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When outlining your plans for how to pay for college, student loans may be part of the financial picture. According to information published by the Pew Research Center, roughly one-third of adults under age 30 have some student loan debt as higher education costs continue to climb.

If you’ve already qualified for federal student loans and have sourced other forms of financial aid but still need more funding for school, private student loans can help close the gap. When applying for private student loans, your current bank might be the first place you look. But there are some reasons to cast the net wider and compare other borrowing options.

Here’s some helpful information worth knowing about how to choose a student loan lender other than your current bank and why it might make sense to do so.

Pros and Cons of Getting Private Student Loans With Your Current Bank

Applying for private student loans with your current bank may seem like a natural choice. If you already have checking and savings accounts at the bank or other loans, then it is possible you may feel more comfortable borrowing from a financial institution you’re familiar with.

And that can have certain advantages. For example, some banks might offer an interest rate discount or reduction for private student loans if you have another account with the bank that is in good standing. Scheduling your student loan payments may also be easier if you can link your checking account to your loan account and see balances and payments in one place.

On the other hand, there are some benefits to getting private student loans with another bank or private lender. Banks and other lenders that offer private student loans can vary greatly when it comes to things like:

•   Minimum and maximum loan amounts
•   Interest rates
•   Loan fees
•   Repayment options

Looking for a private student loan with a different bank or lender could give you more options for a better interest rate, fewer fees, being able to borrow more money, or qualifying for more flexible repayment terms. These are important considerations which can impact student loan repayment.

Choosing a Lender for a Student Loan

Whether you’re borrowing a little or a lot, it’s important to find a bank or lender that matches up with what you need for private student loans. If you’re starting from square one with how to choose a lender for a student loan, these tips could help.

1. Considering Loan Limits

When comparing banks, credit unions, or other private student loan lenders one of the first things to look at is the lending limits at each institution.

Some private student loan lenders impose a minimum loan amount and cap on the total lifetime amount you can borrow to finance your education. Being aware of those thresholds matters for making sure that you can borrow what you need.

Keep in mind, however, that the actual amount you’re able to borrow may be lower than the total loan maximum advertised by the financial institution. The amount you ultimately qualify for (or don’t) can depend on many factors including state laws and your credit history. (More on that and other factors below.)

2. Looking at What’s Needed to Qualify

Every private student loan lender is different when it comes to their minimum qualifications to borrow. While thresholds vary from lender to lender, common criteria reviewed to make lending decisions might include:

•   Credit scores and credit history
•   Income
•   Enrollment status
•   Citizenship or permanent residency status

Also, be aware that you may not be able to qualify for a new private student loan if you have any existing loans that are in default. In that case, you’d need to bring your old loans current first before you could be approved for a new loan by most lenders.

3. Checking Co-Signer Requirements

Credit scores and credit history can play a big part in private student loan approval decisions. Borrowers with little or no credit history may need a qualifying co-signer to get approved for private student loans. Depending on the bank or lender, a qualifying co-signer could be a:

•   Parent
•   Grandparent
•   Sibling
•   Spouse
•   Other relative
•   Friend

For those who think they’ll need a co-signer to qualify for private student loans, there are a couple of things to remember.

First, it’s a solid idea to be upfront with the prospective student loan co-signer about the implications of signing off on the loans. As a co-signer, they’re equally responsible for the debt and all loan activity will show up on their credit report the same as it will on a primary borrower’s credit report. So if the borrower pays late or defaults, it could adversely affect both the co-signer and the primary borrower.

Second, you can check to see if the banks, credit unions, or private lenders you’re looking into offer a co-signer release. This allows the co-signer to be removed from the loans once certain conditions have been met. For example, you may be able to get a co-signer release after making a certain number of consecutive on-time monthly payments.

Going forward, then, only the primary borrower’s name would be listed on the loans. Each lender will have different requirements for co-signer release, and some lenders will not offer that option, so understand the policies at each institution before borrowing the loan.

4. Reviewing Repayment Options

Next, look at the different options a bank or lender offers for repaying private student loans. For example, do the loans come with five-year terms? 10 years? 15? Also, consider whether there is an option to make full payments or interest-only payments while in school or whether the lender offers a repayment deferment while enrolled.

Consider whether the lender offers any type of student loan grace period immediately after graduation in which no payments need to be made. And if a deferment or grace period is available, take note of what interest and/or fees accrue on your loan balances during that time.

5. Comparing Interest Rates and Fees

Cost is often one of the most important considerations for how to choose a student loan lender. After reviewing the other details of borrowing narrow the focus down to the interest rates and fees a private student loan lender charges.

Consider whether a bank offers variable rate loans, fixed rate loans, or both. On a variable rate loan, the interest rate is just that—variable. This means it can fluctuate over time, increasing or decreasing, depending on how the underlying benchmark rate moves. With fixed rate loans, the interest rate stays the same for the life of the loan.

Deciding which one to choose may depend on what’s happening with interest rates in general. With interest rates already low, a fixed rate loan option could make sense if you want reassurance that your rates won’t go up over time.

But if rates drop even further, a variable rate loan could allow you to capitalize on that and potentially save money on interest—provided rates don’t go back up again over time!

Other factors to consider when deciding between a fixed and variable rate loan include the length of the repayment term, and whether or not the borrower would be able to cover a higher monthly payment should the variable interest rate increase.

Aside from whether private student loan rates are fixed or variable, take time to compare the rates themselves across different lenders. If a lender offers a range of interest rates, look at how the high end and low end of that range lines up with what other banks or lenders are offering.

Remember, your credit score and history (or the credit score and history of your co-signer, if you need one) can play a big part in determining the rates you qualify for. But looking at how rates stack up overall can help with how to choose a lender for a student loan.

Banks and other lenders typically allow potential borrowers to see what rates they may qualify for. When getting rate quotes, double check that the lender is doing an initial “soft” credit pull. This won’t impact an individual’s credit score¹, unlike a “hard” credit inquiry.

After you’ve compared rates, check out the fees a bank or lender charges as well. Some fees to consider include:

•   Loan origination fees
•   Late payment penalties
•   Returned payment fees

The good news is, there are plenty of lenders that don’t charge fees like origination fees for private student loans. These fees could add up, and if there is a fee for paying late or for unforeseen insufficient funds, it can be important to factor those costs in.

6. Asking About Loan Discounts or Other Benefits

Another item on the list of things to consider for how to choose a student loan lender are the “extras” a bank might offer. For instance, it’s not uncommon for lenders to cut you a break on interest when you enroll in automatic payments for your loans.

While the specifics vary by lender, some may offer a reduction of the interest rate when the loan is enrolled in autopay, which can help reduce the cost of interest over the life of the loan. Another consideration may be whether a bank offers things like hardship programs or forbearance options in case there are issues repaying the loan at some point.

Unlike federal student loans, private student loan lenders aren’t required to offer hardship deferment or forbearance programs, but some do. SoFi members, for example, may qualify to pause their payments temporarily through the Unemployment Protection Program.

And finally, look at whether a lender offers anything else that could make help make your life as a student loan borrower easier. That could include an easy-to-use mobile app for managing loans, free online educational resources to help you better understand student loans, or career counseling.

All of those features can add value when choosing a student loan lender that isn’t your primary bank or another lender.

Doing Your Homework Can Pay Off When Choosing a Student Loan Lender

When considering private student loans, it’s important to remember that all banks and lenders aren’t created equally. If you’re willing to spend some time researching loan options, it might become easier to find a lender that’s the best fit for your personal needs and budget.

While we believe exhausting your federal aid options first before taking on private student loans is wise, when looking for private student loans beyond your bank, consider adding SoFi to your list of potential lenders.

SoFi offers no-fee private student loans for undergraduate and graduate school and for parents, too, all with flexible repayment options and competitive interest rates.

¹Checking 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.

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

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

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

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

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Student loans can have a way of making you feel like a hamster in a wheel—spinning like crazy but getting nowhere fast. And while knowing that around 44 million Americans carry student loan debt might offer some comfort in a “misery loves company” kind of way, the magical loan-forgiveness fairy is still—as far as we know—a myth.

In the meantime, though, there’s a bit of good news—you may have more control than you think. We are here to help illuminate some options available to student loan holders, so they can make decisions that fit best with their financial goals.

Have you been considering one of those options—choosing whether to consolidate or refinance student loans?

But what is consolidation, what is refinancing, and how do you know which one (if either) may be right for you?

This could be a somewhat complicated question, especially since these terms are sometimes used interchangeably. For example, consolidation simply means combining multiple student loans into one loan, but you have different options and can end up with different results by consolidating with the federal government vs. consolidating with a private lender.

Student loan refinancing is when you receive a loan with new terms and use that loan to pay off one or more existing student loans.

Consolidate vs. Refinance. Let’s break it down.

Here’s a simple overview of the different types of student loan consolidation, how they differ from student loan refinancing, and some tips for evaluating whether one of these options might work for you.

Federal Student Loan Consolidation

Federal student loan consolidation is offered by the government and is available for most types of federal student loans—no private loans allowed. When you consolidate with the government, your existing federal loans are combined into one new loan with a new rate, which is a weighted average of your old loans’ rates (rounded up to the nearest eighth of a percent).

This option may not save you any money, but there are still a few potential benefits:

1. Fewer bills and payments to keep track of each month.

2. The ability to switch out older, variable rate federal loans for one, new, fixed rate loan, which could protect you from having to pay higher rates in the future if interest rates go up. (Note: the last variable rate federal student loans were disbursed in 2006. Since then, all federal student loans have been fixed-rate.)

3. Lower monthly payments. But beware—this is usually the result of lengthening your repayment term, which means you might pay more interest over the life of the loan.

Private Loan Consolidation

Like federal consolidation, a private consolidation loan allows you to combine multiple loans into one, and offers some of the same potential benefits listed above. However, the interest rate on your new, consolidated loan is not a weighted average of your old loans’ rates.

Instead, a private lender will look at your track record of managing credit and other personal financial information when deciding whether to give you a new (ideally lower) interest rate on your new consolidation loan.

Bottom line: when you consolidate student loans with a private lender, you are also in fact refinancing those loans. When federal student loans are consolidated or paid off using a private loan, however, it’s important to know you will lose access to certain benefits such as income-driven repayment plans, forbearance and deferment options, and Public Service Loan Forgiveness (among others).

Student Loan Refinancing

As noted above, student loan refinancing is when a new loan from a private lender is used to pay off one or more existing student loans. If your financial situation has improved since you first signed on the dotted line for your original student loans(s), you may be able to refinance student loans at a lower interest rate and/or a different loan term, which could potentially allow you to do one or more of the following:

1. Lower your monthly payments.

2. Shorten your loan term to pay off debt sooner.

3. Reduce the money you spend in interest over the life of the loan.

4. Choose a variable interest rate loan, which can be a cost-saving option for those who plan to pay off their loan relatively quickly.

5. Enjoy the benefits of consolidation, including one simplified monthly bill.

Unlike federal loan consolidation, student loan refinancing is only available from private lenders. However, SoFi will refinance both private student loans and federal student loans, so well-qualified borrowers can consolidate all of their loans into one with loans and/or terms that work better for them.

Things to Consider

While there are advantages to both consolidation and refinancing, sometimes the answer—depending on timing, your budget, or other outside factors—could be to leave well enough alone. As you research your options, consider asking yourself these questions:

What kind of student loans do you have?

Refinancing federal student loans through a private lender might result in a lower interest rate, but you will also lose access to the benefits that come with federal loans, such as Public Service Loan Forgiveness (PSLF), flexible repayment plans, the ability to pause payments, and an interest rate that’s determined by Congress—not your credit score.

If your loans are private, they were issued based on creditworthiness to begin with, so a refinanced loan will follow similar qualifications, and each private lender will have its own underwriting criteria.

What is the loan payoff amount?

While the amount of a monthly payment is important, especially if a refinance could reduce it, it’s wise to read through all the terms of the loan to understand the big picture.

Are the monthly payments lower because the loan is now on a 20-year term instead of a 10-year term? Are there loan origination fees rolled into the payment? Knowing the full, total repayment amount can help ensure that short-term gains don’t bite you in the long run.

What’s the goal?

Consider your reasons for a refinance or consolidation—lowering monthly payments, keeping better track of due dates, or paying off debt as quickly as possible will likely lead to different strategies.

Your monthly budget and what you can (and can’t) afford to put toward your loan repayment will also play a factor here. One way to help ensure the right decision for you is to play with your budget a bit to see which loan options might benefit you most.

What factors do lenders review?

This isn’t typically an issue when it comes to consolidating loans through the federal government. But people interested in refinancing student loans with a private lender will likely need to meet various lender requirements, much like they would for a mortgage or personal loan.

Lenders generally review information like the borrower’s credit history, income, debt-to-income ratio, and other factors to determine what type of interest rate and loan terms they may qualify for.

You may not be able to change the fact that you have student loans, but you can make smart decisions about them. And that’s what ultimately gives you power over your debt. For more information about student loans, you can explore SoFi’s student loan help center to find guidance and gain knowledge to help point you in the right direction.

$500 Student Loan Refinancing Bonus Offer: Terms and conditions apply. Offer is subject to lender approval, and not available to residents of Ohio. The offer is only open to new Student Loan Refinance borrowers. To receive the offer you must: (1) register and apply through the unique link provided by 11:59pm ET 11/30/2021; (2) complete and fund a student loan refinance application with SoFi before 11/14/2021; (3) have or apply for a SoFi Money account within 60 days of starting your Student Loan Refinance application to receive the bonus; and (4) meet SoFi’s underwriting criteria. Once conditions are met and the loan has been disbursed, your welcome bonus will be deposited into your SoFi Money account within 30 calendar days. If you do not qualify for the SoFi Money account, SoFi will offer other payment options. Bonuses that are not redeemed within 180 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state, or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. SoFi reserves the right to change or terminate the offer at any time with or without notice.

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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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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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If you’re having trouble getting out of credit card debt, you’re not alone. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data , household debt is higher than ever before. In the last quarter of 2019, household debt increased by $193 billion (1.4%). This marked the 22nd quarter in a row that household debt increased.

The current total is $1.5 trillion more than the country’s previous household debt peak in the third quarter of 2008. And credit card balances increased by $46 billion.

While these statistics provide a snapshot-view of what’s happening in many households across the United States, what probably matters most to you is finding ways to manage your own debt. To help, this post will provide some answers to frequently asked questions about credit cards and associated debt.

What Are (some of) the Benefits of Having a Credit Card?

There are a variety of advantages when it comes to credit cards, including that you:

•   don’t need to carry as much cash with you
•   can track your purchases
•   can make larger purchases
•   can benefit from reward programs and other discounts
•   can build your credit score with responsible use
•   have access to emergency funds when needed
•   can use your card to secure a hotel room, rental car, and so forth

Although this is not intended as a complete list of benefits, and credit cards are not for everyone, it does contain many of the significant advantages of having a credit card.

What Are (some of) the Disadvantages of Having a Credit Card?

Although the convenience of credit cards is significant, it’s possible for these cards to become a little bit too convenient. Some people believe that as long as they can make their minimum monthly payments on their credit card debt, they’re in good financial shape. In reality, though, making minimum payments isn’t usually enough. Typically, it can cause debt to increase because of compounding interest.

For example, let’s say you’ve got a balance of $5,000 on your credit card; the interest rate is fixed at 16.71%, and you’re paying $100 monthly. At that pace, it would take you five years-plus to pay off your original debt of $5,000, with an additional $3,616 in interest alone. That’s a simplified hypothetical, but if you’d like to get an idea of how much you may be paying back on your own credit card debt, you can use SoFi’s credit card interest calculator.

Another disadvantage of credit cards is that your account numbers can be stolen, leading to potentially serious identity theft problems. Plus, these thieves can use your account information to rack up charges and it can be a real hassle to address this issue.

Choosing the Right Credit Card for Your Situation?

Those who use a credit card responsibly might find it worthwhile to check around to find a card that offers the rewards they’d use and benefit from. These rewards can include frequent flyer miles, loyalty points, cash back, and so forth.

If you don’t typically pay off your balance in full each billing cycle, however, then credit card rewards might not be worth it since they typically have higher rates or annual percentage rates (APRs).

If you often carry a balance on your credit cards, then it could make sense to shop around for the best interest rate. These cards probably won’t have all of the extras that come with reward cards, but they could help you accrue less interest.

If you’re just building your credit or need to repair your credit score, a secured card may be worth considering. This functions like a typical credit card except that you’d need to put a deposit into the bank to serve as a backup.

If you close the account with your credit in good standing or you improve your credit to the degree that you’d qualify for an unsecured credit card, then the deposit is returned.

As another option, you can load a prepaid credit card with a certain amount of money, through cash, direct/check deposits, or online transfers from a checking account. You can use that card until the funds are used up.

Although this can make sense in certain circumstances, perhaps because of a challenging credit history, this type of card doesn’t help you to build or repair credit, and can come with plenty of fees.

Fees for prepaid credit cards can include a monthly fee, individual transaction fees, ATM fees, reload fees, and more. If you go this route, compare options to get the best deal.

Here’s the bottom line on this FAQ. What’s most important is to find a credit card that dovetails with your needs and usage patterns.

Using a Balance Transfer Credit Card

Balance transfer cards can allow you to consolidate your credit card debt onto a card that, for an introductory period, comes with a low or zero-interest rate. Sometimes, these low-to-no-interest credit cards make good sense.

For example, if you have a balance on a high interest credit card and you are anticipating a bonus or tax return in a couple of months, then it can make sense to pay off the high interest card with a zero-interest one, and then pay off that credit card with your bonus or tax return before the introductory period is up.

Or, if you want to make a larger purchase and have planned your budget in a way that allows you to pay off the balance during your zero-interest period, that might also work out well.

Problems with no-interest credit cards can include that, if you don’t pay off the balance in your introductory period then the card reverts to its regular interest rate that can be quite high. Plus, in some cases, if you don’t pay off the entire balance within the introductory period, you’ll owe interest on the original balance transfer amount.

Sometimes, there are balance transfer fees that can make this strategy more expensive than if you hadn’t transferred a balance in the first place.

If you have outstanding credit card debt that you aren’t paying in full each month—and if a balance transfer credit card doesn’t seem like the right strategy for you—here’s another idea to consider: a credit card consolidation loan.

What Is a Credit Card Consolidation Loan?

A personal loan, sometimes referred to as a credit card consolidation loan, is an unsecured installment loan with fixed or variable interest rates. It is ideally repaid in the short term (e.g., three to five years), and it can be used to consolidate credit card debt and hopefully offers a lower interest rate than your current credit card(s)interest rate. Your loan payments include both principal and interest.

OK, a credit card loan’s correct name is a credit card consolidation loan, which is just another name for an unsecured personal loan. How is a personal loan different from other types of loans?

A personal loan is an unsecured loan. Unlike a mortgage, there is no collateral attached to or “secured” for a personal loan. For example, if you take out a mortgage loan, your home becomes the collateral for your mortgage. If you default on your mortgage, your lender can then own your home.

With most personal loans, there is no underlying collateral required. When a loan has no collateral, it means it’s unsecured. Since the lender assumes more risk with an unsecured loan (given there isn’t a home to repossess should a borrower default), the interest rate on a personal loan is usually higher than the interest rate on a secured loan.

Considering a Personal Loan?

If you have credit card debt and want to lower your monthly payments and get a better interest rate than you currently have, a personal loan can be worth considering, since it can enable you to consolidate your credit card debt. Instead of paying off multiple credit card balances, consolidating your credit card debt into a personal loan means you can just make one convenient monthly payment.

Over the last year, the average credit card interest rate has hovered around 10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan. . Personal loans can come with lower rates, especially for borrowers with strong credit histories and income, among other factors that vary by lender.

Credit scores are typically one of the main factors considered by lenders when reviewing applications for personal loans. So, it can make sense to know your score before you apply; in general , a FICO® Score between 740-700 is considered “very good” while 800-850 is considered “exceptional.” .

To get a rough estimate of how much you might be able to save by consolidating your credit card debt with a personal loan, you can take a look at SoFi’s personal loan calculator.

In sum, a personal loan can help you by offering a lower interest rate than what you have for your existing credit card debt. The interest rates on personal loans are often much lower than the interest rates on credit cards.

This means that if you consolidate your credit cards into one lower-rate loan, for short and fixed term, you could reduce the total interest you’d pay on the debt and have an opportunity to pay off your debt more quickly.In some circumstances, adding a personal loan could also be beneficial for your credit score.

Why? Because having a mix of credit types can help your score; with the FICO® Score, for example, your “credit mix” accounts for 10% of your base score—and, if you consolidate your credit card debt (considered “revolving” credit) with a personal loan (“non-revolving” credit) and you keep your credit card open, you now have a mix of revolving and non-revolving forms of credit.

10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan.

Borrowing a Personal Loan

Applying for a personal loan with SoFi is typically a simple and fast process. Loan eligibility takes into consideration a few different personal financial factors, including credit history and income . If you’re interested in applying for a personal loan with SoFi, you can review the eligibility requirements for more information—and see your rates in just two minutes, before you even apply.

SoFi offers loans up to $100,000 with low fixed interest rates, no prepayment penalties and no fees required. SoFi also offers unemployment protection to qualifying members who lose their job through no fault of their own. If you have questions while applying for a loan online, you can contact SoFi’s live customer support 7 days a week.

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.

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

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

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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.

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When a person takes on debt—whether it’s a student loan, mortgage, car loan, or credit card balance—they’re likely paying interest on that debt. This is a charge paid to the lender for the opportunity to borrow money. But interest rates aren’t all created equal.

In some cases, borrowers could find themselves stuck with high-interest debt, which can add up faster than they may realize. If you happen to be stuck with high-interest debt, don’t despair. The worst thing a borrower can do is ignore the situation and fail to make payments.

A borrower may have options for lowering interest rates and getting payments under control. Depending on the type of debt, that could mean consolidating debt, or perhaps even taking out a personal loan. Here’s what a borrower could do if they’re struggling with high-interest debt:

Identifying High-Interest Debt

The first step to tackling high interest debt is figuring out if you have it. Inputting every debt currently owed into a spreadsheet might be a good start. In the first column would be the current amount owed on each debt. In the next column could be the annual percentage rate (APR) for each debt. Then, the debts can be sorted from the one with the highest interest rate to the one with the lowest interest rate.

How High-Interest Debt Can Dent Finances

High interest rates can be sneaky. A borrower may have taken out a loan without paying close attention to the fine print. They may have signed up for a credit card with a 0% introductory interest rate, only to have the rate shoot up after the introductory period. Or they may have opted for a loan with a variable interest rate, which often starts out relatively low but can increase dramatically over time.

High-interest debt can seriously hurt finances. By sucking up any extra cash and increasing debt-to-income ratio, it can potentially prevent someone from achieving certain life goals, such as buying a home, saving for retirement, or traveling. If payments become unmanageable, a borrower may risk going into default, which could set them up for a hit to their credit score or even bankruptcy and garnished wages.

Options for Handling High-Interest Rates

Depending on the type of loan, here are some options for tackling those high-interest rates:

Student Loans

Whether it’s federal or private student loans, a borrower might be able to get a better interest rate if they refinance those loans, especially if they have a good credit score and solid income (among other factors that will vary by lender). Refinancing means consolidating all student loans—both private and/or federal—into a new loan with a (hopefully lower) interest rate through a private lender.

Keep in mind that refinancing federal student loans with a private lender means they will no longer be eligible for federal loan protections and perks like deferment or forbearance and income-driven repayment plans. So student loan refinancing won’t be right for everyone.

Credit Cards

Credit cards usually have the highest interest rates of all unsecured debt types—as of March 2020, the average APR for credit cards is above 21% . Borrowers who are stuck with a high balance on a credit card plus a high rate might want to consider a personal loan to pay it off.

An excellent credit score and steady employment might help a borrower qualify for a low-rate personal loan. Choosing a lender that doesn’tabove 21%
t charge origination fees or prepayment penalties could help to avoid extra charges.

Fixed (hopefully much lower) interest rates compared to credit cards and set repayment terms typical to personal loans can be helpful when looking for relief from the high-interest credit card debt burden, too.

Mortgages

If average mortgage interest rates have fallen, it may be a good idea to look into refinancing a mortgage. If eligible for mortgage refinance, a borrower may be able to lower their interest rate or pay off a mortgage faster. Shopping around for the best rate and considering lenders with cash-out refinancing options might be a good start.

Common Debt Repayment Strategies

No matter the interest rate, it’s often in a borrower’s best interest (get it?) to pay down debts in an effort to lead a debt-free lifestyle. Of course, if multiple debts are looming, it can be an overwhelming challenge to tackle.

Instead of giving up and declaring debt unconquerable, a borrower can follow one of the common debt repayment strategies listed below.

The Avalanche Method

With the avalanche method, a borrower can review the debt spreadsheet mentioned above to identify high-interest debts. While making minimum payments on all debts as required, a borrower can funnel extra money toward the debt with the highest interest rate first until it’s paid off, and then allocate that extra money to other debts in subsequent order of interest rate until those are paid off.

The logic behind this method is that, by saving money on the high interest rates, it should be easier to pay off lower-interest debts (and meet other financial goals) more quickly, even though the highest-interest debt may not be the loan with the largest balance. And while that’s a solid strategy, there is another common method that might sound better. (Yes, it also has a snow-related metaphor.)

The Snowball Method

The debt snowball method is another popular debt repayment strategy, but this one takes a different tack than the avalanche method above. Whereas the avalanche starts with the highest-interest loan, the debt snowball starts with the loan with the lowest total balance.

For instance, if a borrower has a credit card with just a few hundred dollars on it, then they’d start with that before moving onto the bigger debts, like student loans or a mortgage.

The logic behind this method is all about internal motivation. Reaching a money-related goal might make it easier for borrowers to motivate themselves to stick to an overall debt repayment plan. Since a smaller debt is a more manageable goal in the short term, paying off the smallest debt first could be a good way to get the snowball rolling, so to speak.

It might also be a more realistic strategy if a borrower doesn’t have a lot of extra money to throw at making large payments toward the highest-interest debt (but will still make all required minimum payments, of course).

Debt Consolidation: How Does It Work?

In some ways, debt consolidation might sound counterintuitive, because it does involve taking out more debt when a borrower already has multiple existing loans.

Basically, debt consolidation is a debt repayment method in which a borrower takes out another line of credit or debt with the express purpose of paying off existing debts. For example, instead of paying separate credit card bills, a borrower could take out a personal loan that would cover the balances on all other debts and pay them in full, then the borrower would repay only the personal loan.

This could be a significant financial improvement for a number of reasons. For one thing, it’s simply easier on a logistical level: When you’re dealing with multiple debts that are all due at different times of the month, it’s all too easy to accidentally miss a payment and fall behind.

But aside from keeping stress at bay every few weeks, debt consolidation could actually save you money. Let’s take a closer look at the example we outlined above, in which three existing debts are consolidated.

One common way to go about debt consolidation is to take out an unsecured personal loan in an amount that will cover existing debts. (There are other methods, however; for instance, some people perform a balance transfer from existing high-interest credit cards to a new credit card offering a promotional 0% interest rate.)

SoFi offers personal loans with competitive rates and, unlike many other lenders, SoFi loans don’t come with a bevy of hidden fees. That said, debt consolidation isn’t the only option when it comes to finding a way to ease a debt burden. After all, an unsecured personal loan is still a debt, although ideally a debt with better rates and terms than a credit card.

Refinancing

Instead of taking out another line of credit to cover multiple existing loans, with refinancing a borrower is taking out a new loan to cover one specific debt, often a mortgage or a student loan.

The power behind this financial move is pretty simple: If a borrower’s credit score or other qualifying factors have improved since the time they took out the original loan(s), they could be eligible for a loan with a more reasonable monthly payment or a lower interest rate. That could make it easier and/or faster to go through the snowball or avalanche methods described above, or simply to save up more money for other financial goals.

SoFi offers student loan and mortgage refinancing, as well as a broad range of other financial products that could help money woes back on track.

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.

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Studying medicine and working in the medical field can be highly rewarding as you assist people with illnesses and injuries and help them to live their healthiest life.

In this career, how you help others could literally be life-changing. Other benefits of a medical career might include the wide variety of opportunities in an array of specialties, from pediatrics to geriatrics, medical research, and more.

Medical school might be considered a safe investment in the future as well, with the possibility of a high salary in a chosen field. In fact, according to the United States Department of Labor’s Bureau of Labor Statistics , in 2019, nine out of the top 10 highest-paid professions are in the field of medicine.

Read on for more good news on medical careers and finances, plus some information about what it might cost to earn a medical degree.

Medical Professionals and Their Salaries

According to the Medscape Physician Compensation Report 2019 , physicians’ incomes are increasing. Primary care physicians, for example, are earning an average of $237,000 annually, a 21.5% increase over their average earnings in 2015 ($195,000). Specialists, meanwhile, earn an average salary of $341,000, a 20% increase over the 2015 average of $284,000.

When looking at specialties, orthopedics ($482,000) and plastic surgery ($471,000) top the list in 2019. The lowest physician salaries are pediatrics ($225,000) and public health and preventive medicine ($209,000).

Salaries may also vary by state, with these three having the highest overall in 2019:

•   Oklahoma: $337,000/yr
•   Alabama: $330,000
•   Nevada: $329,000

As lucrative as a medical career can be, the commitment to medical school is significant, and the educational journey can be pricey. According to the Association of American Medical Colleges (AAMC), here are the average costs of tuition, student fees, and health insurance for medical students during the 2018–2019 school year (costs include discounts from stipends, scholarships, or grants):

•   Public school, resident: $36,755
•   Private school, resident: $59,076
•   Public school, nonresident: $60,802
•   Private school, nonresident: $60,474

Medical Students and Debt

Although the costs of attending medical school are significant, the number of medical school students who are graduating with no debt continues to rise, with the AAMC noting that, in 2019, 28.7% of students completed medical school with no student loan debt. In 2018, the figure was 27.7%.

Another study of medical students and corresponding student loan debt was conducted by researchers who have inferred that more and more students entering medical schools come from wealthy backgrounds.

This implies that some students might be discouraged from pursuing medicine, based on financial considerations alone. Also, students incurring a lot of debt might feel pressured to specialize in more lucrative fields, because when they have student loan debt, cardiology (with a 2019 average salary of $430,000) might look better than endocrinology (with a 2019 average salary of $236,000) simply because cardiologists make so much more.

Medical Student Loan Debt by State

When it comes to debt, not all medical programs are equal. According to U.S. News and World Report’s “Best Grad School ,” the range can be quite significant. Out of 114 medical schools listed, the three that left its grads with the most debt in 2018 were:

•   Rocky Vista University in Parker, Colorado: $364,000
•   Nova Southeastern University Patel College of Osteopathic Medicine (Patel) in Fort Lauderdale, Florida: $272,764
•   Western University of Health Sciences in Pomona, California: $272,311

On the other end of the spectrum, the schools that graduated students with the least amount of debt in 2018 were:

•   Johns Hopkins University in Baltimore, Maryland: $104,016
•   Stanford University in Stanford, California: $104,988
•   Baylor College of Medicine in Houston, Texas: $107,469

Average Medical School Debt and Loan Options

Although the percentage of medical students who have no debt is rising, when students do have student loan debt, the amount is going up, with the 2019 average for medical students at $200,000 , a 2.7% increase over the 2018 amount of $195,000.

Note that, when it comes to borrowing for medical school, loan interest rates offered by the federal government, along with their terms and conditions, might be different from borrowing as an undergrad.

Types of federal student loans available to medical students include Direct Unsubsidized Loans, with loan limits up to $20,500 each year, and $138,500 overall. Rates for this type of loan are currently less than for the other type of federal aid available to people going to medical school—Direct PLUS loans .

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

Medical students can also apply for private student loan funding, with different private lenders offering different rates, terms, and overall loan programs. Typically, you need good credit for private student loans, among other financial factors that will vary by lender.

Federal loans do come with many important student protections that private loans typically don’t, such as loan forgiveness for working in public service, income-driven repayment, and deferment programs; some medical students defer loans during their residency.

High Debt Loads—and Compound Interest

Unfortunately, debt doesn’t necessarily pause when deferred. There are some federal student loans that, when deferred, will continue to accrue interest. The problem those in medical fields can face, then, is debt accumulation during their residency, which can last anywhere from three to seven years depending on the specialty.

Here’s a very high-level, simplified example. Say, for instance, a med student defers loan payments on a $180,000 Direct PLUS Loan with an annual percentage rate (APR) of 7%. If the student defers payments for a seven-year residency, this could lead to a debt increase of around $88,200. With a 6% interest rate, debt could increase by around $75,600.

Even while making a modest income—in 2018, the average resident earned just under $60,000 —the debt would grow substantially.

Other than deferral, the federal government does offer additional income-driven payment protections for federal student loans—for example, certain
programs are offered during the years of residency, lowering payments to match current income so monthly loan payments are more manageable..

The Revised Pay As You Earn Repayment Plan (REPAYE) caps payments at 10% of discretionary income for qualifying borrowers. If you are married, the government will factor in a spouse’s income when determining monthly payments.

Options for Paying Back Medical School Loans

Once you are ready to get serious about paying back student loans, refinancing with a private lender might help save you money. Although refinancing your federal student loans does mean forgoing government protections such as loan forgiveness and income-driven repayment, some companies offer refinance interest rates that are lower than federal rates.

The bottom line: Student debt should not be the thing standing between you and your goals. Between a variety of repayment plans, loan consolidation, or refinancing, there are ways to repay your debt that are manageable.

Loan Consolidation vs Loan Refinancing

The word “consolidating” can have more than one meaning in connection with student loan financing. The federal government, for example, offers Direct Consolidation Loans, through which eligible federal student loans are combined into one, with the interest rate on the new loan being a weighted average of each of the original loans’ interest rates (rounded up to the nearest eighth of a percent).

When the word “consolidating” is used by private lenders, though, the loans are combined into one, but you get a brand new interest rate, not a
weighted average, based on personal financial factors. This means that when you “consolidate” student loans with a private lender such as SoFi, you’re also refinancing them.

If you consolidate your federal loans via a Direct Consolidation Loan with the government, and your payment goes down, that’s likely because the term has been extended from the standard 10-year repayment to 20 or even 25 years. This means that although you may be paying less each month, you’ll also be paying more in interest over the life of your loan.

If, though, you refinance your student loans with a private lender, and you get a better rate, you could choose a term that allows you to pay your loan off more quickly, which should save you in interest. Again, refinancing isn’t right for everyone—especially those who have federal student loans and may wish to take advantage of Public Service Loan Forgiveness, income-driven repayment, Direct Consolidation Loans, and other federal benefits and protections.

Medical Resident Refinance

If it’s time to refinance and you are interested in exploring a private lender, SoFi has created a student loan refinance program that’s specifically for medical residents. Potential borrowers can quickly and easily find their interest rate online and might benefit from low rates and low monthly payments during residency.

Is student debt getting in the way of pursuing a career in medicine? Check out SoFi’s medical resident student loan refinancing. By refinancing, you could save on your student loans, so paying for your M.D. is that much easier.

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.

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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.

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

SoFi 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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