Refinancing allows you to consolidate your existing student loans — you trade multiple loans for one student loan payment. When you refinance, you may be able to lower your monthly payments, reduce your interest rate, shorten your repayment terms, save money, and even add or remove a cosigner.
It’s a good idea to ask yourself, “Why refinance student loans?” before you start searching for the right private lender for you. Read on for a list of the benefits that may come your way when you refinance your student loans.
What Is Student Loan Refinancing?
Student loan refinancing involves consolidating your student loans with a private lender. In the process, you receive a new loan with a new rate and term. Moving forward, you’d make payments to that private lender on that one loan only.
It’s worth noting that refinancing is not the same as consolidating through a Direct Consolidation Loan. A Direct Consolidation Loan means that you combine multiple federal loans into one federal loan through the U.S. Department of Education. You usually don’t save money with a Direct Consolidation Loan, because the resulting interest rate is a weighted average, rounded up to the nearest ⅛ of a percent.
You may be able to refinance your federal student loans and private student loans all at once. However, it’s important to remember that refinancing your federal student loans means that you lose access to federal benefits and protections like income-driven repayment plans, some deferment and forbearance options, and loan forgiveness programs for certain borrowers, such as Public Service Loan Forgiveness. Federal student loans come with benefits and repayment options unique to them.
Is Refinancing Your Student Loans Worth It?
Is refinancing student loans a good idea for you? There are some benefits of refinancing student loans, like securing a lower monthly payment or a more competitive interest rate.
Continue reading for more information on when refinancing your student loans may make sense for your specific situation. Remember that not everyone will benefit from each of these advantages — it depends on your own needs.
1. Lower Monthly Payments
Refinancing may lower your monthly payments because you may lower your interest rate.
Or refinancing can lower your monthly payments if you lengthen your loan term. Extending your loan term, however, means you may pay more in interest over the life of the new loan. Some private lenders may offer lengthier repayment terms, varying from five to 25 years.
2. Reduced Interest Rates
In the context of reduced interest rates, refinancing student loans is probably worth it, especially if you choose a shorter loan term. That said, it’s important not to assume anything. It’s a good idea to take all calculations and factors into consideration before you pull the trigger on a refinance.
Private student loan lenders may offer both variable and fixed interest rates. Variable interest rates fluctuate depending on the situation in the broader market. They may begin at a lower rate but increase over time. In contrast, fixed interest rates stay the same throughout the life of your loan. If you are planning to pay off your loan quickly, you may consider a variable interest rate refinance.
3. Shorter Repayment Terms
Your repayment term refers to the number of years that you spend repaying your loan. A shorter repayment term may save you money because you’ll pay interest over a fewer number of years. In general, loans with a shorter repayment term come with lower interest costs over time but higher monthly payments. On the other hand, loans with a longer repayment term usually come with lower monthly payments.
It’s important to calculate your monthly payment and decide whether a higher monthly payment can fit into your budget.
4. Opportunity to Save Extra Money
Qualifying for a lower interest rate and either shortening your repayment term or keeping your current loan term may allow you to save money. Not only that, but when you don’t have several student loan payments to juggle, it may be easier to budget by lessening the confusion of having to make multiple loan repayments.
5. Consolidating Loan Payments
The perks of refinancing aren’t all money related. As mentioned earlier, you can simplify your loans and eliminate the confusion of having to make several loan payments every single month. Organizing your loan payments can go even further than this. Simplifying all of your bills (not just your student loans) may even give you some of the same psychological benefits of a Marie Kondo tidy-up, such as improving mental health, time management, and productivity.
Simplifying could also help you avoid missing payments, which can affect your credit score.
Why might you want to remove a cosigner from your loans through refinancing? You may no longer want a cosigner to remain responsible for repaying your debt if you were to default. Cosigning can also have implications for a cosigner’s debt-to-income (DTI) ratio, the ratio between the amount of debt they have related to their income. Their credit will show the extra debt they took on when they cosigned for you.
Ready to find a lender? Start by getting quotes from a few lenders, which usually just takes a few minutes online. Once you have several estimates, compare rates among lenders. Make sure you look at annual percentage rates (APRs), which represent the true cost of borrowing — they include fees as well.
Beyond getting a low-interest rate, you also want to look carefully at repayment terms. Are you looking at a shorter- or longer-term length? Choosing your current term length or a shorter term can help you save money.
Life Changes That Can Make Student Loan Refinancing Worth It
Certain life changes and situations can also make refinancing worth it. For example, if you want to raise your credit score, save more money, or buy a house, you may want to consider refinancing.
• Higher credit score: Making payments on time helps boost your credit score. One refinanced student loan payment is much easier to keep track of than multiple student loan payments. Simplifying can help prove that you’re a reliable borrower.
• Save money for other things: If you want to save for a new living room set or for your child’s college fund, for example, refinancing can change your interest rate and help you save money over the long term.
• Lower your debt-to-income (DTI) ratio: When you’re on the hunt for another type of loan, such as a mortgage loan to buy a home, you may discover that you need to lower your DTI. Refinancing your student loan debt can help you pay off your loans faster and therefore lower your DTI more quickly.
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. And 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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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi 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.
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.
Money problems are pretty common. In fact, 73% of Americans say finances are their top source of stress in life. So if you are feeling the pinch and worrying, you are not alone.
But that doesn’t mean you should live with the anxiety that a mountain of debt or low credit score can bring. Here, you’ll learn about the most common financial issues you may face, how to avoid money problems, and how to resolve them if and when they strike.
Why Are Money Problems Common?
There are many factors that contribute to money problems. Depending on your situation, you might be dealing with, among other factors:
Financial challenges can happen to anyone — whether you are younger or older, rich or living paycheck to paycheck. Here are some of the most common money issues that people come up against.
1. High Credit Card Debt
Credit cards can be a useful tool for disciplined consumers who are trying to build good credit. And there are several perks to paying with a card instead of cash, including convenience, purchase protections, and rewards programs.
But many Americans aren’t able to pay off their account balance every month. According to U.S. Census Bureau and Federal Reserve Bank of New York data, the average household carries a whopping $7,951 in credit card debt.
Thanks to high interest rates, items you charge on a credit card and don’t pay off right away end up costing quite a bit more. As of spring of 2023, the average credit card rate topped 20%.
The interest you’re charged on a credit card also compounds, which means interest is calculated not only on the principal amount owed but also the accumulated interest from previous pay periods.
While this kind of compounding is a positive thing for compound-interest savings accounts, it can be a real issue with your plastic. It means a credit card balance can grow exponentially, even if you pay the minimum every month. Add in late charges and the possibility that the interest rate could be increased on an overdue account, and it’s easy to see how consumers get into trouble.
2. A Low Credit Score
Carrying too much debt or failing to make credit card or loan payments on time may result in a lower credit score. A low credit score can make it harder to get a loan, such as a mortgage or a credit card. And even if an application is approved, the interest rate the lender offers may be higher than what’s available to borrowers with better scores. That higher interest rate can make it harder to make payments and keep up with other bills, which can, in turn, further hurt your credit score.
A low credit score can also negatively impact your ability to get a job or rent an apartment. And, it can take years before negative factors like late payments, defaults, and collections are removed from credit reports.
3. Not Having an Emergency Fund
Setting money aside in an emergency fund may seem like a luxury for those who are struggling to meet everyday expenses. But a solid savings buffer can actually be even more important if you’re living on a tight budget.
Without an emergency fund, any unexpected expense that comes along — whether it’s a high medical bill, a car or home repair, or a temporary job loss – can throw you way off balance.
As a result, you might need to use high-interest credit cards, retirement savings (which can trigger penalty charges), or other options that can add even more stress to a challenging situation.
A solid contingency fund that contains at least three to six months’ worth of living expenses can be an essential component of financial stability.
4. Spending More Than You Earn
Picking up a morning latte and grabbing lunch out may not seem like it could make or break your bottom line. But just $25 per week spent eating out will cost you $1,300 per year, which is money that could go toward an extra loan payment or a few extra car payments.
If you tend to make spending decisions on the fly (without any type of budget or financial plan in mind), it can be easy to blow through more money than you actually earn, and much harder to achieve your financial goals.
While the causes of overspending are varied, the habit is one of the most common reasons why people get caught in the debt trap. If you don’t have the cash to cover your expenses, you may rely on credit cards to get you through.
Once you start paying interest on your credit card balance, your monthly expenses go up. This can make it even harder to live within your means and, as a result, lead to more debt.
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5. Facing Foreclosure
State foreclosure rates vary, but regardless of where you live, it can be a major concern for struggling homeowners, especially in tough economic times.
People can end up in foreclosure for any number of reasons, including financial mismanagement (buying too much house or choosing a loan payment they can’t afford), or uncontrollable events (such as a job loss or expensive medical condition).
The process is typically slow, but it can be daunting to imagine having to move, especially if it means taking children out of a school or neighborhood they love. And there can be long-lasting financial consequences, as well.
A foreclosure can have a significant effect on a credit score, and it can stay on a person’s credit record for years.
6. Student Debt
While getting a college degree can improve your earning potential, the cost of getting that degree continues to skyrocket. And so has student loan debt.
Recent statistics reveal that the average student has $37,338 in debt due to educational loans. As students leave college and enter the workforce, paying back that money can be a major challenge. Student loan burdens can lead to postponing certain milestones, including homebuying or having children, and saving for retirement.
According to a recent survey, one in four Americans has no retirement savings. Zip, nada. While having no money in the bank for later life can make some people feel like, “Why even bother trying to say,” know that financial advisors stress that saving something is better than nothing.
Thanks to the magic of compounding interest (when the interest earned on your money gets reinvested and earns interest of its own), even putting just a small percent of your paycheck into a 401K or IRA each month can add up over time.
If you recognize that you have money problems brewing or in full force, here are some steps to solve the problem:
Identify the Issue
Though it may be tempting to hide from what is going on, digging in and exploring where your money is going (or isn’t going) is an important move. Is your credit card debt feeling insurmountable? Are your housing and food costs rising too steeply? Did a job loss or medical bill force you into a difficult financial position?
Figure out and face the facts so you can move forward.
Develop and Implement a Plan
Once you know the source (or sources) of your money stress, you are in a position to take action. In a moment, you’ll learn some important ways to take control of financial issues. These include budgeting and paying down debt.
But other specific moves may suit your situation, such as debt consolidation or refinancing student loans.
Seek Help
If despite digging into your money issues, you are feeling unclear of how to proceed or as if there isn’t a feasible solution, reach out for help. There are an array of professionals who might be appropriate, from a certified financial planner (CPA) to a low- or no-cost debt counselor.
How to Cope with Money Issues
If you’re dealing with money problems (or hoping to avoid any future setbacks), here are some money management strategies you may want to put into place.
Setting a Budget
People tend to cringe at the word “budget” because it sounds like work, but having a budget in place can help simplify your finances and improve your money mindset.
To create a monthly budget, you simply need to gather up the last several months of financial statements and receipts and then use them to figure out how much you’re bringing in (after taxes) each month, as well as how much you are spending on average each month.
If the latter exceeds the former, or is so close there’s nothing left over for saving, you may want to drill down deeper.
To see exactly where your money is going you may need to track your expenses for a month or two and then determine exactly how much is going towards nonessential (or discretionary) purchases, where you may be able to cut back.
You may also want to consider adopting the 50-30-20 budget rule. With this type of budget, half your take-home income goes towards needs (or essential expenses), 30 percent goes towards wants (nonessentials), and 20 percent goes towards your financial goals–such as debt repayment beyond the minimum, building an emergency fund, and saving for a home or retirement.
Knocking Down Debt
Reducing debt may seem like a tall mountain to climb, but using a systematic approach can help make the process more manageable.
One method you might consider is the snowball method. This involves paying as much as you can each month toward your smallest balance while making the minimum payment on all your other debts so your accounts remain in good standing. Once you’ve paid off that smallest debt, you move on to the new smallest balance and continue this process until you’ve paid off all your accounts.
Another approach you may want to consider is the avalanche method. With this strategy, you start by paying as much as possible toward the debt with the highest interest rate, while making minimum payments on all the others. Once that debt is paid off, you move to the balance with the next-highest interest rate, and so on.
As briefly noted above, debt consolidation is an option as well, perhaps with a personal loan or a student loan refinance.
The Takeaway
It’s common to face money issues throughout your life, particularly when you are just starting out. Some of the most common include overspending, being burdened by debt, not having a financial cushion for emergencies, and not putting enough away for retirement.
Whatever financial challenges you are facing, you may want to clearly assess the issue and then come up with a spending, saving, and debt repayment plan that can help you get back onto solid ground.
Need some help? If you’re looking to keep better track of your spending and saving, a SoFi Checking and Savings high interest bank account may be a good option.
You can use the SoFi app to track your weekly spending and see how you’re doing with your budget. You can use the Vaults feature to earmark the cash in your account for different goals.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.
FAQ
What are common money problems?
Common money problems include high-interest credit card debt, lower income, student loan debt, a low credit score, and overspending.
What do people struggle with most financially?
What people struggle with financially will vary from person to person, but debt, inflation, high cost of living, and lack of emergency-fund and retirement savings are common issues.
What are 4 common investment mistakes?
Four common investment mistakes include not establishing a long-term plan, letting emotion guide your decisions, attempting to time the market, and flying to diversify your portfolio.
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According to data from The College Board, college graduates from the class of 2021 graduated with an average of $29,100 in student loan debt. The amount of student loan debt a person takes on can vary based on factors like the type of school they attended, whether or not they pursued an advanced degree, and whether they received any scholarships or not. Read on for more information on average student loan amounts.
Average Student Loan Debt After College
As of March 2023, the total amount of student loan debt was approximately $1.78 trillion , and according to EducationData.org, there are 45.3 million borrowers in the country.
That means there are a lot of us trying to understand and navigate the student loan landscape. How much are we borrowing? And what can we do to decrease the amount we owe?
As earlier mentioned, The College Board found that cumulative debt levels upon graduation — meaning the debt students had accumulated over the four years of undergrad — was $29,100 per borrower for those graduating in 2021 (the latest stats available). And in 2020 – 2021, 54% of graduates carried student loan debt.
How Average Student Loan Debt Has Changed in the Last 10+ Years
It’s no secret that college is expensive and has only gotten more expensive in the last 10 years. According to data compiled by U.S. News, the cost of attending college with in-state tuition at public national universities increased by nearly 175% from 2002 to 2022.
Over roughly that same period of time (from 2010 to 2020), total outstanding student loan debt grew from $845 billion to $1.7 trillion in order to cover those costs. Though as of the third quarter of 2022, the total outstanding federal student loan debt is $1.6 trillion. This student loan debt crisis is taking a financial toll on graduating students, potentially affecting their credit and home-buying prospects.
There is good news, though: the growth of student loan debt is starting to decline. The average cumulative student debt was $29,900 for 2011 graduates (with bachelor’s degrees) and $32,100 for 2016 bachelor’s degree recipients. For the undergraduate class of 2021, the average was $29,100.
Public vs Private Four-Year Schools Student Loan Debt
The College Board’s annual survey of trends in student aid found that 2021 graduates of public four-year institutions had an average college debt of $21,400, compared to private, non-profit school borrowers, who graduated with an average debt of $22,600.
It should be noted that numbers for for-profit schools are harder to come by, but what is true across analyses is that students at for-profit schools take out more in student loans and default at higher rates.
Let’s look at this from a different angle. How does undergrad debt compare to grad school debt? The College Board’s annual survey of student aid trends found that on average, undergraduates took out $3,780 in federal loans in the 2021-2022 school year. That same year, graduate students took out $17,680 in federal loans.
If you are planning to get an advanced degree, prepare for a potential mortgage-sized debt load. As an example, over half of people with law degrees have at least $150,000 in student loan debt according to the American Bar Association’s 2021 Law School Student Loan Debt survey.
The Average Student Loan Debt for Borrowers Under 25
There are about 6.9 million people under the age of 24 with student loan debt. As a group, they owe just over $101 billion, according to the U.S. Department of Education’s Q3 2022 report .
Average College Debt by State
When we look at the average student loan debt broken down by school and region, it also becomes clear there is a range of highs and lows across the country. The Institute for College Access and Success (TICAS) puts together a comprehensive report on national student debt, using numbers self-reported to college guide publisher Peterson’s from thousands of colleges and universities.
According to EducationData.org’s report (updated in April 2022) , the highest debt states (including Washington DC) in 2021, the last year for reported numbers, were Washington DC ($54,945), Maryland ($42,861), Georgia ($41,639), Virginia ($39,165), and Florida ($38,459). The states (including Puerto Rico) where college graduates had the lowest average debt were South Dakota ($30,954), Iowa ($30,464), North Dakota ($28,604), and Puerto Rico ($28,242).
Average Student Loan Payment
A borrower’s monthly student loan payment can vary quite a bit depending on the amount of debt they carry and the type of payment plan they have selected. According to data from the Federal Reserve, typical payments for student loans can range from $200 to $299. Though, as noted, your monthly payments may be more or less depending on factors like your loan amount and payment plan.
How Long It Takes to Pay Off Student Loans
But even as the growth of new student loan debt is slowing, there continue to be outstanding student loan amounts that haven’t yet been paid off — which helps to explain why the total loan balances are hitting record highs.
If you have a federal loan when you graduate, you can choose a repayment plan. The default option is the Standard Repayment plan, which is 10 years of fixed monthly payments.
There are a few other options that extend the repayment term or allow you to repay on an income-driven plan. Many graduates take longer than 10 years to pay back their loans, and about a third of borrowers have gone into student loan default in the past 20 years, according to survey data from The Pew Charitable Trusts .
Though, it’s worth noting that the U.S. Department of Education announced in April 2022 that it would eliminate the negative consequences for those with defaulted student loans as a part of the student loan pause that began due to Covid-19 and was extended by the Biden-Harris administration.
There isn’t a lot of data on exactly how long it takes students to pay off their student loans, partially because it varies based on how big your loan amount is and partially because some numbers count consolidation as loan repayment — when in reality you’ve taken out a new loan with different terms.
The U.S. Department of Education lists the maximum repayment timelines for Direct Consolidation loans, which for borrowers holding between $20,000 and $40,000 in student loan debt is 20 years. Direct Consolidation loans allow borrowers to consolidate their federal loans into a single loan.
But it is worth noting: the sooner you pay off your loan, the more you save in the long run because you aren’t accruing interest for as long. Part of the reason so many students struggle to make payments is that their student loan payments are large in comparison to their incomes.
The interest rate can be a big factor in that. While interest rates on federal student loans are fixed and set annually by the government, interest rates on private student loans are based on a number of factors and are updated as needed. Use SoFi’s student loan calculator to figure out how your monthly payments could change at different interest rates.
Refinancing Student Loans With SoFi
Those looking for options to manage student loan payments might consider student loan refinancing. This process involves borrowing a new loan from a private lender. Lenders review applicant credit history and earning potential (among other financial factors) to determine the new loan terms, with a new, hopefully, lower interest rate.
Borrowers who refinance student loans with a private lender may also be able to adjust their repayment term. Extending the term could lower monthly payments but may end up making the loan more expensive over the life of the loan.
Those who want to continue to take advantage of federal loan benefits like income-based repayment may not want to refinance with a private lender, because all federal student loan benefits are lost when a federal student loan is refinanced.
It takes just a few minutes to get a quote to see what refinancing with SoFi could do for your student loans. The application is entirely online and there are no fees.
Learn more about refinancing your student loans with SoFi.
FAQ
Is $50,000 a lot of student debt?
Yes, $50,000 is a lot of student loan debt. According to data from The College Board, the average amount of debt a 2021 graduate carried was $29,100.
How many people have student loan debt in the US?
In the U.S. as of Q3 2022, there are approximately 42.8 million people who have student loan debt, according to data from the U.S. Department of Education.
What is the average someone pays a month for student loans?
The average someone pays per month for student loans will vary based on factors like the total loan amount and the repayment plan they have selected.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi 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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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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.
The U.S. Navy offers service members a proud and venerable tradition, having patrolled the seas since its inception in 1775.
Almost 250 years later, the Navy still offers its sailors a remarkable life experience, a chance to serve the country, and a host of benefits that make life somewhat easier for military personnel.
One perk that may appeal to Navy members is the Navy Loan Repayment Program, the cornerstone of the service’s student loan relief and forgiveness efforts.
The Navy Loan Repayment Program can pay up to $65,000 toward a service member’s student loans. That makes it well worth a closer look for Navy members looking for help paying down their college loan debt.
• The Navy Loan Repayment Program offers up to $65,000 in student loan relief for eligible service members.
• Eligibility requires membership in the Navy’s Delayed Entry Program and a minimum score of 50 on the Armed Forces Qualification Test.
• The program pays 33.3% of the outstanding loan balance annually for three years of service.
• Only specific federal student loans qualify, including Stafford Loans, Federal PLUS Loans, Consolidation Loans, and Perkins Loans.
• Applicants must submit necessary documentation, including a Loan Repayment Program Worksheet and a promissory note from the lender.
Who Qualifies for the Navy Program?
The Navy Loan Repayment Program is designed to pay up to $65,000 of federally guaranteed student loans for Navy personnel who qualify. The program is offered to members of the service’s Delayed Entry Program who eventually enlist in the Navy full time.
The Delayed Entry Program, also known as the Delayed Enlistment Program or inactive reserves, is meant to provide an onboarding experience before official enlistment. In the case of the Navy, a future sailor who signs on to delayed entry agrees to report for active duty in the next year. Currently, delayed-entry members can remain on inactive duty for 365 days. At that point, they must enlist for active duty in the Navy to receive student loan aid.
The Delayed Entry Program is only one hurdle Navy members must clear before becoming eligible for the loan repayment program. Service members must also meet the following criteria.
• They must be “first time” military service members (meaning applicants have never served in the U.S. military before).
• They must have a high school diploma.
• They must have achieved a minimum score of 50 on the Armed Forces Qualification Test, which the Navy uses to measure a potential sailor’s IQ and aptitude. A test score of 35 will get an applicant into the Navy, but a higher score of 50 is needed to qualify for the loan repayment program.
• They must have a student loan that is not in default.
How Navy Student Loan Repayment Works
Through the program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 — whichever is higher — for each year of naval service, up to three years. If the student loan balance falls below the 33.3% threshold and the borrower is in good standing with the Navy, the Navy will pay the remaining student loan balance in full.
Only specific federal student loans qualify for the loan repayment program. They are as follows:
Stafford Loans, subsidized or unsubsidized. Also known as Direct Stafford Loans, these low-interest loans are made to qualified borrowers for tuition and other college expenses. The funds come directly from the U.S. Department of Education.
Federal PLUS Loans. Otherwise known as Direct PLUS Loans, these loans are offered by the U.S. government to undergraduate and graduate students to cover tuition and college costs. In many cases, Direct PLUS Loans offer funds to college students to cover expenses not covered by other financial aid programs.
Consolidation Loans. Consolidation loans bundle multiple federal loans into a single loan, streamlining the repayment process.
Perkins Loans. Perkins Loans are low-interest loans geared toward college students (both undergraduate and graduate) who demonstrate financial need. Congress stopped making Perkins student loans in 2018, but naval personnel may still have outstanding Perkins loan debt and thus are eligible for help from the Navy Loan Repayment Program.
A future Navy member may apply for the loan repayment program early in the service enrollment process. A Navy applicant is given the option to enroll in the program at the Military Entrance Processing Stations.
MEPS, the stations funded by the U.S. Department of Defense to enroll military service members, handle their applications and assess their physical, mental, and emotional health to see if they’re fit for military service.
For student loan relief purposes, the Navy recruiter on hand (also known as the MEPS classifier) will process all of a Navy recruit’s paperwork, including loan repayment application documents, and submit them for processing.
What Documents Do You Need To Apply?
All documents are available at the MEPS recruiting center or through specific U.S. government websites. You will need all of the following documents to apply:
• A copy of the Loan Repayment Program Worksheet.
• A copy of the Navy Enlistment Guarantee. The Navy Loan Repayment Program must be noted as a guarantee on the document.
• A copy of the Statement of Understanding.
• A copy of the Future Sailor’s National Student Loan Data System printout (available at the Department of Education’s website. When filing the data system form, the applicant will be assigned a PIN. By and large, it’s the same pin assigned to a financial aid applicant on the Free Application for Federal Student Aid. If the applicant doesn’t have a FAFSA® PIN, one will be assigned).
• A copy of the Personalized Recruiting for Immediate and Delayed Enlistment.
• A copy of DD Form 2475, Annual Application for Student Loan Repayment, completed by the student loan lender.
• A copy of the lender’s promissory note for each Parent PLUS Loan, which clearly designates the student dependent on the note.
If you’re already serving in the military or served, Public Service Loan Forgiveness is a great option. The program is for those working for a qualified government organization (municipal, state, or federal) or many nonprofit organizations.
Filling Out the Loan Repayment Form
The key document when applying for the Navy Loan Repayment Program is DD Form 2475, which is broken down into four sections.
Section 1 is completed and approved by the recruiting officer (i.e., the verifying official). The section includes the naval office address and contact information so the lending institution can forward the proper paperwork. If the section is blank, the lender is under no obligation to complete the form. Basically, Section 1 includes the recruiter’s name and signature and the date.
Section 2 includes the applicant’s name, address, telephone number, email address, and Social Security number. This section is completed by the service member/applicant.
Section 3 includes the student loan data (including the borrower’s name, the loan amount, outstanding balance, the original date of the promissory note, the loan holder address, email and phone number, and the loan application number). The section also includes a box noting whether the student loan is in default or not, and asks for the name and address of the financial institution where the loan aid is to be sent.
Section 4 is a grid where more information on the loan can be included to expedite processing. Sections 3 and 4 are filled out by the student loan lending institution.
The Navy mandates that Form 2475 be completed, signed, and transmitted to the lending institution within 60 days of the recruit’s arrival in the Delayed Enlistment Program.
If the recruit/applicant doesn’t know his or her current student loan servicer, the U.S. Department of Education can lend a hand by phone or online.
Important Things to Know
Loan repayment program applicants may want to know several key features and rules governing the Navy student loan program.
Payment dates. Annual loan relief payments are issued to the service member on the original enlistment day during the first, second, and third year of enlistment in the Navy.
Payments are taxable. Any payments made by the Navy to the service member are taxed, as the Internal Revenue Service deems loan relief as taxable income in the year the money is paid out. Expect to have between 25% and 33% of the payment withheld in both federal and state taxes (the amount depends on the state where the applicant resides).
Lenders only. The Navy will not refund any loan amount that is paid out by other parties (aside from the qualified student loan lenders).
If a Navy recruit has any questions about the loan repayment program, the Navy urges him or her to contact the loan repayment manager at Naval Command. The manager is directly responsible for managing the loan program.
Contact the manager at:
Navy Recruiting Command
Attn: LRP
5722 Integrity Drive, Building 784
Millington, TN 38054
Former students who are on the fence about a military commitment or who may be struggling to make student loan payments, have alternatives to military-supported repayment.
One is student loan refinancing with a lender like SoFi®. Someone with a combination of private and federal student loans can refinance both types into one single loan with one monthly payment.
While there are many advantages to refinancing student loans, there are disadvantages, as well. If you are thinking of taking advantage of federal benefits like income-driven repayment or Public Service Loan Forgiveness, refinancing may not be right for you because you’ll lose your eligibility for federal programs.
Borrowers who do not plan on using federal benefits and choose to refinance may qualify for a lower interest rate or lower monthly payments. They’ll have only one payment a month and may be able to either lengthen or shorten the term. Note: You may pay more interest over the life of the loan if you refinance with an extended term.
SoFi offers an easy online application, no fees, and competitive rates. It takes just two minutes to see if you prequalify and checking your rate will not affect your credit score.
Interested in student loan refinancing? Get started with SoFi today.
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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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.
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.
You just came into a cash windfall. You’re happy about this, but you aren’t exactly sure about what to do with it. Should you spend it? Save it? Invest it?
Depending on the amount of money you now have and your financial situation, the answers are going to differ. Here are some things you can do with a financial windfall to ensure that you are handling it in the smartest way possible.
What Is Considered a Windfall?
There is no one specific definition for what is a financial windfall. Typically, it means that you’ve received some unexpected money of a significant amount. For some people, a windfall could be a few hundred dollars; for others, it could be millions.
Whatever the amount, if it feels as if you have come into a considerable amount of money that you weren’t anticipating, it makes sense to develop a plan for how to use it.
3 Tips to Help You Make the Most of Your Money Windfall
If you are fortunate enough to have a windfall land in your lap, consider these points before you take action (whether spending, saving, investing, or donating). These steps can help you make the most of your money:
• Get professional advice: Depending on the size and source of your windfall, you might owe taxes on it and it might push you into a different tax bracket. Consulting with an accountant or financial planner may help you identify the implications.
• Go slow: Of course it’s exciting to have cash coming your way, but it’s wise to take some time and reflect on how the money would be best spent versus deciding “Dinner’s on me!” for you and your 10 best friends to celebrate. For instance, could your windfall lower or wipe out some debt? Could it be invested? Don’t let the adrenaline rush drive you to make too quick a decision. Take some time to clarify your goals.
• Think long-term: If you’ve received a sizable sum, it may be tempting to drop everything and quit your day job to travel or take on a passion project. Again, financial counseling could be wise before you do such things. What sounds like a major sum may not actually finance those things (or at least allow you to go all in on them), so look at the implications carefully before making a big life change.
Remember That Taxes May Be Due on Your Windfall
As briefly mentioned above, taxes may be due on your windfall. Talking with a certified public accountant or financial planner could be a wise move. Some food for thought:
• A large inheritance (more than $12.06 million as an individual in 2022) from a relative other than a spouse would trigger federal taxes owed.
• A gift of more than $16,000 will require you to pay federal taxes.
• A lottery win is taxed as ordinary income.
What to Do With a $500 Windfall
Let’s say the amount of money you received was $500. While it isn’t a ton of money, it still is significant enough that you should figure out what to do with it. Here are a few ideas for what to do with a small windfall.
1. Investing in Real Estate
Did you know that you can become a real estate investor with just $500? The real estate crowdfunding platform DiversyFund allows you to invest in real estate investment trusts (REITs) with a minimum of $500. Although there is risk involved in real estate investing and it might tie up your money before you see a return, this might be a good way to get your feet wet when it comes to real estate.
2. Meeting With a Financial Advisor
Hiring a financial advisor to help you learn how to plan for your financial future might be a good use of this money. Financial advisor charges vary: Some might charge hourly while others are commission-based. If this professional will be managing a portfolio for you, it is fairly common to be charged 1% of the portfolio value.
3. Buying a New Wardrobe
You could refresh your wardrobe with a little extra money. Wearing the right clothes could make you feel more comfortable and give you the confidence to go after your professional goals. Or you might splurge on some clothes you’ve been eying that give you a self-esteem boost.
4. Traveling Somewhere Cheap
You may be able to save on hotel rooms and plane tickets when sales are running. Or, you could always take a road trip somewhere locally for only $500. Since you’re on a tight budget, you may want to use credit card rewards to finance any additional cost of your trip.
5. Investing in a Certificate of Deposit
Another thing you can do with a $500 financial windfall is put it into a certificate of deposit, which is a savings account with a fixed interest rate as well as the maturity date. It’s a low-risk way to invest your money.
6. Getting Your Car Fixed
Have you been putting off car repairs because they’re too expensive? Now that you have $500, it might be time to put it towards your vehicle so it’s less likely to break down when you’re on the road.
7. Buying Renter’s Insurance
If you’re a renter, your personal property is not covered under your landlord’s homeowners insurance policy. Your renter’s insurance policy, typically costing less than $500 per year, will cover the cost of your belongings should anything happen, as well as offer liability coverage if anyone gets injured on your property. How much does renters insurance cost? Prices will vary depending on where you live and the value of what you have to insure, but nationally the average cost is typically between $126 and $252.
8. Purchasing a Life Insurance Policy
Life insurance is designed to protect your family in the event that you pass away. The average cost of a life insurance policy is $26/month, so you could pay for the whole year upfront with just $500. Typically, life insurance rates increase as you age and your risk of dying increases. So it’s likely to be less expensive to purchase life insurance while you’re young, rather than waiting until you feel like you can afford it.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.20% APY on savings balances.
Up to 2-day-early paycheck.
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9. Taking a Professional Development Class
While private colleges and universities may be pricier, you may be able to find a class online or at your local community college for less than $500. Finding something that is relevant to your career may even help you move up the ladder at your job.
What to Do With a $1,000 Windfall
Did you receive a $1,000 financial windfall? Here are some tips on what to do with windfall money of that amount.
10. Getting Started on Your Emergency Fund
Ideally, your emergency fund will be as robust as possible and include several months’ worth of expenses just in case you lose your job or otherwise face some financial hardships. However, if you don’t have anything saved up, then putting $1,000 into it is a great start. You will have a safety net at the very least.
11. Hiring an Estate Planning Lawyer
Another important thing you could do with a $1,000 cash windfall is meet with an estate planning lawyer to write your will, establish a trust, and determine your power of attorney. You may feel some peace knowing your family will be protected and your assets will go where you wish to distribute them.
12. Opening a 529 Plan
A 529 plan is a way to save for your child’s college education. With $1,000, you can get a nice head start on college savings and gain interest on your money at the same time. Plus, the money will be tax-deferred.
13. Doing Home Improvements
With $1,000, you could do some significant home improvements like replacing your curtains, put down a new kitchen floor, paint different rooms, or spruce up your backyard. If you do the work yourself, you may be able to stretch your financial windfall money even further.
14. Donating It
If there’s a nonprofit you always donate to, you could make a big difference by giving $1,000 to it. You could also write it off on your taxes if it’s a qualifying organization.
15. Opening a High-Yield Savings Account
A typical savings account tends to have low-interest rates. But a high-yield savings account could earn up to 25 times the interest of a regular savings account. Putting the $1,000 in your account and then setting up automatic transfers from your checking into your new savings account will help it continue to grow.
16. Opening an IRA
If you don’t have anything saved up for retirement and you suddenly get a $1,000 financial windfall, then it might be time to open up an IRA. It’s wise to speak with a financial advisor about the best type of account for your situation.
17. Investing in Your Side Hustle
To make money on your $1,000 financial windfall, you could start or invest in your own low-cost side hustle. For instance, perhaps you’re a freelance graphic designer on the side but you need to buy some software to be able to do more detailed work. Or maybe you need to purchase a domain name and hire a developer to create a business website. With this initial investment, you may be able to bring in much more money and improve your finances.
What to Do With a $5,000 Windfall
You just got a cash windfall of $5,000. Now what? Here are some ideas.
18. Saving Up for a Down Payment
In some instances, you could make a down payment on a home for only 3% to 5%. For instance, if you purchase a $100,000 home and you only need to put 5% down, you could use your financial windfall money as your $5,000 down payment.
19. Paying Off Credit Card Debt
The average American family has $7,951 worth of credit card debt. Even if you have more than that much debt, $5,000 could make a big difference.
20. Investing Via Robo-Advisors
Do you want to invest your $5,000 cash windfall, but you don’t know where to start? Robo advisors create a diversified investment portfolio based on your investment goals and the level of risk you’re willing to take.
21. Investing in Blue-Chip Stocks
If you’re willing to take some risk with investments, then blue-chip stocks could be good investments for you. These stocks are from well-established and financially stable companies that typically pay dividends to investors.
22. Investing in International Bonds
Bonds typically have a solid history of returns, although slightly lower than that of stocks. However, since US interest rates have been relatively low, it may be a good idea to look into international bonds for a better return rate. These can carry higher risk because of currency exchange rates, however, so it’s wise to choose carefully, based on the country where the bond is held. Having both stocks and bonds in a portfolio is a good way to achieve diversification in a balanced portfolio.
23. Taking a Luxurious Vacation
With $5,000, you and your family could potentially vacation in a luxury resort. By looking for all-inclusive experiences, you could do much more with your money. Check out sites like Expedia, Costco Travel, and Booking.com for deals.
What to Do With a $10,000+ Windfall
If you received a cash windfall of $10,000 or more (lucky you!), here are some things you could do with it.
24. Opening a Money Market Account
With $10,000 could enable you to invest in a money market account, which typically earns a higher interest rate than a regular savings account.
25. Paying Off Student Loan Debt
The average student loan debt is more than $32,000. If you have a $10,000 financial windfall, you could put a nice dent in your student loan payments.
26. Trying Peer-to-Peer Lending
You could lend your financial windfall money to someone who is looking for a loan and have the opportunity to earn a much higher interest rate than you might receive on other types of investments.
27. Making Mortgage Payments
You could make a large principal-only payment toward your mortgage loan with a $10,000 cash windfall. Using an amortization calculator on the remaining balance of a fixed-rate loan will show you how much sooner you could pay off the loan.
28. Going to College
While $10,000 won’t cover a bachelor’s degree unless you also get grants or scholarships, you may be able to earn your associate’s degree at your local community college with your financial windfall money. This may also cover several classes at a university that could lead to career advancement.
29. Starting Your Business
Let’s say you want to do more than start a side hustle, and you’re ready to open a small business. With $10,000, you can get the ball rolling on your business without the need to borrow money. It could be a good idea to talk to a successful business owner in your industry who has the experience and can give you some guidance on how best to allocate your money.
30. Putting it in Your 401(k)
If you have a 401(k) through your employer, you could put your $10,000 into it. If your employer matches your contributions, the money could go even further.
31. Moving to a Different Home
Moving can be expensive, and a $10,000 financial windfall could be useful when it comes to covering moving costs. A move may make sense if you can find a place that’s more convenient to your work, restaurants, and entertainment and/or gives you and your family more space or offers additional amenities.
The Takeaway
Receiving a financial windfall of any amount is probably best handled with careful thought. You might pay down debt, take a vacation, invest the funds, or pursue higher education…or even do a little of each. Sometimes, the best thing to do is to set it aside while you take your time to make a decision about how best to spend it.
Earning interest on the money during a “thinking it over” period can be a good thing, too. A SoFi Checking and Savings Account can be a good place to park your money; it will earn a competitive annual percentage yield (APY) and you won’t pay any account fees. Those two features can help you money grow.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.
FAQ
What amount of money is considered a windfall?
The amount of money that is considered a windfall will vary depending on your circumstances. If you are just starting out or earning a lower income, $500 might be cause for celebration. Typically, a windfall is considered $1,000 or more, and in some cases, it could be a major sum of six figures or more.
What to do with a $50,000 windfall?
There are many ways to use a $50,000 windfall. You could pay off high-interest debt, pump up your retirement account or savings for your children’s education, or you might invest it, whether in the stock market or your own business.
What can you do with a $100K windfall?
With a $100,000 windfall, you might pay off high-cost debt, stash money for future educational costs for yourself or your child, save for retirement, or invest the money or buy real estate with it.
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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