An associate degree is a two-year course of study often offered by a community college or junior college. You can get one of four types of associate degrees: AA (associate of arts), AS (associate of science), AAA (associate of applied arts), and AAS (associate of applied science).
Paying for an associate degree doesn’t have to be complicated. Here’s what to know about the options.
What Is an Associate Degree?
Associate degree programs can include a wide variety of course degrees, including general education coursework and job training. Many associate degrees require students to complete about 60 credits.
Based on the Bureau of Labor Statistics (BLS), workers with an associate degree had median weekly earnings of $1,002 in 2023 compared with $905 for workers with a high school diploma.
There are several ways to pay for an associate degree. Many students use a combination of job income, savings, and federal financial aid. You must file the Free Application for Federal Student Aid (FAFSA) in order to qualify for federal aid and many scholarships and grants. Keep in mind that if you’re working while going to school, you must maintain at least half-time status (about 6 credit hours per semester) to be eligible for federal aid.
Scholarships and grants are award money that you don’t have to repay. Grants are usually need-based, while scholarships are awarded based on academics, extracurricular activities, major, and other merit factors.
You can apply for both federal and private student loans for associate degrees. Federal student loans are loans that come from the federal government. You do have to repay student loans after you leave school, even if you don’t finish your degree.
You may also want to apply for private student loans if the aid you receive won’t be enough to cover your expenses for the semester or for the year. It’s generally recommended that you exhaust all of your federal loan options before looking into private student loans, which aren’t backed by the federal government. Here’s an overview of applying for both federal aid and private student loans for associate degrees.
Step 1: File the Free Application for Federal Student Aid (FAFSA).
In order to qualify for federal student aid (aid from the federal government), you must file the FAFSA and fill in the school code for the school or schools on your list. You’ll have to fill out the FAFSA every year prior to the start of a new school year.
The financial aid office at the school you’re considering will receive your FAFSA information to determine your eligibility for federal and state aid. You and the college will both receive a Student Aid Report (SAR), which is a paper or electronic document that offers basic information about your eligibility for federal student aid. It also lists your answers on the FAFSA.
Step 3: Look over your financial aid award.
You’ll receive a financial aid package after you provide the college with all the necessary documentation. You will likely receive a financial aid award package via email, which will detail the scholarships, grants, work-study, and loans that your school will give you. You’ll then have to accept or decline the aid you receive from the college. If you’re awarded federal student loans, you can decline all or part of those loans.
You’ll also need to complete entrance counseling and the Master Promissory Note at the Federal Student Aid website.
Step 4: Evaluate your need for private student loans.
Do you need more coverage? You may need to apply for private student loans to cover the costs of your degree. This means shopping around for a private student loan lender that fits your needs. Find out if your school offers a lender list, and be sure to compare:
• Interest rates
• Student loan fees (like origination fees)
• Repayment options
• Whether you’ll need a cosigner. You may require a cosigner if you don’t have a credit history. A parent, relative, or any other creditworthy individual can cosign with you to boost your chances of getting a student loan.
Paying Off Student Loans for an Associate Degree
What are your options for paying off student loans? Here are some of the repayment paths to consider.
Job Income
Ideally, you’ll find a job directly related to your associate degree. You can set up automatic deductions from your bank account so you won’t need to worry about missing a payment. Contact your student loan servicer if you’d like to set up automatic deductions.
One way to pay off your loans faster is to pay more than the minimum monthly amount. This will also help you save on the interest that will accrue on your loans, because you’re paying them down faster. You can also save up and pay off a lump sum.
Start Early
You don’t need to wait to graduate to start paying off your student loans. You can start paying off your student loans early, while you’re still in school. This is a great way to save on the interest that could accrue on your loans in the future and help you pay your loans off faster.
It’s a good idea to have a plan in place if you want to start paying them off early (an online budgeting tool may help). Even little amounts can make a difference over the long run.
Use Tax Deductions
Some tax deductions can often be a big help and student loan tax deductions are no exception. You can get a student loan interest deduction when filing your taxes when you pay at least $600 in qualified student loan interest. Your lender will send you IRS Form 1098-E, the Student Loan Interest Statement. You’ll be able to save money on your taxes as long as you have student loan interest to deduct.
Apply for Loan Forgiveness
It’s important to note that you can only qualify for student loan forgiveness through federal student loans. For example, you may want to qualify for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program. If you work for a government or not-for-profit organization, PSLF forgives the remaining balance on your Direct Loans after you have made 120 monthly payments under a repayment plan as a full-time employee.
If you have Direct Loans or FFEL Program loans, you may be able to take advantage of the Teacher Loan Forgiveness program. In this case, you must teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency. You can qualify for up to $17,500 on your Direct Loan or FFEL Program loans.
Contact your loan servicer if you think you qualify for one of these programs and take a look at other cancellation or discharge programs you might qualify for.
Refinancing Student Loans
When refinancing associate degree loans, a lender pays off your current loan or loans and gives you a new loan with new terms, ideally at a lower interest rate. Refinancing can help you save money over the life of your loan.
Note that having a good credit score is key to refinancing your student loans. Your credit score is a three-digit number that summarizes how well you pay back your debts. A private lender will also take your credit utilization into account, which reveals how much of your available credit you actually use. Having a high credit score and low utilization ratio can help you get the best rates possible.
If you’re thinking about refinancing associate degree loans, it’s important to understand that you can’t refinance a federal student loan into a new federal student loan — all refinances become private student loans. This also means that you give up the possibility of qualifying for forgiveness, cancellation, and discharge through the federal government, as well as deferment or forbearance options.
Refinancing Student Loans With SoFi
Refinancing student loans can be a great way to save money over the life of the loan if you’re able to refinance at a lower interest rate and you don’t plan to use federal programs. As a reminder, if you refinance a federal loan, you’ll lose access to federal benefits and protections.
If you’re considering refinancing, SoFi offers competitive rates, no origination fee, and unemployment protection. You can also talk to a representative who can walk you through the process.
Find out if SoFi student loan refinancing is right for you.
FAQ
How much are student loans for an associate degree?
Federal and private student loan lenders may charge a variety of fees for associate degree student loans, including origination fees, late payment fees, and returned check fees. However, some lenders don’t charge any of these fees at all. It’s a good idea to do a side-by-side comparison of all costs before you choose one lender over another.
Does FAFSA cover associate degrees?
Yes, you can tap into federal student aid options to pay for associate degrees. You must file the FAFSA and send the information to the schools on your list that you’re considering to complete your associate degree. You may qualify for a combination of federal student loans, grants, and work-study for student loans for an associate degree. One of the best things you can do is to talk through the details with a financial aid professional at the college you plan to attend.
Can you refinance after your associate degree?
Yes, you can refinance associate degree student loans after you obtain your associate degree. You’ll want to determine whether you can get a better interest rate and/or pay your loans off faster with a refinance. However, note that you’ll lose access to federal loan benefits and protections when you refinance. Federal programs such as forgiveness and income-driven repayment do not apply to private student loans.
Photo credit: iStock/SolStock
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.
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.
A health savings account (HSA) and a Health Maintenance Organization (HMO) are both meant to help with medical costs, but there are vast differences between the two. An HSA acts as a personal saving account, where you can set aside tax-free dollars to be used toward out-of-pocket health care expenses. An HMO is typically a low-cost health insurance plan.
It’s tough to directly compare an HSA vs. HMO, as they serve different functions. But understanding how each works, and their pros and cons, can help lower medical costs and keep more money in your wallet. Here, you will learn:
• How an HSA works
• How to set up an HSA
• The pros and cons of an HSA
• How an HMO works
• How to set up an HMO
• The pros and cons of an HMO
• The key differences of an HSA vs. HMO
• How to fund healthcare costs.
What is a Health Savings Account (HSA)?
A health savings account (HSA) allows individuals to put away pre-tax dollars to be used for future medical purposes. These funds can be used for copays, dental and eye care, and a host of other expenses not covered by a healthcare plan.
Here’s the catch: You have to be enrolled in a high-deductible health plan (HDHP). An HDHP is geared to offer you lower monthly health-insurance payments. The downside, however, is that you could get hit with a lot of out-of-pocket expenses before meeting the plan’s high deductible.
That’s where a Health Savings Account (HSA) comes in. The money in your HSA can help bridge the gap between your high deductible and your pocketbook.
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How Does a Health Savings Account Work?
A Health Savings Account works similarly to other kinds of saving accounts. You can transfer funds and pay bills online. You are free to withdraw HSA funds at any time to pay for health costs not covered by your HDHP.
Employers can contribute to your HSA, with direct deposits made straight from payroll. HSA funds can be used for you or any family member covered by your HDHP.
The money in your HSA can remain in the account and roll over every year, accumulating tax-free interest. You can even use your HSA for retirement. After the age of 65, you can start withdrawing from your HSA with no penalty.
There are rules and limits to an HSA. For tax year 2023, the IRS limits contributions to no more than $3,850 for individuals and $7,750 for families with HDHP coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution. For 2024, HSA contribution limits are $4,150 for individuals and $8,300 for families. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.
How to Set Up an HSA
Setting up a tax-advantaged HSA is pretty straightforward. If you are self-employed, take the time to compare different HSAs online. Many of them have reasonable fees (or none) and minimal requirements.
If your HSA is offered directly through your employer, that makes the decision easy.
The steps to enroll in an HSA are not unlike opening a bank account. You’ll need proof of a government-issued ID, your Social Security number, and proof of your enrollment in a HDHP.
A health savings plan provides a range of advantages, including:
• Covering out-of-pocket medical expenses, including dental costs, copays, new eye glasses, and hearing aids. The IRS has a lengthy list of all the goodies you can buy with your tax-free dollars.
• Lowering taxable income. HSA contributions go into your account before taxes, so you could pay less taxes down the line.
• Investing for the future. You can opt to have your HSA money invested in chosen mutual funds once you reach a minimum requirement balance.
• Covering health expenses for your family. HSA benefits anyone who is currently covered by your high-deductible savings plan.
• Rollover contributions. Unused contributions don’t vanish. They roll over into the next year, growing and accumulating tax-free interest.
• Retirement savings. Any unused funds can be used to boost retirement savings. They can be withdrawn after the age of 65, and spent as you please. You can put the money toward a beach vacation or any other purpose.
• Portability. If you move or change jobs, the money is still yours. You don’t have to surrender it.
Cons of an HSA
There are some potential disadvantages to having an HSA, including:
• Penalties for non-qualified expenses. Before the age of 65, the IRS can impose a substantial 20% penalty on monetary amounts spent on unapproved purchases. This money will also be viewed as taxable income.
• Monthly/annual fees. Some health savings accounts may charge a low monthly service fee. Service fees tend to be no more than $5 per month. Some HSAs allow you to invest in mutual funds after your balance reaches a certain amount. If you choose this option, you will probably be charged an annual account management fee.
• Unable to contribute. Budgets can get tight. There are times when you might not be able to regularly contribute money to your HSA.
• Tracking for your taxes. HSA expenditures and contributions must be reported on your tax return. Keeping tabs on those transactions can be tedious.
• Monetary losses. As with an IRA or 401(k), if you choose to invest your HSA money in mutual funds, your balance can experience gains and losses as the market fluctuates. These investments are not FDIC-insured like bank accounts are.
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What is a Health Maintenance Organization (HMO)?
A Health Maintenance Organization (HMO) is a type of health insurance plan. An HMO tends to offer lower monthly or annual premiums and a specific pool of doctors. If you stay within their network of healthcare providers, you may have lower out-of-pocket costs and, unlike with a HDHP, a lower deductible or even no deductible at all.
How Does a Health Maintenance Organization Work?
A health maintenance organization (HMO) plan consists of a group of insurance providers who have contracted certain doctors and hospitals to work with them. These medical professionals and facilities agree on a payment rate for their services, which can translate into reduced costs for you.
As long as you use the doctors in the HMO network, you are eligible for medical services that cost less. HMOs typically require a referral from an in-network primary care physician in order to receive low-cost services from specialists, such as an oncologist or gynecologist.
Many health insurance companies offer HMO plans as a coverage option. An individual can choose the HMO plan and go through the steps of enrollment, either on paper or via an online form. The process includes selecting your primary care physician.
Pros of an HMO
The advantages of enrolling in an HMO plan can include:
• Lower monthly premiums versus other insurance plans.
• Lower out-of-pocket expenses when you see your GP or specialists, have tests done, and access other kinds of medical care.
• Lower prescription costs for your medications.
• Fewer medical claims, as the paperwork is filed in-network.
• Appointing a primary care doctor, whose office may coordinate and advocate for your various medical services.
Cons of an HMO
There are disadvantages of having an HMO, including:
• Limited access to doctors and facilities. You must stay within their network of providers or risk paying out-of-pocket, except in the case of certain emergencies.
• A new primary care doctor. If your current doctor isn’t in the HMO’s network, you’ll have to find a new primary care physician. For some people, this may be a difficult switch to make.
• Referral requirements. To see a specialist and have your HMO pay for those services, you’ll need referrals; you can’t just look up a specialist and see them.
• Strict definitions. There are times when you must very specifically meet requirements to have medical services paid for. This can be important to know during emergencies and other medical situations.
Can You Have Both an HMO and HSA?
Yes. There is no real rivalry happening with HMOs vs. HSAs, as they are so different. But if you are wondering if you can have an HSA with an HMO, here’s what you need to know. You can use an HSA with an HMO, as long as the HMO qualifies as a high-deductible health plan (HDHP). Since HMOs are often low cost healthcare plans, an HMO may not qualify as an HDHP. Check with your particular plan to see.
Key Differences Between an HMO vs HSA
• An HSA acts like a savings account, an HMO is a health plan offering savings through lower-cost healthcare options.
• An HSA does not offer a network of doctors, but can offer investment opportunities and help you save for retirement.
Besides enrolling in a low-cost HMO, or opening an HSA, there are other ways to save money and pay for medical expenses.
Flexible Spending Account
A flexible spending account (FSA) acts very much like an HSA. It is similar to a savings account, and can be used for medical expenses and saving for retirement.
An FSA, however, can only be obtained through an employer. Self-employed people cannot have an FSA.
Money Market Account
A money market account works like a traditional checking or savings account. You could use the money for healthcare costs, or any other purchases. Money market accounts can offer a higher interest rate than other saving accounts, but there may be a higher minimum account balance required and more costly fees.
Savings Account
A traditional savings account can be set up with a bank or a credit union. Funds in a savings account can be spent on anything. But savings accounts may offer lower interest rates than other types of saving options. However, high-yield savings accounts may help close that gap somewhat.
The Takeaway
Enrolling in a health savings plan (HSA) or a health maintenance organization plan (HMO) provides different advantages, with the same goal in mind: saving you money on healthcare costs. Enrolling in one (or both) can bring a sense of security for you and your family and help you hold onto more of your hard-earned cash.
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FAQ
Is an HSA better than an HMO?
An HSA isn’t better; it’s just different. An HSA is a kind of savings account for people enrolled in a high-deductible healthcare plan and is used to pay for medical costs. An HMO is a low-cost health insurance plan that gives you access to a specific network of healthcare professionals.
What happens to an HSA if you switch to an HMO?
You can keep and use an HSA with any type of health plan, as long as it qualifies as a high-deductible health plan (HDHP). If not, you can keep and access the money in the HSA, but you can no longer contribute to it.
What happens to my HSA if I cancel my insurance?
You can continue to use the money in the HSA account, but can no longer contribute to it until you’re enrolled in another HDHP.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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A Pell Grant is a type of federal funding that’s awarded to eligible undergraduate students who have exceptional financial need, and is provided to help pay for their education. In general, unlike a loan, Pell Grants usually don’t need to be repaid. The maximum amount that you can receive varies each year, with the 2023-24 school year’s maximum being $7,395.00.
Factors that play a role into what you might receive include your Expected Family Contribution (or EFC), the cost of attending your specific school for your specific program, whether you’ll be attending full-time or part-time, and whether you intend to attend school for the entire academic year.
Applying for a Pell Grant
If you believe you might qualify for the Pell Grant, then step one is the same as for every type of federal funding for students — to fill out the Free Application for Federal Student Aid (FAFSA®). Note that you’ll need to fill out this form every year that you’re attending school to apply for federal aid, including but not limited to the Pell Grant.
If you receive Pell Grant funding, then your school can apply these funds to your school costs or pay you — or use a combination of these two methods.
Pell Grant Eligibility Requirements
In order to qualify for a Pell Grant, you’ll need to meet the grant’s eligibility requirements.
Income
Pell Grants are awarded to individuals who exhibit exceptional financial need. There are no official income limits for the Pell Grant. Instead, award amounts are determined by your Expected Family Contribution, the program cost of attendance, and your status as a full- or part-time student.
Academic Achievement
Renewal of the Pell Grant each year is based on the student making satisfactory academic progress. The specific policy for academic progress will be outlined by your school, but it generally includes things like a minimum GPA and the number of class credits you need to complete in order to make progress toward your degree.
Completing FAFSA
To apply for the Pell Grant, you’ll need to fill out the FAFSA. In order to continue receiving the Pell Grant, you’ll need to fill out the FAFSA each year you are enrolled in school.
Pell Grants are generally only awarded to undergraduate students. Though, there may be some exceptions for students enrolled in post-baccalaureate teacher certification programs.
Maintaining Eligibility for a Pell Grant
To maintain your eligibility for a Pell Grant, you’ll need to stay enrolled in your undergraduate program. Additional Pell Grant requirements, among others, include that you need to either be a U.S. citizen or an eligible non-citizen.
You’ll also need to have a valid Social Security number and must be enrolled or accepted for enrollment in an eligible educational program.
This program is available to qualifying students for 12 semesters.
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Student loans are borrowed funds that need to be repaid, typically with interest. There are both federal student loans that the government offers, and private ones offered by financial institutions.
Federal Student Loans
Federal student loans are offered to students based on data included in the FAFSA. Some federal student loans are unsubsidized, while others are subsidized. With an unsubsidized loan, the interest begins accumulating as soon as funds are dispersed. So, while you’re in school, even if you aren’t making payments yet, interest is accruing.
With a subsidized loan, though, the government will pay your interest until you graduate or drop below half-time status.
You usually need to start paying back federal loans after the grace period, which is six months after you graduate or your enrollment drops below half-time.
Private Student Loans
Private student loans are usually used after federal student loan options have been exhausted. They may have a fixed or variable interest rate, and do not come with the same borrower protections as federal student loans. Different lenders may have different terms and rates and they’ll likely evaluate a potential borrower’s credit score and history, among other factors, to make their lending decision.
There are thousands of scholarships available to help students finance their college education. Some are based on financial need, others on merit, and sometimes both. The beauty of scholarships is that, unlike loans, they usually don’t need to be repaid. It can take some time to find the right scholarships for your situation.
Your high school counselor or college advisor may be able to help, and there are scholarship databases that you can search. Scholarships come with different requirements and different deadlines, so it typically helps to start early.
Grants
Like scholarships, grants typically don’t need to be paid back. They can be obtained from a variety of sources, including state governments, the federal government, your university, and private/non-profit organizations.
To receive a grant, you often need to meet financial criteria, and this kind of funding is usually based on financial need. And, this brings us full circle to a popular type of grant for college students today: the federal Pell Grant.
How Do Pell Grants Work?
To become eligible, you must fill out the FAFSA. If it’s determined you’re an undergraduate student with exceptional financial need — and you haven’t yet earned a bachelor’s degree (or a graduate or professional one) — then you may qualify for this grant funding.
Because each school that participates in the federal Pell Grant program receives enough funding annually to pay the full amount of Pell Grants to eligible students, if you’re eligible, you’ll receive the full amount you qualify for — and, if you qualify for other student aid, this does not have an impact on your Pell Grant eligibility.
Understanding Expected Family Contribution
As mentioned earlier, your Expected Family Contribution (EFC) plays a role in what you’ll be awarded. This is an index used by college financial aid departments that allows them to calculate how much financial aid you’re eligible to receive if you attended their school. The financial aid departments make these calculations based upon information provided in your FAFSA.
Sometimes, students qualify for 150% of scheduled Pell Grants, and you might hear this referred to as “year-round Pell.” That’s because, sometimes, you can also receive Pell Grant funding during the summer semester. If this interests you, you’ll need to talk to your school’s financial aid department about the requirements for this type of Pell Grant.
Additional Pell Grant Funding for Military Service in Afghanistan or Iraq
Students may be eligible for more funding if their parent or guardian was a:
• member of the U.S. military who died as a result of service performed in Iraq and/or Afghanistan, post 9/11
• public safety officer who died in active service in the line of duty
Eligibility requirements also include that, at the time of this death, you were younger than 24 years old or were enrolled in college or a career school on at least a part-time basis. If you qualify and are eligible for a Pell Grant, then your eligibility will be calculated as if you had an EFC of zero. If you’re attending less than full-time, then payments will be adjusted accordingly.
What Sorts of Expenses Can the Pell Grant Be Used For?
The Pell Grant can be used to cover qualified education-related expenses, including:
Tuition
Pell Grant funds can be used to pay for the cost of tuition.
Educational Expenses
You can use your Pell Grant to pay for other education-related expenses, such as the cost of books, lab fees, or other supplies like a graphic calculator or other expenses related to your course of study.
Living Expenses
It’s also possible to use the Pell Grant to pay for living expenses. This could cover room and board at your college or university. Or, if you live off-campus, this could cover the cost of rent.
Is There Ever a Reason Not to Take a Pell Grant?
Because the Pell Grant does not typically need to be repaid, it is a desirable type of financial aid. If you expect to earn a larger award in the future — for example if you plan on transferring to a more expensive institution or anticipate your EFC to be less — you may consider declining your award in the hopes of qualifying for a larger award in future years.
When You Still Need More Money
The FAFSA, which is required to qualify for the Pell Grant, is also required for other forms of financial aid. In your financial aid award, you’ll also be able to review any scholarships, grants, work-study, or federal student loans you may have qualified for.
Generally, scholarships, grants, and work-study are relied on before student loans. Then federal student loans, particularly Direct Subsidized Loans which, as mentioned, do not accrue interest until after a student graduates or drops below half-time enrollment.
Private Scholarships
Thoroughly investigate scholarship opportunities, as well as grants. To increase your chances of successfully receiving these kinds of funding, it can really help to carefully prepare to apply for them. Materials you will likely need include transcripts, personal references, and a personal statement.
You can ask a trusted adult, whether that’s a teacher, parent, or guidance counselor, to read over what you’ve written. And, although some of the scholarship or grant amounts might at first look small, multiple smaller awards can really add up.
Part-Time Job
If you don’t qualify for or can’t find a work-study job, you can still seek employment on your own. Colleges often provide job boards that list opportunities for employment, either on or off campus.
You can also check job sites that aren’t connected with the college, and ask guidance counselors, professors, and friends and family for leads.
No matter how you find a job, having one can help you to earn money for college while also helping you to build a resume that could prove valuable as you look for full-time employment after graduation.
Private Student Loans
You can fill in the gap between what you can obtain with federal student loans, scholarships, and grants with private student loans. These loans differ from federal loans in many ways, with federal ones having fairly static criteria, including fixed interest rates, multiple plans for repayment, and options for loan forgiveness.
Private loans, as mentioned, are offered by financial institutions, such as banks and online lenders. To request funds, you fill out an application, just like you might for a car loan, a mortgage, or a personal loan. To qualify, the lender will typically review your income and your credit score — and those of your cosigner, should you need one — among other financial factors.
Private lenders set their own criteria for loan approvals, as well as their own terms. Private student loans can come with multiple benefits and, in many cases, they can provide the funding that would ultimately make a difference between being able to pay tuition — or not.
There are also downsides to borrowing private student loans. They don’t have the loan forgiveness programs that are available with federal student loans, or income-driven repayment plans. This means that private student loans are generally considered only after all other options have been evaluated.
If private loans may make sense for you, shop around to compare lenders and find the option that is best for you. To help determine what your payments might be with private loan funding, you can use this student loan calculator to get an idea.
Pell Grants are awarded to students who exhibit exceptional financial need. Pell Grants do not typically need to be repaid and the amount awarded to each student may vary based on their personal financial circumstances. The maximum award for the 2023-24 school year is $7,395.00.
Other options for paying for college include federal student loans, scholarships, work-study, and grants.
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
What disqualifies you from getting a Pell Grant?
The Pell Grant is awarded to undergraduate students who demonstrate exceptional financial aid. To determine this, factors like your family’s Expected Family Contribution (EFC) and the cost of your school will be evaluated. Students who don’t demonstrate exceptional financial need generally won’t qualify for a Pell Grant.
Individuals who are incarcerated are also not eligible to receive a Pell Grant.
Will you ever need to pay back a Pell Grant?
In most cases, you won’t be required to repay a Pell Grant. In certain situations, a student may need to repay all or a portion of their grant — such as if they dropped out of school or dropped from full-time to part-time enrollment.
Is there a minimum GPA required for a Pell Grant? Does it have to be maintained for your whole degree?
In order to maintain eligibility for a Pell Grant, you’ll need to make satisfactory academic progress toward your degree. The specific requirements will be outlined by your school, but may include a minimum GPA.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
Are you a freelancer? If so, you are in good company. Last year, almost 40% of the U.S. population did freelance work.
As the gig economy surges and more people participate, it’s important to be aware of the taxes you owe and the deductions you can take. Those deductions can help lower the amount of taxes you owe and help you keep more of your hard-earned money, so you’ll want to claim what’s due to you.
Taxes for those who are self-employed can get complex, and tax laws can change frequently. It’s therefore wise to do your research or hire a tax professional who focuses on freelance taxes.
But whether you choose to work with a tax pro, or go it on your own, it can be very helpful to know about the self-employed tax deductions that are usually allowed. To help you get up to speed, read on for 25 tax deductions that many freelancers can take.
Self-Employed Tax Deductions You Won’t Want to Miss
When considering whether an expense is deductible or not, you may want this rule of thumb in mind: The Internal Revenue Service (IRS) guideline for freelancer tax deductions is that expenses must be ordinary and necessary.
If you purchase an item or incur an expense even if you weren’t running your freelance business, it likely would not qualify for a deduction.
Below are some key deductions you may be able to qualify for. Knowing and noting them can help you with financial planning for freelancers.
1. Home Office
Are you earning money from home? If so, one of the most common deductions for freelancers is claiming a home office on your taxes. To take this deduction, the designated space must be used regularly and exclusively for business operations, and must be the principal location where business is conducted.
You can take this deduction whether your own or rent. You can use the simplified method, which has a rate of $5 per square foot for business use of the home, with a maximum deduction of $1,500 (or 300 square feet), according to the IRS .
Or, you can use the regular method, which divides expenses of operating the home (including mortgage/rent, real estate taxes, utilities, home insurance) between personal and business use.
Calculating Home Office Tax Deductions
To maximize your deduction for a home office you may want to calculate both the simplified and the regular techniques to see which is higher.
• As mentioned above, the simplified method involves calculating your home office’s square footage (up to a cap of 300 square feet), and multiplying that by five.
• For the regular method, you would use IRS Form 8829 to figure out the number. While this is a more involved calculation, it might yield a higher number.
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2. Office Supplies
Looking for more tax deductions for freelancers? The materials you purchase to work in your home office, such as paper, pens, pencils, pads, printer ink, staples, paper clips, etc, can typically be deducted at full cost as long as the items are used for business.
3. Hardware and Equipment
If you require specific hardware, such as a laptop, personal computer, tablet, or other types of equipment to run your business, these purchases may count as deductions.
Or maybe you earn money from a side hustle like photography or jewelry making, which requires specialized equipment.
You may want to talk to your accountant about the best way to deduct these expenses, as some bigger purchases that will be used beyond one year may need to be depreciated over a set number of years, rather than deducted in full.
4. Web Hosting and Online Tools
If you have a website and pay fees for web hosting, these expenses can likely be deducted from your taxes. If you use other online tools for your business (such as Dropbox or Zoom), fees you pay for these services can also usually be deducted.
5. Phone And Internet Service
If you use the internet, a landline phone, or a cell phone for business at least some of the time, these services may qualify for a deduction.
You may want to keep in mind, however, that you can generally only deduct a portion based on your business usage.
6. Start-Up Costs
Here’s another freelance tax deduction: You may be able to deduct up to $5,000 of initial purchases and investments made to get your business up and running in its first year. Purchases that exceed that amount can often be deducted over time.
7. Employee Salaries
The cost of paying employees to work within a business can usually be deducted. These costs generally include both wages and benefits.
8. Self-Employment Tax
Are you a 1099 worker? Self-employment taxes cover freelancer contributions toward Social Security and Medicare. You can generally deduct the employer-equivalent portion of your self-employment tax, which is half the total self-employment tax.
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9. Your Car
The entire cost of ownership and maintenance of any vehicle used strictly for business purposes can typically be deducted from business income (subject to some limits). For 2023, the standard mileage rate per the IRS for business-related driving you do is 65.5 cents/mile.
Cars driven for both business and personal use can also be deducted, but only for costs incurred while conducting business. It’s wise to set up a system to keep track of when you are driving for personal vs. professional purposes.
10. Unpaid Invoices
Also known as bad debt, unpaid invoices (meaning your business is owed money that it has no hope of reclaiming) may be deductible.
However, in order for the deduction to be allowed, it must be clear to both parties that the transaction was not a gift.
11. Business License
Depending on the industry, certain state and federal licenses may be required for a business to operate. However, there may be an amortization schedule to be aware of, meaning you would deduct percentages of the cost over time.
The fees paid annually to state or local governments for obtaining those licenses can generally be deducted.
It’s wise to look further into the tax code to be sure you understand how to properly take these deductions.
12. Qualified Business Income
This is a newer self-employment deduction. If you earn $182,100 or less as a single filer (or $364,200 as a joint filer) in 2023, you may qualify for a 20% deduction on your taxable business income via the QBI, or qualified business income deduction.
13. Product Supplies and Storage Units
For freelancers who sell products, the supplies purchased in order to make those products can usually be a freelance tax deduction.
The costs of keeping business supplies and assets in a storage unit can generally also be deducted, since storage is an expense factored into the overall cost of the goods sold.
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14. Business Loan Interest
If you’ve taken out a loan to help fund your business, you may be able to deduct the interest you incur from it as a business expense.
For this to be deductible, however, a freelancer must be legally liable for that debt. In addition, both the freelancer and the lender must intend that the debt be repaid and have a true debtor-creditor relationship.
15. Meals
Sorry, buying takeout and eating it at your desk isn’t tax-deductible. But if you are traveling for business, at a conference, or dining with a client, then you can deduct 50% of the cost if you have the receipt. If you don’t have the receipt, you can take off 50% of the standard meal allowance.
16. Transaction Fees
If part of your business involves processing credit card orders, you may have an additional freelancer deduction. The processing costs a freelancer may incur by accepting credit cards payments is usually deductible as a qualified business expense.
17. Attorney & Accountant Fees
The fees charged by attorneys and accountants that are related to operating your business are typically considered tax-deductible business expenses.
That includes tax preparation fees, as well as any additional tax resolution expenses that pertain to your business.
18. Education Costs
Freelancer deductions can include the cost of education that helps you maintain or improve skills needed in your present work. This tax deduction also typically includes costs for books, supplies and even transportation.
19. Industry Events
Fees for attending conferences or conventions that are business related can typically be deducted.
Not only are the admission or registration fees often deductible, but all reasonable travel expenses accrued in order to attend the event may be deductible as well.
20. Promotional Materials
Tools used for marketing, advertising, and the general promotion of a business are considered deductible expenses. That includes advertising your product or service on social media or elsewhere.
Any expenses incurred in order to influence legislation (such as lobbying), however, are not deductible.
21. Business Membership Fees
While you generally can’t deduct dues or fees paid for memberships in clubs organized for recreational or social purposes, dues paid to join organizations that align with your specific business industry are usually considered deductible.
This includes organizations, such as boards of trade, chambers of commerce, and professional organizations (like bar associations and medical associations).
22. Business Travel Expenses
Travel costs that are associated with conducting business are considered valid income tax deductions, as long as they are ordinary and necessary and last more than one workday.
This can include flights, hotel stays, meals, getting around locally via bus/train/ride sharing services, even dry cleaning or laundry expenses while you’re away from home.
You may want to keep in mind that lavish and extravagant travel conditions generally do not qualify for deduction.
Also, day-to-day commuter expenses between home and business are not typically deductible.
23. Business Gifts
If you give a gift to a client or vendor as a thank you for conducting business with you, the cost of the gift is generally deductible up to $25 per person per year.
Extra costs such as engraving, packing, or shipping aren’t included in the $25 limit if they don’t add significant value to the gift.
24. Health Insurance
Self-employed individuals with qualifying policies are typically allowed to deduct premiums for health, dental, and long-term care for themselves and their families.
25. Retirement Plan Contributions
Just because you don’t work for a large company doesn’t mean you can’t benefit from a tax-advantaged retirement plan. Indeed, freelancers often have even more options for saving this way.
Two self-employed retirement options you may want to consider: a traditional IRA (which allows you to contribute up to $6,500 per year in pre-tax dollars if you’re under 50, and up to $7,500 if you’re older) and a SEP IRA (which allows you to contribute up to 25% of your income for a maximum of $66,000 per year for tax year 2023).
Claiming Tax Deductions
Why is it important to claim tax deductions? They will help lower how much you pay in taxes and increase how much you keep to spend and save.
If, say, you earn $120,000 in a given year and can claim $25,000 in tax deductions, then you would only be paying taxes on $95,000. That can make a big difference in your daily financial life as well as your ability to build wealth and hit your financial goals.
Tips for Freelancer Tax Deductions
If you are a freelancer, there are a couple of smart guidelines to follow as you move through the tax year.
Keeping Records of Everything
As you earn, spend, and save as a freelancer, it’s important to make a budget and track where your money is going. Keeping records of how much you are paid from different clients or customers, what you are spending on your business, and when and where those expenses are incurred (and even how they are paid) can make a big difference when tax preparation time rolls around.
Also, if you ever need that information if audited, you will be glad you have those files.
Keeping Your Personal and Business Finances Separate
As you have learned, it’s important to keep your business and personal finances separate when you are self-employed. This means your workspace, your transportation and meal expenses, and the like.
This will have important implications at tax time. For instance, you may have to parse how much of your rent or mortgage and your utilities actually go towards your home-based business vs. personal use.
• Opening a separate bank account for your business. It can be a smart move to keep your business finances separate from your personal to clarify your professional earning and spending. Many financial institutions offer business accounts to meet these needs. If you are just launching a side hustle or have a small, part-time gig, you might simply open up an additional checking and savings account to start.
Working With a Tax Professional
It’s not always easy to decipher the tax code as a freelancer or know which expenses qualify and to what expense.
Sometimes, working with a qualified tax professional can help. They are trained to know the ins and outs of the law and can guide you on correct tax filing.
As a freelancer, you can often lower your tax liability by deducting expenses that were incurred to operate your business.
There are a wide range of deductions you may be able to take, including some or all of your expenses for a home office, supplies for that home office, business events, advertising, self-employment taxes, and more.
In addition to managing your business income, you’ll also want to consider the full breadth of financial services you need, and compare which banking partner is best for your needs, whether personal or professional.
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FAQ
Do freelancers need to declare income?
Yes, if you are a freelancer, you need to declare your income and pay taxes on it. It is wise to pay quarterly estimated taxes to avoid a large tax bill and potential penalties at tax time.
How is income tax calculated for freelancers?
In addition to regular income tax, freelancers typically need to pay a self-employment tax of 15.3% to cover Social Security and Medicare taxes. Typically, employees and their employers split that bill. But self-employed people pay the whole thing.
What happens if you don’t file freelance taxes?
Not filing freelance taxes doesn’t mean you don’t owe them. Not paying taxes can mean you are still liable for the amount you owe, plus interest and penalties.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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.
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.
Most of us simply don’t have the cash on hand to pay for college or graduate school out of our pockets. For the 2023-24 school year, the College Board estimates it costs $41,540 on average annually to attend a private non-profit four year university and $11,260 for in-state students at a public four-year school.
That means you might need to take out student loans to fund your education.To make sure you’re not in danger of defaulting on your loans or paying too much, you might want to understand some basics of student loans.
When you take out student loans, they’re either private or federal — meaning they either come from a private lender, like a bank, or are backed by the federal government.
Federal student loans are either subsidized or unsubsidized Direct Loans. There are also Federal Direct PLUS loans for parents or graduate and professional students. Interest rates for federal loans are set by Congress and stay fixed for the life of the loan. Federal student loans come with certain protections for repayment.
But what are the differences in the types of federal loans? When you’re weighing your options, you might want to understand some of the differences between a Federal Direct Unsubsidized Loan vs. a Direct Subsidized Loan vs. a private student loan, so you can evaluate all of your options.
• Federal Direct Unsubsidized Loans allow students to borrow without proving financial need, making them accessible to undergraduates, graduates, and professional degree students.
• Interest on Unsubsidized Loans begins to accrue immediately after disbursement, resulting in a higher total amount owed upon graduation compared to Subsidized Loans.
• To apply for a Federal Direct Unsubsidized Loan, students must complete the Free Application for Federal Student Aid (FAFSA), which determines eligibility for various financial aid options.
• The interest rates for these loans are fixed and set annually by Congress, with specific rates for undergraduates, graduate students, and PLUS Loans for parents.
• Advantages of Unsubsidized Loans include higher borrowing limits and income-based repayment options, while disadvantages involve responsibility for accruing interest and potential capitalization.
What Is a Federal Direct Unsubsidized Loan?
The federal government offers two umbrellas of Direct Loans: unsubsidized and subsidized. When you take out a loan, the principal amount of the loan begins to accrue interest as soon as the loan is disbursed (when the loan is paid out to you). That interest has to be paid or it is added onto the loan amount.
Subsidized Federal Student Loans
On a Federal Direct Subsidized Loan, the federal government (specifically, the US Department of Education) pays the interest while you’re in school, during the six-month grace period after you graduate, and if you temporarily defer the loans. On a Federal Direct Unsubsidized Loan, you are responsible for paying all of the interest on the loan from the moment it starts accruing.
Since the interest is paid for you while you are in school on a subsidized loan, it doesn’t accrue. So the amount you owe after the post-graduation grace period is the same as the amount you originally borrowed.
Unsubsidized Federal Student Loans
On a Federal Direct Unsubsidized Loan, the interest accumulates even while you’re in school and during the grace period — even though you aren’t required to make any payments while in school.
The interest is then capitalized, meaning it gets added to the total principal amount of your loan. That amount in turn accrues interest, and you end up owing more when you graduate than you originally borrowed.
Of course, you can make interest payments on your unsubsidized loan while you’re in school to save yourself money in the long run. However, you’re not required to start paying off the loan (principal plus interest) until six months after leaving school.
For the 2023-2024 school year, the interest rate on Direct Subsidized or Unsubsidized Loans for undergraduates is 5.50%, the rate on Direct Unsubsidized Loans for graduate and professional students is 7.05%, and the rate on Direct PLUS Loans for graduate students, professional students, and parents is 8.05%. The interest rates on federal student loans are fixed and are set annually by Congress.
Origination fees for unsubsidized and subsidized loans is set at 1.057% for the 2023-2024 academic year.
How Do You Apply for a Federal Direct Unsubsidized Loan?
The first step to finding out what kind of financial aid you qualify for, including Federal Direct Unsubsidized Loans and Subsidized Loans, is to fill out the Free Application for Federal Student Aid (FAFSA®).
Your school will then use your FAFSA to present you with a financial aid package, which may include Federal Direct Unsubsidized and Subsidized Loans and other forms of financial aid like scholarships, grants, or eligibility for the work-study program.
The financial aid and loans you’re eligible for is determined by your financial need, the cost of school, and things like your year in school and if you’re a dependent or not.
Who Qualifies for Federal Direct Unsubsidized Loans?
Federal Direct Subsidized Loans are awarded based on financial need. However, Federal Direct Unsubsidized Loans are not based on financial need.
To receive either type of loan, you must be enrolled in school at least half-time and enrolled at a school that participates in the Federal Direct Loan program. And while subsidized loans are only available to undergraduates, unsubsidized loans are available to undergrads, grad students, and professional degree students.
Pros and Cons of a Federal Unsubsidized Direct Loan
There are pros and cons to taking out federal unsubsidized direct loans.
Pros
• Both undergraduates and graduate students qualify for Federal Direct Unsubsidized Loans.
• Borrowers don’t have to prove financial need to receive an unsubsidized loan.
• The loan limit is higher than on subsidized loans.
• Federal Direct Loans, compared to private loans, come with income-based repayment plan options and certain protections in case of default.
Cons
• Federal Direct Unsubsidized Loans put all the responsibility for the interest on you (as opposed to subsidized loans). Interest accrues while students are in school and is then capitalized, or added to the total loan amount.
Federal Direct Unsubsidized Loans are available to undergraduate and graduate students and are not awarded based on financial need. Unlike subsidized loans, the government does not cover the interest that accrues while students are enrolled in school. Unsubsidized federal loans are eligible for federal benefits like income-driven repayment plans or Public Service Loan Forgiveness.
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.
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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