong protection and an additional cash account, but tends to cost much more than term. As you weigh your needs and options, don’t be swayed by what others buy. This is an important financial decision that should be tailored to your specific situation, finances, and aspirations.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

Explore your life insurance options with SoFi Protect.

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Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

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

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Fringe benefits are additional forms of compensation provided to employees beyond their regular wages or salary. They can include health insurance, retirement plans, paid time off, bonuses, tuition assistance, and other perks that enhance overall compensation and help attract, retain, and motivate employees within an organization.

Here’s a look at some examples of fringe benefits, how they work, and whether they’re taxable.

What Are Fringe Benefits?

Typically, employers compensate their employees with a traditional paycheck and some additional benefits that they must provide, such as workers’ compensation coverage or unemployment.

But in an effort to keep workers happy, loyal, and motivated — and to attract new talent — many organizations also offer fringe benefits such as health insurance, childcare assistance, and employee stock options. These extras are above and beyond a regular paycheck and are often included in a hiring package.

💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Common Fringe Benefits

Here’s a look at some common fringe benefits:

•  Accident and health benefits: Provides help with health-related costs not covered by your traditional insurance plan.

•  Athletic facilities: Provides access to on- and off-site athletic and gym facilities.

•  Dependent care assistance: Helps you pay for some care-related expenses for qualifying dependents, including children, a disabled spouse, or legally dependent parents.

•  Adoption assistance: Provides payment and reimbursement for expenses related to adopting a child.

•  Employee stock options: Gives employees the chance to buy a certain amount of company stock at a specified price and by a certain time.

•  Group-term life insurance coverage: Allows employers to provide their employees with up to $50,000 in tax-free insurance. Coverage is traditionally 1-2x salary, where the first $50,000 is received tax-free, then any additional coverage is taxed.

•  Health savings accounts (HSAs): Provides tax-advantaged savings accounts for employees enrolled in high-deductible health plans. These accounts may receive contributions by the employer or simply be funded on a pre-tax basis by the employee to help them pay for dental and health care costs.

•  Transportation and commuting benefits: Helps employees get to and from work, such as through the use of a company vehicle. Employees may also be able to have qualified transportation costs taken from their pre-tax pay, which reduces their taxable income.

•  Tuition reduction: Allows employers to chip in for the cost of tuition to educate an employee and sometimes their spouse or children.

•  Meals: Provides employees with free on-site food and snacks.

For a more complete list of fringe benefits, check out IRS Publication 15-B .

Are Fringe Benefits Taxable?

Generally speaking, most fringe benefits are subject to employment taxes. The taxes are taken out of your paycheck and reported on your annual tax return. (If you’re a contractor, you’ll typically report fringe benefits on a Form 1099-MISC. If you’re a non-employee, fringe benefits are not subject to employment tax.)

That said, the IRS does consider some fringe benefits nontaxable. This means they’re not subject to federal income tax withholding, Social Security, Medicare, or federal unemployment tax, nor must they be reported on your tax return. Often, in order for a fringe benefit to avoid being taxed, certain qualifications must be met.

Here are some extra perks that are considered nontaxable (the full list is available on the IRS’ site):

•   Retirement planning services

•   Adoption assistance

•   Meals and snacks (If certain conditions are met)

•   Health insurance (up to a certain dollar amount)

•   Group-term life insurance (up to a certain amount of coverage)

•   Commuting or transportation benefits

•   Dependent care assistance (up to a certain amount)

•   Awards given for achievements

Tax-Advantaged Fringe Benefits

Some fringe benefits allow employees to direct a certain amount of funds pretax toward qualified accounts and expenses, which can lower their taxable income.

These tax-advantaged benefits are (somewhat oddly) known as “cafeteria plans,” because they allow employees to select the benefits they want. You must be permitted to choose from at least one taxable benefit, like cash, and one qualified benefit. Examples of qualified benefits include:

•  401(k) plans

•  Accident and health benefits, excluding Archer medical savings accounts and long-term care insurance

•  Adoption assistance

•  Dependent care assistance

•  Group-term life insurance coverage

•  HSAs (distributions from HSAs can be used to purchase long-term care coverage)

There are, predictably, a few more nuanced rules about cafeteria plans and employee tax treatment. While most regular employees receive normal tax treatment, other employees or contractors may not be treated as such for cafeteria plans.

If you have tax-related questions about fringe benefits, it might be a good idea to consult your attorney or preferred tax specialist.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Planning Around Fringe Benefits

Employers typically offer fringe benefits to make the work environment better for the people who currently work there and more desirable for prospective employees.

Some benefits may hold a lot of appeal, such as 401(k)s, but others may be less appealing. For instance, you may decide you don’t want to use FSAs, which often restrict how much you can contribute and when you have to spend the funds.

It’s common to choose which fringe benefits you want when you’re starting a new job and filling out your initial paperwork. However, many companies will allow you to go back and make changes if you decide later that some choices aren’t right for you.

The Takeaway

Fringe benefits can run the gamut from use of the company car to adoption assistance to employee stock options. These extra perks are in addition to your paycheck and can be a powerful way to keep workers happy and loyal while also attracting new talent.

Generally speaking, most fringe benefits are taxable, though some — like retirement planning assistance, athletic facilities, and on-site meals and snacks — are not. Some fringe benefits will even allow you to direct a portion of funds pretax toward qualified accounts and expenses, which can help lower your taxable income.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What is considered an employee fringe benefit?

Employee fringe benefits are non-wage perks or compensation provided by employers in addition to regular pay. Common examples include health insurance, retirement plan contributions, paid vacation, bonuses, tuition reimbursement, childcare assistance, and employee discounts.

What’s the difference between salary and fringe benefits?

Salary is the fixed cash compensation an employee earns for their work. Fringe benefits, on the other hand, are non-cash perks provided in addition to salary — such as health insurance, retirement contributions, or paid leave.

Is PTO considered a fringe benefit?

Yes, paid time off (PTO) is considered a fringe benefit because it provides employees with compensation while they’re not working. PTO typically includes vacation days, sick leave, and personal days, and is offered in addition to an employee’s regular salary as part of their overall benefits package.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

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.

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

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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If you rent, rather than own, your home, you’re off the hook for homeowners insurance. But you may still need or want renters insurance, which can help cover your assets in the event of a calamity.

Like all other forms of insurance coverage, choosing a renters insurance policy involves choosing a deductible, which will have an effect on your overall policy cost.

Let’s learn more about how a renters insurance deductible works and how to choose one that’s right for your circumstances.

What Is a Renters Insurance Deductible?

If you have renters insurance and wind up needing to file a claim, the insurance company will still expect you to pay some of the cost. That out-of-pocket expense is called your deductible, and is separate from the premium you pay on a regular basis to keep the policy active.

For example, say you have a renters insurance policy that covers up to $20,000 worth of your belongings in the event of a covered loss. If your deductible is a flat $500, you’d pay $500, and the insurance company would pay $19,500 toward replacing your belongings.

Your deductible might also be calculated as a percentage of your property coverage. So in this example, if your deductible is 2%, you’d pay $400 (2% of $20,000) and the insurer would pay out $19,600.

Your premium, on the other hand, is the amount you pay monthly or annually in order to support the policy. In the case of renters insurance, that might be about $200 a year, or around $20 or less a month.

Choosing a Renters Insurance Deductible

You may be happy to know that you have some agency when it comes to choosing your renters insurance deductible. While many policies offer flat deductible options of either $500 or $1,000, certain companies do offer lower or higher amounts. Occasionally, you may even find a program available with a $0 or 0% deductible, which means you wouldn’t pay anything out of pocket if you were to make a claim.

Paying less during a time of loss probably sounds like an unmitigated good thing. But there is a bit of a catch. Generally speaking, the lower your deductible, the higher your premium, which means you’re paying more on a regular basis for a benefit you might get if a loss occurs.

On the other hand, if you hedge your bets and go for a high deductible, your regular premium payments will be lower — but you’ll be on the hook for a lot more if you do need to file a claim.

Recommended: Online Renters Insurance

How Does Your Renters Insurance Deductible Affect Your Premiums?

While the inverse relationship between deductibles and premiums is fairly standard, other factors do play into your specific renters insurance costs.

For example, your insurer may cut you a break if you have certain security equipment installed, such as an alarm system or smoke alarm. On the other hand, if you live in what’s deemed a high-risk area or your credit score could use some work, your available coverage options may be more expensive, even if you choose a high deductible.

Renters Insurance by State

Because different states have different risk levels, both for criminal activity and natural damage, the average cost of renters insurance varies depending on what state you’re in. Here are the average monthly renters insurance premiums by state, per data from the Zebra:

•  Alabama: $23

•  Alaska: $15

•  Arizona: $20

•  Arkansas: $26

•  California: $18

•  Colorado: $17

•  Connecticut: $24

•  Delaware: $21

•  District of Columbia: $20

•  Florida: $21

•  Georgia: $22

•  Hawaii: $20

•  Idaho: $16

•  Illinois: $20

•  Indiana: $28

•  Iowa: $14

•  Kansas: $21

•  Kentucky: $17

•  Louisiana: $38

•  Maine: $12

•  Maryland: $19

•  Massachusetts: $18

•  Michigan: $22

•  Minnesota: $13

•  Mississippi: $26

•  Missouri: $24

•  Montana: $19

•  Nebraska: $16

•  Nevada: $17

•  New Hampshire: $14

•  New Jersey: $19

•  New Mexico: $19

•  New York: $26

•  North Carolina: $23

•  North Dakota: $13

•  Ohio: $18

•  Oklahoma: $23

•  Oregon: $16

•  Pennsylvania: $19

•  Rhode Island: $24

•  South Carolina: $18

•  South Dakota: $14

•  Tennessee: $19

•  Texas: $32

•  Utah: $14

•  Vermont: $9

•  Virginia: $18

•  Washington: $14

•  West Virginia: $24

•  Wisconsin: $14

•  Wyoming: $11

Keep in mind that your specific monthly price will vary further based on your city and even your neighborhood, as well as many other factors. Check with your insurer for actual insurance premium prices available to you.

Recommended: Why Do Landlords Require Renters Insurance?

Renters Insurance Overview

Renters insurance can be a truly valuable tool if you suffer a loss as a renter. While it doesn’t cover the structure of your home the way homeowners insurance does — the building’s owner is responsible for those costs — renters insurance does cover your belongings in case of damage or theft. It also covers personal liability costs in the event that someone is injured while at your home and sues you.

Some landlords require renters insurance, while others don’t. But for most renters, it’s a good idea to at least consider it, especially since it’s usually pretty affordable. (Many renters insurance programs cost less than $200 per year or about $15 to $20 monthly.)

Do keep in mind that renters insurance, like all types of insurance coverage, doesn’t cover everything.

What Does Renters Insurance Cover?

Generally, renters insurance offers coverage in the following four categories:

•  Personal property: This covers your possessions (such as a stolen bike).

•  Personal liability: This would take care of the medical or legal fees you might incur if someone is hurt while at your home.

•  Loss-of-use or additional living expenses: This covers the money you’d need to spend to find yourself a place to stay and food to eat if your home was, for some reason, rendered unlivable.

•  Additional coverages: These may be purchased to cover items and services that wouldn’t otherwise be eligible for coverage on your policy.

Keep in mind also that certain high-value categories of items may have coverage limits, though these can often be exceeded if you purchase a separate rider or endorsement for them. These categories may include stolen cash, jewelry, watches, fur clothing, and firearms.

Recommended: Does Renters Insurance Cover Water Damage?

The Takeaway

Renters insurance is a kind of insurance that can cover your belongings and personal liability if you’re a renter. Like other forms of insurance, a deductible likely applies. The lower the deductible you choose, the higher your premium is likely to be.

While insurance isn’t anyone’s favorite bill to pay, it’s the kind of thing you’re grateful for when you do turn out to need it.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

Explore renters insurance options offered through SoFi via Experian.

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Photo credit: iStock/Edwin Tan

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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.

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

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The Free Application for Federal Student Aid or FAFSA® form is required for students who are interested in receiving federal financial aid. Dependent students must report parents’ information when they fill out the FAFSA form, but this can become complicated when a student has parents who are divorced.

The federal government treats divorced parents differently than parents who are married. Understanding the requirements for the financial information required by the FAFSA could help students improve their chances of receiving federal student aid and potentially lower the amount of student loans they need to obtain a degree.

Continue reading for more information on filling out the FAFSA if your parents are divorced or separated.

What Complicates FAFSA for Divorced Parents?

The FAFSA treats parents who are divorced differently than it treats parents who are married. If a student’s parents are married, information about both parents must be included on the FAFSA form. If a student’s parents are divorced or separated, the parent who provided more financial support during the last 12 months is considered “the contributor” and must provide their information. If both parents provided an equal amount of financial support, the parent with the greater income and assets is the contributor and must provide their information.

If the contributing parent has remarried by the time a student is filing the FAFSA, your stepparent is considered a parent if they have adopted you. If they haven’t adopted you, the form may still prompt your parent to provide your stepparent’s information depending on their tax filing status.

Recommended: Important FAFSA Deadlines for Students and Parents

FAFSA Tips for Students with Divorced Parents

Here are some important questions to ask yourself and tips for completing the FAFSA application with divorced parents:

Who to Count as Parents for FAFSA

According to the FAFSA, a “parent” means your legal (biological and/or adoptive) parent.

If your parents are divorced, the FAFSA requests information from the parent who provided more financial support during the previous 12 months. If both parents shared support equally, you’ll provide information for the parent who earns more.

If your parent is remarried, you may need to provide information on the stepparent, as well.

What Is a Custodial Parent?

In the past, FAFSA defined a custodial parent as the parent you spend the most time living with during the year. The parent responsible for filing the FAFSA is now determined based on whichever parent provides more financial support to the student.

What About Stepparents and Common-Law Spouses?

Generally, you’ll need to provide the financial information for a stepparent who is married to the custodial parent.

Should Alimony Be Included as Income?

Any alimony or child support received by the custodial parent should be reported on the FAFSA.

Parent’s Education Level

The FAFSA will ask you to include the education levels of your parents. You only need to include information about either your birth or adoptive parents. In this section, the FAFSA does not need information about your stepparent.

What If My Divorced Parents Still Live Together?

If your parents live together, but are divorced, the marital status should be “Unmarried and both legal parents living together.” You need to provide information about both of them on the FAFSA form.

If your parents live together, but are separated, the marital status should be “married or remarried.” Do not use “divorced or separated.” You should provide information about both of them on the FAFSA form.

Additional Sources to Finance Tuition

Many students seek alternative financial aid to finance college if they do not qualify for federal aid or if the amount of federal aid allocated will not cover the entire tuition cost.

About half of college tuition and living expenses are paid by the income and savings of a student’s family members, according to a Sallie Mae study, “How America Pays for College 2025.”

Federal Aid

There are many other sources that could help a student obtain funding for tuition, books, and living expenses. When filling out the FAFSA, students are applying for federal financial aid. This includes federal student loans, the federal work-study program, and some federal grants. However, many states and colleges use the information from the form to award their own grants, scholarships, and loans.

Federal aid is provided on a first-come first-served basis, so it can potentially be helpful to file your FAFSA early. Check out even more detailed information in SoFi’s FAFSA guide.

Federal student loans can be either subsidized or unsubsidized.

Subsidized federal loans are given to students based on financial need. The interest on these loans is subsidized by the federal government, which means students will not be responsible for repaying the interest that accrues while they are enrolled at least part time or during their grace period.

Unsubsidized loans are not awarded based on need and will begin accruing interest as soon as the loan is disbursed.

Recommended: Types of Federal Student Loans

Scholarships

If federal aid is not enough to cover the cost associated with attending college, there are other options available to help you pay for college. Two sources of funding are grants and scholarships. These are highly sought after by students because they do not have to be repaid. Many of them require students to apply annually.

SoFi’s Scholarship Search Tool can help you find scholarships based on your location, level of study, and more.

Part-Time Job

Some students may also consider getting a part-time job to help pay for tuition or living expenses. Consider looking both on and off campus, or even online.

Private Student Loans

When other financial aid isn’t enough, private student loans can fill the funding gap for expenses like tuition, housing, and books.

Private student loans are offered by private organizations, like banks or online lenders, and can be more expensive than federal student loans. They also don’t come with the same borrower protections as federal loans, like deferment or income-driven repayment. That’s why private student loans are generally considered an option after students have exhausted all other sources of financing.

The loan terms and interest rate will vary from lender to lender and will likely be determined by the borrower’s financial history and credit score. Those interested in borrowing a private loan should consider shopping around with various lenders to find the best fit for them.

The Takeaway

Navigating the FAFSA process can be complex, especially for students whose parents are divorced or separated. The key is to correctly identify the “contributor” parent based on who provided more financial support, and to understand how stepparents and living arrangements can impact the application. By understanding these nuances and exploring all available funding options — including federal aid, scholarships, grants, part-time jobs, and private student loans — students can maximize their chances of securing the financial assistance needed for their education.

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.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Does FAFSA require both parents’ income if they are divorced?

If your parents are divorced, you’ll generally report the information for the parent who provided the most financial support for the past 12 months. If your parents split financial support equally, then the parent with the greater income is responsible for completing the FAFSA.

How do you determine who parent 1 and parent 2 are for FAFSA?

The FAFSA doesn’t currently specify a parent “1” or “2.” Instead, it directs you to provide information for the “parent” (if your parents are divorced, this would be the parent who provided more financial support in the past 12 months), then provide information for the “parent’s spouse or partner.”

What is the maximum parent income to qualify for FAFSA?

There are no income limits when it comes to filling out the FAFSA or qualifying for federal financial aid. Even if your parents are high earners, you could still qualify for certain types of aid, such as scholarships or federal student loans. The FAFSA application is free to fill out, so it’s almost always worth taking the time to do so.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

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.

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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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