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If you need financial aid to help pay for college, you’ll fill out the Free Application for Federal Student Aid (FAFSA®), which allows you to apply for federal unsubsidized student loans, subsidized student loans, work-study, and grants.

When your FAFSA has been processed, you’ll receive an aid offer that explains the types and amount of aid that a college is offering to you. If you’ve applied to multiple schools, you’ll receive an aid offer from each. You’ll be asked to tell them which forms of financial aid you would like to accept before they apply it to the amount you owe your school.

But you don’t have to accept all the aid on offer, including student loans, so consider your options carefully.

What Are Subsidized and Unsubsidized Loans?

There are two basic types of federal student loans: Direct Subsidized Loans and Direct Unsubsidized Loans. They help eligible students cover the cost of four-years colleges, community colleges, and trade, career, and technical schooling. Here are the major differences between unsubsidized versus subsidized student loans.

Direct Subsidized Loans are student loans for undergraduates with financial need. Your school will determine how much you can borrow, and that amount cannot be more than your financial need.

The government pays all interest on Direct Subsidized loans while you’re in school at least half-time, during the six month grace period after you leave school, and during periods of deferment.

Direct Unsubsidized Loans are available to undergraduates and graduate students. They are not awarded based on financial need.

Again, your school will determine how much you are able to borrow, and you are responsible for paying all interest on the loan amount at all times. If you choose not to pay interest while you’re in school, during the grace period, or if your loan is in deferment or forbearance, the interest will still accrue. At the end of the deferment period, the interest will be added to the principal of the loan.

Interest rates for each type of loan are fixed. For example, for the 2023-2024 academic year, the interest rate for Direct Subsidized Loans and Direct Unsubsidized Loans is 5.50% for undergraduate borrowers. The interest rate for Direct Unsubsidized Loans is 7.05% for graduate or professional borrowers.

There are also limits to the amount of money that you can borrow, and the loan amount that you receive may be less than this limit. For dependent students, except those whose parents can’t receive PLUS loans, the aggregate loan limit is $31,000, of which no more than $23,000 can be in subsidized loans.

For dependent undergraduates whose parents can’t obtain PLUS loans, the limit is $57,500, of which no more than $23,000 can be in subsidized loans. For independent graduate students or professionals, the limit is $138,500, of which no more than $65,500 can be in subsidized loans.

When Might You Be Offered More Loans Than You Need?

You don’t have to accept all of the federal loans that are offered to you. To figure out if you’ve been offered more loans than you actually need, you’ll need to do a bit of budgeting.

Federal loans can only be applied to tuition, fees, housing and meal plans. These won’t be the only expenses you’ll need to cover, however. Consider other costs like transportation, travel, eating outside the dining hall, etc. Add up the costs to which your federal loan would apply and any extra expenses to get a sense of the total cost of going to school.

Now figure out your total funding sources, excluding the sources in your offer letter. This might include money from your parents, scholarships, grants, and any money you may have saved on your own. If your total expenses exceed your sources of funding, you may need to accept the federal loans on offer. However, if they don’t, you might not need to accept all the funding.

Which Loans Should You Accept?

If you don’t anticipate needing the amount of money offered to you through loans, you do not need to accept them. Schools will allow you to decline a loan, accept it, or even accept a portion of it.

That said, if you do decide to take on federal loans, it’s generally wise to accept subsidized loans first because they offer more benefits in the form of government interest payments.

Unsubsidized loans, on the other hand, put you on the hook for all of the interest that accrues on the loan. These loans however are still eligible for other federal benefits and borrower protections.

Can Your Return Unused Student Loans?

If you accept a loan and realize that you don’t need it, the good news is you can cancel the loan, or a portion of it, within 120 days of disbursement. By canceling the loan, you’ll return the money you received, and you won’t owe any interest or be charged any fees.

Alternatives to Federal Student Loans

Federal student loans aren’t the only way to help pay for schooling. Here’s a look at three alternatives:

Private Loans

Students can apply for private student loans which are offered by private institutions, such as banks and credit unions. These lenders will determine the amount you can borrow, interest rates, and terms largely based on financial factors such as your income and your credit score, or that of a cosigner if you need to have one.

Private student loans are not subject to the same loan limits imposed on federal loans, so students can potentially borrow more to cover costs. Though, this also means that private loans aren’t afforded the same borrower protections (like income-driven repayment plans) as federal student loans. For this reason, they are generally considered only after a student has thoroughly reviewed all of their other options.

Personal Loans

Personal loans are also provided by private lenders who, again, set the loan amount, interest rates and terms, based on a person’s financial history. The terms of the loan do not dictate how the money must be used, so they may be a way to cover expenses outside of tuition, fees, room, and board.

Financial Aid

There are a variety of types of financial aid available from public and private sources that can help you pay for school.

Grants and scholarships are money given to you that you don’t need to repay. Scholarships are often given based on academic merit or talent, or they’re given to students wishing to pursue a particular area of study.

The Federal Work-Study Program allows students to work part-time to earn money to pay for schooling.

The Takeaway

When you’re offered a student aid package by the federal government, it may include federal subsidized and unsubsidized student loans. You can accept or decline these loans, or even accept a small portion of them. Consider declining if your sources of funding exceed your expenses. Doing so may be cheaper in the long run, as it allows you to avoid making interest payments.

Private student loans are another potential source of funds to help you pay for school. To learn more about the options available to you to meet your student loan needs, visit SoFi.

FAQ

Is it better to accept subsidized or unsubsidized loans?

When choosing between subsidized and unsubsidized loans, consider accepting subsidized loans first, since the federal government will pay your interest while you are in school at least half-time, during the six month grace period after you leave school, and during periods of loan deferment.

Can you accept student loans and not use them?

You can accept student loans and not use them, but you’ll still be responsible for paying them back with interest. If you find you don’t need the loans, you can cancel them within 120 days of loan disbursement.

How are subsidized and unsubsidized loans different?

Subsidized and unsubsidized loans differ mainly in who they are available to and who must make interest payments. Subsidized loans are available to undergraduate students, and the government makes interest payments while you are in school at least half-time, during the six month grace period after you leave school, and during periods of loan deferment. Unsubsidized loans are available to undergraduate, graduate, and professional students, who are responsible for all loan payments.

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.

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.

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A Direct PLUS Loan is a type of unsubsidized federal student loan that can be made to graduate students or parents of a dependent undergraduate student.

Direct PLUS Loans can help pay for education costs that aren’t covered by other types of financial aid. As they have higher interest rates than other types of federal loans, it’s generally recommended that a student exhaust all of their Direct Loan options before considering a Direct PLUS Loan.

As you plan how to pay for your education, here’s what to know about Direct PLUS Loans to decide if this option is right for you.

What Is a Federal Direct PLUS Loan?

After pursuing financial aid options that don’t need to be paid back (such as grants, scholarships, or work-study programs), many students take out federal student loans to help pay for the cost of school.

There are several types of federal student loans from the William D. Ford Federal Direct Loan Program. Direct Loans (also known as Stafford Loans) can be subsidized for undergraduate students with financial need — meaning that the federal government will pay the loan interest while a student is in school at least half-time and during a grace period after graduating or during a period of deferment.

Direct Loans can also be unsubsidized for both undergraduate or graduate students. With a Direct Unsubsidized Loan, the borrower is responsible for all of the interest that accumulates on the loan. These loans are not dependent on financial need, but there is a cap on the amount a student can borrow.

So what is a Direct PLUS Loan? Direct PLUS Loans can be made to graduate students or parents of dependent undergraduate students to help meet the remaining costs of school.

Types of Federal PLUS Loans

As mentioned, Direct PLUS Loans are unsubsidized federal student loans that two groups of people can apply for to help pay for higher education that isn’t covered by other types of financial aid: graduate and professional students or parents of a dependent undergraduate student.

When a Direct PLUS Loan is made to parents of an undergraduate student, it’s often referred to as a parent PLUS loan. When made to a graduate or professional student, it’s called a grad PLUS loan.

Keep in mind that PLUS loans are some of the highest interest loans offered by the government — significantly higher than federal loans offered directly to undergrads — so it’s worth it to pursue other federal options first.

Eligibility for Federal Parent PLUS Loans

Parents can qualify for a parent PLUS loan as the biological, adoptive, and in some cases, stepparent of a qualifying undergraduate student enrolled at least half-time. It’s important to note that a federal Direct PLUS Loan made to a parent borrower cannot be transferred to the child.

Both parent and child must be U.S. citizens or eligible noncitizens and meet the eligibility requirements for federal student aid.

Unlike other types of federal loans, Direct PLUS Loans consider your credit history, and the requirements state that the borrower must “not have an adverse credit history.”

Some borrowers with credit issues may still be able to qualify if they meet certain additional eligibility requirements, such as having an endorser on the loan. Another option is to document if there are extenuating circumstances related to the adverse credit history.

Eligibility for Federal Grad PLUS Loans

When a Direct PLUS Loan is made to a graduate or professional student, it’s commonly called a grad PLUS loan. To qualify as an individual student borrower, you must be enrolled at least half-time in an eligible program leading to a graduate or professional degree.

As with parent PLUS loans, the borrower must meet the eligibility requirements for federal financial aid and can’t have an adverse credit history.

Interest Rates on Federal PLUS Loans

Direct PLUS Loans have some of the highest interest rates of all federal student loans. Interest rates on federal student loans are fixed for the life of the loan and the rate is set by Congress each year.

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

Is the Federal Direct PLUS Loan Subsidized or Unsubsidized?

Direct PLUS Loans are unsubsidized federal loans, meaning that the interest accumulates on the loan at all times.

If you are a graduate or professional student, you do not have to make any grad PLUS loan payments if you are enrolled at least half-time in school, and there is also a six-month grace period after you graduate or leave.

If you don’t pay the interest on a federal unsubsidized loan during these periods, the interest on the loan is capitalized and added to the total principal amount of the loan. This amount will also accrue interest and increase the overall amount you owe.

Parent borrowers are expected to start making payments on a Direct PLUS Loan once it’s been fully paid out. But in certain circumstances parents may request a deferment while their child is enrolled in school or six months after.

Loan Fees on Federal PLUS Loans

There is a loan fee for Direct PLUS Loans. A percentage of the loan amount (currently 4.228%) is deducted from each loan disbursement. This percentage is higher than that for Direct Loans (currently 1.057%). Loan fees vary by the date they are disbursed.

Loan Limits on Federal PLUS Loans

Direct PLUS loans allow graduate students or parents to borrow enough money to fund the costs of school that aren’t covered by other aid.

Unlike other federal loans, you can borrow up to the total cost of attendance with a Direct PLUS Loan, minus financial aid already received. The student’s school sets the amount that a graduate student or parent can borrow through a Direct PLUS Loan.

How to Apply for Federal PLUS Loans

Before applying for a Direct PLUS loan, a student must fill out the FAFSA® — the Free Application for Federal Student Aid. The borrower will undergo a credit check and may need to participate in credit counseling if this is the first PLUS loan.

Once completed, schools at which students applied and were accepted will send award letters to students that include financial aid options for the upcoming school year, including Direct PLUS loans if the student and/or parent qualifies.

If a school doesn’t accept applications for Direct PLUS Loans via the federal Student Aid website , contact the school’s financial aid office to find out how to apply.

Recommended: FAFSA Guide

What to Do When Federal PLUS Loans Aren’t Enough

The amount that can be borrowed through Direct PLUS Loans is set by the student’s school and can’t exceed the total cost of attendance minus financial aid received. If you still need additional funds to cover other education-related costs, you may want to explore private loans.

Private loans can bridge the gap between what a student is able to borrow in federal loans and their remaining needs after accounting for aid such as scholarships or grants.

Your eligibility and the interest rate that you can get through a private loan will depend on factors like your credit score and income. Having a cosigner on your loan may help you secure more favorable terms.

Parents with strong credit and income may find lower interest rates on no-fee private parent student loans than on federal parent PLUS loans which, as a reminder, also come with an origination fee.

Recommended: The Differences Between Grants, Scholarships, and Loans

What to Do About Undergraduate School Loans

Direct PLUS loans are not eligible for most income-driven repayment plans. However, if you consolidate your PLUS loan (or loans) into a federal Direct Consolidation Loan, that new loan can be eligible for an income-contingent plan.

If you’re a graduate student and you have a high-interest rate on existing undergraduate loans or need to lower your monthly payment before grad school, it could be worth considering student loan refinancing. Refinancing student loans through a private lender offers the opportunity to consolidate multiple student loans, federal and/or private, into a single loan with a single payment and (ideally) a lower interest rate. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

Refinancing may be a better long-term solution for some PLUS loan borrowers, especially if they do not qualify for income-driven repayment and are not planning to use other federal benefits. Keep in mind if you refinance federal loans, you lose access to federal benefits and protections, such as forgiveness, income-driven repayment plans, and forbearance.

The Takeaway

Direct PLUS Loans are unsubsidized federal loans that can be made to graduate students or parents of a dependent undergraduate student. Known as grad PLUS loans or parent PLUS loans, these federal loans take your credit history into account. If you have an adverse credit history, there are certain eligibility requirements you’ll need to meet to qualify.

Direct PLUS Loans allow you to borrow up to the full cost of attendance for graduate school minus the amount of financial aid you receive from other sources. Since they have higher interest rates and a higher origination fee than other types of federal loans, you’ll likely want to pursue a federal Direct Unsubsidized Loan first.

Private student loans can bridge the gap between what a student is able to borrow in federal loans and their remaining needs after aid such as scholarships or grants is considered.

Parents or graduate students with strong credit and income may find lower interest rates on no-fee private student loans than on federal Direct PLUS Loans.

SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.

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 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.

For most students, attending college is impossible without borrowing money. In spring 2022, nearly 16 million students were enrolled in colleges and universities. By the time they graduate, about 64% of them will have taken out student loans. And 93% of those loans are federal student loans.

Below, we’ll explain the different types of federal loans, their requirements, and benefits. We’ll also look at alternative options in case federal loans don’t cover the full cost of your education.

What Types of Federal Student Loans Are Available?

There’s a lot of terminology thrown around related to student loans. To simplify things, we’ll look at the two major categories of federal loans: subsidized and unsubsidized.

Subsidized Federal Student Loans

Subsidized loans are awarded on the basis of financial need. They are called “subsidized” because the government subsidizes — absorbs the cost of — some interest payments on the loan. This makes subsidized loans a better deal for student borrowers.

For example, interest on subsidized loans is paid by the government while the student is enrolled (half-time or more). Student borrowers also don’t pay interest during the six-month grace period after graduation, and during periods of deferment.

Unsubsidized Federal Student Loans

Unsubsidized loans aren’t given out based on need, and borrowers don’t get a break on interest. Some borrowers will make interest-only payments during school, even though they’re not required to, to “keep up” with the interest.

If a borrower chooses not to make interest payments, the interest that accrues can be “capitalized.” This means that the interest is added to the balance of the loan. This new value is then used to calculate the amount of interest you owe. In effect, borrowers are paying interest on their interest.

Currently, there is only one type of subsidized federal loan offered, and several types of unsubsidized loans. Next, we’ll discuss the different subcategories of federal loans and who typically qualifies for each.

Recommended: 11 Common Types of Scholarships for College

The Direct Loan Program

The Department of Education’s federal student loan program is called the Direct Loan Program. The DOE is the lender, but it works with a few different student loan servicers, who manage the loan.

Direct Subsidized Loan

Direct Subsidized Loans are for undergraduate students who have financial need. The maximum amount offered is between $3,500 and $5,500, based on your academic year. Because of these limits, some students may not be able to cover their entire tuition with Direct Subsidized Loans.

FYI, there is a loan fee of about 1% for all Direct Subsidized Loans that is deducted from each loan sum the borrower receives.

Direct Unsubsidized Loan

Direct Unsubsidized Loans are offered to undergraduate, graduate, and professional degree students, and financial need is not required. These are the most common types of federal student loans.

Undergraduate students can take out between $5,500 and $7,500 per year in unsubsidized and subsidized loans combined. That means if a freshman student receives the maximum $3,500 in subsidized loans, they may accept no more than $2,000 in unsubsidized loans.

The interest rate for Direct Subsidized and Unsubsidized Loans for the 2023-24 academic year is 5.05%, up from 4.99% for the 2022-23 academic year.

The interest rate is higher for loans made to graduates and professional degree students, and the maximum amount offered is higher, too. Grad students can take up to $20,500 in unsubsidized federal student loans each school year.

The interest rates for the 2023-24 school year for unsubsidized loans offered to graduate or professional students is 7.05%, up from 6.54% during the 2022-23 school year.

Direct PLUS Loan

Direct PLUS Loans are offered to parents paying for their dependent child’s undergraduate education and to graduate or professional degree students. Financial need is not a requirement to receive a Direct PLUS Loan.

Unlike with Direct Subsidized and Unsubsidized Loans, however, the borrower’s credit will be taken into consideration. A borrower may not have “adverse” credit history. Here’s what that means:

The maximum amount that the government awards in each school year is the total Cost of Attendance (which is determined by the school) minus all other financial aid that the student receives. There is a fee for all Direct PLUS loans of 4.228% that is deducted from each loan sum the borrower receives.

Yep, the federal loans that a parent can take out on behalf of a student have worse terms than a loan made directly to the student through the Direct Subsidized or Direct Unsubsidized loan programs.

Depending on your family’s financial situation, you’ll likely want to take this into consideration when choosing loans. The interest rates on PLUS Loans offered to parents and graduate/professional students is 8.05% for the 2023-24 school year, up from 7.54% for the 2022-23.

Direct Consolidation Loan

A Direct Consolidation Loan is different from the previously mentioned loans. It allows the borrower to combine multiple federal loans into one loan, enabling you to make one payment toward one loan for easier management.

With a Direct Consolidation Loan, the weighted average of each individual loan is calculated to determine the new interest rate, rounded up to the nearest eighth of a percent.

There is never any cost to apply for a Direct Consolidation Loan. If you are contacted by a company offering to help you consolidate for a fee, beware. The service is offered for free by the DOE.

A Direct Consolidation Loan can only be used to consolidate federal student loans. Borrowers aren’t able to consolidate private loans, which are issued by private lenders rather than the government. (Refinancing is a different process that is able to consolidate both federal and private loans.)

What Federal Loans May I Qualify For?

Not all students may qualify for all types of federal loans. First, it’s helpful to understand that loans are considered either need-based or non-need-based. Here’s how these calculations are made:

Need-Based Loans

Direct Subsidized Loans are need-based federal student loans. To determine who qualifies, the DOE first determines a family’s Student Aid Index (SAI). The SAI takes into consideration a family’s assets and income, and spits out a number. That number is used to determine need-based aid.

To calculate financial need, a college will subtract the SAI from the Cost of Attendance, which the school determines. COA – SAI = A student’s “financial need.” For example, if the COA is $30,000 and the SAI is $25,000, then the student is eligible for no more than $5,000 in need-based aid, including Direct Subsidized Loans. (Need-based aid may also include federal grants and work-study programs, which is money that does not need to be repaid.)

If you do not qualify for need-based loans, or if need-based loans will not cover the full cost of attending college, you can access the next “tier” of student loan borrowing: non-need-based loans.

Non-Need-Based Loans

Direct Unsubsidized Loans and Federal PLUS Loans are non-need-based loans. To determine how much non-need-based loans a student qualifies for, their school has a separate formula. Take the Cost of Attendance and subtract the total financial aid awarded to the student so far, including scholarships and grants from the state or school.

For example, if the COA is $30,000 and a student has $20,000 in financial aid from other sources, then they are eligible for $10,000 in non-need-based financial aid, including Direct Unsubsidized and PLUS Loans.

Because there are annual limits to the amount of need-based and non-need-based federal loans for which a student qualifies, some students may not be able to cover the cost of their education via federal loans alone. What are students who find themselves without enough federal aid supposed to do?

Other Funding Options

The first alternative you’ll want to consider is “free money” available through additional scholarships and grants. Although the Free Application for Federal Student Aid (FAFSA) connects students with some free money, there are many other awards available through charities, private foundations, businesses, and even individuals. Online tools, like SoFi’s Scholarship Search, can connect you to scholarships you might qualify for.

Next, students can consider private student loans, which are loans offered through banks, credit unions, and online lenders. Generally, private student loans offer higher interest rates and less flexible repayment terms than federal student loans. (For example, they don’t necessarily offer things like income-driven repayment plans, and they aren’t eligible for federal forgiveness programs.)

The interest rates on private loans are generally tied to the borrower’s credit score and income, whether the borrower is the student, parent, or another family member.

If you think you may need to use private loans, make sure to shop around. Lender terms can vary widely, so get multiple quotes and ask the following questions:

•   What is the interest rate?

•   Is the interest rate fixed or variable?

•   What are the repayment terms?

•   What happens if you cannot make a payment?

Also, keep in mind that you may be eligible to refinance student loans — both federal and private — once you’ve graduated and have an established income and improved credit score. Refinancing is the process of paying off one loan with another loan with new terms and a new — and hopefully lower — interest rate.

Refinancing might not be the right option for those planning on using their federal loans’ unique benefits, such as forgiveness for work in public-service professions or an income-driven repayment plan. Access to federal benefits is forfeited when federal loans are refinanced.

Recommended: FAFSA 101: How to Complete the FAFSA

The Takeaway

Federal loans can be either Subsidized or Unsubsidized. Subsidized student loans are based on financial need and do not accrue interest while the borrower is enrolled in school (half time or more). Unsubsidized loans do accrue interest while student borrowers are enrolled in school. Only undergraduate students are eligible for Subsidized student loans. Unsubsidized options are available to undergraduate, graduate/professional students, and parents. Families tend to prioritize financial aid this way: scholarships, grants, and subsidized federal loans first; unsubsidized federal loans second; and private student loans last.

If you’re considering private student loans to help cover the cost of college attendance, let SoFi help. Applicants without an extensive credit history or with a middling credit score may find that adding a cosigner to their application can help them qualify for a loan or for more-competitive rates and terms.

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

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

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.

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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Inflation indirectly causes student loan interest rates to rise. That’s because the government tends to increase interest rates to combat rising prices, which typically raises the cost of borrowing.

Student loan interest rates have in fact risen since the Federal Reserve began raising interest rates to combat inflation during the Covid-19 economic recovery. For example, the fixed interest rate on newly disbursed federal student loans for undergraduates went from 2.75% in July 2020 to 5.50% in July 2023.

The fixed interest rate on newly disbursed federal student loans is largely determined by the high yield of the final 10-year Treasury note auction held each year in May. Bond yields are typically higher when interest rates go up.

High inflation is bad news for people seeking new student loans and those with variable interest rate loans, though people with fixed-rate loans won’t see their rates go up.

What Exactly Is Inflation?

Inflation — the rising cost of everyday items — is an important economic factor to everyone from investors to policymakers to borrowers. The reason it matters to borrowers is that inflation can lead to higher interest rates on every kind of debt, including student loans.

Put simply, inflation means that the price of bread will be higher tomorrow than it is today. So lenders may increase their interest rates during times of high inflation, given that borrowers will be paying the money back when those dollars will buy less. That’s one reason inflation and many interest rates have typically risen or fallen in step with each other.

The Federal Reserve is another reason. The country’s central bank plays a major role in managing the economy, especially with factors like interest rates and inflation.

The Fed began its rate-hiking campaign in March 2022 to combat high inflation and continued raising rates into 2023. Increases to the federal funds rate have prompted commercial banks to raise the price of consumer loans and other financial products, including private student loans.

What Does Inflation Mean for Student Loans?

To someone with student loan debt, inflation may not always be bad news. That’s because price inflation may influence wage inflation.

Inflation typically drives up the price of everything, including wages. As a result, some borrowers are paying back certain fixed-rate loans, for example, with dollars that have less value than the ones they borrowed.

There are exceptions. If a borrower took out a variable rate private student loan, it’s likely that inflation will lead to higher interest rates, which will translate into higher interest rates that the borrower has to pay. But if the borrower has a fixed-rate private student loan and their salary keeps up with the pace of inflation, then inflation can be helpful.

With the Federal Reserve in 2023 still aiming to cool down inflation or Consumer Price Index (CPI) growth, it’s worth checking to see whether your private student loan has a fixed or variable rate.

As a quick primer, fixed-rate loans have the same interest rate from when borrowers take out the loan to when they pay it off. Variable-rate loans change the interest they charge, which is influenced by Federal Reserve rate changes.

Variable-rate loans, also sometimes called “floating rate” loans, usually start out with lower interest rates than fixed-rate loans.

All federal student loans disbursed since July 2006 have fixed interest rates. Meanwhile, banks and other private lenders may offer fixed-rate and variable-rate private student loans.

When Does Refinancing Make Sense?

Student loan refinancing may be right for you if you qualify for a lower interest rate. Refinancing federal student loans with a private lender would remove your access to federal income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). A student loan refinancing calculator may come in handy as you weigh your options.

The first step is to check the interest rates on your existing student loans against the rates offered by other lenders. If they offer a better rate, then it may be possible to pay off that student loan debt faster or reduce your monthly payments with refinancing.

Some lenders refinance both federal and private student loans. If you choose to refinance federal student loans with a private lender, realize that you will give up federal benefits and protections like IDR plans and PSLF.

After a three-year pause, interest accrual on federal student loans will resume on Sept. 1, 2023, and payments will be due starting in October 2023. If you qualify for a lower interest rate, student loan refinancing may reduce your borrowing costs. Refinancing for a longer term, however, may increase your total interest costs.

Recommended: SAVE Plan for Federal Student Loans

The Takeaway

Borrowers with variable-rate student loans may see their borrowing costs go up during times of rising inflation. Whether your student loans have a fixed or variable interest rate, the impact of consumer price inflation across the economy may impact your ability to make ends meet.

If you find student loan refinancing is right for you, SoFi can help. SoFi refinances federal student loans, parent PLUS loans, and private student loans with no origination or prepayment fees.

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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 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.

Many students rely on student loans to help them pay for college. In addition to charging interest, student loans may also have additional fees associated with them. Fees charged may include origination fees — a fee charged by the lender for processing the loan — or late payment fees.

When students sign up for loans or are in the midst of repayment, they may not even be aware of fees that accompany many private and federal student loans. But by learning about these fees, they can better prepare themselves financially and avoid headaches.

What Are Student Loan Fees?

As briefly mentioned, student loan fees are charged to borrowers and are not the same as the interest rate. Interest rates on student loans are fixed or variable, and will increase the cost of the loan over time.

Student loan fees may include:

•   Origination fees

•   Late payment fees

•   Returned-check fees (aka insufficient-funds or non-sufficient-funds fees)

•   Loan collection fees

•   Forbearance and deferment fees

Can a Student Loan Fee Be Waived?

For the most part, student loan fees cannot be waived. In some instances, lenders may be willing to waive late payment fees for borrowers who have not previously made a late payment. Fees and policies may vary by loan type and lender, so contact your lender with specific questions. Continue reading for an explanation of different types of fees that may be associated with a student loan.

Origination Fees

Origination fees cover the cost of processing the loan. They are typically a small percentage of the loan amount.

What Is an Origination Fee on a Student Loan?

An origination fee on a student loan functions similarly to origination fees on other types of loans. Origination fees are generally charged as a percentage of the loan.

How Are Student Loan Origination Fees Assessed?

Student loan origination fees are charged as a percentage of the loan amount. Federal student loans do have an origination fee, and the information will be included in the master promissory note. For federal student loans, the origination fee is deducted from the amount borrowed, so when you receive the loan it will actually be for less than the amount you borrowed.

Private student loans may or may not charge an origination fee, the policy will depend on the lender.

How Much Are Student Loan Origination Fee?

For federal student loans, the origination fee (also known as disbursement fee) is dependent on the loan type. Direct Subsidized and Unsubsidized loans disbursed between October 1, 2020 and October 1, 2024 have a 1.057% origination fee. During the same timeframe, Direct PLUS Loans have a ​​4.228% origination fee. Direct Unsubsidized and Subsidized Loans are types of student loans for undergraduate programs. Unsubsidized loans and Direct PLUS Loans are student loans for graduate programs.

The origination fee on private student loans will vary based on the lender, and not all private lenders charge an origination fee. Review the terms and conditions closely and contact your lender with any questions.

Late Payment Fees

Making a loan payment past the due date for a federal student loan can result in a late fee. After 30 days, the late fee may be up to 6% of the loan amount due. Review your Master Promissory Note or contact your loan servicer with questions.

The late fee for a private student loan depends on the lender and loan program. Some private student loan lenders do not charge late fees.

Returned-Check Fees

If a borrower pays using a check that bounces, the student loan servicer could charge a returned-check fee.

Loan Collection Fees

If a borrower defaults on a loan by not making payments for a certain amount of time (270 days for most federal student loans), the loan may be placed with a collection agency and be subject to loan collection fees. Any fees incurred will be in addition to the outstanding principal balance, interest, and fees.

Private student loan companies may charge even higher loan collection fees. Generally private student loans also enter default sooner than federal student loans. The default period is described in the loan contract.

Forbearance and Deferment Fees

Borrowers who cannot make payments temporarily can request student loan forbearance or deferment. Typically, loan holders can avoid a fee, but they will need to contact their loan provider.

Forbearance and deferment are available for most federal student loans. Private lenders are not obligated to offer either program, but may offer some forms of deferment. If you are struggling to make payments on a private student loan, contact your lender to evaluate the options available to you.

Federal Student Loan Fees

When students want to apply for a loan, they can do it through the federal government or a private company, depending on their circumstances. The loan providers charge different types of fees.

Students will pay an origination fee for a federal student loan. As mentioned previously, for Direct Subsidized and Unsubsidized Loans, the fee is about 1.057% of the loan amount. For Direct PLUS Loans (including Grad PLUS and Parent PLUS Loans), the fee is about 4.228% of the loan amount.

A late payment fee will typically be charged within 30 days after the payment is due. The late fee could be up to 6%. At that rate, if your monthly minimum payment is $250, your fee would be $15.

Private Student Loan Fees

Loans for students from private lenders may not charge origination fees, though there may be an origination fee for a specialty loan, like a loan for medical school.

Some lenders charge late fees — generally a percentage of the late payment amount or a flat fee. They also typically charge for returned checks.

Additionally, most private student loan companies charge a fee for forbearance, a flat fee determined by the lender.

Collection fees will vary from lender to lender. If there is a collection fee on a private student loan, it will typically be included in your loan agreement.

A lender like SoFi® has staked its reputation on no fees: no late fees, insufficient-funds fees, or origination fees for private student loans.

Avoiding Student Loan Fees

If students need to take out private or federal student loans, they can at least avoid some of the fees.

Federal student loan origination fees are pretty unavoidable. With other loans, even if a student can persuade a company to take off the origination fee, that could mean a higher interest rate, which is usually not worth it.

Paying on time is always recommended, not only to avoid late fees but to keep a credit report healthy. To avoid late fees, returned-check fees, and collection fees, borrowers can set up automated payments from a bank account. Otherwise, they can set up reminders on their phones and calendars that go off when their payments are about to come due.

In terms of deferment fees, borrowers having trouble making payments on time can call their student loan servicer and ask for extensions or other options so that they don’t go into default.

Going into default can cause a credit score to drop significantly and hurt the chances of getting a mortgage, other loan, or credit card in the future. (Student loan deferment or forbearance do not hurt an overall credit score.)

Students shouldn’t be afraid to reach out to their loan servicer as soon as they can’t make a payment.

Plenty of borrowers end up in a tough spot financially and need a little help. Even if borrowers have to pay more interest over time by extending the loan term, that is almost always better than defaulting.

Some student loan companies don’t charge fees. Signing up for a loan with one of these companies could put money back into your pocket that could go toward repaying the loan.

Fee-Free Student Loans

Undergraduate and graduate school loans. Law school and MBA loans. Parent loans. SoFi offers all of those private student loans with no fees — no origination fees, returned-check fees, or late fees.

A loan comes with a fixed or variable rate and a flexible term. And there is no prepayment penalty.

As a bonus, SoFi members can access perks like financial advice, career coaching, and Edmit Plus, a tool that helps estimate financial aid, compare cost of attendance, and highlight merit aid and scholarships available.

Paying for College

Paying for college may require a combination of resources. One of the first places for students to start their financial aid journey is by filling out the Free Application for Federal Student Aid (FAFSA®) every year. This application allows students to find out if they are eligible for federal financial aid, including federal private loans, grants, scholarships, and work-study.

When comparing your options, it’s important to understand the difference between grants vs. scholarships vs. student loans from a private lender. Continue reading for information on these three categories of aid and additional strategies for paying for college in addition to federal student loans.

Private Student Loans

Private student loans, as mentioned, are offered by private lenders such as banks, credit unions, and other financial institutions. To apply, potential borrowers will need to file applications with individual lenders.The interest rate and loan terms are generally determined based on the applicant’s personal information such as their income and credit score, among other factors. It’s generally worth shopping around to find the best rate and loan terms for your personal situation.

Private student loans can be helpful tools to pay for college. However, when comparing private student loans vs. federal student loans, it’s important to note that private student loans lack the borrower protections afforded to federal student loans – things like income-driven repayment plans or deferment options. For this reason they are generally considered an option after all other financial resources have been depleted.

Credit Card

It can be possible to pay for college tuition using a credit card. While schools may accept payment by credit card, there is generally a fee associated. This fee can be between 2.5% to 3% depending on the school, which likely offsets the rewards you may be earning on your credit card.

Credit cards could be helpful for students while they are paying for other college related expenses, like textbooks, food, or other living expenses. Credit cards, when used responsibly, can be tools to help individuals build or establish their credit history. If you plan on using a credit card to pay for expenses, aim to pay off the card each month to avoid accruing interest. Credit card interest rates can be very high — the average interest rate for new credit cards was 22.45% as of July 2023, according to WalletHub.

Personal Savings

Some students may have the money saved to go to college, or someone in their family might be able to finance their education. For instance, perhaps their parents or grandparents opened a 529 savings plan for them when they were younger and funded it with money to put toward college.

Grants

Grants are a type of funding for school that typically don’t need to be repaid. Grants are generally awarded based on financial need and can be found from sources such as the federal or local government, college, or even nonprofit organizations.

Each grant application may have different application and eligibility requirements so be sure to read the instructions closely.

Scholarships

Scholarships are another type of aid that recipients are not required to repay. Often, they are awarded based on merit though can be awarded based on other criteria as well.

Students can look for scholarships in a variety of places, schools, nonprofit and community organizations, companies, and more all offer scholarships.

Take a look at your school’s financial aid website to see what scholarships are available at your school. There are also online databases like Scholarships.com that aggregate information on available scholarships, including basic eligibility criteria. Some scholarships can be quite competitive, so it may be worth applying to a variety of scholarships.

The Takeaway

Student loan fees like an origination fee or late payment fees can increase the total cost of borrowing the loan. The types of fees on student loans will vary based on the loan type. For example, federal student loans do charge an origination fee which varies based on the type of federal loan and there are late payment fees associated with payments that are 30 or more days late.

Private loans may or may not have an origination fee or late payment penalties. The policies will vary by lender. If you’re interested in a private student loan, be sure to shop around and compare fees in addition to interest rate and loan terms to fully understand the cost of the loan.

Private student loans with SoFi have no fees, including no origination fees or late payment penalties. Qualifying borrowers can secure a competitive interest rate and SoFi members are eligible for other benefits like career coaching and member events.

FAQ

How much is the origination fee for student loans?

The origination fee on a student loan will likely vary depending on the loan type and lender. For federal student loans, the origination fee from October 1, 2020 through October 1, 2024 is 1.057% for Direct Subsidized and Unsubsidized Loans and ​​4.228% for Direct PLUS Loans.

The origination fee on a private student loan will vary by lender.

Do unsubsidized student loans have an origination fee?

Yes, unsubsidized loans through the federal government’s Direct Loan Program do have an origination fee of 1.057% for loans disbursed between October 1, 2020 and October 1, 2024.

Can a student loan origination fee be waived?

Federal student loans have an origination fee and it’s unlikely to have this fee waived. Some private student loans may not charge an origination fee and lenders that do may be willing to negotiate with borrowers.

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.

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 .

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.

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