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It isn’t unusual for college students and graduates to be in debt due to education-related borrowing. Nearly half of adults under the age of 30 took on some student loan debt in 2019, according to a Federal Reserve report , with the typical amount being between $20,000 and $24,999. As for the overall amount of student loan debt in the United States, the dollar figure is now more than a staggering $1.7 trillion.

Because of this student loan crisis, the idea of having part or all of this student loan debt forgiven would naturally sound attractive to many of these borrowers, allowing them to spend their hard-earned dollars in other ways. This post will share facts and myths about student loan forgiveness, along with information about how forgiven student loan debt can affect a person’s income tax bill and, finally, the role that the 1099-C student loan forgiveness form plays.

Here’s a high-level look at the 1099-C student loan forgiveness form. This income tax document lists how much debt, dollar-wise, was forgiven in that tax year—and the IRS will also receive a copy. Why? Some student loan debt that’s forgiven is also considered to be taxable income.

Recommended: 7 Facts You Didn’t Know About Student Loan Debt

Student Loan Forgiveness

This is a subject where plenty of facts, myths, and half-truths exist. Part of the confusion may have arisen when the Student Loan Forgiveness Act (SLFA) was introduced in Congress in 2012 to help borrowers pay down their debt.

This Act proposed an interest rate cap on student loans, along with a repayment plan that would allow borrowers to have their loan balance forgiven after ten years if the payments they made equaled 10% of their adjusted gross income.

Students who found employment in public service jobs could have their balances forgiven after five years, rather than ten. This Act, though, never made it out of committee.

In May 2020, the House of Representatives passed the HEROES Act (although it wasn’t addressed by the Senate). The Act debated in the House would allow for $10,000 in forgiveness in federal student loans and $10,000 in private student loans per student, reduced from the initial proposal that called for $30,000 in forgiveness—but then the Act was further watered down to only provide this option to students who were struggling financially.

On October 1, 2020, the House passed a modified version of this bill, but it has not yet been addressed by the Senate.

The American Rescue Plan, which passed in March 2021, did include some provisions regarding student loan forgiveness. These provisions state that all forgiven student loans will be forgiven tax-free through December 2025.

Existing Options for Federal Student Loan Forgiveness

There are some options for borrowers to receive forgiveness on federal student loans. These forgiveness options include:

•   Income-Driven Repayment Plans: The U.S. government offers four types of income-driven repayment plans where the remaining balance could be forgiven after 20 to 25 years if requirements are met. Requirements include paying designated amounts on time.
•   Public Service Loan Forgiveness: Under this program, borrowers who work for a qualifying non-profit agency, governmental organization, or public interest employers can get their loans forgiven after ten years. They must make 120 payments based on their income to qualify. The amount forgiven under this plan is not considered taxable income by the IRS.
•   Teacher Loan Forgiveness Program: Qualifying teachers, after five years of teaching full-time, can get up to $17,500 of their federal loans forgiven. To qualify for the full amount, they need to teach math or science at the secondary level, or special education at the elementary or secondary level. Otherwise, they may still qualify for $5,000 in forgiveness.
•   NURSE Corps Loan Repayment Plan: This program can pay up to 85% of eligible borrowers’ unpaid nursing school debt. To qualify, they must work for two years in a critical shortage facility or as a nursing faculty member at an accredited school. After two years, 60% of student loan debt can be forgiven. If qualifying for another year, then an additional 25% of the debt can be forgiven.
•   Indian Health Services’ Loan Repayment Program: This program will repay up to $40,000 for qualifying doctors, nurses, dentists, psychologists, and other healthcare professionals working for two years in facilities that serve American Indian or Alaskan Native communities. Contracts can continue to be renewed beyond the initial two years until the loan debt is fully paid off, and other professionals—such as environmental engineers and social workers—may qualify.
•   The National Health Service Corps: Medical, dental, and mental health professionals who work for two years in underserved areas can qualify for up to $50,000 in loan repayment forgiveness. Typically, it’s the federal loans that qualify.

There is plenty of discussions right now about forgiving student loans in additional ways, so it’s possible that forgiveness programs may be expanded under the new administration. It’s hard to predict right now.

There certainly is support for the idea of forgiving all student loans, with more than half of Americans (54%) agreeing that this debt is a “major problem” in the United States. When looking at registered voters, 58% of them say they’d support a plan that got rid of existing student loan debt—and to also make public colleges and universities, along with trade schools, tuition-free.

When it comes to private student loans, these loans can seldom be forgiven except under the direst of circumstances, such as when the borrower becomes completely disabled or dies.

Recommended: Understanding Private Student Loan Forgiveness Options

1099-C: Cancellation of Debt (Student Loans!)

When a borrower gets student loan debt forgiven, tax consequences should be investigated and, as with any tax-related question, it’s best to consult with an accountant or tax attorney.

Programs that require borrowers to serve in high-need areas or in public service can provide forgiveness of debt that’s tax-free. Current examples of tax-free forgiveness include Public Service Loan Forgiveness, Teacher Loan Forgiveness, and the National Health Service Corps Loan Repayment Program. Forgiveness under income-driven repayment plans is generally taxable.

The tax season after a borrower receives student loan forgiveness, they’ll likely receive a 1099-C form. This will list how much debt was forgiven in Box 2, so check to make sure it matches your records and then verify whether income taxes will be owed on this amount.

Some borrowers who will see tax consequences for forgiven student loan amounts may be pushed into a higher tax bracket. If this occurs, they will need to deal with a double whammy: more taxable income at a higher bracket.

In some cases, this will make it difficult for the borrower to pay the amount of income taxes owed for that year. Some may decide to put the amount on a credit card or take out a personal loan, while others negotiate with the IRS or set up a payment plan with the agency.

The Takeaway

Federal student loans come with benefits not available through private student loans, including the forgiveness programs like those offered by Public Service Loan Forgiveness or income-driven repayment plans. When federal student loans are refinanced, the borrower can’t benefit from the forgiveness programs anymore.

If you’re thinking about refinancing student loans, it may make sense to explore what’s available at SoFi. Check out this information about student loan refinancing while the ongoing relief due to COVID-19 is in effect and what can make sense (short answer: refinancing federal loans might not be the thing to do right now, but it could make sense to explore refinancing private student loans through SoFi).

SoFi offers competitive rates with no fees and, if and when the time is right, you can refinance your federal student loans with your private student loans, something that many financial institutions simply won’t do. Plus, it’s quick, easy, and convenient to apply online.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
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.

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.

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.

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.

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.

SOSL21004

Private student loans can help fill the gap needed for students to pay for their tuition and living expenses, but they do not have the same relief programs that federal student loans provide.

Federal student loans offer more borrower protections after students graduate, especially if they face difficult economic circumstances such as the loss of a job, being furloughed from a position or if their salary is inadequate to pay all their bills. When borrowers take out a federal student loan, they have a few different options to choose from such as forgiveness or deferment programs until their financial circumstances change.

Are There Relief Options for Private Student Loans?

The options for private student loan relief are fewer. Private student loan forgiveness does not exist and no lenders offer this option.

When graduates face hurdles in repaying their private student loans, some lenders provide their own temporary assistance programs. These programs may provide temporary assistance to borrowers and the programs will vary based on the lender.

Read the fine print on temporary relief programs offered by private lenders. Generally, interest will continue to accrue while the loan is in forbearance, which can make the loan more expensive in the long-term. However, if you’re struggling to make repayments, securing forbearance could help provide breathing room to help you get back on track without missing payments.

If you are not sure whether or not the lender offers forbearance or other temporary assistance programs, try to contact them before missing any payments. They may have an option that could help or be willing to work with borrowers who are struggling.

Missing payments can potentially impact a borrower’s credit score. And if the borrower has a co-signer, their credit score may feel an impact as well.

Private Loans and COVID-19 Student Loan Relief Plans

The federal government has extended some relief options to borrowers with federal student loans due to the COVID-19 pandemic. Most of these policies do not apply to borrowers with private student loans.

As of March 2021, some borrowers with private student loans in default qualify to have their student loan payments paused. Borrowers with a defaulted loan made through the Federal Family Education Loan (FFEL) Program, may qualify for the federal protections offered . The FFEL program loans were made by private companies but were backed by the federal government. The program ended in 2010.

Recommended: Navigating Your Student Loans During COVID-19

Repaying Private Student Loans

Since there aren’t any real loan forgiveness options available for borrowers with private student loans, repaying them may become a financial priority. The repayment period for private student loans may vary based on lenders, so review the terms and payment schedule with your lender.

Some private student loans may have a grace period—a period of time after a student graduates where payments are not due. This will depend on the lender, so review your loan terms to find out if your private loan is eligible for a grace period. Interest may accrue during the grace period.

Other Ways to Payoff Private Student Loans

Other strategies to that can help students as they repay their student loans include:

•  Budgeting with Purpose. Factor student loan payments into your budget and prioritize repayments.
•  Enrolling in automatic payments. This can help you avoid missing payments. Some lenders may even offer a rate discount to borrowers who do enroll, so it’s worth asking.
•  Funneling additional income to student loans. Influx in cash thanks to a recent birthday, tax refund, bonus at work? Make an overpayment to the student loan.
•  Consider refinancing. Student loan refinancing can help qualifying borrowers secure a more competitive interest rate or preferable terms. Lowering the interest rate on a student loan could help borrowers save money over the life of the loan.

Recommended: 9 Smart Ways to Pay Off Student Loans

Why Refinancing Could Be Helpful

Refinancing could result in a lower interest rate which could also lower the minimum monthly payment. In some cases, getting a lower monthly payment requires extending the life of the loan, which can ultimately cost more.

Student loan refinancing means a new loan is obtained at a new interest rate and possibly a new term or the number of years you have to pay off the loan. Borrowers can generally choose between fixed or variable interest rates, depending on the options available at the lender they have decided to borrow from. Private lenders will generally rely on information like a borrower’s credit score and employment history to determine how much money a person can borrow, and at what interest rate.

Borrowers who are able to secure a lower interest rate may find that refinancing can help them spend less over the life of the loan. Additionally, a borrower with multiple private student loans might appreciate the opportunity to streamline their monthly payments to a single sum with a single lender.

The Takeaway

Some borrowers may be able to get some private student loan assistance, depending on the programs offered and policies in place with their private lender. In some cases, refinancing may make sense for borrowers who can qualify for a lower interest rate.

SoFi’s private student loans do not charge application or origination fees, offer competitive rates, flexible terms, a simple online application, and human support to answer your questions.

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.

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

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

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

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.

SOSL20013

Some things in life sound too good to be true, and getting cash back for purchases may seem like one of those deals. But an increasing number of credit cards, called cashback cards, offer clients money back when they charge what they buy.

Many people are familiar with the concept of credit card rewards, when lenders give clients a little something back—points, airline miles—as an incentive for using their card.

In the case of cashback cards, that reward is, well, cash.

How Does a Cash Back Credit Card Program Work?

Cashback credit cards reward clients based on their spending, providing a credit that is a small percentage of the total purchase.

If a cashback card provides 1% back, for instance, the cardholder would generally earn 1 cent on every dollar spent, or $1 for every $100 they charge to their card. If, over the course of the year, a person charges $10,000 in purchases to their cashback credit card, they’d earn $100 in cash back for that time period.

Unlike sale items, when an item is discounted at the time of purchase—meaning, of course, the shopper pays a cheaper price—cashback cards work more like a rebate. The customer buys something at the posted rate and gets money back at a later date.

The average American had a credit card balance of $5,315 in 2020, according to Experian. Assuming that full balance is eligible for cash back, it would earn $53.15 with a credit card providing 1% cash back and $106.30 for one giving 2% cash back.

Do All Cashback Credit Cards Work the Same Way?

Yes and no. While all cashback cards typically use the same model—money back based on a percentage of total purchases—the differences are typically in the details.

Things like the rate of cashback earnings, interest rate, the process for redeeming cash back, and so on vary by card and lender. Some lenders may even offer several cashback credit card products with different rates and benefits.

As such, before signing up for a cashback credit card, it’s smart to spend some time researching and comparing cashback cards to find the one that best suits your needs.

What to Look for in a Cashback Card

There are a number of considerations when choosing a cashback credit card that will determine just how profitable the card will be for a specific person.

Because people have different spending habits and financial preferences, the best type of credit card will ultimately depend on the individual. Here are some things to consider.

Rate of Cash Back

Not all cashback credit cards offer the same rate of return, so it’s best to comparison-shop. Though differences in percentages may sound negligible, getting 2% instead of 1% means double the cash back—and those small amounts can add up over time.

Some credit cards also provide different rates of cash back depending on the spending category or how much money the cardholder charges in a year. For example, some credit cards may provide a higher percentage on expenditures such as gas, travel, or groceries and a different rate for other types of purchases.

Tiered cashback cards may provide a higher (or even lower) rate when annual purchases exceed various thresholds.

Some credit cards also offer higher introductory cashback rates.

How a person chooses to redeem cash back may also determine the final payout. A travel rewards card, for example, may provide a higher rate of return for cardholders who redeem the money they earn on flights, and a lesser amount for those who redeem their rewards on statement credits or other purchases.

It can be difficult to tell at a glance how much the cashback percentage rate may actually net an individual, especially when considering categorized and tiered rewards. But when comparison-shopping for a cashback credit card, it is worth crunching some numbers to get an idea.

One way to estimate how much in cashback rewards a card will actually end up earning is to apply the posted cashback rates to previous credit card statements or to the spending allocations within an individual’s annual budget.

Annual Fees

Though some cashback credit cards have no annual fee, others do. It’s a good idea to factor in any annual fee when estimating the cashback rewards based on your spending habits. Calculating the returns on fee vs. no-fee cards can help to assess whether it’s worth shelling out extra.

If a bank charges $99 for a cashback card earning 2%, the bank fees would essentially cancel out the $100 in cash back earned on the first $5,000 in annual spending.

Someone who charged $7,500 annually would net $51 with the 2% cashback card, and $75 with a no-fee 1% cashback card. But if they charged $20,000 annually, the $99/2% cashback credit card would net $301, while the no-fee card would only earn $200 in cash back.

APR

The nearly half of Americans who carry a balance on their credit cards each month will want to pay close attention to a credit card’s annual percentage rate. This is the amount of interest cardholders will have to pay if they do not pay off their credit card balance in full each month.

The average credit card APR was 14.65% in late 2020, according to the Federal Reserve—a rate that can quickly cancel out any cashback benefits.

Recommended: What is a Good APR?

Redemption Terms

A good question to ask a lender before signing up for a cashback credit card is “Where can I get cash back?” The terms of redemption can vary across credit card products.

In some cases, cardholders may see an annual one-time credit for the full amount earned. Other cards allow cardholders to redeem their cash back at any time.

Tips for Getting the Most Out of a Cashback Card

While signing up for—and using—a cashback credit card is the first step to getting money back on everyday purchases, there are some ways to optimize the returns.

Pay Off Your (Whole) Credit Card Bill on Time

With few exceptions, credit card charges are not subject to interest until after the statement payment due date. But after that payment becomes due, extra interest and fees can quickly add up—erasing any cashback benefits.

Optimize Redemptions

When it comes to redeeming cash back, it’s worth seeking the biggest bang for your buck.

If a card offers different rates of cash back depending on how rewards are redeemed, being strategic when cashing out can result in a greater windfall.

Consider Extra Fees

Though a cashback credit card can make it tempting to charge everything you buy, that’s not always the most cost-effective strategy.

Though it’s generally an exception, some merchants impose surcharges for using a credit card or may provide discounts for paying in cash. In such cases, it’s a good idea to crunch the numbers to ensure the extra fees don’t actually cost more than the cashback reward.

The Takeaway

Free money may be hard to come by—but not if you use a cashback credit card. When choosing a card, It’s best to look at the rate of cash back, any annual fee a card may charge, and the APR if you carry a balance.

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¹See Rewards Details at SoFi.com/card/rewards.


*See Pricing, Terms & Conditions at SoFi.com/card/terms

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.

SOCC21003

Normally there is no simple way to cancel interest on student loans. There are programs under which different kinds of federal student loans could be forgiven or discharged, but they are not easy to qualify for.

Then there’s non-COVID-related forbearance, during which interest does accrue.

During the 2020-21 coronavirus-related “administrative forbearance,” interest rates were set to 0% on federal student loans held by the Department of Education through at least September 2021—and the interest did not accrue. So that’s a reprieve from interest but not a cancellation.

A case of major loan and interest cancellation did arrive in March 2021, when the Biden administration canceled $1 billion in federal student loans for borrowers who attended a school that had engaged in deceptive or illegal practices or closed suddenly.

How Does Student Loan Interest Work?

When borrowers take out a student loan, they should remember that they’ll end up paying more than the amount they initially took out, when all is said and done. That’s because loans come with interest or the amount a lender charges a person to borrow money, which will vary based on the type of loan.

Borrowers accrue interest on their student loans every day. Yep, every day. On top of that, the interest compounds, which means interest owed on a loan rolls into the loan’s total. Simply put, a borrower will pay interest on the interest.

The student loan interest rate does not change on income-driven repayment plans, but the plans can increase the total amount of interest you pay because repayment terms are expanded.

With a typical deferment or forbearance—postponement of student loan payments when you can’t afford them—interest usually accrues during the period (though the government picks up the interest tab during some deferments).

Reports have emerged of borrowers being asked to pay fees to suspend their payments s. That’s a scam. Anyone who encounters that kind of request can report it to the Federal Trade Commission’s Complaint Assistant .

Recommended: How To Calculate Student Loan Interest

Administrative Forbearance: Which Loans?

The government’s suspension of payments and interest did not apply to private loans.

It did apply to the following defaulted and nondefaulted federal student loans owned by the Department of Education:

•   Direct Loans, including subsidized, unsubsidized, Direct PLUS Loans, and Direct Consolidation Loans
•   Federal Family Education Loan (FFEL) Program loans
•   Federal Perkins Loans

If a borrower had a FFEL or Perkins loan not held by the Department of Education, they were beholden to the policy adopted by their lender or school. If their lender or school chose not to adopt the payment and interest waiver, then they were to keep making payments with interest.

Borrowers could choose to consolidate their loans with a federal Direct Consolidation Loan. But doing so after the 0% interest period could result in a higher interest rate than before.

This is true any time: Borrowers unsure of their federal loans’ status may want to contact their servicer for information. Policies are in flux, so loan servicers will know the latest.

How Forbearance and Deferment Normally Work

If you face short-term financial hardship, you may qualify for forbearance or deferment on federal student loans, providing a temporary suspension of payments.

During a normal forbearance, if you qualify, you can temporarily postpone or reduce your federal student loan payments, but interest will accrue on your loans.

During a normal deferment period, the government, not the borrower, pays the interest on some student loans, such as Direct Subsidized Loans, but interest will accrue on others, like Direct Unsubsidized Loans and Direct PLUS Loans.

During forbearance, you probably won’t be making any progress toward forgiveness or paying back your loan, the Federal Student Aid office notes, and gives this example:

If you have a loan balance of $30,000 and an interest rate of 6% and are in forbearance for a year right after you enter repayment, $1,800 in interest will accrue on your loans. If you do not pay that interest, it will capitalize (be added to your principal balance).

Because interest accrues on your principal balance, capitalization will cause more interest to accrue over time than if you had paid the interest. It will also increase your monthly payment under most repayment plans.

Forgiveness, Cancellation, and Discharge

There are several types of forgiveness, cancellation, and discharge for different kinds of federal student loans. Here are a few.

Public Service Loan Forgiveness

If you are employed by a government or nonprofit organization, you may be able to have your Direct Loans balance forgiven after 120 qualifying monthly payments.

Teacher Loan Forgiveness

If you teach full-time for five consecutive academic years at a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct or FFEL Program loans.

Total and Permanent Disability Discharge

If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or Teacher Education Assistance for College and Higher Education Grant service obligation.

Discharge in Bankruptcy

Available for Direct Loans, FFEL Program loans, and Perkins Loans, but bankruptcy rarely results in discharge of all debt..

Recommended: Is Paying Off Student Loans Early Always Smart?

What’s Known …

Any payment made during the administrative forbearance was to be applied to the principal of the loan, unless a borrower had accrued unpaid interest, which would have to be paid off first, according to the Consumer Financial Protection Bureau.

Nonpayments by borrowers working full time for qualifying employers were to count toward the 120 payments required by the PSLF program and as payments required to receive forgiveness under an income-driven repayment plan.

Collections on defaulted federally held loans were halted, as were garnishments.

… and Could Be Around the Bend

A lot can happen in a short amount of time. As of now, there’s lots of talk of forgiveness of federal student loans.

But if that does not happen, or happen in the amount some hope for, federal student loan borrowers must eventually resume payments at their loans’ original interest rate.

Those who anticipate a struggle to make payments may consider a number of repayment options, including income-driven repayment plans and federal student loan consolidation.

And those with private student loans might want to consider refinancing, especially if they have good credit and a stable income, during a time of low rates.

The Takeaway

Cancellation of student loan interest is rare. In a normal forbearance, interest accrues on student loans. And other than student loan cancellation from on high, en masse, it’s pretty darned hard to have loans forgiven.

While rates are low, it could be time to look at the rate of your private student loans and consider refinancing them. Student Loan Refinancing with SoFi can mean a lower interest rate and a different loan term.

Borrowers can consolidate both private and federal student loans into one new loan with one monthly payment.

†Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE 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.

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.

SOSL20007

A high deductible health plan, or HDHP, has a higher deductible than other types of insurance plans, as the name implies.

In return for higher deductibles, these plans usually charge lower premiums than other types of health plans.
You can combine a HDHP with a tax-advantaged health savings account (HSA). Money saved in an HSA can be used to pay for out-of-pocket, qualified medical expenses before the deductible kicks in.

An HDHP can be a good, affordable health insurance option for people who are relatively healthy and don’t see doctors or receive medical services frequently.

But these plans may not be the best choice for everyone. Read on for important things to know about HDHPs.

How Does a High Deductible Health Plan Work?

When you sign up for an HDHP, you will pay most of your medical bills out of pocket until you reach the deductible (with some exceptions, explained below).

Your deductible is the amount you’ll pay out of pocket for medical expenses before your insurance pays anything.

Under current law, in order to be considered an HDHP, the deductible must be at least $1,400 for an individual, and at least $7,000 for a family.

But deductibles can be significantly higher than these minimums, and are allowed to be as high as $2,800 for an individual and $14,000 for a family.

As with other insurance plans, HDHPs come with out-of-pocket maximums. This is the most you would ever have to pay out of pocket–that includes your deductible, copayments, and coinsurance (but exclude premiums and medical costs not covered by your plan).

Out-of-pocket maximums for HDHP plans can’t exceed $2,800 for an individual and $14,000 for a family.
Despite the high deductible with HDHPs, some health care costs may be covered 100 percent even before you meet your deductible.

The government requires all HDHPs sold on the federal insurance marketplace and many other HDHP plans to cover a fair number of preventive services without charging you a copayment or coinsurance, even if you haven’t met your deductible.

You can find a list of those covered services for adults , specifically for women , and for children at HealthCare.gov.

How Does an HDHP Work With a Health Savings Account?

When you purchase a high deductible health plan, whether it’s through the federal marketplace, an employer, or directly through an insurance company, you may also open a health savings account (HSA).

You can put aside pre-tax income in the HSA to help pay your deductible or other qualified health care expenses. However, HSA funds typically can not be used to pay for health insurance premiums.

Earnings also grow tax-free in an HSA account, and withdrawals used to pay for qualified healthcare expenses are not subject to federal taxes. As a result, HSAs can result in significant tax savings.

Currently the maximum you can save in an HSA each year and receive the tax benefits is $3,600 for an individual and $7,200 for a family. Some employers make contributions to employee HSA accounts as part of their benefits package.

HSAs are also portable, meaning you take your HSA with you when you change jobs or leave your employer for any reason. Your HSA balance rolls over year to year, so you can build up reserves to pay for health care items and services you need later.

You may contribute to an HSA only if you have an HDHP.

What are the Pros and Cons of HDHPs?

As with any health insurance plan, there are both advantages and disadvantages of HDHPs. Here are some to consider.

Advantages of HDHPs

•  Lower premiums. In exchange for the high deductible, HDHPs typically charge lower premiums than traditional healthcare plans like PPOs.
•  You can combine an HDHP with an HSA. This can help you cover out-of-pocket medical expenses with pre-tax dollars, which make these costs more affordable. And, these accounts never expire.
•  You get the same essential benefits and no-cost preventive care as other plans. HDHPs are required to cover the same types of healthcare expenses as other plans (after you meet the deductible). And, they offer the same no-cost preventive services as their more expensive counterparts.

Disadvantages of HDHPs

•  High out-of-pocket costs due to high deductibles. You will need to pay for medical expenses out of pocket (because of the high deductible), while also paying your monthly premiums.
•  A disincentive to receive care. You might be inclined to skip doctor visits because you’re not used to having such high out-of-pocket costs. Forgoing treatment, however, could cause more serious health problems down the line.
•  Emergencies can be expensive. If you need unexpected care or go to the hospital, an HDHP will not pay anything until you have met your high deductible. This can mean having to come with a significant amount of cash to cover your medical bills.

HDHPs vs. PPOs

A preferred provider organization, or PPO, is a traditional type of health plan that usually has a lower deductible than an HDHP, but charges higher premiums.

With a PPO, you will typically only have to pay a copayment, or “copay,” when you see a doctor or fill a prescription.

For other medical services and treatments, you will likely have to pay out of pocket until you reach the deductible, but that will happen sooner than it would with a HDHP.

Both PPOs and HDHPs typically have a network of providers you can work with to get the best rates.

In a PPO, however, the provider list may be smaller than it is with an HDHP. To get the best rate on your care, members of either type of plan will want to be sure they are sticking to that list.

A PPO may be advantageous if you go to the doctor a lot and/or run into unexpected medical expenses, since you start to get help from the health plan much earlier in the year than you might with an HDHP.

A PPO could end up costing you more, however, if you end up having a year with low medical expenses.

The Takeaway

So are HDHPs worth it? With an HDHP, you will likely pay a lower monthly premium than you would with a traditional health plan, such as a PPO, but you will have a higher deductible. If you combine your HDHP with an HSA, you can pay that deductible, plus other qualified medical expenses, using money you set aside in your tax-free HSA. If you are young and/or generally healthy with no chronic or long-term conditions, an HDHP may be the most affordable option for you.

On the other hand, if you have a medical condition and you make frequent doctor visits, you may find you need coverage that kicks in sooner than it would with an HDHP plan. It can be a good idea to estimate your health expenses for the upcoming year and get a rough idea of how much you will be responsible for out of pocket with an HDHP before you sign up. You might want to use a budgeting app, such as SoFi Relay, which makes it easy to categorize and track all of your expenses in one mobile dashboard.

Health insurance is just one way to protect your budget, but making sure you have insurance on your home can also help you avoid expenses in the future. SoFi Protect and Gabi offer insurance for both renters and homeowners, so you can be sure that your home, and the things inside you care about, are protected.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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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.

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

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