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Federal PLUS Loans are an accessible option for graduate students and parents of college students.

Parent PLUS Loans are federal loans for parents of undergraduate students. They offer flexible repayment options, fixed interest rates, and higher borrowing limits.

Direct PLUS Loans, also known as grad PLUS Loans, are available to graduate and professional degree students. Both parent and grad loans fall under the Direct Loan Program operated by the federal government.

What Is a Parent PLUS Loan?

Parent PLUS Loans can be borrowed by parents of undergraduate students in order to help their child pay for college. These loans are funded by the U.S. Department of Education and are part of the Direct Loan Program.

Unlike other types of federal student loans, Parent PLUS Loans do require a credit check. If an applicant has an adverse credit history, they may not be approved to borrow a Parent PLUS Loan.

How Do Parent PLUS Loans Work?

As noted previously, Parent PLUS Loans are available to all qualifying parents of undergraduate students. Borrowers with poor credit history can ask an “endorser” to cosign the loan, or borrowers can send a report clarifying their credit history to be considered.

The loan amount is limited to your child’s cost of attendance (COA), less any other aid awarded to the student. The interest rate is fixed for both loan types, and interest accrues the moment it’s released, even during deferment. For the 2024-25 academic year, PLUS Loans have an interest rate of 9.08% and an origination fee of 4.228%.

Like other loans in the Direct Loan program, a third party company called a “loan servicer” manages customer service around general billing requests such as repayment and deferment.

Parent PLUS Loan Application Process

The first step in borrowing a Parent PLUS Loan is to have your child fill out the FAFSA or Free Application for Federal Student Aid. This is required before a parent can request a PLUS Loan. After the FAFSA® is taken care of, parents can submit an online application for a PLUS Loan.

Before applying for a PLUS Loan, remove any security freezes on your credit bureau files. Any active credit freezes will prevent an application from being processed.

It may take upwards of 20 minutes to complete the application, and you’ll generally need the following information:

•   Verified FSA ID (your StudentAid.gov login)

•   School Name

•   Student Information

•   Personal Information

•   Employer’s Information (such as the employer’s name, address, and phone)

A verified FSA ID is a unique ID that acts as a legal electronic signature. It should only be used by that applicant.

After being approved for the PLUS Loan, borrowers will be required to fill out the Master Promissory Note (MPN). This indicates that you agree to the terms of the loan.

Recommended: Do You Have to Apply for a Parent Plus Loan Every Year?

Filling Out the FAFSA

The FAFSA is required for all forms of federal student aid, including grants, work-study, and federal loans. Some state and school-specific aid may also be awarded based on information included on a student’s FAFSA form.

Applicants who submit a FAFSA get a Student Aid Report (SAR) that summarizes the form’s information. It will include your Student Aid Index (SAI) and your eligibility for federal grants and loans, among other details. Schools listed on your FAFSA get a copy of this report to determine aid.

Recommended: FAFSA Guide

Determining Your Eligibility

Borrowers must fulfill the following basic requirements:

•   Be the legal guardian of an undergraduate enrolled in a higher ed program part-time or full-time

•   Fulfill general federal student aid requirements, such as citizenship

•   Not have an adverse credit history

How Much Can You Borrow?

Parent PLUS Loan borrowers can take out the total cost of attendance of the program their child is enrolled in, less the amount in scholarships or other forms of aid.

How Much Do You Want to Borrow?

It can be tempting to borrow to make paying for college easier, but be cautious of overborrowing. Parent PLUS Loans have costlier fees and rates, with the latest interest rate at 9.05%, combined with a 4.228% origination fee.

For income-earning parents, it may be easier to measure the amount of student debt you should take on. As a general rule of thumb, all debt, including student loans, should not exceed more than 20% of your annual or projected annual take-home pay.

Filling Out Your Parent PLUS Loan Application

Prospective students and parents of prospective undergraduates fill out a Parent PLUS Loan application online. Grad PLUS Loan applications are separate online forms.

Enrollees will have the option to sign up for in-school deferment and get a credit check on the spot. Borrowers can also view a demo to see what the application entails before applying.

Recommended: Grad PLUS Loans, Explained

Signing a Promissory Note

Once you complete the PLUS Loan application, you’ll be directed to complete a Master Promissory Note (MPN). An MPN spells out a borrower’s rights and responsibilities in the loan agreement.

Loans will not be awarded until an MPN is completed.

You’ll be asked to fill out personal information and provide two references as future contacts in case you’re unreachable.

What to Expect After Applying

Approved loans will be disbursed to the school you’re enrolled in and they’ll apply the loan to outstanding fees, tuition, and/or room and board. If there are funds left over, you can cancel the remainder or choose to keep it for discretionary expenses related to higher ed day-to-day living.

What If You Are Denied?

If you are denied a loan, you may be able to add an endorser, or cosigner, to your application. An endorser is someone who agrees to pay your loan if you are unable. If you were denied for having an adverse credit history, you will likely need to complete an online PLUS Credit Counseling course.

Recommended: Guide to Grad PLUS Loan Credit Score Requirements

How Long Until the Loan Is Disbursed?

Each school pays out loans on a different schedule. Once the federal government has processed your paperwork and released funds, schools handle the process afterwards. If you have questions about when your loan will be disbursed, contact the financial aid office at your child’s school.

When Do You Need to Begin Repayment?

Repayment for Parent PLUS Loans begins immediately upon the last disbursement of the loan or after deferment, depending on the repayment plan you select.

If you request a deferment, you are able to pause payments until six months after your child graduates from college. If you are interested in this option, you can make this selection on the PLUS Loan application or request it directly with the loan servicer. Interest will accrue even while the loan is in deferment.

Income-Driven Repayment Options for Parent PLUS Loans

Parent PLUS Loan borrowers are able to enroll in an income-driven repayment plan if they first consolidate the loan through the Direct Consolidation Loan Program. Income-driven repayment plans tie the monthly payments to your income and repayment takes place over a period of 20 to 25 years.

On these plans, your loan payment may fluctuate each year depending on your income and family size. At the end of your repayment period, any outstanding balance is forgiven, but under certain circumstances, this forgiven amount may be considered taxable income by the IRS.

The Takeaway

PLUS Loans are federally funded loans available to graduate students and parents of undergraduate students. Applying for a PLUS Loan is a straightforward process when you understand the key steps and requirements. By ensuring you meet the eligibility criteria, gathering the necessary documentation, and completing the application accurately, you can secure funding for education expenses efficiently.

Other ways to pay for college include cash savings, scholarships, grants, and private student loans. Federal loans, including PLUS Loans, come with certain benefits and protections, and should be used prior to looking into 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

How long does it take for approval for a Parent PLUS Loan for college?

Loan applications are preliminarily approved or denied on submission and schools are notified within 24 hours. Applicants must pass eligibility requirements after completing the application. A Master Promissory Note and the FAFSA also must be completed prior to loan awards. Disbursement processing times differ with each school.

Can you be denied a Parent PLUS student loan?

Yes, if you have an adverse credit history you may be denied a PLUS Loan. You can get a PLUS Loan with an endorser or documentation proving extenuating circumstances around your history. Examples include foreclosure or bankruptcy.

What is the maximum borrowable amount for a Parent PLUS Loan?

The maximum borrowable amount allowed is the cost of attendance (COA), which is determined by schools.

Photo credit: iStock/solidcolours

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

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SOISL-Q324-060

Your student loans are owned by the government or a financial institution like a bank, credit union, or online lender. Who owns your student loans depends on the type of loans you have.

Knowing which organization or entity owns your student loans is important for managing your payments — and for anyone who wishes to be an informed consumer. Here’s how to find out who owns your student loan debt.

Overview of Student Loan Ownership

Federal student loans are typically owned by the U.S. Department of Education (DOE), while private student loans are owned by the private lender who issued them.

However, both the DOE and private lenders may partner with a third party known as a loan servicer to manage your loans. The loan servicer handles billing and can also help you with repayment options, such as loan consolidation or income-driven repayment (IDR) plans for federal loans. Whether your loans are federal or private, your loan servicer is your resource for any questions or issues.

Student loan servicers can change, however. This can happen if your student loan is sold to another company, for instance. In this case, you should receive a notification by mail or email about who your new servicer is and where to send your payments. But even if you miss the notice, it’s still your responsibility to make sure your loan payments get to the new loan servicer by the due date.

If you choose to refinance your student loans, potentially for a more favorable interest rate or term, you will get a new lender and loan owner in the process.

Identifying Federal Loan Servicers

Your federal loan servicer is typically who you reach out to for anything related to your federal student loans. It’s important to know who they are and how to reach them.

How to Find Your Federal Loan Servicer

Once the DOE disburses your federal student loan, they will assign a loan servicer to manage it. The loan servicer will usually contact you directly. That way, when it’s time to start paying back student loans, you’ll know who to reach out to.

If you didn’t save their contact information, finding common student loan servicers is usually simple. Just log into your account dashboard at StudentAid.gov and go to the “My Loan Servicers” section. Or call the Federal Student Aid Information Center (FSAIC) at 800-433-3243.

The DOE sometimes moves student loans from one loan servicer to another. This transfer simply means a different company will be handling your loan and helping you manage it. For instance, you could talk to them about different student loan repayment options if you’re looking for another plan.

If your loan is transferred, the new loan servicer will typically inform you of the change by email or letter. Update your payment information with your bank or adjust the payment method for your monthly student loan bill to make sure your payments go through smoothly. Also, set up an account with the new servicer and double-check that your personal information is accurate so they can reach you if needed.

Identifying Private Loan Lenders

Determining who owns your private student loan can be a little more complicated. Here’s how to do it.

Checking Private Loan Ownership

There’s no one central website for private student loan servicers like there is for federal loans. To find out who owns your private student loans, you’ll need to individually contact each of your lenders.

Another option is to get your credit report from one of the three credit bureaus. Private lenders usually report loans, including student loans, to the credit bureaus, and the loan servicer should be listed on the report.

Why Loan Ownership Matters

Knowing who owns your student loan is critical for managing your student loan debt. Whether you’re still in college and not yet repaying your loans, or you’re paying off student loans early, your loan servicer is the one who handles the transactions and answers any questions you might have. They can also explain different repayment options and be a resource if you’re facing financial difficulties.

If you don’t know who your servicer is, you might miss important updates, payment deadlines, and opportunities to adjust your repayment plan.

The Takeaway

If you have federal student loans, the government owns your loans. With private loans, your loans are owned by a private lender. Both entities often use loan servicers to handle payments for your loan, so be sure to find out who your loan servicer is.

The owner of your loan may change over time. Student loans can be transferred or sold to other lenders. And if you decide to refinance your student loan — say, because you qualify for a lower interest rate or better term — you’ll get a new lender as part of that process.

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

FAQ

Can student loans be sold to other lenders?

Yes, a lender can sell your student loans. They may do so to free up capital and make other loans. Typically, the new owner of the loan will notify you of the change of ownership. Be sure to update your payment information with the new lender.

How can I find out who services my loans?

If you have federal student loans, you can log in to your account dashboard at StudentAid.gov and click on the “My Servicers” section to see who your loan servicer is. For private student loans, contact your lender directly for the information or pull your credit report, which should have the loan servicer listed.

What if I don’t recognize my loan servicer?

If you come across a loan servicer you don’t recognize, it’s a good idea to make sure they’re legitimate. Check with your lender to find out if this is the servicer they’re working with. Don’t give out any personal or sensitive information to anyone you don’t know. Be alert for scammers offering to help you with payments or loan forgiveness. Report anything that feels off or questionable. You can file a complaint online with the Department of Education’s Federal Student Aid.

Photo credit: iStock/Pla2na

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.

SOSLR-Q324-020

Americans owe more than $1.6 trillion in federal student debt, and the average graduate leaves college owing $29,400. Fortunately, your state may be able to help. There are a number of states that pay off student loans through student loan repayment assistance programs. Some of these plans are meant to entice people to move to the state, while others are available to residents who work in certain professions. If you can qualify for one of these programs, you could get a major chunk of your student loan debt repaid for you.

Overview of State Loan Repayment Programs

State loan repayment programs (LRAPs) offer student loan assistance to eligible borrowers who are paying back student loans. Some programs act as an incentive to encourage people to move into certain areas or become homeowners in the state. Others are available to residents who work in a certain field, such as health care or law.

Unlike federal loan forgiveness programs, which only forgive federal student loans, some states that pay off student loans through LRAPs will help you repay both private and federal student loan debt. However, like most other student loan repayment options, there are stipulations. For instance, you may have to commit several years to living or working in an area in order to receive the maximum benefits.

State-by-State Loan Repayment Assistance

Here are some of the states offering repayment assistance to qualifying student loan borrowers, which could help you pay off student loans early. This list is not exhaustive, so check with your state to find out if it offers LRAP opportunities.

California
The California State Loan Repayment Program offers assistance to primary care physicians, dentists, dental hygienists, physician assistants, nurse practitioners, certified nurse midwives, pharmacists, and mental/behavioral health providers who practice in designated California Health Professional Shortage Areas. Award amounts can equal $100,000 or more, depending on whether you work full-time or half-time and how many years you serve.

Kansas
Kansas offers up to $15,000 in student loan assistance over five years to new residents who move to one of its Rural Opportunity Zones (ROZ). You must have a newly established permanent residence in an eligible ROZ and live there for the five years of repayment to qualify for the full amount.

Maine
Maine offers several perks for student loan borrowers, including three LRAPs and a tax credit:

•   Maine Dental Education Loan Repayment Program: This program offers repayment assistance up to $100,000 to dentists and dental health professionals working in underserved areas.

•   Maine Health Care Provider Loan Repayment Pilot Program: Designated for health care providers who live and work in Maine for at least three years, this program offers up to $75,000.

•   Nursing Education Loan Repayment Program: Established and new Maine residents who work as registered nurses or nurse educators for at least three years are eligible to receive up to $40,000 through this program.

•   Student Loan Repayment Tax Credit: Student loan borrowers who earned at least $12,917 in Maine could claim a student loan tax credit up to $2,500 annually with a lifetime limit of $25,000.

Recommended: How to Get the Student Loan Interest Deduction

Maryland
Maryland has a SmartBuy 3.0 program to help student loan borrowers become homeowners. To qualify for this program, you must owe at least $1,000 in student loans, purchase a home that meets the Maryland Mortgage Program guidelines, and borrow a mortgage from an approved Maryland SmartBuy lender. The program can provide up to 15% of the home purchase price (for a maximum of $20,000) for you to use to pay off your student loans.

Massachusetts
Health care providers in Massachusetts could receive as much as $50,000 in student loan repayment in exchange for working two years in an underserved community. You’ll need to be licensed to work as a primary care physician, dentist, physician assistant, clinical social worker, marriage and family therapist, or other qualifying health care profession.

Michigan
Michigan’s State Loan Repayment Program offers up to $300,000 in student loan assistance to health care providers who work in a designated shortage area. You must commit to a service term of at least two years to qualify for this program.

Ohio
The city of Hamilton in Ohio has a program to incentivize new residents to move to the area. The Hamilton Talent Attraction Program Scholarship offers up to $15,000 to borrowers who move to an area in the Hamilton city limits. It prefers graduates with a degree in science, technology, engineering, arts or mathematics.

Texas
The Texas Student Loan Repayment Assistance Program offers up to $6,000 per year to attorneys paying back student loans who work for a Texas legal aid program that’s receiving a grant from the Texas Access to Justice Foundation (TAJF). You also must have been licensed to practice law for fewer than 10 years and make no more than $80,000 per year.

Requirements and Eligibility

The requirements for state-provided LRAPs vary by program. Some are open to current residents, while others offer benefits to new residents who move to or buy a home in a certain area.

Programs that are designated for specific professionals often require you to work in a designated shortage area or with an underserved community. You’ll also generally need to commit to a certain service term, such as two or three years. Read over the fine print of a program’s requirements to see if it could be a good match for you.

If you can’t find a program that fits your specific situation, there are other ways to make it easier to repay your student loans. For instance, you might consolidate all your loans into one loan or refinance your student loans, ideally for a lower interest rate or better loan terms if you qualify. (Just be aware that refinancing federal student loans makes them ineligible for federal programs and protections like income-driven repayment.)

Application Process and Deadlines

The application process and deadlines also vary by loan repayment assistance program, and you can usually find this information on the official state or program website. You may need to fill out an application with details about your educational background and student loan debt. Often, a program requires you to commit to working half-time or full-time for a certain number of years.

These programs can be competitive, so make sure to get your application in well ahead of the stated deadline. Some programs also pay out a certain amount per month or year, so find out whether you need to submit additional applications to maintain your eligibility.

Loan Repayment vs Loan Forgiveness

Both loan repayment assistance programs and student loan forgiveness programs can help you pay off your education debt. However, loan repayment programs may offer assistance sooner, as some of these programs only require two or three years of service.

By contrast, the Teacher Loan Forgiveness program requires five years of service, while Public Service Loan Forgiveness requires 10. And income-based student loan repayment forgiveness requires 20 or 25 years of payments until your balance may be forgiven.

Loan repayment programs might also help you pay off both private and federal student loans, whereas only federal student loans are eligible for loan forgiveness programs.

Finally, loan repayment and loan forgiveness programs may have different tax implications. The loan forgiveness you get from PSLF is not taxable, for instance, whereas assistance you get from an LRAP could be treated as taxable income.

The Takeaway

When it comes to paying back your student loans, your state may be able to help. Several states offer loan repayment assistance programs to eligible borrowers who move to a certain area or work in a qualifying profession. By taking advantage of one of these programs, you may be able to get a major portion of your student loans paid off.

Even if your state doesn’t offer an LRAP, there are other ways to potentially make your payments easier, including student loan forgiveness, loan consolidation, and student loan refinancing for more favorable rates and terms for those who qualify. Carefully consider all your options for repaying student loan debt.

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

FAQ

What types of loans qualify for state repayment assistance?

State repayment assistance programs generally pay off federal student loans, and some will pay off private student loans as well. Check with each individual program to find out what types of loans qualify for repayment assistance.

Can you receive assistance from multiple state programs?

You may be able to receive assistance from multiple state programs — if, for instance, you live in one state and get assistance and then move to another state and get assistance there — but you likely can’t do this simultaneously. Most programs require you to live and work in-state to be eligible for student loan repayment benefits.

How much student loan debt can state programs cover?

State programs can cover a significant portion of your student loan debt. The LRAP for health care workers in Massachusetts offers up to $50,000, while Michigan’s health care worker LRAP can provide up to $300,000. However, the amount will depend on the program and the field you work in.

Photo credit: iStock/zimmytws

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.

SOSLR-Q324-019

An institutional student loan is a type of student loan you borrow from your college or university. Institutional loans are non-federal student loans, and the loan terms vary from school to school.

Institutional loans can help fill in the gaps other financial aid doesn’t cover. But it’s important to understand how these loans work to make sure they’re right for you.

Definition and Overview

Institutional loans are considered to be a type of private student loan. But unlike traditional private student loans, they are offered by your school rather than a private lender. Students may use these loans to help pay for college costs. However, some schools only allow the use of institutional loans for tuition and fees, and not for other education-related expenses.

Institutional loans are non-federal student loans. That means they don’t offer the same benefits that federal loans do, including deferment, forbearance, and student loan repayment options such as income-driven repayment plans.

How Institutional Student Loans Work

Institutional loans typically come in two types — short-term and long-term loans.

Short-term institutional loans generally have a low interest rate, but they may have a processing fee. These loans sometimes involve a credit check, and you’ll typically need to pay back student loans that are short-term within a few months. Check with your school about the specific repayment terms for the short-term institutional loans they offer.

Long-term institutional loans allow for longer repayment terms, such as 10 years, and payments may be deferred while you’re in school. The interest rates on these loans are usually higher, and the rate you get may depend on your creditworthiness.

Eligibility Criteria

To qualify for institutional student loans, borrowers typically must file the Free Application for Federal Student Aid (FAFSA). The eligibility criteria for these loans vary from institution to institution, so your best bet is to check with your school’s financial aid office.

Interest Rates and Fees

Interest rates for institutional loans range widely, depending on the school and whether the loan is short-term or long-term. Some colleges offer short-term loans with rates as low as 0% or 1%, while interest rates on long-term institutional loans may be 3% to 10%. Check with your school about the interest rates on these loans.

Repayment Terms and Options

The repayment term on an institutional loan is the amount of time the institution gives you to pay off your loan. Short-term loans typically need to be repaid quickly — in 90 days, say — while long-term loans have a repayment term of 10 years. Your school may offer different options for repayment, so be sure to inquire.

One option that you may not have with institutional loans is refinancing. With student loan refinancing, you replace your old student loans with a new loan that ideally has a lower interest rate or better terms. Refinancing might not be possible with institutional loans.

Pros and Cons of Institutional Student Loans

Institutional student loans may be a solution for students who need to bridge gaps in financial aid, but these loans have benefits and drawbacks to consider.

Pros of institutional loans:

•   Quick payoff: Short-term institutional loans typically require repayment in several months. If you need financial assistance now and expect to have funds to repay the loans at the end of the term, they might be an option for you. By comparison, paying off federal student loans can take 10 years or more.

•   Low interest rate: Some institutional loans have lower interest rates than federal or private student loans. But before committing to one of these loans, explore the different undergrad private student loan rates available to make an informed decision.

•   May not require a credit check: You might not need to undergo a credit check to be approved for an institutional loan, especially if it’s a short-term loan.

Cons of institutional loans:

•   No federal benefits. Institutional loans don‘t provide the same benefits that come with federal student loans, such as income-driven repayment plans and student loan forbearance.

•   May require a credit check. With long-term institutional loans, your school may require a credit check to qualify. That could make these loans more difficult to obtain.

•   May be tough to repay. Short-term loans typically need to be repaid in a few months. As a college student, that may not be feasible for you. In that case, you might want to consider low-income student loans instead.

•   Refinancing might not be possible. Federal and private student loans can be refinanced, but institutional student loans may not be eligible for refinancing.

The Takeaway

Institutional student loans are offered by colleges and universities to help cover school costs like tuition and fees. They may be helpful to students who have reached their financial aid allotment for the semester or those who need financial help immediately and can repay the loan quickly.

But institutional loans do have drawbacks. Repaying them quickly can be challenging for college students. And borrowers may need to undergo a credit check to qualify for them. Before choosing an institutional loan, you may want to look into other financial aid options, such as grants and scholarships, or consider private student loans, which have the option of refinancing in the future, if that’s something you might be interested in. Weigh all the different choices to make the best decision for your situation.

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

FAQ

What are the benefits of institutional student loans?

Institutional loans offered by colleges and universities can help you cover school costs like tuition and fees if you’re coming up short. They may also offer low interest rates, quick repayment, and no credit check. However, make sure you can repay an institutional loan on time — the repayment term might be as short as three months.

Can institutional student loans be used for living expenses?

Whether an institutional loan can be used for living expenses depends on the institution. Some colleges and universities require borrowers to use institutional loans for tuition and fees. Check with your school to find out what their requirements are.

How do institutional student loans compare to federal loans?

Federal student loans offer more repayment options than institutional loans, and they also come with federal programs and protections you may want or need, such as deferment and forbearance. In comparison, short-term institutional loans typically take less time to pay off, which could make them appealing to those looking to avoid long-term student loan debt. The interest rates for some institutional loans may be lower than the interest rates for federal loans, but others may have higher rates.

It’s wise to explore the different requirements, terms, and benefits of each type of loan before you opt for one over the other.

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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.

SOSLR-Q324-015

In 2023-2024, the average cost of attendance for full-time undergraduate students living on campus at four-year institutions was as follows:

•   Private nonprofit institutions: $60,420

•   Public four-year, out-of-state institutions: $46,730

•   Public four-year, in-state institutions: $28,840

Multiply that amount by at least four years, and you’re looking at a sizable investment in your future. But why is college so expensive, exactly?

Keep reading to learn five reasons why college is so expensive, what contributes to the rising cost of college, efforts to control costs, and more.

Factors Contributing to Rising College Costs

Several factors contribute to rising college costs, including faculty salaries and benefits, campus facility construction and maintenance, student services and amenities, administrative costs, and technology integration. We’ll dive into the details of each of these.

Increase in Faculty Salaries and Benefits

Faculty salaries increased an average of 4% between 2021-2022 and 2022-2023, which was a fairly substantial increase.

Faculty also receive benefits like employer contributions to retirement plans and health insurance, college tuition, Social Security contributions, disability income protection, unemployment insurance, group life insurance, workers’ compensation premiums, on-campus parking, and fringe benefits, like athletic event tickets. Non-salary benefits can amount to up to one-quarter of faculty member compensation.

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Construction and Maintenance of Campus Facilities

Studies have found that prospective students reach their decisions within the first ten minutes of walking on campus. Therefore, campuses must do more than just satisfy the basic needs of their students. They must convey emotion, create positive reactions, and offer “extras,” like aesthetics, all of which results in high construction costs to create a lasting positive environment for faculty, staff, and students, which can include:

•   Code requirements, including stair towers, fire-rated corridors, fireproofing, fire alarm systems, sprinklers, and more.

•   Legislative mandates related to the ADA, EPA, OSHA, and ASHRAE, which dictate accessibility, dust control, occupancy, ventilation, air filtration, and more.

•   Institutional requirements, like minimal disruption to campus life, job site cleanliness, limiting noise, complex phasing-in schemes, and more.

•   Short timelines that protect athletic event schedules, residence hall occupancy, and other conditions.

•   State-of-the-art facilities, such as high-occupancy performance and athletic venues, technology-infused learning environments, and highly functional classrooms, labs, meeting rooms, offices, and other complex mechanical systems.

•   Higher-quality finishes, including hardware, carpets, flooring, restroom fixtures, and more to maintain durability.

•   Sustainability requirements, such as Leadership in Energy and Environmental Design (LEED) metrics based on campus sustainability commitments.

•   Technological advances and other additions, such as hearing loops in public assembly spaces, gender-neutral restrooms, prayer rooms, locking systems, security cameras, motion sensors, and more.

Many smaller pieces go into creating a great environment for students now and into the future.

Student Services and Amenities

Student services programs create an additional expense. These programs support students in overcoming barriers, including underrepresented groups, first-generation or low-income students, those with limited English proficiency, and students with disabilities or learning differences. Services can include:

•   On-campus events and workshops

•   Guest speakers

•   Tutoring services

•   Academic resources, including those in the library

•   Technology rentals

•   Career services

•   Academic advising

•   Mental and physical health services

•   Transportation

College costs may also go up due to various amenities on campuses, which can include extravagant campus gyms with lazy rivers, whirlpools, and saunas; fancy student unions and dining options; movie theaters, arcades, ski resorts, swanky condo-like residence halls, and more.

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Administrative Costs and Staffing

Administrative costs and staffing are another reason why U.S. colleges are so expensive. Administrative costs refer to institutional support for those who operate the day-to-day functions of the institution, which could include the following:

•   Executive management

•   Legal department

•   Fiscal operations

•   Public relations

•   Development office

The American Council of Trustees and Alumni survey found the following per-student administrative costs:

•   Oklahoma: $1,970

•   Hawaii: $2,230

•   Tennessee: $2,450

•   New Jersey: $4,982

•   Alaska: $6,224

•   Wyoming: $7,830

Colleges and universities must also cover auxiliary expenses (including parking facilities, housing, and food services).

Cost of Technology Integration

The pandemic increased the costs of student information systems after declining in previous decades. A large university with 20,000 or more full-time students might spend between $30 million and $100 million during the first five years of a new system.

Naturally, the cost of implementation depends on a few factors, including:

•   School size

•   Data processing

•   Hiring requirements to manage the technology

•   Data migration and implementation

•   Customization preferences

•   Third-party integrations

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Role of State Funding Cuts

State funding cuts for higher education are a key factor in rising college costs. While state appropriations for colleges saw overall gains year over year, 28 states have in fact cut their support for higher education.

As states reduce financial support for public universities, institutions raise tuition to cover budget shortfalls. This shift places more of the financial burden on students, contributing significantly to the overall expense of college.

Additional Expenses for Students

Students also pay for additional expenses, such as the costs of living on campus, textbooks, course materials, and tuition increases. We’ll walk through each cost below.

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Cost of Housing and Living

Housing and living costs vary depending on whether you choose to live on or off campus. Here are the differences between living off-campus versus on-campus:

•   Off-campus: The median monthly cost of rent surpassed $2,000, and the average college-aged male spends an average $374.10 per month on food. Don’t forget to factor in transportation, utilities, internet, and furniture to get the full costs of living off campus.

•   On-campus: The average cost of housing and food for full-time undergraduates at a public two-year in-district college was $9,970. On average, it also cost $12,770 for both public four-year in-state and out-of-state institutions and $14,650 for private, nonprofit four-year institutions.

Ultimately, you may pay far more for on-campus housing, but consider the tradeoff between living on campus vs living off campus. Living off campus can have its disadvantages, despite the cost savings.

Textbooks and Course Materials

Unfortunately, textbooks and course materials have gone up dramatically over the past two decades. Textbook costs have increased 162%. Students paid the most at public two-year colleges ($1,470) versus at public and private four-year colleges ($1,250).

Students might also avoid buying course materials due to these steep prices and might even choose different classes based on high textbook or supply costs.

Tuition and Fee Increases Year-Over-Year

Tuition and fees usually increase from year to year, and scholarships often don’t increase to match.

The average 2023-2024 tuition and fees for college students increased by the following percentages for full-time students:

•   Public four-year colleges for in-state students: 2.5%, for an average of $11,260

•   Public four-year colleges for out-of-state students: 3%, for an average of $29,150

•   Public two-year colleges (in district): 2.6%, for an average of $3,990

•   Private nonprofit four-year colleges: 4%, for an average of $41,540

There’s nothing students can do to change the tuition increases, so you must learn other ways to compensate, including applying for more scholarships or having parents pay more.

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Efforts to Control College Costs

The government has attempted efforts to control college costs. The House Committee on Education and the Workforce passed the College Cost Reduction Act to change college costs for the better by adjusting the student loan and Pell Grant programs. The bill would save students at least $150 billion over a decade.

In addition, colleges themselves have tried to slow down the cost increases. However, many colleges say they can no longer afford to cut costs due to inflation (food, services, labor, and more). Therefore, many colleges use third-party consultants to identify where they can cut costs, including looking deep into their institutional operations.

The Long-Term Impact of High Costs

Many colleges have begun to see the long-term impact of high costs, including overall decreased enrollment. The U.S. has seen a waning public belief in the importance of college.

In an Edge Research survey of 1,700 high school juniors and seniors and more than 3,100 non-enrolled adults aged 18 to 30, the majority of respondents still see the benefits of college. However, compared to results from last year, the rate of perceived importance has gone down by as much as six percentage points. Adults not currently enrolled in college were less likely to believe in the benefits of college than high schoolers.

The Takeaway

Asking why colleges are so expensive opens up a whole Pandora’s box of reasons — it’s impossible to pinpoint just one. College administrative offices must work hard to balance and manage costs.

Unfortunately, families bear the brunt of the costs, but learning how to pay for college can go a long way in helping you understand what to do. Options for paying for college include cash savings, scholarships, grants, and federal and private student loans. Federal loans should be pursued first, as they come with federal benefits, protections, and income-driven repayment plans.

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

What is the most expensive part of going to college?

Tuition, the price you pay for teaching or instruction from a college or university, is the most expensive part of going to college. According to the Education Data Initiative, the average cost of tuition at a public, four-year institution is $9,750. At a four-year out-of-state institution, students spend an average of $28,386 on tuition, and at a four-year nonprofit private institution, that number averages $38,421.

Why do private colleges cost more than public?

Private colleges cost more than public universities because they rely on donations, an endowment, and tuition to keep them running. However, most private colleges offer generous financial aid awards for students to bring costs down. Public institutions, on the other hand, rely on state government funding, which can help alleviate the cost burden for families.

How can students reduce the cost of college?

Students can reduce college costs by applying for merit-based and institutional scholarships and by looking for other types of aid, such as grants. Scholarships and grants are free money that you don’t have to repay, unlike loans, which you do need to repay after you graduate.

Students can also look into jobs that pay for your degree, which offer a huge benefit because some jobs will completely take care of your tuition bill.

Are online degrees a cheaper alternative?

Online degrees can be a cheaper option, but it’s important to figure out what kind of college experience you’re looking for. Getting an online degree is a vastly different experience from attending college in person. Therefore, sometimes it’s worth paying extra to get the experience you desire, rather than just “getting through college.”

Photo credit: iStock/Ibrahim Akcengiz

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