Can You Get More Time Before You Start Paying Back Your Student Loans?

You can talk to your lender or loan servicer about delaying your payments a little longer—like a few more months. You might qualify for student loan deferment or forbearance , which allows you to temporarily pause payments.

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Q: When Do You Have To Start Paying Back Student Loans?

Your grace period is the time you’re given after graduation before you have to start paying back your student loans. The majority of federal loans come with a six-month grace period. Direct PLUS loans for graduate students and parents don’t have a grace period. Some private student loans operate with the same six-month grace period as federal student loans.

Jul

2023

When Do You Have to Start Paying Back Student Loans?

By Austin Kilham | Fresh Out of School, Student Loans, student_loan | No Comments

Figuring out when you have to start paying back student loans can be a bit tricky, but in 2023 it’s more complicated than usual. A pause on all federal student loan payments has been in effect since 2020, but that pause has come to an end.

For new grads, most federal student loans have a six-month grace period after you finish school, during which borrowers don’t have to make payments. The payback terms on private student loans are set by individual lenders, which may or may not offer a grace period.

Whether you’re a new grad or a federal student loan borrower wondering when your paused payments will resume, read on to find out when you have to start paying back your student loans.

Table of Contents

Student Loan Payment Pause Ends
What Is the Student Loan Grace Period?
Federal vs Private Loans: Key Differences
When to Start Paying Federal Student Loans
When to Start Paying Private Student Loans
Can You Get More Time Before Paying Back Student Loans?
Can You Lower Your Student Loan Payments?
What Happens if You Don’t Start Paying Back Student Loans?

Student Loan Payment Pause Ends

In March 2020, at the beginning of the Covid-19 pandemic, the federal government ordered the suspension of payments, interest, and collections on most federally held student loans. Three years later, borrowers will restart making loan payments in the fall of 2023.

When the time comes, borrowers should receive a billing statement from their loan servicer at least 21 days before their payment is due. The statement will provide the latest information on payment due dates, monthly amount, and interest accrued.

What else you can do: Make sure your contact information is up-to-date on your loan servicer’s website and in your StudentAid.gov profile. And to refresh your memory on all things student loans, read our summary of the basics of student loans.

What Is a Student Loan Grace Period?

A grace period is the time you’re given after graduation before you have to start paying back your student loans. The federal government and many private lenders understand that you might not find a steady job straight out of college.

Both Direct Subsidized and Unsubsidized Loans have a grace period. Direct PLUS loans for graduate students and parents don’t have a grace period. Make sure you understand which loan you have so you’re financially ready to start making payments.

While the grace period gives you time to find a job before you have to start making payments, it’s important to understand that unsubsidized federal student loans will continue to accrue interest during the grace period.

Usually, at the end of the grace period, the interest is capitalized onto the principal (or original amount borrowed). This becomes the new value of the loan, and interest continues to accrue based on this new value. However, new federal regulations will eliminate interest capitalization when borrowers first enter repayment.

Federal vs Private Loans: Key Differences

There are two main types of student loans: private student loans and federal student loans. Private student loans are borrowed from a bank, credit union, or another lender. Federal loans are backed by the U.S. Department of Education. Important differences between the two include:

• Only federal student loans were eligible for the payment pause.

• Fixed interest rates on federal student loans are generally lower than for private loans.

• Only federal student loans are eligible for income-driven repayment plans, deferment and forbearance, and federal loan forgiveness.

When to Start Paying Federal Student Loans

As noted above, both direct subsidized and unsubsidized loans offer a six-month grace period where loan payments are not required after a student graduates. Here’s how the payment pause may affect your grace period:

• Students who graduated in December 2022 or earlier will make their first payment after October 1, 2023.

• Students who graduated in June 2023 will make their first loan payment in December.

When to Start Paying Private Student Loans

Some private student loans operate with a six-month grace period, similar to federal student loans. But not all. If you have a private student loan, check your loan terms to see if you have a grace period.

If you’re looking to take out a private student loan with a grace period, consider reviewing different lenders to see who has the best terms. Unlike federal student loans, interest rates for private student loans vary based on individual factors including your credit history. Because of this, your interest rate might be higher than it would be with federal loans.

Recommended: Private Student Loans Guide

Can You Get More Time Before Paying Back Student Loans?

If you’ve already graduated and you’re having trouble finding a job in your field, you might be stretching your finances as thin as they go. Even your student loan repayments might not get priority. Before you let late payments get the best of you, consider what options are available.

It may be possible to talk to the loan servicer about delaying your payments a little longer. Your lender doesn’t want you to be late either, and might be willing to work with you.

Extended Deferment or Forbearance

Borrowers with federal student loans might qualify for student loan deferment or forbearance, which allow you to temporarily pause payments. Keep in mind that interest may still accrue while your loans are in deferment or forbearance, depending on the type of loan you hold. You’ll be responsible for that interest regardless of when you start making your payments.

The start date of those repayments isn’t the only thing you should be concerned with. If you have student loans, lowering your payment amount is probably on your mind as well. Not sure what your monthly payment is? Use our student loan calculator to estimate your student loan payments.

Can You Lower Your Student Loan Payments?

Depending on the type of loans you have, there are a few different ways you can lower your student loan payments.

Consolidation

If you have many different federal student loans, you might want to consider student loan consolidation. Consolidating your existing loans with a Direct Consolidation Loan means combining all of your federal loans into a single loan and potentially lengthening the term so your payments go down. A longer term, however, means paying more interest over the (now longer) life of your loan.

Your new interest rate will be the weighted average of all your federal loans combined, rounded up to the nearest eighth of 1%, which means consolidation might not lower your interest rate.

Refinancing

Refinancing your student loans is similar to consolidation. However, a refinanced loan uses your credit history to determine your interest rate. Ideally, refinancing will lead to a lower rate. It’s important to note that refinancing student loans forfeits protections that come with federal student loans, like forbearance and income-driven repayment plans.

It’s also possible to lengthen or shorten your loan term. Refinancing can be done with private student loans, federal student loans, or both. Just remember that lengthening the loan term may result in paying more in interest over the life of the loan.

For more on this option, read our take on the advantages of refinancing student loans.

Income-Driven Repayment Plans

If you have federal student loans and have a lower income, you might want to look into Income-Driven Repayment plans. There are a few different IDR options that vary based on your income and family size. And recent changes by the Biden Administration make the plans an even better deal for borrowers.

All IDR plans forgive the remaining balance on your loans either 20 or 25 years after you begin paying the loan back. This could be an option to consider if you are a recent grad. Note that while the remaining balance is forgiven at the end of an IDR loan term, that amount may be considered taxable income by the IRS.

What Happens if You Don’t Start Paying Back Student Loans?

If you don’t start paying back your student loans, you can face some pretty serious financial consequences. Your loan will become delinquent after the first day of missed payments. Once you’re 90 days late making a payment on your federal loans, your loan servicer will report the delinquency to the credit reporting bureaus and your credit score will take a hit.

If you have a private student loan, your lender may report you to the credit reporting bureaus after just 30 days. A lower credit score can make it more difficult to secure credit and loans in the future, and if you do get a loan, it might come with less favorable terms and a higher interest rate.

Student Loan Default

After 270 days, your federal loans will enter default. Private loans may default after 120 days, and Federal Perkins loans can enter default immediately after you miss a payment.

Once you’re in default, your credit will take another hit. You might also be subject to having your wages garnished (though the rules on this are different when it comes to federal vs. private student loans).

In addition to wage garnishment and damage to your credit, you may also experience the following negative consequences:

• Late fees. For example, federal loans that are 30 days late may encounter late fees of 6% of the amount due.

• Loss of eligibility for loan deferment or forbearance once you default on federal loans.

• No longer able to choose your repayment plan for federal loans.

• The government may withhold your tax refund if you fail to pay federal loans.

• Loss of eligibility for financial aid.

The Takeaway

The payment pause on federal student loans has ended. If you graduated in or before December 2022, your first federal student loan payment will be due sometime after October 1. If you graduated in June 2023 or later, your first payment will be due after six months. Your loan servicer will provide you with a billing statement at least 21 days before your first payment is due. If you can’t afford to resume your monthly payments, federal loan holders have options: deferment, an income-driven repayment plan, or refinancing. Some private student loans also offer grace periods; check with your loan servicer to find out.

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.

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Jul

2023

What Are Treasury Inflation-Protected Securities (TIPS)?

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Treasury Inflation-Protected Securities, or TIPS, are one way to hedge against inflation in a portfolio. Inflation, or a sustained period of rising consumer prices, can take a bite out of investor portfolios as the prices of goods and services increase.

These government-issued securities are inflation-protected bonds that adjust in tandem with shifts in consumer prices to maintain value.

Investing in TIPS bonds could make sense for investors who are seeking protection against inflation or who want to increase their conservative asset allocation.

Recommended: Smart Ways to Hedge Against Inflation

What Are TIPS?

Understanding Treasury Inflation-Protected Securities starts with understanding a little about how bonds work. When you invest in a bond, whether it’s issued by a government, corporation or municipality, you’re essentially lending the issuer your money. In return, the bond issuer agrees to pay that money back to you at a specified date, along with interest. For that reason, bonds are often a popular option for those seeking fixed income investments.

TIPS are inflation-protected bonds that pay interest out to investors twice annually, at a fixed rate applied to the adjusted principal of the bond. This principal can increase with inflation or decrease with deflation, which is a sustained period of falling prices. When the bond matures, you’re paid out the original principal or the adjusted principal—whichever is greater.

Here are some key TIPS basics to know:

• TIPS bonds are issued in terms of 5, 10 and 30 years

• Interest rates are determined at auction

• Minimum investment is $100

• TIPS are issued electronically

• You can hold TIPS bonds until maturity or sell them ahead of the maturity date on the secondary market

Treasury Inflation-Protected Securities are different from other types of government-issued bonds. With I Bonds, for example, interest accrues over the life of the bond and is paid out when the bond is redeemed. Interest earned is not based on any adjustments to the bond principal—hence, no inflationary protection.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

How Treasury Inflation-Protected Securities (TIPS) Work

Understanding how TIPS work is really about understanding the relationship they have with inflation and deflation.

Inflation refers to an increase in the price of goods and services over time. The federal government measures inflation using price indexes, including the Consumer Price Index (CPI). The federal government measures inflation using the Consumer Price Index, which measures the average change in prices over time for a basket of consumer goods and services. That includes things like food, gas, and energy or utility services.

Deflation is essentially the opposite of inflation, in which consumer prices for goods and services drop over time. This can happen in a recession, but deflation can also be triggered when there’s a significant imbalance between supply and demand for goods and services. Both inflation and deflation can be detrimental to investors if they have trickle-down effects that impact the way consumers spend and borrow money.

When inflation or deflation occurs, inflation-protected bonds can provide a measure of stability with regard to investment returns. Here’s how it works:

• You purchase one or more Treasury Inflation-Protected Securities

• You then earn a fixed interest rate on the TIPS bond you own

• When inflation increases, the bond principal increases

• When deflation occurs, the bond principal decreases

• Once the bond matures, you receive the greater of the adjusted principal or the original principal

This last part is what protects you from negative impacts associated with either inflation or deflation. You’ll never receive less than the face value of the bond, since the principal adjusts to counteract changes in consumer prices.

Are TIPS a Good Investment?

Investing in inflation-protected bonds could make sense if you’re interested in creating some insulation against the impacts of inflation in your portfolio. For example, say you invest $1,000 into a 10-year TIPS bond that offers a 2% coupon rate. The coupon rate represents the yield or income you can expect to receive from the bond while you hold it.

Now, assume that inflation rises to 3% over the next year. This would put the bond’s face value at $1,030, with an annual interest payment of $20.60. If you were looking at a period of deflation instead, then the bond’s face value and interest payments would decline. But the principal would adjust to reflect that to minimize the risk of a negative return.

Pros of Investing in TIPS

What TIPS offer that more traditional bonds don’t is a real rate of return versus a nominal rate of return. In other words, the interest you earn with Treasury Inflation Protected Securities reflects the bond’s actual return once inflation is factored in. As mentioned, I Bonds don’t offer that; you’re just getting whatever interest is earned on the bond over time.

Since these are government bonds, there’s virtually zero credit risk to worry about. (Credit risk means the possibility that a bond issuer might default and not pay anything back to investors.) With TIPS bonds, you’re going to at least get the face value of the bond back if nothing else. And compared to stocks, bonds are generally a far less risky investment.

If the adjusted principal is higher than the original principal, then you benefit from an increase in inflation. Since it’s typically more common for an economy to experience periods of inflation rather than deflation, TIPS can be an attractive diversification option if you’re looking for a more conservative investment.

Cons of Investing in TIPS

There are some potential downsides to keep in mind when investing with TIPS. For example, they’re more sensitive to interest rate fluctuations than other types of bonds. If you were to sell a Treasury Inflation-Protected Security before it matures, you could risk losing money, depending on the interest rate environment.

You may also find less value from holding TIPS in your portfolio if inflation doesn’t materialize. When you redeem your bonds at maturity you will get back the original principal and you’ll still benefit from interest earned. But the subsequent increases in principal that TIPS can offer during periods of inflation is a large part of their appeal.

It’s also important to consider where taxes fit in. Both interest payments and increases in principal from inflation are subject to federal tax, though they are exempt from state and local tax. The better your TIPS bonds perform, the more you might owe in taxes at the end of the year.

How to Invest in Treasury Inflation-Protected Securities

If you’re interested in adding TIPS to your portfolio, there are three ways you can do it.

1. Purchase TIPS bonds directly from the U.S. Treasury. You can do this online through the TreasuryDirect website. You’d need to open an account first but once you do so, you can submit a noncompetitive bid for inflation protected bonds. The TreasuryDirect system will prompt you on how to do this.

2. Purchase TIPS through a banker, broker or dealer. With this type of arrangement, the banker, broker or dealer submits a bid for you. You can either specify what type of yield you’re looking for, which is a competitive bid, or accept whatever is available, which is a noncompetitive bid.

3. Invest in securities that hold TIPS, i.e. exchange-traded funds or mutual funds. There’s no such thing as a TIP stock but you could purchase a TIPS ETF if you’d like to own a basket of Treasury Inflation-Protected Securities. You might choose this option if you don’t want to purchase individual bonds and hold them until maturity.

When comparing different types of investments that are available with ETFs or mutual funds, pay attention to:

• Underlying holdings

• Fund turnover ratio

• Expense ratios

Also consider the fund’s overall performance, particularly during periods of inflation or deflation. Past history is not an exact predictor of future performance but it may shed some light on how a TIPS ETF has reacted to rising or falling prices previously.

The Takeaway

Treasury Inflation-Protected Securities may help shield your portfolio against some of the negative impacts of inflation. Investors who are worried about their purchasing power shrinking over time may find TIPS appealing.
But don’t discount the value of investing in stocks and other securities as well. Building a diversified portfolio that takes into consideration an investor’s personal risk tolerance, as well as financial goals and time horizons, is a popular strategy.

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Jul

2023

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How’s Your Money Doing? 6 Ways to Track Your Expenses

By Rebecca Lake | Budgeting & Goals, Financial Independence | No Comments

Many people aren’t quite sure where their cash goes. They know they have money flowing in and out but couldn’t tell you the details.

If you’re among that group, it can be a good thing to start tracking your monthly expenses. Doing so can put you in control of your budget and make it easier to see where you might be wasting money.

When you don’t track expenses, you run the risk of overspending. What happens then? You can easily wind up short when it’s time to pay monthly bills and relying on high-interest debt to tide you over.

Getting into the habit of tracking income and expenses can help you improve your financial health so that you’re not guessing about where your money goes. If you’re ready to learn how to keep track of expenses, these tips can help.

Check out our Money Management Guide.

This article is from SoFi’s guide on how to manage your money, where you can learn basic money management tips and strategies.

6 Ways to Tracking Your Monthly Expenses

1. Know Your Starting Point

In order to get a handle on expense tracking, you first need to know where you stand financially. That includes knowing:

• How much you typically spend each month in total

• What part of your spending goes toward fixed vs. variable expenses

• How much of your income goes to debt repayment

• What you have set aside in savings.

Calculating your personal net worth can be a good way to gauge whether your spending habits are healthy or harmful. Your net worth is the difference between what you owe, or your total debts, and what you own, or your assets.

You can use an online net worth calculator to find your number. If the number is positive, that means you have more assets than debt. That’s a good thing, as it suggests that you know how to keep spending in check and save money.

If your net worth is negative, on the other hand, that means your debts outweigh your savings. If most of your debt is owed to credit cards, that could be a sign that you need to rethink your spending habits and how you track expenses.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open a bank account online.

2. Categorize Spending and Expenses

50-30-20 budget rule

Once you’ve assessed your financial situation as a whole, it’s time to start categorizing the different ways you spend money each month. The 50/30/20 rule is a good way to do that. This budgeting rule suggests grouping spending into three pots: needs, wants, and savings and debt.

Needs

Needs include anything that you have to spend money on to maintain a basic standard of living. Using the 50/30/20 budget, 50% of your budget would go to needs.

Examples of needs include:

• Housing

• Utilities

• Food

• Healthcare

• Insurance.

This category can include a mix of fixed and variable expenses. Fixed expenses stay the same month to month; variable expenses can increase or decrease. For example, your rent or mortgage payment is likely fixed since you pay the same amount all the time. But your utility bills can be variable if you pay more in winter and summer, but less in spring and fall.

A good rule of thumb for housing is to spend no more than 30% of your income on rent or mortgage payments. If you’re spending more than that, you may want to consider ways to reduce housing costs. If you own, for example, then you might refinance your mortgage if you can get a lower rate or downsize to a smaller home. Renters might consider taking on a roommate or two or moving to an area with a lower cost of living.

Wants

Wants are things you spend money on but don’t necessarily need to survive. This section accounts for 30% of spending under the 50/30/20 rule.

Examples of wants in a line-item budget can include:

• New clothes that aren’t really needed

• Travel

• Dining out

• Hobbies and recreation

• Entertainment

• Spa or salon visits.

The wants section of your budget is often where you can make the biggest cuts, since these are things you don’t need to spend money on.

Savings and Debt

The remaining 20% in the 50/30/20 budget is dedicated to saving and paying down debt. You could split it equally, and devote 10% to saving and 10% to debt. Or you might divide it differently if you’re prioritizing one financial goal over another.

Some of the things you might save money for in your budget include:

• Emergency funds

• Short-term goals, such as a vacation or new furniture

• Longer-term goals, like the down payment on a house

• Sinking funds

• College planning

• Retirement.

Financial experts often recommend saving 10% to 15% of your income for retirement alone, so you might need to reevaluate how much you’re setting aside for that goal. Increasing 401(k) contributions can help you get closer to that target if you’re not there yet. You may also consider supplementing your workplace plan with an Individual Retirement Account (IRA).

On the debt side of the equation you might have student loans, credit cards, car loans, or other debts. How you choose to pay them down can depend on how much money you have to work with and what’s most important to you. The debt snowball method, for example, can help you pay off debts from smallest balance to highest. Meanwhile, the debt avalanche has you pay off debts based on the highest APR to lowest.

Recommended: Check out the 50/30/20 Budget Calculator to see the breakdown of your money.

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3. Prioritize and Automate

Prioritizing monthly expenses means deciding what your money will go to first. It’s logical to start with monthly bills and basic living expenses, then budget for everything else. The ‘everything else’ includes your wants, savings goals, and debt repayment. If you’re following the 50/30/20 budget, then half of your income will go to those expenses.

Automating your finances can be a simple way to ensure that monthly bills get paid first. You can also automate other expenses that you pay regularly, including debt and transfers to savings.

Some of the bill payments you might choose to automate include:

• Mortgage or rent payments

• Utilities

• Cell phone and internet bills

• Car insurance

• Student loan payments

• Credit card bill payments

• Transfers to your emergency fund

• IRA contributions.

The more you can automate, the easier paying and tracking expenses can become. If you have trouble keeping up with bill due dates, you can set up reminders to alert you when those payments are scheduled to come out of your bank account.

4. Set Up a Spreadsheet

If you’re a visual learner, you might benefit from using a spreadsheet to track monthly income and expenses in one place. A spreadsheet might work well for you if you get paid weekly or biweekly and want to break down your expenses by week. That way, you can easily see when monthly bills are due and check them off as you pay them.

Budgeting spreadsheets are great because they can do the calculations for you to show you how much you’ve spent at any given point in the month and how much room you have remaining in your budget. Depending on where you bank or have credit card accounts, you may be able to see that information from your accounts automatically so that you don’t have to input the numbers manually.

5. Use an App

Apps are another option for tracking expenses each month. When you download a budgeting app or expense tracking app, you can link it to your bank accounts and credit card accounts. The app then pulls transaction data from your accounts periodically so that you can see how much you’ve spent right on your screen in one simple place; no toggling back and forth.

Some apps even allow you to tag or categorize expenses and create graphs or charts so that you have a visual representation of where your money is going each month.

You might use an app if you prefer a simplified approach to expense tracking, since the app does the work for you. The only drawback is that apps are not equipped to track spending when you pay with cash. So you’ll still have to enter those expenses yourself; otherwise, you could end up with inaccurate calculations of how much you’ve spent.

6. Track Your Money With Your Bank’s Help

Another option as you monitor your money habits is to track spending with financial insights. You don’t need to set up a spreadsheet or download a specific budgeting app. Instead, your back can help you track and categorize all of your expenses when you log into your account.

For instance, SoFi can help you to:

• Connect financial accounts in a personal dashboard

• View and track expenses

• Monitor your credit scores

• Create a budget plan

• Track retirement savings and other money goals

• Review your debt situation.

Financial insights like these can help you to get a comprehensive snapshot of your money situation in one place. It’s free to use, which is a plus, and it’s always there for you whenever you want to log in and see what you’re spending or how much you’re saving. This kind of intel can keep you on track and en route to reaching your financial goals.

Why Is Tracking Your Spending Important for Financial Management?

Knowing how to track spending is a good thing when it comes to managing money. Here are some of the ways that maintaining a monthly expenses list can benefit you financially.

• Keeping track of expenses can help you make a budget if your spending is consistent from month to month.

• Monitoring personal expenses can help you pinpoint areas in your budget where you might be wasting money, so you can cut back on spending if necessary.

• It’s easier to keep up with monthly bills and due dates when you’re paying attention to expenses and wrangling your budget.

• If you share certain costs with a spouse, significant other, or roommate, tracking expenses can ensure that both of you are contributing what you need to in order to pay the bills.

• Tracking spending can help you work toward your financial goals; it can help you make informed decisions about where your money should or shouldn’t go.

Most importantly, keeping track of expenses can give you a sense of control over your money. You can feel like you’re telling your money what to do, instead of it being the other way around.

Next, learn some of the best strategies for tracking your monthly expenses.

How Often Should You Review Your Spending?

It’s a good idea to review your spending regularly. Doing so can help you see how your spending habits may have changed (has what was previously a once a week takeout habit become an every other day occurrence?) or how essential expenses might increase or decrease over time.

In terms of how often you should review spending, you could do it on a monthly basis when you make your new budget. You can look at how your spending might be trending and where you spent the most money during the previous month, then use that as a guide for deciding what to allocate to different spending categories for the next month.

You could also review spending weekly if you do weekly budget check-ins. That might make sense if you get paid weekly or you just prefer to glance at your spending habits more often.

At the bare minimum, it’s a good idea to review your spending on a quarterly to yearly basis, especially if you’ve noticed that your expenses or debt seem to be creeping up.

Recommended: How to Switch Banks

Avoid Common Spending Tracking Mistakes

When it comes to how to keep track of expenses, there are some do’s and don’ts to keep in mind. We’ve covered most of the do’s here, so now let’s look at the biggest mistakes to avoid as you track monthly spending.

• Don’t choose an expense tracking system that doesn’t work for you. If you’re not a spreadsheet person, for example, don’t feel like you have to force yourself to embrace them.

• Don’t forget to track monthly spending when you pay cash. It’s easy to track expenses with a debit card or credit card, but you run the risk of letting cash expenses slip through the cracks if you’re not adding them into your budget.

• Don’t put your expenses in the wrong categories. It’s all too easy to categorize a daily cappuccino as a need if it’s your coping mechanism for getting through a rough day at work. But the reality is that it’s more of a want, and that’s where it should go in your budget.

💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

The Takeaway

Tracking expenses can lead to better financial health and having the right bank account can make it easier. Finding a method that works for you, being clear about categories, and reviewing regularly are all important steps to take when keeping tabs on your expenses.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Why is tracking spending important for financial management?

Tracking spending allows you to see where your money goes and where you might be wasting money each month. When you track monthly spending regularly, it becomes easier to make a realistic budget so that you can spend and save wisely, as well as work toward other financial goals.

How often should I review my spending?

Reviewing spending is something you do monthly or weekly, depending on how often you plan your budget. For instance, you may choose to review monthly expenses at the beginning or end of the month if that’s when you make your budget. Or you might schedule weekly spending reviews if that’s how often you get paid.

How can I categorize my expenses to get a better understanding of my spending habits?

Separating monthly expenses into essential and non-essential categories is a good place to start when tracking your spending. Essential expenses, or needs, are ones you need to pay to maintain a basic standard of living. Non-essential expenses, or wants, represent everything else that you spend money on, which is where you may be able to make some big budget cuts.

What are some common mistakes people make when tracking their spending?

Some of the most common mistakes people make when they track spending include using the wrong budgeting system to manage monthly expenses, forgetting to include expenses paid in cash, and putting expenses into the wrong budget categories. Of course, the biggest mistake you can make when it comes to tracking spending is not doing it at all.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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.

SOBK0623015

Jul

2023

Typical Personal Loan Requirements Needed for Approval

By Maureen Shelly | Budgeting & Goals, personal_loan | No Comments

Personal loans can be used for almost any purpose. In fact, they are one of the most flexible ways to borrow money, without the high interest rates that credit cards charge. So, what’s stopping people from borrowing money for a yacht and cruising away to the Mediterranean, never to return? Simple: They need to meet the lender’s personal loan requirements.

Personal loan qualifications vary by lender — there is no universal list. However, there are certain red and green flags that lenders commonly look for in a borrower’s credit history. We’ve compiled them here to help you be more prepared before you apply.

Table of Contents

Credit Score
Collateral
Proof of Income and Employment
Debt-to-Income Ratio
Origination Fee
How to Qualify for a Personal Loan
Applying for a Personal Loan
How to Get a Personal Loan

1. Credit Score

One of the key metrics lenders look at when evaluating an applicant for any loan is credit score. There’s no universal minimum credit score for personal loans. However, in general, the higher the credit score, the more likely lenders are to approve a loan and give the borrower a more favorable interest rate. The lower your interest rate, the less money you’ll pay over time. Many lenders consider a score of 670 or above to indicate solid creditworthiness.

If you apply for prequalification, many lenders will run a soft credit check (which doesn’t affect your credit score) in order to see if you’re a good candidate for a personal loan. As the process moves forward, and an applicant actually applies for a personal loan, lenders will usually do a hard credit check (that is, a deep dive into your credit history). A hard credit check may knock five to 10 points off your credit score, and can continue to impact your score for a few months.

Most lenders review your credit history as well as your credit score, plus other financial factors like your income, to create a holistic view of your financial situation.

💡 Quick Tip: SoFi lets you view your rate for a personal loan online in 60 seconds, without affecting your credit score.

Key Points

• Personal loans can be used for various purposes and offer flexibility without high interest rates.

• Lenders consider credit score, collateral, proof of income and employment, debt-to-income ratio, and origination fees when approving personal loans.

• A higher credit score increases the likelihood of loan approval and favorable interest rates.

• Collateral may be required for secured loans, while unsecured loans have higher interest rates.

• Proof of income and employment is necessary to ensure the borrower’s ability to repay the loan.

2. Collateral

There are two types of personal loans: collateralized and uncollateralized. Collateral is something of value that is used as security for repayment of a loan. In the event of default, the bank or lender may be able to seize the property from the borrower.

When a loan requires collateral, it’s referred to as a “secured loan.” When it does not, it is called an “unsecured loan.” From a lender’s perspective, unsecured personal loans are riskier. Therefore, the requirements for secured and unsecured loans are typically different.

Typically, when people talk about personal loans, they’re referring to unsecured personal loans. Because these loans aren’t backed by collateral, they may have higher interest rates or be harder to qualify for than secured personal loans. Some lenders and banks require collateral for personal loans. Anything from cars to property can be used as collateral, and can be seized in the event that you fail to make your loan payments.

It’s a tradeoff that’s worth weighing before you apply for a loan. If you put your property on the line, you could lose it. But taking that risk may qualify you for a lower interest rate. On the flip side, using collateral on a personal loan can come with hidden costs. For example, some lenders may require you to have additional insurance in the event the collateralized property is damaged.

Awarded Best Personal Loan by NerdWallet.
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3. Proof of Income and Employment

Most lenders will want to be sure that you are gainfully employed and have sufficient income to repay the loan. Proof of income and employment can be required by many lenders to verify how you will repay the loan. This is one way they can determine the likelihood that you’ll pay it back. Plus it can affect things like the interest rate or payback term you’re offered.

Like most personal loan requirements, “proof of income” can mean different things for different lenders. Some lenders require a signed letter from your employer, while others need pay stubs or W2s.

If you are self-employed and want a personal loan, you might need to submit a copy of your tax returns or provide bank deposit information. If you’re considering applying for a personal loan while unemployed, you’ll want to carefully weigh the pros and cons before moving forward.

4. Debt-to-Income Ratio

Another important personal loan qualification is debt-to-income ratio (DTI). DTI compares your gross monthly income to the monthly payments you make on your debt. Generally, the lower your DTI, the more desirable you are as a borrower for any lender.

For example, someone earning $120,000 per year might seem like they’re doing great. That’s $10,000 in gross income per month. But let’s say they’re actually having a tough time making ends meet because they’re paying $6,000 per month toward their credit card and student loan debt. Their DTI is 60%, which is considered high — and might make them less desirable to lenders.

Conversely, someone with a lower income, say $60,000 per year, might get better terms on their personal loan offer if they are only paying $500 a month toward student loans. In this scenario, they are earning $5,000 per month and paying $500 per month toward debt, which makes their DTI 10%.

The lower your DTI, the more desirable you usually are as a borrower for any lender.

5. Origination Fee

This one is a personal loan requirement rather than a qualification. Some lenders charge a one-time “origination fee,” which is intended to cover the cost of processing the loan. Origination fees vary by lender and the borrower’s financial situation. Some lenders charge a flat fee for personal loans, while others charge a percentage of the total loan amount. These fees usually range from 1% to 5%, but they can go as high as 10%.

This can be a considerable sum of money, depending on the loan size. Note that you can typically roll this cost into your loan’s total or pay it out of your loan’s principal.

How to Qualify for a Personal Loan

Savvy consumers know that they may have work to do before applying for a personal loan. Some tasks are relatively quick, like pulling together financial documents. Other things take more time, like practicing good financial habits over the long term so that your credit score is at its best. Once you have your financial ducks in a row, you can feel more confident that you’ll get your personal loan approved.

Below are a few things to keep in mind if you’re considering applying for a personal loan.

Maintain a Stable Income

Lenders typically prefer a borrower with a stable income. If you plan to apply for a personal loan, it may not be the time to change careers.

If there are other ways to boost your income in the meantime, it may help your chances of qualifying and getting favorable loan terms. Whether that means asking for a raise or picking up part-time work, increasing your cash inflow can make you a more desirable borrower in the eyes of a lender — although not all income is considered eligible.

Get a Cosigner or Co-Borrower

A cosigner is someone who agrees to pay the loan if you default. A personal loan co-borrower is someone who may reside with you and takes the loan out with you — their name is on the loan, and you both have an obligation to repay it. Either may improve your chances of qualifying for a personal loan, as lenders view both as an extra layer of repayment security.

Before deciding to bring someone else into the equation, check with your lender if a cosigner or co-borrower is allowed. Then carefully consider the drawbacks. For instance, a cosigner might see a decrease in their credit score if you fail to make a payment. And a co-borrower would have to pay the loan themselves if you default.

Monitor Your Credit Score

If your credit history is less than ideal, you may want to monitor your credit score to learn what actions (or inaction) might hurt it. You can request your credit report for free from each of the three major credit reporting agencies — Equifax, Experian, and TransUnion — at AnnualCreditReport.com.

Check your credit history for errors, such as fraud, misreporting, or a card accidentally opened in your name. Then file a dispute online asking the credit bureaus to remove the errors. But keep in mind that fixing issues on your credit report could take time.

Do your best to pay every bill on time, and try to reduce how much debt you’re carrying relative to your credit limits. For instance, pay down outstanding debt as much as you can. It may also help to pay your credit card bill in full each month.

Applying for a Personal Loan

Often it’s better to save for a big expense, even if it takes a few months or years. However, if that’s not possible, a personal loan can be a better option than charging the expense to a credit card.

When applying for a personal loan, start by figuring out how much you’d like to borrow. (A personal loan calculator can help you decide.) You’ll also want to check your credit, and get prequalified with multiple lenders. Once you choose a lender, you’ll submit your application. This is when you’ll need your financial documents, such as pay stubs, tax returns, and bank statements.

And then hopefully the next and final step is getting approved for a personal loan.

Recommended: Pros and Cons of Personal Loans

how to apply for a personal loan

How to Get a Personal Loan

Wondering where you can get a personal loan? They’re available from banks, credit unions, and online lenders. If you’d like to do business with a particular bank, you might start your inquiries there. Existing customers may get better interest rates or receive their funds sooner.

You can also shop around online to check going rates and terms. With online lenders, it’s easy to compare offers. Plus the entire application process is digital.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

Qualifications for a personal loan typically include a credit score of 670 or more, proof of income, and a debt-to-income ratio below 30%. Some lenders require collateral to secure your loan; if you default, the lender can seize your property. Lenders may also charge an origination fee of 1% to 5%. Before you apply for a personal loan, maintain a stable income, monitor your credit score, and get a cosigner with excellent credit if necessary. The application process is usually straightforward if you have your financial documentation ready.

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

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What can be used as collateral for a personal loan?

Just about any assets you own can be used for collateral on a personal loan. That includes your home, car, savings account, investments, and jewelry or collectibles.

How do I know if I will qualify for a loan?

To “preview” the loan terms you qualify for, you can get prequalified online for a personal loan. You’ll see the loan amount you’re approved for, plus your interest rate, any fees, and repayment term. Prequalification requires a soft credit check only, which won’t hurt your credit score.

Can you get a personal loan without income proof?

Yes, it is possible to get a personal loan without income proof. However, it will be more difficult to qualify, since your credit score and history will have to be exemplary enough to compensate for the lack of income proof. Also, keep in mind that a stable income is more important to lenders than a high salary. If you have a modest income and excellent credit, you can still qualify for favorable loan terms.

What disqualifies you from getting a personal loan?

There are a number of factors that could disqualify you from taking out a personal loan. Examples include a bad credit score, no income, and not being an official resident of the U.S.

Do all personal loans require proof of income?

Generally speaking, most lenders require proof of income, though some may offer unsecured loans without verifying your income. Secured loan lenders might issue a loan without looking at your income or credit history.

What type of personal loan is easiest to get approved for?

One of the easiest types of personal loan to get approved for is a no credit check loan. As the name suggests, these loans offer quick cash to borrowers without requiring a credit check. However, they can have major drawbacks, such as short repayment periods and sky-high interest rates.

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.

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.

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

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.

SOPL0723006

Jul

2023

Parent PLUS Loans vs Private Parent Student Loans for College

By Kayla McCormack | Student Loans, student_loan | No Comments

Paying for college is one of the biggest expenses a parent plans for, and it can seem overwhelming. At times, you might find yourself saving up for your kid’s future education while also trying to save for your own retirement, fund a house down payment, and pay off your own debt.

With the average cost of college tuition and fees for the 2022-2023 school year at $10,950 for public in-state students, $28,240 for public out-of-state students, and $39,400 for private school students, it’s no wonder parents are taking out loans to help pay for their child’s undergraduate education.

One popular federal parent loan program is the federal Direct PLUS Loan, but before you start comparing parent PLUS vs. private parent student loans, it’s important to understand what a parent PLUS loan is.

What Are the Different Loans for College?

There are four types of federal Direct Loans offered by the U.S. Department of Education:

• Direct Subsidized Loans are loans offered directly to the student, where the interest on the loan is paid by the U.S. Department of Education while the student is in school and during a six-month grace period after graduation. Thus, they are subsidized.

• Direct Unsubsidized Loans are also offered directly to the student, but the interest is not paid by the federal government and it accrues while the student is in school.

• Direct PLUS Loans are loans for professional or graduate students, or for parents of undergraduate students.

• Direct Consolidation Loans allow you to consolidate all federal loans into one loan with an interest rate that’s a weighted average of all your federal loans’ interest rates, rounded up to the nearest eighth of a percent.

Note that the federal parent loans can go by a number of names: parent PLUS Loans, Direct PLUS Loans, Direct parent loans. Those are all the same thing.

The main difference between the Direct student loans offered to undergraduates and the Direct PLUS Loans offered to parents is that certain Direct Loans (Direct Subsidized Loans) for undergraduates are awarded based on financial need, whereas the PLUS loans are not awarded based on financial need, but do require a credit check when applying.

In addition to federal loans, there are also private student loans available both for students and for parents. Private student loans are loans from banks or private lenders, which set their own interest rates and terms.

💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

What Can These Loans Be Used For?

When a student’s financial aid package and other sources of funding aren’t enough to cover the cost of college and other educational expenses, parent PLUS loans and private student loans can help fill in the gaps. They can be used to cover expenses like tuition, room and board, books, and other supplies related to the total cost of attendance.

While they can both be used to cover the same expenses, they each have different benefits and terms so it’s worth considering your options as you determine how to pay for your child’s college education.

Parent PLUS Loans vs Private Student Loans Compared

Beyond the major difference that Parent PLUS loans are federal student loans and private student loans are borrowed from individual lenders, there are other similarities and differences to consider.

Similarities

Here’s an overview of the major similarities between these two types of loans.

Primary Borrower

Both Parent PLUS loans and private student loans can be borrowed by parents of undergraduate students to help them pay for their education. On both a Parent PLUS loan and a private student loan borrowed by a parent, the parent will be considered the primary borrower on the loan.

Interest Accrual

While the application processes for these loans will be different, both loan types will accrue interest. The interest rates for the Parent PLUS loans are set annually by congress. Interest rates on private student loans are set by the lender based on factors including the applicant’s credit score, income, and financial history, among other factors.

Loan Disbursement

Regardless of loan type, most student loans are disbursed directly to the school where they pay for the cost of tuition and room and board.

Differences

Here’s an overview of the major differences between Parent PLUS loans and private student loans.

Application Process

One of the major differences between these loans is the application process. Because Parent PLUS loans are a type of federal student loan, students must first fill out the FAFSA. Then, parents are able to apply for a Parent PLUS loan through the Federal Student Aid website.

Private student loans are administered by private lenders. To apply for a private student loan, parents will need to review the application requirements at their chosen lender.

Recommended: FAFSA Guide

Interest Rate

While both PLUS loans and private student loans will require a credit check during the application process, it will not impact the interest rate available for PLUS loans. Applicants with a strong credit history could potentially qualify for a more competitive interest rate with a private student loan than with a Parent PLUS loan, which, as mentioned, has an interest rate that is set annually by Congress.

Repayment Plans

Parent PLUS loans are eligible for federal repayment plans. The repayment plan for a private student loan will be set by the lender.

The chart below illustrates some more general comparisons between parent PLUS loans and private parent student loans:

SoFi offers low-rate, no-fee parent student
loans to help you pay for your child’s
education.

Pros and Cons of Parent PLUS Loans

Understand what a parent PLUS loan is before you start comparing it to private loan options.

Pros of a Parent PLUS Loan

The first step to qualifying for any type of federal loan is to fill out the Free Application for Federal Student Aid (known as the FAFSA®). It’s a required step to document your child’s financial needs. Colleges use the FAFSA information to determine a financial aid package — which could include grants, work-study, subsidized loans, and/or unsubsidized loans.

If your child is offered a financial aid package, you can then figure out how much of their tuition will be covered by financial aid vs how much you might need to take out additional loans to cover any remainder. At that point, you can start to weigh the benefits of private student loans vs. parent PLUS loans.

A Direct PLUS Loan allows parents to borrow the remainder of their child’s costs not covered by financial aid. As mentioned, the interest rates on PLUS loans are set by the federal government and are fixed for the life of the loan. There are a few repayment options that borrowers may be eligible for.

Cons of a Parent PLUS Loan

Fees on PLUS Loans are also higher than on the other Direct Loans. Most income-driven repayment plans are unavailable to parent PLUS loan borrowers, although they may be eligible for an Income-Contingent Repayment Plan under certain circumstances.

And you’ll have to start making payments on the loan as soon as it is disbursed — though you can request a deferment while your student is in school, but the interest on the loan will still accrue and add up. Of course, the loan is taken out in the parent’s name, so responsibility for paying the loan back is on you, not on your kid.

Pros and Cons of Private Student Loans

Qualifying for a private parent student loan is usually similar to qualifying for most other types of private loans. Private lenders will review an applicant’s credit history and score, among other personal financial criteria, to determine the rate and terms they’ll qualify for.

This typically means applicants with good or excellent credit could stand to qualify for a better interest rate when taking out a private parent student loan when compared to the interest rate on a PLUS loan.

There are a variety of private companies that offer parent student loans, so parents have the option to shop around to find an interest rate and terms that suit their needs.

Some private lenders, including SoFi, have a prequalification process that allows potential borrowers to see personalized interest rate estimates based on a soft credit pull (which means their credit score won’t be impacted).

After selecting the preferred lender, borrowers typically file an application for a private parent loan. The exact process will vary slightly by lender.

	Parent PLUS Loan	Private Parent Student Loan
Who is the primary borrower?	Biological, adoptive, or stepparent of a dependent undergraduate student.	Many lenders allow any adult sponsor of that child (parent, grandparent, friend, etc.) to borrow for a student.
Credit criteria for the Borrower?	Parents may not have adverse credit history. Parents with adverse credit history can apply with a cosigner or submit documentation that outlines extenuating circumstances for adverse credit history.	Generally, a strong credit history and score are key factors. Exact requirements will vary by lender.
Is school certification required?	Yes	Yes
Is the FAFSA® required?	Yes	No
Interest Rate	For loans disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate is fixed at 8.05%.	Varies by lender and is based on an individual borrower’s history and other factors. Rates can be fixed or varied.
Is there a rate reduction for enrolling in automatic payments?	Yes, enrolling in autopay can result in a 0.25% reduction.	Varies by lender; SoFi offers a 0.25% reduction for enrolling in autopay.
Are there any loan fees?	PLUS loans have a fee of 4.228% for loans disbursed on or after October 1, 2020 and before October 1, 2024.	Varies by lender (SoFi has zero fees, including late fees and insufficient funds fees).
Annual Loan Limits	Cost of attendance (COA) minus other student aid.	Cost of attendance (COA) minus other student aid.
Where are funds disbursed?	Funds are disbursed directly to the school.	Funds are typically disbursed directly to the school.
Are there any grace periods?	Payments are required immediately upon disbursement.	Options vary by lender.
Forbearance Options	Yes, limits can vary. For a full breakdown on forbearance options available to PLUS loan holders, review the Federal Student Aid Website .	In terms of forbearance, many lenders offer 12 months of forbearance for the life of the loan. But this will vary by lender.
Repayment Terms	PLUS loans are eligible for the Standard, Extended, or Graduated repayment plans.	Repayment terms vary by lender (SoFi offers repayment terms of 5, 7, 10, or 15 years).
Death Discharge	PLUS loans can be discharged in the event the student or parent dies.	Some lenders offer death forgiveness if the student who receives the benefit dies while in school or after graduation. When a parent with a private parent loan dies, the estate is typically responsible for the loan.
Disability Discharge	Parent only	Disability discharge varies by lender. Some lenders allow for total discharge dependent on disability.
Can the loans be consolidated?	Yes. Can be consolidated through a Direct Consolidation Loan.	Yes, private loans can be consolidated and refinanced through a private lender. New rates and terms will vary by lender and based partially on a borrower’s credit history.

Pros of a Private Student Loan

One of the biggest pros of private parent student loans is a potentially lower interest rate when compared to PLUS loans for well-qualified borrowers.

As you compare private parent loan quotes, pay attention to additional fees like origination fees. These will vary by lender. Some lenders, like SoFi, don’t charge an origination fee for their private student loans.

Once you have an idea of the rates and terms available for private student loans, you can compare them to PLUS loans. Note that parent PLUS loans currently have an origination fee of 4.228% of the total loan amount.

Private parent student loans may also offer borrowers increased flexibility when it comes to repayment options. Private lenders typically allow parents to take out the loan on their own, or share the loan with their child. PLUS loans can only be taken out by the parent and cannot be transferred to the student.

Cons of a Private Student Loan

Private parent student loans don’t come with the same borrower protections as a federal PLUS loan. In the event a borrower runs into temporary financial difficulty, a PLUS loan might qualify for deferment or forbearance. While some private lenders, including SoFi, do have policies to help borrowers who might be struggling in place, not all do.

Further, private student loans could potentially have higher interest rates than PLUS loans, depending on a variety of personal financial factors.

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Choosing Between a Direct PLUS Parent Loan vs Private Loan

When you’re deciding between a parent PLUS loan and a private loan, you’ll want to weigh all the costs and consider your other options too.

Besides the Direct PLUS parent loan, there are other ways to finance your kid’s college education. Many parents start a 529 savings plan when their kid is very young, and could potentially have enough set aside by the time they start college.

Another possibility is a home equity line of credit, if you own a home, which could potentially have a lower interest rate than a Parent PLUS Loan, but would also put your house on the line and extend your mortgage repayment.

You might even be weighing the possibility of taking out a 401(k) loan or withdrawing money from your retirement account. But the latter comes with penalties for early withdrawal, so you’ll likely want to compare the costs to private loans.

Borrowers with strong credit histories and income might be able to qualify for a lower interest rate on a private parent loan.

Depending on a variety of financial factors, you might also be able to secure a lower interest rate or a shorter term, which could be a boon if you’re willing and able to repay the loan on a shorter repayment plan than is available on PLUS loans — which can help you save money in the long term.

Stretching out a loan repayment and using forbearance when you don’t need to are just a few of the common mistakes people make with student loans.

However, if you need to cover the costs of your kid’s education and you don’t qualify for a lower interest rate, then a PLUS loan might be the best option for you. Additionally, if you want to take advantage of federal benefits, such as income-driven repayment or deferment options, then you’ll likely want to consider a PLUS loan.

PLUS loans may allow you to defer repayment while your student is enrolled and for a grace period of up to six months after graduation, although the interest builds up during that time and you’ll end up paying more over the term of the loan.

Parent Student Loans With SoFi

Given how much college costs these days, it’s likely you and your child will have to take out some loans — whether student loans, parent loans, or both. SoFi offers low-rate, no fee parent student loans that are built to help you pay for your child’s education. And when we say no fees, we mean no fees. That means no origination fees, no late fees, no prepayment penalties, and no insufficient funds fees.

SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.

FAQ

Can Parent PLUS loans be forgiven?

PLUS loans borrowed by parents cannot be forgiven. However, parents may be able to consolidate their PLUS loan(s) into a Direct Consolidation loan, and would then be eligible to enroll in an income-driven repayment plan and pursue Public Service Loan Forgiveness. Additionally, qualification for the PSLF Program is dependent on the parent borrower’s employment, not the employment of the student.

Can a student pay off a Parent PLUS loan?

Yes, a student can make payments on a Parent PLUS loan. (In fact, lenders and creditors typically accept payments from anyone with the correct account information.) However, the parent is still solely responsible for repaying the loan, and there may be tax implications as a result of this “gift.” Families may also refinance Parent PLUS loans and take out the new loan in the student’s name.

Is a Parent PLUS loan considered a federal student loan?

Yes, a Parent PLUS loan is a type of federal student loan.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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

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

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.

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

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SoFi offers low-rate, no-fee parent studentloans to help you pay for your child’seducation.

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