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Life can get expensive. When you factor in things like rent or mortgage, groceries, child care expenses, transportation costs, and more, it adds up quickly. And for more than 43 million Americans, their monthly budget also includes student loan payments.

If you’re able to lower or eliminate student loan debt, you’ll have more money at your disposal. So what’s the fastest way to pay off student loans? There’s no one right answer, but these tips could help you hasten repayment so you can focus on other financial goals.

Six Tips to Accelerate Student Loan Repayment

1. Putting Extra Toward the Principal

One of the most effective ways to get ahead of student loan debt is to pay more than the monthly minimum. There are no prepayment penalties for federal or private student loans, so it might be one of the fastest ways to shrink your debt.

As a bonus, when you put extra money toward the principal loan balance, you’re also shaving off the total cost of interest you may otherwise pay over the life of the loan.

You might be surprised how much an additional monthly $50 payment can trim off your debt. If your monthly budgets are too tight to make an additional monthly contribution, you might consider increasing your payments every other month or quarterly.

To make the most of prepayments, the additional payments should be applied to the loan’s principal. Some loan servicers may apply a payment to the next month’s payment instead of deducting it from the loan balance. You may want to contact your loan servicer to make sure prepayments are applied to the principal.

2. Making a Lump Sum Payment

If making extra monthly payments to your student loans is out of the question, consider making a lump sum payment. That means making use of “found money.” Instead of treating a tax refund, financial gifts, bonuses, or a raise at work like “fun money,” you could use it to double down on your debt.

It may also be a good time to review your spending habits and see where you might be able to find some extra cash. Even minor adjustments like taking public transportation instead of a cab or finding street parking instead of paying at a garage could add up.

When you find areas in your spending to cut back, consider adding that money to an account dedicated to your student loan repayments.

3. Finding a Side Hustle

If you’re still searching for how to pay off student debt faster, you could try finding an additional source of income and putting that money toward debt.

What are your skills, hobbies, and interests? While it may take perseverance to find the right side hustle, it could wind up being one of the fastest ways to pay off student loans.

There are apps that offer flexible, part-time side hustles. If you’re crafty, you could try selling your creations at an online marketplace. If you’re a photographer, writer, or editor, you could try finding a freelance gig. Once you get your side hustle going, the additional income could be regularly put toward extra student loan payments.

Recommended: 15 Low-Cost Side Hustles

4. Getting Help Paying Off Your Loan

You could speed up loan repayment if you can find a way to have someone else contribute, such as:

Seeking an employer perk. Before the coronavirus pandemic, an estimated 8% of employers offered student loan repayment assistance as a benefit. The CARES Act of 2020 gave companies an incentive to offer the benefit, which was then extended through 2025.

Employers can contribute up to $5,250 per employee each year toward qualified education expenses, such as student loan assistance, without raising the worker’s gross taxable income.

Volunteering. Some volunteer opportunities might ease your student loan balance. For example, members of the Shared Harvest Fund can get a stipend applied to their student loans if they match up with a nonprofit organization that needs their talents.

You can choose the cause you like or filter by project. For instance, if you’re a lawyer, you can consult with a nonprofit organization looking to change its structure. A social media whiz can help set strategy for a therapy-pet agency.

Asking. Your family members and friends want you to succeed, so why not ask them to contribute to your student loan instead of buying something you don’t really need on your birthday? One site, GiftofCollege.com, lets you set up a profile, link to a student loan, and ask for contributions via social media.

5. Rolling Out the Debt Snowball Method

When it comes to finding the fastest way to pay off student loans, you could try using the debt snowball method. Here’s how that works.

First, take a look at your loans and focus on the balances. While you should be making at least the minimum monthly payment on all your loans, the debt snowball method has you put any additional money toward the loan with the smallest balance first.

Once that loan is paid off, you’d use the money you were paying on the old loan payment amount and roll it to the next smallest debt. The idea is to continue using this method until all of your loans are paid off. Each time you pay off a loan, it feels like a win that helps you see the progress you’re making.

6. Refinancing or Consolidating Loans

Refinancing your student loans with a private lender means taking out a new loan that pays off your existing loans and has a new interest rate, term, and monthly payment.

Depending on your credit score and income (among other factors), you may be able to secure a lower interest rate when you refinance your student loans with a private lender — which means the loan may accrue less interest over time (depending on the loan’s term). Lenders generally offer both fixed-rate and variable-rate loans, and often give you the option to extend or shorten your repayment term.

If you have exclusively federal student loans, you could consolidate them into a Direct Consolidation Loan, with one monthly payment. The new, fixed interest rate will be the weighted average of your existing interest rates rounded up to the nearest one-eighth of a percentage point.

Consolidation can lower your monthly payment by giving you up to 30 years to repay your loans, but a longer term means more payments and more interest.

Before refinancing federal student loans, it’s best to weigh the borrower protections of those loans against refinancing with a private lender, who can’t offer the same federal benefits. For example, if you are enrolled in an income-driven repayment plan or are applying for Public Service Loan Forgiveness, refinancing might not be your best option. When you consolidate your loans, you keep your access to federal benefits; when you refinance your loans, you lose this access.

The Takeaway

Wondering how to pay off student loans quickly? There are a few strategies to explore. One or more of these six suggestions could be the ticket to chipping away at the debt faster.

To see what refinancing student loans with SoFi could mean for your finances, you may want to look at estimates with this student loan refinancing calculator and then check your rate.

SoFi offers competitive fixed or variable rates, no application or origination fees, and an easy online application.

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.

Undergraduate and graduate students in school at least half-time can put off making federal student loan payments, and possibly private student loan payments, with in-school deferment. The catch? Interest usually accrues.

Loans are a fact of life for many students. In fact, a majority of them graduate with student loan debt.

While some students choose to start paying off their loans while they’re still in college, many take advantage of in-school deferment.

What Is In-School Deferment?

In-school deferment allows an undergraduate or graduate student, or parent borrower, to postpone making payments on:

•   Direct Loans, which include PLUS loans for graduate and professional students, or parents of dependent undergrads; subsidized and unsubsidized loans; and consolidation loans

•   Perkins Loans

•   Federal Family Education Loan (FFEL) Program loans

Parents with PLUS loans may qualify for deferment if their student is enrolled at least half-time at an eligible college or career school.

What about private student loans? Many lenders allow students to defer payments while they’re in school and for six months after graduation. Sallie Mae lets you defer payments for up to 48 months as long as you are enrolled at least half-time.

But each private lender has its own rules.

Recommended: How Does Student Loan Deferment in Grad School Work?

How In-School Deferment Works

Federal student loan borrowers in school at least half-time are to be automatically placed into in-school deferment. You should receive a notice from your loan servicer.

If your loans don’t go into automatic in-school deferment or you don’t receive a notice, get in touch with the financial aid office at your school. You may need to fill out an In-School Deferment Request, which is available at studentaid.gov.

If you have private student loans, it’s a good idea to reach out to your loan servicer to request in-school deferment. If you’re seeking a new private student loan, you can review the lender’s school deferment rules.

Most federal student loans also have a six-month grace period after a student graduates, drops below half-time enrollment, or leaves school before payments must begin. This applies to graduate students with PLUS loans as well.

Parent borrowers who took out a PLUS loan can request a six-month deferment after their student graduates, leaves school, or drops below half-time enrollment.

Requirements for In-School Deferment

Students with federal student loans must be enrolled at least half-time in an eligible school, defined by the Federal Student Aid office as one that has been approved by the Department of Education to participate in federal student aid programs, even if the school does not participate in those programs.

That includes most accredited American colleges and universities and some institutions outside the United States.

In-school deferment is primarily for students with existing loans or those who are returning to school after time away.

The definition of “half-time” can be tricky. Make sure you understand the definition your school uses for school deferment, as not all schools define half-time status the same way. It’s usually based on a certain number of hours and/or credits.

Do I Need to Pay Interest During In-School Deferment?

For most federal student loans and many private student loans, no.

However, if you have a federal Direct Unsubsidized Loan, interest will accrue during the deferment and be added to the principal loan balance.

If you have a Direct Subsidized Loan or a Perkins Loan, the government pays the interest while you’re in school and during grace periods. That’s also true of the subsidized portion of a Direct Consolidation Loan.

Interest will almost always accrue on deferred private student loans.

Although postponement of payments takes the pressure off, the interest that you’re responsible for that accrues on any loan is currently capitalized, or added to your balance, after deferments and grace periods. (This capitalization will no longer occur in certain situations as of July 2023, thanks to new regulations from the Department of Education that are set to take effect.) You’ll then be charged interest on the increased principal balance. Capitalization of the unpaid interest may also increase your monthly payment, depending on your repayment plan.

If you’re able to pay the interest before it capitalizes, that can help keep your total loan cost down.

Alternatives to In-School Deferment

There are different types of deferment aside from in-school deferment.

•   Economic Hardship Deferment. You may receive an economic hardship deferment for up to three years if you receive a means-tested benefit, such as welfare, you are serving in the Peace Corps, or you work full time but your earnings are below 150% of the poverty guideline for your state and family size.

•   Graduate Fellowship Deferment. If you are in an approved graduate fellowship program, you could be eligible for this deferment.

•   Military Service and Post-Active Duty Student Deferment. You could qualify for this deferment if you are on active duty military service in connection with a military operation, war, or a national emergency, or you have completed active duty service and any applicable grace period. The deferment will end once you are enrolled in school at least half-time, or 13 months after completion of active duty service and any grace period, whichever comes first.

•   Rehabilitation Training Deferment. This deferment is for students who are in an approved program that offers drug or alcohol, vocational, or mental health rehabilitation.

•   Unemployment Deferment. You can receive this deferment for up to three years if you receive unemployment benefits or you’re unable to find full-time employment.

For most deferments, you’ll need to provide your student loan servicer with documentation to show that you’re eligible.

Then there’s federal student loan forbearance, which temporarily suspends or reduces your principal monthly payments, but interest always continues to accrue.

Some private student loan lenders offer forbearance as well.

If your federal student loan type does not charge interest during deferment, that’s probably the way to go. If you’ve reached the maximum time for a deferment or your situation doesn’t fit the eligibility criteria, applying for forbearance is an option.

If your ability to afford your federal student loan payments is unlikely to change any time soon, you may want to consider an income-based repayment plan.

Another option to explore is student loan refinancing. The goal of refinancing with a private lender is to change your rate or term. If you qualify, all loans can be refinanced into one new private loan.

Playing with the numbers can be helpful when you’re considering refinancing. Using a student loan refinance calculator can help you figure out how much you might save.

Should you refinance your student loans? If it could save you money, refinancing may be worth it for you. Just know that if you refinance federal student loans, they will no longer be eligible for federal deferment or forbearance, loan forgiveness programs, or income-driven repayment. Make sure you won’t need access to these programs.

As you’re weighing the pros and cons, this student loan refinancing guide can be a valuable resource to help you decide if refinancing makes sense for you.

The Takeaway

What is in-school deferment? It allows undergraduates and graduate students to buy time before student loan payments begin, but interest usually accrues and is added to the balance.

If you’d like to lower your student loan rates, look into refinancing with SoFi. Students are eligible to refinance a parent’s PLUS loan along with their own student loans. And there are no fees.

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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

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

The Short Sale, in Short

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

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

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

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

How Does a Short Sale Work?

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

Here’s how the short sale process generally goes:

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

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

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

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

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

Who Benefits from a Short Sale?

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

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

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

Are There Drawbacks to a Short Sale?

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

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

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

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

Is the Deficiency Completely Forgiven?

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

How a Short Sale Affects Buyers

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

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

How Long Does a Short Sale Take?

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

How Often Do Short Sales Fall Through?

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

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

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

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

The Takeaway

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

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

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

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

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

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

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

Medical School Debt Statistics

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

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

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

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

◦   6.1% borrowed $50,000 to $99,999

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

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

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

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

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

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

Source: Association of American Medical Colleges

What Does This Mean for Borrowers?

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

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

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

Source: Association of American Medical Colleges

Medical School Loan Options

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

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

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

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

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

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

Recommended: Private Student Loans Guide

How to Deal With Debt

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

Deferment

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

•   The interest rate you’re paying

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

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

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

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

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

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

Income-Driven Repayment

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

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

Refinancing Loans

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

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

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

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

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

Recommended: Student Loan Refinancing Calculator

Consolidating Loans

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

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

Schools With the Highest Student Debt

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

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

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

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

Public vs. Private Medical School

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

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

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

•   Private school, nonresident: $67,855

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

•   Public school, nonresident: $65,744

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

The Takeaway

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

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

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

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

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

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

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

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

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

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

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

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

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

Understanding US Student Debt

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

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

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

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

Recommended: Strategies for Lowering Your Student Loan Interest Rate

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

What Did the Coronavirus Pandemic Change?

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

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

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

Recommended: Navigating Your Student Loans During COVID-19

Federal Student Loans

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

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

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

Direct Loans

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

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

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

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

Recommended: Why Are Student Loan Interest Rates So High?

Additional Types of Federal Student Loans

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

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

Disused Federal Student Loan Types

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

How Are Rates Determined?

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

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

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

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

Politics and Student Loans

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

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

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

The Takeaway

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

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

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

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

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

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

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