SoFi

If you’ve decided to apply to grad school, you may be wrestling with a few questions, including how many schools you should apply to in total. The answer will depend on your personal situation, but a general rule of thumb is to apply to somewhere between four and six grad schools, including at least one reach school as well as one or two safety schools.

Read on to learn more about how to choose which grad schools — and how many — to apply to, plus options for financing your graduate degree once you get in.

Follow the Money and Consider Cost

When deciding where to apply to grad school, it can be a good idea to consider the quality and reputation of each program, as well as the potential cost. Even if you didn’t take out loans for your undergrad education, you may need to for your graduate-level studies. Indeed, according to the Education Data Initiative, grad students currently shoulder a significant portion of student debt — a full 46% of federal loans issued each year. Federal loans can reach the six figures, and many graduates of grad programs may not have earning power to pay back these loans comfortably until years or even decades after their degree is conferred.

If you’re in the early stages of considering going to grad school, here are a few questions and actions that may help you navigate the choices available to you:

•   Talk with people who have gotten a similar master’s degree. What did they wish they had known?

•   Talk with the department or departments at the schools you’re considering and ask about graduate scholarships, fellowships, and other programs that may lower program cost.

•   Consider your career path. Look on various salary sites for median salaries for your proposed field of study.

In the early stages of heading to grad school, you may also want to determine how you’ll pay for graduate school, as this may impact the school you choose to attend. Here are a few suggestions for crafting a plan to pay for your graduate education.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Talk with your family

Some students have found that their family may support some or all of their grad school journey. Contributions such as free housing or the use of a family car add up as well, so it can be important to factor those in. For example, some students may look at programs where they can live at home, so they don’t need to pay for housing and travel expenses. If this is the case, make sure everyone is very clear about expectations so there are no surprises later on.

Apply for Federal Student Aid

Be sure to fill out the Free Application for Federal Student Aid (FAFSA). Unlike undergrad education, direct subsidized loans are not available to graduate students. Your loans will also be considered in conjunction with any federal loans you took out as an undergrad when it comes to determining the number of federal loans you’re eligible for as a grad student. Talking to the financial aid office at the schools you’re considering attending can also help you understand what loans, scholarships, and other programs may be available to you.

Recommended: What is the Maximum Amount of Student Loans for Graduate School?

Consider Private Loans

Some students may find they need more money than they are offered in federal loans, and that’s where private graduate student loans student loans. Private lenders generally won’t lend more than what it costs to go to school, and rates and terms will vary. Note that because private student loans lack the borrower protections that federal loans offer (like Public Service Loan Forgiveness or deferment options) it’s generally recommended that borrowers rely on these after tapping all federal aid options.

Consider Relevance And Practicality

In addition to prestige, it’s also important to consider degree relevance and how it may be practical for your future career path. Looking at salaries from people who graduated from that program or with that degree can help you assess what the future after graduation will look like. Sometimes, students can become so focused on getting into a grad program and affording the program that they may forget that the first year out of grad school may require a few months to find a job and find footing in a new career.

Asking yourself some questions can help you further drill down into the best programs to apply for:

How Much Will Expenses Cost?

Room, board, and travel all add up. Considering those costs can help assess overall expense. It can also be helpful to consider the cost of living, too, which can vary based on where the program is based.

Recommended: 6 Ways to Save Money for Grad School

Can I Work and Study Simultaneously?

Some programs may be structured for grad students to do both; others might be created primarily for students who can devote all their time to their studies. If you’re self-funding your grad school experience and are currently employed, it may be worth speaking with your HR office to see if there are any options for your company to fund your studies if you are planning to study and go to school at the same time.

How Long Is the Program?

Different grad programs have different time frames. While some, such as law schools, may have relatively standard coursework for traditional students, other programs may offer different structures depending on the school. And it may make sense to see how long or how short the degree can take depending on life circumstances. It can also be helpful to know if an internship or other hands-on experience is essential for the degree, as that may influence feasibility with fitting the degree in with other work.

Recommended: Is it Possible to Take Online Classes While Working?

Consider All Information

When applying to grad programs, getting as much data as possible can be helpful in determining the next steps. Talking with professors, people currently working in the industry, current students, and faculty at several schools you’re considering can all be helpful in assessing how well you may fit in a program — and why a program may be the best fit for you. Because graduate departments tend to be smaller than undergrad departments, you may find it easier to have these sorts of conversations.

It can also be helpful to speak to graduates of a program and to talk with mentors and employers about how a grad degree may enhance your career. While some career paths demand a grad degree, such as an attorney, social worker, or doctor, there are other career paths where a grad degree may not be necessary — or may be subsidized by an employer when they consider it essential. So having a range of opinions can be helpful when it comes to homing in on the best grad school programs for your needs.

💡 Quick Tip: Master’s degree or graduate certificate? Private or federal student loans can smooth the path to either goal.

The Takeaway

When figuring out how many grad schools to apply to, you may want to shoot for somewhere between four and six. The idea is to apply to enough schools to ensure that you are accepted to at least one program, but not so many that the time, effort, and cost (application fees can add up quickly) becomes too much.

When narrowing your list of target schools, keep in mind both the quality and cost of different programs. And even before you get accepted, it can be a good idea to fill out the FAFSA, and start making a plan for how you’ll cover your graduate school expenses.

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.

Photo credit: iStock/MicroStockHub

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

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

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

SOIS0823050

While a graduate certificate program is not as long or intense as a graduate degree, certificate programs can still be a significant commitment — both in terms of time and money. On top of tuition, there may be ongoing additional fees to consider, such as materials, exam fees, and professional association fees.

Not all certificate programs qualify for federal aid, although some may. Fortunately, there are other financial aid avenues that can potentially help you afford your graduate certificate. To help you decide which path is right for you, here’s a look at some of your financing options, plus the pros and cons of each.

Finding Financial Aid for Graduate Certificate Programs

There are many reasons to pursue a graduate certificate, including access to more job opportunities and the ability to earn more money. In some fields, such as finance, employers may encourage their employees to obtain certificates to move up in their fields. In these cases, employers may provide financial assistance to pay for the certificate program.

Some people may obtain a graduate certificate with an eye toward completing additional coursework toward a master’s degree in the future. While some graduate certificates have discrete coursework unique to the certificate, other post-grad certificates have credits that may go toward a master’s degree. If you’re considering a grad degree, then it may be a good idea to explore what the coursework entails and whether you may be able to use those credits toward a master’s in the future.

If you’re planning on funding your graduate certificate yourself, it may be helpful to speak to people who have done the certification program to hear the pros, cons, and time commitment required. It can also be helpful to hear how other people have funded the certificate, because it could open up certain avenues, such as specific scholarships for that certificate that you may not have heard of yet.

Strategies to fund your graduate certificate include self-funding, funding from your employer, funding from scholarships, or a private student loan. Here, some of the considerations of all avenues.

Recommended: A Guide to Private Student Loans

Funding From Your Employer

In some cases, your employer may recommend you obtain a post-grad certificate. In other cases, you may need to ask your manager and go through your employer’s process for tuition reimbursement.

Pros of funding from your employer:

•   Your employer is covering some or all of the financial burden.

•   Your employer is invested in your career.

•   You can be confident that the certificate will be useful to your future career path.

•   There may be coworkers who have done the certificate as well as who can walk you through their experience as well as specifics about the HR process in getting the certificate funded.

Cons of funding from your employer:

•   Balancing work and studying may be challenging.

•   Your employer may have oversight into your success.

•   You may be on the hook for the costs of the certificate if you leave or are terminated during a set period of time.

•   You may still be responsible for part of the tuition, or for additional materials fees.

Free tuition is an obvious pro when it comes to having a certificate employer-funded. But other considerations come into play: How will you simultaneously manage work and studying? What happens if you don’t pass? And if you do accept employer funding, is there a contract that locks you into employment for a certain period of time? Knowing the stipulations can be helpful in managing expectations. And of course, talking to coworkers who have already done the program can be helpful in figuring out the ins and outs of how your specific employer expects you to complete the course and what they anticipate for your career future.

Recommended: Is it Possible to Take Online Classes While Working?

Funding From scholarships

Private scholarships may be available to help pay for the course. They may be issued by the institution granting the certificate. For example, the Certified Financial Planner (CFP®) certificate, a popular financial certificate, has a host of scholarships presented on their website . These scholarships may be distributed by private foundations in honor or memory of certain people. Each scholarship may have specific requirements; some may be exclusive for people who demonstrate financial need, others may be exclusively focused on merit.

Pros of scholarships:

•   They can help offset tuition costs.

•   They can be gratifying to receive and provide motivation for success.

Cons of scholarships:

•   They typically require applications, which can be time-consuming to complete.

•   They may have admission requirements, such as being a U.S. citizen or already completing certain coursework.

•   Receiving the full amount of money may be contingent on performance.

•   You may be required to declare the scholarship on your taxes; scholarships for non-degree programs are generally considered taxable. If that’s the case for you, consider putting aside money for taxes on the scholarship.

Scholarships can be a great way to cover the cost of your certificate. It’s a good idea to research the certificate program you’re considering to uncover scholarship opportunities. Your alma mater’s career development office may also have leads for you to pursue.

Recommended: Finding & Applying to Scholarships for Grad School

Self-Funding a Certificate Program

Maybe you have savings set aside or maybe your family has offered to cover the cost of your degree program. But if you have the funds, should you write the check?

Pros of self-funding:

•   It’s a seamless process — write the check after you’ve been accepted, and you no longer need to worry about payment.

Cons of self-funding:

•   The money used for the degree program may diminish your savings or emergency fund.

•   Payment may come with strings if a family member is covering the program.

If you have the money to cover a certificate program and still have a comfortable emergency fund, then this can be a great option. But if you’d need to decimate your emergency fund or use a credit card to cover the payment, then it could be a good idea to consider other ways to cover the cost.

Student Loans for a Certificate Program

The fourth option is applying for student loans to cover the cost of a certificate program. Unlike a degree program, certificate programs are generally not eligible for federal student loans.

In the case that your certificate program is eligible for federal financial aid, it’s worth filling out the Free Application for Federal Student Aid (FAFSA®). This form will help determine your eligibility for federal aid, including federal student loans.

But private graduate student loans may be an option. Note that private student loans are not subject to the same requirements as federal student loans and don’t offer the same borrower protections, such as the option to pursue Public Service Loan Forgiveness or deferment protections. Be sure to shop around and read all the terms and conditions closely.

Pros of private student loans:

•   You won’t need to deplete your savings.

•   You can compare private loans to find the lowest interest rate.

•   You may be able to find a payback structure that makes sense within your overall budget.

Cons of private student loans:

•   Additional debt can be challenging to take on, especially if you’re not working.

•   Depending on credit history, some lenders may require a cosigner.

How do you choose which company to get private student loans for a certificate program? In addition to checking your interest rate — which will typically not affect your credit score — you also may want to consider additional elements of the loan. Are there any additional fees? Are there any hardship clauses, if you were unable to make payments for a month? What does the payment structure look like?

In addition to comparing lenders, it can also be helpful to ask yourself some what-ifs. These include:

•   How will these payments fit into my budget?

•   What happens if I don’t obtain the job or payment bump I’m expecting along with my certificate?

•   How will I budget to make sure that my loan payment doesn’t feel like a liability?

Because graduate certificate programs are generally less expensive than degree programs, loan terms may be smaller and shorter-term. Still, applying for any loan is a big deal, and it’s good to go through a few scenarios before you decide on the right avenue for you.

The Takeaway

Even though they may seem lower-commitment than a full degree program, certificate programs have the potential to be time-consuming and expensive. Resources are available for payment, but some expenses, such as professional fees or exam fees, may not be covered under certain scholarships or by your employer. Understanding the full scope of expectations for tuition coverage and knowing how any payback terms may fit into your budget can be key for paying confidently for your certificate program.

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.

Photo credit: iStock/Jacob Ammentorp Lund

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

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

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

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

SOIS0923011

Generally, scholarships used to pay for qualified educational costs at an eligible educational institution aren’t considered taxable income. The same goes for any grants used to pay for college tuition and fees.

However, there are some cases in which scholarship or grant money may be taxable. For example, if you have money left over after covering your qualified education expenses and use it for other costs (such as room and board or school supplies not required by your program), these funds typically count as taxable income.

If you or your student received scholarship funding, it can be helpful to know ahead if it will contribute to your tax liability. Here’s what you need to know about identifying taxable scholarships and handling filing requirements.

Scholarships That Are Tax-Free

Students can be exempt from paying taxes on their college scholarships if they satisfy certain criteria. For one, they must be enrolled at an accredited college, university, or educational institution that maintains regular attendance.

Additionally, scholarship funds must be used to pay for qualified education expenses — a determination made by the IRS. Under this definition, qualified education expenses include the following:

• Tuition

• Mandatory fees (e.g., athletic and tech fees)

• Textbooks

• Equipment and supplies (e.g., lab equipment)

When it comes to textbooks, equipment, and supplies, anything that is required by your school to complete coursework would be free from taxes. If you use the funding towards an extra-curricular activity, such as a club or intramural sport, however, the amount you spend would be considered taxable.

If the scholarship is used for a certificate or non-degree program, the entire amount is taxable whether or not funds are used for qualified education expenses.

It’s important to note that any scholarship funds leftover after paying for qualified education expenses would become taxable income.

Scholarships Considered Taxable Income

How are scholarships taxable? According to the IRS, scholarships used for expenses outside the scope of qualified education expenses must be reported in gross income — making them taxable.

Scholarship funds used for the following costs are considered taxable by the IRS:

• Room and board

• Travel

• Medical expenses

• Optional equipment (e.g., new computer)

But are scholarships taxable income in any other situations?

Scholarships that are awarded in exchange for services like teaching or research, often known as fellowships, are classified as taxable compensation in most cases. Students would have to pay taxes even if their fellowship money is used to pay for tuition and other qualified education expenses.

However, there are a few exceptions when education-related payments could be tax-exempt. Specifically, students do not have to pay taxes on funds received for required services through the following scholarship programs:

• National Health Service Corps Scholarship Program

• Armed Forces Health Professions Scholarship and Financial Assistance Program

• Student work-learning-service programs operated by a work college

Other forms of financial aid could be considered taxable income as well.

Earnings through the Federal Work-Study program are subject to federal and state payroll taxes. If you stay below 20 hours a week while enrolled full-time, you won’t have to pay FICA (taxes for Medicare and Social Security) taxes.

Even Pell Grants — a federal aid program for students with significant financial need — are taxable if they’re not used for qualified education expenses.

Making it Legal: Reporting Taxable Awards

If a college scholarship is considered taxable, the student would need to report the scholarship (or portion of the scholarship) on their tax return.

Some students may receive a W-2 form from the scholarship provider outlining the taxable amount. Otherwise, they may need to calculate and enter the amount on their own tax return.

The student would report any taxable amount of a scholarship, grant, or fellowship as follows:

• If filing Form 1040 or Form 1040-SR, you would include the taxable portion in the total amount reported on Line 1a of your tax return. If the taxable amount wasn’t reported on Form W-2, enter it on Line 8 of Schedule 1 (and attach the form).

• If filing Form 1040-NR, you would report the taxable amount on Line 8 and fill out and attach a Schedule 1.

If you have questions about whether or not any portion of your scholarship money is taxable and how to report those funds on your tax return, it’s a good idea to consult a tax professional for personalized guidance.

How Education Tax Credits Fit in

Students and their family members may be eligible to claim the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC) if they paid for college and related costs in the past year. Take note that you can’t use both tax credits for the same student in the same year.

To claim either tax credit, you’ll need Form 1098-T from your college. This form shows any reportable transaction for an enrolled student.

To qualify for the AOTC or LLC, you could have paid educational expenses out of pocket or with student loans. Expenses that were paid for by tax-free scholarships are not eligible for a tax credit.

The AOTC and LLC differ in scope and eligibility, so it’s helpful to compare both to see which may apply and provide a greater tax return.

American Opportunity Tax Credit (AOTC)

The AOTC can be used for qualified education expenses — tuition, fees, textbooks, and necessary supplies — for a student’s first four years of college.

The maximum credit currently stands at $2,500 a year for eligible students. This is calculated as 100% of the first $2,000 in qualified education expenses paid for an eligible student plus 25% of the next $2,000 in qualified education expenses.

If the AOTC reduces your taxes to zero, it’s possible to have 40% of the remaining credit (up to $1,000) refunded.

Eligibility for the AOTC is based on the tax filer’s modified adjusted gross income (MAGI). If you’re filing separately, your MAGI must be $80,000 or less to qualify for the full AOTC credit. The threshold is $160,000 for married filing jointly.

It’s possible to receive a reduced AOTC amount if filing separately with MAGI between $80,000 and $90,000 or $160,000 and $180,000 for married filing jointly.

Recommended: 23 Tax Deductions for College Students and Other Young Adults

The Lifetime Learning Credit (LLC)

The LLC can apply to a broader range of expenses than the AOTC. It can be used to claim up to $2,000 for tuition and related educational expenses for undergraduate, graduate, or professional degree courses. Costs of non-degree programs that improve job skills are also eligible for the LLC.

This credit does not have a limit on the number of years it can be claimed on your tax return. However, the LLC has stricter income requirements.

For Tax Year 2022, the amount of your LLC is gradually reduced (phased out) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).

You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

Recommended: Can You Deduct Your Child’s Tuition from Taxes?

Don’t Forget Deductions

If you’re paying interest on a student loan, you may be eligible to deduct up to $2,500 of that interest with the student loan interest deduction. To be eligible, interest payments must be legally obligated and your filing status can’t be married filing separately.

There are also income requirements, which can vary annually, to factor in for the deduction calculation. For the tax year 2022, the filer’s MAGI must be less than $85,000 (or $170,000 if filing jointly) to be eligible for the full $2,500 deduction.

If your MAGI is between $70,000 and $85,000 (or $140,000 and $170,000 if filing jointly), you could qualify for a reduced deduction.

💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.

The Takeaway

Scholarships, grants, and fellowships can help make college more affordable. Not only that, the funds you receive typically aren’t taxable.

A general rule is that your college scholarship is tax-free when it is used to pay for “qualified education expenses.” Exceptions include any part of the scholarship or grant you used to pay for supplemental things (not required for a course) or as payment for work or services you performed.

If scholarships, grants, other aid, and federal student loans are enough to cover the cost of your college education, you may want to consider applying for a private student loan. Loan limits vary by lender, but you can often get up to the total cost of attendance. Interest rates may be fixed or variable and are set by the lender. Generally, borrowers (or cosigners) who have strong credit qualify for the lowest rates.

Keep in mind, though, that private loans may not offer the borrower protections — like income-based repayment plans and deferment or forbearance — that automatically come with federal 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.

Photo credit: iStock/pixelfit

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.

SOIS0823051

For some, tax day means a much-awaited refund. For others, it may mean another expense. There are a variety of factors that can affect your taxes, including your status as a student.

If you paid qualifying educational expenses or student loan interest during the tax year, you may qualify for a student loan interest deduction or an education tax credit — which could potentially mean a lower tax bill or a higher tax refund.

When you claim a deduction on your taxes, it is subtracted from your total income. Your income taxes are assessed after the deduction is taken. In contrast, a tax credit is subtracted from any taxes you may owe.

Taxes are complicated so It’s a good idea to consult with a tax professional about what deductions and tax credits you may be eligible for. What follows, however, are some general guidelines on how student loans might affect your tax returns.

Student Loan Interest Deduction Explained

The student loan interest deduction lets borrowers deduct all or part of the interest they pay on their federal student loans and/or private student loans when they file their federal income tax return.

Usually, you can expect to receive a 1098-E form from each of your student loan providers by the end of January each year. This form details the amount of interest you paid over the past calendar year.

Your loan servicer is only required to send you a 1098-E form if you paid more than $600 in interest on a qualified student loan. If you did not receive this by mail, your provider may have sent an email notification to let you know your 1098-E is ready to download.

To qualify for the maximum $2,500 student loan interest deduction, you must meet certain filing and income criteria. It may be possible to deduct student loan interest that has been paid on loans issued for yourself, your spouse (if you file jointly), and your dependents. However, parents can’t claim the student loan interest deduction if the student loan is in their dependent’s name only.

Since this is an adjustment to your gross income, you can take this deduction even if you don’t itemize. In order to claim this deduction, there are certain income requirements that must be met. The deduction is phased out when an individual’s modified adjusted gross income (MAGI) reaches certain thresholds.

The threshold amounts change every year but for the 2022 tax year, the benefit began to phase out at $70,000 for single filers and $145,000 for married taxpayers filing jointly.

The deduction was eliminated completely for single filers making $85,000 or more and for married taxpayers filing jointly who are making $175,000 or more.

Recommended: Are Student Loans Tax Deductible?

Am I Eligible for Education Tax Credits?

If you paid tuition, fees, or other education-related expenses during the tax year, you may be eligible for an education tax credit, either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).

Note that you can’t claim both credits for the same individual within the same year. If you qualify for both, it might be worth calculating them both in order to determine the option that is best for you.

American Opportunity Credit

This credit applies towards 100% of the first $2,000 of eligible education expenses and 25% of the next $2,000.

What does this mean? Students who are enrolled at least half time in a degree or certificate program for one academic period during the tax year may be eligible to receive a credit of up to $2,500 for the cost of tuition, fees, and course materials.

The credit may be claimed for up to four years, but it can’t be claimed after the eligible student has completed the first four years of post-secondary education, which means those pursuing graduate degrees aren’t eligible for this tax credit.

The MAGI limit for eligibility is $90,000 for individual filers and $180,000 for joint filers. The credit is reduced if MAGI is between $80,000 and $90,000 for individual filers and between $160,000 and $180,000 for joint filers.

The AOTC is a refundable tax credit. This means that if the credit takes your tax bill to zero, you can get 40% of the unused credit, up to $1,000, as a tax refund. The IRS has even more information on the requirements and eligibility factors for the AOTC on its website .

Recommended: Are Forgiven Student Loans Taxed?

Lifetime Learning Credit

The lifetime learning credit (LLC) is worth 20% of the first $10,000 of eligible education expenses, for a maximum of $2,000.

The LLC is similar to the AOTC, but with a few important differences. This credit has a lower income limit than the AOTC. For the 2022 tax year, the amount of your LLC is gradually phased out if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).

You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

There is no limit to how many years you can claim the credit. And the credit can be used to help pay for a variety of education expenses, including undergraduate, graduate, and professional degrees. You could even qualify for the credit if you’re taking classes to “acquire or improve job skills.”

Unlike the AOTC, the LLC is not refundable. This means that the credit can be used to pay for the taxes you owe, but if it surpasses that, you won’t receive any money back as a refund. The IRS has even more information on the LLC available on its website.

Finding Tax Help

If you want to learn more about these education tax credits and additional education tax deductions, the IRS has further information .

If the process of filing your taxes seems overwhelming or you’re still confused by the ins and outs of these tax advantages, you could consider finding help this tax season. A qualified tax professional could assist you in navigating your taxes and help you maximize your refund with less hassle — and they will know more about any credits or deductions you may be eligible for. After all, it’s their job to know!

Recommended: Is an Employee’s Student Loan Repayment Benefit Taxed As Income?

Figuring Out How to Pay for School

Even with tax credits and deductions, paying for school might still be an overwhelming prospect.

If scholarships, federal student loans, grants, and savings just aren’t enough to pay for school, you may want to consider applying for a private student loan. These are available through private lenders, including banks, credit unions, and online lenders. Loan limits vary by lender, but you can often get up to the total cost of attendance (which is more than you can borrow from the federal government). Interest rates may be fixed or variable and are set by the lender. Generally, borrowers (or cosigners) who have strong credit qualify for the lowest rates.

Keep in mind, though, that private loans may not offer the borrower protections — like income-based repayment plans and deferment or forbearance — that automatically come with federal 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.

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

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

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

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

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

SOIS0923010

Student loans can help you finance your college education without paying much interest. However, you don’t want to take on more debt than you can comfortably pay back after you graduate. As of June, 2023, student borrowers owe 1.76 trillion in student loan debt, including federal and private student loans, according to the Federal Reserve.

High school can be a great time to start learning about the types of student loans available to you, how interest accrues, and what you can expect when it comes time to repay any student loans you take out. Read on to learn some of the ABCs of student loans, and how to not let them weigh down your financial future.

Student Loan Types

There are two main categories for student loans: federal and private student loans.

Federal Student Loans

Federal student loans are funded by the federal government. Interest rates are fixed (and comparatively fair) and are set annually by Congress every July. Federal student loans also come with protections like income-driven repayment plans and deferment or forbearance options in the case of life changes, such as sudden loss of a job or other roadblocks to repayment.

The following are the federal student loan options offered:

•   Direct Subsidized Loans These are available to eligible undergraduates with a proven financial need. The government subsidizes (meaning it pays for) the interest that accrues on these loans while the student borrower is enrolled in school at least half-time and during the loan’s grace period (more on that below), and other qualifying periods of deferment.

•   Direct Unsubsidized Loans These are available to eligible undergraduates and graduate students regardless of financial need. Student borrowers are responsible for paying all of the accrued interest on unsubsidized student loans.

•   Direct PLUS Loans These are available to eligible parents of undergraduate students and to graduate or professional students. They are not subsidized by the government.

Private Student Loans

Private student loans are issued by non-government institutions, such as banks, credit unions, and online lenders. The requirements for applying for these types of loans may be more stringent.

Lenders will typically look at the student’s or their cosigner’s credit history, income, and other financial information. Some lenders require you to begin making payments while you are in school, while others allow you to wait until six months after you graduate. Either way, interest typically begins to accrue as soon as the funds are disbursed.

How to Apply for a Student Loan

The process for applying for student loans varies based on whether the loan is private or federal.

Applying for a Federal Student Loan

To apply for a federal student loan, you need to fill out and submit the Free Application for Federal Student Aid (FAFSA®) . Even if you don’t think you’ll be approved for financial aid, it can be worth submitting the FAFSA. The application is free and you may qualify despite your circumstances. The FAFSA also gives you access to federal student loans.

Every year, the FAFSA form usually becomes available online as of October 1 for the next school year. (Note that the FAFSA for 2024-25 academic year won’t be available until December 2023 due to the roll out of a new, more simplified form.)

You can easily apply online (see the link above). Completing the FAFSA determines the combination of federal loans, grants, and work-study you’re eligible for. Some colleges and universities also use information from the FAFSA to determine if you qualify for school-specific financial aid.

Applying for a Private Student Loan

It’s important to take the time to do some research and find a lender with a good reputation that offers competitive rates and terms. Ideally, you want a lender that offers flexible repayment options, reasonable (or no) fees, and will provide helpful customer support if you find yourself having any issues with your student loan payments.

If you decide to apply for a private student loan, you will more than likely have to reveal personal financial details, like your credit history. Since students typically don’t have much, or any, credit history, they often need to apply with a cosigner. That’s someone who will share the responsibility with you of paying back the loan.

In many cases, that cosigner would be a parent or an adult with whom you have a close relationship. Getting a cosigner may increase your chances of getting a better interest rate, which could help you spend less in interest over the life of the loan.

Types of Student Loan Interest Rates

The interest rate on your student loans could have a lasting impact on your future finances. The interest charged is a percentage of your unpaid loan principal — that is, the amount you borrowed. Interest is paid to the lender in exchange for the opportunity to borrow money from them.

You can typically choose from between two types of interest rates: fixed-rate and variable rates.

Fixed-rate student loans: These types of loans offer an interest rate that remains the same throughout the life of the loan. This could give you peace of mind, knowing that the rate won’t change, even if the state of the economy does. Interest rates could fluctuate wildly during the course of your loan, but a fixed-rate won’t be affected. As previously mentioned, federal student loans have a fixed interest rate. Some private lenders also offer student loans with a fixed interest rate.

Variable-rate loans: These types of loans come with an interest rate that can increase or decrease based on market fluctuations. Some private lenders offer student loans with variable interest rates. These are also sometimes called floating-rate loans, because the interest rate can change during the life of the loan.

A variable-rate school loan might start with a lower rate than a fixed-rate loan but keep in mind that your interest rate — and monthly payment — could rise later on. A variable- rate loan can make sense if you plan to pay off your student loan early before rates have a chance to rise too much, expect rates to fall in the future, or you have some wiggle room in your budget in case of rising interest rates.

Student Loan Mistakes to Avoid.

1. Failing to Research Your Loans

With any type of student loan, it’s key to understand what you are agreeing to. You’ll want to make sure you understand what the interest rate will be, what your monthly payment will be, when you’ll need to start repayment, and how you plan to cover that obligation.

2. Borrowing Too Many Loans

It’s nice to be approved and accepted, but too many loans (borrowing more money than you actually need) can lead to a heavy financial burden after graduation. Generally, you’ll want to use any college savings, financial aid, and federal student loans before looking to private student loans (which tend to come with higher interest rates than federal student loans). If you’ll need to take on significant debt to attend a certain school, you might consider choosing a less expensive institution.

3. Not Having a Plan

Life can be unpredictable. The one thing you could have power over is your school loan repayment plan. It’s important that you know exactly when your student loan repayment plan starts (in some cases, that could be before you graduate), and exactly what your monthly payment will be.

It can also be helpful to set up a budget that accounts for all of your college costs, including tuition, books, room and board, food expenses, and anything else related directly to your education. If you budget for it ahead of time, you can help make it easier to use your student loan money wisely.

4. Not Realizing That Interest Continues Accruing

Understanding how and when interest accrues on your student loans is critical. For many student loans, interest will accrue while you are in school and during your grace periods. (A grace period is the period of time after you graduate or drop down below half-time attendance, during which you are not required to make payments.)

With the exception of subsidized federal student loans, interest will continue to accrue even if you are not making payments on your student loan. It will then typically be capitalized. Capitalization occurs when the accrued interest is added to the principal balance of the loan (the original amount borrowed). This new value becomes the balance on which interest is calculated moving forward.

Recommended: Understanding Capitalized Interest on Student Loans

Repaying Your Student Loan

Another important factor is understanding what repayment plans are available to you based on the type of loan you borrowed.

Repaying Federal Loans

For Direct Subsidized and Unsubsidized Federal Loans, students who are enrolled in school at least half-time aren’t required to make payments on their student loans. On these loans, repayments officially begin after the loan’s grace period.

Federal loans typically have a six-month grace period after graduation, which allows you time before you have to start repaying your loans. It’s important to note that even though you may be granted a grace period, depending on the loan you have, you may still be responsible for paying the interest on the loan during the time you are not making payments.

Note that PLUS Loans, which are available to parents of students and graduate or professional students, require repayments as soon as the loan is disbursed (or paid out).

Borrowers with federal loans are able to choose one of the federal repayment plans . These include:

•   Standard Repayment Plan On this plan, monthly payments are a fixed amount and repayment is set over a 10-year period.

•   Graduated Repayment Plan On this plan, payments start out on the lower end and then gradually increase as repayment continues. Loans are generally paid off over a 10-year period.

•   Extended Repayment Plan Payments may be either fixed or may gradually increase over the loan term. Loans are paid off within 25 years.

•   Income-Driven Repayment Plans There are four income-driven repayment plans. These tie payments to the borrower’s discretionary income. The percentage and repayment term may vary depending on the type of income-driven repayment plan the borrower is enrolled in.

With private student loans, the repayment terms are determined by the lender. That schedule will tell you exactly when your first payment is due and how much you will owe.

Unlike federal loans, many private loans have to be paid back before you graduate, so be sure to review your agreement closely and know exactly what you are going to need to do. Contact the lender directly if you have any questions.

Recommended: How to Pay Off College Loans

If Repaying Loans Becomes a Problem

Nobody plans on not paying back their student loans, but sometimes life can throw a few financial punches that you weren’t expecting. A smart strategy if this were to happen to you: face the problem head-on.

Options for Federal Student Loans

If a borrower is struggling to make payments on their federal student loans, they may consider changing their repayment plan. Federal loans, as mentioned, offer income-driven repayment options which tie the monthly payments to the borrower’s income. This can help make monthly payments more manageable for borrowers.

In cases when even income-driven repayments are too much, borrowers may be able to apply for deferment or forbearance. These allow borrowers to pause their loan payments. Depending on the loan type, you may or may not accrue interest during periods of deferment or forbearance.

Options for Private Student Loans

Private lenders are not required to offer the same repayment plans or borrower protections (like deferment and forbearance, mentioned above) as federal student loans. Some private lenders may be willing to work with you during times of financial difficulty so that you can continue making payments. Check in directly with your lender to see what payment plans or options they may have available to you.

A Note on Student Loan Default

After a certain number of missed payments (which can vary depending on whether you have borrowed a federal or private student loan), your loan may enter default. That can have serious financial consequences, such as impacting your credit score.

Declaring bankruptcy generally won’t rid you of your federal student loan obligations. It is extremely challenging to get student loans (federal or private) discharged in bankruptcy.

What to Do if You Don’t Get Enough Federal Loans

It’s never too early (or too late) to begin researching methods of additional funding if your federal loans aren’t going to cover your tuition costs. Here are just a few to consider.

Scholarships

Scholarships do not typically have to be paid back. If you’re not sure where to begin your scholarship search, you might ask your high school guidance counselor for recommendations. An online scholarship search tool can also be helpful.

In addition, you may want to try local community and civic organizations, as well as businesses and religious groups. You can also ask about scholarships in your college’s financial aid office.

You can also try scouting scholarships based on a certain skill or talent: music, writing, sports, and even academics. Qualifying for multiple small scholarships could add up and go a long way toward helping ease your financial burden.

Grants

Grants work like scholarships in that you typically don’t have to pay them back. They are often offered by the federal government (and would be part of your federal aid package); in some cases, in exchange for a grant, you agree to work in a certain field for a set period of time after graduation.

Work-Study

Through the federal work-study program, you can earn money to put toward school expenses by working jobs around your college’s campus. If you are approved for the work-study program, it will be included as a part of your financial aid award. Then, you may need to apply for jobs that are part of the program. These jobs may be on- or off-campus.

If you can’t find a work-study job to fit your schedule, there may be other part-time job opportunities available off-campus. You could inquire about part-time work at your on-campus career services office.

Private Student Loans

As mentioned, a private student loan may cover the remaining tuition costs not covered by your federal financial aid package. Qualifying for these loans might require a credit check and your credit history can potentially affect your private loan interest rate. For undergraduates with little-to-no credit applying for private student loans, they may benefit from applying with a cosigner in order to qualify for a more competitive rate.

As another reminder, private loans are not required to offer the same benefits or borrower protections afforded to federal student loans. As a result, most students only consider private student loan options after all other sources of aid and funding have been carefully evaluated.

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.

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

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

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

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

SOIS0923009