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Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.

Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.

To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.

Recommended: How Much Are Closing Costs on a New Home?

What Are Seller Concessions?

Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.

Closing costs usually range from 3% to 6% of the loan principal on your mortgage. When combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.

Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.

Although this can be a helpful tool to negotiate a house price, there are rules for eligible costs and limits to how much buyers can ask for.

Recommended: Home Buyer’s Guide

What Costs Can Seller Concessions Cover?

A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.

There are also types of prepaid expenses and home repairs that can be requested as a seller concession.

Some common examples of eligible costs include the following:

•   Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.

•   Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $500.

•   Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.

•   Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.

•   Title insurance costs: A title insurance company will search if there are any liens or claims against the property. This verification, which averages $1,000 but varies widely, protects both the homeowner and lender.

•   Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.

•   Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run $500 to $1,500 or more, based on location.

•   Recording fees: Some local governments may charge a fee to document the purchase of a home.

•   HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.

•   Discount points: Buyers may pay an upfront fee, known as discount points, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is 1% of the loan amount.)

•   Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.

Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.

Recommended: Home Improvement Calculator

Rules and Limits for Seller Concessions

Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.

Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.

Here’s a breakdown of how concessions work for common types of loans.

Conventional Loans

Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.

With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.

If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.

For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:

•   Up to 3% when the down payment is less than 10%
•   Up to 6% when the down payment is 10-25%
•   Up to 9% when the down payment is greater than 25%

FHA Loans

FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.

For this type of mortgage, seller concessions are limited to 6% of the home sale price.

VA Loans

Active service members, veterans, and surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.

VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.

Seller Concession Advantages

There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.

Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.

Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.

Seller Concession Disadvantages

Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.

When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.

Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.

The vast majority of homebuyers finance their purchase. So for most buyers, finding the right mortgage is an important step in landing their dream home.

SoFi offers home mortgages with competitive rates and down payments as low as 5%. And prequalifying takes just a few minutes.

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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.

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

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

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

SOHL0623042

An uncontested DIY divorce could cost $300. For a messy, high-stakes parting, add zeros (knowing that the sum will be short of Jeff Bezos’ $38 billion). When the nuptial knot frays, average divorce costs add up to several thousand. So how much does divorce cost, really?

In 2023, the mean cost of divorce is $7,000, but the average ranges from $15,000 to $20,000, according to Forbes. However, all kinds of factors, from attorney fees to assets, influence the bottom line.

Here are details about types of divorce and what to expect cost-wise with each.

How Much Does It Cost to Get a Divorce?

The cost of a divorce can depend on which state you live in, how amicable the parting is, and whether you work with a divorce attorney, own property together, and have children, among others.

Most cases settle before going to trial. Here are common costs if you need to prepare for a divorce.

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

Without an Attorney

A DIY uncontested divorce is the cheapest option. You and your spouse submit paperwork to your local family court, then fill out and file required documents.

DivorceNet found that the median cost of a DIY divorce is only $300. That could be because many filers who don’t hire a lawyer have no contested issues.

With an Attorney

A lawyer can only work with one client at a time, so two attorneys are required if both spouses want their own representation.

A divorce attorney will usually ask for a retainer, or down payment, of $2,500 to $5,000, and will charge from that. If the retainer runs out, the lawyer may bill by the hour. Hourly fees may range from $150 to $500 or more per hour, according to LegalZoom.

A reader survey by Nolo, a publisher that specializes in legal content, found that the average cost of a divorce handled by a full-scope attorney was $12,900, with $11,300 of that lawyer fees. The median, though, was $7,500, including $7,000 in attorney fees.

Of course, the longer it takes to reach a final judgment, the higher your heap of attorney fees will be.

Recommended: Understanding Divorce and Retirement Accounts

Mediation

If you’re dealing with a more convoluted situation and don’t feel comfortable filing yourself, but don’t want to shell out money for a divorce lawyer, you could consider working with a mediator.

In this form of divorce, both spouses work with a neutral third party who has a handle on the financial and legal aspects of divorce and oversees the process.

A non-attorney mediator may charge $100 to $350 an hour, with a couple’s total mediation bill coming in anywhere from $3,000 to $8,000, according to DivorceNet.

Free or low-cost mediation services are often provided by courts, nonprofit organizations, and bar associations.

Collaborative Divorce

In this hybrid of mediation and a traditional divorce using lawyers, each spouse is represented by a collaborative divorce attorney. The goal is to help both parties work toward a mutually satisfactory outcome and, if children are involved, one that keeps their best interests in mind.

Both parties commit, in writing, to using cooperative dispute resolution techniques.

If the process fails, both attorneys must withdraw from the case, and the couple will need to hire new lawyers and continue through family law court proceedings.

Consulting Attorney

If you can’t afford to hire a full-scope divorce attorney, you might be able to hire a consulting attorney for specific tasks. The average total fees for consulting attorneys were $4,600, and the median was $3,000, Nolo’s survey found.


💡 Quick Tip: Fixed-interest-rate personal loans from SoFi make payments easy to track and give you a target payoff date to work toward.

Who Pays for the Divorce?

Most of the time, each spouse pays their own attorney fees and costs.

In select cases involving income disparities or one party unnecessarily complicating the proceedings, a judge may order a spouse to pay his or her partner’s divorce costs, LegalZoom says.

The following are some of the factors that affect the costs of a divorce.

Child Custody

In a contested divorce, the issue of child custody will likely come up. If the couple is able to agree on a child custody schedule that works for both parents, that is usually the easiest path forward.

For divorces involving children that require an attorney to iron out custody details, costs tend to increase significantly thanks to the additional time spent working with parents to reach an agreement.

A contested divorce involving custody could also include working with a court-assigned professional, who may interview the parents and children, observe each parent at home with the kids, and make an evaluation based on their findings.

A county custody evaluation could cost between $1,000 and $2,500. A private review could run $15,000 or more, according to DivorceNet.

Real Estate

Couples who share a property may require the help of real estate attorneys or agents who focus on helping couples ascertain the disposition of their homes.

A home appraisal is an unbiased, third-party estimate of a property’s value. It can cost between $300 and $450.

Sometimes couples opt to refinance the mortgage on the marital home into one name, releasing the other spouse from obligation. The cost of refinancing can be several thousand dollars.

Alimony

Another potential consideration in a divorce may be alimony, or spousal support.

If both individuals can’t agree on the amount of payment and the time payments are to be made, the court may have to step in.

That can involve litigation and a review of debts and finances. Since the process requires legal counsel, alimony decisions can quickly drive up divorce expenses.

Do Divorce Lawyers Offer Payment Plans?

Some family lawyers do offer payment plans. The time to ask about that is during an initial consultation.

In most situations, paying for a divorce can be a major stressor.

If you and your spouse are on OK terms and have savings, you could consider pooling together as much as you can to put toward divorce costs. You could also ask to borrow money from relatives or friends. In some cases, couples may know that divorce is looming and start saving for it ahead of time, as unpleasant as that may be.

Some people may opt to put their divorce costs on a credit card and pay the debt over time, with interest. An option that may be more cost-effective is a personal loan.

A personal loan has several potential advantages. The interest rate could be lower than a credit card, depending on your credit score. Most personal loans come with a fixed interest rate, which makes budgeting easier.

And a personal loan might allow you to borrow a significant amount of money and have several years to pay it off.

The Takeaway

How much does a divorce cost? A good answer might be: More than most people hope it will be. Let’s just say average divorce costs are in the thousands.

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

SoFi 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.

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.

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

SOPL0623073

No, an employee’s student loan repayment benefit from their employer is not taxed as income now through the end of December. Thanks to the CARES Act, employees can take advantage of up to $5,250 in tax-free student loan payment contributions from their employer.

For employees lucky enough to work for a company that offers a student loan repayment program, the benefits of this perk are clear: Employees get “free money” from their employers to help pay down their student loans.

Employer Student Loan Repayment Benefit and Taxes

Under employer student loan repayment programs, employers help employees pay back their student loans in amounts that vary from company to company. This monetary assistance can be a great help to individuals struggling with student loan debt — and may even ultimately have an impact on the economy. However, prior to 2020, employer contributions were subject to both payroll and income tax, which means that for employees, the benefit wasn’t quite as big as it might first appear.

That changed in early 2020, when the Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded on this financial assistance by making all employer-match contributions up to $5,250 tax-free, exempt from both payroll and income tax.

While the measure implemented in the CARES Act was due to expire in January 2021, the new stimulus bill signed by President Donald Trump in December 2020 has extended that tax-free benefit for another 5 years, with a new expiration of December 31, 2025.

Understanding Employer Match of Student Loan Repayment

What is an employer student loan repayment program? It’s a way for companies to help alleviate their employees’ student loan debt burden by offering them a match (up to $5,250, tax-free) on payments they make toward their student loans every year. Employers make a regular contribution to an employee’s student loan balance, say $100 a month for example, while the employee continues to make regular payments.

In this way, employees can pay down more of their student loan balance and/or interest. Prior to the CARES Act, an employer’s student loan contributions were considered taxable income, but now through the end of 2025, they will be tax-free and fall under the same maximum (up to $5,250), as tuition reimbursement benefits from an employer.

There are a number of services available to companies who are looking to manage this kind of benefit. Just like the companies designed to help HR departments manage other benefits like health care, financial institutions can help assist with student loan repayment plans.

Companies with Student Loan Repayment Benefits

Employer student loan repayment programs are still rather new — only about 17% of companies offer them. However, close to 50% of companies say they plan to offer student loan repayment assistance in the future. To get a sense of what kinds of programs different employers offer, here are several examples of companies who have this incentive in place:

•   In 2019, Chegg, the education technology company best known for online textbook rentals, began offering its employees $1,000 annually toward student loan debt, with an additional equity grant of up to $5,000 annually.

•   Estée Lauder, the cosmetics company, launched their student loan benefit program in 2018 by offering $100 monthly for payback, with a cap of $10,000 total.

•   In 2017, Fidelity, the brokerage firm, began offering up to $5,250 per year in student loan repayment for its employees.

•   Also in 2017, Live Nation, entertainment and events, began contributing $100 monthly to student loans, maxing out at $6,000 in repayment.

•   Penguin Random House, the book publisher, began in 2018 to reimburse up to $1,200 yearly (capped at $9,000) for student loans to full-time employees who have been with the company at least one year.

•   PwC, also in the financial services industry, offers $1,200 annually and up to $10,000 total for student loan payments.

•   SoFi offers one of the more unique employer student loan repayment programs on the market, offering $200 a month in reimbursement with no cap.

Implementing a student loan repayment program with a matching contribution will depend on a company’s size and resources.

But this kind of incentive can appeal to potential new employees. Most companies do not require employees who leave the organization to repay the benefit. Paid out monthly, it can help with the most burdensome student loan payments, which some employees might find more valuable than, say, a year-end bonus.

Save on Student Debt while Saving for Retirement

Helping employees pay down student loan debt, while also still saving for retirement, is a benefit that could really increase the appeal of an employer loan repayment program.

In 2018, the IRS cleared a path for employers to create a different kind of student loan payoff program that could help attract employees. The program was created by Abbott Laboratories, but companies of all sizes could use a similar approach.

The IRS allowed Abbott to help its employees save for retirement and pay down student debt with a new program that allows people who direct a certain amount of their paycheck to pay off student loans to also get a contribution from Abbott for their retirement accounts.

Abbott’s program might inspire more employers to implement similar programs, where the company can make a tax-free contribution to the employee’s 401(k) on the condition the employee makes student loan payments.

The Takeaway

With the recent extension of the rules set forth in the CARES Act, employer student loan repayment contributions up to $5,250 are payroll-tax and income-tax free until December 31, 2025. For individuals whose company offers such a benefit, this makes it more useful than ever before in paying down student loan debt.

Just like a 401(k) retirement match, a company that offers a student loan repayment program is basically offering you extra money. For many employees, even an extra $100 a month could be enough to help them get out of debt faster and feel more confident about their financial security.

To make the most of student loan repayment benefits and pay down loans in the most efficient way possible, it’s always a good idea to evaluate your current payment plan. For some individuals with federal student loans, switching to an income-driven repayment plan or consolidating your loans could make monthly loan payments more manageable.

For individuals with both private and federal student loans, it might make sense to consider refinancing your student loans through a private lender, such as SoFi.

Refinancing combines multiple student loans — federal or private — into a single loan with one monthly payment. It can potentially lower your interest rate or give you access to more favorable loan terms. That said, refinancing with a private lender means forfeiting access to federal loan benefits like income-driven repayment plans, deferment, and public service loan forgiveness. Nonetheless, if your credit score and earnings have improved since graduating from college, refinancing might be a way to pay less in interest with a lower interest rate and a shorter repayment term.

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.

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.

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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.