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Those who find that they can no longer make their mortgage payments have options to explore, including a short sale, which is when a home is sold for less than the borrower owes.

A short sale is a way to avoid foreclosure. It works much like a traditional home sale, except that the lender must approve the offer.

The Short Sale, in Short

If the borrower is able to negotiate a short sale, the lender agrees to take the money from the sale proceeds — even though that sum is lower than the balance of the loan — in lieu of foreclosing on the home.

Short sales were common a decade or so ago, when the housing crisis and Great Recession left many homeowners underwater on their mortgages. Since then, the percentage of short sales has dropped significantly, as housing values and employment have risen.

During a mortgage foreclosure, a lender repossesses and sells a property to satisfy outstanding debt.

In a short sale, the lender agrees to allow the borrower to sell the property for less than the mortgage balance and costs of the sale.

How Does a Short Sale Work?

A short sale is a viable option if the remaining balance on a home loan is greater than the amount the property can fetch on the open market. Otherwise, a borrower could repay the full amount of the mortgage by selling the home.

Here’s how the short sale process generally goes:

1.   Borrowers typically send their lender a hardship letter, proving that they are facing a long-term financial challenge.

2.   The lender decides whether to approve the sale or work out a plan, like extending the loan term or allowing the borrower to make interest-only payments for a set amount of time.

3.   If a short sale plan is accepted, the homeowner works with the lender to determine the schedule for the sale. If the lender is already on the path to foreclosure, a short sale will typically need to happen rather quickly.

4.   The sellers and their real estate agent will review the number of liens (such as a home equity line of credit or second mortgage) against the property. Having several of these can sometimes get in the way of a short sale, since all lenders must approve the sale. Buyers should be sure to ask about liens, as well.

5.   The owner puts the home up for sale and selects among competing offers. Once an offer is chosen, the lender must approve the sale and agree to accept the sale price in lieu of full payment of the loan.

Who Benefits from a Short Sale?

For the buyer, a short sale can be an opportunity to get a home at a fair market price or lower.

And because the lender has an incentive to sell the property quickly and prevent further costs, the lender might offer attractive financing to the buyer, such as a lower interest rate or credit toward closing costs.

For the seller, a successful short sale can mean avoiding foreclosure and the challenges that come with it.

Are There Drawbacks to a Short Sale?

Mortgagors may want to look at a short sale as a last resort. Short sales still have a significant negative effect on an individual’s credit, affecting the ability to take out a home loan or other forms of credit in the short term.

A short sale may show up on your credit reports as “not paid as agreed.” As both short sales and foreclosures fall under that category, most lenders won’t distinguish between them, according to Equifax, and both stay on your credit reports for seven years.

Short sellers may want to get written confirmation of the sale from their lender, along with a copy of the final settlement statement, in case future lenders have trouble distinguishing a short sale from foreclosure or have questions about amounts or dates.

Someone with a foreclosure on their record generally needs to wait two to eight years before qualifying for a new mortgage.

Is the Deficiency Completely Forgiven?

After a short sale, in some states, the lender can seek a personal judgment against the borrower to recover the deficiency amount. If a lender agrees to waive the deficiency, that provision must be included in the short sale agreement.

How a Short Sale Affects Buyers

A short sale can be risky for buyers as well. Home sales are usually closed “as is.” If a property inspection did not catch a needed repair, that can lead to unpleasant surprises.

Buyers may also be responsible for fees they wouldn’t pay during a typical sale. For example, if the seller employs a short sale negotiator to reach a deal with the lender, the buyer may be asked to pay this charge.

How Long Does a Short Sale Take?

Short sales can be time-consuming transactions, taking anywhere from a few weeks to a few months or more.
It can take a while for lenders to review a buyer’s short sale application for approval, especially if multiple lienholders are involved.

How Often Do Short Sales Fall Through?

Because short sales are often slow and complicated, with many steps before a house can be sold, they fall through fairly frequently.

For example, a lender may reject a borrower’s qualifications or the price offered by a buyer. Foreclosure proceedings or a declaration of bankruptcy could throw a wrench into a short sale. Or sellers could get their finances in order and decide they want to keep their house and continue paying their mortgage.

The sale can also fall apart if the seller declines to pay certain fees in order for the lender to approve the transaction.

Both sellers and buyers in a short sale may want to practice patience when entering into this kind of transaction and know that all their hard work could come to naught.

The Takeaway

If a mortgage becomes too heavy a burden, a short sale can be a lifeline. Still, leaving a lender short will hurt a borrower’s credit and can be a drawn-out process. Savvy buyers may find a short sale a way to get a deal.

An option short of a short sale could be refinancing your mortgage. With SoFi, refinancing may result in a more favorable interest rate or loan terms.

Refinancing may result in a more favorable interest rate or loan terms.

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According to the Association of American Medical Colleges (AAMC), the average medical school debt for students who graduated in 2022 was $205,037.

While many med school students eventually may earn six figures or more, they also can expect to graduate with student debt that averages close to a quarter of a million dollars.

And that’s just what these graduates owe for their medical school education. Researchers at EducationData.org found that 43% of indebted medical school graduates also have premedical education debt to pay for.

Because of the high cost of the average debt of a medical student, it’s crucial for aspiring and current medical school students, and graduates, to understand their debt repayment options.

Medical School Debt Statistics

Here’s a snapshot of what the average med school debt can look like for graduates, based on a roundup of the most recent statistics available:

•   According to a 2022 report by EducationData.org, medical school graduates had, on average, $250,990 in total education debt (premed and medical school). Compare that with the average educational debt for the class of 1999-2000: $87,020.

•   When the AAMC looked at members of the class of 2020 who took out educational loans, it found that:

◦   5.4% borrowed $1 to $49,999 for premed studies and medical school

◦   6.1% borrowed $50,000 to $99,999

◦   8.2% borrowed $100,000 to $149,999

◦   13.7% borrowed $150,000 to $199,999

◦   25.1% borrowed $200,000 to $299,999

◦   11.2% borrowed $300,000 to $399,999

◦   2.9% borrowed $400,000 to $499,999

•   While the cost of medical school grew 2.5%, the annual growth rate of medical school debt is 12.4%, as calculated by EducationData.

Source: Association of American Medical Colleges

What Does This Mean for Borrowers?

It’s important to note that, when it comes to borrowing for medical school, loan interest rates offered by the federal government, along with the terms and conditions, might be different from borrowing as an undergrad. This is one of the basics of student loans that it’s helpful to understand when it comes to the average medical school debt.

Some med students may benefit from scholarships and loan forgiveness programs that could cut their costs substantially. But many will end up making loan payments for years—or even decades.

So what does the average medical student debt look like? According to the number crunchers at EducationData, the average doctor will ultimately pay from $135,000 to $440,000 for his or her educational loans, with interest factored in.

Source: Association of American Medical Colleges

Medical School Loan Options

Types of federal student loans available to medical students to help with the average med school debt include Direct Unsubsidized Loans, with a limit of $20,500 each year.

Rates for this type of loan are currently lower than for the other type of federal student loan available to those going to medical school, Direct PLUS loans. The current rate for Direct Unsubsidized Loans is 6.54%, while Direct PLUS loans have an interest rate of 7.54% through July 1, 2023.

There isn’t a financial need requirement for either type of federal student loan, so many medical students qualify for both. With Direct Unsubsidized Loans, there is no credit check, but there is a credit check for PLUS loans.

Medical students also can apply for private student loans to help cover their average medical student debt. Generally, borrowers need a solid credit history for private student loans, among other financial factors that will vary by lender. Private lenders offer different rates, terms, and overall loan programs.

Federal loans come with many student protections and benefits that private loans don’t, such as the Public Service Loan Forgiveness program and income-driven repayment.

Medical students also may choose to defer federal student loans during their residency, which isn’t typically an option with private student loans.

Recommended: Private Student Loans Guide

How to Deal With Debt

There are several strategies that graduates grappling with the average medical student debt may want to consider.

Deferment

If you’ve ever borrowed money—for school or otherwise—you know that two critical factors can influence how much the loan will cost overall.

•   The interest rate you’re paying

•   How long you take to repay the loan or loans.

The repayment timeline is often extended when medical residents make partial monthly loan payments or no payments at all. Putting off payments may seem like a good idea during a stressful time, but delaying can be costly.

Most federal student loans, when deferred, continue to accrue interest. The problem those in medical fields can face is debt accumulation during their residency, which can last anywhere from three to seven years.

Even while making a modest income—in 2022, the average resident earned $64,200, according to Medscape—the debt would grow considerably.

Part or all of your unpaid interest might currently be capitalized when you complete your residency. This means the accrued interest is added to the principal of the loan, and that new value is then used to calculate the amount of interest owed. However, thanks to new regulations set to take effect in July 2023, interest capitalization will be eliminated on most federal student loans, saving borrowers money.

If you decide to put your loans in deferment or forbearance, making interest-only payments and putting that money toward student loans can reduce the amount of interest that could be added to the loan.

Income-Driven Repayment

An income-driven repayment plan is an option for medical residents who can’t afford full payments. The four plans limit payments to a percentage of borrowers’ income, extend the repayment period to 20 or 25 years, and promise forgiveness of any remaining balance.

In general, borrowers qualify for lower loan payments if their total student loan debt exceeds their annual income. Payments are based on discretionary income, family size, and state.

Refinancing Loans

Refinancing medical school loans to help cover the average medical student debt is an option during residency, after residency, or both.

Refinancing student loans with a private lender might help save you money if you can get a lower interest rate than the rates of your current student loans.

Student loan refinancing means paying off one or more of your existing federal and private student loans with one new loan. An advantage of refinancing student loans is that you’ll only have one monthly payment to make.

If you refinance your student loans and get a better rate, you could choose a term that allows you to pay off the loan more quickly if you’re able to shoulder the payments, which should save you in interest.

However, refinancing isn’t a good fit for those who wish to take advantage of federal programs and protections. Refinancing federal loans means you no longer have access to these benefits.

Recommended: Student Loan Refinancing Calculator

Consolidating Loans

The federal government offers Direct Consolidation Loans, through which multiple eligible federal student loans are combined into one. The interest rate on the new loan is the average of the original loans’ interest rates, rounded up to the nearest one-eighth of a percentage point.

If your payment goes down, it’s likely because the term has been extended from the standard 10-year repayment to up to 30 years. Although you may pay less each month, you’ll also be paying more in interest over the life of your loan.

Schools With the Highest Student Debt

When it comes to student debt, all medical programs are not equal. According to U.S. News and World Report’s “Best Grad School” rankings, the range can be extensive. Out of 122 medical schools listed, the three that left grads with the most debt in 2022 were:

•   Nova Southeastern University Patel College of Osteopathic Medicine (Patel) in Fort Lauderdale, Florida: $322,067

•   Western University of Health Sciences in Pomona, California: $281,104

•   West Virginia School of Osteopathic Medicine in Lewisburg, West Virginia: $268,416
On the other end of the spectrum, the school that graduated students with the least amount of debt in 2022 was New York University in New York, New York, with about $85,000.

Public vs. Private Medical School

The cost of attending a private medical school is typically higher than a public school.

According to the AAMC, these were the median costs of tuition, fees, and health insurance for first-year medical students during the 2022-2023 school year.

•   Private school, in-state resident: $67,294

•   Private school, nonresident: $67,855

•   Public school, in-state resident: $41,095

•   Public school, nonresident: $65,744

According to EducationData, however, the average public medical school graduate leaves school owing a higher percentage of the cost of attendance (79.9%) than the average private school medical school graduate (65.1%).

The Takeaway

There’s no doubt that studying medicine can lead to a lucrative career, but the route can be daunting, in every way. When the average debt of a medical student tops $250,000, some aspiring and newly minted doctors look for a remedy, stat.

If you’re leaning toward refinancing, SoFi’s student loan refinancing offers a fixed or variable interest rate, no fees, and a simple online application. SoFi also has a program specifically for medical residents. Potential borrowers might benefit from a low rate or low monthly payments during residency.

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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More than two out of three of recent college students took out loans to help cover the costs of furthering their education—averaging $37,338 per borrower in federal student loan debt alone.

When it comes to paying back student loans, both the total amount borrowed (i.e., the principal) and the interest rates (i.e., the percentage charged on top of the principal) can shape how much a borrower ends up shelling out over the life of the loan.

And, just as the cost of attending college in the U.S. has changed with the times, the interest rates charged on educational loans have historically fluctuated, as well.

While the cost of attending college has steadily gone up, the history of student loan interest rates shows both ups and downs. For instance, the 2020-2021 federal loan rates for undergraduates were 2.75%—compared to 4.29% five years prior.

For the 2023-2024 school year, fixed interest rates on Direct Subsidized and Direct Unsubsidized Loans for undergraduate students are 5.50%.

A wide variety of educational loans are available to eligible students—including subsidized and unsubsidized federal ones and those handled by private lenders.

Interest rates for different loans change over time. The U.S. government plays a major role in shaping the student loan landscape by setting fixed interest rates each year on federal loans, which can impact the total amount a borrower ends up paying back.

To understand the history of student loan interest rates, it can be helpful to zoom out and take a wide-lens view of the student loan landscape in the U.S.

The U.S. federal government is the major player in student lending—with $1.6 trillion in federal student loan debt owed by more than 43 million borrowers.

Below is an overview of how current rates compare to the recent history of student loan rates.

Understanding US Student Debt

Of the nearly $17 trillion of outstanding household debt, more than $1.7 trillion comes from student debt—that totals more than what Americans owe for cars or credit card debt, respectively.

Besides mortgages, student loan debt accounts for the largest form of household debt. More than 93% of all outstanding student loans are federal student loans, making the student loan interest rate set by the federal government a significant factor for millions of student borrowers.

Private student loans tend to be set according to a combination of prevailing interest rates and the lender’s projection of the student’s ability to pay, whereas federal student loan rates can be shaped, in part, by something even more confusing than the fine print on a financial statement: politics.

Federal student loans are fixed interest (but the rates are adjusted annually), while private lenders often provide both fixed-rate and variable-interest loans.

Recommended: Strategies for Lowering Your Student Loan Interest Rate

Here’s an overview of federal student loan rates and some changes they’ve seen:

What Did the Coronavirus Pandemic Change?

Right now represents an exceptional period in student lending. Typically, federal student loan interest rates are set according to a formula established by the U.S. Congress.

However, presently, the rate is set to zero through June 30, 2023. This means interest will not accrue on Direct Loans, FFEL Loans, and Perkins Loans issued by the Education Department.

Payments due on federally held student loans have also been paused through June 30, 2023, with payments expected to resume 60 days after a court decision or June 30, 2023, whichever comes first. Both actions are a result of several presidential executive orders that extended benefits first established in the CARES Act—in response to the extraordinary economic situations triggered by the novel Coronavirus pandemic.

Recommended: Navigating Your Student Loans During COVID-19

Federal Student Loans

Federal student loans represent the lion’s share of student lending. But, there’s more than one type of federal student loan. There are a variety of federal educational loans with different student loan interest rates that, historically, have changed with time—from subsidized to unsubsidized, from undergraduate to graduate.

Current federally owned student loans include Direct Loans, Direct PLUS Loans, and Parent Plus Loans.

Recommended: Parent PLUS Loans vs Private Parent Student Loans for College

Direct Loans

Direct Consolidation Loans are responsible for the majority of federal student lending. Issued by the U.S. Department of Education, these loans include both subsidized and unsubsidized student loans.

Subsidized loans are for borrowers who can demonstrate financial need and are exclusively available for undergraduate education, while unsubsidized loans can be used by graduate students. There are also Direct PLUS Loans for graduate students and parents of students.

Direct Loans for the 2023-2024 school year have a fixed interest rate of 5.50% for both direct subsidized and direct unsubsidized loans—notably higher than the interest set on federal loans in previous years.

As a point of comparison, Direct Loans for the 2019-2020 academic year were set at 4.53% for subsidized loans and unsubsidized loans. Two years ago (2018-2019), that rate was 5.05%.

Recommended: Why Are Student Loan Interest Rates So High?

Additional Types of Federal Student Loans

The other types of direct loans are Direct PLUS Loans and Parent PLUS Loans. These both carry interest rates determined through a federal government formula. For the 2020-2021 school year, the rate on PLUS loans was 5.3%, coming down from 7.08% in 2019-2020, and 7.6% the year before that. Current Direct PLUS Loans rates for the 2023-2024 school year are 7.54%.

The current rate on Parent PLUS Loans for the 2023-2024 school year is also 7.54%. All rates for Direct Loans and Parent PLUS Loans are fixed interest rates.

Disused Federal Student Loan Types

The Federal Perkins Loan Program, which is no longer available, offered fixed-rate loans at a 5% interest to qualifying students. This program was aimed at students with exceptional financial needs. Schools stopped disbursing Perkins Loans in 2018 after their authority to do so expired under federal law.

How Are Rates Determined?

Traditionally, federal student loan interest rates have been determined in response to laws passed by the U.S. Congress. According to a piece of legislation from 2013 known as the “Bipartisan Student Loan Certainty Act,” the rate on Direct Loans is determined by a formula pegged to borrowing cost for government debt.

The first year under this formula produced 3.86% rates on Direct Loans. During the year before, the 2012-2013 academic year, subsidized loans were 3.4% and unsubsidized loans were 6.8%. (A 2007 bill had lowered the subsidized rate to 3.4%, but it was due to expire in 2012 and go back to 6.8%.) The bill, which set up the formula currently governing federal student loan rates, was meant to address this snapback to a higher rate.

Before the legislation passed, Congress directly set the student loan interest rate, with 3.4% rates on subsidized loans and 6.8% on unsubsidized loans for the 2012-2013 school year. The 2013 bill also introduced caps that limit how high interest rates could go on the new formula.

The cap for Direct Loans to undergraduates was 8.25%, for graduate student loans it was 9.5%, and for PLUS Loans it was 10.5%. Since 2013, the rates have remained well below the legal caps. You can find previous rates for Direct Loans on the Federal Student Aid website.

Politics and Student Loans

Today’s rates are governed by a formula that differs for different types of loans.

For undergraduate loans, the formula is the interest rate on one type of government debt at a certain time of year plus 2.05%. (The extra interest is added to cover the cost of deferrals, forbearance, and defaults.) For graduate student loans, it’s that same government debt rate plus 3.6%. And, for PLUS Loans, it’s that rate plus 4.6%.

Put another way, the cost students pay to borrow money from the federal government is determined by the cost the government pays to borrow money—plus a fixed buffer of extra interest, which is intended to reduce the risk to the government of students not being able to pay back their loans.

The Takeaway

The interest rates on federal student loans are set by Congress each year and are fixed for the life of the loan. They are determined based on a formula that the rate on Direct Loans is determined by a formula tied to borrowing cost for government debt. Currently, federal student loan interest rates for the 2023-2024 academic year are 5.50%.

Millions of students use federal student loans to help them pay for their higher education. These loans come with benefits baked in—including grace periods, income-driven repayment options, forgiveness for public service, and forbearance—that are not guaranteed by private student loans.

But sometimes, federal student aid isn’t enough to cover the cost of tuition and other expenses. For some, a private student loan may help cover the total cost of attending college—including school-certified expenses such as tuition, fees, room and board, and transportation.

Private loans are disbursed by non-government institutions. SoFi, for instance, offers competitive rate in-school loans that come with no fees. And, when a borrower enrolls in autopay, they could get a rate discount.

For those currently with outstanding student debt, refinancing may be an option to consider. Refinancing student loans may help eligible borrowers pay off their loans faster or lower their monthly payments. It’s worth noting, though, that refinancing a federal loan with a private lender eliminates federal benefits.

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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VA loans are available to active-duty military members, veterans, reservists, National Guard members, and certain surviving spouses. They require no down payment or mortgage insurance and typically come with lower interest rates than other types of mortgages. If you think you might qualify for a VA loan, it’s worth comparing the costs to those of a conventional loan.

What Is a VA Home Loan?

VA loans were created in 1944 as part of the G.I. Bill, and they have grown in popularity since. They are one way to buy a house with no money down.

Most VA loans are VA-backed loans. Approved private lenders issue the loans, part of which the U.S. Department of Veterans Affairs agrees to repay if the borrower stops making the payments. That guarantee incentivizes lenders to offer VA loans with attractive terms.

The VA issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. The agency also refinances VA and other mortgages.

How Does a VA Home Loan Work?

To receive a VA loan, a veteran, service member, reservist, National Guard member, or surviving spouse first has to apply for a Certificate of Eligibility. Once you have your COE and have decided what you wish to spend on a home, you’ll seek out a lender. Most lenders charge a flat 1% fee for VA loans but there may be other fees as well.

Once you have a lender and find a home to purchase, you’ll need to have the home appraised by a VA-approved appraiser to ensure it meets the minimum qualifications for a VA loan. If it does, you’re on your way to moving day.

Types of VA Home Loans

VA loans are available to help eligible borrowers buy, build, renovate, or refinance. Here are the main programs.

VA-Backed Loans

VA-backed home loans are full of advantages. They require no down payment or mortgage insurance, and have fairly loose rules about qualifying.

The home must be a primary residence, but up to a four-unit multifamily property may be purchased if one unit will be owner-occupied.

Approved condos and manufactured homes classified as real property are eligible.

VA Direct Home Loans

If either a veteran or their spouse is Native American, they may qualify for a Native American Direct Loan (NADL) to purchase, construct, or improve a home on federal trust land.

The VA issues these loans directly to borrowers who meet credit standards and whose tribal government has an agreement with the VA.

VA Refinancing

The VA offers an interest rate reduction refinance loan (IRRRL) and a cash-out refinance.

An IRRRL, or VA Streamline Refinance, refinances an existing VA-backed home loan. No verification of credit, income, or employment is required, and you might not need a home appraisal.

The VA-backed cash-out refinance can be used to convert any type of home loan to a VA mortgage with cash back at closing. (Cash back is optional: You can also use a VA cash-out refi to switch to a VA loan, shed mortgage insurance, and possibly lower your mortgage rate.)

VA Renovation and Construction Loans

The VA renovation loan is Veterans Affairs’ answer to the FHA 203(k) loan. It allows eligible borrowers to purchase and repair a property using a single VA loan with no down payment.

VA construction loans can help borrowers finance land and the construction of a home without a down payment. The hitch is, few lenders offer these loans.

Some states also administer their own loan programs for qualified veterans. California, for example, may have a high cost of living but it does offer its own home loan program to veterans.

Who Should Apply for a VA Home Loan

Eligible applicants for a VA loan are:

•   Current service members who have served for 90 consecutive days.

•   Veterans who served after 1990 for 24 continuous months or for the full period (at least 90 days) when called or ordered to active duty. (Those who served prior to 1990 may also be eligible; check VA.gov for detailed requirements.)

•   Service members who served at least 90 days of active duty in the Reserves or the National Guard after 1990. (Those who served prior to 1990 may also be eligible; visit VA.gov for details.)

•   Spouses of service members who died in the line of duty or from a service-connected disability, or who are missing or are prisoners of war.

VA Home Loan Requirements for Buying a House

If you apply and meet the requirements for a VA loan, you’ll receive a certificate of eligibility. Approved lenders can check eligibility quickly, or potential borrowers can contact va.gov.

The document indicates “full entitlement.” For full entitlement, at least one of these must be true:

•   You’ve never used your home loan benefit

•   You’ve paid a previous VA loan in full and sold the property

•   You’ve used your home loan benefit but had a foreclosure or short sale and repaid the VA in full

Credit, Income, Debt

For a VA loan, the lender will determine how much of a mortgage you can afford based on your credit history, income, debts, and assets.

The VA does not have a minimum credit score, but most mortgage lenders will want to see a FICO credit score above 620. Some may go lower.

According to VA residual-income guidelines, borrowers should have a certain amount of discretionary income left over each month after paying major expenses.

The VA does not name a maximum debt-to-income ratio, but it does suggest placing more financial scrutiny on borrowers with a DTI of more than 41%, which includes the projected mortgage payments.

VA Loan Rates

For VA-backed loans, approved private lenders set their own VA loan rates and fees. It’s smart to contact more than one lender when shopping for a mortgage and compare offers.

VA Funding Fee

There will be no mortgage insurance on a VA loan, but most borrowers will pay a one-time funding fee for a VA-backed or VA direct home loan. The fee can be rolled into the loan.

For the first use of a VA-backed purchase or construction loan, the funding fee is 2.3% of the loan amount if the borrower is putting less than 5% down.

The NADL funding fee for a home purchase is 1.25%.

A few borrowers, including those who are receiving VA compensation for a service-connected disability, do not have to pay the funding fee.

Benefits of VA Home Loans

Here are the main selling points of VA loans:

•   No down payment.

•   More attractive interest rates and terms than loans from some mortgage lenders.

•   Possibly lower closing costs. The VA allows lenders to charge up to 1% of the loan amount to cover origination, processing, and underwriting costs. Sellers can pay all of your loan-related closing costs, but yes, that’s a big ask. VA loans have an appraisal fee that is set by area. Buyers may purchase mortgage points to reduce the interest rate.

•   There’s no limit to the amount that can be borrowed with a VA home loan. However, there is a limit to the amount of the loan that the VA will guarantee.

•   No minimum credit score requirement (although some lenders may still not lend to those with lower credit scores).

•   A VA home loan can be for first-time homebuyers or repeat buyers.

•   VA loans are assumable, meaning the loan could be taken over by the home’s next purchaser.

Downsides of VA Home Loans

Although there are many benefits to VA loans, there are a few potential pitfalls to keep in mind.

The main one is the funding fee. If rolled into the loan, this increases monthly payments as well as total interest paid over the life of a loan.

Others:

•   VA loans can’t be used to purchase investment properties or vacation homes.

•   Some approved condos are eligible, but co-op properties are not.

•   Zero down payment is a nice option, but if the housing market falters, borrowers may be paying more on their home than it’s worth.

What Is the VA Loan Limit?

As of 2020, if you have full entitlement, you don’t have a VA loan limit.

If you have a remaining entitlement (e.g., you have a VA loan you’re still paying back), you can use your remaining entitlement — on its own or with a down payment — to take out another VA loan.

In that case, the VA loan limit is based on the county conforming loan limit where you live. (In most of the country, the 2023 conforming loan limit for one-unit properties is $726,200.)

VA Loan vs Traditional Mortgage

After comparing the pros and cons of VA loans, some borrowers may find that a conventional loan with a low down payment is a better fit for their long-term financial goals. Even if they save money upfront, in the long term, VA loan borrowers often end up paying more.

Conventional loans can be used for vacation homes or investment properties. They don’t include the VA funding fee.

And some borrowers who put less than 20% down may be able to avoid PMI.

The Takeaway

VA loan requirements are more flexible than some others, and VA loan rates may be slightly lower. VA loans have benefits, but it might pay to get loan estimates for conventional loans, too, and compare. For one thing, nothing down means starting out with no equity.

Applying for a home mortgage loan with SoFi requires as little as 3% down for qualifying first-time homebuyers. The fixed rates are competitive. SoFi finances primary homes, second homes, and investment properties.

FAQ

What are the disadvantages of a VA loan?

The main downside of a VA loan is its funding fee. VA loans also can’t be used to purchase investment or vacation properties, or co-ops (although some condos are eligible).

What is the difference between a VA loan and a regular loan?

The main difference between a VA loan and a conventional loan is that VA loans do not require a down payment or mortgage insurance. And, of course, VA loans are only available to qualified service members, veterans, and certain spouses.

Do you pay a VA loan back?

Yes. A VA loan is a loan, not a gift, and It must be repaid. A homeowner who doesn’t make payments could lose their home and any equity they had built up in it.

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.

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If you already have a semester or two of college under your belt, you might be asking yourself, “How much do I owe in student loans?” It’s hard to keep track of your student loan balance, especially since the pause on federal student loan payments has been in effect since March 2020. But with that pause expected to end in the summer of 2023, it’s important to know what you owe.

The amount might startle you. One year after leaving school, graduates have an average of $33,500 in student loan debt, according to the most recent numbers from EducationData.org.

The sooner you find out your student loan amounts, the sooner you could make a plan to pay them off. Here’s how to check your student loan balance.

How to Find Out How Much You Owe in Federal Student Loans

Federal student loans typically come in two types: unsubsidized loans and subsidized loans. If you’re a graduate student, you might also have a Graduate PLUS federal student loan. So then, how to check a student loan balance? Fortunately, information on all your federal student loans can be found in one spot. You can look up your balance on the Federal Student Aid (FSA) website.

To check your student loan balance, simply log into your account at studentaid.gov with your FSA ID and password. There, you’ll find your current student loan balance, the interest that has accrued on your account, payment status, and your loan servicer. If your loan servicer has changed, that information will be there as well.

How to Find Out How Much You Owe in Private Student Loans

There’s no one central website to check your balance for private student loans. One method to figure out how much you owe in private loans would be to contact each loan servicer individually.

If your loans have new servicers and you’re having trouble tracking them down, call your original lenders and ask who the new servicers are. Your school’s financial aid office should also have this information.

Another way to find your loan servicers is to check your credit report. You can get a free copy of your credit report from the three main credit bureaus (Equifax, Experian, and TransUnion) and also from AnnualCreditReport.com.

Your report will list your student loans, the loan servicers, and how much you borrowed. From there you can call each server to find out how much you currently owe. Keep in mind, private student loan providers set their own terms, including loan term length, interest rates, and repayment plans.

It might be a good idea to organize your private student loans and determine when the repayment phase kicks in for each, as it could be different from the federal student loan repayment plan.

Keeping Student Loan Debt Manageable

If this is your first time looking up how much you owe in student loans, you might be feeling major sticker shock. Take a deep breath. Keeping track of student loans can be a big undertaking, so don’t panic.

One way to help manage your student loan debt while you’re in college is to get a part-time job. You could look for opportunities to become a paid tutor, intern, or residence assistant. If working part-time during school isn’t possible, you could plan on getting a full-time job in the summer and live off the savings throughout the school year.

In addition to picking up paying jobs, you could also explore scholarships. These help pay for your education and you don’t have to pay them back. All it takes is some dedicated time looking for the right match. You could check with your university and any organizations you’re involved with to see if you can help fund your tuition this way.

Paying Off Your Student Loans

Once you’ve learned how to check your student loan balance and then determined how much you owe, it’s time to develop a master plan to pay your loans off. This is important, especially since the median monthly student loan payment is $250, according to EducationDate.org, which is no small change.

These are some of the ways you could pay off what you owe.

Using a Government Repayment Plan

If you have federal student loans, you’ll likely repay your loans using a government repayment plan. This includes income-driven repayment plans where the minimum payment is based upon factors like your income and family size, and the repayment term can be stretched out to 25 years in some cases.

One downside of these options is that they typically increase the total amount you pay back when compared to the standard 10-year repayment plan.

You could also look into Public Service Loan Forgiveness (PSLF), as long as you meet the requirements. To qualify, you must work for a government agency or certain types of nonprofit organizations.

Making an Extra Payment Each Month

If you want to pay off your student loans more quickly, there are a few ways to go about it. First, you could make extra payments. You want to make sure the bulk of your extra payment goes toward your principal, not the interest, so it might make sense to contact your servicers or lenders to let them know if you want to do that.

It will be helpful to see all of your expenses and income together to determine how much extra cash you can put toward your loans. Drawing up a budget can help you determine how much extra money you can put toward your student loan balance.

DIY Student Loan Debt Payoff Ideas

You could organize your student loan debt by either the highest interest rate or by the lowest total outstanding balance. These methods are commonly referred to as the debt avalanche and debt snowball, respectively.

Paying off the debt with the highest interest rate could help save you money in the long-run, whereas paying off the smallest loan balance could give you a quick win.

Once you select a method, you might want to make sure you’re actually making a dent in the balance. One way to do that is to regularly check your balances and see what kind of progress you’ve made. If that method isn’t decreasing your student loan debt as quickly as you’d like, you could switch to a different one.

Refinancing Your Student Loans

Alternatively, you may want to work on ways to reduce your student loan payments. In that case, you could explore student loan refinancing.

When you refinance with a private lender, you replace your old loans with a new private loan, ideally one with a lower interest rate and better terms. Using a student loan refinance calculator can help you figure out how much you might save by doing this.

Once you know the potential savings involved, consider this critical question: Should you refinance your student loans? If it could save you money, refinancing might be worth pursuing. However, it’s important to know that if you refinance federal student loans, they will no longer be eligible for federal deferment or forbearance, loan forgiveness programs, or income-driven repayment. If you’re certain you won’t need access to these programs, refinancing may make sense.

Still not sure? This student loan refinancing guide is full of useful information that could help you decide whether refinancing is the right choice.

SoFi Student Loan Refinancing

If you decide to move ahead, student loan refinancing with SoFi could help lower your monthly payments, shorten your student loan term, or save you money on interest. You can choose low fixed or variable rates, and there are no fees. Plus, you can prequalify and get your rate in just two minutes.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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.

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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