Feb
04
2026
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Can You Contribute to Both a 401(k) and an IRA?

By | Budgeting & Goals, Growing Wealth, invest | Comments Off on Can You Contribute to Both a 401(k) and an IRA?

“Can I contribute to a 401(k) and IRA?” It’s a question many individuals ask themselves as they start planning for their future. The short answer is yes, it’s possible to have a 401(k) or other employer-sponsored plan at work and also make contributions to an individual retirement plan, either a traditional or a Roth IRA.

If you have the money to do so, contributing to both a 401(k) and an IRA could help you fast track your retirement goals while enjoying some tax savings. But your income and filing status may affect the amounts you are allowed to contribute, in addition to the tax benefits you might see from a dual contribution strategy.

Read on to learn more about the guidelines and restrictions for having these two types of accounts and to answer the question “Can I contribute to a 401(k) and IRA?”

Key Points

•   It is possible to contribute to both a 401(k) and an IRA for retirement savings.

•   401(k) plans are employer-sponsored and allow both employee and employer contributions.

•   IRAs are individual retirement accounts that anyone can set up for themselves.

•   Contribution limits and tax benefits vary for 401(k)s and IRAs based on income and filing status.

•   Having both types of accounts can provide flexibility and help optimize taxes and distribution strategies.

Introduction to Retirement Savings Accounts

Although both IRAs and 401(k)s are retirement savings accounts, there are some important differences to know. The main one is that a 401(k) is an employer-sponsored retirement plan that allows both the employee and employer to contribute to the account.

IRAs are Individual Retirement Accounts that anyone can set up for themselves. There are two main types of IRAs: traditional and Roth.

Here’s a closer look at key differences between 401(k) plans and IRAs.

Understanding the Basics of 401(k)s and IRAs

A 401(k) is an employer-sponsored retirement plan. Employees sign up for a 401(k) through work and their contributions are automatically deducted directly from their paychecks. The money contributed to a 401(k) is tax deferred, which means you are not taxed on it until you withdraw it in retirement. Some employers match employees’ contributions to a 401(k) up to a certain amount.

An IRA is a tax-advantaged savings account that you can use to put away money for retirement. Money in an IRA can potentially grow through investment. While there are different types of IRAs, two of the most common types are traditional IRAs and Roth IRAs. The main difference between the two is the way they are taxed.

With a Roth IRA, you make after-tax contributions, and those contributions are not tax deductible. However, the money can potentially grow tax-free, and typically, you won’t owe taxes on it when you withdraw it in retirement (or at age 59 ½ and older). Individuals need to fall within certain income limits to open a Roth IRA (more about that later).

With a traditional IRA, your contributions are made with pre-tax dollars. Your contributions may lower your taxable income in the year you contribute. The money in a traditional IRA is tax-deferred, and you pay income taxes on it when you withdraw it. Traditional IRAs tend to have fewer eligibility requirements than Roth IRAs.

The Importance of Investing in Your Future

Retirement might seem like a long way off, but it’s vital to keep in mind that saving for it now can help you to meet your lifestyle needs and goals in your post-working years.

As you start planning your retirement savings, it’s a good idea to determine the estimated age you can retire, as the timing can influence other choices — like how much you choose to save, and what investments you might pick.

There are plenty of resources available online, including SoFi’s retirement calculator to help you determine potential retirement timelines and scenarios.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Can I Contribute to a 401(k) and an IRA?

This is a good question to ask if you’re just getting started on your retirement planning journey. For example, if you’re already contributing to a plan at work, you may be wondering if you can also save money in an IRA.

Or maybe you opened an IRA in college but now you’re starting your career and have access to a 401(k) for the first time. You may be unsure whether it makes sense to keep making contributions to an IRA if you’ll soon be enrolled in your employer’s retirement plan.

Having a basic understanding of how 401(k)s and IRAs work can help you make the most of these accounts when mapping out your retirement strategy.

Rules and Regulations for Multiple Retirement Accounts

There is no limit to the number of retirement accounts you can have. However, there are IRS rules about how much you can contribute to these accounts. And if you have multiples of the same type of retirement account, like two IRAs, you need to stay within the overall limit for both accounts combined. In other words, there is one single annual contribution limit for multiple IRAs.

In many cases, it may be beneficial to have more than one retirement account type. Brian Walsh, CFP® at SoFi says multiple accounts allow you have “added flexibility to optimize your taxes and your overall distribution strategy in 30, 40, or 50 years.”

Key Takeaways for Dual Contributions

When contributing to a 401(k) and an IRA you’ll want to remember these important points:

•   You can contribute up to the limit on your workplace 401(k) and up to the limit on your IRA annually.

•   If you have multiples of the same type of retirement account, such as two IRAs, you cannot exceed the single annual contribution limit across the accounts.

•   If you have a 401(k) at work, the tax deduction on your contributions for a traditional IRA may be limited, or you may not be eligible for a deduction at all.

2025 and 2026 Contribution Limits for 401(k) and IRA Plans

The IRS sets annual contribution limits for 401(k) and IRA plans and those limits change each year. These are the contribution limits for 2025 and 2026.

401(k) Contribution Limits and Considerations

As noted, a 401(k) plan may be funded by employer and employee contributions. Here are the annual 401(k) contribution limits for 2025:

•  $23,500 for employee contributions

•  $7,500 in catch-up contributions for employees age 50 or older

•  $11,250 (instead of $7,500) in catch-up contributions for employees aged 60 to 63

•  $70,000 limit for total employer and employee contributions ($77,500 including catch-up contributions for those 50 and older; $81,250 for those aged 60 to 63)

These are the annual 401(k) contribution limits for 2026:

•  $24,500 for employee contributions

•  $8,000 in catch-up contributions for employees age 50 or older

•  $11,250 (instead of $8,000) in catch-up contributions for employees aged 60 to 63

•  $72,000 limit for total employer and employee contributions ($80,000 including catch-up contributions for those 50 and older; $83,250 for those aged 60 to 63)

Under a new law that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account. Because of the way Roth accounts work, these individuals will pay taxes on their catch-up contributions upfront, but can make eligible withdrawals tax-free in retirement. Those impacted by the new law should check with their employer or plan administrator to find out how to proceed.

IRA Contribution Limits and Income Thresholds

IRAs are funded solely by individual contributions. Here are the annual contribution limits for traditional and Roth IRAs for 2025:

•  $7,000 for regular contributions

•  $1,000 catch-up contributions for those age 50 and older

And here are the annual contribution limits for traditional and Roth IRAs for 2026:

•  $7,500 for regular contributions

•  $1,100 catch-up contributions for those age 50 and older

These limits apply to total contributions to traditional and Roth IRAs, as mentioned earlier. So if you have more than one IRA, the most you could add to those accounts combined in 2025 is $7,000 — or $8,000 if you’re 50 or older. And, likewise, the most you could contribute to those IRA accounts combined in 2026 is $7,500, or $8,600 if you’re 50 or over.

The Intricacies of IRA Contributions

There are some rules about IRA contributions that it’s vital to be aware of. For instance, you can’t save more than you earn in taxable income in your IRA. That means if you earn $4,000 for a year, you can only contribute $4,000 in your IRA.

Plus, as discussed above, the most you can contribute, whether you have one IRA or multiple IRAs, is the annual contribution limit.

And finally, the type of IRA you have affects the portion of your contributions (if any) you can deduct from your taxes.

Traditional vs Roth IRA: What You Need to Know

The main difference between a traditional IRA and a Roth IRA is how and when you are taxed. There are also some eligibility requirements and deduction limits.

IRA Deduction Limits and Eligibility Requirements

Traditional IRAs offer the benefit of tax-deductible contributions. The money you deposit is pre-tax (meaning, you don’t pay taxes on those funds), and contributions grow tax-deferred. You pay tax when making qualified withdrawals in retirement.

However, if either you or your spouse is covered by a retirement plan at work and your income is higher than a certain level, the tax deduction of your annual contributions to a traditional IRA may be limited.

Specifically, if you have a workplace retirement plan, a full deduction of the amount you can contribute to a traditional IRA in 2025 is allowed if:

•  You file single or head of household and your modified adjusted gross income (MAGI) is $79,000 or less

•  You’re married and file jointly, or a qualifying widow(er), with a MAGI of $126,000 or less

If your spouse has a workplace retirement plan and you’re married filing jointly, a full deduction of the amount you can contribute to a traditional IRA in 2025 is allowed if your MAGI is $236,000 or less

For 2026, if you have a workplace returement plan, you can take a full deduction of your yearly contributions to a traditional IRA if:

•  You file single or head of household and your modified adjusted gross income (MAGI) is $81,000 or less

•  You’re married and file jointly, or a qualifying widow(er), with an MAGI of $129,000 or less

If your spouse has a workplace retirement plan and you’re married filing jointly, a full deduction of the amount you can contribute to a traditional IRA in 2026 is allowed if your MAGI is $242,000 or less

A partial deduction is allowed for incomes over all these limits, though it does eventually phase out entirely.

Roth IRAs allow you to make contributions using after-tax dollars. This means you don’t get the benefit of deducting the amount you contribute from your current year’s taxes. The upside of Roth accounts, though, is that you can typically make qualified withdrawals in retirement tax-free.

But there’s a catch: Your ability to contribute to a Roth IRA is based on your income. So how much you earn could be a deciding factor in answering the question, can you have a Roth IRA and 401(k) at the same time.

You can make a full contribution to a Roth IRA if:

•  In 2025, you file single or head of household, or you’re legally separated, and have a modified adjusted gross income of less than $150,000. For 2026, your MAGI must be less than $153,000 to make the full contribution.

•  In 2025, you’re married and file jointly, or are a qualifying widow(er), and your MAGI is less than $236,000. For 2026, you need a MAGI less than $242,000 to be able to make a full contribution.

The amount you can contribute to a Roth IRA is reduced as your income increases until it phases out altogether.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

How Contributing to Both a 401(k) and an IRA Affects Your Taxes

Both 401(k) plans and IRAs can offer tax benefits. Here are the key tax benefits to know when contributing to these plans:

•   401(k) contributions are tax-deductible

•   Traditional IRA contributions can be tax-deductible for eligible savers

•   Roth IRA contributions are not tax deductible, but Roth plans allow you to make tax-free withdrawals in retirement

Understanding the Tax Implications

You might choose to contribute to a Roth IRA and a 401(k) if you anticipate being in a higher tax bracket when you retire. By paying taxes now, rather than when you’re in the higher tax bracket later, you could limit your tax liability.

However, if you expect to be in a lower tax bracket when you retire, you may want to opt for a traditional IRA so that you pay the taxes later.

Strategies for Minimizing Taxes on Withdrawals

Both 401(k) plans and IRAs are designed to be used for retirement, which is why the taxes you pay are deferred (and why these accounts are typically called tax-deferred accounts). As such, early withdrawals from 401(k) plans are discouraged and you may trigger taxes and a penalty when taking money from these plans prior to age 59 ½.

Here are the most important things to know about withdrawing money from 401(k) plans or traditional and Roth IRAs:

•   Withdrawals from 401(k) and traditional IRA accounts are subject to ordinary income tax at the time you withdraw them. If you withdraw funds before age 59 ½, you would owe taxes and a 10% penalty — although some exceptions apply (e.g. an emergency or hardship withdrawal).

•   Roth IRA contributions and earnings are treated somewhat differently. Withdrawals of original contributions (not earnings) to a Roth IRA can be made tax- and penalty-free at any time.

•   If you withdraw earnings from a Roth account prior to age 59 ½, and if you haven’t owned the account for at least five years, the money could be subject to taxes and a 10% penalty. This is called the five-year rule. Special exceptions may apply for a first-time home purchase, college expenses, and other situations.

In addition to taxes, a 10% early withdrawal penalty can apply to withdrawals made from 401(k) plans or IRAs before age 59 ½ unless an exception applies. But the IRS does allow for several exceptions. In terms of what constitutes an exception, the IRS waives the penalty in certain scenarios, including total and permanent disability of the plan participant or owner, payment for qualified higher education expenses, and withdrawals of up to $10,000 toward the purchase of a first home.

You might also avoid the penalty with 401(k) plans if you meet the rule of 55. This rule allows you to withdraw money from a 401(k) penalty-free if you leave your job in the year you turn 55, although you would still owe ordinary income taxes on that money. This scenario also has some restrictions, so you may want to discuss it with your plan administrator or a financial advisor.

Finally, once you reach a certain age, you are required to withdraw minimum amounts from 401(k) plans and traditional IRAs or else you could be charged a significant tax penalty. These are known as required minimum distributions or RMDs.

The IRS generally requires you to begin taking RMDs from these plans at age 73 (as long as you reached age 72 after December 31, 2022). The amount you’re required to withdraw is based on your account balance and life expectancy, and many retirement plan providers offer help calculating the exact amount of your required distributions.

This is critical, because if you don’t take RMDs on time you may trigger a 50% tax penalty on the amount you were required to withdraw.

RMDs are not required for Roth IRAs.

Choosing Between a 401(k) and an IRA

If you are deciding between a 401(k) and an IRA, there are a number of factors you’ll want to weigh carefully before making a decision.

Factors to Consider When Making Your Choice

Overall, IRAs tend to offer more investment options, and 401(k)s allow higher annual contributions. If your employer matches 401(k) contributions up to a certain amount, that’s another important consideration. Additionally, you’ll want to think about the tax advantages and implications of each type of account.

Comparing Benefits and Drawbacks of Each Plan

Both 401(k)s and IRAs have advantages and disadvantages. It’s important to consider all variables in determining which account is best for your situation.

401(k)

 IRA
Pros

•   Larger contribution limits than IRAs.

•   Employers may match employee contributions up to a certain amount.

•   Wide array of investment options.

•   A traditional IRA may allow tax deductions for contributions for those who meet the modified adjusted income requirements.
Cons

•   Limited investment options.

•   Potentially high fees.

•   Contribution amount is much smaller than it is for a 401(k).

•   Roth IRAs have income requirements for eligibility.

Neither plan is necessarily better than the other. They each offer different features and possible benefits. If your employer doesn’t offer a 401(k) plan, you may want to set up a traditional or Roth IRA depending on your personal financial situation. And if you’re already contributing to a 401(k), you may still want to think about opening an IRA.

The Combined Power of a 401(k) and IRA

Instead of investing in only an IRA or your company’s retirement plan, consider how you can blend the two into a powerful investment strategy. One reason this makes sense is that you can invest more for your retirement, with the additional savings and potential growth providing even more resources to fund your retirement dreams.

How to Strategically Invest in Both Accounts

Since employers often match 401(k) contributions up to a certain percentage (for instance, your company might match the first 3% of your contributions), this boosts your overall savings. The employer match is essentially free money that you could get simply by making the minimum contribution to your plan.

Now imagine adding an IRA to the picture. Remember, with an IRA you have flexibility when investing. With a 401(k), you have limited options when it comes to investment funds. With an IRA, you’re able to decide what you’d like to invest in, whether it be stocks, bonds, mutual funds, exchanged-traded funds (ETFs), or other options.

To strategically invest in both accounts, consider contributing to 401(k) and IRA plans up to the annual limits, if you can realistically afford to. Make sure this is feasible given your budget, spending, and other financial goals you may have such as paying down debt or saving for your child’s education. And do some research into how this approach may affect your retirement tax deductions.

Not everyone is able to max out both retirement fund options, but even if you can’t, you can still create a powerful one-two punch by making strategic choices. First, think about your company-matching benefit for your 401(k). This is a key benefit and it makes sense to take as much advantage as you can.

Let’s say that your company will match a certain percentage of the first 6% of your gross earnings. Calculate what 6% is and consider contributing that much to your 401(k) and opening an IRA with other money you can invest this year.

And, if you end up having even more money to invest? Consider going back to your 401(k). There still may be value in contributing to your 401(k) beyond the amount that can be matched — for the simple reason that company-sponsored plans allow you to save more than an IRA does.

Now, let’s say you have a 401(k) plan but your employer doesn’t offer a matching benefit. Then, consider contributing to an IRA first. You may benefit from having a wider array of investment choices. Once you’ve maxed out what you can contribute to your IRA, then contribute to your 401(k).

These are all just options and examples, of course. What you ultimately decide to do depends on your financial and personal situation.

Long-term Growth Potential

By investing in both a 401(k) and IRA, you are taking advantage of employer-matched contributions and diversifying your retirement portfolio which can help manage risk and may potentially improve the overall performance of your investments in aggregate.

In addition, while a 401(k) offered by your employer may have limited investment options to choose from, with an IRA, you have more access to different investment options. That could, potentially, help grow your money for retirement, depending on what you invest in and the rate of return of those investments.

Plus, by contributing to both kinds of retirement accounts, you are likely putting more money overall into saving for retirement.

Step-by-Step Guide to Contributing to Both 401(k) and IRA

If you’ve decided to open and contribute to both a 401(k) and an IRA, here’s how to get started.

Eligibility Verification and Contribution Processes

To determine if you’re eligible to contribute to a 401(k), find out if your employer offers such a plan. Your HR or benefits department should be able to help you with this.

If a 401(k) is available, fill out the paperwork to enroll in the plan. Decide how much you want to contribute. This will typically either be a set dollar amount or a percentage of your paycheck that will usually be automatically deducted. Next, select the type of investment options you’d like from those that are available. You could diversify your investments across a range of asset classes, such as index funds, stocks, and bonds, to help reduce your risk exposure.

Individuals with earned income can open an IRA — even if they also have a 401(k). First, decide what type of IRA you’d like to open. A traditional IRA generally has fewer eligibility requirements. A Roth IRA has income limits on contributions. So, in this case, you’ll need to find out if you are income-eligible for a Roth.

You can typically open an IRA through a bank, an online lender, or a brokerage. Once you’ve decided where to open the account and the type of IRA you’d like, you can begin the process of opening the account. You’ll need to supply personal information such as your name and address, date of birth, Social Security number, and employment information. You’ll also need to provide your banking information to transfer funds into the IRA.

Next decide how much to invest in the IRA, based on the annual maximum contribution amount allowed, as discussed above, and choose your investment options. Remember, diversifying your investments across different asset classes and investment sectors can help manage risk.

Examples of Diversified Retirement Portfolios

To build a diversified portfolio, one guideline is the 60-40 rule of investing. That means investing 60% of your portfolio in stocks and 40% in fixed income and cash.

However, that formula varies depending on your age. The closer you get to retirement, the more conservative with your investments you may want to be to help minimize your risk.

No matter what your age, make sure your investments are in line with your financial goals and tolerance for risk.

The Takeaway

Not only is it possible to have a 401(k) and also a traditional or Roth IRA, it might offer you significant benefits to have both, depending on your circumstances. The chief upside, of course, is that having two accounts gives you the option to save even more for retirement.

The main downside of deciding whether to fund a 401(k) and a traditional or Roth IRA is that it can be a complicated question: You have to consider your ability to save, your risk tolerance, and the tax implications of each type of account, as well as your long-term goals. Then, if you decide to move ahead with both types of accounts, you can work on opening them up and contributing to them.

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FAQ

Can you max out both a 401(k) and an IRA?

Yes, you can max out both a 401(k) and an IRA up to the annual amounts allowed by the IRS. For 2025 that’s $7,000 for an IRA ($8,000 if you’re 50 or older), and $23,500 for a 401(k) ($31,000 if you’re 50 or older; $34,750 if you’re aged 60 to 63). For 2026, it’s $7,500 for an IRA ($8,600 if you’re 50 or older), and $24,500 for a 401(k) ($32,500 if you’re 50 or older; $35,750 if you’re aged 60 to 63).

How do employer contributions affect your IRA contributions?

Employer contributions to a 401(k) don’t affect your IRA contributions. You can still contribute the maximum allowable amount annually to your IRA even if your employer contributes to your 401(k). However, having a retirement plan like a 401(k) at work does affect the portion of your IRA contributions that may be deductible from your taxable income. In this case, the deductions are limited, and potentially not allowed, depending on the size of your salary.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


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Feb
04
2026
A woman in a striped top uses a tablet to check a digital calendar, perhaps tracking how student loans are disbursed.

What Is Student Loan Disbursement? Meaning & Common Questions

By | Budgeting & Goals, Student Loans, student_loan | Comments Off on What Is Student Loan Disbursement? Meaning & Common Questions

Student loans can be confusing, especially when it comes to how and when the money is actually released. Many borrowers expect funds to arrive all at once or directly in their bank account, only to discover the process works differently than anticipated.

Generally speaking, both federal and private student loans are disbursed directly to the school to pay for things like tuition, fees, and room and board. Keep reading to learn more on the disbursement timeline, who receives the funds first, and what happens to any remaining money after school charges are paid.

Key Points

•   Student loans are typically disbursed directly to the educational institution to cover tuition, fees, and other costs.

•   Any excess funds from the loan after covering direct educational costs are usually paid to the student.

•   Disbursement generally occurs around the start of the academic semester.

•   The exact timing of loan disbursement can vary based on the type of loan and the school’s financial aid policies.

•   Students should consult their financial aid office for specific details about the disbursement schedule and process.

The Lowdown on Student Loans

Student loans are designed to help college students absorb the many costs of postsecondary education.

The average price of tuition for the 2025-26 school year is $11,950 for an in-state undergraduate student at a public college and $45,000 for a private college student, according to the College Board.

Because of this cost, many students rely on student loans to help pay for college. Student loans typically cover up to the cost of attendance, which may include:

•   Tuition and fees

•   Housing

•   Meals

•   Transportation

•   Books and supplies

•   Computers

A rule of thumb suggests that only required materials and needs can be paid for with a loan. When in doubt about whether an item can be purchased with student loan funding or not, it’s best to speak directly to the loan provider or college financial aid department.

And remember, student loan money is borrowed money and will have to be repaid, with interest.

Recommended: Are Student Loans Secured or Unsecured?

Types of Student Loans: Federal and Private

The two main types of student loans are federal student loans and private student loans. Federal loans are provided by the U.S. government, while private loans are issued by financial institutions. Federal student loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Direct Subsidized Federal Loan

A Direct Subsidized Loan is a federal student loan available to undergraduate students who demonstrate financial need. The U.S. Department of Education pays the interest while you’re enrolled at least half-time, during the grace period, and during approved deferment periods, helping keep overall borrowing costs lower.

Direct Unsubsidized Federal Loan

A Direct Unsubsidized Loan is a federal student loan available to undergraduate, graduate, and professional students, regardless of financial need. Interest begins accruing as soon as the loan is disbursed, including while you’re in school, during the grace period, and during deferment or forbearance.

Direct PLUS Loan

A Direct PLUS Loan is a federal student loan available to graduate or professional students and to parents of dependent undergraduate students. It requires a credit check, has higher interest rates than other federal loans, and interest begins accruing as soon as the loan is disbursed.

Under Trump’s One Big Beautiful Bill, no new Federal Direct PLUS Loans for graduate students will originate after July 1, 2026. Current borrowers who received a Grad PLUS loan before June 30, 2026 can continue borrowing under current terms through the 2028-29 academic year.

Direct Consolidated Loan

A Direct Consolidation Loan is a federal loan that combines multiple eligible federal student loans into a single loan with one monthly payment. It can simplify repayment and may extend the repayment term, but it does not lower the interest rate, which is a weighted average of the consolidated loans.

Recommended: Consolidate vs. Refinance Student Loans

Private Student Loan

Private student loans are education loans offered by banks, credit unions, and online lenders rather than the federal government. They can be used to cover gaps in college costs after scholarships, grants, and federal aid are applied. Interest rates may be fixed or variable and are based on the borrower’s credit history, income, and overall financial profile, often requiring a creditworthy cosigner for students.

Unlike federal student loans, private student loans do not offer standardized repayment plans or borrower protections set by law. Terms vary by lender and may include fewer options for deferment, forbearance, or loan forgiveness. Because of these differences, borrowers should carefully compare rates, fees, repayment terms, and flexibility before choosing a private loan.

Recommended: Private Student Loans vs Federal Student Loans

How Long Does It Take to Get Student Loans Disbursed?

Disbursement is a term that describes when a loan is actually paid out. Disbursement timelines may vary depending on whether the loan is a federal or private student loan.

Federal Student Loan Disbursement

To get a federal student loan, interested students must fill out the Free Application for Federal Student Aid, otherwise known as the FAFSA®. Information provided on this form will be used to determine how much federal financial aid and what types a student will qualify for — including federal student loans.

Applications are typically reviewed within three days to three weeks of submission. Federal student loans are generally disbursed directly to the school at the start of each semester. Each school determines when they will pay out any leftover aid to use for additional living and educational expenses.

Private Student Loan Disbursement

The application for a private student loan will be conducted with the individual lender. Each lender will have its own policies for applications and approvals. Generally speaking, it may take between two and 10 weeks to process a private student loan.

Private student loans are also generally disbursed directly to your school. The disbursement date may be timed to the start of the school year, though, this may vary depending on when you apply for and are approved for a private student loan.

Recommended: A Complete Guide to Private Student Loans

How Are Student Loans Disbursed?

Whether a student chooses to accept multiple federal loans, a private loan, or a combination of the two, the money is often distributed the same way. As briefly mentioned, the loan amount is sent directly to the attending school, where it is held in the student’s account before being applied to covered costs, including tuition, fees, and room and board.

When there is leftover money in a student’s account, the excess is paid directly to the student to be used for additional expenses. These payouts tend to take place once per term and vary by school. If students receive leftover funding, they can use it as they see fit or even begin to pay back the loan early.

Keep in mind that all universities have their own policies on loans and disbursement. Questions about how a specific school handles student loans should be directed to the financial aid office.

Overage funds tend to be awarded to the holder of the loan. If a student’s parents hold a loan with overage, they’re more likely to receive the leftover money.

Also, disbursements may be held for 30 days after the first day of enrollment, especially if the student is a freshman and first-time borrower, according to the Federal Student Aid office.

What Happens if Your Disbursement Is Delayed?

If your student loan disbursement is delayed, it can affect your ability to pay tuition, fees, housing, or other education expenses on time. Schools may place temporary holds on your account or assess late fees until funds arrive. In the meantime, you may need to contact your financial aid office, request a short-term payment extension, or use alternative funds while the issue is resolved.

Common Student Loan Disbursement Issues

It’s possible for issues to crop up that could impact your disbursement. These include:

•   Missing application deadlines. Applying for a private student loan or filing the FAFSA too late could impact when your student loan is disbursed. To avoid any late disbursements, be sure to submit your FAFSA before state or school-specific deadlines.

•   Making mistakes on the application. If there are errors on the FAFSA or a private student loan application, this could impact your approval or potentially delay the disbursement date as you fix errors and resubmit the application.

•   Forgetting to complete entrance counseling for federal student loans. You must complete the entrance counseling required for federal student loans before they are disbursed. Be sure to read the terms of all loans closely and fill out all paperwork properly to ensure timely disbursement.

How to Track the Status of Your Student Loan Disbursement

You can track the status of your student loan disbursement by regularly checking your school’s student portal and your lender or loan servicer’s online account. These platforms typically show when funds are scheduled, processed, and applied to your balance. If information is unclear or delayed, contacting your financial aid office can help clarify timelines and resolve issues.

Final Tips

The world of student loans can be intimidating at first, but it’s not impossible to learn how to navigate the financial waters of postsecondary education. These final tips may help:

•   Compare all options. It’s better to have too many loan options and turn some down than face uncertainty about how to pay for everything.

•   Apply early. This ensures there’s time to make corrections if necessary. There are rules and requirements unique to all types of loans.

•   Avoid overborrowing. Try to calculate overall expenses and keep loan amounts as close as possible to the estimate. Being approved for a large loan doesn’t mean the total amount has to be accepted.

•   Get a part-time job. A part-time job may help to alleviate the stress that loan payments can add.

The Takeaway

Student loan disbursement is a critical step in the borrowing process, as it determines when and how your loan funds are delivered to cover education costs. Understanding the timing, method, and potential delays of disbursement can help you plan ahead, avoid surprises, and manage your finances more confidently throughout the school year.

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

Do student loans get deposited into your bank account?

Typically, student loans do not get deposited in your bank account. Instead, the loans are disbursed directly to the school, where they are applied to tuition payments and room and board. If there is any money leftover after paying for tuition, the money will then be distributed to the student. These payouts tend to take place once per term and vary by school.

How long do student loans take to deposit?

After applying through the FAFSA, it may take up to 10 days to find out what types of aid — including student loans — you are eligible for. If approved for a federal student loan, this money will be disbursed directly to the school. Typically, this will happen within the first 30 days of the start of term.

What does disbursement mean?

Disbursement is when the loan amount is paid out to the borrower. In the case of student loans, the loan is typically disbursed directly to the student borrower’s school.

Can you use a student loan to pay a tuition bill that is past due?

Yes, you can use a private student loan to pay off an outstanding tuition balance. Each lender determines how far in the past a loan can be used to pay an overdue balance, but many will allow loans to cover past-due balances that are six to 12 months outstanding.

Can I use leftover student loan money for personal expenses?

Yes, leftover student loan funds can be used for approved education-related expenses, such as housing, food, transportation, books, and supplies. However, they should not be used for nonessential or luxury purchases. Using excess funds responsibly can help cover living costs while minimizing unnecessary debt.

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

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

SoFi 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.


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.

SOISL-Q126-014

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Feb
04
2026
Student Loan Forgiveness Tax Bomb, Explained

Do You Have to Pay Taxes on Forgiven Student Loans?

By | Fresh Out of School, Student Loans, student_loan | Comments Off on Do You Have to Pay Taxes on Forgiven Student Loans?

The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But tax on student loan forgiveness is a different matter.

The American Rescue Plan (ARP) Act specifies that student loan debt forgiven between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.

This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, nonfederal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans may also qualify.

However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about taxes on student loans, including which forgiven student debt is taxable and by whom.

Key Points

•   Because of the American Rescue Plan Act, student loans forgiven between 2021 and 2025 are exempt from federal taxation.

•   Eight states — Arkansas, California, Illinois, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin — still tax forgiven loans.

•   Use a student loan forgiveness tax calculator to estimate potential state tax liability.

•   Set aside monthly payments to save for potential tax bills on forgiven student loans after 2025.

•   Explore the student loan interest deduction to help reduce federal taxable income.

Types of Student Loan Forgiveness Programs

Federal student debt can typically be canceled through an income-driven repayment plan (IDR) or forgiveness programs. However, as of February 2026, applications for some income-driven repayment plans are on hold due to legal challenges. You can find out more about this situation on the Federal Student Aid (FSA) website.

Here are some common federal forgiveness programs and how typically they work.

Public Service Loan Forgiveness (PSLF)

If you are employed full-time for the government or a nonprofit organization, you may be eligible for Public Service Loan Forgiveness for federal student loans like federal Direct Loans.

After you make 120 qualifying payments under an income-driven repayment plan for an eligible employer, the PSLF program forgives the remaining balance on your federal student loans.

However, because IDR plans are currently not accepting applications, and you must achieve forgiveness by repaying your loans under one of these plans, you will likely need to wait before you can start working toward PSLF. You can get more details about PSLF on the FSA website.

Income-Driven Repayment (IDR) Forgiveness

IDR options generally offer loan forgiveness after borrowers make consistent payments for a certain number of years. However, forgiveness on all but one of the IDR plans is paused as of February 2026.

On an IDR plan, how much you owe each month is based on your monthly discretionary income and family size. These are the types of IDR plans.

•   Income-Based Repayment: With IBR, payments are generally about 10% of a borrower’s discretionary income, and any remaining balance is forgiven after 20 or 25 years. On the IBR plan, forgiveness (after the repayment term has been met) is still proceeding as of February 2026, since this plan was separately enacted by Congress.

•   Pay As You Earn (PAYE): The monthly payment on PAYE is about 10% of a borrower’s discretionary income, and after 20 years of qualifying payments, the outstanding loan balance is forgiven. As of February 2026, forgiveness has been paused for borrowers who were already enrolled in this plan.

•   Income-Contingent Repayment (ICR): The monthly payment amount on ICR is either 20% of a borrower’s discretionary income divided by 12, or the amount they would pay on a repayment plan with a fixed payment over 12 years, whichever is less. After 25 years of repayment, the remaining loan balance is forgiven. As of February 2026, forgiveness has been paused for borrowers who were already enrolled in the plan.

Teacher Loan Forgiveness

With Teacher Loan Forgiveness (TLF), teachers who have been employed full-time for five consecutive years at an eligible school and meet certain other qualifications may be eligible to have up to $17,500 of their federal Direct Subsidized and Unsubsidized Loans and federal Stafford Loans forgiven.

Recommended: Do Student Loans Count as Income?

Which Student Loan Cancellations Are Not Federally Taxed?

When it comes to student loan forgiveness and taxes, under the provisions of the ARP Act, private or federal student debt for postsecondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that these borrowers are not required to report their discharged loan amount as earned income, and the forgiven amount is not taxable.

Beyond the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness don’t have to pay taxes on their canceled loan amount. The PSLF program explicitly states that earned forgiveness through PSLF is not considered taxable income.

Which Student Loan Cancellations Are Federally Taxed?

Borrowers who receive loan cancellation after successfully completing an income-driven loan repayment plan can generally expect to pay taxes. However, those whose debt was or will be discharged in the years 2021 through 2025, will not need to pay federal taxes on their forgiven loans due to the ARP Act.

Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation.

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

Which States Tax Forgiven Student Loans?

Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.

As of February 2026, the eight states that say certain forgiven loans are taxable are:

•   Arkansas (except for loans forgiven through PSLF)

•   California (except for loans forgiven through PSLF)

•   Illinois (except for loans forgiven through PSLF)

•   Indiana (except for loans forgiven through PSLF, TLF, and certain other programs)

•   Minnesota (except for loans forgiven through PSLF)

•   Mississippi

•   North Carolina

•   Wisconsin (except for loans forgiven through PSLF and TLF).

Additional states tend to conform to federal tax laws, so it’s important to consult a qualified tax professional who is knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.

How to Prepare for Taxes on Forgiven Student Loans

If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take to get ready.

Step 1: Calculate Your Potential Tax Bill

The first step when preparing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.

To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.

Step 2: Choose the Right Plan

Although IDR plans are not currently accepting applications, they are designed to help keep borrowers’ monthly payments to a manageable amount while they’re awaiting loan forgiveness. All of these repayment plans calculate a borrower’s monthly payment based on their discretionary income and family size.

Step 3: Prioritize Saving

If you’re expecting loan forgiveness after 2025, it might be beneficial to start allocating extra cash flow to a dedicated tax savings fund now. Incrementally setting money aside over multiple years can ease the burden of a sudden lump-sum tax bill down the line.

Another way to potentially save some money is to take the student loan interest deduction on your taxes each year, if you qualify. The deduction, which is up to $2,500 annually, can reduce your taxable income.

You’ll need your student loan tax form to make sure you are eligible for the deduction. The form should be sent to you by your loan servicer or lender. You’ll file the form with your taxes.

Recommended: Guide to Student Loan Tax Deductions

What If I Can’t Afford to Pay the Taxes?

If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest may accrue on such plans.

The Takeaway

Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due on forgiven loans, depending on where the borrower lives.

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.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Is loan repayment considered taxable income?

If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the CARES Act, which was signed into law in 2020, employer assistance loan payments up to $5,250 made each year from 2021 through 2025 are tax-free.

Will refinancing my student loans help me avoid taxes?

Refinancing student loans does not involve taxes. However, the interest you pay on a refinanced student loan may qualify for the student loan interest deduction. If you’re eligible, you may be able to deduct up to $2,500, which could lower your taxable income.

Will student loan forgiveness be taxed after 2025?

The American Rescue Plan Act stipulates that forgiven student loans will not be taxed from 2021 through 2025. Currently, there are no plans to extend that tax relief beyond 2025.

Are state taxes different for forgiven student loans?

While states typically follow the federal tax policy, five states say that certain forgiven loans are taxable. Those five states are: Arkansas (except for loans forgiven through Public Service Loan Forgiveness), Indiana (except for loans forgiven through PSLF, Teacher Loan Forgivenesss, and certain other programs), Mississippi, North Carolina, and Wisconsin (except for loans forgiven through PSLF and TLF).

What steps should I take if I owe taxes on forgiven student loans?

If you owe taxes on forgiven student loans, calculate how much you’ll owe in taxes with the forgiven loan amount factored into your taxable income. Then, once you have the estimate of what you owe, you can start saving up to pay it. One way to do this is to put away the monthly amount you previously paid on your student loans to help offset the amount you owe. So if your student loan payment was $100 a month, deposit that amount monthly into a savings account, and use it to help pay what you owe in taxes.

Photo credit: iStock/fizkes

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.


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.

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

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

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

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.

SOSLR-Q125-020

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Feb
03
2026
Graphic image of a series of $100 bills with a graduation cap on top of them

Do Student Loans Help Build Credit?

By | Financial Topics, Student Loans | Comments Off on Do Student Loans Help Build Credit?

Student loans can play a role in building credit when they’re managed responsibly. Making on-time student loan payments contributes positively to your payment history, a key factor in credit scores.

However, missed payments can be damaging to your credit. Read on to learn about how paying student loans may build credit and tips for managing your loans.

Key Points

•   On-time payments for student loans positively impact your payment history, a key factor in credit scores. Conversely, missed or late payments can harm your credit.

•   Having student loans adds diversity to your credit mix, which can slightly boost your score when combined with other credit types, like credit cards.

•   Federal and private student loans can establish a long credit history, as they often span many years, potentially benefiting your credit score over time.

•   Setting up automatic payment and regular credit report monitoring can help borrowers stay on top of student loan payments and strengthen their credit.

•   Refinancing student loans involves a hard credit inquiry, which may temporarily lower credit scores. However, if refinancing reduces interest rates, it may help a borrower manage debt more effectively which could positively impact their credit.

How Student Loans Appear on Your Credit Report

Your credit report contains information about your credit activity, including payment history and credit account status. It’s different from your credit score, which is a three-digit number that predicts how likely you are to repay a loan.

Student loans appear on your credit report as installment loans. These are loans that are repaid in fixed regular installments over a specific period of time. Your credit report will typically list the type of loans you have, the amounts, and the status of the account and whether or not it is in good standing.

Recommended: The Average Cost of College Tuition

The Impact of On-Time Payments

A borrower’s credit score is calculated using information in their credit report to predict how likely it is that they will pay their bills on time. When it comes to student loans and credit scores, your credit report includes information on your student loans, such as your payment history and whether or not you make payments on time. Late or missed payments can negatively impact your credit score, while consistently making on-time payments may help build your credit.

In fact, on-time payments are one of the key factors that can help build your credit score because they demonstrate that you are a responsible borrower, and that you pose less risk to a lender. Payment history makes up the greatest percentage (35%) of your credit score.

The Effect of Late or Missed Payments

The first day after you miss a student loan payment, your loan becomes delinquent. If you are delinquent on your federal student payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which could negatively impact your credit.

Most federal loans go into default after 270 days. If you have private student loans they may go into default after 90 to 120 days (this varies by lender).

Once your loan is in default, your lender may hire a collection agency to pursue the debt or they might take you to court. In the case of a federal loan, the government could garnish your wages and withhold your tax refund, among other consequences. And your credit rating can be damaged. A defaulted student loan remains on your credit report for up to seven years.

Student Loans and Credit Mix

Credit mix refers to the different types of accounts a borrower has. For example, in addition to your student loans, your credit mix might also include revolving loans like credit cards, and other installment loans, like an auto loan. When you have a diverse mix of credit, it shows creditors how you manage various types of lending products.

Strategies to Use Student Loans for Credit Building

If you’re working to build your credit, handling your student loans responsibly could help. Here are ways to potentially strengthen your credit profile.

Setting Up Automatic Payments

Payment history represents a large part of your credit score, as noted above, which is why staying on top of student loan payments is so important. To make the process easier, you can set up autopay for your loans to ensure you never miss a payment. As a bonus, you may also get an interest rate discount. Federal student loans offer a 0.25% interest rate discount for setting up autopay, and many private lenders offer autopay discounts as well.

Just log onto your account at StudentAid.gov to find out who the loan servicer for your federal loans is, and set up autopay on their website. For private loans, you can typically set it up through your lender.

Monitoring Your Credit Report Regularly

Lenders typically review your credit report before making the decision to approve you for a loan or credit card. The information in your credit report is one of the factors that helps determine your credit score.

Reviewing your credit report can help you make sure there are no mistakes in it. Things to watch out for include typos and incorrect information, credit cards or loans you never opened, false information about late or missed payments, and information that was not updated about an outstanding debt that was settled.

You are entitled to a free copy of your credit report once a year from the three major credit bureaus: TransUnion®, Equifax®, and Experian®. You are now also able to request your credit information weekly. One easy way to get your report is through AnnualCreditReport.com, which is authorized by the federal government to issue free credit reports.

If you spot errors on your credit report, you can dispute them by filing a report with the credit bureau as well as the company that provided the information.

Potential Risks and Considerations

While student loans may help build credit, there are also possible risks involved. Potential downsides include:

Taking on More Debt Than You Can Handle

To keep your student loans manageable and be able to make payments without overextending yourself, limit your borrowing to just what you need for school. Use your loans to pay only for tuition and other necessary education expenses.

The reason: Taking on too much debt could mean that most of your income ends up going toward debt payments. And you may be more likely to become delinquent on your student loan payments or even fall into default, which will negatively impact your credit.

Long-Term Credit Implications of Missed Payments

Missed student loan payments are not just a right-now problem — they can follow you well into the future. As soon as you miss a federal student loan payment, your loan becomes delinquent, and after 90 days of delinquency, it is reported to the credit bureaus. After 270 days, it goes into default. Private loans can go into default even sooner than that, typically after 90 to 120 days, depending on the lender.

Defaulting on federal student loans can potentially lead to your wages being garnished and your income tax refund being withheld. Defaulting on private or federal student loans can seriously damage your credit and cause your credit score to drop.

A defaulted student loan can remain on your credit report for up to seven years. That can affect your ability to take out a mortgage and get a car loan. The lender could also take legal action against you and/or send the loan to collections.

How Student Loan Refinancing Can Affect Your Credit Score

Student loan refinancing can impact your credit score in both positive and negative ways. When you refinance student loans, you replace your existing loan with a new loan that, ideally, has a lower interest rate and more favorable terms.

Here’s how refinancing might impact your credit score.

Credit Inquiries and Account Changes

To refinance student loans (which is different from student loan consolidation), you may shop around to different lenders for the best rates and terms.

Refinancing involves a hard credit inquiry, which may cause a slight, temporary dip in your score. As long as you keep your loan shopping to a short period, multiple credit inquiries will generally be treated as one, which can help minimize the impact to your credit score.

Additionally, taking out a new refinancing loan may slightly reduce the average age of your credit history. However, this impact is typically minor. On the plus side, a student loan can help improve your credit mix, which also factors into your credit score.

Potential Benefits of Lower Monthly Payments

If your new refinanced loan has a lower interest rate, your monthly payments may be lower, which could save you money on interest and over the life of the loan. Using a student loan refinancing calculator can help you see how much you might save with refinancing.

Besides the savings, a lower student loan payment may make it easier for you to pay your loans on time each month. That could help you build a positive payment history, which is the biggest factor contributing to your credit score.

It’s important to be aware that refinancing federal loans makes them ineligible for federal programs and protections, such as income-driven repayment and student loan deferment. Before you move ahead with refinancing, make sure you won’t need these benefits.

Recommended: Consolidating Credit Cards and Student Loans

Student Loans and Other Credit Score Factors

Besides payment history, student loans can affect your credit in other ways. These are two other important factors.

Length of Credit History

Your credit history — the length of time your credit accounts have been open — makes up 15% of your credit score. A longer credit history is typically beneficial for your credit score because it demonstrates that you’ve been able to responsibly handle credit over time, especially if you’ve been consistently making your payments.

Taking out student loans can help you build your credit history. Since you typically borrow these loans as a young adult, they may be one of your very first credit accounts and even what gets your credit history started. And because repayment terms last for years, these loans will remain on your report over the long term.

Amounts Owed and Utilization

How much total debt you have, including student loan debt, is what’s meant by “amounts owed,” a factor that accounts for 30% of your credit score. A key component of amounts owed is credit utilization — the amount of available revolving credit you’re using.

If you are using a large amount of your available credit, you may be considered a risk to lenders and your credit score may be negatively impacted.

The Takeaway

Student loans can have a positive or negative impact on your credit. Paying your loans on time each month could help strengthen your credit. But late or missed payments could damage your credit, especially if your loan becomes delinquent or goes into default.

Making on-time student loan payments is important for your credit and your financial situation overall. Methods that could make managing student loans easier include setting up automatic payments, regularly monitoring your credit report, and student loan refinancing. Considering the different options may help you decide what makes the most sense for you.

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.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

When do student loans start affecting my credit score?

Student loans may start affecting your credit score shortly after they are disbursed. The loans appear on your credit report soon after disbursal, even while you’re in school, and they impact factors like length of credit history and credit mix.

The biggest factor in your credit score is your payment history, so making on-time payments when the time comes can positively affect your credit, while missed payments can damage it.

Can paying off student loans early hurt my credit?

Paying off student loans early doesn’t necessarily hurt your credit, but it may impact factors like credit history, credit utilization, and credit mix. However, the positive payment history remains on your report for about 10 years, which could benefit your score.

How long do student loans stay on my credit report?

Student loans will stay on your credit report during the entire repayment term (the length depends on your repayment plan). They will remain there until you pay off the entire loan amount in full or the loan balance is canceled as part of a forgiveness program.

However, information about loan payments and loan status may stay on your credit for up to 10 years after your account closes and you pay off your loan. Adverse information, such as student loan default, typically remains on your report for up to seven years.

Do federal and private student loans affect credit differently?

Most federal student loans do not require a hard inquiry, which can cause a slight, temporary dip in your credit score. Private student loans generally require a hard credit inquiry, which can temporarily cause a slight drop in your credit score. If you’re shopping around for private student loans, applying within a short time frame could help minimize the impact to your credit.

Can student loan deferment or forbearance impact my credit score?

Federal student loan deferment or forbearance generally does not directly impact your credit score, as long as your account is in good standing when you apply for forbearance or deferment, and you maintain your repayment schedule afterward. Private student lenders may or may not allow for deferment or forbearance. Check with your lender or loan servicer to learn more.

About the author

Melissa Brock

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.


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SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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

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02
2026
An older man in a blue shirt reviews papers at a kitchen table, possibly downloading bank statements needed for his mortgage.

How Many Bank Statements Do You Need for a Mortgage?

By | Home Ownership, mortgage | Comments Off on How Many Bank Statements Do You Need for a Mortgage?

When you’re applying for a home loan, your mortgage lender is going to be interested (understandably) in your ability to repay the likely six-figure sum you are borrowing. And that means providing proof of both your income and your existing assets — which may mean sharing some bank statements with the lender.

The number of bank statements you’ll need to provide depends on the lender you choose as well as the type of loan you’re applying for. You typically won’t have to submit more than two months’ worth of statements for most loan types. In some cases, however, you may need to provide six to 12 months’ worth of bank statements. To know for sure how many bank statements you need to submit, the best move is to talk to your loan officer.

  • Key Points
  • •   Most lenders require two to three months of bank statements to verify assets, cash flow, and financial stability during the mortgage application process.
  • •   Bank statements help lenders confirm you have enough funds for the down payment, closing costs, and reserves, if required.
  • •   Lenders review statements for large or unusual deposits, which may need to be explained or documented.
  • •   Statements typically must be complete and unaltered, showing your name, account number, and transaction history.
  • •   Requirements may vary based on loan type, lender guidelines, and borrower profile, with some situations requiring additional documentation.

How to Get Bank Statements

Once you know how many bank statements you need based on your lender’s mortgage requirements, the next question is: how and where do you get them?

Bank statements can usually be downloaded from your bank’s online portal. If you have trouble finding the documents, you can contact your bank’s customer service team.

It’s not unusual to wonder how long to keep bank statements and other financial documents, and banks are accustomed to receiving requests for old statements.

Why Are Bank Statements Needed for Mortgage Applications?

Bank statements are used by mortgage lenders in order to ensure you have the money it will take to fund the upfront costs of the loan, as well as to confirm that you have regular income.

However, lenders may also use other documents to confirm these eligibility requirements, such as tax returns or W-2s. It can be a hassle to pull together all the paperwork for your mortgage application, but documentation is an important part of the lender’s defense against mortgage fraud.

What Underwriters Look for in Bank Statements

Mortgage underwriters may also be looking at your bank statements to ensure the funds you’re using for your down payment or closing costs are “seasoned money.” That is to say, the money has been in your possession for 60 days or more. This is because some lenders have restrictions against gift funds or family loans being used to pay upfront loan costs, such as the down payment on a home.

What Are Bank Statement Loans?

Bank statement loans are mortgages that use bank statements specifically, rather than tax returns, to qualify applicants for a mortgage loan.

If you’re applying for a bank statement mortgage, you will likely need to submit substantially more of those statements — sometimes as much as two years’ worth.

Bank statement loans can make getting a mortgage possible for self-employed borrowers or others whose paperwork might not match the traditional required documentation. However, they can be harder to find, and may come with more stringent credit requirements and higher minimum down payments.

What Other Documents Are Needed for a Mortgage Application?

Of course, the best way to know exactly what documentation is required for your mortgage application is to ask your lender. However, documents that are often required for a mortgage application include the following:

•   W-2 forms

•   Pay stubs

•   Tax returns

•   Bank statements

•   Alimony or child support documentation

•   Retirement and investment account statements

•   Gift letter, if you’re using gift funds

•   Identification documentation

Depending on your specific circumstances, you may also need to provide proof of rental payments, a divorce decree, any bankruptcy or foreclosure records, or other specific documents. Again, your lender will have the full details.

The Takeaway

Depending on the type of loan you’re applying for, you may need to submit only a couple months’ worth of bank statements. If you’re applying for a bank statement loan, you may need to submit up to two years of banking history. Fortunately, bank statements are easy to generate in most banks’ online management portals, so all you’ll have to do is download and submit them.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Does the FHA require two months of bank statements?

Lenders offering Federal Housing Administration (FHA) loans have their own specific requirements as far as how many months of bank statements you’ll need to provide. Some lenders offer FHA loans with just two months’ worth of statements, but you may be asked to submit more if the lender has specific requirements or some other part of your application creates the need (such as a lower credit score, for example).

How many months of bank statements do you need to refinance your mortgage?

Refinancing your mortgage is, in many ways, basically just like getting a mortgage in the first place — which means that you’ll again likely be asked to submit two months’ worth of bank statements. However, as always, specific lenders have different requirements, and if you have a nontraditional application, you may be asked to submit more.

What is a 12-month bank statement mortgage?

Also known as a bank statement loan, these mortgages use bank statements as the primary qualifying factor to approve you for a home loan (as opposed to other traditional documentation like W-2s or tax returns). For these loans, you may need to provide 12 or even 24 months’ worth of bank statements, since they’ll be such an important source of information for the lender.

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SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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