SoFi

Yes. The main point of a refinance is to get a lower rate, and graduates who qualify can save serious money.

Interest Rate, Explained

An interest rate is the rate charged to borrow money. Interest is calculated as a percentage of the unpaid principal amount. Federal student loans have a fixed rate, while many private student loans have a fixed or variable rate.

Student loans generate interest daily. Lenders typically add the accrued interest to the balance each month when the bill is generated.

The interest rate paid on any loan may make a big difference. If you have $75,000 in student loan debt and 20-year repayment term, the difference in interest paid with a 6.5% rate and a 4% rate is over $25,000.

To refinance student loans, people with excellent credit and a healthy income — or a solid cosigner — will generally qualify for the lowest rates.

Lowering Your Interest Rate With Consolidation vs Refinancing: How They Differ

For Federal Student Loans

Consolidation is a term reserved for federal student loans and is different from refinancing. Student loans are combined into one loan with a longer term (up to 30 years), reducing the monthly payments. The rate is the average of the existing loans’ rates, rounded up to the nearest one-eighth of one percentage point.

Opting for a Direct Consolidation Loan allows borrowers to retain access to federal programs like deferment, forbearance, and income-driven repayment plans.

But because the new interest rate is the average of the existing rates, rounded up a hair, consolidating loans and drawing out the term usually results in more total interest paid.

Normally, if you had started paying toward Public Service Loan Forgiveness and then consolidated your loans, you’d have to start your qualifying payments over. But a waiver through October 31, 2022, will count repayment on loans before consolidation.

For Private Student Loans

Refinancing means paying off your private or federal student loans with one new loan with a new rate and, sometimes, term.

Refinancing with a private lender may lead to substantial savings.

Then again, it might not be the right move for every borrower. For those with federal student loans, refinancing means losing access to federal student loan forgiveness and income-driven repayment plans.

But borrowers with higher-interest student loans may find the allure of a lower rate — fixed or variable — tempting. If you qualify, you could reduce your payments or save a lot on total interest paid.

Recommended: Can Refinanced Student Loans Still Be Forgiven?

Understanding Your Options to Lower Interest Rate

Federal student loan consolidation is meant to make your monthly payment more manageable by lengthening your repayment term, but it will not lower your rate.

Only by refinancing with a private lender can you try to lower your current private or federal student loan rates. This student loan refinancing calculator can give you an idea of how much you could save by refinancing.

Before you start browsing interest rates, take a look at your current loans. How much do you owe? What are the rates? Are you enrolled in any federal benefits, eligible for any, or hoping to be?

Having this information at the ready can provide valuable insights as you start comparing the rates and terms you might qualify for from different lenders. A rate quote is usually quick and entails only a soft credit pull.

After you’ve determined how much you could potentially save by refinancing, consider looking at other benefits offered by the lender.

Refinancing With SoFi

Refinancing student loans to a lower interest rate makes sense for borrowers who are able to do so and who don’t qualify for or need income-driven plans or other federal programs.

SoFi offers student loan refinancing with low fixed or variable rates, as well as access to member benefits at no cost.

There are no fees when you refinance with SoFi, and the application process can be completed online. If you’re ready to take the next step in paying off student debt, get a rate quote in two minutes.

FAQ

What is federal student loan refinancing?

If you refinance federal student loans, a private lender pays them off with one new private student loan that ideally has a lower rate. Federal student loan consolidation is different.

Do low interest rates apply to student loans?

Federal Direct Subsidized and Unsubsidized Loans for undergraduates have a fairly low fixed rate for all borrowers. The rate for Direct Unsubsidized Loans for graduate and professional students is higher. The rate for Direct PLUS loans, for graduate students and parents of dependent undergrads, is yet higher. Most federal student loans also have loan fees that are a percentage of the total loan amount. The fee for PLUS loans has run over 4% in recent years.

Private student loan rates generally are higher than federal student loan rates, but refinancing rates may be quite low for those who qualify. There’s never any cost to refinance, and you can do so as many times as you want.

Can you refinance a student loan for a lower interest rate?

Yes, if you qualify to do so.

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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

If you’re like most borrowers, particularly those with six figures’ worth of student loans from graduate or professional school, you might find that looking at your student debt square in the face is a downer, but repayment can be managed.

Is refinancing a good idea? It can be. When? When you can snag a lower interest rate and in a few other situations.

Student Loan Repayment Plans

Chances are you set up a student loan repayment plan after graduation and figured you’d revisit it later — when you’re making more money, when your career is more secure, when you have more time. The standard repayment plan for federal student loans is 10 years. Direct Consolidation Loans have a repayment period of 10 to 30 years.

Putting off the repayment thought is understandable. After receiving your undergraduate or graduate degree, your focus is on other things (like building a career).

But if you let that nebulous “later” turn into “never,” the repercussions can be costly. At some point, refinancing your student loans could potentially save you a significant amount of money. You just need to figure out if it is the right move for you.

When to Finance Your Student Loans

1. Your Current Student Loans Have High Interest Rates

Look at the interest rates you’re paying on your student loans, particularly federal Direct Unsubsidized Loans (graduate or professional), federal grad PLUS loans, and/or private student loans.

Depending on how high your loan balance is and how much you could reduce the interest rates by refinancing one or more loans, your cost savings may be significant.

2. Your Financial Situation Has Improved Since You Took Out the Loans

Maybe you were a starving student when you took out federal or private student loans, but ideally your financial situation has improved with time. This is great news for your bottom line, because a higher credit score and income help a borrower qualify for lower interest rates.

If you expect to stay on an upward financial trajectory, you might even consider refinancing to a variable-rate student loan, which will have a lower starting interest rate than a fixed-rate loan. Variable rates are tied to market fluctuations, though, which means rates that are very low today are likely to go up at some point.

The upshot is that a variable-rate loan could be a good option for a qualified borrower who intends to pay off the loan at a relatively fast pace.

3. You Don’t Plan to Use Certain Federal Student Loan Benefits

Borrowers who go to work in the public sector may qualify for the Public Service Loan Forgiveness program. Some federal programs also offer relief for borrowers who experience financial hardships (such as student loan deferment and forbearance, income-driven repayment plans, and the graduated repayment plan).

If you expect your income to be unpredictable or you’re looking into qualifying public service employment, it probably wouldn’t behoove you to refinance federal student loans. But refinancing could make sense if you don’t plan to tap into any of the federal programs listed above and you can gain a lower rate.

Recommended: Looking for more guidance on your student loans? Explore SoFi’s Student Loan Help Center for tips, resources, guides, and more!

4. You’re Going to Take Out a Large Loan

For loans like mortgage loans, lenders will look at your debt-to-income ratio, among other things. DTI is your monthly debt payments per month, including your future mortgage payments, divided by your gross monthly income. A low DTI generally signals better odds of loan approval and better interest rates.

Decreasing your monthly student loan payment by refinancing, with, say, a long loan term, could lower your DTI.

It might make sense to refinance your student loans at least six months before buying a home or making any other large purchase. That will give you time to recoup the points lost after a hard credit inquiry.

Once the mortgage or other big loan has been secured, you could refinance again, this time picking the lender offering the lowest rate, not just the lowest payment. You can refinance student loans as many times as you wish.

If you think student loan refinancing may be a good option for you, the next step is to check out several refinancing providers to compare interest rates and other features.

Refinance Student Loans With SoFi

You can refinance both federal and private student loans into one new loan with SoFi in an easy, all-online process. You can get your rate in two minutes.

SoFi also offers access to an extensive member network through complementary member experiences like happy hours and dinners.

Which means you could gain more than cost savings when you refinance student loans.

FAQ

When should I refinance my student loans?

It might make sense to refinance as soon as you have a stable income and good credit that can usher in a lower rate.

Can I refinance student loans after buying a house?

Buying a home creates new debt, and that can make refinancing student loans more difficult. But by waiting several months or even a year to refinance, the dust can settle on the mortgage decision.

Is refinancing my student loans a good idea?

If you’re struggling to repay federal student loans, you might consider an income-driven repayment plan or federal student loan consolidation.

But if you can qualify, your income is stable, and you would save money by refinancing federal or private student loans, that might be a smart move.

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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Medical school is a big commitment. Not only will students spend four years of their life working towards a medical degree, but they’ll pay a big chunk of change for it (financing medical school is a major undertaking and can lead to debt). Which is why choosing the right medical school is so important. Keep reading for insight into how to pick the right medical school and how to finance it.

What Is Medical School?

Medical school is a necessary step towards becoming a doctor and generally, it takes four years to complete in order to receive an M.D., N.D., or D.O. degree. After medical school, graduates will need to pursue a medical residency in their specialty before they can become practicing doctors.

Recommended: How to Pay for Medical School

Different Types of Medical Courses

One of the first steps potential medical students can take to find the right medical school for them, is to better understand the different types of medical courses there are. Once they know what type of medical courses they want to take, they can narrow their search to just medical schools that offer those courses.

Traditional Courses

Some medical students may be attracted to more traditional courses that have students finish two years of pre-clinical work before they move on to the three years of clinical work they need to complete to get their degree. Typically, pre-clinical work occurs in a classroom setting. This is where medical students can learn the key principles of medical science. Once they move on to the clinical work portion of their studies, they will need to work in hospitals or clinics with direct supervision, while attending lectures.

This combination educates students on medical practices while making sure they get the hands-on experience they need to use their pre-clinical knowledge in real life situations.

Integrated Courses

Integrated courses are becoming more and more popular at medical schools, as this style, of course, combines pre-clinical and clinical education. In an integrated course, medical students can expect to learn practical clinical skills and work through problem-based learning.

Often in integrated courses, a lot of the students’ work is self-directed and early patient contact is encouraged.

Intercalated Courses

Intercalated courses are unique, as they allow students to take a year out of medical school to earn a BSc or MSc in a related subject. It’s not a guarantee that every medical school will allow students to do this, but in some schools students have the option or are mandated to do intercalated courses.

Recommended: Making Sense of the Rising Cost of Medical School

How to Choose Your Medical School

Every medical student had to ask themself at one point, which medical school is right for me? Here’s a few factors medical students can take into consideration to make answering that very important question easier.

1. Cost

Med school tuition is pricey and it’s not uncommon for students to take on debt for medical school. On top of tuition, students will also need to pay additional costs such as service fees and textbooks.

While medical schools do offer financial aid such as grants and medical school scholarships to their students, it’s important to prepare for the cost of medical school as not everyone receives financial assistance.

Attending an in-state school could help medical students find a lower tuition cost than at out-of-state or private options. For example, at the University of Utah, tuition for medical school if the student lives in-state is about $40,000 a year, whereas out-of-state students can expect to pay closer to $77,000 a year on tuition at the same school.

Each school charges different tuition rates, but generally, staying in-state can save medical students a lot of money.

Recommended: Average Cost of Medical School

2. Programs Offered

Apart from their general MD program, medical schools typically have multiple programs to choose from that lead to different careers paths. Before applying to medical school, students can take into consideration how many different programs are offered, how many students are accepted to each program, how long their ideal program takes to finish, and how that program aligns with their career goals.

3. Admissions Criteria

One of the easiest ways to start a search for the right medical school is by looking for schools where the applicant meets the admissions criteria. Students can do some research on the admissions criteria for each school to make sure their qualifications lineup, as well as what they need to do to apply to each specific school.

4. Location

Location matters. The location of a medical school can affect how much it costs a student to attend, what their housing situation looks like, and what their lifestyles outside of school is like. By choosing a local school, students may be able to save money on tuition or be able to cut costs by living with a family member. Not to mention, some locations simply have a higher cost of living than others. Students can crunch the numbers on what it would cost them to live at each medical school they want to apply to, so they can get a better idea of what attending medical school will cost them as a whole.

5. Career Path Opportunities

There are a wide variety of career opportunities that can arise after medical school and not all of them involve working as a practicing doctor. Medical school graduates can pursue teaching, research, and business opportunities amongst other exciting career paths. Students can check what career path opportunities a school’s curriculum and counseling center support before they apply to get a feel for if that medical school can help them meet their unique career goals.

SoFi’s Private Student Loans For Medical School

Students that need to take out medical school student loans, may find that SoFi’s private student loans can meet their needs. It only takes minutes to apply online and borrowers can apply with a cosigner. Keep in mind that because private student loans don’t have to offer the same benefits or protections as federal student loans (like the opportunity to apply for Public Service Loan Forgiveness), they are generally considered by students only after they have thoroughly reviewed all other financing options.

Borrowers can repay their SoFi student loans in a way that works for them by choosing a monthly student loan payment and rate that fits their budget. Borrowers never have to worry about fees and can enjoy a six-month grace period after graduation so that they have time to get settled in their post-grad life before they need to start making monthly loan payments.

Recommended: Smart Medical School Loan Repayment Strategies

The Takeaway

Choosing medical schools to apply to is a lot of work, but that research is a key step students need to take to find the best medical school for them.

FAQ

Is 30 too old for med school?

No, 30 is not too old to attend medical school. Applicants that apply for medical school will be in their mid-thirties four years later whether or not they pursue a degree. It’s up to them if those four years make a difference in the scheme of things.

What makes a good med school?

A good medical school is one that meets the needs of the student, when it comes to location, finances, and program opportunities.

How do you compare med schools?

Potential medical students can take factors like cost, location, and areas of study into account to compare and contrast their different medical school options.

Photo credit: iStock/Courtney Hale

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.

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.

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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Considering the average published college tuition according to The College Board ranges from $3,800 for a public two-year institution to $38,070 at private nonprofit four-year institutions, college students need all of the financial help that they can get.

One option is to use scholarships, which are a form of financial aid awarded to students to help pay for tuition and other education expenses. Unlike student loans, scholarships don’t need to be repaid.

Below, you’ll find the answers to “what is a scholarship?” as well as where to get a scholarship and the different types of scholarships that may be available to you.

What Is a Scholarship?

A scholarship is a form of financial aid that’s awarded to students to help pay for school. Over the last 10 years, the number of scholarships awarded has increased by 45%, according to the National Scholarship Providers Association (NSPA). Each year, there’s an estimated $46 billion in grants and scholarship money awarded by the U.S. Department of Education, colleges, and universities and an additional $7.4 billion awarded through private scholarships and fellowships.

Scholarships can be delivered in a lump-sum payment or the scholarship award can be broken up into multiple payments that are sent out each semester or school year. Depending on the scholarship, funds can either be sent directly to the student or sent to the school and the student would pay any additional money owed for tuition, fees, room, and board.

Scholarships are awarded based on a number of different criteria, including academic achievement, athletic achievement, community involvement, job experience, the field of study, financial need, and more.

Unlike student loans, scholarships don’t need to be repaid. Scholarships are generally considered gift aid.

What Is a Full-Ride Scholarship?

A full-ride scholarship is an award that covers everything — tuition, books, fees, room, board, and sometimes even living expenses. Full ride scholarships mean no other additional aid is needed to pay for school.

Full-ride scholarships are highly sought after and some may have strict guidelines and requirements.

Different Types of Scholarships for College Students

There are various forms of gift aid that students can use to pay for college. While there are differences between them, they’re similar in the fact that they do not need to be repaid. Here are different types of scholarships for college students.

Federal Grants

Federal grants are need based financial aid from the U.S. government to help students pay for college. The Department of Education offers a variety of grants to students attending four-year colleges or universities, community colleges, and career schools.

Most federal grants are awarded to students based on financial need, the cost of attendance, and enrollment status. Students can start by submitting a Free Application for Federal Student Aid (FAFSA®) form annually to determine eligibility. Once FAFSA is submitted, your school will let you know how much you may receive and when you may receive it.

Here are grant programs provided by the federal government:

•   Federal Pell Grants

•   Federal Supplemental Educational Opportunity Grants (FSEOG)

•   Iraq and Afghanistan Service Grants

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

While grants don’t typically have to be repaid, there are circumstances that may require repayment, such as:

•   You withdrew from the program early

•   Your enrollment status changed that reduced your eligibility for the grant

•   You received outside scholarships or grants that reduced the need for federal student aid

•   You received a TEACH Grant but did not meet the requirements for the TEACH Grant service obligation

Recommended: Finding Free Money for College

State Grants and Scholarships

According to the National Association of Student Financial Aid Administrators (NASFAA), almost every state education agency has at least one grant or scholarship available to residents. Eligibility may be restricted to state residents attending an in-state college, but this isn’t always the case. Check what state financial aid programs may be available to you through your state education agency.

Scholarships and Grants From Schools

Institutional aid is awarded to students by the schools they plan to attend. Scholarships and grants from schools may be offered based on need or merit. For example, a student may be awarded a scholarship or grant through the school for strong academic or athletic performance.

It’s also important to read the requirements for scholarships and grants from schools. Some awards may demand that students maintain a minimum GPA throughout the year. Others may only be available for your freshman and sophomore years.

Private Scholarships

Private scholarships are financial aid awarded to students that are funded by foundations, civic groups, companies, religious groups, professional organizations, charities, and individuals. Most private scholarships have specific criteria required to qualify, according to the Massachusetts Educational Financing Authority (MEFA) , and it may take some extra effort to research the availability of private scholarships.

Most private scholarships are only awarded for a single year. Check with the scholarship’s agency to find out if the scholarship is renewable and any criteria you may need to meet.

Main Sources of Scholarships and Grants

The main sources of scholarships and grants are from the four types of scholarships and grants listed above. Here are the major sources of scholarships and grants for college students and the percentage of total grants and/or scholarships that comes from each source:

•   Federal grants: 47%

•   State grants and scholarships: 8%

•   Scholarships and grants from schools: 35%

•   Private scholarships: 10%

Recommended: A Guide to Unclaimed Scholarships and Grants

Reasons to Be Awarded With a Scholarship

Scholarships aren’t only awarded to those with a 4.0 GPA. There are many reasons to be awarded a scholarship and students should consider their skills, areas of interest, and past achievements or awards.

Need-Based

Need-based scholarships are typically awarded to students based on their household income. The school’s financial aid office may also determine how much financial aid the student is able to receive.

Schools subtract your Expected Family Contribution (EFC) from your Cost of Attendance (COA) to determine your financial need and how much need-based aid you can receive. Your COA is the cost to attend the school and your EFC is the number that financial aid staff uses to determine how much financial aid you would receive. Information provided on your FAFSA is used to calculate your EFC.

Academic performance may also be taken into consideration when awarding need-based scholarships.

Academic Scholarships

Academic scholarships, also known as merit scholarships, are awarded to students based on their GPA and SAT/ACT admissions test scores. Award committees may also take other factors into consideration, such as extracurricular activities and leadership qualities.

Athletic Scholarships

Athletic scholarships are awarded to students who show exceptional athletic abilities while also taking academic performance into consideration. The National Collegiate Athletic Association, a nonprofit organization that regulates student-athletes, has provided more than $3.6 billion in athletics scholarships annually to more than 180,000 student-athletes. Athletic scholarships are not available at Division III colleges. Only about 1% to 2% of high school athletes are awarded athletics scholarships to compete in college.

Recommended: Balancing Being a Student Athlete & Academics in College

Community Service Scholarships

There are also scholarship opportunities for students who volunteer in their local communities. For example, the Equitable Excellence Scholarship awards students who have made a positive impact on their communities through volunteer service. The scholarship provides renewable awards of $5,000 to students for a total of $20,000 per recipient as well as one-time $2,500 scholarships.

Scholarships for Hobbies and Extracurriculars

Certain hobbies, interests, or extracurricular activities may also provide scholarships. For example, members of Starfleet, the International Star Trek Fan Association, can be awarded scholarships up to $1,000 in the categories including medicine, engineering, performing arts, international studies, business, science, education, writing, law enforcement, and general studies.

Scholarships based on Identity or Heritage

Some scholarship programs offer funds to help support traditionally underrepresented students. Outside of identity, many of these scholarships may require a minimum GPA, a need for financial assistance, leadership potential or participation in community activities.

There are also scholarships for mothers. When dealing with the costs of child care, many single mothers face unique obstacles to getting their college degrees.

Employer or Military Scholarships

Students may also be able to find opportunities through the employer of a family member. Eligibility and award amounts vary by employer. A variety of scholarships are also available to the children and spouses of active duty, reserve, National Guard, or retired members of the U.S. military.

How Can You Spend a Scholarship for Student?

How you can spend a scholarship for students depends on that specific program. Some programs may send the check directly to the college’s financial aid office to apply the funds to your tuition bill. Funds that are sent to the student may be used for education-related expenses deemed necessary by the school, like tuition, books, supplies, and housing.

Make sure to check with the scholarship program for rules regarding how you can spend your award.

How to Get a Scholarship for Student

There are several ways for students to find and apply for scholarships. Students can contact the financial aid office at the school they wish to attend or use other free resources. Some of these include:

•   Your high school counselor

•   The U.S. Department of Labor’s scholarship search tool

•   Federal agencies

•   Your state grant agency

•   Your library

•   Foundations, religious or community organizations, local businesses or civic groups

•   Organizations related to your field of interest

•   Identity-based organizations

•   Your employer or your parents’ employers

Check with each program to see how to apply and the requirements. Make sure you apply by the deadline.

Scholarship Requirements

Scholarship requirements vary by program. However, you may notice some common criteria, such as:

•   A GPA minimum

•   Age and grade requirements

•   College enrollment requirement

•   An essay requirement

•   Financial requirements

•   Location requirement

•   Test score requirements

Depending on the program, there may be some requirements related to your major, ethnicity, gender, disability or military service. In some cases, applicants may be required to complete an interview. If you’re applying for scholarships, check with each program to be sure you fully understand the application requirements and eligibility criteria.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

Alternative Funding Options for College Students

Outside of scholarships and grants, there are other ways for students to pay for college.

One option is to get a part-time job and send extra income aside to put towards tuition or other school-related expenses. While this will likely not cover everything, it could make your costs more manageable. If you have a 529 college savings plan, you can tap this savings account to pay for qualified education expenses on a tax-free basis.

Students can also turn to the federal government to see if they qualify for federal work-study jobs, federal student loans, aid for military families, aid for international students or certain tax benefits. According to the Department of Education, outstanding federal student aid totals $1.61 trillion, representing 43.4 million students. These are typically awarded based on financial need and students can see what they qualify for by filling out FAFSA each year.

Another option is to use private student loans to pay for college. These are nonfederal loans made by a lender, such as a bank, credit union, state agency, university or other institution. Private student loans can be an option to consider after you’ve exhausted all other forms of aid.

Unlike most federal student loans, private loans require a credit check and the loan’s interest rate will depend on the borrower’s creditworthiness, among other factors. Private student loans are not required to offer the same borrower protections as federal student loans, things like deferment options or income-driven repayment plans.

You can even apply for scholarships and grants to pay off student loans after you’ve already graduated. You may also be able to have your student loans forgiven through state or federal programs.

The Takeaway

Before taking on student loans, scholarships and grants can be used to supplement other forms of financial aid. Before you start applying for scholarships, make sure you read the program’s requirements and turn in the application before the deadline.

If you’ve taken out federal or private student loans, there’s always the option to refinance. By refinancing your student loans, you could potentially qualify for a lower interest rate that could help you pay off the principal faster and/or decrease how much you pay each month. Note that decreasing your monthly payments is often the result of extending your loan term, which can ultimately increase the cost of borrowing over the life of the loan. Refinancing any federal loans will eliminate them from federal protections or programs such as the option to apply for Public Service Loan Forgiveness.

You can refinance the student loan with SoFi. If a competitor offers a lower rate, SoFi will match it and give you $100 after funding the loan.

Photo credit: iStock/fizkes

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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Student loan default rehabilitation is a one-time opportunity to clear the default on a federal student loan. It also allows you to regain eligibility for federal student aid after your loans have gone into default.

With student loan rehabilitation, you can work with lenders to create a new payment plan that is theoretically more reasonable and affordable. This can be advantageous if you follow payment deadlines moving forward, but there are some caveats to student loan rehabilitation programs.

What Is Student Loan Rehabilitation?

Student loan rehabilitation is a program that’s offered by the federal government. Borrowers who have a Direct Loan, Federal Family Education Loan (FFEL), or Federal Perkins Loan that is in default, and owned by the Department of Education, may request rehabilitation. Private student loans are not eligible for student loan rehabilitation.

A federal student loan is considered in default when a borrower has missed payments for 270 days. Prior to defaulting on a student loan, the loan may be considered delinquent as soon as you miss a payment. If you fail to make a payment for 90 days, those late payments may be reported to the credit bureaus.

The monthly payment required during the student loan default rehabilitation depends on your income and can be as low as $5 per month. After making the minimum number of voluntary, reasonable, and affordable payments, the defaulted loan is considered rehabilitated.

Recommended: Types of Federal Student Loans

How Student Loan Rehabilitation Works

If you already have a federal loan in default, you can submit a written request for student loan rehabilitation through your loan holder.

A calculation, called the 15% formula, is used to determine your reasonable and affordable monthly payment during the rehabilitation program. First, it determines how much of your Adjusted Gross Income exceeds 150% of the federal poverty guideline, based on your family size and state. Then, your loan holder will calculate 15% of that amount, divided by 12, to arrive at your monthly payment.

If you don’t agree to make voluntary payments at the amount that’s calculated under the 15% formula, you can ask your loan holder to calculate an alternative payment.

To do so, you must submit a “Loan Rehabilitation: Income and Expense Information” form. You’ll need to supply details regarding your monthly income and monthly expenses and certify your family size. This alternative amount might be higher or lower than the payment amount offered under the 15% formula.

Upon agreeing to the payment amount and signing the student loan rehabilitation agreement, you must make nine on-time monthly payments within a consecutive 10-month period. After the ninth payment is completed, your loan holder will contact the credit bureaus to request the removal of the default status on your student loan account.

Pros and Cons of Student Loan Rehabilitation

The student loan rehabilitation program can be beneficial for borrowers whose federal loans are in default. However, there are also a few caveats to consider before requesting student loan rehabilitation.

Pros of Student Loan Rehabilitation

There are a handful of advantages to student loan rehabilitation. Instead of making a lump sum payment to get a defaulted loan in good standing, rehabilitation allows you to make consistent, on-time installment payments at a reasonable amount.

After successfully rehabilitating your loans after nine consecutive payments, the defaulted mark on your loan account is removed from your credit record. This can potentially improve your credit score. Any involuntary payments, such as wage garnishment or Treasury offset, will cease upon successful loan rehabilitation.

Rehabilitating your loans also gives you access to federal aid; for example, if you want to get your master’s or your Ph.D., you’ll once again be eligible to receive loans from the federal government. You’ll also have access to federal benefits, like federal loan deferment and forbearance, and the option to enroll in income-driven repayment plans.

Recommended: Student Loan Deferment vs Forbearance

Cons of Student Loan Rehabilitation

Rehabilitation is a one-time opportunity. If you default again after your loans are rehabilitated, you can’t request a rehabilitation program again.

Another point to note is that involuntary payments, such as those collected by your loan holder through wage garnishment, don’t count toward the nine voluntary payments needed to rehabilitate your loan. This means you might potentially have two separate loan payments occur each month until some rehabilitation payments are made or your loans are fully out of default.

Upon successfully rehabilitating your loan account, the default is removed from your credit report, but the late student loan payments on the account remain on record.

Student Loan Rehabilitation vs Consolidation

Another way to address a defaulted federal loan is through a Direct Consolidation Loan.

Consolidating defaulted federal student loans, making it easier to keep up with one monthly payment instead of multiple. This means using a Direct Consolidation Loan with a new interest rate — generally the weighted average of your initial interest rates. To undergo a Direct Consolidation loan, you must either:

•   Make payments via an income-driven repayment plan or

•   Make three consecutive and voluntary on-time payments before initiating a Direct Consolidation Loan.

Although you can rehabilitate most federal loans, regardless of whether your student loans are in collections, there are special conditions and restrictions for Direct Consolidation Loans. For example, you can only consolidate an existing Direct Consolidation Loan that’s in default if you reconsolidate it with another eligible loan.

An important note: Consolidating only applies to your federal loans — you can’t roll private loans into a Direct Consolidation Loan.

Like rehabilitation, consolidating a defaulted loan through a Direct Consolidation Loan provides access to future federal aid, loan forgiveness programs, and federal benefits like deferment, forbearance, and an income-driven repayment plan.

Another notable factor that differentiates student loan rehabilitation vs. student loan consolidation is that the latter doesn’t remove a default from your credit history.

Recommended: Student Loan Consolidation vs Refinancing

Can Student Loan Rehabilitation Affect Your Credit?

Loan rehabilitation results in the defaulted loan status taken off of your credit report. Having a default removed from your record can potentially improve your credit score.

The record of late payments that resulted in the defaulted loan, however, will remain on your credit report. Late payments on your record are still considered a derogatory mark that could impact your credit for up to seven years.

What Happens After Student Loan Rehabilitation

After your defaulted loan is rehabilitated, your loan is sold or transferred to a new loan holder or lender. The loan holder will formally send a request to the three credit bureaus to have the default taken off of your credit report. Also, existing collection activity toward the rehabilitated loans will cease (e.g. wage garnishment or Treasury offset).

Once your loans are under a new loan holder, you’ll need to select a repayment plan, otherwise, a standard 10-year plan will apply.

To request a lower monthly payment, you might be able to enroll in an income-driven repayment plan which calculates your monthly payment based on your Adjusted Gross Income and family size.

This type of repayment option extends the term across 20 to 25 years, depending on the plan. In doing so, your monthly payment is limited to a percentage of your discretionary income, but you’ll pay more interest over time.

In addition to being eligible for new federal aid, you’ll again be eligible for federal benefits that were inaccessible when your loan was in default. These benefits include access to student loan forgiveness programs, and deferment and forbearance.

The Takeaway

Student loan rehabilitation might not completely erase all of the missteps you’ve had with regard to your federal loans, but it can be an option to get out of default. Another option for getting a federal student loan out of default is to consider a Direct Consolidation Loan.

Refinancing a defaulted student loan can be challenging, but if your student loans have been rehabilitated, and you’re now in good standing on your loans, student loan refinancing may be an option to consider. Refinancing lets you take out a brand-new loan with a new interest rate and new loan terms. If you qualify, refinancing could allow qualifying borrowers to secure a lower interest rate or lower monthly payments. Note that lower monthly payments are generally the result of extending your loan term, which can cost more in interest over the life of the loan.

While refinancing can help make loan repayment more affordable over the long-term for borrowers who are able to qualify for a more competitive interest rate, it will eliminate any federal loans from borrower protections – such as income-driven repayment plans, so it may not make sense for everyone. If you feel refinancing is an option for you, consider SoFi where there are no hidden fees and the application is completed entirely online.

FAQ

How long does it take to rehabilitate student loans?

It takes several months to complete a student loan rehabilitation program. Direct Loans, Federal Family Education Loan (FFEL), and Federal Perkins Loans require nine, full and on-time payments over 10 consecutive months to rehabilitate.

Can you rehabilitate student loans in collections?

Yes, you can rehabilitate student loans in collections. However, involuntary collection payments, such as those occurring as a result of wage garnishment, may continue while you make voluntary rehabilitation payments.

Is rehabilitation or consolidation of student loans better?

Deciding whether student loan rehabilitation or consolidation is best for you depends on your personal situation and goals.

Student loan rehabilitation takes longer than consolidation but by successfully rehabilitating your loans, you are able to remove the default from your credit history. So, if that is your primary goal, rehabilitation might make more sense. However, if your goal is to simplify repayment for your defaulted loans, and you want to enroll in an income-driven repayment plan as soon as possible, a Direct Consolidation Loan can be an option to consider.

Keep in mind that both student loan rehabilitation and Direct Loan Consolidation are only options for federal student loans.

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