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Student loans are a type of financial aid option that lets you borrow a lump sum of money upfront that you’ll repay over time later, with interest. Some students are unclear whether a student loan is a secured or unsecured debt.

Both federal and private student loans are considered unsecured debt. Keep reading to learn more on secured loans versus unsecured loans, pros and cons of each, and why student loans are considered an unsecured form of debt.

What Are Secured Loans?

A secured loan is a type of debt that requires borrowers to provide the lender with an asset of value to back the loan. This asset is called collateral. Collateral could be your home, your car, other property that has monetary value, a savings account, jewelry, and more. The type of collateral you put up is stated in the loan agreement.

If a borrower defaults on their loan and doesn’t pay it back, the lender can take actions to seize possession of the collateral. It then uses the proceeds from the sale of the collateral to recover the unpaid debt.

Common types of secured loans include:

•   Mortgage loans

•   Home equity loans

•   Auto loans

•   Some personal loans

Lenders typically view secured loans as less risky to their bottom line since the promised collateral offers them at least some financial protection. In turn, secured loans might offer lower interest rates compared to unsecured loans.

Certain secured loans are also designed as accessible financing for individuals whose credit doesn’t qualify for an unsecured loan.

What Are Unsecured Loans?

An unsecured loan is an installment loan that doesn’t require an asset or collateral upfront to secure the debt. Since this type of loan doesn’t offer an asset-based guarantee to the lender, the borrower must demonstrate a strong likelihood that they’ll repay the debt.

A positive and extensive credit history, consistent and sufficient income, and low credit utilization are some markers that lenders use to determine how risky a borrower is for an unsecured loan. Additionally, since lenders don’t have access to collateral to fall back on in the event of default, unsecured loans generally have higher interest rates.

Credit cards, some personal loans, and private student loans are considered unsecured loans.

Pros and Cons of Secured vs Unsecured Loans

Secured and unsecured loans have their own advantages and downsides. Furthermore, some benefits are only for certain types of secured or unsecured loans. Before signing a loan agreement, it’s important to understand the pros and cons of each option.

How Federal Loans Differ From Typical Debt

Students often wonder whether federal student loans are secured or unsecured debt. Both federal loans and private education loans are unsecured debt. However, federal loans have significant perks and protections that private student loans don’t offer.

Unlike private student loans that require a minimum credit score or cosigner, most federal student loans don’t require a credit check or a cosigner to qualify for a loan. The Direct PLUS Loan is the only federal loan that requires a credit check, but borrowers with adverse credit can still access a Direct PLUS Loan by completing a few additional steps.

Federal loan rates are fixed, meaning your monthly payment won’t change throughout your repayment term. With federal subsidized Direct Loans, the Department of Education pays for interest that accrues while your loan is in deferment (e.g., while you’re in school). Conversely, other unsecured loans aren’t subsidized and might have variable interest rates that change throughout your repayment period, making it hard to anticipate your budget every month.

You’ll also have access to a range of repayment options, including income-driven repayment (IDR) plans, which are exclusive to federal student loans. Some borrowers qualify for a required payment of $0 per month while enrolled in an IDR plan. Finally, federal student loans are eligible for federal student loan forgiveness programs that cancel a portion of your student debt after meeting minimum program requirements.

Managing Your Student Loan Debt

Getting a handle on your unsecured student loan debt can feel challenging as you balance other areas of your life. Below are a few strategies to help you manage your student loans:

•   Make in-school interest-only payments. If you can afford to, consider paying off the monthly interest that accrues while your loan is on in-school deferment. This applies to both unsubsidized federal loans and private loans. Making these small but meaningful interest payments can help you avoid interest capitalization (i.e., paying interest on interest) later.

•   Track when your loan payments are due. Be aware of your loan due dates and minimum payments each month. Late payments or missing a payment altogether can have a negative effect on your credit score, since loan repayment history is reported to the major credit bureaus.

•   See if you qualify for loan forgiveness or loan repayment assistance. The Department of Education offers a few forgiveness and cancellation programs for eligible borrowers with qualifying loans, like the Public Service Loan Forgiveness program for government and nonprofit employees. Some states also offer loan repayment assistance programs to workers in certain professions, like health care, social work, and law.

•   Reach out to your loan servicer or lender. If you’re struggling to make your student loan payment, your loan servicer or lender is your best resource. They can guide you through relief options that are accessible to you, whether that’s getting on a different repayment plan or temporary forbearance.

The Takeaway

A student loan is unsecured debt. Having to put forward collateral to get a student loan is a roadblock that you fortunately don’t have to worry about.

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.

FAQ

Are student loans considered secured or unsecured?

Student loans are considered unsecured debt, meaning they don’t require collateral from you as a condition of securing the loan. Since there’s no collateral tied to the loan, if you default on the debt, the lender might choose to take you to court in an attempt to collect some or all of the debt.

Is it possible to get a secured student loan?

No. Student loans are a form of unsecured debt. No collateral is required to get a student loan, whether you’re borrowing a federal or private student loan.

How are federal student loans different from private?

Federal student loans are guaranteed and funded by the U.S. Department of Education. They offer exclusive fixed rates, established annual and aggregate loan limits, non-credit-based eligibility criteria, and access to income-based repayment plans and loan forgiveness.

Private student loans are provided by private financial institutions, like banks, credit unions, online lenders, and schools. Private lenders offer fixed or variable loan rates, which differ between lenders. Your eligibility for a private loan involves various factors, like your income and credit history, and repayment terms and plan options vary.

Photo credit: iStock/DNY59

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.

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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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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

SOIS-Q224-1926124-V1

It’s challenging to get federal and private student loans erased in bankruptcy. But if you’re overwhelmed with student loans and other debt, you may be able to get some relief through Chapter 13 bankruptcy.

Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, Chapter 13 allows you to restructure your debts with a new, more manageable payment plan. After three to five years on the plan, many outstanding debts are canceled. However, this may or may not include your student loans.

Even if your student loans don’t disappear, Chapter 13 reorganization could lower your monthly payments for several years and, by eliminating other debt, make it easier to repay them in the future. Because it has a major impact on your credit, however, Chapter 13 should only be used as a last resort.

Here’s a closer look at Chapter 13 bankruptcy and how it can impact your student loan situation.

Understanding Chapter 13 Bankruptcy

Chapter 13 is a type of bankruptcy that restructures your debt. It’s known as a “wage earner’s plan” because it enables borrowers who earn a steady income to develop a plan to repay all or part of their debts.

When you apply for Chapter 13 bankruptcy, you’ll make a list of all your debts, as well as provide information on your income and regular expenses. With the help of a bankruptcy trustee appointed by the court, you’ll come up with a plan for repaying your creditors on a three- or five-year plan. The plan will allocate your disposable income toward your debts on a “pro rata” basis, or proportionally based on what you owe. Chapter 13 repayment plans limit monthly payments to no more than 15% of your disposable income. Disposable income is the income left over after you’ve paid all of your essential expenses. Once you’ve completed the bankruptcy payment plan, the court will discharge the remaining balances of qualifying debts.

Student debt isn’t automatically considered a qualifying debt, though. To get your student loans discharged through Chapter 13 bankruptcy, you need to take an additional step of filing what’s called an “adversary proceeding.” As part of this filing, you must prove to the court that paying back your student loans would be an “undue hardship” for you and your family. While this used to be a highly complicated process, a policy change put into place by the Biden administration in 2022 simplified and condensed the paperwork involved. Student loan borrowers can now fill out a 15-page form that details their financial struggles and makes their case for student loan discharge.

Eligibility Requirements for Chapter 13

To file for Chapter 13 bankruptcy, you must meet the following requirements:

•   You have a regular income. You must have enough disposable income to make some payments on your debts. If your income is higher than the local median income, you’ll repay your debt over three years. If it’s below the median, you’ll repay your debt over five years.

•   Your debt is under the limit. Your combined debts must total less than $2.75 million.

•   You’re up-to-date on income tax filing. You’ll need to submit proof that you filed your federal and state income tax returns for the four tax years before your bankruptcy filing date.

•   You’ve received credit counseling. You must have received credit counseling from an approved agency within 180 days before filing for bankruptcy.

Meeting these requirements sets the stage for entering into Chapter 13 bankruptcy and working toward debt reorganization. To get your student loans canceled through bankruptcy, however, there are additional requirements. A bankruptcy court typically must find that:

•   You cannot presently maintain a minimal standard of living if you are required to repay the student loan.

•   Your financial situation is likely to persist into the future for a significant portion of the loan repayment period.

•   You have made good faith efforts in the past to repay the student loan.

Recommended: Strategies to Pay Back Federal Student Loans

How Does a Chapter 13 Bankruptcy Affect Student Loan Payments?

A Chapter 13 bankruptcy can affect student loan payments in the following ways:

•   It can reduce your monthly payments. Chapter 13 bankruptcy will base your debt payments on your disposable income. You’ll make payments to your appointed trustee, who will distribute these payments among your various creditors. Depending on the terms of the plan, your student loan payments may go down substantially.

•   It may temporarily delay student loan payments. Depending on your disposable income and the terms of your repayment plan, you may not have to pay anything toward student loans for a time during Chapter 13 bankruptcy. That said, interest will keep adding up on your loans, and you may face a greater debt burden when your Chapter 13 plan comes to an end.

•   It prohibits student loan collection. During Chapter 13 bankruptcy, an automatic stay will go into effect which prohibits credit collectors or loan servicers from harassing you and trying to collect the debt for up to five years.

•   You may be able to get your loans discharged. Filing for Chapter 13 bankruptcy does not in itself guarantee that your student loans will be discharged. But it does allow you to file an adversary proceeding. If you’re able to prove that repaying your student loans would cause extreme hardship, you may be able to get your loans canceled at the end of your repayment plan.

What Takes Place When Your Chapter 13 Case Comes to an End?

A Chapter 13 bankruptcy can eventually discharge some of your debts. But unless you were able to prove to the court that repaying your student loans would be a serious hardship, your federal or private student debt won’t go away. After the plan comes to an end, your lender or loan servicer will set you up on a new payment schedule with a recalculated monthly payment.

If you’ve been able to get rid of your other debts or increase your income over the years, you may be in a better position to afford your student loan payments. You can also explore various options for student loan relief or forgiveness.

An income-driven repayment (IDR) plan, for example, bases your monthly student loan payment amount on your income and family size. Under all IDR plans, any remaining loan balance is forgiven if your federal student loans aren’t fully repaid at the end of the repayment period (either 20 or 25 years).

Thanks to a new rule that went into effect in July 2024, borrowers in an IDR plan can receive credit toward forgiveness for each month of payments under a Chapter 13 plan. This is the case even If the borrower enrolls in an IDR plan during or immediately after the bankruptcy case is closed.

Will You Be Able to Apply for Student Loans in the Future?

Reorganizing your student loans through Chapter 13 bankruptcy should not disqualify you from taking out additional federal student loans in the future. However, you may not qualify for federal student loans or other types of aid if you have any loans in default.

You can get your loans out of default with the Fresh Start program through Sept. 30, 2024. After that, your options are student loan consolidation or rehabilitation to get loans out of default and back into good standing.

Qualifying for a private student loan or student loan refinancing after bankruptcy might be more difficult. Private lenders base their approval decisions on your creditworthiness. Lenders may view applicants with a bankruptcy history as high-risk, leading to higher interest rates or denial of loan applications. Chapter 13 bankruptcy can stay on your credit report for seven years.

You may be able to qualify for a private student loan or student loan refinancing by applying with a creditworthy cosigner, however.

The Takeaway

Filing for bankruptcy doesn’t necessarily mean that your student loans will be discharged. However, Chapter 13 bankruptcy can give you a new, manageable repayment plan for all of your debts, including your student loans, for three or five years. This reorganization might give you some much-needed breathing room if you’re overwhelmed with debt and calls from debt collectors. After this time period, many of your debts (and possibly your student loans) will be canceled.

If Chapter 13 bankruptcy does not result in student loan discharge, however, you’ll have to pay them back after your plan comes to an end. Interest that accrued during the repayment period will also be added to the loan balance, increasing the total amount owed. And keep in mind that filing for Chapter 13 can have a negative impact on your credit that can linger for seven years.

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 chapter 13 bankruptcy help with student loan payments?

Yes, Chapter 13 bankruptcy can reduce your student loan payments for three to five years. The automatic stay issued when you file for Chapter 13 also halts all collection activities, including those for student loans, which can prevent default and other aggressive collection actions during the repayment period.

Filing for Chapter 13 bankruptcy also allows you to file an adversary proceeding. If you’re able to prove that repaying your student loans will result in undue hardship, you may be able to get the loans canceled, along with your other debts, at the end of the repayment period.

Will chapter 13 bankruptcy eliminate my student loan debt?

Not necessarily. Filing for Chapter 13 bankruptcy can get certain debts discharged after you complete a three- or five-year payment plan. In order to get student loans discharged, you need to file a separate action, known as an “adversary proceeding,” requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.

What happens to student loan collections during bankruptcy?

If you file for bankruptcy, all collection activities, including those for student loans, will automatically be paused until the case is over or a judge says that payments should restart.

Photo credit: iStock/Maksym Belchenko

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.

If you’re delinquent on your student loans, you may experience garnishment if your student loan debt is with a state or federal government or part of a federally insured student loan program. (Garnishment means withholding a tax refund by automatically sending it to your loan servicer to repay a defaulted loan.) Private creditors may also collect your tax refund to repay your student loan debt.

Obviously, garnishment is a difficult situation. Read on to learn more about your alternatives if you are potentially dealing with this scenario.

Can Student Loans Garnish My Tax Refund?

If your loans came from a state or federal student loan program, the federal government may garnish up to 100% of your tax refund if you’re in default repaying your loans. Default is defined as the failure to repay a student loan according to the terms of your promissory note.

You’re considered to be in default if you haven’t made a payment in more than 270 days. You may also experience legal consequences and will lose eligibility for more federal student aid.

However, it’s worth noting that if you are just 90 days or more behind on your payments, you are still considered to be delinquent in your payments. The three major credit bureaus (Equifax®, Experian®, TransUnion®) will likely be alerted. This information may possibly lower your credit score.

Also, only federal loans in default can result in tax refund garnishment, not private student loans, though your servicer might take other steps to get the funds they are owed.

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

Options for Managing Student Loans

Fortunately, you may be able to avoid default and avoid worrying about the government garnishing your refund. You can head off tax refund garnishment using a few different methods.

It can be wise to talk with your student loan servicer about all your available options. They can help you identify the right repayment strategy for your unique situation. If you have private student loans, you can also talk to your provider to determine the right course of action.

That said, here are a few options to consider:

SAVE Plan

The Saving on a Valuable Education (SAVE) Plan, which replaced the Revised Pay As You Earn (REPAYE) Plan, offers a potential alternative to tax refund garnishment of federal student loans. The SAVE Plan is an income-driven payment plan that lowers your federal student loan payments, taking your income and family size into account to determine your monthly payment.

The plan determines your payment based on your discretionary income, or the difference between your adjusted gross income and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for your family size.

The SAVE Plan eliminates monthly interest for both subsidized and unsubsidized federal student loans if you make your full monthly payment due. The government covers your monthly interest, meaning your loan balance won’t grow due to accrued unpaid interest.

Under the original SAVE Plan, if you initially borrowed $12,000 or less, after as few as 10 years, your loans would be forgiven (meaning you wouldn’t have to continue to repay your loans after you satisfy all the requirements and guidelines of the plan).

However, it’s important to note that two U.S. district judges (one in Kansas, the other in Missouri) recently placed an injunction on the next phase of the SAVE program and blocked it from providing additional loan forgiveness. The next phase of the SAVE program was scheduled to take effect on July 1, 2024. This is a still evolving situation as of this article’s publication date and one to monitor carefully.

Recommended: Can Student Loans Be Discharged?

Offer in Compromise

You can also take a different tack and work directly with the IRS (Internal Revenue Service) to avoid wage garnishment instead of approaching your student loan servicer. An Offer in Compromise (OIC) may also help your situation.

In an OIC, you pay the IRS less than your total tax debt if you owe the IRS more back taxes than you can afford to repay. If the IRS accepts your OIC, you must meet all the terms of your offer agreement — the IRS will only release your federal tax liens and levies once you fulfill those obligations.

You can fill out the OIC prequalifier tool to learn about your eligibility for an OIC.

Federal Student Loan On-Ramp

Most federal student loan borrowers began federal student loan repayment in October 2023 after the payment pause ended.

To ease borrowers into repayment, the Department of Education created an “on-ramp” period through Sept. 30, 2024, which prevents borrowers from suffering the worst consequences of missed, late, or partial payments, such as:

•   Being considered delinquent (meaning your loan payments are 90 days or more late)

•   Reports of delinquency to credit scoring companies

•   Loans going into default

Note that interest will still accrue, and not making payments means you’ll owe more money on your student loans over time. Your loan servicer may eventually have to increase your monthly payment to ensure you pay your loans off on time.

Also be aware that you can only qualify for the on-ramp if your loans were eligible for the payment pause. You don’t have to do anything to enroll in the on-ramp period.

The Takeaway

If you are not up to date on repaying your student loans, you could be in a situation in which your loan servicer can garnish, or directly take, a tax refund that was heading your way. If this could happen to you, it may be time to consider other options, such as the SAVE Plan, an “offer in compromise” with the IRS, the federal student loan on-ramp option, or another alternative. Talking to your loan servicer can be a smart move, whether you have federal or private loans.

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

Will student loans affect my tax refund?

If you continue to repay your federal student loans on time and in full, you won’t suffer any consequences to your tax refund. It’s only when your federal loans go into default (meaning they are 270 days or more late in terms of payment) that the government may garnish your tax refund to satisfy student loan debt repayment.

Can my spouse’s tax refund be garnished for my student loans?

A refund from a joint tax return with your spouse may be subject to tax refund garnishment, even though your spouse isn’t liable for your loan default. Your spouse may qualify to reclaim their portion of the refund by filing IRS Form 8379. Check with your tax preparer or search online for more information and details.

What happens if my student loans are in default?

Your federal student loans are considered in default if you don’t make your scheduled payments for at least 270 days. “Default” for private loans may be longer or shorter than the 270 days — ask your service provider for details. The consequences of defaulting on federal loans can include the entire unpaid loan balance and interest becoming due in a process called “acceleration,” lost eligibility for more federal student aid, no eligibility for deferment or forbearance, and lost ability to choose a repayment plan. Your credit score could be negatively impacted, and your wages or tax refund could be garnished.

Photo credit: iStock/MTStock Studio

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.

SOSL-Q224-1940149-V1

Student loans are often the go-to choice for families who need help paying for a child’s college education. But as you put together your financing plan, you may find there are other options worth considering — including using a home equity line of credit, or HELOC, to cover some college costs.

Both types of borrowing have advantages and disadvantages that may influence your decision to use one or both to pay for school. Read on for a look at student loans vs. HELOCs, and how each can be used to help with your family’s educational and financial goals.

What Is a HELOC?

A home equity line of credit, or HELOC, is a revolving line of credit provided by a private lender and secured with the equity you have in your home.

HELOCs are sometimes confused with home equity loans, but they are not the same thing. Because a HELOC is a line of credit, you pay interest only on the amount of money you’ve actually borrowed. Payments can vary from month to month, and as you replenish the account by making payments, you can borrow from it again. With a lump-sum home equity loan, a borrower receives all the money upfront and pays interest on the entire loan amount from day one.

A HELOC can be used to pay for just about anything — including tuition, books and supplies, housing, transportation, and other college expenses. But because the line of credit is secured with your home, if you fall behind on your payments, you could risk foreclosure. And should you decide to sell your home, you may be required to repay what you currently owe.

Recommended: Different Types of Home Equity Loans

What Are Student Loans?

Student loans allow students and, in some cases, their parents, to borrow money to pay for a college education. Here’s how the two main types of student loans work:

Federal Student Loans

There are a few different types of federal student loans, and each has its own rules when it comes to how much you can borrow and how the money is repaid. But generally, they offer lower interest rates than many other types of loans and include more protections for borrowers, including temporary relief programs in case of financial hardship, and even the potential for loan forgiveness.

To apply for federal student aid, you must submit the Free Application for Federal Student Aid (FAFSA^®) form. If you qualify for assistance and accept what’s offered, the school will apply your federal loan funds to your outstanding account charges (tuition, fees, etc.). Whatever is left after that will then be turned over to you to use for other educational costs.

Private Student Loans

Private student loans are issued by nongovernment lenders, such as banks, credit unions, and other financial service companies. Because they aren’t backed by the federal government, these loans do not offer the same repayment options or safety-net protections as federal loans. So, if your family (student and/or parents) qualifies for federal student loans, you’ll probably want to tap those first. However, if you’ve exhausted your federal financial aid and require additional funds, you may find you can get the help you need by borrowing through a private lender.

Key Differences Between a HELOC and Student Loans

While you may decide to use federal or private student loans, a HELOC, or all three types of financing to help pay for a college education, it’s important to be aware of some key differences in how they work.

Interest Rates

•   Federal student loans are usually the way to go for borrowers who are looking for the lowest interest rates available. These loans come with a fixed interest rate that is set by the government, so once you sign on the dotted line, you can expect to pay the same rate for the life of the loan. But different types of federal student loans have different interest rates, and the way interest starts accruing on these loans also varies. If you have a subsidized loan, for example, you won’t accrue any interest while you’re in school, for six months after you leave school, or during any deferment. The U.S. Department of Education pays the interest during these periods. The interest on an unsubsidized loan starts accruing immediately, however, and it is the borrower’s responsibility.

•   Private student loans are generally available with a choice of a fixed or variable interest rate, but these rates, which are set by the individual lenders, can vary quite a bit — so it can be a good idea to shop for the most competitive offer based on your creditworthiness and other qualifications.

•   HELOCs have a variable interest rate, which means the rate can fluctuate over time. This could be good or bad, depending on which way interest rates are going. If rates drop, the borrower could benefit; but if they rise, it may make it harder to keep up with the payments. Still, because a HELOC is secured with your home, the interest rate may be lower than with other types of unsecured borrowing, such as personal loan or credit card. And because it’s a line of credit and not a lump-sum loan, you’ll only be charged interest on the amount you’ve actually borrowed.

Recommended: Student Loan Interest Rates Guide

Fees

•   Federal student loan borrowers are often surprised to learn they’ll be expected to pay an origination fee on each loan they receive. Origination fees are currently 1.057% for federal subsidized and unsubsidized loans for undergraduate and graduate students, and 4.228% for federal PLUS loans for parents and graduate students. The lender who is servicing the loan also may charge a fee if a payment is more than 30 days late.

•   Private student loan fees also can vary based on the lender you choose. Some may charge an origination fee or fees for late payments, while others, including SoFi, have zero fees on student loans.

•   HELOC fees can vary depending on the lender, but they often include an application/origination fee, notary fee, title search, appraisal fee, credit report fee, document prep fee, and recording fee. There also may be an annual maintenance fee, and charges for early termination or account inactivity.

Repayment Terms

•   Federal student loans offer the most repayment options for borrowers, including a fixed payment plan that ensures loans are paid off within 10 years and income-driven plans that base your monthly payment on your earnings and your family size. Some borrowers also may be able to have a portion of their loans forgiven. And those who have multiple federal student loans may choose to consolidate them into a single Direct Consolidation Loan. Another plus: Student and parent borrowers may be eligible for a deferment period if they become unemployed, experience an economic hardship, or serve in the military.

•   Private student loans have different repayment terms depending on the lender, and can often be repaid over a period of 10 to 15 years or longer, usually starting six months after graduation. There is no loan forgiveness with a private student loan, but some lenders, including SoFi, may offer borrowers a student loan deferment period that’s similar to what some federal loans offer. However, you can expect your loan to continue accruing interest during this time.

•   HELOC borrowers usually are required to make at least a minimum monthly payment during their account’s “draw” period. When the draw period ends — typically after 10 years — access to the line of credit ends and the lender sets up a repayment schedule based on the balance owed.

Credit Requirements

•   Federal student loan borrowers who are undergraduates don’t have to worry about passing a credit check as part of their application process — and they don’t need a cosigner to get a loan. Though parents and graduate students do have to pass a credit check to get a federal loan, there’s no required minimum credit score.

•   Private student loan lenders may have different credit requirements, but all borrowers (including undergraduates) should expect to go through a credit check. Lenders generally will be looking for a solid credit history, a good-to-excellent credit score, and other factors that show the borrower — alone or with the help of an eligible student loan cosigner — has the ability to repay the loan.

•   HELOC credit requirements can vary, but typically lenders require that you have at least 15% to 20% equity in your home, a healthy debt-to-income ratio that shows you can afford to take on the added debt load, and a credit score that indicates you can reliably repay the money you owe.

Tax Deductibility

•   Federal student loan interest payments can qualify for a tax deduction of up to $2,500, as long as you used the loan to pay eligible higher education expenses for yourself, your spouse, or a dependent. And you don’t have to itemize deductions on your return to get the tax break: The interest you pay is considered an income adjustment, so there’s no separate form to fill out.

•   Private student loan interest payments qualify for the same tax deduction as federal student loans, with the same requirements.

•   HELOC borrowers can only claim their interest payments as a deduction if they used the borrowed funds to “buy, build, or substantially improve your home.” Interest paid on money used for college doesn’t qualify for a tax break.

Borrowing Limits

•   Federal student loans have different borrowing limits based on the loan type and your student status (undergraduate or graduate) or if you’re a parent.

•   Private student loan limits can vary by lender; there is no set borrowing limit as with most federal loans. However, the maximum amount you can borrow may be based on your school’s estimated cost of attendance minus any other forms of financial aid you receive, your creditworthiness, and other factors.

•   HELOC lenders typically will allow you to tap into your home equity for 85% or more of your home’s current appraised value minus the amount you currently owe, So, for example, if your home is valued at $350,000 and you owe $250,000, you might qualify for a HELOC that’s $47,500 ($350,000 x 85% = $297,500 – $250,000 = $47,500).

Alternative Options

Although a HELOC can be used to pay for college — especially if you find you need more money than you can get in student loans — there are other options that could help your family manage education costs.

Scholarships and Grants

A wide range of scholarships and grants are available to students who are willing to take the time to do some research and apply. And this type of financial aid, which can come from private organizations, colleges, and other sources, doesn’t have to be repaid.

Work Study or a Part-Time Job

A work-study program or part-time job can also help pay some college costs. A student can check with the financial aid office at his or her school to learn more about participating in federal or state work-study programs. And local businesses like coffee shops, restaurants, retail stores, and markets often hire college workers to help out at night and on the weekends.

529 Plans

If your student is still a few years away from attending college, you may want to look into a state-sponsored 529 college savings plan, also known as a qualified tuition program. These tax-advantaged plans offer parents and others an opportunity to save ahead for a family member’s college expenses.

The Takeaway

Using a HELOC vs. student loans to pay for college has advantages and disadvantages. Because you only have to pay interest on the amount you actually borrow, a HELOC can be an affordable alternative, or addition, to lump-sum student loans. And since your home is used as collateral with a HELOC, the interest rate may be lower than with some other borrowing options. Of course, this also means you could lose your home if you can’t make your HELOC payments.

You may want to exhaust any federal financial aid for which your family is eligible — and check out potential private student loan offers — before turning to a HELOC for help. Federal student loans offer borrower protections you can’t expect with a HELOC, and you won’t be putting your home at risk.

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.

FAQ

Can I use both a HELOC and student loans?

Yes, if the federal financial aid for which you are eligible doesn’t cover all your college costs, you may choose to combine a HELOC with both federal and private student loans. You may want to compare all your options before moving forward, however, and it may be helpful to make a plan for how you expect to use and repay the money you borrow.

Does the interest rate on a HELOC vary?

Yes, a HELOC comes with a variable interest rate, which means the interest rate you pay could fluctuate based on movements in the underlying benchmark interest rate or index.

Are student loan interest rates fixed?

Federal student loans have fixed interest rates, so you’ll pay the same rate for the life of the loan. Private student loans may be offered with a choice of a fixed or variable interest rate.

Can you use a HELOC to pay off student loans?

If you can qualify for a lower interest rate, you might consider using a HELOC to pay off your student loans. But it’s important to keep in mind the upfront and ongoing costs that come with a HELOC — and you’ll lose the tax deduction you receive for the interest paid on your student loans. You’ll also lose the protections that student loans offer borrowers, and you could put your home at risk if it turns out you can’t make your HELOC payments.

Photo credit: iStock/andresr

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 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.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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The Fresh Start Program offers federal student loan borrowers who are in default a second chance at regaining federal aid benefits. This program allows defaulted borrowers to pull themselves out of the consequences of default, but borrowers must take action to enroll in the program by the impending deadline.

According to StudentAid.gov, more than six million borrowers are eligible for the Fresh Start student loan program. If you’re among the millions of borrowers who could benefit from what this temporary relief program can offer, here’s what to know and how to act on this limited-time opportunity.

Who Qualifies for the Fresh Start Program?

Federal student loan borrowers with qualifying loans are eligible to participate in the one-time Fresh Start program. Students loans that qualify include:

•   All defaulted William D. Ford Federal Direct Loans and Family Federal Education Loans (FFEL) that went into default before March 13, 2020.

•   Defaulted Perkins loans that are held by the Department of Education.

Defaulted loans that aren’t eligible for Fresh Start include Perkins loans that are held by schools, Health Education Assistance Loan (HEAL) Program loans, and Direct Loans and FFEL Loans that went into default after the COVID-19 payment pause ended. Loans that are pending litigation under the Department of Justice are also not eligible for the Fresh Start Program.

Do Private Student Loans Qualify?

Since the Fresh Start student loan program is a federal initiative, it’s only accessible to borrowers who’ve defaulted on the qualifying federal student loans mentioned above. If you have a private student loan that’s in default, it is ineligible for this government program.

It’s important to speak to your lender as soon as possible if you can’t make your loan payment. Lenders might send a defaulted private student loan to collections to get payment, and report the default to credit bureaus which harms your credit history and score.

Benefits Available Through the Fresh Start Program

If your defaulted federal student loans qualify for the Fresh Start initiative, enrolling in the program can unlock crucial benefits that are typically inaccessible with a defaulted loan status. Here’s how the Fresh Start program for student loans can help you:

•   Re-access federal student loans and grants. By lifting your loan out of default through the Fresh Start program, you’ll regain eligibility for federal student loans and grants.

•   Enroll in an income-driven repayment (IDR) plan. Fresh Starts lets you enroll in an IDR which you weren’t eligible for with a defaulted loan. This includes the newest Saving on a Valuable Education (SAVE) Plan which, according to the Department of Education, lowered monthly payments for 50% of SAVE Plan participants to $0.

•   Requalifies you for loan forgiveness. Loans in default don’t qualify for loan forgiveness, so Fresh Start can help you regain student loan forgiveness eligibility for that debt.

•   Erases the default from your credit history. Fresh Start changes the loan’s status from “default” to “current” on your credit report. This essential change not only has a positive impact on your finances, like qualifying for lower rates on new credit accounts, but also in your everyday life, like for a rental application.

•   Dodges wage garnishment actions. Some borrowers with defaulted federal loans might have up to 15% of their wages garnished as a way for the government to collect the unpaid debt. Under Fresh Start, the wage garnishment practice for qualifying defaulted loans is avoided.

•   Avoids withholding other federal benefit payments. Benefit payments from federal sources, like Social Security and tax refunds, can be automatically withheld and applied to the defaulted loan balance. By getting your loan out of default through Fresh Start, you can avoid this outcome.

Applying for the Fresh Start Program

The student loan Fresh Start application is straightforward, and enrollment only takes a few minutes. For defaulted federal student loans that are held by a guaranty agency, you must contact the agency that holds your loans to enroll in Fresh Start. If you’re unsure which agency oversees your defaulted loan, call the Debt Resolution Group at 1 (800) 621-3115.

For defaulted loans that are held by the Department of Education, there are three ways to enroll:

•   Online. Create a myeddebt.ed.gov account if you don’t already have one; otherwise, log into your myeddebt.ed.gov account. Under the Account Information page, find the Fresh Start Transfer Information section and click on the link to “enroll.”

•   Phone. Call 1 (800) 621-3115 to speak to a representative with the Debt Resolution Group. When you’re asked for the reason for your call, say that you’d like to “get out of default through Fresh Start” or similar wording. You can also express your interest in enrolling in an IDR plan while making this phone call.

•   Mail. Mail a request letter with your name, Social Security number, date of birth, mailing address, and the following language: “I would like to use Fresh Start to bring my loans back into good standing.” All letters must be postmarked before October 1, 2024 and mailed to: PO Box 5609, Greenville, TX 75403.

Does the Fresh Start Program Have a Deadline?

Generally, the main Fresh Start eligibility criteria is ensuring the federal loan that’s in default qualifies for the program. A vital part of participating in the program is requesting enrollment into Fresh Start by the September 30, 2024 deadline.

After this date, the program is closed to enrollment, and currently, there are no announced plans to extend the deadline. Don’t miss out on this one-time opportunity to get your federal student loans back into good standing.

Next Steps After the Fresh Start Program

When your loan is successfully out of the default standing, it’s assigned to a new loan servicer. The loan’s status will show on your account as “in repayment,” and the Department of Education will request the removal of the loan’s default record from your credit report.

Your new loan servicer will contact you once your loan is successfully transferred. Shortly afterward — typically within a week — you can then apply for an income-driven repayment plan to help make your payments more manageable.

The Takeaway

Fresh Start offers easy and fast relief from federal student loan default. If you have qualifying Direct or FFEL Program loans, this temporary program not only helps you get a defaulted federal loan back into good standing and re-access certain federal programs, it can improve other areas of your life and finances by removing the adverse default status from your credit record.

But with the upcoming September 30, 2024 deadline to enroll, you must act quickly to recover the benefits you lost as a result of default.

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.

FAQ

What is the deadline for the Fresh Start program?

Enrollment into the Fresh Start Program ends on September 30, 2024. Currently, the program will be inaccessible to student loan borrowers with defaulted loans after this date. Keep in mind that defaulted loans aren’t automatically enrolled in Fresh Start. If you have a qualifying student loan that’s in default, you must take action to request enrollment into the program.

Where can I find more information about the Fresh Start program?

Visit StudentAid.gov for more information and resources about the Fresh Start program. You can also contact your loan servicer to speak to a representative about your eligibility and enrollment into the initiative.

Can I still participate if I have multiple student loans?

Yes, if you have other federal student loans that are not in default, you can still participate in the Fresh Start student loan program for your qualifying defaulted student loans.

Photo credit: iStock/GaudiLab

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 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.

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.

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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