Mar
20
2025
Business Check vs. Personal Check: What's The Difference?

Guide to Business Checks vs Personal Checks

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to Business Checks vs Personal Checks

While business checks and personal checks may seem like the same thing, there are actually some important differences. Sure, all checks can be used to pay bills or cover other expenses using funds in a linked checking account. But the main difference between a personal check and a business check is the source of funds. Personal checks are drawn on personal accounts; business checks are drawn on business checking accounts.

Learn more about how these checks work and how they differ.

What Is a Business Check?

A business check is a check that’s written from a business checking account. Banks and credit unions can offer business checking accounts to sole proprietors, limited liability companies (LLCs), and other kinds of businesses that need a safe, secure place to keep their money. Business checks are often one of the features included with these accounts.

Business bank accounts can also offer a debit card for making purchases or cash withdrawals. They typically allow for ACH transfers of funds to pay bills or vendors. But there are some instances where it could make sense — or even be necessary — to use business checks instead. For example, you may need to write or print paper checks to cover payroll for employees.

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How Does a Business Check Work?

When someone opens a business bank account, the bank may give them a set of business checks and a checkbook. If you are wondering what a checkbook is, they are simply a small folder or book that contains your checks and a check register, which is where you’ll write down deposits and credits for your account. Check registers can help you balance your checkbook.

To use a business check, you’d simply make the check out to the payee, then fill in the required information. That includes the date and amount of the check, as well as a signature. Business checks typically have a memo line where you can record what the check is being used for.

The payee can then take that business check to their bank to deposit it or cash it. The amount written on the check is then deducted from the business checking account on which the check is drawn. When the check is deposited, it typically takes two days to clear (or for the funds to become available).

What Does a Business Check Look Like?

Business checks look much like personal checks, in terms of the type of information they include. On the front of a business check, you should see the following:

•  Business name and address

•  Check number (in the upper right hand corner)

•  Payee name (where it says Pay to the Order of)

•  Date

•  Dollar amount, in numbers

•  Dollar amount, in words

•  Payer’s signature

•  Memo line

•  The bank’s routing number

•  The account number

•  Bank’s name and address

Business checks may also include room to include the business logo or a watermark.

There may be an attached transaction stub on the left hand side of the check. You can use this stub to record the details of the transaction, including the date the check was written, the amount, and to whom it was paid.

Business checks can be hand-written like personal checks, or they can be filled digitally and printed out.

What Is a Personal Check?

A personal check, on the other hand, is a check that’s drawn against a personal checking account. Most but not all checking accounts offer checks and check-writing; some even offer free starter checks to new customers.

Personal checks are paid using personal funds. So you might write a personal check to repay a friend you borrowed money from, for example, or to pay your rent. Likewise, you could receive a personal check made out to you that you could deposit into your bank account or cash it. In terms of where to cash personal checks without a bank account, the options include check cashing services, supermarkets, and convenience stores.

Personal checks are not the same as other types of checks, including certified checks and traveler’s checks. (If you’re unfamiliar with how to use traveler’s checks, these are paper certificates that can help you pay for things overseas without having to exchange hard currencies.)

How Do Personal Checks Work?

Personal checks work by allowing individuals to pay bills or make other payments to individuals, businesses, and other organizations. When you open a checking account, the bank may give you paper checks with your name and account number printed on them. You can then use these checks to make payments.

When someone receives a personal check and deposits it in their account, their bank requests the transfer of funds from the bank on which the check was drawn. These transfers are processed electronically. Processing times can vary, though it typically takes a couple of business days for a check to clear.

If someone writes a personal check and doesn’t have sufficient funds in their account to cover it, that check will bounce. When a check you write bounces, it may be returned unpaid or your bank may cover the amount for you but they can charge overdraft or non-sufficient funds (NSF) fees for that convenience.

Bounced checks typically don’t show up on consumer credit reports or affect credit scores, though banks may report them to ChexSystems. A consumer credit reporting agency, ChexSystems collects information about closed checking and savings accounts.

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Can I Use a Personal Check for a Business Account?

Personal accounts and business accounts are separate banking products. That being said, you could use personal checks to pay for business expenses. For example, you could write out a personal check to pay a business lease or make payments to a business loan. And you could use funds in a business account to pay for personal expenses.

If you feel you must use personal checks for a business account or business checks for personal expenses, proceed with caution. Many personal checking account agreements specifically prohibit using this kind of account for business purposes. Familiarize yourself with your account guidelines. This should only happen in very limited circumstances and not as a regular practice.

What’s more, mixing your accounts this way can complicate matters when it comes time to pay your taxes and figure out personal vs. business deductions. If you ever need to review your business or personal account (say, for legal reasons or an audit), it can be hard to remember which funds were used where.

Using Business Checks vs. Personal Checks

When you need to write a business check vs. personal check can depend on the circumstances. For instance, some of the most common uses for business checks include:

•  Employee payroll

•  Federal and state tax payments

•  Making payments to vendors

•  Paying operating costs, such as rent or utilities

•  Repaying a business loan

•  Making any large purchases that are necessary for the business.

Personal checks can be used to meet a different set of needs. Examples of when you might write a personal check include:

•  Paying utility bills, rent, or the mortgage

•  Buying groceries

•  Repaying personal debts

•  Making payments to loans

•  Covering school-related expenses if you have kids (like lunch money or PTA fundraisers)

•  Paying college tuition

•  Covering doctor bills.

Whether you need business checks or personal checks, it helps to know where to order checks safely. You can get checks online from check-printing companies or order them through your bank.

Recommended: How Do I Sign Over a Check to Someone?

Differences Between a Business and Personal Check

Whether you’re using business checks or personal checks, one thing is true: They can be a dependable, convenient way to move money. They provide an alternative to using a debit card, credit card, ACH transfer, or wire transfer. But if you’re still wondering how business checks are different from personal checks, here are a few other noteworthy distinctions.

Size of the Check

Personal checks are usually somewhere around 6″ x 2″ x 3″ in size. Business checks, on the other hand, might or might not be larger in size. For example, they may be 8″ x 2″ x 3″ instead. The larger size allows for easier printing and more room for writing out checks by hand.

Security of the Check

Check fraud can threaten a business’s bottom line. For that reason, many check printers include built-in security measures to minimize the chances of a business check being stolen or otherwise used fraudulently. Those measures can include holographic features, thermochromatic ink, and chemically sensitive paper. These features all help to verify a check’s authenticity.

How Much Each Check Costs

As mentioned, banks can sometimes offer starter checks for free when you open a new checking account. This benefit may not be included with business checking accounts, which means you might need to buy checks yourself. The amount you pay can depend on the type of check, any added features you choose to include, and the number of checks printed. You might pay three cents per check or a quarter or more per personal check, depending on where you order from, the features you want, and how quickly you want them printed and delivered.

Business checks range in cost, but many online retailers charge 20 to 30 cents each.

There can be other charges associated with checks. For example, you may also pay separate fees when purchasing cashier’s checks for a business or personal account. Cashier’s checks are drawn against the bank’s account, not yours, though a cashier’s check looks very much like a personal or business check.

Check Conversion Protection

Check conversion is a process in which paper checks are converted to electronic ACH debits. Both consumer and business checks can be converted in this way. Converted checks usually clear faster, but it’s possible that you may not want this for checks written from a business account. In that case, you could order business checks that include an optional Auxiliary On-Us field to exclude them from conversion.

Why to Consider Having Separate Checks

Using one bank account for business and personal expenses might seem simpler and less stressful, since you’re moving money in and out of the same place. However, as noted above, which kind of check to use is not typically a matter of personal choice. Personal checking accounts usually have restrictions against use for business purposes.

What’s more, establishing a business account has other benefits:

•  Writing checks with your business name can add credibility to your venture, since it looks more professional.

•  A business account helps you keep track of business finances and expense reporting for tax purposes.

•  Establishing a business checking account could make it easier to get approved for business loans or lines of credit if you have a good banking history.

•  Having separate business and personal checking accounts can provide an added protection against creditor lawsuits. Depending on how your business is structured, money in a personal checking account may be safe from collection efforts if you’re sued by a creditor.

The Takeaway

Business checks and personal checks serve similar functions; they both transfer funds from one account to another. However, they do have some important differences, and you typically cannot use a personal check for business purposes.

For your personal bank accounts, see what SoFi offers.

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Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Can you cash a business check?

You can cash a business check if your bank allows it. You’ll need to endorse the check properly and show proof of identification to cash it, the same as you would with any other type of check.

What should be on a business check?

A business check should include the business name and address, the payee’s name, the amount of the check, the date, and the payer’s signature. The check will likely be pre-printed with the bank’s name and address, a routing number and account number, as well as a check number. A business check may also include a memo line to record the purpose of the check.

Do checks need to say LLC?

Checks do not need to say LLC unless your business is structured as an LLC. If your business operates as a sole proprietor, partnership, S corporation, or anything other than an LLC, then you wouldn’t need to include that designation.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


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Mar
19
2025

A Complete Guide to Private Student Loans

By | Fresh Out of School, Student Loans, student_loan | No Comments

The average cost of college in the U.S. is $38,270 per year, including books, supplies, and daily living expenses, according to the Education Data Initiative. While grants and scholarships can significantly lower your out-of-pocket expenses, they typically don’t cover the full cost of your college education.

Student loans, both federal and private, can help bridge this gap in financial aid to allow you to attend the college of your choice. Federal student loans are funded by the government. They tend to offer the best rates and terms, but come with borrowing limits. If you still have gaps in funding, you can turn to private student loans.

Private student loans are funded by banks, credit unions, and online lenders. Private lenders set their own eligibility criteria, and interest rates generally depend on a borrower’s creditworthiness. While private student loans don’t offer all the same borrower protections as federal loans, they can still be a smart choice to help you pay for educational expenses, as long as you do your research.

This guide offers private student loan basics, including what they are, how they work, their pros and cons, and how to apply for one.

Key Points

•   Private student loans are offered by banks, credit unions, and online lenders. They are a funding option for students after federal student loans have been exhausted.

•   Approval for private student loans typically depends on the borrower’s creditworthiness; students may need a cosigner due to limited credit history.

•   Private loans may lack flexible repayment plans and protections that federal loans offer.

•   Funds are usually sent directly to the educational institution to cover tuition and fees; any remaining amount is disbursed to the student.

•   It’s essential to thoroughly research and compare private loan options, considering factors like interest rates, repayment terms, and borrower protections, before making a decision.

What are Private Student Loans?

Often when people talk about student loans, they’re referring to federal student loans, which are provided by the federal government. Private student loans, by contrast, are funded by banks, credit unions, and online lenders. Students typically turn to private student loans when federal loans won’t cover all of their costs.

You can use the money from a private school loan to pay for expenses like tuition, fees, housing, books, and supplies. Interest rates for private student loans may be variable or fixed and are set by the lender. Repayment terms can be anywhere from five to 20 years.

Unlike federal student loans, borrowers must pass a credit check to qualify for private student loans. Since most college students don’t have enough credit history to take out a large loan, a cosigner is often required.

How Do Private Student Loans Work?

How Private Student Loans Work

Loan amounts, interest rates, repayment terms, and eligibility requirements for undergraduate private student loans vary by individual lender. If you’re in the market for a private student loan, it’s key to shop around and compare your options to find the best fit.

To get a private student loan, you need to file an application directly with your lender of choice. Based on the information you submit, the lender will determine whether or not you are approved and, if so, what rates and terms you qualify for.

If you’re approved, the loan proceeds will typically be disbursed directly to your university. Your school will apply that money to tuition, fees, room and board, and any other necessary expenses. If there are funds left over, the money will be given to you to use toward other education-related expenses, such as textbooks and supplies.

Repayment policies vary by lender, but typically you aren’t required to make payments while you’re attending school. Some lenders will allow you to defer payments until six months after you graduate. However, interest typically begins accruing as soon as the loan is dispersed. Similar to unsubsidized federal student loans, the interest that accrues while you’re in school is added to your loan balance.

The Pros and Cons of Private Student Loans

Pros of Private Student Loans

 Cons of Private Student Loans
Apply any time of the year May require a cosigner
Higher loan amounts Less flexible repayment options
Choice of fixed or variable rates No loan forgiveness programs
Quick application process Can lead to over-borrowing
Options for international students No federal subsidy

If federal financial aid — including grants, work-study, and federal student loans — isn’t enough to cover the full cost of college, private student loans can fill in any gaps. Just keep in mind that private student loans don’t offer the same borrower protections that come with federal student loans. Before taking out a private student loan, it’s a good idea to fully understand their pros and cons.

The Benefits of Private Student Loans

Here’s a look at some of the advantages that come with private student loans.

Apply Any Time of the Year

Unlike federal student loans, which have application deadlines, you can apply for private student loans any time of the year. As a result, they can be helpful if you’re facing a mid-year funding shortfall or if your college expenses go up unexpectedly.

Higher Loan Amounts

Federal loans have annual maximums. For example, a first-year, dependent undergraduate can borrow up to $5,500 for that year. The aggregate max a dependent student can borrow from the government for their entire undergraduate education is $31,000. Private student loan limits vary with each lender, but you can typically borrow up to the full cost of attendance, minus any financial aid received.

Choice of Fixed or Variable Interest Rates

Federal loans only offer fixed-rate loans, while private lenders usually give you a choice between fixed or variable interest rates. Fixed rates remain the same over the life of the loans, whereas variable rates can change throughout the loan term, depending on benchmark rates.

Variable-rate loans usually have lower starting interest rates than fixed-rate loans. If you can afford to pay off your student loans quickly, you might pay less interest with a variable-rate loan from a private lender than a fixed-rate federal loan.

Quick Application Process

While federal student loans require borrowers to fill out the Free Application for Federal Student Aid, or FAFSA, private student loans do not. You can apply for most private student loans online in just a few minutes without providing nearly as much information.
In some cases, you can get a lending decision within 72 hours. By comparison, it typically takes one to three days for the government to process the FAFSA if you submit electronically, and seven to 10 days if you mail in the form.

Options for International Students

While you never want to default on your student loans (since it can cause significant damage to your credit), it can be nice to know that private student loans come with a statute of limitations. This is a set period of time that lenders have to take you to court to recoup the debt after you default. The time frame varies by state, but it can range anywhere from three to 10 years. After that period ends, lenders have limited options to collect from you.

However, that’s not the case with federal student loans. You must eventually repay your loans, and the government can even garnish your wages and tax refunds until you do.

Options for International Students

International students typically don’t qualify for federal financial aid, including federal student loans. Some private lenders, however, will provide student loans to non-U.S. citizens who meet specific criteria, such as attending an eligible college on at least a half-time basis, having a valid student visa, and/or adding a U.S. citizen as a cosigner.

When we say no fees required we mean it.
No origination fees and late fees
when you take out a student loan with SoFi.

The Disadvantages of Private Student Loans

Private student loans also have some downsides. Here are some to keep in mind.

May Require a Cosigner

Most high school and college students don’t make enough income or have a strong credit history to qualify for private student loans on their own. Though some lenders will take grades and income potential into consideration, most students need a cosigner to qualify for a private student loan. Your cosigner is legally responsible for your student debt, and any missed payments can negatively affect their credit. If you can’t repay your loans, your cosigner is responsible for the entire amount.

The good news is that some private student loans allow for a cosigner release.That means that after you make a certain number of on-time payments, you can apply to have the cosigner removed from the loan.

Less Flexible Repayment Options

March 26, 2025: The SAVE Plan is no longer available after a federal court blocked its implementation in February 2025. However, applications for other income-driven repayment plans and for loan consolidation are available again. We will update this page as more information becomes available.

Federal student loans offer several different types of repayment plans, including income-driven repayment (IDR) plans, which calculate your monthly payment as a percentage of your income.

With private student loans, on the other hand, usually the only way to reduce your monthly payment is to refinance the loan to a lower interest rate, a longer repayment term, or both. Keep in mind that by lowering your monthly payment via a longer repayment period, you’ll typically end up paying more in interest over the life of the loan.

No Loan Forgiveness Programs

Federal student loans come with a few different forgiveness programs, including Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness. While these programs have strict eligibility requirements, they can help many low-income borrowers. Private lenders, on the other hand, generally don’t offer programs that forgive your debt after meeting certain requirements.

If you’re experiencing financial hardship, however, the lender may agree to temporarily lower your payments, waive a payment, or shift to interest-only payments.

Can Lead to Over-Borrowing

Private loans typically allow you to borrow up to 100% of your cost of attendance, minus other aid you’ve already received. Just because you can borrow that much, however, doesn’t necessarily mean you should. Borrowing the maximum incurs more interest over the duration of your loans and increases your payments, which can make repayment more difficult.

Recommended: How to Save Money in College

No Federal Subsidy

Subsidized federal student loans, awarded based on financial need, come with an interest subsidy, meaning the government pays your interest while you’re in school and for six months after you graduate. This can add up to a significant savings.

Subsidies don’t exist with private student loans. Interest accrues from Day One, and in some cases, you might need to make interest payments while still in school. If you don’t pay the interest as you go, it’s added to your debt as capitalized interest when you finish school. (This is also the case with federal unsubsidized loans.)

Federal vs Private Student Loans

Here’s a look at the key differences between federal vs. private student loans.

Federal Student Loans vs. Private Student Loans

The Application Process

Federal student loans are awarded as a part of a student’s financial aid package. In order to apply for federal student loans, students must fill out the FAFSA each year. No credit check is needed to qualify.

To apply for private student loans, students need to fill out an application directly with their preferred lender. Application requirements vary depending on the lender. A credit check is typically required.

Recommended: Financial Aid vs Student Loans

Interest Rates

The interest rates on federal student loans are fixed and are set annually by Congress. Once you’ve taken out a federal loan, your interest rate is locked for the life of the loan.

For the 2024-2025 school year, the federal student loan interest rate is 6.53% for undergraduates, 8.08% for graduate and professional students, and 9.08% for parents. The interest rates, which are fixed for the life of the loan, are set annually by Congress.

Private lenders, on the other hand, are free to set interest rates. Rates may be fixed or variable and depend on several factors, including your (or your cosigner’s) credit score, loan amount, and chosen repayment term. Private student loan rates may start as low as 3.47%, according to the Education Data Initiative.

Repayment Plans

Borrowers with federal student loans can select from several different federal repayment plans , including income-driven repayment plans. You can defer payments while enrolled at least half-time and immediately after graduation.

Repayment plans for private loans are set by the individual lender. Many private student loan lenders allow you to defer payments during school and for six months after graduation. They also have a variety of repayment terms, often ranging from five to 20 years.

Keep in mind that for federal student loans, access to all income-based plans is currently cut off for new borrowers while the Trump administration reevaluates.

Options for Deferment or Forbearance

Federal student loan borrowers can apply for deferment or forbearance if they encounter financial difficulties while they are repaying their loans. These options allow borrowers to pause their loan payments (interest, however, will typically continue to accrue).

Some private lenders may offer options for borrowers who are facing financial difficulties, including short periods of deferment or forbearance. Some also offer unemployment protection, which allows qualifying borrowers who have lost their job through no fault of their own to modify payments on their student loans.

Loan Forgiveness

Borrowers with federal student loans might be able to pursue loan forgiveness through federal programs such as PSLF or Teacher Loan Forgiveness, or after paying down their balances on an IDR plan for a certain period of time.

Since private student loans aren’t controlled by the government, they are not eligible for federal loan forgiveness programs. Though private lenders will often work with borrowers to avoid default, private student loans are rarely forgiven. Generally, it only happens if the borrower becomes permanently disabled or dies, but even then it is up to the specific lender.

Should You Consider Private Student Loans?

There are many different types of student loans. It’s generally a good idea to maximize federal student loans before turning to private student loans. That way, you’ll have access to income-driven repayment plans, loan forgiveness programs, and extended deferment and forbearance periods.

If you still need money to cover tuition or other expenses, and you (or your cosigner) have strong credit, a private student loan can make sense.

Private student loans can also be useful if your expenses suddenly go up and you’ve already maxed out federal student loans, since they allow you to access additional funding relatively quickly. You might also consider a private student loan if you don’t qualify for federal loans. If you’re an international student, for example, a private loan may be your only college funding option.

Another scenario where private student loans can make sense is if you only plan to take out the loan short-term. If you’ll be able to repay the loan over a few years, private student loans could end up costing less overall.

Recommended: When to Apply for Student Loans

How to Get a Private Student Loan

Here’s a look at the steps involved in getting a private student loan.

1.    Shop around. Your school may have a list of preferred lenders, but you’re not restricted to this list. You can also do your own research to find top lenders. As you evaluate lenders, consider factors like interest rates, how much you can borrow, the loan term, when you must start repayment, any fees, and if the lender offers any hardship programs.

2.    See if you can prequalify. Some lenders allow borrowers to get a quote by filling out a prequalification application. This generally involves a soft credit inquiry (which won’t impact your credit score) and tells you what interest rates and terms you may qualify for. Completing this step can help you decide if you need a cosigner.

3.    Gather your information. To officially apply for a private student loan, you typically need to provide your Social Security number, birthdate, and home address, as well as proof of employment and income. You may also need to provide other financial information, such as your assets, rent or mortgage, and tax returns. If you have a cosigner, you’ll have to provide their personal and financial details as well.

4.    Submit your application. Once you’ve completed your application, the lender will typically contact your school to verify your information and eligibility. They will then process the student loan and notify you about your approval and disbursement of your money.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

Does Everyone Get Approved for Private Student Loans?

No, not everyone gets approved for private student loans. Lenders assess various factors to determine eligibility, such as credit history and income. Students with limited credit history may need a cosigner to qualify. Here are the key factors lenders consider:

•   Credit score

•   Income and employment status

•   Debt-to-income ratio

•   Cosigner’s creditworthiness

•   Enrollment status at an eligible school

If you don’t meet these qualifications, you can apply with a cosigner who does.

Apply for a Private Student Loan with SoFi

Private student loans are offered by banks, credit unions, and online lenders to help college students cover their educational expenses. They are not part of the federal student loan program, and generally do not feature the flexible repayment terms or borrower protections offered by federal student loans.
However, private student loans come with higher loan limits, and the borrowing costs are sometimes lower compared to their federal counterparts.

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.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Why would someone get a private student loan?

Students typically turn to private student loans when federal loans won’t cover all of their costs. Private student loans come with higher borrowing limits than their federal counterparts. The aggregate max dependent students can borrow from the government for their entire undergraduate education is $31,000, which is sometimes not nearly enough to cover the cost of attendance.

With private loans, on the other hand, you can typically borrow up to the total cost of attendance, minus any financial aid received, every year. This gives you more flexibility to get the financing you need. Keep in mind, though, that private student loans do not come with the same federal protections and benefits offered by federal student loans.

Will private student loans be forgiven?

Private student loans aren’t funded by the government, so they don’t offer the same forgiveness programs. In fact, private student loan forgiveness is rare.

If you experience financial hardship, however, many lenders will work with you to stay out of default. They may agree to temporarily lower your payments, waive a payment, or switch to interest-only payments. Or, you might qualify for deferment or forbearance, which temporarily postpones your payments (though interest continues to accrue).

Are private student loans paid to you or the school?

Private student loans are typically disbursed directly to the school to cover tuition, fees, and other educational expenses. Any remaining funds after those costs are covered are then refunded to the student, which can be used for additional expenses like housing, textbooks, and personal living costs.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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


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


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


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.

SOISL-Q125-021

Read more
Mar
18
2025
students studying

10 Ways to Prepare for College

By | Student Loans, student_loan | No Comments

Preparing to go to college starts long before your senior year in high school. In fact, soon after starting your freshman year in high school, you may want to begin thinking about what you can do to put your best foot forward on your college applications.

With the right college preparedness plan, choosing where to apply, filling out your applications, and getting into your top choices can be significantly easier. Here’s a smart 10-step plan that can help ensure you are ready for college when the time comes.

Key Points

•   As a high school student, taking necessary high school courses and enrolling in Advanced Placement (AP) or International Baccalaureate (IB) classes can strengthen your academic foundation and potentially earn college credits.

•   Dedicating time to study for the SAT or ACT can enhance your test-taking skills and improve scores, which are critical components of college applications.

•   Honing strong study skills is essential for managing the rigorous coursework expected in college.

•   Engaging in sports, clubs, or community service can enrich your high school experience and make your college application more compelling.

•   Understanding the costs associated with college and exploring financial aid options, such as scholarships and grants, can help manage the financial burden.

10 Ways to Get Prepared for College

1. Take the Required Courses

It’s a good idea to consult with your high school guidance counselor about what classes you should take for college preparation. Generally, high school students will take courses like:

•   English (American and English literature)

•   Math (Algebra I and II, Geometry, Trigonometry, and Calculus)

•   Science (Biology, Chemistry, Physics, and Earth Science)

•   Social studies (U.S. History, U.S. Government, World History, and Geography)

•   Foreign language

•   Arts

Completing these courses demonstrates to college admissions officers that you can handle a rigorous curriculum. It also prepares you for college-level coursework, allowing you to meet prerequisites for specific majors and improve your chances of excelling in advanced subjects.

2. Enroll in AP, IB, and College Courses

Your high school may offer you the opportunity to take Advanced Placement (AP) or International Baccalaureate (IB) classes, which are college-level and will allow you to earn college credit. Then, you can skip these courses when you get to college and ensure you have a head start.

Both require that you take exams, and you can send your scores to colleges. Keep in mind that IB classes would be more useful if you plan on going to college outside the U.S., since only U.S.-based schools recognize AP coursework.

3. Do Test Prep

A key step in preparing for college is studying for the SAT or ACT. Taking one of these tests is required for many college applications in the U.S. You can study by forming study groups with friends, taking the PSATs/pre-ACTs and practice tests, getting an SAT/ACT tutor, and enrolling in SAT/ACT practice classes.
You may want to look at the average SAT/ACT score of students who have been admitted to your top choice schools and aim to get those scores — or higher — to ensure your application impresses the admissions officers.

Recommended: ACT vs. SAT: Which Do Colleges Prefer?

4. Hone Your Study Skills

In college, you’re going to take a rigorous set of courses. Your academics are likely to be more challenging than they were in high school. This means you should hone your study skills now to prepare for college. Find a quiet place to study, turn off all distractions, organize your lecture notes, join study groups, and take breaks when you need them in order to effectively study.

5. Go to College Fairs

Whenever there is a local college fair happening, try to attend it. That way, you can learn about different colleges you may want to apply to. Typically, a college fair will consist of college representatives who set up booths, give presentations, talk to prospective students, and hand out pamphlets about their schools. College fairs can be a great opportunity to learn about a number of colleges in a short time period.

College fairs also allow you to connect with representatives at the colleges. As an attendee, you’ll have the opportunity to ask the representatives specific questions and take the handouts so you can continue your research at home.

Recommended: Ultimate College Application Checklist

6. Take College Tours

Before applying to a school, try to go on a campus tour to see what it’s all about. A college that has a great website or looks good on paper may not end up being the right fit once you actually visit it. While on the tour, ask your student tour guide and other students around about the pros and cons of the school to get a real feel for whether or not you’d like it there.

Some colleges may do interviews as a part of the application process. If you’re heading to campus for a college interview, make time for a tour too.

7. Meet With Your High School Guidance Counselor

Your high school guidance counselor can help you with preparing for college in a number of different ways. They can advise you on what classes to take and extracurricular activities you can enroll in to ensure you have a competitive college application when the time comes.

Your counselor can also help you determine what you want to major in and the kind of career you might enjoy by steering you toward career fairs and giving you a test that will show your strengths and reveal your talents. If you’re worried about paying for college, they can let you know your options and ensure you fill out all the right forms in time.

8. Fill Out a FAFSA Form

The Free Application for Federal Student Aid (FAFSA®) is the form you need to fill out each year to apply for federal financial aid. This includes federal grants, scholarships, work-study, and federal student loans. Some schools also use the information provided on the FAFSA to determine scholarship awards.

If you anticipate needing support to cover the cost of attendance in college, this is usually the place to start. The FAFSA for the 2025-26 school year is available now.

9. Look Into Student Loans

Filling out the FAFSA isn’t the only thing on your financial to-do list when you’re prepping for college. You could also weigh your student loan options. As mentioned, the FAFSA puts you in contention for federal student loans — among other tuition subsidies like work-study or grants. Federal student loans have fixed interest rates, which means the rate will not change for the duration of the loan.

Each year, Congress determines what the fixed interest rate on federal student loans will be — and interest rates vary across federal undergraduate loans, including PLUS loans for parents and grad students. While these loans can be an important resource when it comes to funding your education, there are limits to the amount you can take out each year. For example, first-year undergraduates currently have a federal loan limit of $5,500.

If federal aid and other sources of funding aren’t enough to cover the cost of tuition, you may consider looking into private student loans to fund the rest of your education. Private student loans don’t always offer the same benefits as federal student loans — like the option to pursue Public Service Loan Forgiveness or student loan deferment — so they are generally considered only after all other options have been reviewed and exhausted.

Recommended: Private Student Loans vs Federal Student Loans

10. Apply for Scholarships

Once you start applying to colleges, you may also want to search out and apply for private scholarships. Your school may offer specific scholarships you can apply for that will help you pay for your education. Online databases are another resource to check out. One option is Fastweb, a free national scholarship database that matches you to scholarships, internships, and grants you could potentially qualify for.

You can also use SoFi’s scholarship search tool to find scholarships based on your location, field of study, religious affiliation, and more.

Recommended: The Complete Guide on Going to College

The Takeaway

There are many things you can do to prepare for college. Above all else, you’ll want to focus on your academics and make your college application as competitive as possible so that you can get into the school of your dreams.

You’ll also want to think about what your education will potentially cost and come up with a plan for how you will pay for college. Your options include savings, grants, scholarships, work-study, and federal or private student loans.

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


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What are some effective ways to stay organized when preparing for college?

To stay organized, you can create a detailed checklist of application deadlines, scholarship opportunities, and required documents. Using digital planners or apps to manage tasks and setting reminders for important dates will keep you on track and reduce stress.

How can high school students improve their chances of getting into their desired college?

High school students can improve their chances of getting into their desired college by maintaining a strong GPA, participating in extracurricular activities, and volunteering in the community. Additionally, writing a compelling personal statement and securing strong letters of recommendation can make a positive impression on admissions officers.

What financial steps should students take before starting college?

Students should research scholarship opportunities, apply for financial aid through FAFSA, and create a budget for tuition and living expenses. Opening a savings account and exploring part-time job options can also help manage costs and reduce the need for student loans.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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


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


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

SOISL-Q125-020

Read more
Mar
11
2025
How Do I Get My Student Loan Tax Form?

Understanding Student Loan Tax Forms: How To Get and Use Them

By | Going to College, Student Loans, student_loan | Comments Off on Understanding Student Loan Tax Forms: How To Get and Use Them

If you’re a borrower who paid interest on a qualified student loan, it’s possible to deduct some or all of that interest on your federal income tax return with a special tax form for student loans.

To do so, you’ll need a student loan tax form known as IRS Form 1098-E. You can use this form to report how much you paid in student loan interest on your tax return. One copy of the form will go to the IRS when you file your taxes, and you’ll keep the other.

To learn how to get your student loan interest tax form, when to deduct student loan interest, and how to file a student loan tax form, keep reading.

Key Points

•   Form 1098-E is a tax form sent by loan servicers or lenders to student loan borrowers who paid at least $600 in student loan interest for the year.

•   The student loan interest deduction amount is up to $2,500, based on Modified Adjusted Gross Income (MAGI) and tax filing status.

•   Borrowers use Form 1098-E to help calculate the amount of student loan interest deduction they qualify for when filing their federal income taxes.

•   Common errors include failing to claim the student loan interest deduction, misreported interest amounts, and claiming an incorrect deduction amount.

•   International students may qualify for the student loan interest deduction if they meet specific criteria.

Common Student Loan Tax Forms and Their Purpose

The IRS Form 1098-E is a tax form for student loans that’s sent out by your loan servicer or your lender.

The loan servicer is required to send borrowers a 1098-E to complete their taxes if the borrower paid at least $600 in student loan interest during the tax year. Typically, loan servicers get the forms out by the end of January, since the interest forms for student loans and tax season coincide.

If you have more than one loan servicer, you’ll receive a 1098-E form from each one.

Why Student Loan Tax Forms Matter

The student loan interest tax form is designed to give people with student loan debt the opportunity to deduct from their federal income taxes some of the interest that they paid for the year on their loan. It is one of the student tax deductions borrowers may be able to claim.

If you paid at least $600 in interest on a qualified student loan (meaning a loan taken out to cover higher education expenses such as tuition, fees, books, and supplies), the lender you paid that interest to should send you a 1098-E. This includes federal loans, private loans, and refinanced student loans.

Recommended: Do Student Loans Count as Income>

Uses of a Student Loan Tax Form

The student loan tax form is used to calculate your student loan interest deduction on your tax return.

As long as you meet certain conditions, you may be eligible to deduct up to $2,500 in student loan interest from your taxable income:

•   You paid interest on a qualified student loan for yourself, your spouse, or your dependents in the previous tax year.

•   Your filing status is anything except married filing separately.

•   Your income is below the annual limit.

•   You are legally obligated to pay the interest, not someone else.

•   If you’re filing a joint return, neither you nor your spouse is being claimed as a dependent on another person’s tax return.

Eligibility for the student loan interest deduction is determined based on a borrower’s modified adjusted gross income (MAGI). At a certain higher income bracket, the deduction is reduced or eliminated.

•   For taxpayers filing as single: The deduction for 2024 is reduced when a borrower’s MAGI is more than $80,000 of MAGI, and the deduction is eliminated at $95,000.

•   For taxpayers filing jointly: The 2024 deduction is reduced when MAGI is more than $165,000, and the deduction is eliminated at $195,000.

How to Obtain Your Student Loan Tax Forms

To obtain your student loan interest tax form and ensure you aren’t missing any tax documents this season, there are a few steps you can take:

1.   Go directly to your loan servicer’s website, where a downloadable 1098-E form will likely be available.

2.   Call your loan servicer if you’re unable to visit their website.

3.    If you don’t know who your loan servicer is, visit StudentAid.gov, then complete steps 1 and 2.

If you have private student loans, or you’ve refinanced your student loans, contact your lender directly.

Recommended: What Is IRS Form 1098?

How to Fill Out a Student Loan Tax Form (Form 1098-E)

When it comes to filling out a student loan tax form, the IRS provides detailed instructions for the current tax season to help financial, educational, and governmental institutions and borrowers cover all their bases.

According to the IRS, if a loan servicer receives student loan interest of $600 or more from an individual during the year in the course of their trade or business, they must:

•   File a 1098-E form and;

•   Provide a statement or acceptable substitute, on paper or electronically, to the borrower

There are two boxes on the 1098-E form:

•   Box 1 is the amount of student loan interest received by the lender. It’s important to note, this figure represents interest paid, not loan payments made.

•   Box 2, if checked, denotes the fact that the amount in Box 1 does not include loan origination fees and/or capitalized interest for loans made before September 1, 2004.

Once you, as the student loan borrower, receive the 1098-E form, it’s up to you to include it when you file your taxes.

How and When to Deduct Student Loan Interest

Student loan interest deduction is a type of federal income tax deduction for student loan borrowers that lets them deduct up to $2,500 of the interest paid on qualified student loans from their taxable income. It’s one of the tax breaks available to students and their parents to help them pay for college.

To know when to deduct student loan interest, it’s important to understand if you meet the necessary qualifications:

Your student loan was taken out for the taxpayer (you), your spouse, or your dependent(s).

•   Your student loan was taken out when you were enrolled at least half-time in an academic program that led to a degree, certificate, or recognized credential.

•   Your student loan was used for qualifying education expenses such as tuition, textbooks, supplies, fees, or equipment (not including room and board, insurance, or transportation).

•   Your student loan was used within a “reasonable period of time,” and its proceeds were disbursed 90 days before the beginning of the academic period in which they were used or 90 days after it ended.

•   The college or school where you were enrolled is considered an eligible institution that participates in student aid programs.

Do International Students Have a Different Tax Form?

For international students, it’s possible to deduct student loan interest from a foreign country, as long as their student loan is qualified (meeting the requirements listed above) and they’re legally obligated to make student loan payments on that loan.

There’s no need for international students to acquire a special international student tax form, however. The year-end financial statement from their loan servicer is typically sufficient enough proof for them to claim the student loan interest.

How to Claim the Student Loan Interest Deduction

To claim the student loan interest deduction you’ll need Form 1098-E that shows you paid at least $600 in interest on a qualified student loan for the tax year in question. If you have more than one loan servicer, you should get multiple 1098-E forms.

If your MAGI is in the range where student interest deduction is reduced, as noted above (more than $80,000 for single filers and $165,000 for joint filers), you can generally follow the instructions on the student loan interest deduction worksheet in Schedule 1 of Form 1040 to figure out the amount of your deduction when filing your federal income taxes. Then, you can enter the calculated interest amount on Schedule 1 of the 1040 under “Adjustments to Income.”

Keep in mind that the student loan interest deduction reduces your taxable income for the year — it’s not a credit that reduces dollar-for-dollar the amount of taxes you owe. This is a major difference between a tax credit vs tax deduction.

Common Mistakes to Avoid When Filing Student Loan Tax Forms

It’s important to be accurate when filing student loan tax documents. Some common mistakes to watch out for include:

•   Failing to claim the deduction. Don’t overlook Form 1098-E. This can happen during the busy tax season when there is a lot of paperwork to keep track of. Keep an eye out for the form in the mail, or log onto your loan servicer’s website to download before the tax filing deadline.

•   Incorrect interest amount on Form 1098-E. Review your 1098-E form carefully to make sure all the information on it is correct. Double-check the interest amount listed on the form with your records of the loan payments, including interest, you’ve made.

•   Claiming an incorrect amount for the deduction. The amount of student loan interest tax deduction you can claim depends on your MAGI and tax filing status. As noted, you’re eligible for a reduced deduction if your MAGI is more than $80,000 as a single filer and $165,000 as a joint filer. Follow the instructions on Schedule 1 of Form 1040 to figure how much of a deduction you can claim, or consult a tax professional.

•   Filing when ineligible for the deduction. As discussed, not all borrowers are eligible for the student loan interest deduction. Your student loans must be qualified and your MAGI must be below the cut-off levels to qualify for a full or reduced deduction. Those whose MAGI is $95,000 or more as single filers or $195,000 or more as joint filers are ineligible for the deduction.

The Takeaway

If you paid interest on a qualified student loan for yourself or a dependent, you can likely deduct at least some of that interest on this year’s tax return. This applies to federal, private, and refinanced student loans. Once you’ve determined when and whether you’re able to deduct student loan interest and how to file a student loan interest tax form, watch for your loan servicer to send you a copy of your 1098-E or visit your loan servicer’s or lender’s website to download the form.

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.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What is Form 1098-E and how do I use it?

Form 1098-E is a tax form for student loans sent out by your loan servicer or lender. The form is sent to borrowers who paid at least $600 in interest on their student loans for the year. If you have more than one loan servicer or lender, you’ll receive a 1098-E from each one. You can then use the form to help calculate your student loan interest tax deduction on your federal tax return.

Can I deduct student loan interest if I’m still in school?

If you’re making student loan payments while you’re in school — even if you’re making interest-only payments — you may be able to claim the student loan interest deduction as long as you paid $600 or more in interest for the year.

How do I know if I qualify for a student loan tax deduction?

You should qualify for a student loan tax deduction if you: have a qualified student loan, paid at least $600 in interest during the tax year, are legally obligated to pay interest on a qualified student loan, cannot be claimed as a dependent on someone else’s return, have a tax filing status that is anything except married filing separately, and your MAGI is under the annual cut-off amount.

Do private student loans qualify for tax deductions?

Qualified student loans, including private student loans, are eligible for the student loan interest deduction as long as you paid at least $600 in interest on your loans for the year in question.

What should I do if I didn’t receive my student loan tax form?

If you didn’t receive your student loan tax form, go to your loan servicer’s or lender’s website where you should be able to download a copy of the form. If you can’t find it there or you have questions, call your loan servicer for assistance.

Photo credit: iStock/FG Trade

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.



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

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


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.

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.

SOSLR-Q125-026

Read more
Mar
04
2025
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How to Save for a Vacation: Creating a Travel Fund

By | Budgeting & Goals, Life & Career, money | No Comments

Whether your travel dreams have you strolling through Paris, eating dozens of flaky croissants, or cozied up in a cabin at a stunning state park, saving for vacation is an important step. To create a travel fund, you may need to determine how much cash you need to accrue; how to automate the process; and how to help your money grow as quickly as possible. Here, you’ll learn the step-by-steps for starting a vacation fund.

Key Points

•   Saving for travel takes planning, but it can be smart to prioritize emergency savings before vacation funds.

•   Open a separate, high-yield savings account for travel.

•   Automate savings from paychecks to travel fund.

•   Use financial windfalls like tax refunds and bonuses to boost savings.

•   Earn extra money for future travel through side hustles like freelance work or by renting out your place when you travel.

The Importance of Emergency Savings

Sure, it can be tempting to pick up on a whim and travel somewhere, without even glancing at your checking account. But that can be somewhat risky business, financially speaking. And so can prioritizing a vacation fund when you don’t have much money in the bank.

Before you think about funding a vacation, you should consider saving for life’s emergencies first. And a prime way to do that is by establishing a healthy amount of money in your emergency fund.

To build an emergency fund, a general rule of thumb is to have enough money to cover at least three to six months’ worth of expenses socked away. It’s totally okay to start off with a small fund and build your way up over time. Even depositing $20 per paycheck into the fund can be a wise start. This account may be for a true emergency, such as a car breaking down, an unexpected move, paying rent after being laid off, or a visit to the emergency room. What isn’t a good use for your emergency fund? A sale on plane tickets to Hawaii doesn’t count, sorry to say.

You can use an emergency fund calculator to help you figure out exactly how much to save. And remember: This account may be for a true emergency, such as a car breaking down, an unexpected move, paying rent after being laid off, or a visit to the emergency room. What isn’t a good use for your emergency fund? A sale on plane tickets to Hawaii doesn’t count, sorry to say.

Beyond emergency funds, it may be a good idea to ensure you’ve paid off any high-interest debt before allocating your money toward a vacation.

How Much to Save for Vacation

Once your emergency reserves are on good footing, you can take the first step in saving for a vacation by opening a separate account earmarked for travel. Keeping it in the same bank as the rest of your money could allow you to easily keep track of how much you’ve saved. It can also make it a bit simpler to transfer extra cash into your vacation account.

However, don’t overlook the value of keeping your cash in a high-yield savings account, which can earn considerably more than a standard savings account. These accounts are often offered at online banks, which may no or low fees as well. That combination of higher interest rates and lower fees can help pump up your savings.

A couple of other tips:

•   Many financial institutions will let you name the account, which is seriously worth doing. It might be harder to be motivated to contribute to account XXX924 than your “Valentine’s Day in Paris” Fund. Go ahead, and give it a good name so you know what you’re working towards.

•   Another smart move is to automate savings. You can set up automatic deposits into this account each week or month, depending on your pay cycle and what you’re comfortable with. You could even allocate a specific amount to be auto deposited right from your paycheck. That way, the cash never even hits your checking account, where it can tempt you to go shopping and have a fancy dinner. You won’t see the money until you’re ready to go on vacation.

Now, about how much to save. Here are a couple of approaches to try:

•   Some people like to establish an amount of their paycheck to siphon off into travel savings. Perhaps it’s 5% of your take-home pay, or an amount like $50. Once it hits a certain figure ($500 or $1,000), you can then dig in and start your specific planning.

•   For many, though, building a budget makes the dream real. You can scout out transportation and lodging costs, among other items by doing online research. You can add food, entertainment, excursions, and other potential expenses and come up with the figure you’ll need. Then divide that by how long you have to save, and you’ve determined your monthly savings goal.

   So if you need $2,400 for your trip and have eight months till the date you want to travel, you’ll need to set aside $300 per month.

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Doing Some Research on Your Dream Vacation

As briefly mentioned, research can be the foundation of your trip planning. And it’s often a really fun enterprise, whether you are a moodboard or a Pinterest sort of person. Decide what kind of vacation you want to have — be it a surf, snow, hiking, adventure, leisure, city, or country escape — then start looking into destinations that suit your desires. Maybe a friend took a cool 30th birthday trip to Iceland that you want to emulate, or you are in search of a few budget-friendly spring break destinations. Start searching! Some guidelines:

•   Once you pick a spot, you can look at things like average hotel pricing, average food cost, transportation costs (including the flight, drive, boat, or train there as well as a car rental, taxi, or ridesharing service for when you’re there), average excursion cost, and add in a bit extra for entertainment expenses.

•   Don’t forget to budget for hidden fees, such as resort fees, rental fees, and taxes. You may want to call the hotel’s concierge to get those numbers if they aren’t displayed, as they can add up rather quickly. Also, you may want to ensure your number crunching includes an “extra” slush fund for those “just in case” moments.

  (Also worth noting on the topic of hotels and money: Most hotels will put a hold on your credit card when you check in to cover incidental expenses and other potential charges. This can change your available credit, so keep that in mind.)

•   If hotels look to be a bit too pricey in your intended destination, you could always look for cost-cutting accommodations. There are always hostels, and some are adding amenities these days that make them less barebones.

•   You might consider places that will let you stay for free in exchange for services. You could try signing up on websites like Rover to swap dog sitting services in exchange for a free place to stay. Websites like Mind My House also bring together people looking for house sitters and those looking for accommodations. Check out the listings and see if any fit your vacation needs.

Recommended: Tips for Finding Travel Deals

Saving Consistently into Your Travel Fund

If you have an estimate of how much it will cost, now you just have to figure out how to save for a vacation. Consider these ideas:

•   Dividing your projected vacation cost by the months you have to save and stashing cash away is a tried-and-true method. By doing so, you can watch your trip fund grow and get you closer to your trip.

•   Some people like to use round-up apps or the “change jar” method to also boost their savings.

How to start a vacation fund is simple: You make that first deposit, But next, learn some other ways to keep building towards your travel goal.

Using Windfalls to Your Advantage

While working toward your vacation, you could use any financial windfalls to your advantage. Consider these sources:

•   A tax refund

•   A bonus at work

•   A raise at your job

•   Proceeds from selling your stuff, like electronics, kitchenware, or clothes you no longer need or use.

Putting this money into where you keep a travel fund is a great way to boost your savings.

Adding a Side Hustle to Your Routine

You could always create a windfall for yourself by taking on a low-cost side hustle as you save for your vacation.

Working a side job or taking on freelance work you have the skillset for could help you save money faster to get the vacation show on the road. And the best part is, if you save using your side gig money, you won’t even need to touch your savings or primary paycheck.

Some pointers:

•   Think about what you’re after: Something that will help your career in the long-term, or perhaps something that will simply earn you a bit of quick cash?

•   If you’re hoping it could help your career growth, you could try tackling a side job that’s connected to your goals. For example, if you’re hoping to be a writer, scout article writing or copywriting gigs. Want to be a photographer? Build a website and offer your services.

•   If it’s just quick cash you need, think local and urgent. Could you sub in at a busy cafe on weekends or do odd-jobs through various apps like TaskRabbit or Fiverr?

•   Decide how much you’re willing to put into a side hustle. Often, side gigs require you to work before or after your regular nine-to-five, which could mean giving up your nights and weekends. But, again, all that extra work could pay off for either your career or your short-term goals.

Recommended: How to Make Cash Quickly

Making a Little Extra Cash While on Vacation

You could always try putting your assets to work for you while you’re away to help pay for your vacation. If you own your home or apartment or your landlord allows it, you might rent your space on websites like Airbnb or VRBO. You may be able to earn a hefty sum.

Have a car? That can be rented out on websites like Turo, too.

The Takeaway

If you’re planning a vacation, dreaming about it and planning where you’ll go and what you’ll see can be a fun pursuit. But you’ll also need to save for it. That can be accomplished by saving from your paycheck, stashing away any windfalls, and putting energy towards earning additional money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

How does a vacation fund work?

A travel fund is an account that helps you save the amount needed to take a trip. Typically, you add to it regularly (manually or by automatically depositing some of your paycheck) until you reach your goal amount. Having the money in an interest-bearing account can help you grow your money more quickly.

Where should I put vacation money?

If you want to grow your trip fund money, it’s wise to put it in a savings account where it’s liquid but earning interest. Look for a secure bank that offers a healthy annual percentage yield (APY). These high-interest or high-yield accounts are often found with no fees and low or no minimum balance requirements at online banks. Because these banks don’t have bricks-and-mortar locations, they can pass the savings onto customers.

What is a reasonable vacation budget?

A reasonable vacation budget will depend on your particular plans. Are you going to a lavish resort in the Mediterranean for two weeks or to a cabin at a local park for the weekend? Whatever your travel style may be, making a budget is critical. By researching transportation, lodging, food, entertainment, and excursion costs in advance, you can likely figure out your savings goal.

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