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Undergraduate students who have financial need can apply for the federal Pell Grant each year to receive aid for their education. If you meet the Department of Education’s (DOE) requirement for the grant program, be aware that there is a Pell Grant lifetime limit. Eligible students can receive a Pell Grant for about six years, or 12 terms of school.

Once you’ve reached the maximum number of times you can get a Pell Grant, you’ll be ineligible for future awards.

Keep reading to learn more on what the Pell Grant is, how to qualify, how the lifetime Pell Grant limit works, and other ways to pay for college.

What Is a Pell Grant?

A Pell Grant is a government-sponsored program that offers aid to undergraduate students who demonstrate exceptional financial need. The grant is not available to graduate and professional students. In general, students who have previously earned a bachelor’s degree or higher are not eligible for a Pell Grant.

Students applying for Pell Grant funds for the 2024-25 academic school year can receive up to $7,395.

How many Pell Grants you can get depends on factors including your financial need, your school’s confirmed cost of attendance, whether your enrollment status is part-time or full-time, and how long you plan to attend school each year.

Upon completing your degree program, Pell Grants generally do not need to be repaid.

FAFSA

To learn if you’re eligible for a Pell Grant, you need to complete a Free Application for Federal Student Aid (FAFSA®). The information on this application is used to determine your eligibility for the Pell Grant as well as other federal, state, and school-provided financial aid.

You can submit the FAFSA as early as October 1 before the academic year for which you’re applying for aid. The deadline to submit your FAFSA for the 2024-2025 school year is June 30, 2025. (Note that many students may not get access to the 2025-2026 FAFSA until December 1, 2024.) Some aid is awarded on a first-come-first-served basis, so it can behoove you to fill out your FAFSA earlier rather than later.

Recommended: Pell Grant vs FAFSA: What Are the Differences?

Eligibility

The government determines whether an undergraduate student meets the financial need requirement for a Pell Grant by evaluating the student’s Student Aid Index (formerly Expected Family Contribution). This is an estimation of how much a student and their family can be expected to pay toward college, and it is calculated using information provided on the FAFSA.

For the 2024-25 school year, the maximum SAI for Pell Grant eligibility is $4,730 or 35% of parents’ combined income from work, whichever is less. Students who are at or below this threshold might be able to receive Pell Grant aid.

How Many Pell Grants Can You Get?

You can apply for a Pell Grant for multiple academic years as long as you maintain your eligibility. As previously mentioned, students can receive the Pell Grant for up to 12 semesters or terms, or approximately six years.

How Lifetime Eligibility Works

Each award year is from July 1 of a calendar year to June 30 of the following year. In an award year, you can receive up to 100% of your eligible Pell Grant award; the Pell Grant lifetime limit that you can use is 600%.

In some situations, you might receive up to 150% of your Pell Grant aid (e.g., if you’re enrolled in fall, spring, and summer terms, full-time). Similarly, you might not always use 100% of your Pell Grant for an award year. This might come up if your enrollment dropped from full-time to part-time, for example.

Calculating Your Pell Grant Usage

To determine the Lifetime Eligibility Used (LEU) on your financial aid account, the DOE looks at how much Pell Grant funding you’ve received in a given award year compared to your total available award for that year to arrive at a use percentage.

It then adds your used Pell Grants for each award year to determine whether you’ve reached the lifetime limit for the grant program. If you’d like to track your own LEU percentage, log into your StudentAid.gov account and view the “My Aid” overview.

Alternatives to the Pell Grant

If you’ve reached your Pell Grant lifetime limit, or don’t qualify for the Pell Grant but still need financial assistance for school, there are other options to consider.

Other Grants

Pell Grants are just one of a handful of grants for college offered by the federal government. The DOE also provides:

•   Federal Supplemental Educational Opportunity Grants

•   Iraq and Afghanistan Service Grants

•   Teacher Education Assistance for College and Higher Education (TEACH) Grants

For the most part, grants don’t need to be repaid. Additionally, non-federal grants are provided to students based on need or merit. These grants are provided by some states and schools, as well as private organizations like nonprofits, businesses, community groups, and professional associations.

Recommended: FAFSA Grants & Other Types of Financial Aid

Scholarships

Another financial aid option that you won’t have to repay after graduating are scholarships. Scholarships are earned on merit or are provided to students who are in financial need. They are often one-time awards that are given by similar entities as grants.

In some cases, there may even be unclaimed scholarships that students may be able to apply for in order to bolster the money they have to pay for college.

Recommended: The Differences Between Grants, Scholarships, and Loans

Work-Study

Participating in a federal work-study program allows students to earn income that can go toward college costs. Employers that participate in the program might be on campus or off campus, and jobs offer part-time hours.

Your school provides your payment directly unless you request otherwise. How much you can earn through the program depends on your financial need, your school’s available funding, and when you apply.

Eligibility for the program is determined by information provided on the student’s FAFSA.

Federal Student Loans

The FAFSA is also used to determine borrower eligibility for Federal Direct Loans. The DOE offers undergraduate students loans that are Direct Subsidized or Unsubsidized Loans. The government covers interest on subsidized loans while the borrower is enrolled in school and during qualifying periods of deferment. With an unsubsidized loan, borrowers are responsible for paying accrued interest.

Graduate students are able to borrow Direct Unsubsidized Loans and PLUS Loans. PLUS Loans are also available to parents of dependent students.

Federal loans must be paid back with interest, but they offer low, fixed rates. They also offer student borrowers invaluable benefits, like income-driven repayment plans and generous deferment and forbearance options.

Private Student Loans

Some students find that they still need additional funds for school despite receiving federal financial aid. If you’ve exhausted your federal aid options and already applied to private scholarships and grants, you may want to look into private student loans.

A private student loan must be repaid, plus interest charges, and is provided by nonfederal lenders, like banks, credit unions, and online lenders. Lenders require applicants to undergo a credit check, which determines your eligibility, interest rate, and loan terms.

Borrowing requirements and offers often vary between lenders, so always shop around to find competitive rates and terms for undergraduate private student loans.

The Takeaway

Generally, if you maintain Pell Grant eligibility throughout your college career, you have can receive a maximum Pell Grant lifetime limit of six years to receive aid. However, you might reach this limit in a shorter or longer time depending on your level of enrollment each award year.

Other options to pay for college include cash savings, scholarships, work-study, and federal and private student loans.

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

FAQ

Can you hit your Pell Grant lifetime limit early?

Yes, it’s possible to reach your Pell Grant lifetime limit before the typical six-year timeline if you take on additional academic terms during an award year. For example, if you enrolled in summer courses and received Pell Grant aid for that period, you may hit your max sooner.

Is the Pell Grant disbursed every semester or every year?

Your school will typically disburse Pell Grant awards in a minimum of two disbursements at scheduled intervals throughout the award year.

Is there an age limit for filling out FAFSA?

No, there is no age limit to submit a FAFSA. Some financial aid programs, like the Pell Grant, have restrictions on the academic status of aid recipients, such as whether they’re enrolled as an undergraduate or post baccalaureate student.

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

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

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

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

SOISL-Q324-062

Loan stacking is the process of applying for multiple loans within an extremely short timeframe to get a lot of money fast. It typically occurs with borrowers applying online for funding, and both individuals and businesses may pursue this path to secure cash.

While loan stacking is not technically illegal, it can lead borrowers to take on more debt than they can comfortably repay — potentially wreaking havoc on their credit scores. Meanwhile, lenders stand to lose a lot of money via loan stacking as borrowers may default on these loans at a higher rate than with single loans. For this reason, some have policies against it written into their loan terms.

In short: Loan stacking is probably not a smart move, even if you’re trying to shore up your finances quickly. Here’s a closer look at this practice.

Defining Loan Stacking

Loan stacking is defined as taking out multiple loans in a short period of time in order to access large amounts of money. It typically happens via securing loans online.

While many consumers have multiple personal loans or credit cards, loan stacking is different because of the speed with which the loan applications are submitted and processed.

Some people and businesses may be legitimately trying to secure multiple loans (say, they’ve discovered they can’t increase the amount of a personal loan they already have and urgently need to fund major home repairs).

However, others who engage in loan stacking may have no intention of ever repaying the loans; they just want access to large amounts of cash fast. This can constitute loan stacking fraud.

How Loan Stacking Works

Given the speed with which many online lenders approve applications — faster, sometimes, than hard inquiries can show up on a credit report — borrowers may be able to secure multiple loans from different lenders in quick succession. When that happens, the borrower may be approved for large amounts of credit they might not otherwise have qualified for. (A lender might have declined to offer a loan if the applicant’s credit report had reflected the other loans being sought.) With a significant amount of debt secured, these borrowers could default on one or all of their loans.

That said, many financial institutions are wise to the ways of loan stacking and may include language against it in the fine print of the contract you sign to apply for the loan.

That means that if you’re engaging in loan stacking, you’re breaking the contract — which could nullify it or, in extreme cases, constitute fraud.

Recommended: What Are Personal Loans Used For?

Risks and Consequences of Loan Stacking

If you feel you need a lot of money in a short amount of time, loan stacking can be tempting. However, there are some serious risks and consequences to consider.

•   Increased debt burden. Obviously, if you borrow a lot of money, you’re going to owe a lot of money — more than you may be reasonably able to pay off. This can add to your financial stress and keep you from other goals, such as saving for the down payment on a house.

•   High interest costs. Most loans aren’t free. Even if you qualify for interest rates on the lower end of the spectrum, when you have multiple loans at the same time, interest can quickly add up.

•   Potential default. If you fail to repay your loans on time, they may go into default and be sent to collections. This can negatively impact both your credit score and your peace of mind. Collections agencies are within their rights to call you daily and may do so until they’re instructed otherwise in writing.

•   Negative credit impact. Aspects of loan stacking can negatively affect your credit score over time. (The amount you owe, for instance, accounts for 30% of the calculation. Getting a stack of loans will send debt higher and likely lower your score.) High interest charges and surging debt levels can cause you to make late payments or miss them altogether, further harming your three-digit number.

In these ways, loan stacking can have significant negative implications for your financial and overall wellbeing.

Recommended: Understanding Personal Loan Interest Rates

Legal and Ethical Considerations

Along with the negative ramifications on your financial standing and credit report, there are also legal and ethical reasons to think twice before loan stacking.

•   As mentioned above, some lenders have explicit policies against taking out multiple loans at the same time. While loan stacking may not technically be illegal, this means that you’d be breaking the lender’s rules.

•   If you carefully read the fine print on the application, you may see that you’re required to disclose any other loans (such as a personal loan or a HELOC) that you’ve recently applied for or taken out. These disclosure requirements mean if you fail to share this information, you may be committing application fraud. At the very least, the contract may be rendered null and void if the lending company discovers what you’re doing.

•   In more serious cases (say, in which other crimes occur), fines, legal fees, and even jail time could be involved.

Alternatives to Loan Stacking

If you’re making the wise decision to avoid loan stacking, there are alternatives that could help you get the financial relief you need without the risks that this tactic carries.

•   Debt consolidation loans. If the reason you’re looking to borrow money is to pay off other money you’ve borrowed, debt consolidation might be the right answer. This involves taking out a new personal loan to consolidate your debt (or balance transfer credit card) to pay off your existing debt and simplify your life by making just a single payment each month.

This financial move, if it involves personal loans, may offer the added bonus of lowering your overall interest rate.

•   Credit counseling. Bad credit habits are unlikely to resolve themselves without intervention. This means that even if you successfully pay down your debt, you might find yourself right back in the same “I owe too much” place in a few months or years. Credit counseling can help you get out of debt and ensure you avoid it going forward.

This service is often offered for free or for a low fee by nonprofit organizations. A certified counselor can help you assess your situation and take steps to better manage your money.

•   Negotiating with current lenders. Even if they don’t advertise it, many lenders will negotiate with you to help lower your monthly payments or extend the time you have to repay your loan. Extending a loan can involve paying more interest over the life of the loan, but it may be a wise move if money is tight and you are struggling with debt.

•   Exploring other funding sources. Taking out a single, large personal loan might be a better idea than loan stacking. In addition, you could also look into borrowing funds from friends and family or peer-to-peer (P2P) lending, a method of borrowing in which people borrow and lend money to one another without a bank being involved.

If you are considering loan stacking, it may be a smart step to consider these alternatives and find one that best fits your current situation.

Recommended: How to Apply for a Personal Loan

The Takeaway

Loan stacking — taking out multiple loans online from different lenders in a short timeframe — can be a dangerous move that can worsen a bad financial situation. It can lead to considerable debt and hefty interest charges, harming your credit score and your financial and emotional status.

If you need cash quickly, other options, such as securing a single personal loan, may be a better path forward.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Is loan stacking legal?

While loan stacking is technically not illegal, some lenders may have explicit policies against it. This means you may not be qualified for additional credit or borrowed funds if the lender sees that you’ve recently successfully applied for another loan. Additionally, using someone else’s name or personal information to apply for a loan is identity theft or identity fraud, which is a crime.

Can you stack personal loans?

While it’s certainly possible to have more than one personal loan, loan stacking on purpose can backfire. If you borrow more than you can afford to pay back on time, you can tank your credit score. Furthermore, these days, many lenders are wise to loan stacking, and they may not approve your application if they see another recent hard credit check on your file.

What are the risks of loan stacking?

Loan stacking can quickly put the borrower deeply in debt, potentially making it impossible to repay the loans in a timely fashion. This, in turn, can be devastating for their credit score and financial wellbeing. Additionally, since many lenders see loan stacking as a risk to their business, some have beefed up their underwriting process to prevent loan stacking, so you may simply be denied. Finally, if you falsify any information on your loan application or apply for multiple loans with no intention of repaying them, you may be guilty of application fraud, which can lead to fines and other consequences.

Photo credit: iStock/porcorex

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

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

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

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

SOPL-Q324-017

A home equity loan is a secured loan, using your home as collateral, while a personal loan is unsecured, meaning you don’t put up any collateral. Beyond this key difference, these borrowing options are similar in that both are typically lump-sum, fixed-rate loans that you’ll repay over a specific length of time.

If you’re wondering which is the better choice for your current financial needs, it can be wise to take a closer look at how each one works and the pros and cons involved.

What Is a Home Equity Loan?

Sometimes referred to as a second mortgage, a home equity loan allows you to use your home as collateral when you need to borrow money. Here are a few key points to note:

•   With this type of loan, the amount you can borrow is based on the equity you have in your home. Your home equity is the difference between your home’s current value and what you currently owe on your mortgage. Lenders may require that you have a minimum amount of equity (typically, at least 15% to 20%) to qualify.

•   If you’re a new homeowner, you may not have built up enough equity to qualify for this type of loan. But if you made a substantial down payment, you’ve owned your home for a while, or your home’s value has increased substantially since you purchased it, a home equity loan could be an option worth considering.

•   Lenders typically offer more competitive terms for this type of secured loan because it’s a lower risk for them. To put it another way: If the borrower defaults, they can foreclose on the property and recover the amount they’re owed.

Recommended: Understanding Home Equity

How Does a Home Equity Loan Work?

Home equity loan funds are generally distributed in a lump sum with fixed-rate monthly payments, though variable-rate options are offered by some lenders. Repayment periods can vary from five to 30 years. Here’s a closer look at how they work:

•   When you apply, you can expect lenders to look at your personal creditworthiness, including your debt-to-income ratio (DTI) and credit score. In most cases, you will need a credit score of 680 or higher to unlock favorable terms. A higher three-digit score may help you get approved for a better rate.

•   Your lender will likely require a home appraisal to verify your home’s value. (This is one of the reasons why snagging a home equity loan can be a more time-consuming process than getting an unsecured loan.)

•   If you’re eligible, you may be able to borrow up to 80% or, in some cases, even 90% of your home’s equity. So, for example, if you have $150,000 in equity, you might qualify to borrow $120,000 to $135,000.

It’s important to note that a home equity loan is not the same thing as a home equity line of credit (HELOC). A HELOC is a type of revolving credit (you draw against your limit over time), while a home equity loan is an installment loan, paid out in a lump sum.

What Is a Personal Loan?

A personal loan is similar to a home equity loan in that it allows you to borrow a lump sum of money, and you’ll repay those funds — with interest — in regular installments over a set period of years.

To understand what defines a personal loan and distinguishes it from a home equity loan, consider these points:

•   Most personal loans are unsecured, which means you don’t have to use your home or any other asset as collateral to borrow the money.

•   Because the lender is taking more risk with this kind of loan than a home equity loan, interest rates may be higher.

•   Since you don’t need to have a home appraisal and other steps completed, you may find that securing a personal loan vs. a home equity loan is a significantly quicker process.

How Does a Personal Loan Work?

If you decide to go with a personal loan, you’ll likely have a number of options to choose from — they’re offered by many banks, credit unions, and other lenders. And because lenders’ terms can vary significantly, you may want to do some comparison shopping before you make a choice.

When applying, it’s wise to be aware of these points:

•   If you aren’t using an asset to secure your personal loan, you can expect lenders to put a high priority on your credit score, income, and DTI when you apply. The higher your credit score, the better in terms of getting approved and securing a favorable rate. Many lenders look for a FICO® score of at least 580, but applicants who have scores over 700 are likely offered the most favorable terms. (Personal loan rates are usually lower than credit card rates, however, even if the loan is unsecured.)

•   Pay attention to how the length of the loan affects your payments. Personal loans are typically repaid over a term of two to seven years. If you’re looking for smaller monthly payments, a longer term may suit your needs, but that may increase the overall cost of the loan. A personal loan calculator can help you compare your monthly payments and the total (principal plus interest and fees) to be repaid.

Comparing Home Equity Loans and Personal Loans

Both home equity loans and personal loans usually offer fixed-rate, lump-sum financing options with terms that can be tailored to fit the borrower’s needs. And both offer borrowers a certain amount of flexibility in how the money can be used.

But there are some questions you may want to consider when deciding between the two, including:

How Much Do You Plan to Borrow?

If you need to borrow a large amount and you’re looking for a lower interest rate, you may find a home equity loan is the right product for your needs. Your monthly payments may be smaller if you sign up for a longer repayment period.

If you need a smaller loan — a few thousand dollars, for example, or even just a few hundred — a personal loan may be the more practical choice. But even if you plan to borrow a large amount, you may choose a personal loan to avoid tying your home to your loan. Some lenders offer large personal loans — as much as $100,000 or more — to well-qualified borrowers.

What’s the Timeline?

One of the major drawbacks to a home equity loan is that the approval process can take weeks (say, two to six weeks). Lenders typically will require an appraisal to determine your home’s current value, and there’s usually more paperwork involved with this type of loan.

A personal loan application, on the other hand, can take just minutes to complete online, and some lenders offer same-day approvals. If you’re approved, it may take only two or three days until the money lands in your checking account.

What’s the Risk?

Home equity loans come with more risk for the borrower than a personal loan. If you default on your payments and the lender decides to foreclose, you could potentially lose your home. Also, if you decide to sell your property, you’ll have to pay back the home equity loan.

Personal loans also carry some risk for borrowers. If you default on a secured personal loan, the lender could take whatever asset (a car or bank account, for instance) you used for collateral. And whether your loan is secured or unsecured, late or missed payments could lower your credit score (this can be true for home equity loans as well). If the account goes to collections, you could be sued for what you owe.

How Do You Plan to Use the Money?

You can use funds from both types of loans for just about any (legal) purpose. Borrowers often use them to:

•   Consolidate debt (say, to pay off high-interest credit card debt)

•   Pay for wedding or vacation costs

•   Make home improvements

•   Pay off medical or dental bills

•   Finance car repairs or the purchase of a vehicle

•   Fund moving expenses

There may be benefits to one or the other loan type that makes it a better fit for your specific plans. For instance, with a home equity loan, you can deduct the interest on funds you used to “buy, build, or substantially improve” the home you used to secure the loan, according to the IRS. So if you’re hoping to make home renovations, one of the different types of home equity loans may be the right choice.

You typically can’t deduct the interest on a personal loan. But the ease and speed of getting a personal loan may make it the better pick if an unexpected expense comes up — say, if your refrigerator or air conditioning system goes out, and you need money quickly for a replacement or major repair.

Pros and Cons of Home Equity Loans vs Personal Loans

Here’s a look at some of the advantages and downsides of a personal loan vs. home equity loan:

Personal Loan Pros

•   Flexible borrowing amounts and terms

•   Often unsecured, meaning there’s no risk of losing your home

•   Convenient and fast access to funds

Personal Loan Cons

•   Interest rate may be higher if loan is unsecured

•   Depending on borrower’s creditworthiness, may require collateral

•   Lenders may charge a loan origination fee, late payment fees, and/or a prepayment penalty

Home Equity Loan Pros

•   Flexible borrowing amounts and terms

•   Interest rate may be lower than unsecured loans

•   Interest may be tax-deductible if used for home improvements

Home Equity Cons

•   If you default on the loan, the lender could foreclose on your home

•   Approval process can take longer (two to six weeks) and may include additional costs

•   Some home equity loans have prepayment penalties and/or other fees

•   Must have enough equity in your home to qualify for the amount you want

•   If you sell your home, you’ll have to repay the loan

Carefully considering the upsides and downsides of a personal loan vs. a home equity loan is an important step in making the financial decision that suits you best.

The Takeaway

Home equity loans and personal loans both typically offer lump-sum payments at a fixed rate for a specified term. Home equity loans use your property as collateral, while personal loans are often unsecured.

It’s important to look at how each one might sync up with your particular financial situation and your reasons for borrowing the money. If you’re a homeowner, tapping into your home equity might get you a lower interest rate and a possible tax break. But the loan process is typically quicker and easier for a personal loan — and you won’t have to tie the loan to your home and put your residence at risk.

If you think a personal loan might be right for you, see what SoFi offers.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Can personal loans be used to consolidate debt?

Yes, debt consolidation is one of the top reasons borrowers choose to get a personal loan. You might use this kind of loan to pay off one or more high-interest loans or credit card accounts, potentially simplifying repayment and lowering your costs.

What credit score is needed for each loan type?

Here are how credit scores for home equity loans vs. personal loans typically stack up: Lenders typically like to see a credit score of 680 or higher for home equity loans and 580 or higher for personal loans. Borrowers with higher credit scores usually qualify for more favorable loan rates.

What is the downside of a home equity loan?

The biggest drawback to a home equity loan vs. a personal loan is that it’s tied to the home you use to secure the loan. This means that if you default on your payments, the lender could foreclose on your home. Also, if you decide to sell your home, you’ll have to pay back your home equity loan as well as your mortgage.

Photo credit: iStock/milorad kravic

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

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

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.

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.

SOPL-Q324-016

Personal loans are usually not considered income and are therefore not taxable. Rather, they are viewed as a kind of debt. There are, however, some exceptions to this rule which create situations in which a personal loan could be taxable.

Read on to learn the details about personal loans and their tax implications.

What Constitutes Taxable Income?

Taxable income is money that’s been earned and is subject to tax, such as your salary, investment income, and even lottery winnings. To figure out your taxable income, you take your gross income and subtract your exemptions and itemized or standardized tax deductions.

Definition and Examples

Taxable income falls under two main camps. Taxable income can include earned income, such as:

•   Wages

•   Salaries

•   Bonuses

•   Tips

•   Investment income

It also includes “unearned” income, such as:

•   Taxable interest earned

•   Ordinary dividends

•   Capital gains distributions

•   Alimony payments

•   Social Security benefits

•   Inheritances

•   Property income

As you can see, income can come in many different forms, such as money, goods, services, and property. Generally speaking, most income is taxable. It’s only non-taxable if it’s specifically exempted by law.

Personal Loans and Taxation

The Internal Revenue Service, or IRS, does not and cannot tax personal loans. That’s because a personal loan represents a kind of debt. The proceeds from this loan need to be repaid, and therefore personal loans aren’t considered taxable income.

That means they aren’t taxed — for the most part — and it doesn’t matter how small or large a loan may be or what you use the proceeds for. Neither the principal nor the interest paid can usually be taxed.

What’s more, there’s also zero impact on taxation whether you’ve taken out an unsecured personal loan or a secured one.

Worth noting: While personal loans aren’t usually taxable, they’re not tax-deductible either. (This differs from the situation with mortgages and student loans, in which cases the interest is typically tax-deductible.)

To sum it up, your personal loan usually won’t impact your tax situation in any way. In turn, you probably don’t need to note the loan on your tax returns. No additional forms need to be filled out and added to your return.

Recommended: Using a Personal Loan to Pay Off Credit Card Debt

Exceptions and Special Cases

While personal loans aren’t generally taxable, there is an exception. If the lender cancels the debt or gives you loan forgiveness, the proceeds of the loan then fall under cancellation of debt (COD) income. Once proceeds from the loan are forgiven, it then can be taxed.

While loan forgiveness isn’t too common (except for student loans), a portion of your personal loans can be nixed if you reach an agreement with the lender where you’re no longer responsible for paying back the remaining balance.

If you’re financially stretched thin and unable to repay the remainder of your loan, you can receive forgiveness in a couple of ways:

•   One, you enter debt settlement, where you negotiate with your lender by paying less than the amount owed.

•   Another way you can be cleared of your debt is if your lender has a hardship program. If you meet the eligibility requirements, the lender might wipe part or all of your remaining debt.

There are a few instances where canceled debt usually isn’t taxable, however:

•   A loan that’s forgiven by a private lender (i.e., family, friend) or an intra-family loan (aka a loan between two family members) is forgiven as a gift. Because these are treated as gifts, they are exempt from the gift and estate tax up to certain limits. In 2024, up to $18,000 in gifts can be excluded from taxation per donee (or recipient).

•   Canceled debt from a Chapter 11 bankruptcy (which is a legal process, when a person or entity declares they cannot pay creditors)

•   Canceled debt from insolvency (defined as a financial state in which a person is unable to pay bills)

Recommended: Guide to Insolvency vs. Bankruptcy

Reporting Loans on Tax Returns

Generally, you won’t need to report money you get from loans on tax returns — that is, unless it gets canceled or forgiven.

Getting into the weeds, the IRS usually requires you to report the canceled amount to the IRS on Form 1099-C, which is used for cancellation of debt (COD). To fill out the form, you’ll need to provide the following information:

•   Creditor’s name

•   Creditor’s address

•   Creditor’s tax ID (TIN)

•   Debtor’s name

•   Debtor’s address

•   Debtor’s tax ID (TIN, which may be an SSN)

•   Date of loan forgiveness

•   Amount cleared

•   Interest paid on the canceled debt

Recommended: Personal Loan Calculator

Avoiding Tax Pitfalls with Personal Loans

As mentioned, usually your personal loans won’t impact your tax situation in any way. Uncle Sam doesn’t need to know when you take out the loan or when you pay off your balance. Neither the lump sum you receive in the form of a personal loan nor the interest you pay is taxable. What’s more, they aren’t typically tax-deductible either, meaning you won’t receive any tax breaks.

To steer clear of potential tax pitfalls, consider following this advice:

•   Don’t report the proceeds of the loan or how much you paid off in a given year. Remember: A personal loan isn’t considered income. It’s money you owe and need to be repaid.

•   Money you pay back on a personal loan isn’t tax-deductible — neither the principal nor the interest.

•   If part or all of the remaining balance of the loan is forgiven or canceled, you’ll likely need to pay taxes on the forgiven amount. A form 1099-C (COD) will need to be completed by the tax deadline for individual tax returns.

•   Know that in some instances, you might not have to pay taxes on the forgiven amount of a personal loan. For instance, if the personal loan was from a friend or family member and forgiven as a gift, taxes won’t likely be due up to gift tax limits. The same can hold true if you filed Chapter 11 bankruptcy or are insolvent; you may not have to pay taxes.

•   If you have any questions, consult with a tax professional for guidance and one-on-one advice.

Speaking of taxes, if you owe a sum, you can use a personal loan to pay off taxes. However, it can be a smart idea to explore other options, such as an IRS payment plan, as well.

When comparing options, you’ll want to look at the personal loan interest rate, fees, monthly payment, and total cost of a personal loan to see if it fits your budget.

The Takeaway

For the most part, a personal loan doesn’t count as taxable income. It’s a debt, so you don’t have to fret over owing the IRS anything on the interest or the principal. There are a few exceptions, such as personal loans that are forgiven by a private lender or canceled due to, say, bankruptcy or insolvency.

Shopping for a personal loan? See if a loan from SoFi could be the right choice for you.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Do I report a personal loan as income on taxes?

Personal loans don’t count as income, so they don’t need to be reported to the IRS for tax purposes. To be a bit more specific: Because proceeds from personal loans aren’t taxable, the interest paid or the amount paid back don’t need to be reported to the IRS.

What if a personal loan is forgiven or canceled?

If a personal loan is forgiven or canceled, you’ll most likely need to pay taxes on the amount that’s forgiven or canceled. You’ll also need to complete and submit a tax form 1099-C (Cancelation of Debt) form as part of this process. There are some exceptions to this, however, so delve into your specific situation, possibly with a tax professional, to understand it in detail.

Can interest paid on personal loans be tax-deductible?

No part of a personal loan is typically tax-deductible, and that includes the interest paid. With other kinds of loans, such as home mortgages and student loans, the interest may be tax-deductible.

Photo credit: iStock/shurkin_son

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

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

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.

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SOPL-Q324-015

When deciding between online classes (also called e-learning) and in-person classes, both have perks and drawbacks. Online learning may offer more flexibility, while in-person classes might provide better face-to-face interaction and networking opportunities.

Since the 1950s, schools have used e-learning tools, starting with slide projectors and TV-based classes. Online learning gained significant traction during the pandemic when students couldn’t attend in person, forcing schools to rethink and redesign the learning process. Although enrollment in online courses has dipped a bit recently, it’s still a popular choice, with about 53.5% of higher education students enrolled in online or distance learning programs in 2022.

Even though more than half of college students opt for some form of online learning, the choice between online and in-person classes ultimately depends on what works best for you.

Keep reading to learn the differences between online vs in-person classes and find out which one might be a good fit for you.

Advantages of Online Classes

As technology advances and more schools launch online learning opportunities, the appeal of distance learning may pique your interest. So if you’re wondering whether online classes are right for you, here are some of the advantages to consider.

Flexibility

Whether you’re juggling a full-time job, raising a family, or handling a bit of everything, it can be a challenge to balance it all. This can make finding time for in-person classes feel nearly impossible. Online classes let you fit your studies into a schedule that works for you, as long as you meet the deadlines. Plus, with internet access, you can usually work on your courses from just about anywhere.

Convenience

Driving from appointments to work and then to school can quickly eat up your free time and your gas budget. Online classes can save you that commute time, giving you more time to study and do the things you enjoy.

Cost Savings

Online courses are often more budget-friendly than in-person programs. A big reason is due to the fact that you don’t have to worry about extra costs like gas, parking, and meals. Plus, some schools even offer online learning credits, which can help lower your tuition bill when you choose to take classes online.

Self-Paced Learning

Everyone learns differently. Some people are visual learners, while others need to listen to grasp the coursework. Online courses can give you the flexibility to learn in the way that works best for you. For example, your school might offer different options for how you receive coursework and resources, like e-books, PDFs, lecture recordings, and more.

Recommended: Tips for Navigating Night Classes

Advantages of In-Person Classes

In-person classes also come with perks. Here’s a look at some of the benefits of attending classes in person.

Face-to-Face Interaction

Interactive learning can make it easier for some students to absorb and comprehend the material. Joining group discussions and working on projects may help you understand the content better and allow you to connect with your classmates and professors.

Structured Environment

Some students need structure to learn effectively. In-person classes in classrooms, labs, and lecture halls offer a focused, distraction-free environment where you can stay fully engaged in your lessons. It’s a place where you can really concentrate on your studies without worrying about distractions like car alarms, barking dogs, or ringing phones breaking your focus.

Access to Resources

When you attend school in person, you have access to a wide range of resources right at your fingertips, like libraries and tutoring programs. One of the most valuable resources is your professor, who you can ask questions, get feedback from, and visit during office hours for extra support. With online classes, you might have to wait a bit to get a response, and some resources may require a visit to campus to use them.

Networking Opportunities

In-person classes offer unique networking opportunities that are hard to match online. If you thrive in a classroom setting, enjoy face-to-face interactions, and like getting involved in clubs and organizations, in-person classes could be a great fit. Being on campus helps you naturally connect with peers, professors, and guest speakers, which can build valuable relationships and a strong professional network for when you’re ready to launch your career.

Recommended: College Freshman Checklist for the Upcoming School Year

Challenges of Online Classes

While online classes offer plenty of benefits, there are also some drawbacks to keep in mind.

Self-Discipline and Time Management

Taking online classes, like working from home, requires self-discipline and time management skills. Without a set class schedule that keeps you in a specific place at a certain time each week, it can be tough to stay on track, especially if you’re prone to procrastination. If managing your time is a challenge, you might find it harder to fully benefit from what online learning has to offer.

Technical Requirements

To take online courses, you’ll usually need access to a computer and the internet. For some students, this can be a costly challenge if they need to upgrade their computer or increase storage space. Plus, if your internet goes down or your computer crashes, it can keep you from completing important coursework.

Limited Social Interaction

While online students will get to know their professors, they might never actually meet them in person. Also, it can also be harder to build relationships with classmates since interactions aren’t face-to-face. Connecting with your professor and other students might require more effort, which could be a drawback for some when it comes to taking online classes.

Challenges of In-Person Classes

Here are a few drawbacks to consider if you’re thinking about enrolling in on-campus classes.

Commuting and Scheduling Conflicts

For students who don’t live on campus, commuting to in-person classes can be time-consuming, tiring, and costly, not to mention the stress of dealing with traffic every day. If you’re considering an on-campus program, it’s important to think about how the daily commute might impact your schedule and energy levels.

Potential Distractions

Being on campus can sometimes mean dealing with unexpected distractions, like noise in common areas, interruptions from classmates, use of devices, or other activities going on around you. Certain distractions can make it harder to stay focused during study sessions or class time.

Higher Costs

In-person classes often come with extra expenses, such as gas, parking, and on-campus meals. While these expenses can add value by providing access to facilities and resources, they are something to consider when budgeting for your education.

Recommended: What Is the Cost of Attendance in College?

Choosing the Right Format

Even after weighing the pros and cons of online versus in-person classes, it can be hard to choose. Each has their benefits, so it really depends on your learning style, flexibility, and what you need.

To help you decide, consider:

•   How you like to learn

•   Your other responsibilities, like a job or family commitments

•   Whether commuting is easy for you

•   Your academic and career goals

For example, if you’re self-motivated and good at managing your own tasks, online classes might be a great fit. But if you find home distractions make it hard to focus, the structure of an in-person classroom might work better.

Also, remember that some schools offer hybrid learning, where you can mix both in-person and online classes. This way, you can enjoy the best of both worlds.

The Takeaway

Deciding between online and in-person classes (or a mix of both) is all about finding what works best for you. Each option has its perks and drawbacks.

Online classes might give you more flexibility and help you save money, which can make them a good choice if you’re on a budget or have a busy schedule. On the other hand, in-person classes often offer a more structured environment, which can be ideal if you thrive on routine. No matter your learning style, it’s all about choosing what fits your needs best and sets you up for success.

And finally, you’ll need to find a way to pay for your classes. Your options include cash savings, scholarships, grants, and federal and private student loans.

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

FAQ

Are online classes easier than in-person classes?

Online classes aren’t necessarily easier than in-person classes; they require self-discipline, time management, and motivation. While online courses offer flexibility, they often have similar workloads and expectations as traditional classes. Success depends on a student’s ability to adapt to the online learning environment and stay engaged with the material.

Can online classes be just as effective as in-person classes?

Yes, online classes can be just as effective as in-person ones, maybe even more so, depending on how you learn. If you need hands-on experiences and face-to-face interaction, in-person classes might be a better fit. But if you like working at your own pace and managing your own schedule, online classes could be the way to go.

How do I stay motivated in an online class?

To stay motivated in an online class, set clear goals and create a study schedule. Break tasks into manageable steps, participate actively in discussions, and stay organized. Find a quiet, dedicated workspace, connect with classmates for support, and reward yourself for meeting milestones to maintain engagement and accountability.

Photo credit: iStock/supersizer

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

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

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

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

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