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If you borrowed money from the government to help pay for college, the time will come when you need to pay your student loans back. That time typically arrives six months after you graduate or drop below half-time status.

While the prospect of paying student debt may seem daunting while you’re a student with little to no income, don’t stress. The U.S. Department of Education offers a number of repayment options, including plans that only require you to pay a small percentage of your monthly salary. Plus, there are steps you can take to make it easier to repay your student loans and potentially save money on interest.

Read on to learn how to start paying off student loans.

Paying Back Your Student Loans

You don’t need to start thinking about paying your loans while you’re enrolled in school at least half-time, and for six months after you graduate (which is called the grace period).

Unless your loans are subsidized by the federal government, however, interest will accrue during that entire period of time. That interest gets added to your loan balance, or capitalized, when repayment begins. As a result, your balance will be larger after you graduate than the amount you initially borrowed. You’ll also be paying interest on that larger balance moving forward.

If you have some income as a student (and have unsubsidized loans), you might choose to make monthly interest payments while you’re in school, or to make a lump-sum interest payment before your grace period ends. This will leave you with a smaller balance to pay off once your repayment period officially begins and can help you save money on interest. However, this is not required.


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

Types of Student Loans

To determine the right student loan repayment strategy, it’s important to know what type of student loans you have. Here’s a look at the main types of federal student loans.

Direct Subsidized Loans

Direct Subsidized Loans are a type of federal student loan only for undergraduates who have demonstrated financial need. With these loans, the government pays the interest on the loan while you are in school and during the grace period.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students, and eligibility is not based upon financial need. Borrowers are responsible for all interest that accrues on the loan.

Direct PLUS Loan

Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for education expenses. These loans are unsubsidized, meaning that interest accrues throughout the life of the loan, including while the student is enrolled in school.

When Do You Have to Pay Back Federal Student Loans?

You need to begin paying back most federal student loans six months after you leave college or drop below half-time enrollment.

Direct PLUS loans enter repayment once your loan is fully disbursed. However graduate/professional students who take out PLUS loans get an automatic deferment, which means they don’t have to make payments while they are in school at least half time, and for an additional six months after they graduate.

If you’re a parent PLUS loan borrower, you can request a deferment (it’s not automatic). This deferment means you won’t have to pay while your child is enrolled at least half time, and for an additional six months after your child leaves school or drops below half-time status.

How Do I Pay Back My Federal Student Loans?

When you leave school, you’ll be required to complete exit counseling. This is an online program offered by the government that helps you prepare to repay your federal student loans. You’ll then have the option to pick a repayment plan. If you don’t choose a specific plan, you’ll automatically be placed on the 10-year standard repayment plan. However, you can change plans at any time once you’ve begun paying down your loans.

Your federal loan servicer will provide you with a loan repayment schedule that tells you when your first payment is due, the number and frequency of payments, and the amount of each payment.

Your billing statement will tell you how much you need to pay. If you signed up for electronic communication, you’ll want to pay attention to your email. Most loan servicers send an email when your billing statement is ready for you to access online.

You might also consider signing up for autopay through your loan servicer. Since your payments will be automatically taken from your bank account, you won’t have to worry about missing a payment or getting hit with a late fee. Plus, you’ll receive a 0.25% interest rate deduction on your loan.

Choosing a Loan Repayment Plan

To repay your loan, you’ll need to pick a repayment plan. Here’s a look at your options, plus tips on why you might choose one plan over another.

The Standard Repayment Plan

The Standard Repayment Plan is the default loan repayment plan for federal student loans. Under this plan, you pay a fixed amount every month for up to 10 years (between 10 and 30 years for consolidation loans). This can be a good option for borrowers who want to pay less interest over time.

The Extended Repayment Plan

The Extended Repayment Plan is similar to the Standard Repayment plan, but the term of the loan is longer. Extended Repayment plans generally have terms of up to 25 years. The longer term allows for lower monthly payments, but you may end up paying more over the life of your loan thanks to additional interest charges.

The Graduated Repayment Plan

The Graduated Repayment Plan starts with lower payments that increase every two years. Payments are made for up to 10 years (between 10 and 30 years for consolidation loans). If your income is low now but you expect it to increase steadily over time, this plan might be right for you.

The Income-Driven Repayment Plan

With income-driven repayment plans (IDRs), the amount you pay each month on your student loans is tied to the amount of money you make, so you never need to pay more than you can reasonably afford. Generally, your payment amount under an IDR plan is a percentage of your discretionary income (typically 5% to 10%).

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).

There are currently two IDR plans accepting new enrollments:

•   Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan

•   Income-Based Repayment (IBR) Plan

IDR can be a good option if you’re having difficulty meeting your monthly payment and need something more manageable.

Consolidating Your Loans

If you have multiple federal student loans, you have the option of consolidating them into a single Direct Consolidation Loan. This might simplify repayment if you are currently making separate loan payments to different loan servicers, since you’ll only have one monthly payment to make. In addition, a Direct Consolidation Loan could make you eligible for more repayment plans than your current loans are eligible for.

Federal loan consolidation will not lower your interest rate, however. The fixed interest rate for a Direct Consolidation Loan is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent. It might also extend your repayment term, which can result in paying more interest over the life of the loan.

Refinancing Student Loans

When you refinance your student loans, you combine your federal and/or private loans into one private loan with a single monthly payment. This can simplify repayment and might be a smart move if your credit score and income can qualify you for lower interest rates.

With a refinance, you can also choose a shorter repayment term to pay off your loan faster. Or, you can go with a longer repayment term to lower your monthly payments (note: you may pay more interest over the life of the loan if you refinance with an extended term).

If you’re considering a refinance, keep in mind that refinancing federal loans with a private lender disqualifies you from government benefits and protections, such as IDR plans and generous forbearance and deferment programs.


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

The Takeaway

If you have federal student loans, you generally don’t need to start paying them down until six months after you graduate. At that point, you’ll have the opportunity to choose a repayment plan that fits your financial situation and goals. Whatever plan you choose, you’re never locked in. As your finances and life circumstances change, you may decide to switch to a different payment plan, consolidate, or refinance your student 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

Is there a way to get rid of federal student loans?

If you repay your loans under an income-driven repayment plan, any remaining balance on your student loans will be forgiven after you make a certain number of payments over 20 or 25 years. Other ways to pursue federal student loan forgiveness are through Public Service Loan Forgiveness and Teacher Loan Forgiveness.

What is the best option for repaying student loans?

The best federal student loan repayment plan for you will depend on your goals and financial situation. If you want to pay the least possible in interest, you might want to stick with the standard repayment plan. If, on the other hand, you want lower monthly payments and student loan forgiveness, you might be better off with income-driven repayment. If your income is high but you want lower payments, you might look into a graduated or extended repayment plan.

What can the federal government do if you do not pay back your student loans?

Typically, If you don’t make payments on your loan for 90 days, your loan servicer will report the delinquency to the three national credit bureaus. If you don’t make a payment for 270 days (roughly nine months), the loan will go into default. A default can cause long-term damage to your credit score. You may also see your federal tax refund withheld or some of your wages garnished.

If, however, you had student loans that were on the pandemic-related pause, you have a little more breathing room. There is currently a 12-month “on-ramp” period that ends on September 30, 2024. Until that time, borrowers who miss making payments on their federal student loans won’t be penalized in the ways described above. Interest will still accrue, though, so you’re not entirely off the hook.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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These days, college is a pricey proposition. The average annual cost of attendance for a student living on campus at a public four-year college is $26,027 (in state) and $27,091 (out of state). The average cost of attending a private, nonprofit university is $55,840 per year.

If you’re worried about how you’ll cover the cost of sending your child to college, know that you’re not alone. Also know that you (and your student) have a number of funding options, including grants, scholarships, work-study, and student loans. Read on for tips on how to pay for college when your savings isn’t enough.

Steps to Take if You Can’t Afford College

Here’s a look at five things you can do to make sending your child to college more affordable.

Complete the FAFSA

The first thing every college-bound student is encouraged to do is fill out the Free Application for Federal Student Aid (FAFSA®). This automatically gives your student access to several types of financial aid, including grants, work-study, and federal student loans.

Even if you don’t think you’ll be eligible for federal student financial aid, it’s still a good idea to complete the FAFSA. Colleges often use the information from the form to determine eligibility for their own student financial aid, including merit aid.

Federal student financial aid can come in several forms:

•   Grants A grant is a form of financial aid that typically does not have to be repaid. Many grants, such as the Pell Grant, are awarded based on financial need. However, some are based on the student’s field of study, such as the Teacher Education Assistance for College and Higher Education (TEACH) Grant.

•   Work-Study Eligibility for Federal Work-Study is determined by information provided on the student’s FAFSA. Not all schools participate in the program, so check with a school’s financial aid office to see if it does. Work-study jobs can be on or off campus, and an emphasis is placed on the student’s course of study when possible.

•   Loans Federal student loan eligibility is another type of student aid determined by the FAFSA. There are three basic types of federal student loans : Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Direct Subsidized Loans are for eligible undergraduate students who have financial need. Direct Unsubsidized Loans are for eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. Direct PLUS Loans are for graduate or professional students, or parents of dependent undergraduate students, and eligibility is not based on need.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Speak With the Financial Aid Office

Getting comfortable with the school’s financial aid office staff is a good thing. The office staff can be a font of knowledge for parents and students navigating the complex world of student financial aid. Not only can they help you understand what federal student financial aid you might be eligible for, they can also let you know what student aid is available through that particular school.

Financial aid office staff may also be able to point you toward other offices or departments on campus that may have job opportunities for students, or that offer emergency services for current students in the form of food or housing assistance.

Recommended: What Kind of Emergency Funding Is Available for College Students?

Let Your Student Take on a Part-time Job

Asking your child to work part-time while they are in school can help offset expenses. If Federal Work-Study isn’t a part of their financial aid package, they can still look for a job on or off campus to earn some money to put toward books and living expenses. Learning how to manage responsibilities is also an excellent out-of-the-classroom lesson.

Some ideas for jobs that may offer part-time, flexible hours for students include:

•   Babysitter or nanny

•   Coffee shop barista

•   Retail sales

•   Restaurant server or cook

•   Gym/fitness associate

Some part-time jobs might offer perks in addition to pay. Food service jobs might come with a discount on food during a shift, retail sales associates might get a discount on the store’s products, and working in a gym might come with a free gym membership. A visit to the campus career services office is often a good place to start looking for a part-time job.

Encourage a Gap Year

It’s not at all uncommon for a student to take a gap year between high school and college. Some students might not feel ready for college right out of high school. Others might want to have a specific experience, like travel or working in a specific field. Gap years can also allow students to earn money to pay for their future college expenses.

AmeriCorps is a federal program that pairs individuals with organizations that have a need. Volunteers can work in a variety of places and situations, from teaching to disaster relief to environmental stewardship, and more. Some AmeriCorps programs offer stipends, housing, or educational benefits like federal student loan deferment and forbearance, or a monetary award that can be used to pay for certain educational expenses.

Taking a gap year can give both you and your student time to build savings. It can also give your child an opportunity to gain work experience, or explore different professions. Of course, there can be drawbacks to taking a break from academics. It might be difficult to get back into the flow of studying after a year without that type of structure. Taking a year off without any structure or purpose might leave your child without a sense of accomplishment, so it’s generally a good idea to have a plan for how a gap year will be spent.

Consider a Less-Expensive College

Going to an in-state school vs. an out-of-state or private college is one obvious way to cut costs. Here are some other options to consider.

•   Community college Community colleges often charge much less tuition than their four-year counterparts. Choosing a community college close to home can also save on room and board. Your student might be able to start at a community college, then transfer to the college of their choice to complete their bachelor’s degree.

•   Tuition-free colleges There are some colleges that don’t charge tuition at all. Students at no-tuition schools may be required to maintain a certain grade point average, live in a certain region, or participate in a student work program. For example, service academies associated with branches of the U.S. military offer free tuition in exchange for a certain number of years of military enlistment.

•   Professional school Another option might be to bypass a traditional college degree for training in a specific career field instead. Training for non-degreed positions might last anywhere from a few months to a few years, depending on the job. For example, commercial airline pilots aren’t required to have a bachelor’s degree, but they are required to have a pilot’s license and pass exams specific to the airline they work for. Jobs in the construction industry generally don’t require a bachelor’s degree, either, but might have apprenticeship programs or on-the-job training lasting several years.

💡 Quick Tip: Would-be borrowers will want to understand the different types of student loans that are available: private student loans, federal Direct Subsidized and Unsubsidized loans, Direct PLUS loans, and more.

The Takeaway

Paying for college is a major expense, no matter how you look at it. Fortunately, there are a number of ways to cover the cost of higher education, including scholarships, grants, work-study, part-time jobs, and federal student loans.

If those options aren’t enough, you can also look into private student loans. These are available through banks, credit unions, and online lenders. Loan amounts vary but you can typically borrow up the full cost of attendance at your child’s school. Interest rates are set by individual lenders. Generally, students (or their parent cosigners) with excellent credit qualify for the lowest rates.

Just keep in mind that private loans don’t come with the same protections, like income-based repayment plans and forgiveness programs, that are offered by federal student loans.

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.

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.

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.

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.

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If you’re thinking about taking out student loans to pay for college, you’re in good company: Nearly two-thirds of college graduates leave school with debt. Like most loans, student loans charge interest, which is the cost of borrowing money from a lender. Whether you take out federal or private student loans, you’ll end up paying back more than your original borrowed.

Is it worth it?

The answer depends on your degree, major, and the type and size of your debt. Read on to learn more about whether the current cost of college is worth it, different ways to pay for school, and when it makes sense to take out student loans.

College Costs Vary By School

It’s no secret that college costs have gone up over the years, causing more students to take on debt as a means to afford a college education. Indeed, student debt has more than doubled over the last two decades. As of March 2023, about 44 million U.S. borrowers collectively owed more than $1.7 trillion in federal and private student loans.

But not all schools cost the same amount. In fact, some colleges cost considerably less than others. According to Educationdata.org, the average cost of attendance for a student living on campus at a public four-year in-state college is $26,027 per year; out-of-state students pay $27,091 per year. The average cost of attending a private, nonprofit university, by contrast, is $55,840 per year.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Factoring in Financial Aid

Financial aid is another factor that affects the cost of going to college. Some schools may have a high sticker price but offer a variety of need- and merit-based aid options to students, which can lower the actual cost of attendance.

Colleges and universities will frequently publish what percentage of their students receive financial aid and will sometimes also publish the average award amount. This can be helpful information for students applying to colleges.

When deciding where to apply and attend school, keep in mind that while the sticker price for College A is more expensive than College B, the financial aid package at College A may make it a more affordable option in the end.

Not All Majors Have the Same Income Potential

Another consideration when evaluating whether borrowing student loans is worth it is to factor in the earning potential based on your selected major, keeping in mind that not all majors offer the same income potential.

For example, undergraduate degrees in computer and information science and software engineering net recent grads a median salary over $127,000. Other majors, such as dance or drama, generally don’t offer as much consistent earning potential to graduates.

It’s a good idea to do some research on the future earning potential for the major and field you hope to pursue. This can be helpful in understanding how much you’d realistically stand to earn and, therefore, how long it may take to pay back student loans. Resources like the Payscale College Salary Report or the Bureau of Labor Statistics are two places to start.

How Much Should I Borrow for College?

A general rule of thumb is that students should limit what they borrow to what their potential career will reasonably allow them to repay. As a rough guideline, you may want to avoid borrowing anything more than you will likely be able to earn in your first year out of college.

Keep in mind that just because your financial aid package may include a certain amount in federal student loans, you are not required to borrow the maximum. Consider reviewing other sources of financial aid like private scholarships and grants. It can also be worth setting up an annual budget with anticipated costs for tuition, fees, room and board, and other expenses so you have an idea of how much you may actually want or need to borrow to pay for school.

College Graduates May Have More Financial Stability

In the long term, college graduates may have more financial stability. Research suggests that college graduates have both a higher median income than those without a college degree and earn more over their lifetimes.

Another factor, based on unemployment rates, is that people with a college degree tend to have greater career stability than those without a college degree.

This isn’t always true, however. As some recent studies suggest, certain career paths that don’t require a degree — such as construction inspectors or cardiovascular technicians — also offer significant earning potential.

Here’s What You Might Consider if You Choose to Take Out Student Loans

There are a number of factors to consider when deciding what type of student loan will best suit your particular needs, so it’s important to do your research beforehand.

Things like whether the loan is federal or private, what the current interest rates are, and how long it will take to pay off the loan could all contribute to how much student loan debt you ultimately find yourself in and are important considerations before taking out a loan.

Federal Loans vs Private Loans

There are two main types of student loans — federal loans and private loans. Federal loans are borrowed directly from the government, whereas private loans are borrowed from private lenders like banks, credit unions, and other financial institutions.

While the two loans serve the same purpose, there are some important distinctions. Because federal loans are made by the government directly, the terms and conditions are set by law. These loans also come with certain perks and protections, such as low fixed interest rates and income-driven repayment plans, that may not be offered with private loans.

Private loans are less standardized, since the terms and conditions are set by the lenders themselves. For example, some may offer higher interest rates than federal loans, and interest rates may be fixed or variable. It’s important to understand specific terms and conditions set by a private lender. Since private student loans may lack the borrower protections and benefits offered by federal loans, you generally want to tap financial aid and federal student loans first, then consider filling in any gaps with private student loans.

Understanding Interest Rates

Sometimes people fail to consider the interest rate on the student loan and how it will affect the amount of money they will end up owing.

Interest is calculated as a percentage of the unpaid principal amount (total sum of money borrowed plus any interest that has been capitalized).

Capitalization is when unpaid interest is added to the principal balance of a loan, and interest is calculated using this new, higher amount. You might have interest capitalization if, for example, you decide not to make interest payments on an unsubsidized federal loan or private student loan while you are in school. This unpaid interest will be added to your loan balance and interest will be charged on this new, higher balance.

For all federal student loans, interest rates are set by the government and are fixed, which means they won’t change over the life of the loan. With private student loans, it’s up to the lender to set the rate and terms. Generally students (or their parent cosigners) who have strong credit qualify for the best rates. If you are interested in borrowing private student loans, it’s a good idea to do some research and shop around so you can find the loan that best meets your needs.


💡 Quick Tip: Federal student loans carry an origination or processing fee (1.057% for Direct Subsidized and Unsubsidized loans first disbursed from Oct. 1, 2020, through Oct. 1, 2024). The fee is subtracted from your loan amount, which is why the amount disbursed is less than the amount you borrowed. That said, some private student loan lenders don’t charge an origination fee.

How Long Will it Take to Repay Your Loan?

Paying more money sooner can significantly reduce the amount of time it takes you to pay off a loan (as well as lower the cost). But that may not always be a feasible option. It’s important to consider the implications of different kinds of repayment plans when you take out a loan.

The standard term to repay a federal student loan is 10 years. However, depending on your income and other factors, you may need more or less time to pay back the money. The federal government offers a choice of payment plans, including fixed payment plans and plans that base your payment on your income. Private lenders also typically offer a choice of repayment options.

When choosing your loan term, keep in mind that a longer repayment term will lead to lower payments but a higher overall cost, since you’ll be paying interest for a longer period of time.

The Takeaway

Student loans can help open up doors to higher education for students, but borrowing responsibly is important. When deciding if student loans are worth it for you — and how much you should borrow — you’ll want to consider multiple factors, including your choice of major, future career path and earning potential, and the cost of the school you hope to attend after factoring in financial aid.

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.

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.

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.

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.

SOIS1123019

Owning a small business can mean keeping a lot of plates spinning, including making sure the cash is flowing during fluctuations in income and sales.

You may need to buy more materials, pay additional workers, improve your physical location (say, something breaks), and deal with other expenses. And, because you are a small business, it may all be on you to manage this.

At times, you may need a little outside help to cover costs. You may know about long-term business loans, which can be used for borrowing large sums and take many years to pay off, but how about short-term business loans? Here, you’ll learn more about them, their pros and cons, and whether they might be right for you.

What Is a Short-Term Small Business Loan?

A short-term small business loan is a loan that is designed to help small businesses maintain cash flow and cover small expenses. Because they are meant to be paid off on a shorter timeline (usually within three to 24 months) than long-term loans, they tend to have higher interest rates and can be secured very quickly. Basically, they can get you cash fast.


💡 Quick Tip: Need help covering the cost of a wedding, honeymoon, or new baby? A SoFi personal loan can help you fund major life events — without the high interest rates of credit cards.

What Can You Use a Short-Term Business Loan for?

There are several common uses for short-term loans. A popular one is to cover project start-up costs. If your business is launching a new product or service, a short-term loan can help you avoid disrupting your business’s cash flow.

They can also help bridge cash flow gaps related to uneven sales or seasonal effects, cover emergency repairs, and purchase discounted inventory that you’re confident will sell fast and at a profit.

A short-term loan can also help small businesses take advantage of unexpected growth opportunities by giving them the capital they need to keep production running in a short time period.

Recommended: What Are Financial Hardship Loans?

What Are the Drawbacks of Short-Term Business Loans?

In addition to high interest rates, short-term loans often require frequent repayments. Instead of the customary monthly payments that come with a lot of loans, short-term business loans often require weekly, and in some cases daily, repayments. While these payments tend to be small, they can be difficult to manage, particularly if your business has uneven sales or a lower cash-flow.

There’s also a risk of accumulating debt when using short-term business loans. Because they can be so easy to get (note: there are still eligibility requirements for these types of loans), using them could potentially lead to a business owner relying on this type of small business debt financing.

This could lead to a debt trap where someone would continue rolling over their short-term debt instead of paying it off on the predetermined repayment timeline. Ultimately, rolling over the debt means the business owner would accrue significant interest if they weren’t able to pay the short-term business loan within the initial term.

Recommended: Typical Small Business Loan Fees

What Alternative Financing Options Are Available?

There are a number of alternative financing options when you need cash for your company.

•   A business credit card is another way to cover small expenses that you plan to pay back quickly. On the flip side, business credit cards can come with high interest rates. And credit card debt is considered “revolving,” which involves borrowing against a credit limit, as opposed to paying off your debt on a defined term.

•   Short-term lines of credit can help you manage day-to-day cash flow, too. Lines of credit can help provide flexibility for business owners. You can borrow up to a set amount of money but are only required to pay interest on the actual amount of money that you borrow.

You can then borrow and repay the funds on a payment schedule similar to how a credit card. Similar to credit cards, this is considered a “revolving debt.” Short-term lines of credit may come with maintenance fees. And the interest rate could go up if you fail to pay on time.

There are many financing options available to help pay for your business expenses. Short-term business loans can help you get the cash you need for your business quickly, and pay it off on the predetermined schedule, or add additional payments as your cash flow picks back up again.

Recommended: Business vs. Personal Loan: Which Is Right for You?

About SoFi Personal Loans

While you cannot use a personal loan for business expenses, there may be times in your life that a personal loan is appropriate; say, if you want to consolidate your credit card debt (which could free up funds for your small business). In those situations, see what SoFi offers.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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 .

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

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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If you’re getting divorced, you are going through a major upheaval on many fronts, including your financial life. You may wonder (and worry) about how your debt will be managed. For instance, will you wind up responsible for what your soon-to-be former spouse owes?

While the following information can’t take the place of consulting an attorney, it can help answer some of the most commonly asked questions as you navigate the divorce process. You’ll learn smart strategies for managing your debt as you move through your divorce.

Community Property vs Common Law Property Rules

First things first: Know that states generally follow either community property rules or common law property rules.

Community property states include:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin.

•   If you live in Alaska, you are in what’s known as an “opt-in state.” You and your spouse may have signed an agreement making your assets community property, but if you didn’t sign this agreement, Alaska follows common law property rules, as does every other state excluding the nine states that adhere to community property law.

If you live in a state where community property laws apply, both spouses are typically responsible for debts incurred while married. In fact, most debts are considered to be the responsibility of the “community” (the two married partners) even if only one of them signed the paperwork.

After a legal separation takes place, debt in these states is typically owed only by the person who took on that debt. Exceptions are made if the debt was taken on, pre-divorce, for the following reasons:

•   To maintain a joint asset, such as a new HVAC system on a home

•   To purchase family necessities

•   Or if the couple keeps joint accounts.

But what if one or both members of a married couple took out student loans before the marriage? In this case, the debt very well might not be considered part of community debt, although it could if the spouse signed on as a joint account holder.

If your state follows common law for property, debts taken on by one spouse are, typically, solely that person’s debts. Exceptions can include ones that benefit the marriage, such as childcare, food or clothing, and shelter or household items considered necessary.

Both parties are typically responsible if they both signed a contract agreeing to make payments, or if both names are on a property title to property or a shared account. This can also be true if both spouses’ income was considered when a creditor was making a lending decision.


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

End of Debt Accrual

When two people decide to go their separate ways, a crucial question to have clarified is when, exactly, during the separation/divorce process will you stop incurring marital debt in your state? In California, as one example, a person stops being responsible for his or her spouse’s debt on the date they separate. Every state is different so it is best to consult with an attorney.

Note that, even though state law may draw the line on your liability for a spouse’s debts because of separation or divorce considerations, creditors may still have a legitimate case for pursuing payment from you if repayment of the debt falls behind.

Plus, let’s say that according to the divorce decree, your soon-to-be ex-spouse will be responsible for payments made on a credit card. If your name is on that credit card, the court would order your ex-spouse to make payments. However, if he or she doesn’t actually make the payments on time, it can still affect your credit in a negative way.

Talk to your attorney about options available to get your name off of any accounts with debts assigned to your ex-spouse, including having your ex-spouse refinance a loan so that it is solely in his or her name. You and your ex-spouse could agree to each ask creditors to remove one another’s names according to the dictates of the divorce decree.

Recommended: Budgeting Tips for Life After Divorce

Additional Considerations

Courts may assign debts that are considered necessities to the party believed to have the ability to pay them. This may or may not be divided equally, especially in common law property states where the goal is equitable division, rather than equal division of property.

•   No matter which one of these legal structures your state follows, debt typically follows the asset. In other words, if you get a car, you’ll probably also be responsible for paying it off. This also means that, if you end up with more property than your ex-spouse after the divorce, you may be taking on a greater percentage of the debt.

•   If you and your spouse signed a prenuptial or postnuptial agreement that lays out division of debt in case of divorce, your situation probably won’t mirror the typical divorce in your state.

•   Because laws about divorce and debt responsibility differ by location, it’s important that you hire an attorney who is experienced in the laws of your state. Some couples find that using a mediator to amicably divide debts and assets is preferable to having a judge make the calls. Some mediators are also attorneys, which can be helpful.

Managing Debt After a Divorce

The cost of divorce, emotionally and financially, can be significant. Once the dust clears after a divorce, you’ll need to take stock of what you owe, balance-wise, and what monthly payments you are responsible for. You may discover that payments are higher than what you can comfortably afford each month, now that you’re only relying upon just one income.

In that case, are there any loans that you can pay off and still have enough of a savings cushion in the bank? You might, for example, have a loan with a relatively high monthly payment but, if you only have a few payments left, paying off the loan may help. Or maybe you can draw from savings to finance the fees related to divorce.

If not, you might consider consolidating your high-interest credit cards and loans into one payment through a lower-interest personal loan. Consolidating debt with a personal loan could significantly free up cash flow, right when you need it after a divorce.

Recommended: How to Use a Personal Loan for Loan Consolidation

Paying Off Debt With a SoFi Personal Loan

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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 .

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

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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