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Some things that affect the price of auto insurance you can’t do anything about — like your age — and some you might not want to change, like where you live. But by comparing rates, you may be able to figure out how to get cheaper car insurance.

Here are some other considerations.

How to Get Cheaper Car Insurance

Wondering how to lower car insurance costs?

There’s no downside to looking for a lower premium than you’re currently paying on car insurance. If you find out you have a better deal than you thought, you can stick with the company, and premium, you have.

But if you’ve had the same coverage and carrier for years (or even a year), you may benefit from making some changes.

Shop Around and Get Some Quotes

Rates for the exact same coverage can vary from one insurance company to the next—and from one customer to another. So using an online comparison site to shop for a policy and premium based on your specific needs (or your family’s needs) can be a good way to start your search for savings.

The Insurance Information Institute recommends getting at least three price quotes when you’re shopping for a better rate.

You’ll likely see plenty of company names you know when you use a comparison site, but you also may run into some that are less familiar. If you’re intrigued by a company’s rates and coverage options but want more information, you can read consumer reviews online.

You also can check out a company’s financial health with a rating service like AM Best or Standard & Poor’s. And you can contact your state insurance department to ask about any complaints related to a particular insurer.

Once you’ve done some research, you also may want to contact your current insurance provider to see what savings options it might offer to keep you as a customer.

Recommended: How Much Auto Insurance Do I Really Need?

Look for Discounts

When you’re shopping, it’s smart not to overlook the opportunity to save money on your auto insurance premiums with discounts.

Many insurers offer price breaks based on things that make a driver statistically safer to insure—like a good driving record or a vehicle with extra safety or anti-theft features. Drivers of all ages may qualify for a discount after taking a defensive driving course. And carpoolers and those who work from home may benefit from low-mileage discounts.

You also might be able to get discounts for behaviors that cut costs for the insurer—by going paperless, for example, using automated payments, or paying premiums annually instead of two or more times a year.

All discounts are not created equal: Some provide a larger price cut than others, so it can help to look at the bottom line. The amount you can save also may vary by company and location, and the options can change from year to year.

Which is another reason it can be a good idea to check car insurance rates regularly.

Explore Bundling

Another way to get a price break can be to “bundle” your insurance coverage with one insurer. That might mean purchasing your homeowners (or renters) insurance and car insurance from one company, or using one company for both your car and boat insurance.

You also might get a reduction if you are insuring more than one vehicle.

Bundling can result in a substantial discount. Still, you may wish to get separate policy quotes as well, just to be sure you’re really saving money and getting exactly what you want.

Consider a Higher Deductible

Choosing a higher deductible can significantly reduce your premium. (Your deductible is the amount you’ll pay out of pocket before your insurance company pays the rest of a claim.)

According to the Insurance Information Institute, increasing your deductible from $200 to $500 could cut the cost of collision and comprehensive coverage by 15% to 30%. And going even higher, to $1,000, could save you 40% or more, the insurance industry association says.

Of course, there’s a catch: If you have an accident, you may end up having to fork over a larger chunk of money than you’re comfortable with before the insurance company kicks in its share on a claim.

Before you go for the savings, you may want to be sure you can afford an unexpected repair bill.

Review Coverage Needs

If you have a car that’s getting older, it might be time to reevaluate the coverage you’re carrying on it.

You may decide to drop your comprehensive coverage (the portion that helps pay to replace or repair your vehicle if it’s stolen or damaged in an incident that’s not a collision) or collision coverage, for example, or lower the amount of those coverages.

Keep in mind, though, that if you do give up this coverage, you may have to pay to repair or replace your vehicle if it’s damaged. So it’s important to balance today’s savings with tomorrow’s what-ifs.

As you make your decisions, you’ll have to keep any coverage that’s required by the laws in your state and by your lender (if you’re still paying for the car) or a lease agreement.

Before Buying a Car, Consider Insurance Costs

Some cars cost more to insure than others, so before you save up for a car, you may want to check out how buying a car (used or new) might affect your premiums.

Insurance companies base their prices, in part, on a car’s sticker price, its safety record, what it might cost to repair it, its engine size, and the chance that the car will be stolen.

You may have heard that color is also a factor—and that a red car can cost more to insure—but according to the Insurance Information Institute, that is a myth. You can, however, expect a powerful sports car to kick up your costs.

Improve Your Driving Record, If Needed

This one’s pretty basic: A person with a bad driving history—with multiple accidents, insurance claims, and/or traffic violations—can expect to pay more for car insurance than someone with a good record.

If you aren’t sure where you stand, or you think there might be an error on your record, you can get a copy of your motor vehicle report through your state’s department of motor vehicles or the agency that handles driver’s licenses.

Improve Your Credit, If Necessary

You probably already knew that maintaining a good credit record can save you money in many ways—and you can include lower car insurance premiums on that list.

Just how much a solid credit score can save you may depend on the insurance company and the state you live in. But you can expect your credit data to play some part in your provider’s underwriting decisions.

The good news is, there are steps you can take to build credit fast, including disputing any errors on your credit reports and paying your bills on time.

Recommended: Pros & Cons of Car Refinancing

Ask About Group Insurance

Some companies and other organizations offer group plans with lower rates for their employees or members. Your human resources department can fill you in on what’s available through your employer.

If you’re a member of a large organization, you may receive insurance offers in the mail or by email, or you can inquire with the main office.

The Takeaway

Wondering how to lower your car insurance? A good starting point on the road to cheaper car insurance can be to compare your current policy to offers from other insurance companies.

Try an apples-to-apples comparison of your existing policy to others to find the best deal, and if you like your quote, buy the policy right then and there.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

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 .

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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Put simply, income is the amount you earn whereas net worth is the total value of your assets minus any debt. When it comes to measuring your financial health, income isn’t the metric that matters. Sure, you want to know whether your income will help you reach your goals, but looking at your net worth is a better measure of your overall wealth.

That being said, it’s important to understand how both play into your finances, so let’s take a look at net worth vs income and how they factor into your financial health.

Income vs Net Worth: Two Measurements of Wealth

Both income and net worth can help measure the chances of someone creating wealth. However, the difference is that income is the primary way someone generates wealth, whereas net worth measures your level of wealth. To put it another way, income is how you make money, but it doesn’t necessarily lead to creating wealth.

Instead, looking at your net worth allows you to see the value of all your assets and liabilities at a specific point in time. It gives you a sense of your financial health in terms of whether you own more assets — such as your home, investments and cash — than liabilities (any money you owe, like credit card debt). Your net worth also allows you to see how much of your wealth is held in assets or cash. And it offers a reference point to help you measure your progress toward your financial goals.

Recommended: Should I Sell My House Now or Wait?

Is Net Worth More Important Than Income?

While income is a key aspect of your finances, net worth typically is more important. That’s because even if you have a large income, it doesn’t guarantee that you’ll generate more wealth than someone else who may have a slightly lower one. Sure, having a larger income can help you build wealth faster, but it’s all in how you handle your finances, such as the amount of money you save.

Let’s say your friend makes $100,000 per year but has a lot of debt, leading their net worth to be $15,000. On the other hand, you make $70,000 but have invested over 10 years, to the point where your net worth is $100,000. You have more wealth, and therefore, are more likely to be financially stable than your friend.

Another instance where income doesn’t correlate with wealth is when someone is older and getting ready to retire. Their income may be lower because they’re working part-time, but their wealth could be in the millions because they’ve worked for many years.

All this to say, income is important but only as important as how you use it to reach your financial goals.

How to Calculate Income

Calculating your income doesn’t simply mean looking at the number on your paycheck. You’ll also want to factor in other sources of income, such as any government benefits, commissions, tips and dividends. Don’t forget to include irregular or occasional income sources like cash gifts, inheritances and even tax refunds.

Make sure that when you add these up, it’s your net income and not gross income, as that will give you a more accurate picture of what you’re bringing in. Gross income is pre-tax money and before deductions are taken out. Net income, on the other hand, is income that has taxes and deductions taken out.

Example of Calculating Income

Let’s say you have a day job that offers bonuses and commissions. You also invest in securities that provide dividends.

Here’s how you would calculate your income:

•   Annual net salary: $64,350

•   Annual commissions: $3,500

•   Annual bonus: $2,000

•   Annual dividends: $3,234

TOTAL INCOME: $73,084

You can then use this total to calculate monthly and weekly income — in this case, it’s $6,090.33 per month and $1,405.46 per week.

How to Calculate Net Worth

Calculating your net worth involves creating a net worth statement so you can see a snapshot of your assets and liabilities.

Start by looking at your assets and determining the total amount of all accounts under this category. Assets are items that have some sort of monetary value. These include:

•   Checking accounts

•   Savings Accounts

•   Your home

•   Real estate

•   Retirement fund

•   Personal property (such as your vehicle)

•   Pension equity

•   Securities (like stocks and bonds)

•   Life insurance policy

•   Profit-sharing equity

Once you’ve calculated all of your assets, you’ll need to calculate the total amount of your liabilities. Liabilities are any debts or financial obligations you have, including:

•   Mortgage

•   Credit card balance

•   Personal loans

•   Auto loans

•   Student loans

•   Unpaid medical and dental bills

•   Home equity loans

•   Money you owe to family and friends

•   Unpaid taxes

After totaling up your assets and liabilities, subtract the latter from the former. This number will be your net worth. If your liabilities are greater than your assets, you’ll have a negative net worth. The more assets you have than liabilities, the higher your net worth will be.

Example of Calculating Net Worth

As an example, let’s say that Barbara decided to calculate her net worth. First, she’d list out her assets and liabilities:

Once she’d written that all out, she would be able to calculate her net worth using the following formula:

Total assets – total liabilities = net worth

$444,589 – $284,234 = $160,355

Barbara has a positive net worth of $160,355.

Ways to Improve Your Net Worth

Ideally, you’ll have a positive net worth that keeps growing over time. Here are several ways to improve your net worth.

1. Keep Track of Your Assets and Debt

Tracking your assets and debt will give you an accurate picture of where you stand. That way, you’ll be able to see your progress and what you need to improve or keep doing to grow your net worth. For instance, if you notice that your debt keeps growing, you can use this information to help you figure out why and take steps to rectify the situation.

2. Pay Off Debt

The fewer liabilities you have, the more your net worth will grow. To improve your net worth, you can focus on making sure you’re making on-time payments and avoid taking out new loans if possible. If your budget allows, consider making extra payments toward loans to pay off your debt faster. Some loans, like mortgages, may have prepayment penalties, so check with your lender before sending that extra check.

3. Increase Your Income

Getting a higher salary will help you build wealth by paying off debt or putting money toward investment accounts. Ideally, you want to increase your income and pay off your debts as soon as you can. To increase income, you can consider negotiating for more in your current job, looking for a new one, or starting a side hustle to help you make more.

4. Invest

Sticking your cash in a savings or checking account can only get you so far. To accelerate your wealth-building journey, you’ll need to invest some of your money.

Start investing by contributing to your employer-sponsored account (bonus if they offer a match), and then branch out to other products as you see fit.

The Takeaway

Your net worth is a snapshot of your finances at a specific point in time and will fluctuate. It’s a good measure to see whether you’re on track with your financial goals. The more you track your assets and liabilities, increase your income, and decrease your debt, the more your net worth will grow.

A money tracker tool like SoFi’s can make it easy to keep track of all of this, with a bird’s-eye view of your account balances and tools to track your spending.

Photo credit: iStock/GOCMEN

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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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Unpaid student loans can put a heavy yoke on personal finances. For millions of Americans, outstanding student debt means years and years of ongoing payments (averaging hundreds of dollars per month).

It can be hard to balance paying back what’s owed on student loans while meeting immediate expenses (like, paying rent) or pursuing long-term financial goals (like, saving up for a mortgage down payment).

But, the impact of student loan debt on the economy goes deeper than dinging individuals’ wallets, affecting entire job sectors.

Student loans now account for almost 40% of outstanding consumer debt in the U.S., outpacing the amounts owed on motor vehicle loans, for example, by more than $355 billion.

For a wide-angle view of student loan debt and the economy, it’s useful to know just how much money is owed by borrowers across the U.S. on educational debt. In 2023, the cumulative total of student loan debt in the U.S. surpassed $1.7 trillion, according to data from the Federal Reserve.

Understanding How Many Americans Have Student Loans

This educational debt load affects tens of millions of Americans. More than 43 million borrowers have federal student loan debt, with the average balance per individual being $37,338. To obtain a bachelor’s degree, the average student borrower takes out more than $31,000 in student loans.

For those with master’s degrees, student loan debt is even higher. The average master’s degree holder’s student loan debt is $83,651, which is 141% higher than the average student debt balance.

Given these massive numbers, it becomes clearer how the U.S. college student loan debt crisis and the economy are enmeshed in a tangled tango.

Reviewing Effects of Student Loan Debt on the Economy

If the total amount of student loan debt held by Americans sounds staggering, it’s because it is. That total — $1.757 trillion — is more than the GDP of countries such as Australia, Spain, and Mexico.

And, it’s more than double that of Saudi Arabia and Switzerland. It even outpaces the global box office totals of the 20-highest grossing films in history — a list that includes blockbusters like, Avengers: Endgame, Avatar, and Titanic — by more than 50 times!

With these numbers in mind, let’s dive deeper into the drag that this massive amount of educational debt continues to have on the U.S. economy.

Does Student Loan Debt Hamper Spending?

For the average individual paying off a student loan, typical payments amount to $200 to $299 each month. For many — especially those embarking on a career and earning an entry-level salary — this ongoing financial obligation can put a deleterious dent in funds they could otherwise spend elsewhere.

Student loan repayments can place a very real squeeze on the money that individuals have available each month for buying, investing, saving, or starting a business.

More money spent paying back student loans, in practice, means less money in pocket or saved. Consumer-driven economies grow when people (aka consumers) spend their hard-earned money. So, millions of people redirecting income towards loan payments can significantly slow or stifle economic growth. If someone is struggling to pay off their student loans, they’ll have less money to spend on purchases that help fuel the economy, businesses, and the workforce. The more young people there are who struggle to pay off loans, the greater this economic dampening effect that occurs.

During periods that require economic resilience, such as in a recession, reduced spending can be especially nefarious.

Consumer spending can help to stimulate a floundering economy, mitigating or reversing sudden downturns in specific sectors.

When that spending doesn’t happen during a downturn, it can take longer for the economy as a whole to bounce back.

For those with student debt, it can also be harder to weather a financial crisis, compounding the pain of higher unemployment and lower spending.

How Do Student Loans Affect the Housing Market?

With less money to spend, it’s no surprise that people with student loans have fewer funds for big ticket items, such as buying a home or saving for retirement.

And, since home ownership is a major driver of wealth accumulation, delaying when one buys a home can impact an individual’s net worth for decades to come.

How Do Student Loans Stifle Entrepreneurship?

Small businesses contribute to the economy in major ways. In fact, they’re responsible for 1.5 million jobs annually and generate 44% of economic activity in the U.S.

Future business owners may not be able to turn toward traditional means of financing, such as small business loans, when saddled with student loan debt. It can be harder to get approved for financing when your debt-to-income ratio is high due to loans.

And, when an individual with student debt does become an entrepreneur, they’re at risk of falling behind on student loan payments if their incoming income decreases.

Paying Off Student Loans Can Benefit Individuals and the Economy

When examining student loan debt and the economy, it may be helpful for borrowers to research additional ways to pay off existing student loans — both for their own financial well-being and the future growth of the U.S. economy on a whole.

Here are some strategies that could help those with outstanding student debt to pay down their educational loans faster.

Paying More than the Minimum Due

Student loans are generally subject to interest. Interest is a percentage charged by the lender on what’s been borrowed. Practically speaking, student loan interest accrues over time. So, borrowers who are unable to pay off their loan balances quickly typically end up spending more in interest over the entire life of the loan.

In most cases, the longer student loan debt goes unpaid, the more the borrower will owe, as unpaid interest gets added to the base dollar amount that had been borrowed from the lender. This is called compounding, and most student loans compound their interest daily. This can get confusing quickly, so here’s a student loan calculator so you can see exactly how much you’re spending on interest over the life of the loan.

Many lenders allow borrowers the option to submit a “minimum payment.” In the short term, paying a lower amount per month can free up some income or cash. But, paying the minimum does little or nothing to tackle the outstanding loan balance — typically, the borrower is just paying the accruing interest.

Paying more than the minimum can help reduce the length of time it will take to pay off an existing student loan — shrinking the principal balance as well as the amount of interest paid (aka total money spent) during the life of the loan.

While increasing monthly payments may not be manageable for every individual, paying a little extra when the opportunity presents itself can still help borrowers to eliminate student debt faster.

If nothing else, borrowers may want to apply a share of occasional windfalls, such as a work bonus or tax refund, towards outstanding student debt.

Applying for Loan Forgiveness

Under some circumstances, the government will even forgive federal student loans, essentially canceling out the remaining debt. Some teachers and public servants are among the groups that may be eligible for federal student loan forgiveness programs.

It’s worth noting that this Public Service Loan Forgiveness (PSLF) program is not available to all workers (including some in the public sector) and applies only to federal, not privately held, student loans.

Refinancing Student Loans

Refinancing a student loan with a private lender may result in lower interest rates and/or the ability to pay off what’s owed in a shorter amount of time for well-qualified borrowers.

Student loan refinancing replaces an outstanding educational debt (e.g., a student loan or loans) with a new loan. As such, the new loan can have different terms and interest rates.

For some student loan holders, refinancing allows them to reduce their monthly payments or the total interest paid over the life of the loan.

It’s worth remembering, though, that refinancing federal student loans with a private lender means that the borrower will forfeit federal benefits, such as access to income-driven repayment plans or public service forgiveness programs.

Paying Off Student Loans Faster

Student loans have the potential to keep taking a big bite out of the economy. But, unpaid educational debts undoubtedly hurt the borrower even more, creating accruing interest and loan balances that can take years and years to pay off.

Refinancing educational debt with SoFi could potentially save borrowers money. SoFi’s loan refinancing comes with no application fee, a quick and easy online application, and competitive rates.

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.

If advice for paying off student loans were as simple as “Just keep paying those monthly payments,” over 43 million borrowers would have no concerns about wiping away more than $1.7 trillion in student loan debt.

But of course, many do stress about it and wonder how they can pay off their college loans. It’s best to first figure out exactly what you owe and what your interest rates are. From there, you can come up with a game plan to get your student loan debt under control.

Tips to Pay off College Loans

1. Set a Budget

Rather than feeling helpless, it’s better to remember that the path to paying off college loans is, at its core, about making a budget and sticking with it.

It’s best to resist the urge to momentarily feel better through retail therapy. If you do happen to slip up with spending or are caught unprepared for a bill, though, realize that living within your means is a challenge for many adults and learning from your mistakes is better than fixating on them.

The important thing is to create a budget you can actually follow. Give yourself enough flexibility that you’ll be able to stick to your goals and spend your money on what you really want to spend it on.

Recommended: Budgeting and Spending App to Get Your Finances Under Control

2. Pay More than the Minimum

There’s more to paying off college loans than paying the lowest amount required every month. A big reason to pay more than the minimum each month is that student loan repayment is structured around amortization, which is where a portion of your fixed monthly payment goes to the costs associated with interest and another portion goes to reducing your loan balance.

With amortization loans, you typically pay more in interest than principal at the beginning and the ratio gradually reverses as you keep paying your loan. Paying more than the minimum monthly payment means you can accelerate the reduction of the total amount you owe rather than covering the interest.

One plan of attack is to consider signing up for automatic payments. You can customize the payment amount to be withdrawn on its own, and there can be a discount for doing so. If you have a Direct Loan, you can get an interest rate reduction for participating in automatic debits. (As a side note, many federal and private student loan servicers offer a discount for enrolling in autopay, so it can’t hurt to ask and get that discount, if it’s available to you.)

One final tip: Try to get in touch with your lender before you make additional payments so you can verify that your extra cash is going toward paying down the loan principal.

3. Refinance Your Student Loans

If it ever reaches a point where making real progress on repaying your loans feels nearly impossible, and income-driven repayment and forgiveness options either don’t apply or aren’t the right fit, then refinancing with a private lender might be a good option.

When you refinance federal and/or private student loans, you’re given a new — ideally, better — interest rate on a single new private loan. A lower rate translates to total interest savings over the life of the loan. Further, you may be able to lower your monthly payments with a longer term or pay your loan off faster (with higher monthly payments) if you decide to shorten your repayment term.

Recommended: Student Loan Refinancing Calculator

Don’t forget: Refinancing federal student loans with a private lender means you’re no longer eligible for federal repayment programs, forbearance, loan forgiveness programs, and other protections and benefits extended to federal student loan borrowers.

4. Apply for Forbearance or Deferment

If you’re struggling with your loan payments, it might be time to grit down, pick up the phone, and call the loan servicer. Quite a few banks and lenders have forbearance and deferment programs, although they are mostly dependent on the customer reaching out and asking for help.

Federal student loans also offer student loan forbearance and deferment options. Forbearance can allow for decreased or delayed payments for a specific period of time, often up to 12 months.

Some lenders may offer to reduce the interest rate being charged on the debt, but there are no federal guidelines for terms for forbearance agreements across all industries (with the exception of federal student loans).

On the surface, this sounds positive, but be forewarned that these options can significantly affect credit history and credit scores. The effects on credit depend on the type of loan and the lender, and whether forbearance or other payment or rate adjustments are available or chosen.

Here’s to Stability

You’ve paid down whatever you’ve managed so far on your college loans, so what are your plans now? Are you happy with your current interest rates? Do you like your lender and/or servicer?

As you get more established with a financial track record and the start of a career, know that refinancing or consolidating can help either pay things down more quickly or help secure terms that fit where you are in life right now — and where you’d like to be in the near future.

If you’re thinking about refinancing, consider SoFi. SoFi offers a fast, easy online application, competitive rates, and no origination fees.

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.

Whether you’ve been turned down for a private student loan or you’re applying for the first time, it’s important to understand how a cosigner can impact your loan application.

Having a cosigner on a student loan is a bit like a letter of recommendation to get into college. A cosigner can reassure the bank or lender that you are capable of repaying the loan. A cosigner is not always required for student loans, such as with most federal student loans. Depending on a student’s financial history, employment, and what type of loans they’re applying for, the likelihood of requiring a cosigner will vary.

Read on to learn more about what a cosigner is and when it may make sense to add one to your student loan application. This article will also discuss some of the risks involved with being a cosigner, and some tips on how to ask someone to be a cosigner on a student loan.

What Is a Student Loan Cosigner?

A cosigner is a person who agrees to repay the loan if a borrower defaults or is otherwise unable to pay their debt. Adding a cosigner to a student loan application could help the primary borrower secure a lower interest rate, depending on the cosigner’s financial and credit history.

When a cosigner takes on a student loan with the borrower, they’re assuming equal responsibility to repay the loan. Any negative actions on the loan, such as a late payment or defaulting, could harm the cosigner’s credit.

How to Decide If You Need a Cosigner on a Private Student Loan

Before deciding whether you need a cosigner on a private student loan, you’ll want to fill out the Free Application for Federal Student Aid (FAFSA®). This will determine how much aid you’ll receive, and help you and your family determine how much of a gap you’ll need to fill with other sources of funding.

Once all other options are exhausted, students could look into private student loans and consider a cosigner. When considering a cosigner, there are several factors to evaluate, including the type of loan you’ll be applying for, your credit history, credit score, income, and any history of missed payments. Continue reading for a more in-depth discussion of these factors.

1. What Type of Student Loans Are Being Considered?

The type of loans you’re applying for may affect your need for a cosigner.

Federal Student Loans

For the most part, federal loans do not require a credit check or a cosigner. The federal loan types that do not require a cosigner include:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct Consolidation Loans

The exception is a Direct PLUS Loan, which does require a credit check. Borrowers interested in a Direct PLUS Loan may need an “endorser” for the same reasons they may need a cosigner for a private student loan: if their credit history and other financial factors are lacking.

A Direct PLUS Loan can help graduate students and parents of undergraduate students pay for the entire cost of school attendance, minus any other financial aid. Direct PLUS Loans are the only federal student loans that look at an applicant’s credit history, thus the potential need for an endorser.

An endorser is the equivalent of a cosigner — they agree to repay the Direct PLUS Loan if the borrower defaults or is delinquent on payments.

Private Student Loans

If an applicant doesn’t meet the lending requirements on their own, they might need a cosigner to obtain any private student loan. To qualify for a private student loan, you typically have to check more boxes regarding financial history than you would for a federal student loan.

According to a report by MeasureOne, 92% of private undergraduate student loans and nearly 66% of private graduate student loans originated in the 2021-2022 school year had a cosigner. Based on this, it is more likely than not that a student will add a cosigner on their private student loan application.

Both Federal and Private Student Loans

Once a student has a full understanding of the financial aid they qualify for after submitting their FAFSA, they can determine if federal student loans and other federal aid like scholarships and grants will cover the cost of their education or if they need to supplement the amount with a private student loan. While the borrower might not need a cosigner for federal loans, they might require one for private student loans they might take out.

2. Are You an Undergraduate or Graduate Student?

The necessity of a cosigner may vary depending on whether a person is applying for graduate or undergraduate private student loans.

Undergraduate Student

Undergraduates are generally more likely to need a cosigner on their private student loans. That’s because undergraduates typically haven’t established a lengthy credit history. Without an established credit history, there is no track record for lenders to evaluate. In addition, undergrads might not have a steady income, which can also affect whether they are approved for a loan without a cosigner.

Graduate Student

The type of schooling a person is pursuing won’t have an impact on the need for a cosigner. However, a person’s credit history and income will still factor into the decision.

3. How Does Your Credit Score Factor into the Decision?

Most private lenders will look at an applicant’s credit score (among other factors) to determine eligibility. Having a lower credit score may make it more challenging to get a loan without a cosigner.

FICO® Scores (the most common credit scores used by lenders and financial institutions) range between 300 and 850. If a person wants to check their score, many websites offer free credit scores or credit score monitoring (just be sure to read terms and conditions carefully).

It’s possible to get a free credit report annually from AnnualCreditReport.com. It is important to note that this is not the only site where someone can request a free credit report. For example, they can get their credit report directly through the credit bureaus or on other online sites.

Ultimately, it’s up to each individual lender to consider the credit score and other financial factors before approving a loan, and every lender has different criteria.

4. How Long Is Your Credit History?

A person’s credit history gives lenders a sense of their ability to pay on time, or ability to pay off debt in full. The length of a person’s credit history makes up about 15% of their FICO® Score.

Length of credit history is determined by Average Age of Accounts (AAoA). Lenders take the lifespan of a person’s accounts and divide by the number of accounts that person holds. A potential borrower can determine this number by figuring out how long they’ve had each account in their credit history, then dividing by the number of accounts.

The real sweet spot for credit history comes at the seven-year mark. From that point, early negative marks on accounts might have faded away. It shows lenders that a borrower can pay loans and maintain accounts over time.

There are a number of factors at play in lending decisions, but a short credit history could mean that adding a cosigner is beneficial.

5. What Is Your Employment Status?

Lenders want to be sure that you can repay your debts, so they’ll generally also evaluate an applicant’s income.

Employed Full-Time

Generally, if a person is employed full time at a salaried job, it shows lenders they have the capability to repay the loan they’re borrowing. Lending requirements vary based on the lender, but having an established income history may help an applicant avoid needing a cosigner.

Employed Part-Time

While part-time employment can still be beneficial for a loan application, it’s possible that a cosigner might help boost the application. The applicant’s debt-to-income ratio will come into play — that is, how much debt a person owes (credit cards, rent, other bills) divided by the income they earn before taxes and other deductions.

Of course, all lender requirements vary, but significant, consistent income can factor into whether the applicant will still need a cosigner.

Only a Student (Not Employed)

If an applicant is not employed, lenders may be more inclined to approve a loan if there’s a cosigner who is able to show stable income.

6. Have You Ever Declared Bankruptcy?

Lenders can and do consider all aspects of a person’s financial history before granting a loan, bankruptcy included. Declaring bankruptcy negatively affects a person’s credit score, which private lenders pay close attention to with a loan application. A bankruptcy filing can stay on a person’s credit history for a decade.

Bankruptcy filings can affect a credit score in a number of ways, and depending on how long ago it took place, the effects on a person’s score will vary.

7. Have You Defaulted on a Loan?

The terms of each loan are different, but after a period of nonpayment, the loan enters default. Defaulting on a loan stays with a person’s credit history for at least seven years and typically negatively affects their credit score.

If a person has defaulted on a previous loan, they’ll likely need a cosigner on their student loan to potentially bolster their lend-ability.

8. Have You Ever Missed a Payment?

On-time payments each month can help show lenders that a person is a responsible borrower. Missing payments or consistently making late payments can have a negative impact on a person’s credit score. Payment history accounts for approximately 35% of an individual’s FICO® Score.

Consistently missing payments that have affected a person’s FICO® Score might cause a potential lender to require a cosigner. It could also cause concern for a potential cosigner, so students might want to keep that in mind.

A solid history of on-time payments shows a lender that a person is a responsible candidate for a loan and might not need a cosigner.

Choosing a Cosigner

As stated near the beginning of this post, the majority of private student loan borrowers have a cosigner. But not all cosigners are built the same, and choosing the right person to cosign a loan could be as important as the terms of the loan itself.

A cosigner should not only have a strong financial history, but also a strong relationship with the applicant. A cosigner might be a parent or blood relation, but they don’t have to be. A cosigner ideally has a stable financial history and a relationship to the applicant where they feel comfortable discussing money.

Asking Someone to Be a Cosigner

There’s a common misconception that cosigning on a loan is as easy as signing a contract, but it actually means more than that. When a person asks someone to be their cosigner, they shouldn’t shy away from discussing the challenging topic.

It may make sense to talk about worst-case scenarios with a cosigner, and make it clear it would be their responsibility to take on the payments if you default. Discuss how you could repay the cosigner in the event that you can’t make payments.

Risks of Cosigning

Beyond the worst-case-scenario discussion, cosigners should know the additional risks they take on when cosigning a student loan:

•   Credit score. Cosigning a loan will affect a person’s credit score, since they’re taking on the debt as well. Even if the borrower makes on-time payments and doesn’t default, the cosigner will see a change in their credit score by taking on the additional debt. It could potentially benefit their score.

•   Liability. If the borrower defaults on the loan, it becomes the cosigner’s responsibility to pay for it. A lender can come to collect from the cosigner, seizing assets and garnishing paychecks to cover missed payments.

However, the cosigner doesn’t need to stay tied to the loan forever. Private student loans may have a cosigner release policy in place. After a duration of on-time payments and additional paperwork, a lender may release the cosigner from the loan, leaving the borrower on their own.

It might sound easy, but a cosigner release isn’t a guarantee and not all private loans will offer this option. Read the terms of your loan carefully to understand the requirements for cosigner release.

The Takeaway

Like every college application, each loan application is a little different. Certain aspects of a person’s credit history or employment might make them more compelling to a lender. Other elements, like late payments or a limited credit history, might make a person less compelling to lend to.

Adding a cosigner to a private student loan is common and can improve your chance of approval, sometimes even with a lower interest rate than if you applied on your own.

If a student has exhausted all of their federal student loan options, private student loans could be an option worth considering.

SoFi offers private student loans with no origination fees, no late fees, and no insufficient fund fees. Plus, SoFi offers flexible repayment options to help students find the loan that fits their budget.

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