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As student loan debt increases, it’s likely that so will the number of borrowers defaulting on their student loans. Student debt in the U.S. has reached crisis levels at $1.76 trillion. The average borrower owes $37,338 in federal student loan debt.

Approximately 4 million student loans go into default every year, according to EducationData.org. About one in 10 borrowers have defaulted at some point, and about 5% of all student loan debt is currently in default.

Failure to make payments on your student loans can result in serious consequences. If you’re struggling with your student loans and are in danger of defaulting, there are options. The sooner you take action to remedy your student loan troubles, the better.

If your loans are already in default, there are steps you can take to recover. Read on to learn how to get student loans out of default.

What is Considered Student Loan Default?

At its most basic, student loan default happens when you have failed to make payments on your student loans.

If you have a federal student loan, the U.S. Department of Education considers your loan delinquent the day after you miss your first payment. After 90 days, your failure to pay will be reported to all three big credit bureaus, which may negatively impact your credit score.

If your loan is delinquent, there are steps you can take to prevent the loan from going into default. If you’ve failed to make a payment or two, consider applying for student loan deferment or forbearance, especially if you’re facing a temporary financial hardship.

If you’re having long-term difficulty paying your monthly student loan payments, an option is to see if you can change your payment terms to reduce your monthly bill. This process will extend the life of the loan (lowering your monthly loan payments usually involves lengthening your loan term) and you’ll most likely pay more in interest over the life of the loan. However, making payments on time can help you avoid defaulting and the consequences that come with it.

After 270 days of nonpayment, the loan is considered in default, triggering a series of consequences for the borrower.

For example, the default and history of missed payments can stay on your credit report for years to come. You also become ineligible for federal payment assistance such as forbearance, deferment, and student loan forgiveness. Any costs associated with collecting the loan are added to your balance due, and the government has the ability to garnish your wages or seize your tax refund.

There is a temporary on-ramp period in place to help struggling borrowers transition back to making their payments after the end of the pandemic-era federal forbearance period. From Oct. 1, 2023 to Sept. 30, 2024, borrowers who miss payments will not have their loans considered delinquent or in default, have those missed payments reported to the credit bureaus, or be referred to collections agencies. At the end of the on-ramp period, however, any missed payments during that time become due.


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

Tips for How to Get Student Loans Out of Default

If you’re wondering how to get student loans out of default, there are options. These include: loan rehabilitation, consolidation, refinancing, or paying off the loan in full—including any additional interest accrued on student loans. Oftentimes, borrowers in default are unable to repay their loans in full, so the following alternatives may be more practical.

1. Loan Rehabilitation

You may be able to remove a default from your credit report through student loan rehabilitation. The specifics on how to remove your default via student loan rehabilitation depend on the type of loan you have. Here’s roughly what the process looks like if you have federal loans in default:

First, you contact your lender’s customer service office to request a rehabilitation plan for your loan. Second, you want to be sure you can commit to the program since you can’t rehabilitate a loan a second time.

Third, you follow your lender’s plan. That means making nine payments on time, usually at a lower payment rate (your lender determines the monthly payment amount, usually equal to 15% of your annual discretionary income, divided by 12).

Once you’ve successfully made all payments on rehabilitated student loans, the default can be removed from your credit report, but sometimes it takes about 90 days. Note that missed payments prior to the default on your loan will remain on your credit report, and your loan holder may still take involuntary payments (like wage garnishment) until your loan is no longer in default and/or you begin making rehabilitation payments.

Once you have rehabilitated student loans and you’ve again become a borrower in good standing with your lender, you now have the opportunity to get further relief through forbearance or deferment, especially if you’re still struggling.

2. Loan Consolidation

If you have federal student loans, you may be able to consolidate your student loans into one Direct Consolidation Loan. By consolidating, you pay off your existing loans and replace them with one new loan. The new rate is a weighted average of the interest rates on your old loans, rounded up to the nearest one-eighth of a percent.

If you qualify to consolidate your student loans, you have the ability to choose a different payment plan, including income-driven repayment plans. These plans lower your monthly payment to a percentage of your discretionary income. Most plans also extend the term out to 20 or 25 years, and cancel any remaining balance once the term is up (the SAVE plan, however, awards forgiveness as soon as 10 years for certain borrowers). Keep in mind that extending your repayment term could mean paying more in interest over the life of the loan.

You can also consolidate and refinance your federal and private student loans with a private lender, reaping some of the same benefits as consolidating your federal student loans: paying off several loans with one new loan and potentially lowering your payments.

But unlike federal student loan consolidation, a private loan consolidation doesn’t limit you to a weighted average of your previous loan rates, so you may be able to get a better rate depending on your personal financial history and current financial situation. When you consolidate student loans with a private lender, you are essentially refinancing them.

3. Refinancing Your Loans

If you have a solid personal financial picture (which includes things like your income and credit score), you may be able to refinance your loans with a private lender instead of consolidating them with the government. You may get a lower interest rate, which can allow you to trim the amount of interest you’ll pay over time, unless you extend the loan to lower your monthly payments instead. (You may pay more interest over the life of the loan if you refinance with an extended term.)

However, if you’re wondering how to get student loans out of default, your credit has likely already suffered. An option for those who want to refinance, but have a less-than-great credit score, is finding a cosigner for the loan. With a cosigner, you may be better able to qualify for refinancing. However, your cosigner would be equally responsible for the loan.

If you qualify for student loan refinancing, you may be able to also adjust the loan term, extending it to get a more manageable monthly payment or shortening the term to pay off your loan sooner. If you lengthen the loan term you may pay more in interest over the life of the loan, and a shorter-term usually means higher monthly payments.

But when you refinance a federal student loan with a private lender, you’ll no longer be eligible for federal protections, such as income-driven repayment plans or Public Service Loan Forgiveness.

Recommended: Student Loan Refinancing Guide

How Refinancing Can Help Keep You From Defaulting

If you are at risk of defaulting on your student loans, there’s no better time than now to take action. It’s scary to not be able to pay your student loans. But there are ways to lower your monthly payments before you go into default.

First, if you have federal loans, you may want to look into income-based repayment plans, as mentioned above, which can lower your payments in accordance with your discretionary income.

If you’d like to consider refinancing your student loans, this could also potentially lower your payments. If you qualify for refinancing, you can opt to extend your loan term, and potentially secure a more manageable monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Using a student loan refinance calculator can help you see how your payments might change.

While a refinanced loan with a longer term could mean paying more in interest over the life of your loan, it could also help you get your payments under control.

Should you refinance your student loans? You’ll need to weigh the pros and cons. Again, keep in mind that if you refinance with a private lender, you will lose access to federal loan benefits like income-based repayment plans, forbearance, and deferment.

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.

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.

SOSL0923063

Considering a career in law enforcement? Besides the satisfaction of serving the public good, one benefit of doing so may be the opportunity to take advantage of the student loan forgiveness program for police officers.

Public Service Loan Forgiveness for Law Enforcement

Public Service Loan Forgiveness may offer loan forgiveness of Direct Loans for police officers and other government employees. The program started in 2007 and offers federal student loan forgiveness for borrowers who work full-time in the public service sector and make 120 qualifying on-time payments (you can see all of the qualifications on the federal student aid website).

This means that if you’re a police officer who works for the government and successfully makes 10 years of qualifying payments, you may be eligible to have the remainder of your debt wiped out entirely.

Of course, this option is not available to everyone; you must work for a qualifying employer to earn forgiveness. Generally, government organizations may be considered qualifying employers under PSLF, which means that if you work for tribal, city, county, state, or federal law enforcement, you may qualify.

And because Public Service Loan Forgiveness is not just limited to police officers, other staff at these agencies may qualify as well—even if they’re not on the frontlines. (Note that detention officers who work at for-profit prisons are not eligible because they work for a private company and not the government or non-profit.)

To be sure that your job is considered public service under the PSLF program, you can submit a PSLF employment certification form. This form is used to confirm that your current job qualifies for PSLF benefits.


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

Public Service Loan Forgiveness Requirements

In addition to restrictions on the type of employment that is eligible for PSLF, there are other criteria you must meet in order to take advantage of this student loan forgiveness for police officers.

First, your student loans must be Direct Loans, borrowed from the federal government. Private student loans are not eligible for loan forgiveness under PSLF.

Additionally, you may be required to consolidate your federal student loans before you qualify for PSLF. Consolidation is a process by which you combine all of your federal student loans, such as Direct Subsidized Loans, Direct Unsubsidized Loans, or PLUS Loans, into one new loan.

Further, you must work full-time in order to qualify for PSLF. That means that in addition to working for a qualified employer, you also need to be employed full-time, which is generally 30 hours or more per week.

There is one exception to this requirement, however: If you work part-time for two different qualifying employers and you work more than thirty hours per week between the two jobs, you may still qualify for PSLF.

Finally, in order to take advantage of the PSLF for law enforcement, you must make 120 qualifying student loan payments. That means that even if you’re working full-time for a qualified employer and plan to take advantage of PSLF, you are still responsible for paying back your student loans for 10 years.

PSLF only forgives the amount of your student loan remaining after the 10 years of qualifying payments. And if you miss a month or are more than 15 days late in making your payment, it won’t count towards your 120 total. That means you could end up making more than 120 payments before the government clears your loans for loan forgiveness.

The one bright side here is that the 120 monthly payments you are responsible for before you can qualify for PSLF can be on any valid federal loan repayment plan. This means that you may be able to choose a plan that keeps your monthly payments relatively low until your 120 payments are complete.

Perkins Loan Forgiveness for Police Officers

Perkins Loans, which were offered until September 2017, may also be eligible for forgiveness if you consolidate them into a Direct Consolidation Loan. Perkins Loans were administered and distributed by your college, which often means that borrowers end up paying one student loan payment to the federal government and one to their alma mater. Under the Perkins Loan program , certain employment such as law enforcement and teaching may qualify for a full or partial Perkins Loan cancellation.

To qualify for forgiveness of your Perkins Loans, you must be employed full-time as a law-enforcement officer or in another qualifying position. If you qualify for Perkins Loan forgiveness, a certain percentage of your loans will be forgiven each year of full-time qualifying employment as follows:

Year 1: Forgiveness of 15% of your loan.

Year 2: Forgiveness of 15% of your loan.

Year 3: Forgiveness of 20% of your loan.

Year 4: Forgiveness of 20% of your loan.

Year 5: Forgiveness of 30% of your loan.

That’s right, after five years of qualifying employment, you could be eligible to get up to 100% of your Perkins Loan forgiven if you’re a law enforcement officer. On top of that, you may not have to pay your Perkins Loans while you hold a qualifying job, which can mean you might end up never paying back a penny of your Perkins loan.

Because colleges independently disbursed Perkins Loans, each school also runs its own forgiveness program. To see if you qualify, reach out to your school’s billing department.

Loan Refinancing for Law Enforcement Officials

For law enforcement officials who don’t qualify for PSLF, student loan refinancing may be able to help you lower the cost of your student loan repayment. This involves taking out a new, private loan to pay off your existing loans, which can include federal and private loans). However, keep in mind that if you refinance federal student loans, you permanently forfeit eligibility for federal benefits and protections, including PSLF, income-driven repayment, deferment and forbearance.

Loan refinancing is one of the few ways to potentially decrease the total amount of interest you pay on your student loan. If you qualify, lowering your interest rate can add up to some serious savings over the life of your loan, depending on how long you take to repay it.

If you’re dealing with high loan payments and are looking to free up some monthly cash flow, refinancing may also help you lower your monthly payment. This can be done by getting a lower interest rate and/or extending the length of the repayment term. Just keep in mind that by extending the term, you may end up paying more interest over time.

Additionally, student loan refinancing allows you to focus on paying off your loan over a fixed time period, meaning that you won’t be stuck paying interest on your loans for the rest of your life.

Of course, not all law enforcement officials will benefit from refinancing, particularly those planning on taking advantage of Public Service Loan Forgiveness. Make sure to do your due diligence when picking out a loan repayment plan that is right for you. In general, there are many loan repayment and loan forgiveness options available to law enforcement, which means you can focus on your job instead of your loans.

Student Loan Refinancing With SoFi

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.

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.

SOSL0923060

More than 43 million Americans have student loan debt. Today, the average borrower graduates with a balance of nearly $38,000. For those with private loans, that amount may be closer to $40,500.

If you’re among those borrowers looking for ways to reduce student loan debt as quickly and easily as possible, you may want to consider refinancing.

A common reason for refinancing student loans is to secure a lower interest rate, which can help lower monthly payments and save money on interest. But you may also choose to refinance to change other loan terms or change your lender.

But choosing a refinance lender can be overwhelming. So to help you evaluate student loan refinancing companies, we’ve created a handy cheat sheet. Asking these 10 questions can help you zero-in on your best fit.

Student Loan Refinance Lender Questions Cheat Sheet

1. How Great is the Rate?

One of the main reasons to refinance your loans is to get a lower interest rate.

Ask the lender to provide your interest rate before doing a hard credit pull. Most online lenders allow you to prequalify with a “soft” credit pull , which won’t impact your credit score.1 This should allow you to “rate shop” without affecting your credit.

A “hard” credit inquiry, on the other hand, stays on your credit report for up to two years. One or two hard inquiries will probably have a minimal impact on your credit. But several within a short period can harm it, which is why it’s important to get quotes before officially applying for a loan.

You can use a student loan refinancing calculator to estimate your total savings with a new refinanced loan, even before you prequalify.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

2. Do the Pros Outweigh the Cons?

All new federal student loans are granted through the William D. Ford Federal Direct Loan (Direct Loan) Program. Private student loans, on the other hand, are provided by individual financial institutions.

Refinancing federal student loans is an option available to borrowers. Sometimes, refinancing can be beneficial. For example, it may be a good idea if you can qualify for a lower interest rate and save a significant amount of money.

Others may find that refinancing a federal loan isn’t the right option for them. Here’s a quick list of some of the pros and cons to consider if you’re thinking of refinancing federal student loans.

Some of the Pros to Consider:

•   Long-Term Savings: Refinancing to a lower interest rate could potentially help you save money in interest over the life of the loan.

•   Lower Monthly Payments: You can also choose to extend the repayment term, which would result in lower monthly payments. This may make sense if you’re struggling to fit your payments into your budget. However, you may pay more interest over the life of the loan if you refinance with an extended term.

•   Faster loan payoff: Imagine having no more student loans to pay back! By shortening your loan term, you could speed up your repayment.

•   Rate Change: Variable rates often start off lower than fixed rates, which can be helpful if you plan to pay off your loan quickly.

Some of the Cons to Consider:

•   Loss of Access to Federal Repayment Plans: When you refinance federal loans with a private lender, they’ll no longer qualify for any federal repayment plans. This includes income-driven repayment plans that reduce payments to a small percentage of your income.

•   No Longer Eligible Federal Forgiveness Programs: If you’re pursuing Public Service Loan Forgiveness (PSLF) or other federal forgiveness programs, refinancing may not be the right option for you, since doing so makes your loans ineligible.

•   Inability to Defer Your Loans: You’d also lose the opportunity to put your federal student loans into deferment or forbearance in the event of financial difficulty.

3. Can You Pick Between Fixed and Variable Rate Loans?

With a fixed rate loan, the interest rate is locked in for the entire life of the loan. This means you’ll have a predictable monthly payment for the entire term.

The interest rate on a variable-rate loan, however, can go up or down over time, depending on market conditions. While the initial rate may be lower, you could end up with a high rate a few years into your loan.

Fixed-rate loans are generally considered to be less risky than variable rate loans. But if you’re able to repay your loan in a relatively short time period, variable-rate loans can be worth considering.

You can use SoFi’s student loan payment calculator to estimate your student loan payments with a fixed rate. Tools like this can help give you an idea of how much more you may need to be paying each month if you want to pay your loan off faster.

4. Can You Choose Your Loan Term?

Typically, this is the case. But beware: Choosing the term that results in the lowest monthly payment isn’t always the best option. Stretching out your repayment term helps reduce the monthly payments, but it also means you’ll pay more in interest over the life of the loan.

If you recently graduated, you may not be making enough money to afford your current payment. In that case, a longer term with lower monthly payments to free up some cash flow in the short-term might make sense.

Be realistic about how much you can afford to pay back each month. If you can afford a higher monthly payment, you’ll likely pay off your loan more quickly, and ultimately pay less money in interest.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

5. What Happens if You Lose Your Job?

Life is unpredictable, and if you unexpectedly lose your job, it may be difficult to keep up with your loan payments. When you miss loan payments, you might incur late fees or other penalties. Additionally, late payments can have a negative impact on your credit score. After a series of missed payments, the loan could go into default.

Borrowers with federal student loans can apply for deferment or forbearance to temporarily reduce or pause their loan payments while they look for work. Or they can look into income-driven repayment plans, provided their federal student loans are current.

6. Will the Lender Help With Your Career?

The higher your earnings, the easier it is to pay off your student loans quickly. A lender who helps you get ahead in your career understands this principle.

Lenders know that if you can’t get a job, or you lose your job, you won’t be able to pay back your loans. Ask your lender if they offer any networking or other career services that could help you advance in your career.

7. What Other Perks Come With Your New Loan?

Not all lenders are created equal. As you are reviewing different lenders and refinancing options, review everything the lender has to offer. In some cases, you might find you qualify for similar refinancing options at a few different lenders, but one might offer additional benefits that pushes it ahead of the other options.

A few of the perks of refinancing with SoFi include:

•   Zero hidden fees: There are no application fees, origination fees, or prepayment penalties.

•   Add a cosigner: Many students have limited income and credit history, so adding a cosigner could help improve their application’s chances of being approved.

•   Automatic payments: Not only can automatic payments help prevent any late or missed payments, but enrolling your SoFi loan in autopay could qualify you for an interest rate reduction.

8. Is the Application Online?

The last thing you want is to be buried in a mountain of actual paperwork. Look for lenders that offer a short, simple, online form.

9. What’s the Lender’s Reputation?

Make sure to do your due diligence on any potential lender. A quick Google search should provide some online reviews and media coverage of the lender, which will help you determine if they’re legitimate.

You can also check out their social media pages. Overall engagement levels and conversations within a lender’s social communities may provide additional, valuable insights and help give you a sense of the company’s commitment to things like customer service.

10. Will the Lender Grow With You?

Sure, lenders can refinance your student loans, but what about helping you with other financial milestones, such as buying a home and saving for retirement? Look for a lender that sees the big picture—and wants to invest in your long-term success.

Start the Refinancing Process Today

Whether you’re ready to start your application or you’re just beginning to consider refinancing, the SoFi team is here to help. Refinancing your student loans with SoFi could help you spend less money in interest, lower your monthly payments, or even pay off your loan faster. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Keep in mind that refinancing federal student loans with a private lender will eliminate them from federal protections and benefits like deferment, loan forgiveness, and income-driven repayment plans.

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.

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.

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Due to the financial challenges created by the COVID-19 pandemic, federal student loan payments were automatically paused from March 2020 to September 2023. During that time, interest didn’t accrue and collections activities were also paused. But now that payments are due again, many borrowers are looking for ways to make their loans more manageable, especially those who are facing ongoing financial hardships.

One option is student loan deferment, which allows you to temporarily pause your student loan payments. As with most financial decisions, there are pros and cons to deferring your student loans. Here’s more information about student loan deferment and what it could mean for your financial future.

What Is Student Loan Deferment?

Deferment is a program that allows you to temporarily stop making payments on your federal student loans or to temporarily reduce your monthly payments for a specified time period.

This is similar to another option known as forbearance. However, unlike forbearance, you may not be charged interest while your loan is in deferment. According to the Department of Education, if you hold one of the following types of loans, you will not be responsible for paying interest on your loan while it is in deferment:

•  Direct Subsidized Loan

•  Subsidized Federal Stafford Loan

•  Federal Perkins Loan

•  The subsidized portion of a Direct Consolidation Loan

•  The subsidized portion of a Federal Family Education Loan (FFEL) Consolidation Loan

If you have one of the following types of loans, you will be responsible for paying the accrued interest on your loan while it is in deferment:

•  Direct Unsubsidized Loan

•  Unsubsidized Federal Stafford Loan

•  Direct PLUS Loan

•  FFEL PLUS Loan

•  The unsubsidized portion of a Direct Consolidation Loan

•  The unsubsidized portion of a FFEL Consolidation Loan

If you are responsible for paying interest on your student loans while they are in grad school deferment, you have two options: 1) you can make interest-only payments on the loans while they are in deferment; 2) if you choose not to make these interest-only payments, the accrued interest will capitalize (be added to the loan principal) when the deferment period is over.


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

How Do You Qualify for Student Loan Deferment?

In order to qualify for student loan deferment, you must meet one of the following requirements:

•  You’re enrolled at least part-time at a qualifying university

•  You’re unemployed or unable to find employment (for up to three years)

•  You’re experiencing an economic hardship

•  You’re currently volunteering in the Peace Corps

•  You’re on active-duty military service (or are in the 13 months following that service)

•  You’re in an approved graduate fellowship program

•  You’re in an approved rehabilitation program (for disabled students)

Requesting a Deferment

If you’re interested in deferring student loans to go back to school, you’ll need to apply for an in-school deferment. Most likely, you will request the deferment directly through your loan servicer—there is usually a form for you to fill out. When you request a deferment, you’ll also need to provide some sort of documentation to prove that you qualify for a deferment.

If you are enrolled in an eligible college or career school at least half-time, may be placed in deferment automatically . If it is, your loan servicer will notify you that deferment has been granted. If you enroll at least half-time and do not automatically receive a deferment, you will need to contact the school in which you are enrolled. The school will then send the appropriate paperwork to your loan servicer, so that your loan can be placed in deferment.

Pros and Cons of Student Loan Deferment

The biggest benefit of student loan deferment is the ability to temporarily postpone student loan repayment. As of the first quarter of 2023, 2.8 million loans were in deferment.

If you are deferring for extreme financial hardship, deferment allows you to free up money to pay off bills that require immediate attention like rent or electricity.

For students who have qualified for deferment through community service, like a stint in the Peace Corps, deferment gives them the opportunity to serve their community without any added stress from student loan payments.

While temporarily pausing loan repayment may seem like a blessing, it can come at a cost, especially if your student loans are not subsidized by the government. When in deferment, interest continues to accrue on your loan. And at the end of your deferment period, that interest will be capitalized on the loan. (This means that the accrued interest will be added to the principal balance of the loan. So ultimately, you’ll be paying interest on top of interest.)

This can mean you end up paying even more money over the life of the loan. To see how much deferring your student loans could cost, you can use an online calculator to get an estimate of how much interest will accrue while the loan is in deferment.

The Pros and Cons to Student Loan Refinancing

If you have private loans that aren’t eligible for federal student loan deferment, refinancing your student loans is another option to consider. You may also want to think about refinancing when you’re done with your graduate degree to pay off your loans at a potentially lower interest rate.

When you refinance, your existing student loans are paid off with a new loan from a private lender. If you are refinancing private loans before going back to graduate school, you may be after a lower monthly payment, which you could potentially qualify for when refinancing your loans and extending the loan term. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Alternatively, if you’re looking to refinance after graduate school, you could potentially qualify for a lower interest rate, which could reduce the amount of money you spend over the life of the loan. The lender will use your credit score and earning potential to determine what interest rate you’ll qualify for. And thanks to your new graduate degree, you could have significantly increased your earnings.

Another big benefit of student loan refinancing? You’re able to combine all of your student loan payments – for both federal and private loans – into one easy-to-manage payment.

If you hold only federal student loans, however, you could look into a Direct Consolidation Loan , which allows you to consolidate federal loans into one loan with a single monthly payment. The new interest rate will be the weighted average of your current interest rates (rounded to the nearest one-eighth of 1%), so unlike refinancing, when you consolidate your student loans, you won’t necessarily qualify for a lower interest rate.

If you are taking advantage of your federal loans’ flexible repayment plans or student loan forgiveness programs (or if you are planning to do so), refinancing might not be the best option for you. A major con of student loan refinancing is that you’ll lose access to federal loan benefits when refinancing with a private lender—including deferment and income-driven repayment plans.

Refinancing Your Loans with SoFi

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.

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.

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As with any loan, federal and private student loans come with interest charges. Federal Direct Loans use a daily simple interest formula, whereas some private student loans may use a compound interest formula.

A simple interest loan calculates interest on your principal balance. A compound interest loan, however, uses a different formula that typically results in higher interest charges than a simple interest formula.

In general, the terms of your student loan agreement will determine how much interest you pay over the life of your loan. Below we highlight how to calculate student loan interest.

Step 1: Calculate Daily Interest

A student loan calculator can help you determine how much interest you may pay over the life of your loan. You can also calculate daily interest costs manually if you know your interest rate.

Say you have a $10,000 federal Direct Unsubsidized Loan balance with a 5.50% fixed interest rate. You can use the following formula to calculate the daily amount of interest that would accrue on your $10,000 remaining loan balance:

(0.055 / 365) X $10,000 = $1.51

You can apply this formula by converting your 5.50% interest rate into a decimal (0.055) and dividing it by 365 days in a year to determine your interest rate factor. Then you multiply your interest rate factor by your $10,000 remaining loan balance. This calculates your daily interest charges as about $1.51.

Step 2: Calculate Daily Costs

Simple interest is charged as a percent of your outstanding principal. In student loan terminology, the interest typically accrues on a daily basis.

Using the above example of a $10,000 federal student loan balance with a 5.50% fixed rate, your lender would charge about $1.51 in daily interest on your $10,000 balance.

This means that every day that you continue to owe $10,000 on a simple interest loan with a 5.50% interest rate, you accrue $1.51 in interest, which is added to the principal amount you owe. In other words, it costs you about $1.51 per day in order to have your $10,000 loan balance still outstanding.

Step Three: Calculate Monthly Costs

Once you know how much you’re paying in interest every day, you can determine how much you’re paying in interest every month.

In order to figure out how much cash you’re shelling out monthly to pay your accruing interest, you multiply your daily interest cost by the amount of days between payments, which is usually 30 days, or one month. Here it is with our example numbers from above:

$1.51 x 30 = $45.30

This $45.30 estimate of student loan interest is the amount that may accrue over the course of a month. This is how to calculate student loan interest on a $10,000 balance with a 5.50% fixed rate using the simple interest formula.

In general, federal and private student loans are amortizing loans. Student loan payments may cover interest charges and some principal, but you’ll typically pay more in interest at the start of your repayment term. A greater portion of your payment may go toward principal as you pay down your loan balance over time.

Simple vs Compound Interest

Student loans from the federal Direct Loan Program are daily simple interest loans. In addition to Direct Unsubsidized Loans, these loans include:

•   Direct Subsidized Loans

•   Direct PLUS Loans

•   Direct Consolidation Loans

Some private student loans may charge compound interest, which is typically more costly than simple interest. What is compound interest? It’s when a lender charges interest on interest and principal.

Simple interest is charged as a percent of your outstanding principal, whereas compound interest is charged on your accumulated unpaid interest and principal balance combined. This is typically more costly than simple interest, because compound interest charges interest on the unpaid interest.

If you have private student loans, you can ask your lender whether the finance charges are based on simple interest or compound interest.

When Does Interest Start on Student Loans?

Federal and private student loans typically begin accruing interest when they’re disbursed. There are some exceptions, of course, so the exact timing of when student loan interest accrual starts may depend on your loan type.

The difference between private vs. federal student loans is that federal student loans are made, insured, or guaranteed by the federal government under Title IV of the Higher Education Act of 1965. The federal Department of Education does not guarantee private student loans, which typically come from banks, credit unions, fintech companies, and state-based nonprofits.

Private education loans, including refinance student loans, are not eligible for Public Service Loan Forgiveness, Teacher Loan Forgiveness, or federal income-driven repayment (IDR) plans.

Refinancing your student loans with a private lender may reduce your interest rate. You may pay more interest over the life of the loan if you refinance with an extended term.


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

What Is Interest Capitalization?

Interest capitalization is when unpaid interest accrues over time and gets added to your principal loan balance. Interest capitalization can occur with federal and private student loans, but the U.S. Department of Education eliminated most instances of federal student loan interest capitalization effective July 2023.

A federal student loan borrower who exits a period of deferment on an unsubsidized loan or who overcomes a partial financial hardship on the Income-Based Repayment (IBR) Plan may face capitalized interest. Federal student loan interest capitalization can also occur upon loan consolidation. These are the few instances where federal law requires federal student loan interest capitalization to occur.

Federal student loan borrowers on the IBR plan can consider switching to the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan is the most affordable repayment plan for federal student loans, according to the Department of Education.

Borrowers who earn less than 225% of the federal poverty guideline (or less than $32,805 for a single borrower and $67,500 for a family of four in 2023) don’t have to make any payments under the SAVE Plan. Beginning July 2024, SAVE Plan payment amounts are based on 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average for borrowers who have both.

What Is Student Loan Amortization?

As mentioned earlier, federal and private student loans are amortizing loans. That means you’ll typically pay more in interest at the start of your repayment term and less toward interest as you pay down your loan balance over time.

There are variable and fixed-rate student loans, but federal student loans issued after July 1, 2006, have a fixed rate. A variable rate can fluctuate with the market, whereas a fixed rate remains the same over the life of the loan. Amortization refers to the amount of principal and interest you pay each time you make a loan payment.

It’s possible for negative amortization to occur, which is when your monthly payment is low enough that it doesn’t cover the interest charges for that month. Negative amortization causes your loan balance to grow.

If you’re enrolled in the SAVE Plan, however, you won’t experience negative amortization on federal student loans as long as you make your required monthly payments.


💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.

Lowering Your Student Loan Interest Rate

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.

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.

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