Student Loans Archives

Feb

2026

Student Loan Forgiveness Tax Bomb, Explained

Do You Have to Pay Taxes on Forgiven Student Loans?

By Jennifer Calonia | Fresh Out of School, Student Loans, student_loan | Comments Off

The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But tax on student loan forgiveness is a different matter.

The American Rescue Plan (ARP) Act specifies that student loan debt forgiven between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.

This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, nonfederal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans may also qualify.

However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about taxes on student loans, including which forgiven student debt is taxable and by whom.

Key Points

• Because of the American Rescue Plan Act, student loans forgiven between 2021 and 2025 are exempt from federal taxation.

• Eight states — Arkansas, California, Illinois, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin — still tax forgiven loans.

• Use a student loan forgiveness tax calculator to estimate potential state tax liability.

• Set aside monthly payments to save for potential tax bills on forgiven student loans after 2025.

• Explore the student loan interest deduction to help reduce federal taxable income.

Types of Student Loan Forgiveness Programs

Federal student debt can typically be canceled through an income-driven repayment plan (IDR) or forgiveness programs. However, as of February 2026, applications for some income-driven repayment plans are on hold due to legal challenges. You can find out more about this situation on the Federal Student Aid (FSA) website.

Here are some common federal forgiveness programs and how typically they work.

Public Service Loan Forgiveness (PSLF)

If you are employed full-time for the government or a nonprofit organization, you may be eligible for Public Service Loan Forgiveness for federal student loans like federal Direct Loans.

After you make 120 qualifying payments under an income-driven repayment plan for an eligible employer, the PSLF program forgives the remaining balance on your federal student loans.

However, because IDR plans are currently not accepting applications, and you must achieve forgiveness by repaying your loans under one of these plans, you will likely need to wait before you can start working toward PSLF. You can get more details about PSLF on the FSA website.

Income-Driven Repayment (IDR) Forgiveness

IDR options generally offer loan forgiveness after borrowers make consistent payments for a certain number of years. However, forgiveness on all but one of the IDR plans is paused as of February 2026.

On an IDR plan, how much you owe each month is based on your monthly discretionary income and family size. These are the types of IDR plans.

• Income-Based Repayment: With IBR, payments are generally about 10% of a borrower’s discretionary income, and any remaining balance is forgiven after 20 or 25 years. On the IBR plan, forgiveness (after the repayment term has been met) is still proceeding as of February 2026, since this plan was separately enacted by Congress.

• Pay As You Earn (PAYE): The monthly payment on PAYE is about 10% of a borrower’s discretionary income, and after 20 years of qualifying payments, the outstanding loan balance is forgiven. As of February 2026, forgiveness has been paused for borrowers who were already enrolled in this plan.

• Income-Contingent Repayment (ICR): The monthly payment amount on ICR is either 20% of a borrower’s discretionary income divided by 12, or the amount they would pay on a repayment plan with a fixed payment over 12 years, whichever is less. After 25 years of repayment, the remaining loan balance is forgiven. As of February 2026, forgiveness has been paused for borrowers who were already enrolled in the plan.

Teacher Loan Forgiveness

With Teacher Loan Forgiveness (TLF), teachers who have been employed full-time for five consecutive years at an eligible school and meet certain other qualifications may be eligible to have up to $17,500 of their federal Direct Subsidized and Unsubsidized Loans and federal Stafford Loans forgiven.

Recommended: Do Student Loans Count as Income?

Which Student Loan Cancellations Are Not Federally Taxed?

When it comes to student loan forgiveness and taxes, under the provisions of the ARP Act, private or federal student debt for postsecondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that these borrowers are not required to report their discharged loan amount as earned income, and the forgiven amount is not taxable.

Beyond the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness don’t have to pay taxes on their canceled loan amount. The PSLF program explicitly states that earned forgiveness through PSLF is not considered taxable income.

Which Student Loan Cancellations Are Federally Taxed?

Borrowers who receive loan cancellation after successfully completing an income-driven loan repayment plan can generally expect to pay taxes. However, those whose debt was or will be discharged in the years 2021 through 2025, will not need to pay federal taxes on their forgiven loans due to the ARP Act.

Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation.

💡Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Which States Tax Forgiven Student Loans?

Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.

As of February 2026, the eight states that say certain forgiven loans are taxable are:

• Arkansas (except for loans forgiven through PSLF)

• California (except for loans forgiven through PSLF)

• Illinois (except for loans forgiven through PSLF)

• Indiana (except for loans forgiven through PSLF, TLF, and certain other programs)

• Minnesota (except for loans forgiven through PSLF)

• Mississippi

• North Carolina

• Wisconsin (except for loans forgiven through PSLF and TLF).

Additional states tend to conform to federal tax laws, so it’s important to consult a qualified tax professional who is knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.

How to Prepare for Taxes on Forgiven Student Loans

If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take to get ready.

Step 1: Calculate Your Potential Tax Bill

The first step when preparing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.

To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.

Step 2: Choose the Right Plan

Although IDR plans are not currently accepting applications, they are designed to help keep borrowers’ monthly payments to a manageable amount while they’re awaiting loan forgiveness. All of these repayment plans calculate a borrower’s monthly payment based on their discretionary income and family size.

Step 3: Prioritize Saving

If you’re expecting loan forgiveness after 2025, it might be beneficial to start allocating extra cash flow to a dedicated tax savings fund now. Incrementally setting money aside over multiple years can ease the burden of a sudden lump-sum tax bill down the line.

Another way to potentially save some money is to take the student loan interest deduction on your taxes each year, if you qualify. The deduction, which is up to $2,500 annually, can reduce your taxable income.

You’ll need your student loan tax form to make sure you are eligible for the deduction. The form should be sent to you by your loan servicer or lender. You’ll file the form with your taxes.

Recommended: Guide to Student Loan Tax Deductions

What If I Can’t Afford to Pay the Taxes?

If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest may accrue on such plans.

The Takeaway

Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due on forgiven loans, depending on where the borrower lives.

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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Is loan repayment considered taxable income?

If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the CARES Act, which was signed into law in 2020, employer assistance loan payments up to $5,250 made each year from 2021 through 2025 are tax-free.

Will refinancing my student loans help me avoid taxes?

Refinancing student loans does not involve taxes. However, the interest you pay on a refinanced student loan may qualify for the student loan interest deduction. If you’re eligible, you may be able to deduct up to $2,500, which could lower your taxable income.

Will student loan forgiveness be taxed after 2025?

The American Rescue Plan Act stipulates that forgiven student loans will not be taxed from 2021 through 2025. Currently, there are no plans to extend that tax relief beyond 2025.

Are state taxes different for forgiven student loans?

While states typically follow the federal tax policy, five states say that certain forgiven loans are taxable. Those five states are: Arkansas (except for loans forgiven through Public Service Loan Forgiveness), Indiana (except for loans forgiven through PSLF, Teacher Loan Forgivenesss, and certain other programs), Mississippi, North Carolina, and Wisconsin (except for loans forgiven through PSLF and TLF).

What steps should I take if I owe taxes on forgiven student loans?

If you owe taxes on forgiven student loans, calculate how much you’ll owe in taxes with the forgiven loan amount factored into your taxable income. Then, once you have the estimate of what you owe, you can start saving up to pay it. One way to do this is to put away the monthly amount you previously paid on your student loans to help offset the amount you owe. So if your student loan payment was $100 a month, deposit that amount monthly into a savings account, and use it to help pay what you owe in taxes.

Photo credit: iStock/fizkes

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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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.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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SOSLR-Q125-020

Feb

2026

Graphic image of a series of $100 bills with a graduation cap on top of them

Do Student Loans Help Build Credit?

By Melissa Brock | Financial Topics, Student Loans | Comments Off

Student loans can play a role in building credit when they’re managed responsibly. Making on-time student loan payments contributes positively to your payment history, a key factor in credit scores.

However, missed payments can be damaging to your credit. Read on to learn about how paying student loans may build credit and tips for managing your loans.

Table of Contents

How Student Loans Appear on Your Credit Report
The Impact of On-Time Payments
The Effect of Late or Missed Payments
Student Loans and Credit Mix
Strategies to Use Student Loans for Credit Building
Potential Risks and Considerations
How Student Loan Refinancing Can Affect Your Credit Score
Student Loans and Other Credit Score Factors
FAQ

Key Points

• On-time payments for student loans positively impact your payment history, a key factor in credit scores. Conversely, missed or late payments can harm your credit.

• Having student loans adds diversity to your credit mix, which can slightly boost your score when combined with other credit types, like credit cards.

• Federal and private student loans can establish a long credit history, as they often span many years, potentially benefiting your credit score over time.

• Setting up automatic payment and regular credit report monitoring can help borrowers stay on top of student loan payments and strengthen their credit.

• Refinancing student loans involves a hard credit inquiry, which may temporarily lower credit scores. However, if refinancing reduces interest rates, it may help a borrower manage debt more effectively which could positively impact their credit.

How Student Loans Appear on Your Credit Report

Your credit report contains information about your credit activity, including payment history and credit account status. It’s different from your credit score, which is a three-digit number that predicts how likely you are to repay a loan.

Student loans appear on your credit report as installment loans. These are loans that are repaid in fixed regular installments over a specific period of time. Your credit report will typically list the type of loans you have, the amounts, and the status of the account and whether or not it is in good standing.

Recommended: The Average Cost of College Tuition

The Impact of On-Time Payments

A borrower’s credit score is calculated using information in their credit report to predict how likely it is that they will pay their bills on time. When it comes to student loans and credit scores, your credit report includes information on your student loans, such as your payment history and whether or not you make payments on time. Late or missed payments can negatively impact your credit score, while consistently making on-time payments may help build your credit.

In fact, on-time payments are one of the key factors that can help build your credit score because they demonstrate that you are a responsible borrower, and that you pose less risk to a lender. Payment history makes up the greatest percentage (35%) of your credit score.

The Effect of Late or Missed Payments

The first day after you miss a student loan payment, your loan becomes delinquent. If you are delinquent on your federal student payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which could negatively impact your credit.

Most federal loans go into default after 270 days. If you have private student loans they may go into default after 90 to 120 days (this varies by lender).

Once your loan is in default, your lender may hire a collection agency to pursue the debt or they might take you to court. In the case of a federal loan, the government could garnish your wages and withhold your tax refund, among other consequences. And your credit rating can be damaged. A defaulted student loan remains on your credit report for up to seven years.

Student Loans and Credit Mix

Credit mix refers to the different types of accounts a borrower has. For example, in addition to your student loans, your credit mix might also include revolving loans like credit cards, and other installment loans, like an auto loan. When you have a diverse mix of credit, it shows creditors how you manage various types of lending products.

Strategies to Use Student Loans for Credit Building

If you’re working to build your credit, handling your student loans responsibly could help. Here are ways to potentially strengthen your credit profile.

Setting Up Automatic Payments

Payment history represents a large part of your credit score, as noted above, which is why staying on top of student loan payments is so important. To make the process easier, you can set up autopay for your loans to ensure you never miss a payment. As a bonus, you may also get an interest rate discount. Federal student loans offer a 0.25% interest rate discount for setting up autopay, and many private lenders offer autopay discounts as well.

Just log onto your account at StudentAid.gov to find out who the loan servicer for your federal loans is, and set up autopay on their website. For private loans, you can typically set it up through your lender.

Monitoring Your Credit Report Regularly

Lenders typically review your credit report before making the decision to approve you for a loan or credit card. The information in your credit report is one of the factors that helps determine your credit score.

Reviewing your credit report can help you make sure there are no mistakes in it. Things to watch out for include typos and incorrect information, credit cards or loans you never opened, false information about late or missed payments, and information that was not updated about an outstanding debt that was settled.

You are entitled to a free copy of your credit report once a year from the three major credit bureaus: TransUnion®, Equifax®, and Experian®. You are now also able to request your credit information weekly. One easy way to get your report is through AnnualCreditReport.com, which is authorized by the federal government to issue free credit reports.

If you spot errors on your credit report, you can dispute them by filing a report with the credit bureau as well as the company that provided the information.

Potential Risks and Considerations

While student loans may help build credit, there are also possible risks involved. Potential downsides include:

Taking on More Debt Than You Can Handle

To keep your student loans manageable and be able to make payments without overextending yourself, limit your borrowing to just what you need for school. Use your loans to pay only for tuition and other necessary education expenses.

The reason: Taking on too much debt could mean that most of your income ends up going toward debt payments. And you may be more likely to become delinquent on your student loan payments or even fall into default, which will negatively impact your credit.

Long-Term Credit Implications of Missed Payments

Missed student loan payments are not just a right-now problem — they can follow you well into the future. As soon as you miss a federal student loan payment, your loan becomes delinquent, and after 90 days of delinquency, it is reported to the credit bureaus. After 270 days, it goes into default. Private loans can go into default even sooner than that, typically after 90 to 120 days, depending on the lender.

Defaulting on federal student loans can potentially lead to your wages being garnished and your income tax refund being withheld. Defaulting on private or federal student loans can seriously damage your credit and cause your credit score to drop.

A defaulted student loan can remain on your credit report for up to seven years. That can affect your ability to take out a mortgage and get a car loan. The lender could also take legal action against you and/or send the loan to collections.

How Student Loan Refinancing Can Affect Your Credit Score

Student loan refinancing can impact your credit score in both positive and negative ways. When you refinance student loans, you replace your existing loan with a new loan that, ideally, has a lower interest rate and more favorable terms.

Here’s how refinancing might impact your credit score.

Credit Inquiries and Account Changes

To refinance student loans (which is different from student loan consolidation), you may shop around to different lenders for the best rates and terms.

Refinancing involves a hard credit inquiry, which may cause a slight, temporary dip in your score. As long as you keep your loan shopping to a short period, multiple credit inquiries will generally be treated as one, which can help minimize the impact to your credit score.

Additionally, taking out a new refinancing loan may slightly reduce the average age of your credit history. However, this impact is typically minor. On the plus side, a student loan can help improve your credit mix, which also factors into your credit score.

Potential Benefits of Lower Monthly Payments

If your new refinanced loan has a lower interest rate, your monthly payments may be lower, which could save you money on interest and over the life of the loan. Using a student loan refinancing calculator can help you see how much you might save with refinancing.

Besides the savings, a lower student loan payment may make it easier for you to pay your loans on time each month. That could help you build a positive payment history, which is the biggest factor contributing to your credit score.

It’s important to be aware that refinancing federal loans makes them ineligible for federal programs and protections, such as income-driven repayment and student loan deferment. Before you move ahead with refinancing, make sure you won’t need these benefits.

Student Loans and Other Credit Score Factors

Besides payment history, student loans can affect your credit in other ways. These are two other important factors.

Length of Credit History

Your credit history — the length of time your credit accounts have been open — makes up 15% of your credit score. A longer credit history is typically beneficial for your credit score because it demonstrates that you’ve been able to responsibly handle credit over time, especially if you’ve been consistently making your payments.

Taking out student loans can help you build your credit history. Since you typically borrow these loans as a young adult, they may be one of your very first credit accounts and even what gets your credit history started. And because repayment terms last for years, these loans will remain on your report over the long term.

Amounts Owed and Utilization

How much total debt you have, including student loan debt, is what’s meant by “amounts owed,” a factor that accounts for 30% of your credit score. A key component of amounts owed is credit utilization — the amount of available revolving credit you’re using.

If you are using a large amount of your available credit, you may be considered a risk to lenders and your credit score may be negatively impacted.

The Takeaway

Student loans can have a positive or negative impact on your credit. Paying your loans on time each month could help strengthen your credit. But late or missed payments could damage your credit, especially if your loan becomes delinquent or goes into default.

Making on-time student loan payments is important for your credit and your financial situation overall. Methods that could make managing student loans easier include setting up automatic payments, regularly monitoring your credit report, and student loan refinancing. Considering the different options may help you decide what makes the most sense for you.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

When do student loans start affecting my credit score?

Student loans may start affecting your credit score shortly after they are disbursed. The loans appear on your credit report soon after disbursal, even while you’re in school, and they impact factors like length of credit history and credit mix.

The biggest factor in your credit score is your payment history, so making on-time payments when the time comes can positively affect your credit, while missed payments can damage it.

Can paying off student loans early hurt my credit?

Paying off student loans early doesn’t necessarily hurt your credit, but it may impact factors like credit history, credit utilization, and credit mix. However, the positive payment history remains on your report for about 10 years, which could benefit your score.

How long do student loans stay on my credit report?

Student loans will stay on your credit report during the entire repayment term (the length depends on your repayment plan). They will remain there until you pay off the entire loan amount in full or the loan balance is canceled as part of a forgiveness program.

However, information about loan payments and loan status may stay on your credit for up to 10 years after your account closes and you pay off your loan. Adverse information, such as student loan default, typically remains on your report for up to seven years.

Do federal and private student loans affect credit differently?

Most federal student loans do not require a hard inquiry, which can cause a slight, temporary dip in your credit score. Private student loans generally require a hard credit inquiry, which can temporarily cause a slight drop in your credit score. If you’re shopping around for private student loans, applying within a short time frame could help minimize the impact to your credit.

Can student loan deferment or forbearance impact my credit score?

Federal student loan deferment or forbearance generally does not directly impact your credit score, as long as your account is in good standing when you apply for forbearance or deferment, and you maintain your repayment schedule afterward. Private student lenders may or may not allow for deferment or forbearance. Check with your lender or loan servicer to learn more.

About the author

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.

Photo credit: iStock/designer491

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

SOSLR-Q126-007

Feb

2026

Three female college graduates in caps and gowns talk and laugh together as they walk on campus.

Student Loan Grace Period: How Long Is It?

By Maureen Shelly | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

As you prepare for life after graduation, one important step is figuring out whether you’re required to make monthly student loan payments right away or if you have what’s called a student loan grace period.

Read on to learn what a student loan grace period is, when it starts, the student loan grace period ending date, and how you might extend yours. You’ll also find tips on how to use your grace period to help get your finances in order before you start making student loan payments.

Table of Contents

What Is a Grace Period for Student Loans?
How Long Do Student Loan Grace Periods Last?
Which Student Loans Have a Grace Period?
Will Interest Accrue During the Grace Period?
Smart Ways to Use Your Student Loan Grace Period
Can You Extend Your Student Loan Grace Period?
Pros and Cons of Using Your Full Grace Period
FAQ

Key Points

• Grace periods allow new graduates time to get settled before starting student loan payments.

• Federal student loans typically have a six-month grace period; some Perkins loans have nine months.

• Private student loans may or may not offer a grace period. Those that do typically offer a six-month grace period for undergraduates.

• Interest accrues during the grace period for most federal and private student loans.

• Making early payments can reduce interest costs and the principal balance of student loans.

What Is a Grace Period for Student Loans?

A student loan grace period is a window of time after a student graduates and before they must begin making loan payments. The purpose of a grace period is to give new graduates a chance to get a job, get settled, select a repayment plan, and start saving a bit before their student loan grace period ending date arrives and their payment due dates kick in. Most federal student loans have a grace period, and some private student loans do as well.

Grace periods also apply when a student leaves school or drops below half-time enrollment. Active members of the military who are deployed for more than 30 days during their grace period may receive the full grace period upon their return.

How Long Do Student Loan Grace Periods Last?

The grace period for federal student loans is typically six months. Some Perkins loans can have a nine-month grace period. When private lenders offer a grace period on student loans, it’s usually six months as well.

Keep in mind that, as noted above, not all student loans have grace periods.

Recommended: The Average Cost of College Tuition

Which Student Loans Have a Grace Period?

Whether you have a grace period depends on what kind of loans you have. There are two main types of student loans: federal and private student loans.

Federal Student Loans

Most federal student loans have grace periods.

• Direct Subsidized Loans and Direct Unsubsidized Loans have a six-month grace period.

• Grad PLUS loans technically don’t have a grace period. But graduate or professional students get an automatic six-month deferment after they graduate, leave school, or drop below half-time enrollment.

• Parent PLUS loans also don’t have a grace period. However, parents can request a six-month deferment after their child graduates, leaves school, or drops below half-time.

Keep in mind: Borrowers who consolidate their federal loans lose their grace period. Once your Direct Consolidation Loan is disbursed, repayment begins approximately two months later. And if you refinance, any grace period is determined by your new private lender.

Private Student Loans

The terms of private student loans vary by lender. Some private loans require that you make payments while you’re still in school. When private lenders do offer a grace period, it’s usually six months for undergraduates and nine months for graduate and professional students.

At SoFi, qualified private student loan borrowers can take advantage of a six-month grace period before payments are due. SoFi also honors existing grace periods on refinanced student loans.

If you’re not sure whether your private student loan has a grace period, check your loan documents or call your student loan servicer.

Will Interest Accrue During the Grace Period?

For most federal and private student loans, interest is charged during the grace period — even though you aren’t making payments on the loan. In some cases, this interest is then added to your total loan balance (a process called interest capitalization), effectively leaving you to pay interest on your interest.

In 2023, federal regulations changed so that the interest that accrues during a borrower’s grace period is not capitalized. According to the Federal Student Aid website, “the interest that accrues during your grace period will be added to the outstanding balance of your loan, but it will not be capitalized.”

Smart Ways to Use Your Student Loan Grace Period

If you are in a financially tight spot after you graduate or during your break from school, a student loan grace period can offer some much-needed breathing room. Here’s how you can put your grace period to good use.

Organize Your Finances Before Payments Begin

Take this time to create a new post-grad budget. Which approach you use is up to you: the 70-20-10 Rule, the envelope budget method, or zero-based budgeting. The important thing is to determine your monthly income and expenses, setting aside enough to pay down debts and save a little.

Enroll in Autopay to Avoid Late Fees

Missed student loan payments can incur penalties and hurt your credit score. Setting up autopay means one less thing you have to remember. Some student loan lenders (like SoFi) will even discount your interest rate for setting up automatic payments. Federal student loans also offer a discount for enrolling in autopay.

Make Early Payments to Reduce Interest Costs

Just because you don’t have to make payments toward student loans during a grace period doesn’t mean you can’t. If you are in a financial position to make payments during a grace period, you should. It can help keep your loan’s principal balance from growing on certain types of student loans and the accruing interest from potentially capitalizing during your grace period.

If you can, direct some extra money toward your principal balance. Because student loans are amortizing loans, when you enter repayment, your early payments largely go largely toward the interest. Making additional principal payments can help reduce the total amount of interest you’ll pay, and even potentially reduce your loan term.

Explore Repayment Plan Options Before the Grace Period Ends

Once your grace period is over for your federal loan, you’ll be automatically enrolled in the 10-year Standard Repayment plan. However, if you’re concerned about making your payments, several income-driven repayment plans are currently available. These plans generally reduce your payment to a small percentage of your discretionary income.

You can use a student loan repayment calculator to calculate your monthly payments and what they might be.

Consider Consolidating or Refinancing Your Student Loans

These two terms are often used interchangeably, but there are important differences between them. When it comes to student loan consolidation vs refinancing, both options combine and replace existing student loans with a single new loan.

Student loan consolidation with a Direct Consolidation Loan allows you to combine several federal student loans into one new federal loan. The resulting interest rate is the weighted average of prior loan rates, rounded up to the nearest ⅛ of a percent. However, as noted above, borrowers who consolidate their federal loans lose their grace period.

Student loan refinancing is when you consolidate your student loans with a private lender and receive new interest rates and terms. Your student loan refinancing rate — which ideally would be lower — is determined by your credit history.

Using a student loan refinancing calculator can help you estimate how much refinancing might save you.

Can You Extend Your Student Loan Grace Period?

If your loan doesn’t qualify for a grace period or if your student loan grace period is ending and you want to extend it, you have options. You may delay your federal student-loan repayment through deferment and forbearance.

Both options are similar to a grace period in that you won’t be responsible for student loan payments for a length of time. The difference is in the interest.

When a loan is in forbearance, loan payments are temporarily paused, but interest will accrue on all loan types during the forbearance period. This can lead to substantial increases in what you’ll pay for your federal loans over time. You’ll want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans. (The good news is that for most types of loans, the interest that accrues during forbearance no longer capitalizes.)

During deferment, by contrast, interest will not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans. Other types of federal loans may still accrue interest during deferment, and that interest will capitalize upon exiting deferment unless you were enrolled in an income-driven repayment plan.

While grace periods are automatic, you’ll need to request a student loan deferment or forbearance and meet certain eligibility requirements. In some cases — during a medical residency or National Guard activation, for example — a lender is required to grant forbearance.

Pros and Cons of Using Your Full Grace Period

A grace period can be beneficial since it gives you time to get your financial situation in order before you need to start repaying your loans. However, there are also disadvantages to a grace period. Here are some pros and cons to weigh as you’re thinking about when to start paying student loans.

Pros

• A grace period gives you time to find a job after graduation and start earning a salary.

• You can create a budget and start saving money to put toward your student loan payments.

• For those with Direct Subsidized loans, interest does not accrue on these loans during the grace period

Cons

• With many student loans, interest does accrue, which increases the overall amount you need to repay.

• The interest may also capitalize and be added to the principal balance of your loan so that you’re effectively paying interest on the interest.

• Having more debt to repay can increase your debt-to-income (DTI) ratio, which could impact your credit score and your ability to borrow money for other purposes, such as taking out a mortgage.

The Takeaway

Federal student loan grace periods are typically six months from your date of graduation, during which you don’t have to make payments. Most federal student loans have grace periods. Private student loan terms vary by lender. However, some lenders, like SoFi, match federal grace periods for undergrad loans.

During your grace period, you may want to make payments anyway, even interest-only payments, to prevent your balance from growing. The grace period is a good time to create a new budget, choose a repayment plan, and set up autopay.

If you have trouble making your payments, you have options, from income-driven repayment plans to loan consolidation to refinancing.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

How do I know if my student loan has a grace period?

To find out if your student loan has a grace period, check your loan documents. As part of the terms and conditions stated on the documents, you should find information about a grace period if there is one, including how long it is. If you can’t find your loan documents or you’re still not sure if your loan has a grace period, call your loan servicer.

Can I start making payments before my grace period ends?

Yes, you can start making payments before your grace period ends. If you can afford to do so, making early payments can help keep your principal balance from growing and interest from accruing and potentially capitalizing. Even if you make interest-only payments, it can help reduce the total interest you’ll pay on the loan.

What happens if I don’t make a payment after my grace period?

If you fail to make student loan payments after your grace period ends, your loan could eventually go into default. A student loan is considered in default once you are nine months late on your payments. This could damage your credit rating and your future ability to take out a loan. If you’re having trouble making your loan payments, contact your loan servicer right away to see what your options are. You may be able to apply for income-driven repayment, forbearance, or deferment.

Does refinancing affect my grace period?

Whether refinancing affects your grace period depends on the lender. Some private lenders, like SoFi, will honor your grace period, but with others, student loan repayment may begin right away. Check with your refinancing lender.

Are grace periods the same for federal and private student loans?

No, grace periods are not the same for federal and private student loans. Federal student loans typically have a six-month grace period, though some Perkins loans have a nine-month grace period. Not all private lenders offer a grace period. Those who do typically offer a six-month grace period for undergraduates, and nine months for graduate students.

SOSLR-Q126-005

Feb

2026

A smiling student in her graduation cap and gown and her diploma in hand, with a woman in the background holding a camera.

What Percentage of Parents Pay for College?

By Kayla McCormack | Family Finances, Student Loans, student_loan | No Comments

If you’re a parent with a child planning to attend college, you’ve likely already begun to worry about how you’re going to pay for their college tuition. However, the percentage of parents who pay for their child’s college education may be lower than you think. Learn more about the statistics, and get tips on how to afford your child’s college tuition.

Table of Contents

What Percentage of Parents Pay for Their Children’s College Education?
What Student Loans Are Available to Parents?
Saving for Future College Costs
Tips for Saving for College
FAQ

Key Points

• Almost 60% of families created a plan to pay for their child’s college education in 2025, with many relying on borrowing.

• Parent PLUS Loans and private parent loans are common borrowing options, with different interest rates, fees, and eligibility requirements.

• Refinancing existing student loans can free up money for future college expenses, but it may eliminate federal benefits and protections.

• Saving strategies include high-yield savings accounts, 529 college savings plans, and Coverdell Education Savings Accounts for tax advantages and investment growth.

• Starting early with even small contributions allows funds to grow over time and reduces the reliance on student loans for future education costs.

What Percentage of Parents Pay for Their Children’s College Education?

According to Sallie Mae’s “How America Pays for College 2025” survey, 59% of families created a plan to pay for college before enrollment in 2025, and nearly half (48%) reported that they borrowed to help pay for it.

However, the reality is that paying for even a percentage of the total college bill can be difficult for most families. How much should parents be saving exactly? Average yearly tuition, fees, and living expenses per student currently amount to $38,270, according to the Education Data Initiative. (As you might guess, private colleges can be significantly more expensive than in-state public universities.)

To put it another way, the typical family plans to contribute over $150,000 to the total college cost for four years, and they could seek to save tens of thousands of dollars to finance their kiddos’ higher education.

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-hidden-fees loans, you could save thousands.

What Student Loans Are Available to Parents?

Parents considering borrowing a student loan to pay for their child’s education can opt for a federal Parent PLUS Loan or explore options available with private lenders.

According to the same Sallie Mae 2025 survey mentioned earlier, parents’ income and savings covered nearly half of college expenses (48%) in the 2024–25 academic year, with scholarships, grants, and borrowing making up the rest.

Parent PLUS Loans

Parent PLUS Loans are a type of federal student loan available for parents of dependent undergraduate students.

To apply, parents or their undergraduate child must first fill out the Free Application for Federal Student Aid (FAFSA®). They can then apply for the PLUS Loan directly on the federal aid website. A credit check will be conducted to review any adverse credit history, but approval typically won’t depend on factors such as the applicant’s credit score or debt-to-income ratio.

Parent PLUS Loans have a fixed interest rate that is set annually by Congress. For loans disbursed on or after July 1, 2025, and before July 1, 2026, the rate is 8.94%. Direct PLUS Loans carry an origination fee of 4.228% when disbursed between October 1, 2020, and before October 1, 2026.

Private Parent Loans

Private loans for parents are available from private financial institutions, including banks and credit unions. These lenders generally review factors such as the applicant’s credit score and income, and those of any cosigner. Private lenders determine their own interest rates, terms, and repayment plans.

To help you decide whether a fixed or variable interest rate would be best for your financial situation, compare annual percentage rates (APRs) among lenders. Some private lenders charge an origination fee, while others do not.

Saving for Future College Costs

It can be daunting to even think about saving in the range of $40,000 each year to pay for your child’s college costs on top of all your other financial responsibilities. One recommendation is to pay off your own student loans before putting significant amounts of money into college savings. Some parents find that refinancing their own student loans if they haven’t yet paid them off can help them save — giving them more financial wiggle room to fund their child’s future education expenses.

Student loan refinancing can help you save on your student loans so you can start putting money aside for your kid’s education by allowing you to trade in all your student loans for one new loan with a potentially lower interest rate and more favorable repayment terms.

However, refinancing your student loans has both pros and cons. You should first consider whether the benefits outweigh any potential negatives. For example, you may be able to secure a more competitive interest rate and lower your monthly costs, but refinancing federal loans will eliminate access to borrower protections or benefits. So, if you are using one of these benefits — such as Public Service Loan Forgiveness — refinancing may not make sense for you.

In addition, if you refinance for a longer term, you may have to pay more interest over the life of the loan, which is why you should read up on the topic with student loan refinancing guides and other resources.

When you refinance your student loans, the lender looks at your current financial situation, including your credit score, income, and future earning potential, to calculate an interest rate that could be lower than what you might be paying to the federal government or a private student loan lender.

Refinancing Options

If you are interested in refinancing student loans with bad credit, be aware that it may be more challenging to secure a competitive interest rate. It’s possible to find a lender and refinanced loans that meet your needs, but you may need to shop around. Be patient as you go through the process.

You might also consider adding a cosigner to your application. A student loan cosigner is someone who agrees to take on responsibility for the loan if you, the primary borrower, are unable to make payments in the future.

If you’re unable to add a cosigner or wish to refinance without a cosigner, you might want to take some time to build your credit. A few tips on building credit include making monthly payments on time, maintaining a low debt-to-income ratio, and checking your credit report regularly to correct any errors.

On top of potentially saving on interest rates, refinancing your student loans can consolidate multiple student loan payments into one monthly payment. This can simplify your money management and bill payments.

What’s more, if you can shorten your loan term through student loan refinancing, you could pay off your student loans even faster, reducing the amount of interest you pay over the course of your loan. Those savings can be used for your child’s future education — potentially helping them avoid having to take out too many student loans themselves.

Recommended: Student Loan Refinancing Calculator

Tips for Saving for College

There are a few options to help parents maximize their savings. One of the main benefits of saving up for college tuition while your child is still young is that time is on your side.

• If you can sock away even small amounts of money over time, it can earn interest or dividends over time, depending on where you invest it — potentially increasing the amount you’ll have to put toward your child’s tuition payments.

• Once you’ve decided to start saving up for a college fund, you’ll need to decide where to put that money. Some parents choose to set aside cash in a regular savings account, but the relatively low interest rates on most standard savings accounts mean that your money may not grow as much as you’d like it to over time. A high-yield savings account with compound interest can help your funds grow.

• Many parents consider a government-sponsored savings program to net significant tax benefits or invest their money so it will grow over time.

• When it comes to government savings plans, you can choose from a 529 College Savings Plan, which offers generous tax benefits, or a Coverdell Education Savings Account, which allows you to invest in stocks and bonds to cover education expenses.

The Takeaway

Most parents plan to contribute to their child’s college expenses, and starting to save today can help you put more money aside. If you still have student loans to repay from your own college days, one option is to refinance them with a lower interest rate to create some wiggle room in your budget to pay for your child’s tuition.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

How many families fill out the FAFSA?

Recent National College Attainment Network data shows that national FAFSA completion rates for high school seniors were about 46% for the 2025 cohort (as of June 2025). According to the U.S. Education Department, more than 5 million 2026–27 FAFSA® forms were successfully submitted by students and families across the country, representing a nearly 150% increase in the number of applications submitted at the same time last year.

Should parents borrow or ask their child to borrow money to pay for their college education?

It depends on the situation. Parent loans may offer lower interest rates for federal loans, but the parent assumes full responsibility. Student loans often have more flexible repayment options and forgiveness programs but may have stricter borrowing limits.

What are the pros and cons of refinancing student loans?

Refinancing student loans could yield a more competitive rate and lower your monthly payments. However, when you refinance federal student loans, you lose federal protections, such as forbearance. And, if you refinance for a longer term, you could wind up paying more interest over the life of the loan.

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

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.

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

SOSLR-Q126-016

Feb

2026

A person is typing on a laptop, which is on a chalkboard table surrounded by drawings of school supplies.

Should I Refinance My Federal Student Loans?

By Kayla McCormack | Fresh Out of School, Student Loans, student_loan | No Comments

Refinancing federal student loans can either help you pay down your loans sooner (by shortening your term) or lower your monthly payment (by extending your term). However, when you refinance federal student loans with a private lender, you may lose federal benefits and protections.

Refinancing is not a simple decision to make. Read on to learn more about federal student loan refinancing and whether it’s right for you.

Table of Contents

What Is Federal Student Loan Refinancing?
How Do Refinancing and Consolidation Differ?
What Are the Potential Benefits of Refinancing Federal Student Loans?
What Are the Potential Disadvantages of Refinancing Federal Loans?
How Many Times Can You Refinance Your Student Loans?

Key Points

• With refinancing, you can pay off your federal student loans sooner or lower your monthly loan payments.

• Refinancing involves rolling your private and federal loans into a new private loan with a different term and interest rate.

• The benefits of refinancing include potential savings on interest, lower monthly payments, and streamlined repayments.

• Refinancing your student loans with a private lender involves careful consideration, as you lose the benefits and protections that come with government-held student loans.

• Factors such as your credit score, your income, and market conditions can influence the terms of your student loan refinancing.

What Is Federal Student Loan Refinancing?

If you graduated with student loans, you may have a combination of private and federal student loans. Federal student loans are funded by the federal government. Direct Subsidized Loans and Direct PLUS Loans are both examples of these.

Interest rates on federal student loans are fixed and set by the government annually. The rate for the 2025-26 school year is 6.39% for undergraduate students. Private student loan rates are set by individual lenders. If you’re unhappy with your current interest rates, you may be able to refinance your student loans with a private lender and a new — ideally lower — interest rate.

Recommended: Types of Federal Student Loans

Can I Refinance My Federal Student Loans?

It is possible to refinance your federal student loans with a private lender, but you lose the benefits and protections that come with a federal loan, such as income-based repayment plans and public service-based loan forgiveness. On the plus side, refinancing may allow you to pay less interest over the life of the loan or pay off your debt sooner.

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-hidden-fees loans, you could save thousands.

How Do Refinancing and Consolidation Differ?

Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re signing different terms on a new loan to replace your old student loan(s).

Consolidation bundles multiple federal student loans together, allowing borrowers to repay with one monthly bill. However, it does not typically get you a lower interest rate. When you consolidate federal student loans through the Direct Consolidation Loan program, the resulting interest rate is the weighted average of the original loans’ rates, rounded up to the nearest one-eighth of a percent. This means you don’t usually save any money. If your monthly payment goes down, it’s usually because the loan term has been extended, and you’ll spend more on total interest in the long run.

Refinancing, on the other hand, rolls your existing federal and private loans into a new private loan with a different loan term and interest rate. When you refinance federal and/or private student loans, you get a new interest rate. This rate can be lower if you have a strong credit history, saving you money. You may also choose to lower your monthly payments or shorten your payment term (but not both).

What Are the Potential Benefits of Refinancing Federal Student Loans?

Potential Savings in Interest

The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you could save thousands over the life of the new loan. Plus, you may be able to switch out your fixed-rate loan for a variable-rate loan if that makes more financial sense for you (more on variable rates below).

Lower Monthly Payments

You can also lower your monthly payments, which typically involves lengthening your loan term and paying more in overall interest. (Shortening your term usually results in higher monthly payments but more savings in total interest.)

Streamlining Repayments

Refinancing multiple loans into a single loan can help simplify the repayment process. Instead of multiple loan payments with potentially different servicers, refinancing allows you to combine them into a single monthly payment with one lender.

What Are the Potential Disadvantages of Refinancing Federal Loans?

When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-held student loans. Those benefits fall into three main categories:

Deferment/Forbearance

Most federal loans will allow current borrowers to put payments on hold through deferment or forbearance when they are experiencing financial hardship. Student loan deferment allows you to pause your subsidized loan payments without accruing interest, while unsubsidized loans continue to accrue interest.

With student loan forbearance, you can reduce or pause your payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance — check your lender’s policies before refinancing.

Special Repayment Plans

Current federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make payments based on your discretionary income. However, it’s important to note that these plans typically have a higher total interest over the life of the loan. Private lenders do not offer these programs.

Student Loan Forgiveness

Teachers, firefighters, social workers, and other professionals who work for select government and nonprofit organizations may apply for Public Service Loan Forgiveness (PSLF). Changes made by the former Biden Administration have made qualifying easier — even for borrowers who were previously rejected. Learn more in our guide to PSLF.

The Teacher Loan Forgiveness program is available to full-time teachers who complete five consecutive years of teaching in a low-income school. Find out more in our Teacher Loan Forgiveness explainer.

You may be eligible for forgiveness under an income-driven repayment (IDR) plan after 20 or 25 years of payments. Most of the current plans are scheduled to close in the coming years, leaving only Income-Based Repayment for current borrowers or the new Repayment Assistance Plan, which launches in July 2026. Learn about your options in our guide to IDR plans.

Private student loan holders are not eligible for these programs.

Potential Advantages of Refinancing Federal Student Loans	Potential Disadvantages of Refinancing Federal Student Loans
Lower Interest Rate: Refinancing provides an opportunity to qualify for a lower interest rate, which may result in cost savings over the long term. There is also the option to select a variable rate for individual financial circumstances.	Loss of Deferment and Forbearance Options: These programs allow borrowers to temporarily pause their payments during periods of financial difficulty.
Adjustable Loan Term: This allows borrowers to make lower monthly payments, usually by extending the loan term, which could make loan payments easier to budget for but may increase the total amount of the loan in the long run.	Loss of Federal Repayment Plans: Loan holders become ineligible for special repayment plans, such as income-driven repayment.
Getting a Single Monthly Payment: Combining existing loans into a new refinanced loan can help streamline monthly bills.	Loss of Loan Forgiveness: Borrowers become excluded from federal forgiveness programs, including Public Service Loan Forgiveness.

How Many Times Can You Refinance Your Student Loans?

There is no limit to the number of times you can refinance your student loans. Each time you refinance, you essentially take out a new loan to pay off the old one, ideally with better terms. However, it’s important to ensure that refinancing is beneficial for your financial situation. Here are some key considerations:

Improved Financial Situation

You might qualify for better loan terms if your credit history or financial circumstances have changed for the better.

• Credit Score: If your credit score has improved, you may qualify for a lower interest rate.

• Income: A higher or more stable income can make you eligible for better loan terms.

• Debt-to-Income Ratio: A lower debt-to-income ratio can also help you secure more favorable terms.

Market Conditions

• Interest Rates: If market interest rates have decreased since your last refinancing, you might be able to get a better rate.

• Promotional Offers: Keep an eye out for new promotional rates or special offers from lenders.

Loan Terms

• Shorter Terms: Refinancing to a shorter loan term can reduce the overall interest you pay.

• Extended Terms: If you seek lower monthly payments, extending the loan term can provide relief, though it may increase the total interest you pay over the life of the loan.

• Consolidation: Refinancing multiple loans into a single loan can simplify your payments and possibly offer you better terms.

The Takeaway

If you’re looking to pay off your federal student loans sooner or lower your monthly payments, refinancing could be a feasible option. Potential benefits include getting a lower interest rate, adjusting the loan term, and streamlining repayments into a single loan.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQs on Refinancing Your Federal Student Loans

Who typically chooses federal student loan refinancing?

Many borrowers who refinance have graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered students less competitive rates than federal student loans. To qualify for a lower interest rate, it’s helpful to show high income and a history of managing credit responsibly, among other factors. The one thing many refinance borrowers have in common is a desire to save money.

Do I need a high credit score to refinance federal loans?

Generally speaking, the better your history of dealing with debt (which is reflected in your credit score), the lower your new interest rate may be, regardless of your chosen lender. However, though many lenders look at credit scores as part of their analysis, it’s not the single defining factor. Underwriting criteria vary from lender to lender, so shopping around is advisable.

For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. Check here for current eligibility requirements.

Are there any fees involved in refinancing federal loans?

Fees vary and depend on the lender. That said, SoFi has no application or origination fees.

💡 Quick Tip: Enjoy special member benefits and no hidden fees when you refinance student loans with SoFi.

Should I choose a fixed- or variable-rate loan?

Generally speaking, a variable-rate loan can save you money if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise — taking your loan’s rate with it.

Most federal student loans are fixed-rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable-rate loan.

Fixed-rate refinancing loans typically have:

• A rate that remains the same throughout the life of the loan

• A higher rate than variable-rate refinancing loans (initially, at least)

• Payments that stay the same over the life of the loan

Variable-rate refinancing loans typically have:

• A rate that’s tied to an “index” rate, such as the prime rate

• A lower initial rate than fixed-rate refinancing loans

• Payments and total interest costs that vary based on interest rate changes

• A cap, or a maximum interest rate

What happens if I lose my job or can’t afford loan payments?

Some private lenders offer forbearance — the ability to put loans on hold — in case of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. For policies on disability forbearance, check with the lender directly, as this is often considered on a case-by-case basis.

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

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

SOSLR-Q126-012