piggy banks on orange background

How Many Bank Accounts Should I Have?

If you’re wondering “How many bank accounts should I have?” the answer will likely be, it depends. Your personal and financial situation and goals will impact whether you have just one or two accounts or several of them with different purposes. For example, a recent college grad who is just entering the workforce will likely need fewer accounts than a self-employed person who is saving for a down payment on a house and their toddler’s future education.

There can indeed be advantages to holding multiple checking accounts or savings accounts, but having more than one or two will definitely require more of your time in terms of money management.

Key Points

•   Multiple bank accounts can be beneficial for managing diverse financial needs and goals.

•   Having just one checking and one savings account simplifies finances and reduces fees.

•   Specific savings goals might require separate accounts to track progress effectively.

•   Business owners and freelancers benefit from separate accounts to manage expenses and taxes.

•   Multiple accounts can aid in budgeting by allocating funds to different spending categories.

How Many Bank Accounts Do Most People Have?

When it comes to managing your money, many adults have, at a minimum, one checking account and one savings account at the same bank. Of course, there are plenty of other personal and financial circumstances that might make you consider opening an additional account. However, for most individuals, especially those who are unmarried, opening just one checking and one savings account usually covers their basic banking needs.

With just one checking account and one savings account, you eliminate confusion and can simplify your finances. If all of your paycheck goes into your checking account using direct deposit, you can set up recurring automatic transfers into savings for the date after your payment hits.

If you automate your finances in this way, money moves into your savings account and leaves what you know you’ll need in checking until your next paycheck.

It’s also wise to keep in mind that some banks, especially the larger traditional banks vs. online banks, may charge monthly fees for checking accounts or require a minimum deposit. If you bank at one of these bricks-and-mortar financial institutions, having only two accounts can reduce the fees you’ll need to pay.

💡 Recommended: Learn more ways to help simplify your finances.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


7 Reasons to Open Multiple Bank Accounts

Although two bank accounts may suit some people just fine, there are many people who may prefer or even need to open additional accounts. Among them may be those who are married or starting a family, those who are planning extended foreign travel, military personnel, freelancers, and/or business owners. For these individuals, there may be benefits to having multiple savings accounts or checking accounts for different financial needs.

1. Large Transactions

While couples do not necessarily need to share all of their finances, there are certain benefits to having a joint account for your household and family. This can be helpful, even if you still have a personal account for your own discretionary spending.

For one thing, this pooled account can help cover large monthly payments such as a mortgage, rent, or other household expenses equally.

Plus, rather than individual savings, you might want a shared savings account for emergencies, like a surprise medical bill or car trouble. Each partner might put a small amount into that fund every month, with a goal of having at least three to six months’ worth of basic living expenses covered.

2. Specific Savings Goals

Having dedicated savings accounts can also be a smart tactic to encourage you to put away money for future goals, whether that’s travel or saving up for a wedding or baby.

Some couples even prefer a shared account for debt payments (such as student loan debt or credit card debt). However, helping to pay off your partner’s debt is an important financial conversation to have before you start a new bank account for that purpose.

3. Saving for College

Saving for college is another reason parents might open an additional bank account. Can you have more than one bank account for this purpose? Of course, especially if you have more than one child.

Also, even an individual who is currently paying for school might see the benefits in having a separate checking account to manage and keep track of spending on books or other school-related costs. This would be distinct from a checking account for spending on food, clothes, and other everyday expenses.

4. Charity Donations or Family Healthcare

Other reasons people might consider opening additional bank accounts would be for charity donations or offering financial assistance to another family member, such as paying for eldercare. While there’s probably no reason why those monthly expenses can’t also be accounted for in your regular checking or savings account, keeping such things separate can improve some people’s money management.

5. Separating Finances

In some situations, partners may want to open additional accounts to keep some of their finances separate. For instance, in a married couple, you might both agree to put the majority of your paycheck into a joint checking account. However, you could each direct some of your earnings to a separate checking account for discretionary spending. For some couples, this can help keep the peace, since there’s no need to explain how much you chose to spend on new shoes or the latest cell phone model.

Or you might decide to open up different types of savings accounts to put some money into for an upcoming friends’ getaway or a similar goal.

What’s more, if one of you is starting a business (say, selling prints of your travel photos online), it would make sense to open a dedicated account for that, to keep your earnings and work-related expense payments in one place.

6. Creating Accounts for Your Kids

If you have a child you’d like to gain financial literacy, opening an additional account with them can be a wise idea. You can open a shared account and begin teaching your kid how to put money in the bank, withdraw funds saved, and see how interest is earned.

Since those under age 18 typically can’t have their own account, this can be a good way to instill good financial habits at a young age.

7. Budgeting Is Easier

Deciding which budget is right for you can take some trial and error, and some people find that keeping track of their finances is easier with multiple accounts. For instance, if you follow the 50/30/20 budget rule, you are likely putting 50% of your take-home pay towards the “musts” of life, 30% towards the “wants,” and 20% towards savings.

In this situation, you might find it clearer and more convenient to have two checking accounts from which you pay those two types of bills. You might even name one “musts” and one “wants,” if you like.

Recommended: How Much Money Should You Have After Paying Bills?

How Many Checking Accounts Should You Have?

If you’re thinking about whether to have multiple bank accounts, keep this in mind: There’s no single right or wrong answer. While there is no need to open five new savings accounts to plan for your next five vacations, how many bank accounts you should have can depend on your ability to organize your finances.

Some individuals might find they prefer having at least one or two extra savings accounts for savings goals. These savings goals could be anything from an emergency fund, travel fund, or saving up for a car.

That emergency savings account can be critical to have, by the way, to be prepared for whatever may come your way. Whether you want this account to be a separate fund in a different bank account or part of your overall main savings account, however, is really up to you.

Potential Downsides to Having Multiple Bank Accounts

Before you start opening up additional checking and savings accounts, consider these cons:

•   You risk incurring more bank fees. Some banks will charge you account fees for each and every account you open, which can take a bite out of your funds.

•   You will have to keep track of account rules. In some cases, there are minimum balance requirements, limits on the number of withdrawals, and other guidelines that can take up brain space, not to mention involve potential charges.

•   There can be an increased chance of overdrafting. No one is perfect, and the more accounts you have, the more opportunity there is to forget about some autopayments you had set up and wind up with a negative balance. This in turn can trigger overdraft and NSF (non-sufficient funds) fees.

Why Freelancers and Business Owners May Need Separate Bank Accounts

While large businesses inevitably need their own bank accounts, sometimes smaller enterprises or even individuals with side hustles overlook creating a separate business bank account.

Some banks offer small business accounts, which can be used by freelancers, side hustlers, or small business owners. Basically, you want to make it easy on yourself to track personal and business expenses separately, and having different bank accounts helps take care of a lot of the legwork.

An additional account makes it easy to track business expenses and deductions, like shipping costs for your Etsy account or treats purchased for your dog-walking gig. Plus, with all of your business expenses in one place, you are more prepared for an audit and have a better bookkeeping record, rather than sorting through every transaction and trying to remember if that coffee you had six months ago was for a work meeting or not.

A great benefit of having another savings account for your business or freelance work is that you can set aside money specifically for taxes.

Of course, as a business owner or freelancer, it’s also important to save for tax season, which is why opening a separate business savings account can also come into play. A great benefit of having another savings account for your business or freelance work is that you can set aside money specifically for taxes.

Recommended: Business vs Personal Checking Account: What’s the Difference?

Alternate Money Management Options to Consider

Whether you are looking to open a new checking and savings account with a new bank or just considering what works best for your financial needs, there are a number of reasons to consider an alternative bank account to a traditional bricks-and-mortar bank.

A new account could offer you better rates or features, lower fees, or greater interest earnings.

Here, some options:

•   Credit unions are banks that are run as financial co-ops, meaning each member has a small stake in the business. Banking with a credit union usually allows more flexibility and lower fees. As nonprofits, they are designed to serve their members, often paying higher interest rates on deposits as well.

•   Online banks typically offer lower (or no) fees than traditional banks because they don’t have to support physical locations. They often have higher annual percentage yields (APYs) on deposits, too.

SoFi is among these online banks. When you open a SoFi Checking and Savings account, you’ll earn a competitive APY and pay no account fees, which can help your money grow faster. You’ll also be able to spend and save in one convenient place, and access Vaults and Roundups to help build your savings.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is it a good idea to have multiple bank accounts?

Whether it’s a good idea to have multiple bank accounts depends upon an individual’s personal and financial situation. A single person with a full-time job may do fine with one checking and one savings account. A married person with a day job and a side hustle, who is saving for a house and putting money aside for a child’s education, may prefer having multiple accounts to stay organized.

Is 3 bank accounts too many?

Three bank accounts is not necessarily too many, though it depends on a person’s situation. Having a checking account, a savings account for a down payment on a home, and a savings account for an emergency fund can be a good thing. However, if that number of accounts winds up charging too many fees or risking overdraft for the account holder, then it is possibly too many.

Do too many bank accounts hurt your credit?

Multiple bank accounts should not impact your credit. When you open a bank account, you are not requesting a line of credit, so it should not be reflected on your credit report nor should it lower your credit score.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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.

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hands holding smartphone at desk

What Is Mobile Deposit and How Does It Work?

Mobile deposit is a fast, easy, and convenient way to deposit a check without going to the bank. You just snap a photo of your check with your smartphone and upload it to your bank’s app.

But you may have questions about this feature, even if you are already using it. For instance, how do you endorse a check for mobile deposit? How long will the check take to clear? Keep reading to find out the answer to these questions and more.

Key Points

•   Mobile deposit allows check deposits via a smartphone app, eliminating the need to visit a bank.

•   Deposits can be made anytime, which is convenient for those with busy schedules.

•   The process involves endorsing the check, entering the amount, and uploading photos of the front and back.

•   Funds from deposits may be available quickly, depending on the bank’s policies.

•   Enhanced security measures are in place to protect users during the mobile deposit process.

What Is A Mobile Check Deposit?

A mobile deposit is a process that allows you to deposit a check into your account using your phone’s or your tablet’s camera. Typically, you open your bank’s mobile app and type in the amount of the check and take a photo of both the front and the back of the check. Before you do this, be sure to endorse the check.

Some details about mobile deposit you may want to note:

•   The app generally lets you use this feature 24 hours a day, although some banks may only make a same-day deposit up until a certain hour, like 10:00 pm. Every bank will be different, but most banks will deposit a check quite late in the evening, even if they won’t allow 24 hours.

•   How long do mobile deposits take to clear? Deposits may show up immediately, later on the same day, or the next day. Sometimes, they’ll be fully available and sometimes partially, depending on the rules of your bank.

For example, say you make a mobile deposit worth $3,000. Your bank may make $500 available immediately and the remaining $2,500 available in two business days. Each bank is going to have its own funds availability policy, though there are some federal regulations on how long a bank can place a hold on a deposited check. Ask your financial institution about their policies.

•   Some banks may have one-day or monthly dollar limits on mobile deposits (like $10,000 per month). Others may have limits on the size of checks that they are willing to cash over mobile deposit. For example, some banks will not allow customers to mobile deposit checks worth more than $5,000.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.00% APY, with no minimum balance required.

How Secure Is Mobile Check Deposit?

Just like mobile banking in general, mobile deposit is typically very safe. However, there are a few steps you can take to boost security.

•   Double-check that you have entered the check amount properly. Otherwise, there might be issues processing the deposit.

•   Be sure you’ve endorsed the check for mobile deposit properly (more on that below).

•   Follow best practices for the security of your banking app. Never share passwords or other login information.

•   Keep checks secure and private, and make sure to shred them when they’ve been deposited and the funds have cleared.

How Does Mobile Deposit Work?

how to make a mobile deposit

How does mobile deposit work? For the customer, it’s quite simple actually Here’s a closer look.

1. Verify If Your Bank Offers Mobile Depositing

Many banks offer mobile depositing. But if you’re new to this feature or have a new bank account, make sure mobile deposit is available.

2. Review Mobile Deposit Limits

Some banks will have limits about mobile deposit. Perhaps your bank only allows up to $500 or $2,500 a day or $10,000 a month via mobile deposit. You want to know that before you attempt to deposit a check that’s over the limit.

3. Endorse Your Check for Deposit

How do you endorse a check for mobile deposit? That depends on your bank. Some may be fine with you signing your name on the bank. Others may request that you add language such as “For Electronic Deposit at [bank name].” Familiarize yourself with your financial institution’s guidelines so you avoid any delays with your mobile deposit.

4. Follow Your Bank’s Mobile Banking Instructions to Deposit Your Check

Next, you’ll follow the instructions to deposit the check. They typically go something like this:

•   Log into your bank’s mobile banking app and navigate to the mobile deposit feature.

•   Select the account you want to deposit the check into.

•   Enter the amount of the check.

•   Take a photo of the endorsed check, front and back.

•   Review the details (your bank’s app may show the details, such as the check amount and account it’s heading towards and ask if everything looks correct).

•   Submit your check.

Recommended: Guide to Signing Over a Check

5. Keep Your Check and Wait for the Money to Be Deposited

Just as with a check deposited at a bank’s ATM or branch, the money may not be immediately available for use. Checks typically take a bit of time to clear. Here’s how mobile deposit works:

•   When you snap that photo, a financial institution will generally produce a copy of the check as a stand-in for the physical copy. Using this facsimile, a bank will work to collect the money from the check writer’s account.

•   Even before the bank is able to retrieve the money from the check’s source, the money may show as deposited into your account. Though the technology is incredibly swift, the money itself isn’t actually moving that fast.

•   Money often becomes available in one day, but it could typically take up to several business days, depending on the bank’s policies, the bank the funds are drawn from, and other variables.

This lag time can create problems — you might spend or transfer the funds before the money has fully cleared.

It’s wise to hold onto the physical copy of your check for two weeks in case there is a problem getting the check deposited. If you need to, mark it so you know that you’ve already deposited the check. Once you know it’s cleared, shred or destroy the check so that no one can obtain the information.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Benefits of Mobile Deposit

Now that you know how the mobile deposit process works, here’s a guide to the benefits of mobile deposits.

Save Yourself a Trip to the ATM

This is a major benefit of mobile banking. Having to take a trip to a bank branch or ATM to deposit a check can be a real hassle. With this kind of deposit (and online banking in general), you don’t need to budge from wherever you are to get that check into your bank account.

Deposit Money Later in the Day

For lots of working people, getting to the bank before it closes at 5:00 pm on a weekday is difficult to do. With mobile banking, checks can be deposited at any time of day, any day of the week. You can be in your pjs, watching a streaming series, and quickly get that money deposited.

Deposits Are Credited Quickly

Because of the extended hours offered by mobile deposits, it may be possible to deposit a check and see the money available in your account faster than if you had to wait until you make it to a branch location. If you deposit the check during mobile deposit hours and the amount is, say, $200 or under, it is possible to see your funds immediately. But, as mentioned above, it’s always wise to make sure the check has fully cleared before transferring or spending it. Remember, it’s not the same as depositing cash into your account.

Deposit a Check From Anywhere

Sometimes, you’re simply not anywhere near a branch or appropriate ATM but need to deposit a check. One of mobile banking’s biggest benefits is being able to deposit a check from anywhere in the world, whether you’re on vacation, attending a business meeting out of town, or otherwise not at your home base.

Deposits Are Secure

In terms of security, mobile banking is very safe. Depositing your checks through your mobile app can be as secure as any other digital banking process. Most banks and credit unions use enhanced security processes and encryption to protect their customers.

Also, if you are worried that your phone might be stolen and the image of your check could potentially fall into the wrong hands, don’t be. The image of a check that is deposited via mobile banking isn’t stored on your phone.

pros and cons of mobile deposits

A Few Downsides to Mobile Deposit

Now that you’ve heard about the benefits of mobile banking when it comes to depositing checks, let’s acknowledge that there are also a few downsides. A couple to consider:

•   If you want to cash your check and get those bills in hand, you will not be able to do so via mobile deposit. The funds must go into your account.

•   Your mobile deposit might wind up bouncing, just as a check can bounce when deposited via other means. Don’t assume that just because it’s deposited, you can go and spend it.

•   There are mobile deposit frauds that occur, often in which a person or organization you don’t know well sends you a check and asks for you to deposit it and then send a portion back to them. Keep your guard up!

Recommended: Guide to Check Verification

The Takeaway

What is mobile deposit? It’s a feature that allows you to deposit a check from virtually anywhere and at any time, using an app on your smartphone. There are many advantages to mobile banking, such as saving you time and energy vs. taking the check to a bricks-and-mortar branch or an ATM. It’s one of the ways that mobile banking can help make managing your personal finances more convenient.

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 4.00% APY on SoFi Checking and Savings.

FAQ

Can someone mobile deposit money into my account?

In order to make a mobile deposit to your account, you need to be logged into your account on your device. For this reason, it is unlikely someone could make a mobile deposit to your account.

Can I mobile deposit a check that’s not in my name?

There are some financial institutions that will permit a mobile deposit of someone else’s check (which you may hear referred to as a third-party check or a check that’s been signed over to you), but others (such as Bank of America) prohibit this.

How secure is mobile check deposit?

Mobile check deposits are very secure and can be more convenient than carrying a check to a bank or ATM to deposit it.

Are mobile deposits instant?

Mobile deposits are not instantaneous. The check may take from one day to several days to clear, although the fact that you deposited the check may pop up on your banking app very quickly.

How do you endorse a check for mobile deposit?

How to endorse a check for mobile deposit may vary among banks. Check yours to see exactly how this should be done. It’s often a matter of signing your name and writing “For electronic deposit” on the back of the check.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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How Many People Have Student Loans in the United States?

How Many Americans Have Student Loan Debt?

According to the latest figures from the Federal Reserve, 30% of U.S. adults had student loan debt upon leaving school.

Student loan debt is a significant financial burden for many Americans, impacting their ability to save, invest, and achieve financial milestones. As higher education costs continue to rise, more students and families rely on loans to fund their education.

Understanding the scope and scale of student loan debt in the United States is crucial for grasping its economic and social implications. Keep reading to learn how many Americans have student loan debt, the average amount borrowed, student loan debt by demographics, and more.

How Many People in the USA Have Student Loans?

The total student loan debt crisis amounts to $1.74 trillion in unpaid student loans as of the second quarter of 2024. This outstanding balance is spread among 43.2 million U.S. borrowers.

Federal student loans account for 91.2% of all U.S. student loan debt, according to the Education Data Initiative. However, U.S. adults are also burdened by private student loans.

As of Q3 2023, Americans have amassed a total of $130.28 billion in private student loans — accounting for 7.5% of outstanding student loans in the country.

Recommended: The Impact of Student Loan Debt on the Economy

Who Is the Typical Borrower?

The College Board’s Trends in College Pricing and Student Aid 2023 report found that the average four-year, public bachelor’s degree graduate left school with $27,400 in student debt. Bachelor’s recipients from private nonprofit institutions left school with an average of $33,600 in student debt.

Student Loan Debt by Age

U.S. adults ages 35 to 49 have a total aggregated balance of $635.7 billion in federal loans across 14.7 million borrowers. On average, a borrower in this age group has a student debt balance of $43,200, according to College Board.

Age

Total Balance

Average Balance per Borrower

Up to age 24

$103.4 billion

$14,600

25 to 34

$497.5 billion

$32,900

35 to 49

$635.7 billion

$43,200

50 to 61

$297.4 billion

$45,700

62 and older

$112.8 billion

$41,600

The next-highest total balance, at $497.5 billion, falls on borrowers ages 25 to 34. The 15.1 million borrowers in this age group have an average loan balance of $32,900.

Borrowers with the highest average balance ($45,700) are those who are 50 to 61 years — this group accounts for 6.5 million borrowers in the U.S.

Student Loan Debt by Race and Gender

According to the Education Data Initiative, 64% of the total U.S. student loan debt is held by women.

Men borrow an average of $29,862 in student loans. By contrast, each woman carries an average of over $30,000 in student debt.

Race/Ethnicity (Women)

Cumulative Debt

Asian

$25,252

Black or African American

$37,558

Hispanic or Latina

$27,029

White

$31,346

Black women face the greatest hurdle when it comes to student loan debt. According to AAUW, Black or African American women carry the highest cumulative student debt by race and ethnicity at $37,558. This figure includes the principal amount and student loan interest rate charges.

Student Loan Borrowers by Debt Size

According to the U.S. Department of Education, most student loan borrowers (9.9 million as of 2023) owe between $20,000 and $40,000. Close to half of all borrowers (42%) owe between $10,000 and $40,000, and only one million borrowers have student debt totaling $200,000 or more.

Recommended: What Is the Cost of Attendance in College?

How Many People Have Student Loans by Demographic?

According to the Education Data Initiative, middle-income students are most likely to take out student loans. For students living on campus, 63.6% used federal student loans, compared to 39.7% of students who lived with their parents.

Among married undergraduates, 52% accepted federal loans. 54.1% of independent undergraduate students relied on federal student loans to help fund their education.

Recommended: Examining the Different Types of Student Loans

What Percentage of College Students Take Out Student Loans?

The percentage of students who borrow student loans vary based on factors like degree type and institution.

According to the Education Data Initiative, 31.5% of undergraduate students accepted student loans from the federal student loan program.

About 52% of bachelor-seeking students attending a private nonprofit received federal student loans, while 49% of bachelor’s students enrolled at a public college received federal loan aid.

Among master’s degree students, 53.6% who attended a private nonprofit school received federal aid, compared to 52.5% who attended a public institution.

Finally, 79.5% of students pursuing a professional doctorate degree at a private nonprofit received student loans. Of those who attended a public college, 31% of doctoral candidates have student loan debt.

Recommended: How to Pay for College

Total Owed by Americans on Student Loans?

Collectively, Americans have an outstanding student loan balance of $1.74 trillion in total. Private student loans makeup $130.28 billion of that, and the rest is federal student loans.

The Takeaway

Americans are carrying a significant student debt burden after leaving school. New and currently enrolled college students will likely see continued rising education costs.

Despite these figures, one of the benefits of student loans is that they can provide access to college for students who might otherwise not be able to finance their education. To pay for college, students can turn to cash savings, scholarships, grants, and federal and 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

Who holds the majority of student debt?

According to the College Board, borrowers ages 35 to 49 hold the majority of outstanding federal student debt at $635.7 billion, with an average balance of $43,200 per borrower.

What is the average student debt in the U.S.?

According to the Education Data Initiative, the average federal student loan debt as of 2024 is $37,843 per borrower. Counting private student loans, that number is $40,681 per borrower.

What is the total amount of student debt owed by Americans?

Americans owe $1.74 trillion in federal and private student loans as of 2024.

How do you get rid of student loan debt?

To get rid of student loan debt, you can make consistent payments, consider refinancing for better rates, apply for income-driven repayment plans, or seek loan forgiveness programs if eligible. Strategies like budgeting and making extra payments can help accelerate debt repayment and reduce the total interest paid.

What happens to student loan debt when you die?

When a borrower dies, federal student loan debt is typically discharged and does not need to be repaid. For private student loans, policies vary by lender; some may discharge the debt, while others may require repayment from the borrower’s estate or a cosigner if one exists.

How does student loan debt affect the economy?

Student loan debt affects the economy by reducing borrowers’ purchasing power, delaying homeownership, and impacting savings and retirement plans. High debt levels can limit consumer spending and hinder economic growth. Additionally, it may discourage potential students from pursuing higher education, affecting workforce skills and overall economic productivity.


Photo credit: iStock/Prostock-Studio

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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).

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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.

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Pros and Cons of Consolidating Student Loans: A Comparison

Student loan consolidation can streamline the federal student loans you’ve accumulated over the years. That can make it easier and possibly more affordable to pay down your debt. But this kind of consolidation can also have downsides, like being in debt longer and possibly paying more interest overall.

Currently, one-third of federal student loan debt is in the Direct Consolidation Loan program, according to EducationData.org. To understand your options, read on to take a closer look at the pros and cons of consolidating student loans and what options you may have. Equipped with this info, you can decide whether debt consolidation is the right next step for you.

What Is Student Loan Consolidation?

A Direct Consolidation Loan is a federal loan under the William D. Ford Direct Loan Program. Consolidation lets you combine one or more existing federal student loans into a new Direct Consolidation Loan. Here are some more details to note:

•   You don’t have to combine all of your federal loans; instead, you can select which eligible loan you’d like to consolidate. The consolidated loan balance is the total remaining principal from the loans you’ve chosen to merge, including any unpaid interest.

•   The loan will have a new interest rate and a longer repayment term. The loan servicer that’s managing your Direct Loan Consolidation repayment might change, too.

•   Most federal Direct Loans and Federal Family Education Loans (FFELs) can be consolidated.

•   Converting private student loans to federal loans through Direct Consolidation isn’t possible. Privately held education loans don’t qualify for this federal program.


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

Take control of your student loans.
Ditch student loan debt for good.


Pros of Consolidating Student Loans

Student loan consolidation presents a handful of advantages that help you take control over your repayment journey. Below are the top benefits of a Direct Consolidation Loan of your federal student loans.

Easier to Manage

Over your education, you might’ve opened new loan accounts for various academic years. These loans have different monthly payment amounts and due dates, and they are also likely maintained by different loan servicers.

At its forefront, consolidation simplifies your repayment experience by bundling multiple loans into one neat package. You’ll have one outstanding balance to focus on with just one payment due date to remember so there’s less chance of accidentally missing it (a plus for your credit). And if you have any questions about your loans, you only need to reach out to one servicer.

More Time to Pay Off Your Student Loans

Consolidating your student loans resets your repayment clock. Direct Consolidation Loan terms can be as long as 30 years if you choose a Standard or Graduated Repayment Plan. (Do note, however, that extending your loan term can mean paying more interest over the life of your loan.)

Your maximum timeline to pay back the consolidated loan also depends on your loan’s principal balance:

•   10-year term for amounts under $7,500

•   12-year term for $7,500 to $9,999

•   15-year term for $10,000 to $19,999

•   20-year term for $20,000 to $39,999

•   25-year term for $40,000 to $59,999

•   30-year term for $60,000 or greater

If you need more runway to pay down your federal student debt, a consolidation loan might be an option.

Can Have a Lower Monthly Payment?

Thanks to the extended repayment term that a Direct Consolidation Loan offers, you’re left with a lower monthly payment. The loan’s repayment is stretched over a longer period so your fixed installments are much smaller than you originally had. (As mentioned above, though, you may pay more in interest over the repayment term if you extend it.)

For example, let’s say you’re combining two loans:

•   Loan 1 is $15,000 at 6%

•   Loan 2 is $30,000 at 6.4%

Your original monthly payment for loans 1 and 2 are $166.53, and $339.12, respectively. That’s $505.65 per month in student loan payments.

If you consolidate both loans your principal balance is $45,000. Over a 25-year term at 6.25%, your monthly payment is $296.85 — that’s more than $200 less each month.

Unlocks Income-Contingent Repayment for Parents

If you have a qualifying federal student loan, enrolling in one of four income-driven repayment (IDR) plans can help you access lucrative federal benefits, like Public Service Loan Forgiveness (PSLF). However, Direct PLUS Loans for parents aren’t eligible for IDR.

A consolidation loan gives borrowers with Direct Parent PLUS Loans a way into one IDR plan, the Income-Contingent Repayment (ICR) Plan. After consolidating Parent PLUS Loans, parents can repay the new loan under ICR over 25 years.

The ICR Plan calculates monthly payments either at 20 percent of your discretionary income, or the equivalent of an (income-adjusted) fixed payment over a 12-year period — whichever is lower.

You Can Choose a Federal Loan Servicer

When you have a federal student loan disbursed to you, the account is automatically assigned to a loan servicer. You don’t get a choice in which entity services your loan. Subsequent loans are also automatically assigned to a servicer and not necessarily the same one.

When applying for a Direct Consolidation Loan, you get to choose which loan servicer you prefer. If you’ve had a bad experience dealing with a servicer in the past, consolidation gives you the power to choose a servicer that might be a better fit. It’s currently the only way to switch your loan servicer within the federal system.

Recommended: Student Loan Refinance Guide

Cons of Consolidating Student Loans

Although student loan consolidation offers notable benefits, it also presents a number of potential downsides. Here are a few disadvantages to consider.

Unpaid Interest From Existing Loans, Capitalizes

An easily overlooked downside of loan consolidation involves unpaid interest. If you have unpaid interest on any of the loans you’re combining, the interest is added to your principal balance. This is called interest capitalization.

This means that your new consolidation loan will have a higher principal balance. And moving forward, you’ll pay interest on this higher balance. This could result in paying more for your student debt overall.

You Might Be in Debt Longer

You might be positioning yourself to stay in debt longer than your original repayment timeline. Although a longer term is helpful for lowering monthly payments, it can take a toll on you in other ways.

•   Being in debt longer can take a toll on your mental health. A 2023 study of 331 college graduates found that having high debt was tied to anxiety, depression, and problematic substance abuse.

•   Additionally, being in debt longer might result in delaying other life and financial goals, like buying a first home, starting a family, or saving money for retirement.

Longer Repayment Means More Interest

Another long-term negative effect of loan consolidation is that it can result in paying more interest over time. Although a longer term results in smaller installment payments, it means you’re delaying paying off your debt.

This delay comes at a cost in the form of interest charges. The more interest you pay toward your loan, the more your total borrowing cost.

Losing Federal Loan Benefits

Consolidating your federal student loans might result in lost borrower benefits. Some benefits at stake are interest rate discounts and principal rebates.

A Direct Consolidation Loan also typically resets any payment credit you’ve earned toward federal loan forgiveness under PSLF or an IDR plan. Past qualifying payments that were made before you consolidated won’t count toward the payment requirement for forgiveness. This can ultimately push back your loan forgiveness eligibility.

A one-time IDR account adjustment is in effect through December 31, 2023. If you consolidate your loans before January 1, 2024, qualifying IDR payments will still count toward loan forgiveness. After the adjustment deadline, however, you’ll lose this valuable payment credit.

(Worth noting: If you consolidate your federal student loans with a private loan, you forfeit federal benefits and protections. You’ll learn more about this option below.)

The Application Process Takes Time

How long it takes to consolidate student loans can also be an issue if you’re in a time crunch. Although filling out the application takes an estimated 30 or less, the process overall takes longer. Depending on your unique student loan situation, it can take anywhere from four to six weeks to complete the consolidation process.

Pros of Consolidation Cons of Consolidation
Simpler repayment experience Prior unpaid interest added to principal
Extends your term Keeps you in student debt longer
Lowers installment payments Might pay more interest
ICR access for parent PLUS borrowers Lost access to some federal benefits
Lets you choose your servicer Process isn’t instant

Weighing the Pros and Cons for Yourself

Now you’ve learned what are the pros and cons of student loan consolidation when it comes to federal funds. There’s a lot to mull over if you’re entertaining the idea of consolidating student loans. Pros and cons (and how you prioritize them) might shift depending on your overall repayment strategy.

•   For example, consolidating your loans might make sense if you simply want to declutter your loan accounts or need a lower monthly payment. It might also make sense if your current loan type doesn’t qualify for loan forgiveness or an IDR plan, and consolidation is your only way forward.

•   However, consolidation might not be for you if you’re not working toward loan forgiveness and want to pay the least amount of money toward your education in the shortest time.

Alternatives to Student Loan Consolidation

Sometimes, consolidating student loans isn’t the best approach depending on your situation. If you’re on the fence about pursuing a Direct Consolidation Loan, here are a few other alternatives.

Income-Driven Repayment Plan

If your student loan payment is too difficult to manage and you won’t be able to afford it for the foreseeable future, ask your servicer about an income-driven repayment plan.

IDR plans calculate your monthly payment using your income and family size information. Payments are restricted to a small percentage of your discretionary income, and all plans have a longer-than-standard repayment period.

Most borrowers have four types of IDR plans to choose from:

•   Saving on a Valuable Education (SAVE). Payments are typically 10% of your discretionary income. Its term is 20 years if all your loans are for undergraduate study or 25 years if you’re repaying any graduate-level loans under the plan. This SAVE Plan replaces the REPAYE program.

•   Pay As You Earn (PAYE). Payments are generally 10% of your discretionary income over a 20-year term.

•   Income-Based Repayment (IBR). Your payment is 10% or 15%, over a 20- or 25-year term, depending on when you got the loan.

•   Income-Contingent Repayment (ICR). Over a 25-year term, you’ll pay the lesser of 20% of your discretionary income or the income-adjusted fixed payment you’d pay across 12 years.

Additionally, if you still have a loan balance after completing the plan term, the remainder is forgiven. However, the forgiven balance might be considered taxable income on your federal return.

Deferment or Forbearance

If you can’t manage your current student loan payment due to a temporary financial situation, consider deferment or forbearance.

These relief options are a short-term solution that lets you pause your required federal loan payments until your finances stabilize.

Typically, interest still accrues while you’re in student loan forbearance, and certain loans still accrue interest in deferment. Additionally, the months you’re in deferment or forbearance might not be credited toward loan forgiveness.

Student Loan Refinance

If you have loans that aren’t eligible for consolidation or you have strong credit and aren’t pursuing other federal benefits, refinancing student loans with a private loan is another alternative.

Student loan refinancing is offered by private lenders. You can refinance federal and existing private student loans during this process. The refinancing lender pays off your existing student loan balances and creates a new refinance loan in their place.

The new loan will have a new loan agreement, interest rate, and term. The repayment plans you can access will depend on your lender. Always check your rate with a handful of lenders to find an offer that fits your needs. A student loan refinancing calculator can help you see whether refinancing can save you money.

Keep in mind that refinancing federal loans results in losing access to federal benefits and programs. Learn more about the differences between private and federal student loans before changing your repayment strategy.

The Takeaway

Consolidation can be a useful strategy for some borrowers, but it’s not necessarily for everyone. Take stock of your short- and long-term repayment goals and how the pros and cons of consolidating federal student loans affect them. For instance, a lower monthly payment could be the right choice for one person, but the fact that you might be paying more interest for an extended term could be a no-go for someone else.

If a Direct Consolidation Loan isn’t right for you, explore other repayment paths, including refinancing student loans.

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

Can student loan consolidation affect your credit score?

Consolidating student loans can affect your credit in indirect ways. For example, payment history is the biggest factor for your FICO® score. Securing a manageable monthly payment via consolidation might help you avoid being late or missing a loan payment. These consistent payments by your due date can build your credit over time.

Can consolidated student loans be forgiven?

Yes, Direct Consolidation Loans are an eligible loan type for federal student loan forgiveness programs. Consolidated loans can be included if you’re earning forgiveness through programs, like Public Service Loan Forgiveness and through an income-driven repayment plan.

Does consolidating student loans lower interest rates?

No. Your Direct Consolidation interest rate is calculated based on the weighted average of the rates on your consolidated loans. This average is then rounded up to the closest one-eighth of a percent, and there’s no rate cap in place.


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


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.


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

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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How Can Consolidating Student Loans Affect Your Credit?

The federal Direct Consolidation Loan program can help you manage your federal student loans. However, it also means a new loan account turns up on your credit report. You may be concerned about whether consolidating student loans in this way has a positive or negative impact on your credit. The short answer is that it can indirectly do both, but to varying degrees.

To help you understand exactly how your credit could change, read on. You’ll learn the ins and outs, so you can decide whether consolidating your student loans is the right financial move to make.

Key Points

•   Consolidating student loans can simplify repayment by combining multiple loans into one, potentially reducing the likelihood of missed payments and improving credit scores indirectly.

•   Closing older accounts through consolidation may negatively affect the length of credit history, which could result in a temporary decrease in credit scores.

•   Federal Direct Consolidation does not require a credit check and can be beneficial for managing federal student loans, though it forgoes certain federal protections if refinancing.

•   Alternatives to consolidation include income-driven repayment plans and deferment options, which can provide temporary relief without altering the credit score significantly.

•   Weighing the pros and cons of consolidation is crucial, as it might lead to a more manageable payment structure while potentially impacting credit history and future loan options.

Can Student Loan Consolidation Have a Positive Impact on Your Credit Score?

If you are considering ways to better wrangle your debt, you may wonder, “Does consolidating student loans help my credit?”

Good question. Your borrowing activity and repayment habits do impact your credit score. One of the biggest — yet indirect — effects that consolidation has on your credit score is making your payments simpler. Consider these points:

•   Thirty-five percent of your FICO® score is based on your payment history. Making consistent and full monthly payments has the most dramatic impact on your credit score on a day-to-day basis.

•   However, your student debt is likely spread across multiple loans taken out during your years of education. Each of these loans has its own payment amount and due date, making it difficult to manage.

•   A Direct Consolidation Loan can cut through the clutter. It streamlines your repayment experience, which may mean you are less likely to miss a due date or forget a payment altogether. It can set you up for a positive payment history, which is an indirect way that you can see a credit score increase after student loan consolidation.

•   Incidentally, unlike private refinance loans, it will not involve a hard credit inquiry, which usually lowers your credit score a bit for a short period of time.



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

Take control of your student loans.
Ditch student loan debt for good.


Can Student Loan Consolidation Hurt Your Credit Score?

Consolidating student loans can affect your credit score in a negative way, too. Can consolidating student loan debt hurt your credit score? To some extent, it might.

Here’s a closer look:

•   Fifteen percent of your FICO credit score calculation looks at the length of your credit history. It considers the age of your oldest credit account, like the first student loan you borrowed during your freshman year of school, and the age of your newest account. It also determines the average age of all of your open accounts.

•   Having open accounts that you’re actively repaying helps you build credit over time. Consolidating your original student loans effectively closes those older accounts.

•   This altered length of credit history could result in a less favorable treatment for your score. The impact on your score, however, is lessened over time as you make timely payments toward your consolidated loan.

Federal vs Private Student Loan Consolidation and Credit Score

Federal Direct Consolidation is exclusively a repayment option offered by the US Department of Education. This process doesn’t require a credit check, as noted above, and most federal loans can be consolidated.

In terms of private student loans, they are ineligible for Direct Loan consolidation. However, you can refinance existing federal student loans or private loans with a private lender. Understand these points:

•   If you decide to refinance student loans with a private lender, the process is similar to Direct Loan Consolidation in that it combines existing education loans into one. You can do this both as undergraduate and graduate school loan refinancing.

•   The newly refinanced loan is considered private student debt. It may be for a lower rate than you previously had, or it could offer a lower monthly payment for a longer term. (Note that when you refinance with an extended term, you may pay more interest over the life of the loan.)

•   The refinance lender pays off the student loans you’ve chosen to include and creates a new refinance loan. You’ll repay the refinance lender for the total balance of the combined loan, but at a new rate and repayment terms.

•   It’s important to recognize that when you refinance federal loans as private loans, they will no longer qualify for federal benefits and protection programs, such as deferment and forbearance. For these reasons, it’s wise to carefully consider whether refinancing federal loans is the right option for you.

Alternatives to Student Loan Consolidation

If, after weighing the pros and cons of student loan consolidation, you find it’s not for you, there are other repayment options available.

Income-Driven Repayment

One advantage of a Direct Consolidation Loan is it lets you make smaller monthly installments over a longer term. If, however, you can’t make your monthly federal loan payments for the foreseeable future, ask your servicer about income-driven repayment (IDR).

IDR offers repayment terms of 20 or 25 years, depending on the plan you’re on. Your income, family size, and chosen IDR plan determine what your reduced monthly payment is. For some eligible borrowers, your monthly payment could be as low as $0.

Additionally, if you still have a remaining balance after completing your IDR plan, the balance might qualify for loan forgiveness.

Federal Deferment or Forbearance

If you’re experiencing short-term financial hardship, you might be able to delay your federal student loan payments temporarily. The Department of Education offers deferment and forbearance programs that let you pause your payments without the loan going into default.

Keep in mind that while loans are in deferment, interest might accrue on certain federal loans. If you’ve requested forbearance, interest is charged during this period, regardless of the federal loan you have.

Student Loan Refinancing

Private student loans, mentioned above, aren’t eligible for the two alternatives just described. However, they may be a good solution in some situations. For instance, they might be a helpful option if you have private student loans that you are struggling to pay or have federal student loans and don’t have plans to take advantage of federal benefits (remember, you’ll forfeit those plus other protections).

Since private student loan refinancing requires a credit check, it’s best for borrowers with good credit. A student loan refinance might help you secure a lower interest rate or a lower monthly payment at a different repayment term. Private lenders have their own eligibility requirements, rates, and refinancing offers.

Shop around and try a student loan refinancing calculator to compare your offers and see if refinancing makes sense for you.

The Takeaway

Consolidating your federal loans has little direct effect on your score over the long term. Its effect on your age of credit accounts might temporarily lower your score. However, if consolidating means securing a lower, more manageable payment or unlocking federal benefits, the impact on your credit might be worth it.

However, if your main concern is getting relief from high monthly student loan payments, speak to your loan servicer or lender ASAP to see if your loans qualify for other repayment options. In some cases, refinancing with a private lender may be a good decision.

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

Can consolidating student loans directly raise your credit score?

No, consolidating your student loans doesn’t directly raise your credit score. It can simplify your monthly payments and possibly reduce your payment amount (though possibly extending your term and charging more interest over the life of the loan). These factors can help you maintain on-time payments, which can help build your score.

Can consolidating student loans directly lower your credit score?

Does student loan consolidation hurt your credit? It might temporarily lower your score: Loan consolidation can add a new open account to your credit record while closing an older one, which negatively affects your average length of credit history. Also, a new private loan can involve a hard credit inquiry, which can temporarily reduce your number.

Are there any indirect effects of student loan refinancing on your credit score?

Yes. Private student loan refinancing requires a hard credit check. This credit inquiry can temporarily lower your score by a few points for a short period of time. Additionally, refinancing might affect your average age of credit accounts and other factors that contribute to your credit score.


Photo credit: iStock/Ridofranz

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.


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.


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

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

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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