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Geography matters. Where you live can have an impact on your income, expenses, and overall household budget. By extension, this can affect how much you have to put toward your student loans every month—and how quickly you’re able to pay them off.

Many Americans move around a lot, with the average person changing homes more than 11 times over his or her lifetime. Perhaps you’re contemplating a move to find a new job, be closer to family, pursue graduate school, or find a more affordable locale. When doing your research, it’s worth exploring which states boast conditions that may help you pay off your loans.

A state that lets you keep more of what you make is also likely to leave you with more funds to put toward your student loans.

A state that lets you keep more of what you make (e.g., low income or sales taxes) is also likely to leave you with more funds to put toward your student loans.

If you use extra disposable income to accelerate your student loan payments, as opposed to extra shopping or travel, your loans have a better chance of disappearing more quickly.

Other factors can also speed up loan repayment— increasing your payments, or shortening your term by refinancing your student loans—but living in a state that offers opportunities to increase your income or reduce your bills can be a boon.

Here are some of the top states to live in that may make it easier to pay off student loans quickly, based on the perks they offer. Even if you’re not moving anytime soon, it’s worth knowing how your state stacks up.

No or Low-Income Taxes

Every working American has to pay federal income taxes. But not having to pay anything, or much, in state income taxes can go a long way toward leaving you with more cash to pay your loans off with.

Seven states don’t make you pay any income tax at all. As of 2019, these states are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee come close: You only pay state income taxes on income from dividends and investments—not wages. In contrast, the highest personal income tax state is California, which charges 12.3%.

No Sales Tax

Even if you save on income taxes in certain states, you could end up paying more at the register through sales taxes . Five states don’t charge any sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. (Alaska and Montana do allow local—rather than state-level—sales taxes).

You may have noticed that Alaska also doesn’t charge income tax, so that’s double the savings in one state. In Colorado, the sales tax is just 2.9% .

Some states charge sales taxes no higher than 5%, which in 2018 included Alabama, Georgia, Hawaii, Louisiana, Missouri, New York, North Carolina, North Dakota, Oklahoma, South Dakota, Wisconsin, and Wyoming. The cash you save on sales tax can add up and help you pay off your student loans.

Lowest Cost of Living

Paying less for daily expenses, such as housing, transportation, food, and utilities, would potentially leave you with more cash for your student loans. According to a CNBC study from 2018 , the 10 states with the lowest cost of living are (starting with the most affordable): Mississippi, Arkansas, Oklahoma, Michigan, Tennessee, Missouri, Kansas, Alabama, Georgia, and Indiana.

The study took into account prices of housing, food, energy, and other goods. In the cheapest state, Mississippi, the average home costs $214,217 and the average doctor’s visit will set you back $87.58. With prices like those, you could have more room in your budget for paying down your student loans.

Highest Incomes

Earning more money is the obvious way to have more funds for student loans. Although incomes obviously vary by profession, level of education, and other factors, some states have higher-than-average salaries.

These states had median household incomes that were far higher than the 2016 national median of $58,552: Washington ($67,106), California ($67,739), Virginia ($68,114), New Hampshire ($70,936), Connecticut ($73,433), Hawaii ($74,511), Massachusetts ($75,297), New Jersey ($76,126), Alaska ($76,440), and Maryland ($78,945). Of course, high incomes can come with a high cost of living, as well.

Best Job Prospects

High median incomes don’t matter much to you if you’re having trouble finding a job in the first place. According to U.S. News & World Report , these are the 10 best states for employment based on a combination of having a low unemployment rate, high labor-force participation, and high job growth: Hawaii, North Dakota, Colorado, Utah, New Hampshire, Nebraska, Minnesota, Iowa, Massachusetts, and Wisconsin. You may notice that a few of those states overlap with with the highest-income rankings, so you could be more likely to find a job there that also pays well.

Best Cost-of-Living-to-Income Ratio

A high income can disappear quickly in a place with high living costs; conversely, a cheap state becomes less affordable if you can only earn a low income there. One way to gauge true affordability is to compare the “real income” in each state by taking the median household income and accounting for cost of living.

When Money Magazine did this, it found that the states with the highest real incomes were: Alaska ($69,465), Maryland ($69,203), New Hampshire ($66,955), Massachusetts ($66,069), Connecticut, ($65,636), North Dakota ($65,609), Minnesota ($65,183), Utah ($64,858), Virginia ($64,646), and the District of Columbia ($64,639). Some of these overlap with the highest-income states, but in others the cost of living makes a big difference in making incomes stretch further.

Another study revealed the cities that offer the best combination of high wages and affordable expenses. The highest-ranking city was Oklahoma City, where the average annual income is $72,385, while the median monthly rent is $1,070, and annual necessities cost an average of $18,701.

The other cities on the list, starting from the highest ranked, are: Kansas City, Missouri; Lexington, Kentucky; Phoenix, Arizona; Durham, North Carolina; Omaha, Nebraska; Bakersfield, California; Tampa, Florida; Dallas, Texas; and Charlotte, North Carolina. Living in states with the best cost-of-living-to-income ratio can help make your dollars go further.

Other Perks

Besides high incomes, affordability, and low taxes, some states offer other perks that can help you pay off your loans more quickly. Alaska pays each eligible resident a fixed amount of cash every year through the Permanent Fund Dividend, created to share revenues from the state’s oil reserves.

The amount was $1,600 per man, woman, or child in 2018 and could be used for anything, including paying off loans. Colorado and Kansas pay up to 4% of your first mortgage if you meet income and credit requirements.

Other states may help you pay off student loans if you enter certain fields. For example, the Washington Student Achievement Council repays up to $75,000 in student loans for health professionals in rural or disadvantaged areas, and New York repays up to $20,400 in loans for eligible residents working as public interest lawyers. The American Bar Association maintains a full list of state-level loan repayment assistance programs (LRAPs) for attorneys.

How Student Loan Refinancing Can Help

If you’re looking to pay off student loans more quickly, you don’t have to move across the country. Refinancing your student loans can also be a great way to potentially reduce your interest rate. When you refinance, you take out a new loan from a private lender, like SoFi, and use it to repay your existing federal or private loans.

The new loan may offer a lower monthly payment or lower interest rate, especially if you have a solid credit and employment history (among other factors). A lower interest rate can help you pay less in interest over the life of the loan.

If you qualify to refinance, you may also have the option to shorten the length of your loan term. This would likely mean higher monthly payments, but if you’re in a financial position to take on a higher monthly payment, that’s another way you could pay off your student loan debt more quickly.

At SoFi, you can apply for pre-qualification online and find out whether you qualify in two minutes. And keep in mind that if you pay off your refinanced student loan early, SoFi has no prepayment penalties.

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.
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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SOSL18193

Almost 20 million students entered the American higher education system this year. And most of them are faced with yearly expenses averaging nearly $26,000 for in-state public colleges and up to double that for private schools.

Tuition, books, supplies, room and board, fees, and transportation can all contribute to the final bill, and seeing that total for the first time can lead to some serious sticker shock. But it doesn’t mean you have to hand over cash in order to enroll. There are a number of ways to help pay for college. But what’s the difference between grants, scholarships, and loans? Here’s what you need to know.
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Student Loans vs Scholarships

The biggest difference between student loans and scholarships is that loans do not reduce the cost of college, they just help you afford it upfront. Eventually, they need to be paid back. Scholarships , on the other hand, are need-based or merit-based awards that actually help make college more affordable because they go directly toward the cost of your education and you don’t need to pay them back. There are quite a few other differences between the two as well.

Getting the Money

If you take out a student loan, the total amount is divvied up by semester or year and that amount is typically disbursed to your school to cover your tuition.

The remaining money is often disbursed to you directly so you can cover costs like housing off campus, food, and school supplies.

Scholarships, on the other hand, are often paid straight from the college, or straight to the college in the case of third-party awards. Your scholarship money may go directly to your tuition or other school fees, or it may be sent to you directly (depending on the scholarship).

Restrictions and Qualifications

Both scholarships and student loans come with strings attached. Scholarships, whether merit-based or need-based, can come with GPA requirements or other academic qualifications. You can win scholarships from either the government, your school, or one of a large number of private organizations. (Here’s a giant scholarship database to aid your search.)

Even if you earn a scholarship that’s more lenient, it’s not the green light for a free for all. How you spend your scholarship money could affect everything from your taxes to your loan eligibility (definitely talk to a tax professional if you have any questions about that), so it’s important to ensure that scholarships are spent only on tuition or other school-related expenses.

Whether the student or the parents apply for federal loans, the process starts with a FAFSA® (Free Application for Federal Student Aid). Even if you don’t think you’ll qualify for a student loan or other financial aid, it’s still a good idea to fill out the FAFSA, because some states and schools use it to determine their awards as well.

The minimum qualifications for federal student aid include (but are not limited to) U.S. citizenship or eligible non-citizenship, a high school diploma or GED, and acceptance into an eligible degree or certificate program.

Beyond that, the FAFSA determines eligibility based on your financial situation, the school you’ll be attending, and other factors. Student loans are widely used to help pay for college. In fact, Americans currently share a student loan burden that’s over $1.5 trillion (with a T).

How Are Grants Different from Scholarships?

Like scholarships, grants help reduce the cost of higher education for the individual student because they don’t need to be repaid. They also have certain minimum requirements for maintaining your eligibility. The primary difference between the two is that grants are typically need-based, whereas scholarships are typically merit-based.

The largest provider of grants from the federal government is the Pell Grant program, which awards a fluctuating maximum (currently $6,095 for the 2018–19 award year) per year based on your financial circumstances. State governments may also fund grants for residents who attend in-state colleges or universities.

Can You Win a Scholarship and Still Take Out a Loan?

If you are awarded a grant or a scholarship, you can still apply for student loans. However, the money you receive from that grant or scholarship can affect your loan eligibility, sometimes in a big way.

For example, the schools or programs you applied to will use your completed FAFSA to determine your financial need , which is the difference between your total Cost of Attendance (COA) and your Expected Family Contribution (EFC) . Earning scholarships can reduce your costs, which in turn can leave you eligible for less financial aid—which includes both need-based and non need-based aid.

To complicate matters, some scholarships are awarded as “first-dollar ,” meaning they are made either according to set guidelines or without regard for any other aid you receive, and some are “last-dollar,” meaning they cover any remaining gaps after all your other aid has been applied. If you’re awarded several forms of student aid, be sure to do the overall math and determine if one is a better opportunity.

A Word About Work-Study

Another way some students choose to pay for college is the Federal Work-Study program , which provides part-time jobs for students while they are enrolled in classes. It’s available to students at all levels of higher education and aims to employ students in community service work or work related to their degree.

For students whose chosen career paths require lots of hands-on work, this can be an attractive option to not only help earn money for school, but gain real world experience at the same time. Check with your school’s financial aid office to see if they participate.

When the time comes, SoFi can help you refinance your student loans and potentially put more money back in your pocket.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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 about bankruptcy.
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 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.

SOSL18275

You’ve (more or less) survived having baby #1, which is already an accomplishment. Way to go mom or dad; what an incredible journey it is to be a parent and to raise a child.

Now, you’re toying with the idea of baby #2. But, you’re curious about how much it will cost you. And to make matters more confusing, you’ve got student loans that you’re paying off.

One study showed that 26% of people put off having children because of their student loan debt. This doesn’t have to be you. Having a second baby with student loans can be done, but it requires some planning.

To help you with that planning, we’re going to break it down. First, we’ll cover what to expect financially with a second child. Will it be as expensive as baby #1? What expenses can you prepare for?

Second, we’ll discuss tips on how to prepare for having a second baby, and give specific tips for parents who are having a baby with student loan debt. This will include tips on whether to pay them off, put them on hold, or to keep doing what you’re doing—for all of you parents who are thinking, “want a baby, but in debt!”

What You Can Expect Financially

The good thing about having a second child is that you’ve been through this before—you know what you’re doing. Just think of all that you’ve learned since you had your first baby.

That said, it can be hard to mentally prepare for adding a second baby into the mix. There will undoubtedly be moments where you will have to take it one day at a time, and you should give yourself that freedom and compassion to make mistakes and learn how to keep a kid alive all over again.

Still, there are plenty of ways to help prepare for baby #2 to ensure that the experience is as “under control” as can be. First, let’s talk a bit about what you might expect, financially, when you’re expecting a second.

Hand-me-downs Are Great

It is widely believed that a second baby is less expensive than the first because the second child can wear hand-me-down clothes, use baby #1’s cribs and changing table, and play with hand-me-down toys. And for the most part, this can be true, if parents are able to resist the urge to buy adorable new clothes and toys (although you’re probably going to need another car seat).

Hand-me-downs aren’t limited to clothes and toys, of course. There are other items that can be reused: Carriers, high chairs, bottles (although you’ll want to replace the teat), cribs, strollers, breast pumps, baby baths, baby monitors, children’s toilets, cloth nappies, bouncers, stationary activity centers, nursing pillows, changing pads, and so on. You can save a lot of scratch if you don’t need to buy these again.

(Tip for parents who haven’t had baby #1 yet: Avoid buying obviously gendered clothes. You may find gender-neutral clothes easier to re-use for baby #2.)

Hand-me-downs Have Limits

While it’s a great idea to reuse certain items, this won’t be possible with every item you’ll want or need for baby #2. For example, you may want to purchase new pacifiers, bottle nipples, and even car seats.

Car seats have an expiration date—check the bottom of the seat for a sticker that should list the manufacturer, model number, and manufacture date. It is generally accepted that the expiration date is six years after the manufacture date, but don’t use it if it’s been in a car accident previously—even a minor one.

Similarly, any crib, chair, or bouncer that has sustained significant wear and tear should be replaced; it’s better to be safe than sorry with any piece of baby equipment that could lead to injury if it in some way breaks or fails. This is especially true for any piece of equipment that “holds” a baby in some way.

Also, it can be hard to resist buying special items for each baby. Parents may be unlikely to use only hand-me-down clothing, toys, furniture, and other baby equipment, so be realistic and know that you’ll probably want to buy some stuff new. This goes for enrichment items, too. There could be classes and opportunities for your second child that may be independent (and potentially very different) than for your first child.

You Still Have to Buy Daily Use Items

You can’t reuse disposable diapers, wipe cloths, baby cream, formula, medicine, and other daily use items obviously. And as anyone who has purchased diapers before knows, these items can really add up (it could cost $550 dollars in the first year! ).

Childcare May or May Not Double in Cost

Depending on your specific child care situation, your childcare may or may not double in cost. Be sure to ask your childcare provider if they provide a sibling discount. If they don’t, you may want to look around for providers that do. It may not be a lot, but any discount will help when budgeting for baby #2.

With two children, parents may even want to rethink their current childcare set-up altogether. It may be more economical to consider an at-home nanny or an au pair, or even working with another family to establish a shared childcare situation.

Ideally, you wouldn’t have to double your childcare costs, but figuring out an alternate situation just may not be feasible for some people. It’s good to have some idea of what childcare will look like as you’re planning for your second child, as childcare is a major expense for many young families.

You May Need More Space

Having a second child can be economical in some ways, and less economical in others. For example, will you need more space to accommodate another body? Will you need to move to a larger home or buy a larger car? As families expand, it’s natural for a family’s space to expand as well.

Buying or renting a house with an additional room could be a significant added cost down the line. You might not need to move right away—babies are small—but think about what you might do once your baby grows into a child and later, into a teenager.

So, what’s the verdict? Is having a second kid significantly less expensive than the first? As you can tell, it all kind of depends. Families planning to have a second child will probably want to weigh the items above to see whether the cost is going to feel similar to baby #1, or whether it could be more or less expensive.

Planning Financially For Baby #2

Project Expenses

Before having a second baby, you might wish to sit down and project the expenses involved, from medical costs to childcare to diapers to an allowance for the unexpected. If you can, consider longer term expenses like extracurricular programs and college.

Spending projections not only help you to see whether you can afford a child at your current level of income and spending, but they can guide you in knowing where you can splurge and where you might need to cut back. Spending on children can quite literally be limitless, so think of this as an exercise in prioritization.

Prepare an Emergency Fund

Kids are small, adorable… walking liabilities. Things get broken and kids (and parents) can and do get sick. Also, “regular” life stuff still happens: The economy could turn, parents can get laid off from jobs, grandparents can get sick, and accidents could happen. With little ones in tow, it’s even more important to be prepared in the event of an emergency.

Make a Debt Plan

If you have multiple sources of debt, it’s a good idea to sit down and map out a plan as soon as possible. The first step is to list all sources of debt, including monthly payments and interest rates.

Knowing that your monthly expenses are about to increase, are there any sources of debt—and therefore, monthly payments—that you can eliminate altogether? For example, do you have any credit card balances that you can work hard to wipe out, or significantly lessen, in a few months? High-interest credit card debt is a money suck; doing what you can to reduce interest expenses can help free up money for other stuff.

Consider Options for Student Loans

For some parents, paying off every source of debt, such as their student loans, won’t be possible prior to having children. This is especially the case for families that are attempting to balance making debt payments with saving up an emergency fund. Each parent will have to decide just how much to prioritize both debt payoff and saving prior to and while raising a child.

When you’re pregnant, student loans can feel overwhelming. First, know that you’re not alone and that plenty of parents successfully manage student loan payments while raising a child. If you’ll maintain a student loan balance after your second baby comes into the world, it may be worth exploring options to make those student loans cheaper.

One way to do this is through student loan refinancing. When a borrower refinances their student loans, they’re paying off their old loans—either federal, private, or both—with a new loan. Ideally, this new loan is issued at a lower interest rate or with more favorable terms. But remember, refinancing means you’ll forfeit federal loan benefits such as income-based repayment plans, deferment, and forbearance.

With a new loan, for example, a borrower can do one of a few things: First, they can keep the loan’s term (length) the same, and possibly lower their monthly interest payment thanks to an improved credit score and/or financial situation. This tactic could help free up some cash to spend on other things. Second, a borrower could use this new leeway to speed up their loan term, and pay their loans off faster. They would likely save the most on interest with this strategy, but monthly payments would likely be higher.

Third, a borrower could potentially refinance to a lower rate and lengthen the loan’s term, which could lower the monthly payment significantly. This is an option that borrowers would be wise to consider only if they absolutely must, because you might end up paying even more in interest over the long run, even with a lower rate. (You can read more about all this here .)

When preparing financially for baby #2, there’s lots of planning to consider. But it will all be worth it to bring another bundle of joy into the world.

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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
SOSL18133

You did it. All those countless hours devoted to classes, late-night study sessions, and college entrance exams have paid off. That’s right, you’re going to college!

Chances are you’ve been working toward this goal for most of your life, so you deserve a major pat on the back. Bask in this moment, because once that post-acceptance glow wears off, you may be faced with some big decisions that you aren’t all that eager to make. Namely, how to be a great student loan borrower.

No matter how much you plan or how many pennies you and your family pinch, these days it’s pretty difficult to save enough to pay for school without the assistance of loans. If it provides any comfort, know you aren’t alone when it comes to facing large amounts of student loan debt once you graduate.

The average student borrower has about $37,000 in loans and as of August 2018, there were 44 million student loan borrowers in the United States. Luckily, there are ways you can prepare to manage your future student loan debt and receive some help along the way.

Understand the Cost of Your Education

When choosing where to study, you’ll have to make a lot of important decisions. Do you want to attend a liberal arts school or one that focuses on S.T.E.M. subjects? Would going to a university in a big city help you find that dream internship or would you better thrive by staying closer to home?

In an ideal world, you would make your education decisions based off many factors, but cost wouldn’t be one of them. Unfortunately, most soon-to-be college students need to consider the cost of their degree and living expenses before choosing which school to attend.

It’s not a factor to consider lightly. Before you make a final decision, you need to sit down and map out what each of your education options (including living arrangements) could cost you.

That calculation should include interest as well as costs like textbooks, meal plans, parking, sundries, and more. Most universities will map out estimates of school supplies, dorm fees, and other expenses students should anticipate while enrolled. If you’re planning on traveling for a semester abroad or pledging a fraternity or sorority, you’ll need to account for those expenses as well.

There are also ways you can plan to shorten your time at a costly university in order to keep your loan total lower. One less expensive option to consider is starting at a community college for your lower division coursework. If a community college isn’t the right fit full-time, you can always pick up elective credits at one during the summer for a fraction of the cost a typical private university would charge.

Know Your Student Loan Options

Fortunately, this step isn’t too difficult, as there are really only two overarching types of student loans: federal and private. All federal loans are backed by the federal government. Loans that are considered private are often backed by banks, credit unions, or other private lenders.

You can typically expect private student loans to have higher interest rates than federal loans. Federal student loans have fixed interest rates, meaning the interest rates don’t fluctuate post-graduation, whereas private loan interest rates can sometimes be variable, which means the interest rate can increase (or decrease) in accordance with the market if you choose a variable rate loan.

Federal loans require you to be enrolled in school at least half-time in order to be eligible and don’t require you to pay the loan until after you leave school. In fact, a post-graduation grace period of six months is usually provided to allow time for you to find work and get settled.

Private loans are an avenue that can be utilized if federal loan options have been exhausted. If you do find you don’t receive enough in federal loans in order to cover your tuition and other expenses during school, private loans could be a viable option.

Apply for Aid

Once you’ve decided on a school, your next step will likely be applying for financial aid and scholarships. Begin your financial aid and scholarship search by rounding up all the programs you might be eligible for, and keep track of each application deadline in a spreadsheet, your calendar, or both, so you don’t miss any.

You can also contact the financial aid department of the school you are enrolling in, since their office will likely know the best student loan resources available to you. They’ll most likely be happy to help you in any way that they can through the application processes.

The Department of Education has a great online resource to begin your financial aid search, starting with completing their Free Application for Federal Student Aid (FAFSA®) form, which is required for federal student aid like grants, work-study programs, and federal student loans.

Understand Your Post-Grad Repayment Options

Right now, repaying your student loans is a ways off. But before you sign on to borrow student loans, it helps to know how you’ll pay them back after you graduate.

If you have federal loans, you’ll likely be put on the standard 10-year repayment plan after graduating. If you’d prefer a lower monthly payment, federal loans also offer income-based repayment plans that private student loans don’t. And don’t forget, federal loans also typically come with a six-month grace period.

If you’re in a good financial place after graduation (or after you’ve worked for a few years post-college), student loan refinancing could also be a smart way to repay your loans. Whether you have federal or private loans, refinancing can help consolidate your loans at a potentially lower interest rate.

This new interest rate will be based off of your financial picture when you apply. The lower your interest rate is, the less you’ll spend on your loans. SoFi can refinance both federal and private loans, as well as offer fixed and variable interest rates.

Student loans can get complicated—SoFi is here to help. From helping you finance your education to helping you get out of your college debt, we’ve got you covered.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
SOSL18115

Direct Stafford Loan repayment can be one of the first harsh realities of modern adult life. But don’t worry, there are options that can help make your student loan repayment just a little less painful. First, let’s get some semantics straightened out: the name of your loans may not make much of a difference, but they can get confusing. In this case, the term “Direct Stafford Loans” and “Direct Loans” are used interchangeably.

Direct Stafford Loans were originally called the Federal Guaranteed Student Loan Program, but in 1988 they were renamed in honor of U.S. Senator Robert Stafford of Vermont, for his work on furthering the cause of higher education.

You have to repay your Direct Stafford Loan no matter what version of the loan you choose (more about this soon). Perhaps the most notable difference between the loan types is how you’ll be required to repay the interest (we’re going to show you).

So, When Do You Have to Pay Back Your Direct Stafford Loan?

The most direct answer is: after the grace period. We’ll explain: with each Direct Stafford Loan repayment plan, you are granted a little bit of time to sort out your life and get your act together. This stretch of rejuvenation, self-realization, and rebirth is perhaps euphemistically called a grace period.

The grace period for Direct Stafford Loan repayment begins the day you officially leave school. Also, if you change your student status to less than half-time enrollment, that earns you a grace period too.

Take note: educational institutions define “half-time enrollment” in different ways. The status is usually, but not always, based on the number of hours and credits in which you’re enrolled. Check with your school’s student aid office to make sure you are in sync with their official definition. Make sure everybody is on the same page before you assume that you are entitled to a grace period. The total timeframe of the Direct Stafford Loan repayment grace period: six months, and not a day more (with a handful of exceptions ).

Another thing to keep in mind about that grace period: you may want make the most of it by starting to pay back that loan in whatever way that you can. Even though grace periods are meant to give you time to reconfigure, the interest you’re being charged is still “capitalizing.” That means interest is still being added to the loan principal all during your grace period, and that’s not very graceful.

One quick thing to keep in mind while on the subject of grace periods: Make sure you know who your student loan servicer is in case you need to reach out to them. You don’t get to choose your own loan servicer. They’re assigned to you by the Department of Education to handle billing and other services. If you have questions regarding your loan, consider contacting your loan servicer.

What Are Direct Stafford Loans?

Direct Stafford Loans are divided into two types:

Subsidized Direct Stafford Loans

These loans are only available to undergraduate students and based on financial need. The government covers the interest payments during your time at school. During your six-month grace period or if you request a deferment, the government will also cover the interest accrued on the subsidized Direct Stafford Loan .

Calculating financial need can get tricky. Once your status is officially figured out, it’s called your “demonstrated financial need,” and it’s defined as the difference between total college costs and your family’s ability to pay. Ultimately, the final number is the amount of money your family needs for you to attend college.

Unsubsidized Direct Stafford Loans

These student loans are offered to undergraduate, graduate, and professional candidates, and are not based on financial need. So if you’re keeping score at home, this is in contrast to the subsidized Direct Stafford Loans, which are available to undergraduates only and based on financial need.

For Unsubsidized Direct Stafford Loans, the government does not cover your interest while you are in school, or if you request a deferment. During your six-month grace period, interest will continue to accrue, and you’ll be responsible for paying it once the grace period ends. As we mentioned earlier, you can also opt to pay the interest during this time, which will help reduce the debt of the loan later.

As with all Direct Stafford Loans, interest rates are fixed, which means that they stay at the same rate for the entire life of the loan. This could be a good thing, but it really depends on what the interest rate is at the time of signing the loan. Interest rates go up and down, so how “good” your rate is depends on how high or low the interest rate happens to be at the time you sign up for the loan.

Direct Stafford Loan Repayment Options

Here’s where you can get a handle on the whole Direct Stafford Loan repayment situation. The most important thing to remember is this: You. Have. Options. So don’t panic if your grace period is coming to an end.

One of your options is to refinance your student loans, which may be appealing if you’re in a financially stable place. Keep in mind that you can’t directly refinance government loans. However, you can refinance your Direct Stafford Loan by taking out a new loan with a private loan company at a hopefully lower interest rate. Doing this may give you some flexible repayment options.

Before you do, know the difference between refinancing and consolidating your loans. You can distinguish them as (broadly) two different strategies: completely starting over (refinancing) as opposed to merely reconfiguring (consolidation).

Refinancing lets you pay off the loans you already have with a brand-new loan from a private lender. This can be done with both federal and private loans. When you refinance, your existing loans get paid off completely, and you put those original creditors behind you forever. The new loan from a private company may allow you to breathe easier with better interest rates and repayment terms. You can also pick the private lender with the terms that best suit your needs. Don’t be afraid to comparison shop—and don’t forget that SoFi has no prepayment penalties or origination fees!

Consolidating student loans is simply gathering up all of the loans you currently have and piling them into one loan. You can typically only consolidate federal loans, and you do so with a Direct Consolidation Loan. With a Direct Consolidation Loan, your new interest rate is the weighted average of all your interest rates combined (rounded to the nearest eighth of 1%).
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Thinking of skipping a few student loan payments? Not a good idea. Your credit score may take a hit, and this could disqualify you from an opportunity to get a credit card, a car, or a mortgage. The days that pass before your loan goes into default: 270 . That may sound like a long time, but it can go by in a flash.

If you’re thinking about refinancing your Direct Stafford Loans with a private loan, you can shop around for the best rates and repayment terms, and choose the loan company that makes the most sense to you. Refinancing can be done with both federal and private loans.

Benefits of refinancing your Direct Stafford Loans could include lower monthly payments or lowering your interest rate. Your interest rate and refinancing terms will vary, based on your financial situation and credit history. If refinancing results in a lower monthly payment, you might have greater flexibility in your monthly budget, such as more savings or redirecting the additional cash to other debts.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
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 on credit.
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