SoFi

When a borrower stops making payments on student loans for a period of time, they could end up in default. And in some cases, lenders may send defaulted loans onto collections.

If your student loans end up in collections, it can have some bad financial consequences. Your credit score may be damaged, and sometimes your wages may be garnished. While it can be very stressful, there are steps you can take to fix the problem.

Before we dive in, it’s important for you to know this is an incredibly complex topic. We’re going to try to break it down the best we can, but full disclosure: The information we’re sharing here is general in nature and does not take into account your specific objectives, financial situation, and needs; it should not be considered advice. SoFi recommends you speak to a professional about your unique situation so you can make sure you make the right decision for your circumstances.

How Student Loans End up in Collections

Student loans don’t go away until you’ve paid them off. If you haven’t been paying off your student loans, your debt can go into default, because you are failing to fulfill your contractual obligation to repay your loan.

Americans owe more than $1.7 trillion in student loan debt as of the second quarter of 2023. When you consider that the average federal student loan debt for the class of 2023 was over $37,574, it’s no surprise that some have trouble keeping up with it. In fact, an average of 7% of student loans are in default at any given time.

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

Delinquent Federal Student Loans

The first day after missing a payment on a federal student loan, the loan becomes delinquent. The loan will remain delinquent until the overdue balance is paid, or the borrower makes alternate arrangements such as applying for deferment or forbearance or switching their payment plan.

After 90 days of missing payments for federal student loans, the loan servicer will report the late payments to credit bureaus, which could negatively impact the borrower’s credit score.

Recommended: Defaulting on Student Loans: What You Should Know

Federal Student Loans in Default

For federal loans, you typically go into default after you haven’t paid your loan bill for nine months or 270 days.
When in default, the entire balance of the loan comes due. But just because a loan is in default, doesn’t mean it automatically goes to a collections agency.

At this point, you may have the opportunity to make arrangements with your loan servicer. For example, your lender may help you tailor solutions that lower your monthly bill to make payments more manageable for you.

However, if you don’t come to an agreement, your lender can send your debt to a collections agency that will collect it for them.

No federal loans went into default during the Covid-19 student loan pause. That’s changing as of September 2023, but thanks to the one-time Fresh Start program, borrowers who have defaulted loans can take steps to have their default status removed from their credit reports and restart payments with no penalties.

Private Student Loans in Default

The timeframe may vary for private loans depending on the terms and conditions of the loan. Generally speaking, private student loans may go into default after 90 days ​of missed payments. You should read your loan agreement for more information on when your loan provider will send your defaulted loans to collections.

What Does It Mean to Have a Loan Sent to Collection?

Once your debt is sent to a collections agency, that agency will do everything they can to get you to pay. Unfortunately, on top of collecting the debt, collections agencies typically charge fees, for which you’ll also be responsible.

Once your debt is in collections, the collections agency might try to work out a repayment plan with you as a first step. If you continue to not pay, the agency can then take actions to recoup the money, such as trying to garnish your wages.

Garnishment means the agency can take a certain amount from each paycheck and apply it toward your debt — in the case of federal student loans, it’s not more than 15%. For federal student loans, lenders are not required to take the borrower to court before garnishing wages.

Private student loans function differently. They are not subject to the same special regulation as federal student loans. Private lenders interested in garnishing wages must follow garnishment rules laid out for private debt. In this case, the lender is required to take the borrower to court and obtain a judgment in their favor before any wages can be garnished.

Recommended: What Happens If You Just Stop Paying Your Student Loans

What Happens When Your Loans Go into Default and Collections?

Some other not-so-great things can happen when your loans go into default and collections.

First, if you have defaulted on federal student loans, you may lose access to various federal loan repayment plans and forbearance or deferment on federal loans. These programs are important tools designed to make it easier for you to pay off your loans. Loan forgiveness is offered to those who have jobs in certain government, healthcare, and nonprofit sectors. Forbearance allows you to temporarily stop making student loan payments or reduce the amount you pay each month.

Your credit score may take a hit as well. With both private and federal student loans, the lender or the collections agency will report the late payments to the three major credit bureaus, and that might then lower your credit score.

A low credit score might cost you down the line, making it difficult to secure future loans at reasonable interest rates, should you want to buy a house or a car, for example. It may even mean you won’t qualify for a loan at all. Avoiding default might help you maintain these important financial tools.

Recommended: Student Loan Deferment vs Forbearance: What’s The Difference?

How to Get Your Loans Out of Default

The best thing you can do to avoid your student loans going into default and being sent collections is to pay your bills on time. And if you think you’re going to miss a payment, reach out to your loan provider to see if they’ll offer support.

But if you’ve defaulted, there may still be options for you to recover.

Options for Federal Student Loans

If you have federal student loans, you can try to rehabilitate your student loan in collections. Here’s how the program works: After you’ve made three consecutive on-time, voluntary, full payments on a defaulted federal loan, you can consolidate your federal loans.

The new direct loan pays off the old loans in full and consolidates them. Once you have made nine out of 10 consecutive, voluntary, on-time payments to this new loan, the loan may be rehabilitated and the default may be removed from your record. With a Direct Consolidation Loan, your eligible federal loans will be combined into one loan with a fixed interest rate — and the new rate will be the weighted average of the rates on the loans being consolidated (rounded up to the nearest one-eighth of 1%).

Options for Private Student Loans

When it comes to private student loans, private lenders may or may not offer borrowers the opportunity to rehabilitate their loans. You should contact your lender and ask what you can do to get your loan out of default. Sometimes borrowers who have rehabilitated a private student loan may ask to have the default removed from their credit report, but there is no guarantee that it will be removed.

In some circumstances, the statute of limitations on debt may be a consideration for private student loan debt. This is a legal time frame in which a creditor is allowed to collect on the debt, and it is determined by state law. In the case that the statute of limitations on private student loan debt has been met, entering into a rehabilitation plan may restart the limitations period.

Additionally, it’s important to note that some lenders may charge off private student loans that are delinquent for 120 days, or a set period of time, which may vary from lender to lender. When a lender charges off a loan, it means they have written off the loan as a loss and close the account. They typically sell your loan to a debt buyer or collections agency. But you are still legally obligated to pay off the loan. If the debt is charged off, the lender may not be willing to work with the borrower.

What to Do If Your Student Loan Goes to Collections

If you do find yourself in the unfortunate situation of having debt in collections, there might be steps you can take.

First, you could talk to your collections agency. It might seem scary, and it may be tempting to ignore their calls and letters, but doing so isn’t going to make them stop. Remember: Collections agencies want you to pay. It’s in their best interest for you to ultimately pay back your loan. In many ways, this is a situation in which the ball is in your court.

When you talk to them, the collections agency might offer payment options tailored to your individual circumstances, depending on if you’re employed and how much money you earn.

They might offer solutions such as allowing you to pay a discounted lump sum, or they might set up a manageable monthly payment plan if you don’t have a lot of income.

Having your loans in default or collections might have serious effects on your credit and your financial stability. If you’re afraid of defaulting on your loans, or if you already have, consider taking action as fast as you can. Taking control of the situation could help keep it from getting worse.


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

The Takeaway

In an ideal world, the best way to avoid going into student loan default is to make payments on time and in full. But if you have competing financial priorities, it may be difficult for you to pay your loans on time.

If your student loans end up in collections, it may damage your credit score, and with federal loans, your wages may be garnished. But there are steps you can take to rehabilitate your defaulted loans, depending on whether you have private or federal 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.

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 .

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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.

SOIS0823052

Tuition-free college sounds like a fantasy. But at some colleges and universities, it is possible for students to qualify to attend without paying tuition costs.

Not all colleges offer free tuition, and some may require students who are receiving free tuition to maintain certain academic standards or meet other requirements. Other colleges may offer a reduced-tuition option for eligible students.

When considering that attending a four-year college can cost tens of thousands of dollars, the appeal of free tuition is obvious. Read on for more details about how free-tuition programs work and an overview of colleges that offer free or reduced tuition.

What Is Tuition-Free?

Yes, it’s true: There is a limited number of schools that offer free college tuition to students. There are also schools that offer free tuition if your parents earn less than a certain amount of money per year.

Keep in mind that offers of free college tuition often may not include other costs like books, fees, transportation, or room and board. Researching the total cost of education at your chosen institution will give you a complete picture of your financial obligation.

Still, tuition is, generally speaking, a huge cost — so not having to pay it could mean huge savings.

Why We Need Tuition-Free College

The answer to this question is probably pretty obvious: For many families, college is prohibitively expensive. Parents who want to foot the bill for their kids may feel stressed and guilty when they find they can’t afford the cost of college out of pocket, and students themselves may feel the repercussions of the exorbitant cost of school for decades.

Still, there are both pros and cons to consider when deciding whether a tuition-free university is right for you. Here are some things to consider.


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

The Pros of Free College Tuition

The first pro is the most obvious: You could save a lot of money. Maybe you had planned on taking out student loans to pay for school. Think of the financial freedom you could enjoy if you didn’t have to spend years paying off student loans after graduation.

Second, free tuition can help make college more accessible for low-income students. If your family can’t financially contribute to your education, and you aren’t willing or able to accumulate educational loan debt, free tuition programs can make college a possibility.

The Cons of Free College Tuition

Few colleges offer free tuition to all students, which means your options for schools may be more limited. Some tuition-free programs are competitive. A few of these programs are connected with the U.S. Military and require students to serve after graduation. A lot of the tuition-free colleges are small, private schools, and many are religion-based. You may want to consider whether these are environments you would enjoy for four years.

Because there are so few schools offering free tuition, attending school may require you to move further away from home. Depending on the student, this could be a pro or con.

Some schools have certain requirements for those who attend and/or receive free tuition, such as participating in a work-study program, maintaining a certain GPA, or living on campus.

Before you apply to a tuition-free program, you’ll want to consider all the pros and cons to decide if the program is right for you.

Recommended: What is the Average Cost of College Tuition?

Schools That Offer Free College Tuition to All Students

Here are 31 tuition-free colleges in the U.S.: 15 offer free tuition for all students, and 16 offer free tuition to students from low-income families.

Service Academies

The United States Air Force Academy (Colorado)

The Air Force Academy provides free tuition, room, board, and medical and dental benefits. Students must serve as an officer in the Air Force for at least eight years, and at least five of those years must be in active duty.

The United States Coast Guard Academy (New London, Connecticut)

The Coast Guard Academy offers students free tuition, room, and board. Students must serve as a Coast Guard officer for at least five years after graduation.

The United States Merchant Marine Academy (Nassau County, New York)

Midshipmen receive free tuition, uniforms, books, room, and board. Basic medical and dental care are also provided by the Academy’s Office of Health Services. However, any healthcare expenses that exceed the provided health plan will need to be covered. Students are also responsible for transportation during leave periods. The Academy recommends applying for student loans if you need help with these expenses. Service obligations after graduation may vary between five and eight years.

The United States Military Academy at West Point (West Point, New York)

Tuition, room, board, and medical and dental insurance are free for West Point students, and they also receive a monthly stipend. Incoming Plebes, as new students are called, have to pay a one-time fee of $8,400 to cover uniforms, books, and other equipment. Graduates are commissioned as Second Lieutenants in the Army. You must serve a minimum of eight years, though that obligation is a combination of Active Duty and Reserve.

The United States Naval Academy (Annapolis, Maryland)

The Navy covers students’ tuition, room, board, and medical and dental costs. In return, they must serve in active duty for at least five years after graduation.

Four-Year Schools

Alice Lloyd College (Pippa Passes, Kentucky)

This liberal arts college provides free tuition to residents of Central Appalachia , which spans five states including Kentucky, Ohio, Tennessee, Virginia, and West Virginia. Students are required to participate in the Student Work Program , which involves at least 10 hours per week and 160 hours per semester. They must cover expenses other than tuition.

Barclay College (Haviland, Kansas)

This Christian school provides a scholarship equal to the amount of tuition to students who live on campus. Students must cover the cost of room, board, or other fees.

Berea College (Berea, Kentucky)

Berea is a liberal arts school that provides free tuition to all students. In order to qualify, students must come from families with limited resources. The average annual family income of Berea students is less than $32,000. Students, however, pay some costs , including room, board, health and dental care, which add up to about $4,000 per semester. Almost all Berea students (96%) receive Pell Grants to cover those costs.

College of the Ozarks (Point Lookout, Missouri)

This Christian liberal arts college provides free tuition for full-time students, provided they participate in the work-study program, which involves 15 hours per week and two 40-hour workweeks per year. Room, board, fees, or books are not included.

Curtis Institute of Music (Philadelphia, Pennsylvania)

The conservatory provides free tuition to undergraduate and graduate students through merit-based scholarships. If students need financial assistance for other fees and living expenses, they can participate in the work-study program.

Macaulay Honors College at The City University of New York (New York City, New York)

The highly selective honors college is part of the City University of New York. It provides free tuition to New York state residents who are admitted to the program. Students must maintain a certain GPA during their time at Macaulay, and they are responsible for additional fees including covering room and board.

Warren Wilson College (Swannanoa, North Carolina)

Warren Wilson is a small, private liberal arts college in North Carolina. Students who qualify for federal and/or North Carolina state-based aid receive free tuition. You must be a North Carolina resident, enroll as a full-time student, live on campus, and participate in the work-study program. If you don’t qualify for free tuition at Warren Wilson, the school is known for providing generous scholarships.

Webb Institute (Glen Cove, New York)

This engineering college provides free tuition to all students and financial aid opportunities to cover additional fees. The school offers only one undergraduate degree: a dual Bachelor of Science in Naval Architecture and Marine Engineering.

Junior Colleges

Deep Springs College (Deep Springs, California)

This unique two-year college is located on a remote cattle ranch in California. Only 12 to 15 students are admitted each year, and tuition, room, and board are free. Students can apply for additional scholarships if they need help covering other expenses.

Williamson College of the Trades (Media, Pennsylvania)

This men’s vocational college teaches trades such as carpentry, power plant technology, and masonry. Each student receives the Williamson Scholarship, which is need-based and can be as high as $32,430, which is $140 shy of the school’s estimated costs for tuition, room, board, and annual fees.

Schools That Offer Free or Reduced Income-Based College Tuition

The following schools offer varying amounts of tuition assistance depending on a student’s family income level. Based on the information a student provides on the yearly Free Application for Federal Student Aid (FAFSA®), schools take into account both parent contributions and student contributions to determine financial need.

Recommended: SoFi FAFSA Guide

Offers of free tuition may sometimes mean that the parent contribution is equal to zero, but there may still be an expected student contribution.

Ivy League Schools

Brown University (Providence, Rhode Island)

Brown fully covers tuition for families earning $125,000 or less. In addition, students of families making less than $60,000 a year will receive scholarships that cover all expenses including tuition, room, board, and books. Students can apply for additional scholarships to help support other expenses. The university’s website specifies that student contribution expectations are set annually.

Columbia University (New York City, New York)

Students qualify to attend tuition-free if their parents earn less than $150,000 annually and have typical assets. For students coming from families who earn less than $66,000 annually, there is no expectation of parental financial contribution. All incoming first-year students are expected to pay $2,400, which is the minimum student contribution as part of their financial aid award.

Cornell University (Ithaca, New York)

Cornell guarantees no parental contribution and no loans for students whose families earn less than $60,000 per year and typical assets. For students from families with total annual income up to $75,000, the annual aid offers include grants and work-study only — students are not expected to need to take out loans.

Dartmouth College (Hanover, New Hampshire)

For students whose families earn less than $65,000 per year with typical assets, there’s no expectation of parental contribution, and the aid award does not include any loans. Students are expected to contribute toward their own expenses, but they can choose to take a loan if needed. The Dartmouth Scholarship provides free tuition for students from families with total incomes of $125,000 or less who possess typical assets.

Harvard University (Cambridge, Massachusetts)

Harvard’s website states that as of the 2023-24 school year, if a student’s family earns under $85,000 annually, parents won’t pay anything for tuition or other fees. If they earn between $85,000 and $150,000, families and students pay between zero and 10% of their income per year. A student may still qualify for financial aid if their family earns more than $150,000.

Princeton University (Princeton, New Jersey)

Princeton offers full tuition, room, and board for students whose parents earn less than $65,000 per year. After that, financial aid is offered on a tiered scale, with families earning between $65,000 and $160,000 receiving full tuition and a portion of room and board fees.

University of Pennsylvania (Philadelphia, Pennsylvania)

Students from families with incomes less than $75,000 (and typical assets) receive financial aid packages that cover tuition, fees, room, and board. UPenn states they are also eligible for additional benefits like laptop funding and summer opportunity funds. Students from families with incomes between $75,000 and $140,000 (and typical assets) receive financial aid packages that cover at least tuition. Students from families with incomes higher than $140,000 may be eligible to receive aid packages that are greater than half of tuition. Penn emphasizes that it’s committed to meeting 100% of demonstrated financial needs with grant-based aid.

Yale University (New Haven, Connecticut)

Yale expects zero parent contribution for students whose families earn less than $75,000 per year and have typical assets. Students from families who earn between $75,000 and $200,000 (with typical assets) contribute a percentage of their annual income towards their child’s education, on a sliding scale that begins at 1% and moves toward 20%.

Other Elite Schools

Duke University (Durham, North Carolina)

Beginning with the fall 2023 semester, Duke will provide full tuition grants for undergraduate students from North Carolina and South Carolina whose family incomes are $150,000 or less. For North and South Carolina residents, students whose families earn $65,000 or less will receive full tuition, plus financial assistance for housing, meals, and other campus expenses, and there’s no expectation they will need to take out loans.

For families who earn under $60,000 annually, Duke does not require any parental financial contribution. First-year students are expected to make a minimum contribution of $2,600 regardless of income.

Massachusetts Institute of Technology, or MIT (Cambridge, Massachusetts)

MIT ensures scholarship funding for students whose family income is less than $140,000 (plus typical assets) so most can attend tuition-free. Most students whose families earn less than $65,000 receive aid to cover tuition, fees, housing, and some dining costs.

Rice University (Houston, Texas)

Students from families who earn less than $75,000 annually can attend Rice with an aid package that covers tuition, fees, room and board. Students from families with annual incomes between $75,000 and $140,000 are awarded full-tuition scholarships, and students from families earning between $140,000 and $200,000 will receive scholarships covering at least half of their tuition.

Stanford University (Stanford, California)

Stanford does not expect parental contribution toward educational costs for students whose parents earn a total annual income below $100,000 and typical assets. Students are expected to contribute toward their own expenses — usually around $5,000 — from their summer income, part-time work during the school year, and their own savings. Students from families who earn less than $150,000 per year plus typical assets can typically attend Stanford tuition-free.

Texas A&M University (College Station, Texas)

As of fall 2023, Texas A&M will cover both tuition and fees for students whose family income is $60,000 or less. Beginning in the fall semester of 2021, families who earn more than $60,000 but less than $130,000 qualify for scholarships or grants, ranging from $500-$1,500 based on income and financial need.

University of Chicago (Chicago, Illinois)

If your family’s adjusted gross income is less than $125,000, you’re eligible to receive free tuition to the University of Chicago. If your family’s AGI is less than $60,000, the school will also cover room, board, and other fees.

University of North Carolina (17 campuses across North Carolina)

As of fall 2024, UNC will cover tuition and mandatory fees for North Carolina students whose families earn less than $80,000 annually and have typical assets. Students from families with a total income that is at or below 200% of the poverty guideline and who meet additional economic criteria to qualify can attend UNC debt-free thanks to the Carolina Covenant aid program.

Vanderbilt University (Nashville, Tennessee)

Vanderbilt’s financial aid program is ranked number one by Princeton Review in 2023. Instead, Vanderbilt claims to meet 100% of families’ demonstrated financial need (through grants and a “reasonable work expectation”) based on the FAFSA and they do not use income bands to determine who receives aid. Vanderbilt’s financial aid packages do not include student loans.

Financing Your Education If You Don’t Qualify For Free Tuition

Not all students will qualify for or attend a school that offers free tuition. There are several options for financing college.

Tuition Payment Plans

Students and their parents may be able to take advantage of a tuition payment plan, which allows you to break up the cost of tuition, room, and board, over the course of a semester or year.

Scholarships and Grants

Scholarships and grants are often referred to as “gift aid,” because you don’t typically have to pay back scholarships or grant money after graduation as you do with student loans.

Scholarships are often offered based on merit, while grants are typically based on financial need. Gift aid can come from different types of institutions — from your college to local community organizations to large corporations.

Recommended: A Guide to Unclaimed Scholarships and Grants

Student Loans

Unlike scholarships and grants, you do have to repay student loans upon leaving school or graduating. Student loans are split into two broad categories: federal and private loans.

Federal student loans are disbursed by the government, which sets fixed rules about repayment and interest rates. You apply for these loans by filling out the FAFSA.

Private financial institutions may provide private student loans. Each private loan company sets its own repayment requirements and determines their own interest rates. You apply for these loans directly through the lender.

Private student loans are generally considered as an option only after all other sources of aid have been exhausted. This is because they lack the same borrower protections as federal student loans, such as income-driven repayment plans or the option to pursue Public Service Loan Forgiveness.


💡 Quick Tip: Even if you don’t think you qualify for financial aid, you should fill out the FAFSA form. Many schools require it for merit-based scholarships, too. You can submit it as early as Oct. 1.

The Takeaway

There are a number of schools that offer free tuition plans or substantial financial assistance to students. Free tuition programs can make higher education more accessible to lower-income students. As mentioned, some schools may have requirements around work-study, academics, or living on campus, in order for students to qualify for free or reduced tuition.

Students who aren’t enrolled in a school that offers free tuition have a few options for financing their education including savings, federal financial aid, scholarships, and federal student loans.

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

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

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

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

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.

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.

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.

SOIS0823053 Read more

If you are hitched or have a significant other, you may wonder if a joint bank account is the right move or if you should keep your finances separate.

When you open a joint checking account, it can make it easier for the two of you to budget, spend, and save, especially if you are splitting household expenses. However, doing so also means you have less privacy financially speaking and you may not be comfortable with this level of transparency.

If you are mulling over this decision, read on to learn the pros and the cons of opening a joint bank account, as well as the steps required to open a joint bank account. In addition, you’ll find out about options to a shared bank account which may suit your needs.

What Is a Joint Bank Account?

A joint bank account is an account that’s shared between two people.

Simply put, a joint bank account is an account that’s shared between two or more people. Each person has full access to the money, whether withdrawing or adding to the funds.

While some couples will open an account and put all of their combined cash into it, other couples may choose to open up a shared bank account in addition to their pre-existing individual accounts.

Shared accounts can be both checking and savings accounts, and which account you choose — if you choose to create one at all — will depend on your specific goals and circumstances.

Sharing a financial account can come with some great benefits, as it generally provides each account holder with a debit card, a checkbook, and the ability for two people to deposit and withdraw funds into the same account. It can also come with some potential drawbacks.

One of the biggest decisions a couple will make is whether they decide to treat their money as a shared asset or as separate entities. As with any discussion about money, every individual or couple will have different goals and experiences, so it’s helpful to take a look at both sides. Considering the pros and cons of joint accounts may help you decide if this kind of account suits you.

How Does a Joint Account Work?

A joint account functions just like an individual account, except that more than one person has access to it.

Everyone named on a joint account has the power to manage it, which includes everything from deposits to withdrawals.
Any account holder can also close the account at any time. And, all owners of a joint account are jointly liable for any debts incurred in relation to the account.

Two or more people can own a joint account. They don’t have to be a married couple or even live at the same address to combine bank accounts.

You can open a joint account with an aging parent who needs assistance with paying bills and managing their money. You can also open a joint account with a friend, roommate, sibling, or business partner.

What Are Some Pros of a Joint Bank Account?

Here are some of the pros of opening a joint account.

•  Ease of paying bills. When you’re sharing expenses, such as rent/mortgage payments, utilities, insurance and streaming services, it can be a lot simpler to write one check (or make one online payment), rather than splitting bills between two bank accounts. A shared account can simplify and streamline your financial life.

•  Transparency. With a joint checking account, there can’t be any secrets about what’s coming in and in and what’s going out, since you both have access to your online account. This can help a newly married couple understand each other’s spending habits and talk more openly about money.

•  A sense of togetherness. Opening a joint bank account signals trust and a sense of being on the same team. Instead of “your money” and “my money,” it’s “our money.”

•  Easier budgeting. When all household and entertainment expenses are coming out of the same account, it can be much easier to keep track of spending and stick to a monthly budget. A joint account can help give a couple a clear financial picture.

•  Banking perks. Your combined resources might allow you to open an account where a certain minimum balance is required to keep it free from fees. Or, you might get a higher interest rate or other rewards by pooling your funds. Also, in a joint bank account, each account holder is insured by the Federal Deposit Insurance Corporation (FDIC), which means the total insurance on the account is higher than it is in an individual account.

•  Fewer legal hoops. Equal access to the account can come in handy during illness or another type of crisis. If one account holder gets sick, for example, the other can access funds and pay medical and other bills. If one partner passes away, the other partner will retain access to the funds in a joint account without having to deal with a complicated legal process.

What Are Some Cons of a Joint Bank Account?

Despite the myriad advantages of opening a joint account, there are some potential downsides to a shared account, which include:

•  Lack of privacy. Since both account holders can see everything that goes in and comes out of the account, your partner will know exactly what you’re earning and how much you are spending each month.

•  Potential for arguments. While a joint account can prevent arguments by making it easier to keep track of bills and spending, there is also the potential for it to lead to disagreements if one partner has a very different spending style than the other.

•  No individual protection. As joint owners of the account, you are both responsible for everything that happens. So if your partner overdraws the account, you will both be on the hook for paying back that debt and covering any fees that are charged as a result. If one account holder lets debts go unpaid, creditors can, in some cases, go after money in the joint account.

•  It can complicate a break-up. If you and your partner end up parting ways, you’ll have the added stress of deciding how to divide up the bank account. Each account owner has the right to withdraw money and close the account without the consent of the other.

•  Reduced benefits eligibility. If you open a joint account with a college student, the joint funds will count towards their assets, possibly reducing their eligibility for financial aid. The same goes for an elderly co-owner who may rely on Medicaid long-term care.

How to Open a Joint Bank Account

If you decide opening a joint account makes sense for your situation, the process is similar to opening an individual account. You can check your bank’s website to find out if you need to go in person, call, or just fill out forms online to start your joint account.

Typically, you have the option to open any kind of account as a joint account, except you’ll select “joint account” when you fill out your application or, after you fill in one person’s information, you can choose to add a co-applicant.

Whether you open your joint account online or in person, you’ll likely both need to provide the bank with personal information, including address, date of birth, and social security numbers, and also provide photo identification. You may also need information for the accounts you plan to use to fund your new account.

Another way to open a joint account is to add one partner to the other partner’s existing account. In this case, you’ll only need personal information for the partner being added.

Before signing on the dotted line, it can be a good idea to make sure you and the co-owner know the terms of the joint account. You will also need to make decisions together about how you want this account set up, managed, and monitored.

Should I Open a Joint Bank Account or Keep Separate Accounts?

As you consider your options, know that it doesn’t have to be all or nothing. You could open a new joint account while keeping your own separate bank accounts. Or you could decide between separate vs. joint accounts, and go all in on one or the other.

Some couples may find that the best solution is to pool some funds in a joint account for specific purposes, from paying for basic living expenses to saving for the down payment on a house or building an emergency fund.

Recommended: Find out how much you should save for unexpected expenses with our emergency fund calculator.

You might keep your own separate accounts as well, where you can spend on what you like without anyone watching (or judging). Or perhaps you want to keep some funds separate so you can pay off your student loans, while your partner doesn’t have any.

In addition to making financial logistics more streamlined, opening a joint account may also help you and your partner practice better communication about money.

Opening a Joint Checking and Savings Account with SoFi

If you decide that a joint account feels right for you, you’ll have a number of options, including opening a SoFi joint account.

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.

FAQ

What are the disadvantages of a joint account?

Disadvantages of a joint account include complete transparency (meaning you and your partner can see each other’s financial transactions), responsibility for the other person’s cash management, and complications if you decide to separate down the road.

Are joint bank accounts a good idea?

Joint accounts can be a good idea and can help streamline money management, save on fees, and reach financial goals more efficiently. Much depends on the two people involved and how well they can sync their financial lives.

Is it better to have joint or separate bank accounts?

That’s a personal decision. Joint accounts offer benefits like simpler money management, transparency, and saving money on fees. However, others prefer to keep separate accounts and have control over their funds as well as privacy.

Who owns the money in a joint bank account?

Money in a joint bank account belongs to those who hold the account. Each person has the right to add or withdraw funds.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.