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Agreeing to cosign a loan for someone is a generous thing to do, and risky. Such a noble deed will show up on your credit report, but the impact won’t always be positive. On the one hand, your credit score might improve if the primary borrower executes timely payments. On the other hand, if the primary borrower reneges on their financial responsibility, your credit score could take a huge hit.

But there’s more to it than that, so let’s examine what you should consider before cosigning a loan, whether for a friend, family member, or business associate.

What Does It Mean to Cosign a Loan for Someone?

Cosigning a loan means that you agree to be responsible for the debt if the borrower does not or cannot repay the loan. You are not the primary borrower, but you could become the primary payer. You can cosign any type of loan — a personal loan, auto loan, mortgage, home improvement loan, or student loan. You can also cosign a lease or make someone an authorized user of your own credit card, which may have a similar effect on your own financial situation.

Why Would a Loan Need a Cosigner?

Typically, a loan requires a cosigner if the primary borrower cannot qualify to borrow the funds on their own. The reason could be that their credit score is too low, they haven’t built up a credit history, or they don’t have a sufficient or steady income. If any of these apply, a lender will consider them to be at high risk of default and choose not to qualify them for a loan.

How Does Being a Cosigner Affect My Credit Score?

Although you are not the primary borrower when you cosign a loan, your credit score could be impacted. Depending on how good a job the primary borrower does at tracking their money, budgeting, and making payments, cosigning a loan could either boost your score or damage it. Therefore, it’s important to understand how cosigning will affect it.

Risks of Cosigning a Loan

There are serious financial and personal consequences to cosigning on a loan. The biggest risk: Cosigners assume legal responsibility for the debt. If the primary borrower defaults, the cosigner may have to pay the full amount of what’s owed.

If you cosign a loan, it will impact your debt-to-income (DTI) ratio, which is an important factor lenders consider if you apply for a loan. Your ratio may go up if you cosign a loan, making you appear more risky as a borrower, and limiting your ability to obtain credit in the future.
Cosigning may also impact your credit utilization ratio (how much of an allowed line of credit you have used), which is an important factor in computing your credit score.

But there are other potential impacts:

•  If a lender conducts a hard inquiry (a type of credit check) on your credit report as part of the loan application process, this may cause a temporary drop in your score, particularly if you apply for other loans or credit cards within a short period.

•  If a payment is over 30 days past due, the creditor might report the late payment to the credit bureaus, lowering your credit score.

•  If a cosigned vehicle is repossessed, your credit may suffer even if you do not use the vehicle.

•  If the account is sent to collections, your credit score will drop.
The relationship you have with the primary borrower also could be damaged if they fail to meet their end of the deal.

The relationship you have with the primary borrower also could be damaged if they fail to meet their end of the deal.

When Cosigning May Improve Your Credit

Your payment history, credit utilization ratio, and credit mix are three factors used to calculate your credit score, and these could all be impacted when you cosign a loan. Cosigning can positively affect your credit score when a primary borrower makes timely payments and pays back the loan according to the terms.

•   On-time payments by the primary borrower can have a positive impact on your credit score because they add to your payment history.

•   If the loan is paid off according to the terms, this can show that you use credit responsibly.

•   The new debt may add to your credit mix. Successfully managing a mix of debt, such as credit cards and installment loans, can boost your credit score. Maybe you don’t have an installment loan. If you cosign on a well-managed installment loan, such as an auto loan, it indicates to lenders that you are a responsible borrower.

Recommended: Why Did My Credit Score Drop After a Dispute?

Pros and Cons of Cosigning a Loan

The pros and cons of cosigning a loan depend on the situation.

When Should I Become a Cosigner on a Loan?

The decision to become a cosigner on a loan is a personal one, and it depends on the circumstances of everyone involved. You might want to cosign a loan to help someone achieve their financial goals. Perhaps your son or daughter needs you to cosign on a loan for a car, or someone you want to help needs you to cosign on a personal loan to start a business. It’s up to you to understand the risks involved and to assess the borrower’s ability to honor the payments.

Does being a cosigner show up on your credit report? Yes. So it is not a decision to be taken lightly. Before you agree to cosign on someone else’s loan, it would be wise to check your own credit score to make sure it is healthy. If you decide to cosign, implementing a free credit score monitoring app can help you track the impact on your score.

What Are the Responsibilities of a Cosigner?

The cosigner on a loan is legally bound to pay the debt if the primary borrower defaults. The cosigner is just as responsible for the loan as the primary borrower, even though they may not directly benefit from the loan. This is the case even if the primary borrower files for bankruptcy. If you used assets as collateral to help the primary borrower secure the loan, the lender can sell them to recoup the debt.

It is the cosigner’s responsibility to discuss with the primary borrower their ability to manage their budgeting and spending, pay back the loan in a timely manner, and plan what to do if they find themselves unable to meet their financial obligations.

The Difference Between an Authorized User and a Cosigner

Authorized user is a designation used for credit cards. Cosigners aren’t typically accepted for credit cards. Instead, a person can be designated as an authorized user of another person’s credit card. The credit card owner is the person responsible for the debt, and they give permission for the authorized user to also receive a card and use the account.

Here are the main differences between a cosigner and a credit card-authorized user.

What to Consider Before Cosigning a Loan

You will have your own reasons for cosigning a loan. However, here are some things you might want to consider before you take on the risk of another person’s debt.

The Consequences for You

Consider the consequences for your credit score and ability to borrow in the future. If your debt-to-income ratio goes up, your ability to get financing may be reduced.

If you have to assume the payments, creditors can sue you and garnish your wages or bank accounts to collect the outstanding debt. Your credit score updates periodically but the negative impact can persist for up to seven years.

Your Relationship with the Primary Borrower

If the primary borrower benefiting from your generosity manages the payments responsibly, it could strengthen your relationship with that person, However, the opposite could happen if they do not manage the debt well.

How to Monitor the Loan

If you do go ahead and cosign the loan, it’s a good idea to monitor whether the primary borrow is making the payments on time. You might be able to intervene if a problem occurs before the debt is sent to a collection agency. The Federal Trade Commission (FTC) recommends asking the lender or creditor to notify you if the borrower falls behind on their debt. You’ll also want to add the loan to your own personal debt summary so you remember to keep track of it as time passes.

Recommended: How to Check Your Credit Score Without Paying

The Takeaway

Cosigning on a loan can be a way to help another person access credit. However, cosigning a loan can also ruin a relationship and your finances if the primary borrower fails to hold up their end of the bargain.

Before cosigning on a loan, understand what the consequences could be for your credit standing, financial situation, and your relationship. If you decide to go ahead, be clear about the expectations and get an agreement in writing. An agreement won’t absolve you of the responsibility to pay the debt, but it might help in getting the primary borrower to pay you back at a later date when they may be in a better financial situation.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Will my credit score go up if I have a cosigner?

Your credit score could go up if you have a cosigner, because if you are approved for a loan with a cosigner and you make timely payments, it will add positively to your credit history, which will also favorably impact your credit score. Having that cosigned loan could also improve your credit mix, another plus where your credit score is concerned.

Is cosigning bad for your credit?

It can be. If the primary borrower does not make payments on time or if they default on the loan, it will negatively affect your credit. It could also be bad for your credit if your credit utilization ratio increases. However, cosigning for a loan could also be good for your credit if payments are made on time and/or your credit mix improves.

Who gets the credit on a cosigned loan?

Both the primary borrower and cosigner are impacted by the cosigned loan. A cosigned loan typically appears on both credit reports, and the cosigner is responsible for paying back the loan if the primary borrower fails to do so.

Photo Credit: iStock/flzkes
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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

SORL-Q324-026

When you stop making payments on a loan or credit card, the creditor may eventually close the account and label it a charge-off, which can stay on your credit report for up to seven years. This can be extremely damaging to your credit report and doesn’t get you off the hook for repaying what you owe. Your debt may still be handed over to a collection agency.

Here’s what you need to know about how long a charge-off stays on your credit report and other financial implications.

What Is a Charge-Off?

A charge-off is a type of credit account closure that happens when the lender has no expectation of receiving payment. The creditor writes off the loan or credit line as a loss. Once you’re past 120 to 180 days delinquent on your account, a lender may write off your account.

But this doesn’t mean your legal responsibility as a borrower is over. The account can still be transferred or sold to a collection agency, which can take over the collection process. They can even initiate a lawsuit to recover the outstanding balance, along with fees.

How Much Does a Charge-Off Affect Your Credit Score?

A charge-off can have a considerable negative impact on your credit score. One reason why: Your payment history, meaning making timely payments, is the single biggest contributor to your credit score at 35%.

What’s more, the charge-off may be listed twice on your credit report, causing double damage. Your original charged off account with the creditor will be listed, and then it may show up as a separate account with a collection agency.

On top of that, all of the late or missed payments leading up to the charge-off could show up separately. So if you missed six loan payments before the account was closed, each could ding your score. And, as noted, since payment history is one of the most important factors affecting your credit score, this can hurt your score significantly.

It’s hard to put an exact figure on the toll this can take on your credit score. Some estimates say it could negatively impact your score by up to 100 points or possibly more, depending on the particulars.

If you end up paying the charge-off, either to the lender or a debt collector, that will show up on your credit report and could help improve your score compared to leaving the account unpaid.

How to Remove a Charge-Off

There are two reasons a charge-off will be removed from your credit report: Either the information is inaccurate, or it comes from a fraudulent account. Here’s how to handle removing a charge-off from your credit report:

•   If you see a credit score update that shows an incorrect charge-off, you can file a dispute directly with the credit bureau. They’re required to investigate and respond within 30 days, but you’ll have a better chance of success if you submit documentation to support your case.

୆   There’s usually no risk of lowering your credit score because of a dispute. The process itself should not decrease your score. However, if information comes to light that has a negative impact (such as your credit limit being lower than it was believed to be), then it might knock your score down somewhat.

If the charge-off seems like it’s from a fraudulent account due to identity theft, there are a few steps you should take:

•   First, consider freezing your credit and adding a fraud alert to your credit report to prevent more damage. Then report the event to the Federal Trade Commission and your local police; after all, financial fraud is a crime.

•   After that is complete, you can submit any relevant paperwork to the credit bureau to initiate the dispute and get the fraudulent charge-off removed.

When Removing a Charge-Off Isn’t Possible

It’s not possible to remove a charge-off if it’s accurate. You can contact your lender to get more information about the account, including how to bring it to good standing if possible. If the account has been sold to a debt collection agency, you may want to contact them and work out a payment plan to avoid legal issues.

But even though the entry stays there for up to seven years, your credit score will begin to improve before then, which you can track with a credit score monitoring service.

How to Rebuild Your Credit Rating

It can take time to build credit when dealing with a charge-off. But you can start taking simple steps to improve your credit score.

•   First, consider addressing the debt you owe, even if it has gone to collections. Even though the original account is considered a charge-off, you could face legal repercussions if you don’t work out a repayment plan with the collection agency. You may be able to negotiate with the creditor.

•   How long a charge-off stays on your credit report after it’s repaid can still be seven years. You can’t usually alter or remove the fact that this occurred. However, you’ll likely have an easier time building your credit score and avoiding a potential lawsuit if you pay it off.

The next step for how to build credit is to stay or get up-to-date on any other credit accounts. Some tips:

•   Reduce your spending by using a money tracker app or other budgeting tool, and prioritize debt payments to ensure additional late payments aren’t added to your credit report.

•   Plus, lowering your credit card utilization is another major contributor to a better credit score. The debt utilization category in general accounts for 30% of your score. The lower your amount of debt compared to your available credit, the more positive impact you may see when you go to check your credit score.

These steps can have a positive impact on your credit score after a charge-off or other negative event.

Recommended: How to Check Your Credit Score for Free

Does Removing a Charge-Off Improve Your Credit Score?

Your credit score should improve once a charge-off falls off your credit report after seven years pass or is removed because it’s either inaccurate or fraudulent.

But even before the seven-year period ends, you should be able to build your score over time by handling your debt responsibly, such as making on-time payments and keeping your credit utilization ratio to no more than 30% (preferably no more than 10%).

Do Charge-Offs Go Away After 7 Years?

Yes, a charge-off stays on your credit report only for seven years. The good news is that typically the start date is the first missed payment associated with the account, not the date the account is actually charged off. In other words, if your payment is reported past due on January 1st but it isn’t charged off for a few months (often 90 to 180 days), the seven years on your credit report would likely begin with the January 1st date.

However, the debt itself goes away at a certain point, based on the type of debt and statute of limitations in your state. Typically, a debt is deemed uncollectible after about three to six years, though the time frame could extend longer. Also, a collections agency may not be able to pursue legal action once the state’s statute of limitations is up, but they may still contact you to try and get payment.

What If the Charge-Off Is Inaccurate?

If the charge-off listed on your credit report is inaccurate, you should file a dispute with the credit bureau. Here’s how the process works.

•   Identify the specific incorrect item on your credit report.

•   Explain why you think the charge-off is incorrect.

•   Include copies of any supporting documentation.

A dispute can be submitted online or via mail. The Federal Trade Commission recommends disputing the charge-off with each credit bureau that has incorrect information.

Recommended: Budgeting App to Spend and Save Smarter

The Takeaway

A charge-off typically stays on your credit report for up to seven years, and it can have a significant negative impact on your credit score. If a charge-off is inaccurate, it’s usually a smart move to work on having it removed from your credit history. If it’s accurate, it’s wise to work on remedying the debt and taking other steps to rebuild your credit.

Tracking your credit score and your money can help improve your long-term financial health.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How many points does a charge-off drop credit score?

A charge-off can cause a significant drop in your credit score, but the exact number depends on your personal credit profile. For instance, the number of late payments leading up to the charge-off will affect how many points your score decreases in total.

Does your credit score go up after charge-off?

Your score will eventually begin to rebound after an account is listed as a charge-off if you use credit responsibly. You may see a faster jump if you pay the debt owed on a charged off account instead of leaving it unpaid (and potentially taken over by a debt collection agency).

Is a charge-off worse than a collection?

It’s not straightforward to compare the two because a charge-off can still be in collection if the account is sold to a debt buyer. A charge-off may be worse because the debt can be listed twice: once from the original lender and once from the debt collection agency.

Photo Credit: iStock/nortonrsx
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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

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

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

SORL-Q324-027

Between 2000 and 2021, the average published tuition and fees increased from the following amounts, after adjusting for inflation, according to Best Colleges:

•   $2,146 to $3,564 at public two-year schools

•   $5,638 to $9,596 at public four-year schools

•   $25,468 to $37,222 at private nonprofit four-year institutions

This article will cover the average cost of college tuition and fees in 2024, the increase in college tuition costs, the reasons for the rise of average college tuition, and college tuition options you may want to consider for yourself.

Average Cost of College in 2023-24

In 2023-24, the average published price for tuition and fees for full-time undergraduate students were as follows, according to the College Board’s Trends in College Pricing and Student Aid:

•   $11,260 for public four-year in-state institutions, $270 higher than in 2022-2023

•   $29,150 for public four-year out-of-state institutions, $850 higher than in 2022-2023

•   $3,990 for public two-year in-district institutions (including average community college tuition), $100 higher than in 2022-2023

•   $41,540 for private nonprofit four-year institutions, $1,600 higher than in 2022-2023

Recommended: Average Cost of College Tuition

Increase in College Tuition Cost Over the Last 10 Years

Generally speaking, tuition has increased in the past decade. According to data from the College Board, the average published tuition price at a four-year nonprofit university during the 2013-2014 school year was $30,094, while in 2023-2024 that number jumped to $41,540.

Reasons for the Rise of Average College Tuition

The rise of college tuition over the past few decades can be attributed to several key factors, including:

Reduced State Funding

One of the primary reasons for rising tuition costs, especially at public institutions, is the decline in state funding for higher education. As states allocate less money to colleges and universities, these institutions often compensate by increasing tuition to cover budget shortfalls.

Increased Administrative Costs

Colleges have expanded administrative staff and services, including student support, campus amenities, and compliance with federal regulations. This growth in administrative functions adds to overall expenses, which are often passed on to students in the form of higher tuition.

Expansion of Campus Facilities

Many colleges invest in new buildings, state-of-the-art facilities, and upgraded dormitories to attract prospective students and remain competitive. These capital expenditures are expensive and often lead to increased tuition to help finance the construction and maintenance of these facilities.

Rising Faculty Salaries and Benefits

The cost of faculty salaries and benefits, including health care and retirement plans, has risen steadily. As colleges strive to attract and retain top talent, these increased personnel costs contribute to higher tuition.

Student Demand for More Services

There is a growing demand from students for more comprehensive services, such as mental health counseling, career advising, and extracurricular activities. Providing these additional services requires funding, which often results in tuition hikes to cover these enhanced offerings.

Together, these factors create a complex landscape where college tuition continues to rise, making affordability a significant concern for many students and families.

Recommended: How to Pay for College

Total Cost of College Over Time

While the cost of tuition has increased over the years, the prices of room and board, books, school supplies, and other necessities have also risen. The cost of room and board has almost doubled since the 1960s, going from $6,700 to more than $12,000, according to Best Colleges.

On Campus vs. Off Campus

How much you spend on college will vary depending on whether you live at home, on campus, or off campus. The College Board found that the cost of living on campus has increased slightly faster than the cost of living off campus, such as in an apartment or house with friends.

Total Cost of College Over Time by School Type

Of course, the type of school you attend (public or private) will also affect the total cost of attendance. Over the last nearly 60 years, the average cost across all institutions has increased 135%. It increased the most at private institutions at 187% and the least at two-year colleges, at 69%.

College Financing Options

Numerous college financing options exist for students. Students can tap into various options to pay for costs. Undergraduate students received an average of $15,480 of financial aid 2022-2023, according to the College Board’s Trends in College Pricing and Student Aid.

Students may rely on scholarships, grants, work-study, and student loans, in addition to personal savings to pay for their education.

Scholarships

Scholarships refer to money received from colleges or other organizations that students don’t have to pay back. Only about 7% of students receive scholarships, with the average student who receives one getting $14,890 annually at a four-year institution.

Student Loans

Students can take advantage of federal or private loans. Federal loans are provided by the U.S. Department of Education. To apply for a federal student loan, students need to fill out the Free Application for Federal Student Aid (FAFSA®) each year.

Private student loans are provided by banks, credit unions, and other financial institutions. These are separate from any sort of federal aid, and as a result, lack the protections afforded to federal student loans — like income-driven repayment options or the ability to apply for Public Service Loan Forgiveness. For this reason, private student loans are generally considered by students only after they have reviewed and exhausted all other options for financing.

Recommended: How to Complete the FAFSA Step by Step

Grants

Students can tap into federal, state, or institutional grants. Grants can also come from employers or private sources. Like scholarships, grants typically do not need to be repaid. They are mostly awarded based on financial need, and students will generally need to complete the FAFSA to qualify for them.

Work-Study

Students can get a work-study award, which is money they must earn when they attend college. They must file the FAFSA in order to qualify for work-study and must work a job on campus to receive the money.

Personal Savings

According to Sallie Mae’s annual How America Pays for College 2024 report, 37% of students receive help from their parents to pay for college, and 11% use their own income and savings. Strategies for parents paying for college include things like setting up an account designed to help parents save for college or other educational expenses, putting work bonuses or tax refunds into savings, and setting aside funds each month to put toward college.

The Takeaway

The average college tuition continues to increase. In 2000, the college tuition at a private four-year institution was $15,470, and now in 2024 it’s $38,421. There are a number of reasons for increasing tuition rates, including factors like a decrease in state funding, lack of regulation, and an increase in operating costs at colleges and universities.

Many students rely on financial aid to pay for college. Financial aid includes federal student loans, certain grants and scholarships, and work-study programs.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

How much has college tuition increased since 2000?

Since 2000, college tuition has significantly increased, jumping about 65% between 2000 and 2021. This surge reflects growing education costs, which have outpaced inflation and wage growth, making higher education increasingly expensive and contributing to the student loan debt crisis faced by many graduates.

How much has the total cost of college increased over the last decade?

Over the last decade, the total cost of college, including tuition, fees, room, and board, has increased by about 10% at public institutions and around 19% at private institutions. This rise reflects growing expenses in education and living costs, making college significantly more expensive for students and families.

How much has college tuition increased in 2024?

In 2024, college tuition increased by 1.6% over the last 12 months. However, this number will vary depending on the institution and whether it is public or private. These increases are consistent with the ongoing trend of rising education costs, impacting students’ financial planning and contributing to higher student loan borrowing.

Photo credit: iStock/MicroStockHub

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.

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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.

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.

SOISL-Q324-056

A student loan promissory note is a legally binding contract that explains the terms of the loan and your rights and responsibilities for repaying the debt. It lays out important details you’ll need to know (both during school and after you graduate), including how you can spend the proceeds of the loan, when interest starts accruing, along with your deferment and repayment options.

If you’re a student loan borrower, it’s essential to understand what’s in your promissory note. Here, we walk you through the most common types of promissory notes for students.

What Is a Student Loan Promissory Note?

Put simply, a student promissory note is your student loan contract. It details the terms and conditions of that loan, including what you owe; how interest is calculated and charged; available repayment plans; and any late fees or other charges you may have to pay. Both federal and private student loans typically require that you sign a promissory note.

If you’re close to graduation (or recently graduated) and have any questions about repaying your student loans, your student loan promissory note is the best place to look. You’ll also want to review your promissory note if you are thinking about refinancing your student loans.

What Is a Master Promissory Note?

A Master Promissory Note (MPN) is a legal document that contains the terms and conditions for federal student loans. When you sign an MPN, you are promising to repay your loan(s) and any accrued interest and fees to the U.S. Department of Education.

Borrowers with federal student loans can typically sign just one MPN that covers multiple years of borrowing, rather than signing a new MPN each year. This means you are accepting the amount of each year’s new loans under the terms of the existing MPN.

There are two types of MPNs:

•   Direct Subsidized/Unsubsidized Loan MPN: A student borrower must complete and sign this MPN before a school can make the first disbursement of a Direct Subsidized or Direct Unsubsidized Loan.

•   Direct PLUS Loan MPN: A graduate/professional student borrower or parent borrower must complete and sign this MPN before a school can make the first disbursement of a Direct PLUS Loan.

What to Look for on a Student Loan Promissory Note

A promissory note will provide you with a wealth of information about your student loan (or loans). Here’s a closer look at what you’ll find in a promissory note.

Federal vs Private Student Loan Promissory Note

For federal student loans, you may sign a Master Promissory Note that allows you to borrow more than one loan during a period of up to 10 years. Private student loan lenders, by contrast, typically require that you sign a new promissory note for each new loan borrowed. This typically means you’ll sign a new promissory note each year you’re in school. It’s important to review this contract carefully each time, since terms and conditions may have changed.

All MPNs follow the same basic form, while promissory notes for private lenders can vary. Another key difference between federal and private student promissory notes: A promissory note for a private loan will list your interest rate, while an MPN will not. This is because an MPN may cover multiple years and federal student loan interest rates change annually.

Recommended: Private Student Loans vs Federal Student Loans

Repayment Options

Federal loans come with several options to help you manage your debt post-graduation, such as income-driven repayment plans and forgiveness programs. These options are all outlined in your MPN. You’ll want to take time to review them, especially as you enter the repayment phase of your borrowing journey.

Your private student loan promissory note will also outline your repayment options and any borrower benefits you have access to (such as reduced-payment plans or forbearance). Before signing the contract, you’ll want to review the repayment details and make sure everything you have discussed with your lender is reflected in the promissory note.

Deferment Options

Student loan deferment lets you postpone payments on your student loans for a certain period of time. You won’t have to pay your student loan bills during a deferment, but interest might accrue during this time, depending on your loan type.

Federal loans offer deferment during a number of different situations, including being enrolled in school at least half-time (and for six months after you graduate), being unemployed, economic hardship, and active military service.

Like federal student loans, private student loans are typically placed into deferment while you’re enrolled at least half-time in school, and you may also have a six-month grace period after you graduate before you need to start making payments. Interest will generally accrue on private student loans during a period of deferment. Private loans may also offer other deferment options, but every lender is different, so you’ll need to check your promissory note.

Recommended: Student Loan Payback Calculator

Interest Rate: Fixed vs Variable

Interest rates on student loans can be fixed or variable. With a fixed-rate loan, your interest rate will remain the same for the life of the loan. With a variable-rate loan, the interest rate on the loan fluctuates based on a market benchmark or index rate.

Federal student loans have fixed interest rates, which are set each year by federal law. The exact interest rate on your loan will not be listed in your MPN. To view current interest rates for federal student loans as well as previous years’ interest rates, visit the U.S. Department of Education’s website.

Private student loans may give you a choice of fixed or variable rates. Your rate and whether it’s fixed or variable will be listed in your loan’s promissory note. If the rate is variable, it may start off lower than a fixed-rate option, but could rise over time leading to higher payments.

Student Loan Fees

Your promissory note will also detail any additional costs, such as any student loan fees. For example, federal student loans and some private student loans charge an origination fee, which is a percentage of your loan amount. This fee is typically taken from the loan before it is dispersed, which means you receive less than the full loan amount you accepted. Since the origination fee is included in the principal, you will also pay interest on it (even though you did not receive those funds).

Other student loan fees you may see listed on a promissory note include: application fees, late payment fees, and collection agency fees (in the event you default on your loan and it goes to collections).

Federal student loan fees are set by law. Private student loan fees will vary by lender, so be sure to check your promissory note to understand the fee structure for your loan.

Prepayment Penalties

Prepayment penalties are fees for paying off a loan early and are designed to help lenders make money by recouping lost interest charges. Fortunately, neither federal nor private student loans have prepayment penalties. Because of this, you can typically save money on interest by paying your student loan off early.

Recommended: Student Loan Refinancing Calculator

Cosigner Requirements and Removal

Some lenders require a cosigner for student loans. This is someone, typically a parent or guardian, who has good credit and agrees to repay the loan if the student is unable to. The cosigner is equally responsible for the loan.

Federal student loans generally do not require a cosigner (or credit check). The only exception is a Direct PLUS loan, which may require an endorser (which is essentially a cosigner) if the borrower has an adverse credit history.

Private student loans, by contrast, typically do require a cosigner, since students often lack the income and credit history to qualify for a loan on their own. Your promissory note will indicate if your loan has a cosigner. It will also state whether you can eventually remove your cosigner from the loan and, if so, what the requirements for a cosigner release are (such as making a certain number of on-time payments on the loan).

How Funds Can Be Allocated

Your promissory note will stipulate what you can spend the proceeds of your student loan on. Whether you have federal or private student loans, this typically includes: tuition, fees, books/supplies, room and board, transportation, and some personal expenses. It generally does not include off-campus dining, entertainment, and non-school services.

If you have money left over after your school uses your loan to cover tuition, room and board, and fees, you’ll want to refer to your promissory note to see what else you can spend the money on.

When Is the Promissory Note Signed?

In general, borrowers will need to sign the promissory note for their loans before receiving any funds. Students who are borrowing federal student loans are able to sign their master promissory note online by logging into their federal student loan account. Typically, you’ll need to sign only one MPN for multiple subsidized and unsubsidized loans, and it will be good for up to 10 years of continuous education.

A private student loan lender may allow you to sign a promissory note online, or you may need to print it out, sign, and send it via regular mail.

What if a Promissory Note Is Not Signed?

For federal loans, a signed promissory note is required before the loan is disbursed. So, failing to sign the promissory note could mean you won’t receive your funds, or at least won’t receive them until the promissory note is signed.

A signed promissory note is also generally required for disbursement of a private student loan, though each lender may have their own requirements.

Do You Need a New Promissory Note Every Year?

Private lenders typically require students to sign promissory notes for each loan taken out, which means you may sign a new promissory note every year. Generally, federal student loan borrowers can sign a one-time Master Promissory Note that is good for up to 10 years of continuous education.

Do Your Parents Need to Sign?

If you are borrowing a private student loan and a parent is acting as your cosigner, they will likely need to sign the promissory note.

If you’re taking out a federal student loan for your undergraduate education, you are the only borrower and your parents do not need to sign your MPN.

If a parent is borrowing a Direct PLUS Loan to help pay for your college education, however, they will need to sign an MPN. As with a student MPN, a parent needs to sign only a single MPN once every 10 years. The government can provide multiple loans based on one parent MPN.

How Long Does the Master Promissory Note Process Take?

According to the Department of Education, most people complete their Master Promissory Note online in less than 30 minutes. When you log into your account to fill out your MPN, keep in mind that the entire process must be completed in a single session, since you cannot save your progress.

The Takeaway

A student loan promissory note is a legally binding document in which the borrower agrees to repay the loan and any accrued interest and fees. The document also explains the terms and conditions of the loan, including fees, deferment options, and repayment plans. Federal student loan borrowers may be able to sign just one Master Promissory Note, which will cover all federal loans for a period of up to 10 years. Private lenders generally require a promissory note for each individual loan.

Understanding the terms and conditions laid out in your student promissory note will help you know what to expect when borrowing and ultimately repaying your student loans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Do you have to do a master promissory note every year?

No, you do not have to sign a Master Promissory Note (MPN) every year for federal student loans. Once signed, it’s typically valid for up to 10 years and allows you to borrow multiple loans under that same MPN. MPNs are also not school-specific so you can typically use the same MPN even if you transfer colleges.

How do you get your student promissory note?

For federal loans, you can complete your Master Promissory Note on the Federal student aid website. It takes about 30 minutes to fill out and two to three business days to process. You will then be able to access (and download) your student promissory note by logging into your account.

For private loans, you may be able to sign your promissory note online or you may need to print it out, sign it, and mail it to the lender. You’ll receive a copy of your promissory note along with your other loan materials.

How long does it take for a master promissory note to process?

Once you submit the Master Promissory Note (MPN) online, it usually takes about two to three business days for processing. This time frame allows for the U.S. Department of Education to verify your information and communicate with your school regarding the loan. After your MPN is processed, your school will credit the loan funds to your account, and you can check your loan status on the Federal Student Aid website.

How do I get a copy of the promissory note for my student loan?

You can get a copy of your signed Master Promissory Note (MPN) for federal student loans by logging into your account on StudentAid.gov using your FSA ID. Navigate to your loan documents to find the MPN. You can then view, download, or print a copy for your personal records.

With a private student loan, your lender will typically provide you with a copy of the promissory note, along with several other documents, when they finalize the loan. If you can’t locate a copy, you can reach out to your lender and ask them to send you one.

Do I have to pay my student loans if I drop out of college?

Yes, even if you drop out of college, you’re still required to repay your student loans. Once you’re no longer enrolled in school at least half-time, student loans typically enter a grace period, which is often six months. After that, repayment begins. Dropping out does not eliminate your obligation to repay the debt, and failure to make payments could lead to loan default.

Federal loans do offer some borrower protections, however. Options like deferment, forbearance, or income-driven repayment plans may help if you experience difficulty repaying your loans after leaving school. Some private lenders also offer assistance for borrowers who hit challenging times.

Will a student loan affect my credit score?

Yes, student loans directly affect your credit score. Once you take out a student loan, it becomes part of your credit report and, like other types of loans, can impact your payment history, length of your credit history, and credit mix. Making timely payments can help you build a positive credit history. However, missed or late payments can negatively affect your credit and score.

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No matter how well you plan and budget for an overseas trip, you may still end up with some extra foreign cash at the end of your vacation. And since you can’t spend that currency back home in the United States, you’ll need to come up with an alternative plan for all those foreign coins and bills now burning a hole in your pocket.

Sure, those bills may be pretty (have you seen the Australian dollar?), but it won’t do you any good hanging as art on the wall. And you don’t want to miss out on having that money to save or spend at home.

Instead of letting it go to waste, here are a few things you might do with that leftover foreign change once your trip is done and your regular life sets in again.

What to Do with Extra Foreign Currency

Using It to Pay Part of Your Hotel Bill on Vacation

There’s nothing quite so annoying as arriving at your gate with five minutes until boarding, only to realize you’ve still got about $80 worth of Moroccan dirham or Turkish lira left in your wallet.

One way to avoid this scenario is to try and use your foreign cash to cover costs while you’re still abroad. A helpful tip is to switch to cash spending near the end of your trip. Then, if you have leftover currency on your last day, see if you can use it to cover some of your hotel bill. Sometimes hotels will let you split your bill up, so that you can pay some of it in cash and put the rest on a credit card. Just be sure to leave some currency in your wallet for your cab ride to the airport and tips.

Shopping Duty Free

If you have a fair chunk of foreign currency leftover, consider making a stop at the Duty Free stores upon departure. This can be a good strategy if you are buying something you’d use ordinarily, like your favorite perfume or liquor, or if you’re still looking to buy a souvenir from the destination.

However, some countries, especially those that are sensitive to inflation, don’t accept foreign currency (except for euros and dollars) at Duty Free, so double-check that your change is eligible before you show up at the register with a cart full of goods.

Recommended: 27 Tips for Finding the Top Travel Deals

Donating to Charity

Thanks to UNICEF’s Change For Good initiative , you may not have to exchange a dime. This program involves a partnership with several international airlines to help passengers donate their excess change.

On these flights, passengers receive envelopes in which they can donate their leftover foreign currency. If you’re not flying with a partner airline and still want to donate, you can mail your change to the organization.

Some airports have similar initiatives and programs that raise money for different charities around the world — all you need to do is find the box or envelope and stuff it full of your extra change. It’s a great way to do good and not let that spare money go to waste.

Exchanging It

Although exchanging physical money comes with a fee, this can be one way to recoup your cash if you aren’t planning on visiting the country again anytime soon.

In a pinch, you can exchange foreign currency at the airport (abroad or at home), but you likely won’t get the best exchange rate. A better option is to visit your U.S. bank to see if they will exchange your foreign cash (or, if possible, deposit it directly into your account). Banks typically offer better rates than the exchange kiosks you find in airports.

If you used a currency exchange service to exchange your U.S dollars into a foreign currency, see if they offer a “buyback” program. Some services allow you to sell back your unused foreign currency for a better rate or lower fees than you can get elsewhere.

Recommended: Ways to Be a Frugal Traveler

Saving It for Another Time

If you know you’ll be visiting again, why not store your extra foreign currency with your passport? Not only will you be able to keep the money, but you’ll save yourself a trip to the ATM upon arrival at your destination.

This can be one of the easiest solutions to the “what to do with leftover foreign coins” problem. And it might encourage you to start planning your return visit and growing your travel fund.

Gifting It

If you’re wondering what to do with foreign coins, know that they can be a fun gift to a child or currency collector in your life. It can be an opportunity to teach kids about both the world at large and about money. Bonus points if they are from a country with a cool design on their currency — like the Egyptian pound with pharaoh Tutankhamun.

Any leftover foreign coins or bills can also be a thoughtful gift for friends or family members who are traveling to the same spot. This can make an especially nice wedding gift for friends heading out on a honeymoon.

Recommended: Can You Use Your Credit Card Internationally?

The Takeaway

If you wind up with excess foreign currency at the end of a trip, you have a few options. You might save it for later, donate it to a charity, exchange it, or gift it to a friend. Depending on how much money you have, when (if at all) you plan on returning to your destination, and how much you’re willing to pay in fees, there’s an option that will likely be the right choice for you.

FAQ

Where can I donate leftover foreign currency?

UNICEF’s Change for Good program accepts donations on a number of international airlines. Leftover change may also be mailed to this program. You may also see other opportunities to donate currency at airports, benefiting various charities, as well.

Can I exchange my foreign currency at a bank?

If you’re looking to exchange foreign coins and bills, it’s worth visiting or calling your bank. Many banks offer to exchange currency for their clients. However, some will only do so for a limited number of currencies. A fee is usually involved, but it is likely to be lower than what you will pay at an airport currency exchange kiosk.

What is the meaning of leftover currency?

Leftover currency is typically foreign money that you have at the end of a trip. Before or after you return home, you can exchange it to U.S. dollars. Other options include saving it for a future trip, donating it, or gifting it.

Is leftover currency legitimate?

Leftover currency is legal tender in the country you have traveled to, but when you return home, it will not be usable. Therefore, it may be wise to exchange it or donate it.

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