Federal student loans never expire. Unlike private student loans, federal loans have no statute of limitations, which is the time limit creditors have to use legal means to collect on a debt. And while the clock technically can run out on private student loans, that doesn’t mean your student loans have vanished — lenders simply can no longer sue you to collect the debt. Plus, waiting it out will wreak havoc on your finances, anyway.
As such, waiting for student loans to expire is not a recommended tactic to manage student loans. Read on to learn more about why your student loans aren’t likely to expire and more effective ways to deal with student loan debt.
The answer to that question is “never” when it comes to federal loans. There’s no statute of limitations for collections on federal student loans. This means that if you stop making payments, your loan servicer or a debt collector can sue you to force repayment, regardless of how long it’s been since you last made a payment.
So what happens if you do stop paying your federal student loans altogether? First, your total balance will continue to increase. Whether or not you’re making any payments, interest will accrue, which means that every month your lender will add your new interest fees to your principal loan balance.
After at least 270 days of non-payment, your federal student loan will be in default. This can cause a number of things to happen, including loan acceleration (meaning your entire balance becomes due) and your loan getting sent to collections, which can damage your credit score and lead to additional fees from a collection agency.
Additionally, the federal government may decide to withhold your tax refund or even garnish wages directly from your paycheck. Your loan holder can also sue you to force you to pay up.
Unlike federal student loans, private student loans may be bound by a statute of limitations on collections. The statute of limitations varies by state and is generally between three and 10 years from the date you stopped paying your loans. Once the statute of limitations is up, the debt becomes “time-barred.”
Before you stop making your monthly payments, it’s important to know that a statute of limitations is not the same thing as an expiration date on your loans. A statute of limitations is merely a limit on the time that a lender or debt collector has to sue you in court to force you to pay back the loans.
Even if your debt is time-barred, you still technically owe the money, and failure to pay could lead to student loan default. When you default, you may face negative impacts to your credit score, and you may still end up dealing with collection agencies, plus any additional fees they may charge.
To potentially get your student loans (federal or private) discharged in bankruptcy, you would have to prove that paying your loans would cause you “undue hardship” (to borrow a phrase right from the U.S. Bankruptcy Code). Proving that paying your loans would cause undue hardship typically involves passing the Brunner test. This is a tool bankruptcy courts use that basically lays out ways in which you might claim undue hardship.
In short, it’s far from a sure thing. But whether you’re 19 or 90 years old, your federal student loans will not just automatically expire after a period of non-payment — and failing to pay has some serious consequences.
Alternative Options to Manage Student Loan Debt
Just because federal student loans don’t expire doesn’t mean there aren’t other ways to manage your student loan debt. Here are a few other options you might explore.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) is available to professionals who work for qualifying employers in certain fields such as government, the nonprofit sector, and healthcare. This program is meant to encourage graduates to fill needed jobs in the public service sector without worrying about making enough money to pay off their student debt.
PSLF requires that you make 120 payments (the equivalent of 10 years, though they don’t need to be consecutive) while working full-time for a qualifying employer. Only payments made under certain repayment programs (such as income-driven repayment) count toward forgiveness. Still, federal loan forgiveness may be a good option for public servants with lots of debt left to pay.
Income-Driven Repayment
Income-driven repayment (IDR) plans reduce your payments to a percentage of your discretionary income. There are three IDR plans available today:
• Saving on a Valuable Education (SAVE), which replaced REPAYE
• Pay As You Earn (PAYE)
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
In addition to reducing payments, these plans also extend the repayment term up to 25 years. Once the repayment period is up on the Income-Based Repayment plan, any remaining debt should be forgiven (but may be considered taxable income). The Department of Education is no longer offering forgiveness at the end of PAYE or ICR, but you can get credit for your payments by switching to IBR.
Starting in the summer of 2026, there will be a new income-driven option called the Repayment Assistance Plan (RAP). This plan offers forgiveness at the end, but only after you’ve paid your loans for 30 years.
Student Loan Refinancing
Another option to save money on your student loans is student loan refinancing. Loan refinancing doesn’t change the underlying amount that you owe. However, it may reduce the amount of money you spend on interest and help you secure better payment terms, which can add up to some serious cash over the life of your loan. When you refinance a federal student loan, you replace it with a private student loan.
Refinancing your federal and private loans based on your current credit score and income may allow you to score a brand new loan with a better interest rate or a shorter payoff term. However, you may pay more interest over the life of the loan if you refinance with an extended term.
To see how refinancing your loans could potentially help you spend less money in interest, you can take a look at this student loan refinance calculator. Just know that if you’re working toward PSLF, refinancing with a private lender will disqualify your loans from this and any other federal program or repayment plan.
💡 Quick Tip: Refinancing comes with a lot of specific terms. If you want a quick refresher, the Student Loan Refinancing Glossary can help you understand the essentials.
Take control of your student loans.
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The Takeaway
If you’ve been waiting around for your federal student loans to expire, you’re out of luck — federal student loans don’t expire. While private student loans may expire due to their statute of limitations, your debt won’t just disappear when this happens. Your finances will also suffer in the meantime. This is why it’s important to look into other ways to manage your student loan debt, such as student loan refinancing or income-driven repayment.
Remember that refinancing federal student loans means forfeiting access to federal repayment plans and other forgiveness programs. If you’re not relying on federal benefits, however, it could be an effective way to reduce your interest rate.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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If you can secure better terms for your student loan through refinancing, you may save money over the life of your loan. But does refinancing student loans hurt your credit score?
While refinancing may cause a small temporary dip in your credit score, your credit score will likely improve in the long term if it helps make your monthly payments more manageable.
Here’s what to know about how refinancing student loans may affect your credit and how to decide if student loan refinancing is the right choice for you.
Do Student Loan Refinance Lenders Look at Credit Scores?
Lenders look into factors including your credit score and payment history to determine if you qualify for student loan refinancing. As a reminder of what creditworthiness is: Your credit tells a story about your past borrowing habits and gives lenders insight into your likelihood of repaying the loan. If that story reflects positively on you, you’re considered “creditworthy” and more likely to qualify for better loan terms, such as a lower interest rate.
To provide you with pre-qualified refinancing rates, lenders usually run a soft credit check with the credit bureaus. A soft credit inquiry doesn’t typically impact your credit score. If you decide to move forward with a student loan refinance offer by submitting a formal application, a lender will conduct a hard credit inquiry, which will impact your score. This impact, however, is usually temporary and may be worth it if you’re able to secure better loan terms.
There are short- and long-term positive effects of refinancing student loans when it comes to your credit score. Here are some of the times when refinancing student loans can be a good idea.
Short Term
If your original loan has a high interest rate or high monthly payment and it causes you to have late or missed payments, that can hurt your credit score. According to FICO, a popular credit scoring model used by lenders, 35% of your FICO score calculation is based on your payment history.
Refinancing student loans can affect your credit in a positive way in the short term by making your monthly payments manageable. You may be able to lower your monthly payments if you qualify for a reduced interest rate. You can also choose to extend your repayment term during a refinance to lower your monthly payment, though this may mean you’ll pay more interest over the life of the loan.
Long Term
If you secure better loan terms that make it easier to repay your loans on time, you’ll make positive strides with your credit over time as you maintain a good payment history. Again, with 35% of your FICO score impacted by your repayment habits, this is a key benefit.
And if you qualify for a lower student loan interest rate, a student loan refinance can help you apply more of your cash flow toward your principal balance. In addition to saving more on interest charges for your total education debt, you’ll also repay your student loans faster. Aside from the mental relief you’ll get from a faster debt payoff, paying off your student loan accounts reduces the total outstanding amount you owe, which can impact up to 30% of your FICO score calculation.
Possible Negative Effects
So how does refinancing student loans hurt credit exactly? The negative effects on your credit score are typically minimal if you’re able to make on-time payments. Here’s what to know.
Short Term
Although your credit isn’t impacted by a soft credit check, a hard inquiry does affect your credit score. However, the impact is usually a five-point reduction or less and a hard inquiry from a student loan refinance only hurts your score for a few months, according to credit bureau Experian. After the inquiry drops off of your credit report, it’s no longer factored into your credit score calculation.
Long Term
A student loan refinance can negatively impact your credit score long-term if you find that you’re still unable to make full, on-time monthly payments. If for any reason your loan goes into default, it will adversely affect your credit score.
The negative impact of refinancing student loans is small, but there are still strategies to minimize their effect:
• Keep applications within a 14- to 45-day window. When multiple credit inquiries of a similar type are conducted within a close time frame of each other, some credit scoring models count them at only one inquiry.
• Keep paying your loans while in the refinancing process. Don’t stop making payments to your original loan servicer or lender until your refinancing lender gives you the all-clear. Prematurely stopping your loan payments can negatively impact your credit, even if you’re in the middle of refinancing.
• Stay on top of your student loan refinance payments. Maintain positive payment activity on your loan to avoid adversely affecting your credit score down the line.
If you don’t have a strong credit history, it might be challenging to get approved for a competitive refinance student loan rate and terms. Consider building your credit before applying or finding a cosigner with strong credit.
Refinancing also is not a good idea if you’re planning to take advantage of federal student loan programs or benefits, such as deferment, forbearance, student loan forgiveness, or income-driven repayment plans. You will no longer have access to these federal programs if you refinance your loan with a private lender.
💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.
Alternatives to Student Loan Refinancing
Student loan refinancing isn’t the only student loan repayment approach available. Alternative options provided by federal and state programs offer various ways to get relief from your education debt.
Loan Forgiveness Programs
Federal student loan borrowers have access to various student loan forgiveness programs that cancel a portion of your student loan debt. Popular programs that can reduce your student loan burden without impacting your credit include:
• Public Service Loan Forgiveness (PSLF). Borrowers who participate in PSLF must work full-time at the government level (federal, state, local, or tribal) or nonprofit. During this time, you must also enroll in an income-driven repayment plan and make 120 qualifying payments. Afterward, your remaining eligible federal loan debt is forgiven.
• Income-driven repayment (IDR) plans. If you want to lower your monthly payments – and potentially get some of your loan balance forgiven – consider opting into an income-driven repayment plan. After making 20 or 25 years of payments on the Income-Based Repayment (IBR) plan, the remainder of your eligible debt should be forgiven. The Department of Education is no longer processing forgiveness for the two other IDR plans, PAYE and ICR, but you should get credit for your payments if you switch to IBR.
Note that PAYE and ICR are set to close in the coming years, and borrowers will have a new income-driven plan option called the Repayment Assistance Plan (RAP) starting in the summer of 2026. Existing borrowers will be able to access IBR or RAP, while those who borrow after July 1, 2026 will only have the RAP plan as an income-driven option.
Each program has specific requirements that you’ll need to fulfill before receiving loan forgiveness, so be sure to review.
Loan Repayment Assistance Programs
Loan Repayment Assistance Programs (LRAPs) are provided through federal and state-sponsored programs, and sometimes through a private employer as an incentive. Qualified loans vary between programs, but some allow commercial loans (i.e. private student loans) and federal student loans.
Typically, a service commitment to work at an approved facility in an underserved area is required to be eligible for loan repayment assistance. After your service contract ends, you’ll receive a certain amount of repayment assistance toward your student loan debt if you meet all of the program’s criteria.
Direct Consolidation Loan
A Direct Consolidation Loan is only available for eligible federal loans; private student loans can’t be consolidated into a federal loan. If you have a hard time keeping track of multiple federal student loans, their due dates, and payment amounts, a consolidation loan simplifies your repayment.
It combines multiple loans into one new consolidation loan. The loan will be at a new interest rate which is the weighted average of the interest on all loans involved in the consolidation. There are many pros and cons involved with a Direct Consolidation Loan so tread carefully before taking this step.
SoFi Student Loan Refinancing Rates
Refinancing student loans can help you save money over the life of the loan if you can secure a lower interest rate or more favorable terms. You may pay more interest over the life of the loan if you refinance with an extended term. While the hard credit inquiry required by a loan application may temporarily lower your credit score, the long term benefits may be worth it if you’re able to save money and make your monthly payments more manageable.
It’s important to understand, however, that if you refinance federal student loans, you’ll lose access to valuable federal benefits and protections — so you should only refinance if you’re not planning to take advantage of any of these programs.
If you think a student loan refinance may make sense for your situation, you can check how much you might be able to save using a student loan refinancing calculator tool. A SoFi student loan refinance could help you reduce your total borrowing costs and offers competitive terms at low fixed or variable rates.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Photo credit: iStock/ferrantraite
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.
Unpaid student loans can take a significant toll on personal finances. For millions of Americans, outstanding student debt means years of ongoing payments, often averaging hundreds of dollars per month. It can be hard to balance paying back what’s owed on student loans while meeting immediate expenses and pursuing long-term financial goals.
But the impact student loan debt has on the economy goes deeper than dinging individuals’ bank accounts — it impacts entire economic sectors. Here’s how student debt affects the economy, plus ways borrowers can pay off their loans faster.
Key Points
• Student loan debt limits the disposable income of borrowers, leading to decreased spending on goods and services, which can slow economic growth.
• High debt levels often delay homeownership, marriage, and starting a family, affecting long-term economic stability and consumer markets.
• Borrowers are less likely to save for retirement or emergencies, which can lead to financial vulnerability and reduced economic resilience.
• The burden of student loans can influence career decisions, pushing graduates towards higher-paying jobs rather than pursuing their passions or contributing to less lucrative but essential sectors.
• Ways to pay off student loans quickly include making more than the minimum payment due, pursuing loan forgiveness programs, or refinancing their student loans.
Understanding How Many Americans Have Student Loans
For a comprehensive view of student loan debt and the economy, it’s useful to know just how much money is owed by borrowers across the U.S. in educational debt. In 2025, the cumulative total of student loan debt in the U.S. is nearly $1.8 trillion.
This educational debt load affects tens of millions of Americans. More than 42 million borrowers have federal student loan debt, with an average balance per individual of $38,375. To obtain a bachelor’s degree, the average public university student takes out almost $32,000 in undergraduate student loans.
For those with master’s degrees, student loan debt is even higher. The average master’s degree holder’s student loan debt is $84,203, which is more than double the average student debt balance.
Given these massive amounts, it becomes clearer how the U.S. college student loan debt crisis and the economy are enmeshed.
Demographics Most Affected by Student Loan Debt
The amount of student loan debt a borrower has varies by a number of demographic factors, including the level of education they attain, with individuals with graduate student loans owing more, as well as their race, income level, and gender. For instance, more women than men have student loan debt and black student loan holders tend to owe more than white borrowers, according to the Education Data Initiative (EDI).
Age is also a factor that can significantly affect student loan debt.
Age Groups Carrying the Most Debt
Borrowers under age 40 owe 54.5% of student loan debt, the EDI reports. While those in their 30s owe 32.5% of the student loan debt (or $517.45 billion in loans), student loan borrowers ages 18 to 29 are the age group most likely to have debt: One in four borrowers in this group owes student loan debt.
Older adults are also struggling with debt from their college years. In fact, adults ages 50 to 61 have an average student loan debt of $46,790, which is the highest student loan debt per borrower.
Here’s how student loan debt breaks down among age groups:
Age
Average student loan debt
18 to 29
$23,795
30 to 39
$42,014
40 to 49
$44,798
50 to 61
$46,790
Reviewing Effects of Student Loan Debt on the Economy
If the total amount of student loan debt held by Americans sounds staggering, that’s because it is. That total — $1.777 trillion — is more than the GDP of countries such as Australia, Spain, and South Korea.
With these numbers in mind, let’s dive deeper into the impact this massive amount of educational debt has on the U.S. economy.
Does Student Loan Debt Hamper Spending?
For those paying off a student loan, the average student loan payment for bachelor’s degree-holders is $336. Those with a master’s degree pay $842 per month, on average. For many — especially those embarking on a career and earning an entry-level salary — this ongoing financial obligation can put a serious dent in funds they could otherwise spend elsewhere.
Student loan repayments can take a big chunk of the money that individuals have available each month for buying, investing, saving, or starting a business.
Here’s why: More money spent paying back student loans means less money for consumer spending and saving. Consumer-driven economies grow when people spend their hard-earned money. If people are struggling to pay off their student loans, they’ll have less money to spend on purchases that help fuel the economy, businesses, and the workforce. The more individuals there are who are struggling to pay off loans, the greater this economic dampening effect that occurs.
During periods that require economic resilience, such as in a recession, reduced spending can be especially harmful. On the flipside, consumer spending can help to stimulate a floundering economy, possibly mitigating or reversing sudden downturns in specific sectors.
When spending doesn’t happen during a downturn, it can take longer for the economy as a whole to bounce back. And for those with student debt, it can also be harder to weather a financial crisis, compounding the pain of higher unemployment and lower spending.
With less money to spend, it’s no surprise that people with student loans have fewer funds for big ticket items, such as buying a home. According to the EDI, 29% of borrowers with student loan debt say their debt has prevented them from owning a home, and 51% of those who are currently renting say their debt prevents them from buying a place of their own.
Because home ownership is a major driver of wealth accumulation, delaying homeownership can impact an individual’s net worth for decades to come.
How Do Student Loans Stifle Entrepreneurship?
Small businesses contribute to the economy in major ways. In fact, they’re responsible for 1.5 million jobs annually, accounting for 64% of all new jobs. Small businesses employ 61.7 million people, which is almost 46% of the private sector workforce.
Future business owners who are saddled with student loan debt may not be able to turn to traditional means of financing, such as small business loans. It can be harder to get approved for financing when your debt-to-income ratio is high due to loans.
And when an individual with student debt does become an entrepreneur, they’re at risk of falling behind on student loan payments if their income decreases as they work to launch their business.
Paying Off Student Loans Can Benefit Individuals and the Economy
When examining student loan debt and the economy, it may be helpful for borrowers to research additional ways to pay off existing student loans — both for their own financial well-being and the future growth of the U.S. economy as a whole.
Here are some strategies that could help those with outstanding student debt to pay down their student loans faster.
Paying More than the Minimum Due
Student loan interest generally accrues over time. In most cases, the longer student loan debt goes unpaid, the more the borrower will owe, as unpaid interest gets added to the base dollar amount that had been borrowed from the lender. This is called compounding, and most student loans compound their interest daily. Our student loan calculator can help you see exactly how much you’re spending on interest over the life of the loan.
Many lenders allow borrowers the option to submit a minimum payment. In the short term, paying a lower amount per month can free up some income or cash. But paying the minimum does little or nothing to tackle the outstanding loan balance — typically, the borrower is just paying the accruing interest.
Paying more than the minimum can help reduce the length of time it will take to pay off an existing student loan, shrinking the principal balance as well as the amount of interest paid during the life of the loan. You can ask your lender to apply the additional payment to the principle of the loan, which can help reduce the amount you pay in interest over the life of the loan.
While increasing monthly payments may not be manageable for every individual, paying a little extra when possible can help borrowers eliminate student debt faster. If nothing else, borrowers may want to apply occasional windfalls, such as a work bonus or tax refund, toward their outstanding student debt.
Applying for Loan Forgiveness
Under some circumstances, the government will forgive federal student loans, essentially canceling out the remaining debt after a specific set of conditions have been met.
Some teachers and public servants are among the groups that may be eligible for federal student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). This program is available to qualifying federal student loan borrowers who work in public service for an eligible non-profit or government organization and who make a qualifying number of payments on an eligible repayment plan.
Some states and other organizations also offer forgiveness, especially for those in the healthcare field. There are also military forgiveness programs. Check to see what forgiveness programs are available that you might be eligible for.
Refinancing Student Loans
Refinancing student loans with a private lender may result in lower interest rates and/or the ability to pay off what’s owed in a shorter amount of time.
Student loan refinancing replaces outstanding student loans with a new loan. The new loan can have different terms and ideally, a lower interest rate.
However, it’s important to know that refinancing federal student loans with a private lender means that the borrower will forfeit federal benefits, such as access to income-driven repayment plans and federal public service forgiveness programs.
Budgeting and Financial Planning for Faster Repayment
Finally, to help pay off your student loans faster, examine your budget carefully. Track your spending and expenses and look for areas where you can cut back. For instance, maybe you can eat home more often to save on restaurant bills, or eliminate one of your streaming services — or both. You can then apply the money you save to your student loan payments.
Another step that could help: automating your monthly payments. That way, you can avoid any late fees. Plus, some lenders offer interest rate discounts to borrowers who enroll in auto pay.
The Takeaway
Student loan debt affects the economy in a number of different ways. Borrowers with student loan debt may have to reduce their consumer spending and delay buying a home or starting a business, for example, which can affect the broader economy.
Fortunately, there are methods borrowers can use to help manage student debt, such as paying more than the minimum amount due, budgeting for faster repayment, looking into student loan forgiveness programs, and considering student loan refinancing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
How does student loan debt affect life?
Student loan debt can impact life significantly, affecting financial stability, mental health, and major life decisions. It may delay homeownership, marriage, and starting a family, and can cause stress and anxiety. High debt levels may also limit career choices and savings for retirement.
How does being in debt affect the economy?
Being in debt can strain personal finances and thus reduce consumer spending and savings. This can slow economic growth, as consumer spending is a key driver. High levels of debt can also lead to increased student loan default rates, affecting financial institutions and potentially causing broader economic instability.
How many Americans have student loans?
Almost 43 million million Americans have student loans, collectively owing over $1.7 trillion. This widespread debt affects a significant portion of the population, impacting their financial decisions and economic contributions.
What economic sectors are most impacted by student loan debt?
The economic sectors most impacted by student loan debt include consumer spending, since borrowers with high student loan debt may cut back on spending; housing, because student loan debt makes it more difficult for many student loan holders to save for a down payment or qualify for a mortgage; and entrepreneurship since those with student loan debt may have a tough time qualifying for financing, including small business loans.
Can widespread student loan forgiveness boost the economy?
It’s not known whether widespread student loan forgiveness could boost the economy and there is a lot of debate about the effect it might have. Some economists think widespread forgiveness could provide an economic boost because it would increase consumer spending, drive sales of housing, and help with the launch of new businesses. Other economists believe the impact might be small, that forgiving student loans would be a huge cost to the federal government, and that forgiveness would be unfair to borrowers who have already repaid their loans.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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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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Student loans can be discharged in certain circumstances. When federal student loans are discharged, your requirement to pay back some or the entire remaining amount of your debt due is eliminated. However, this usually only happens in unique life situations, such as school closure, permanent disability, or death. However, because of a new student loans bankruptcy process, it may be possible to discharge student loans in bankruptcy.
Ahead, we explain who may qualify for student loan discharge, and other options for managing student loan debt.
When You Can Discharge Student Loans
Interested in discharging your student loans? Wondering when can student loans be discharged during bankruptcy? Here are details about some of the circumstances under which you may qualify for student loan discharge.
Total and Permanent Disability Discharge
To qualify for a federal student loan discharge due to disability, you must have a “total and permanent” disability that can be verified by the U.S. Department of Veterans Affairs, the Social Security Administration, or a qualified doctor. You also must complete a discharge application available at StudentAid.gov, which includes documentation showing you meet the government’s requirements for being considered disabled.
Veterans may be eligible for student loan discharge if they can provide paperwork from the VA demonstrating they either have a disability that is 100% disabling due to their service, or are totally disabled due to an individual unemployability rating.
For those borrowers who are eligible for Social Security Disability Insurance or Supplemental Security Income, you may also qualify for loan discharge by providing documentation of your Social Security award.
Not all private student lenders give you the option to discharge your loans if you’re permanently disabled. While you might be able to file an application to discharge your federal student loans because of disability, with private loans, you may have to consider legal action. You should speak to an attorney to determine if that’s the right course of action.
Federal student loan discharge may also be granted if the borrower dies. Parents who have taken out Parent PLUS loans on behalf of a student may also have these loans forgiven if the student or parent dies.
Proof of death, such as an original death certificate or certified copy, must be submitted in order for the loans to be canceled.
Declaring Bankruptcy and Discharging Student Loans
Can student loans be discharged during bankruptcy? And does bankruptcy clear student loans? The answer is yes to both questions, but the process can be lengthy and somewhat complicated.
Until late 2022, it was challenging and rare for federal student loans to be discharged through bankruptcy. But a process unveiled by the Justice Department in November 2022 makes it easier. Those filing for bankruptcy must fill out what’s called an attestation form to verify that they fit the definition of “undue hardship.” Their request is then evaluated by the bankruptcy judge under new standards, and their debt may be fully or partially forgiven.
Borrowers must pass a three-part test to prove they qualify for “undue hardship” and should have their federal loans discharged:
1. Is the borrower able to maintain a minimal standard of living while paying their student loans?
2. Have they made a good faith effort to repay the loans?
3. Will they continue to struggle to make payments during the remaining term of their loan?
It’s important to understand that filing for bankruptcy can have serious consequences. For instance, bankruptcy will impact your credit for years. It’s best to consult with a qualified professional, such as an attorney specializing in bankruptcy law, before making any decisions.
Closed School Discharge of Loans
If your school closes, you may be eligible for a 100% discharge of certain loan types, including Direct Loans, FFEL, and Federal Perkins loans. However, for this to apply, you must meet one of the following criteria:
• You must have been enrolled at the time the school closed
• You must have been on an approved leave when the school closed
• Your school closed within 180 days after you withdrew
Only federal student loans can be discharged due to school closure and other circumstances. For private loans, you must contact your lender directly to see if you will qualify with them.
Loan Discharge Because You Were Misled By Your College
If you have federal loans, and you feel your school “misled” you — for instance, by promising you’d get certain jobs or certain salaries — you may qualify to apply for Borrower Defense Discharge through the Department of Education. Note that this program has been challenged in court, but borrowers can still submit an application.
The application process is lengthy and submitting an application does not guarantee that your loans will be canceled.
False Certification Discharge
In very rare circumstances, you may be eligible for a discharge if loans were issued but they should not have been given out to you in the first place. For instance, this may apply if:
• Your school falsely certified that you had a high school diploma or GED
• You had a disqualifying status, such as a physical or mental condition, criminal record or other circumstance, at the time of the school certified your eligibility
• Someone else or your school signed your name on the loan application or promissory note
In all of the above circumstances, your loans might be discharged.
Unpaid Refund Discharge
If you leave school after getting a loan, your school may also be required to return part of your loan money. You may be eligible for a partial discharge if you withdraw from school, and the college did not return the portion it was required to under the law.
In this case, only the amount of the unpaid refund would be discharged.
Alternatives to Discharging Student Loans
Since qualifying for a student loan discharge is only permitted under certain circumstances, it’s important to look at other options for federal loans. Here are some of the other choices you may have to help you pay off your student loan debt:
Forbearance: Forbearance temporarily allows you to stop making your federal student loan payments or reduce the amount you have to pay. You may qualify if you are unable to make monthly loan payments because of financial difficulties, medical expenses, or changes in employment. Usually interest will still accrue while your loan is in forbearance.
Deferment: You may be able to defer your loans in certain circumstances, such as going back to school. Depending on your loan type, your loans may still accrue interest while in deferment. However, if you qualify for deferment on federal subsidized loans, you generally will not be charged interest during deferment. Note that deferment for economic hardship or unemployment will no longer be an option for loans issued after July 1, 2027.
Income-based repayment: With income-driven repayment, you may be able to reduce your monthly student loan payments if you can’t afford your monthly payments on a Standard Loan Repayment plan. With an IDR plan, you’ll make monthly payments of 10% to 20% of your monthly discretionary income. The Income-Based Repayment plan will forgive your remaining balance after 20 or 25 years. Note that two current options, PAYE and ICR, are set to close in the coming years. Existing borrowers will still be able to use IBR or switch to the new Repayment Assistance Plan (RAP).
Cancellation: If you have a federal Perkins Loan, you may qualify for up to 100% cancellation if you served full-time in a public or nonprofit elementary or secondary school system as a teacher serving low income students or students with disability or teach in a certain field. In addition to teachers, the following jobs may qualify you for partial or whole Perkins Loan cancellation: early childhood education provider, employee at a child or family services agency, faculty member at a tribal college or university, firefighter, law enforcement officer, librarian with master’s degree at Title I school, military service, nurse or medical technician, professional provider of early intervention (disability) services, public defender, speech pathologist with master’s degree at Title I school, volunteer service (Americorps Vista or Peace Corps).
Forgiveness: For borrowers working certain qualifying public service jobs, student loan forgiveness may be an option. With this option, your remaining student loan balance will be forgiven after you make 120 qualifying monthly payments while working full-time for a qualifying employer, which can include government organizations and certain not-for-profit organizations.
When to Refinance Your Student Loan Debt
Unlike student loan forbearance or deferment, which are temporary, short-term solutions, student loan refinancing can be a long-term debt solution. If you don’t qualify for the options mentioned above, refinancing can help simplify your repayment process since all of your loans can be taken care of with one monthly payment. If you refinance with a private lender, you can also change the term length on your student loans.
Should you refinance your student loans? You’ll need to weigh the pros and cons. One very important consideration is that if you refinance your federal student loans with a private lender, you will forfeit your eligibility for federal loan benefits, including student loan forgiveness or deferment. Using a student loan refinance calculator can show you how much you might save.
As you can see, it is possible to discharge student loans, but only in unique life circumstances, such as disability or false certification. If you do qualify, you may not have to pay some or all of your student loans, though you may have to pay taxes on the discharged balance.
If you don’t qualify for student loan discharge or one of the alternatives programs, refinancing your student loans with a private lender like SoFi can help get you a potentially lower interest rate, or a lower monthly payment if you extend your loan term. (You may pay more interest over the life of the loan if you refinance with an extended term.) Refinancing federal student loans also means losing access to federal discharge programs and other benefits.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
This article is not intended to be legal advice. Please consult an attorney for advice.
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Federal loans allow you to stop or reduce your payments in some circumstances, such as by enrolling in grad school, for up to three years — which is known as deferment. Deferment on private student loans varies by lender, and not all lenders offer it.
One thing you generally don’t want to do is simply stop making payments on your student loan. Whether your loans are federal or private, this puts you at risk of default, which can have a number of negative consequences.
Read on to learn more about student loan deferment, including what it is, how it works, its pros and cons, plus some alternative ways to get student debt relief.
• Student loan deferment allows borrowers to temporarily pause or reduce payments for up to three years.
• Interest does not accrue on subsidized federal loans during deferment but does on unsubsidized loans.
• Eligibility includes financial hardship, unemployment, military service, in-school enrollment, or medical treatment.
• Deferment can provide financial relief but may increase total loan costs due to accruing interest.
• Alternatives include income-driven repayment plans, forbearance, or refinancing, depending on financial goals.
What Is Student Loan Deferment?
Student loan deferment allows qualified applicants to reduce or stop making payments on their loans for up to three years. If you have a subsidized federal loan, no interest accrues during the deferment period. If you have an unsubsidized federal loan, interest will accrue and will be added to the loan amount (or capitalized) at the end of the deferment period.
Deferments are available on federal loans including Direct Loans, FFEL Program loans, and Perkins Loans.
Private student loans may or may not offer deferment options to borrowers. If you have questions about your private student loan, you’ll want to check in with your lender directly.
How Does Student Loan Deferment Work?
If you have a federal student loan and are no longer in school at least half-time, you will need to apply to defer payments on your student loan. This usually involves submitting a request to your student loan servicer. You will also likely need to provide documentation to show that you meet the eligibility requirements for the deferment (more on eligibility requirements below).
If you have an unsubsidized federal student loan and are granted deferment, interest will continue to accrue during the deferral period. You will have the option to either pay the interest as it accrues or allow it to accrue and be capitalized (added to your loan principal balance) at the end of the deferment period.
Deferments are available on federal loans including Direct Loans, FFEL Program loans, and Perkins Loans.
If a private lender offers deferment, they will likely have their own forms and requirements.
Why Defer Student Loans
Applying for deferment may make sense if you are facing short-term difficulty paying your student loans, since a deferment can provide you with the opportunity you need to stay afloat financially. And, if you have a subsidized loan, deferment won’t make your loan any more expensive in the long run.
If you’re able to stay on top of your loan payments, then deferment likely doesn’t make sense. If you think that you may have long-term difficulty making your monthly loan payments, deferment may not be the best option, either.
If you have an unsubsidized federal loan, interest will continue to accrue during deferment. At the end of the deferment period, this interest will be capitalized on the existing loan amount (or the principal loan value). Moving forward, interest will be calculated based on this new total. So essentially, you are accruing interest on top of interest, which can significantly increase the amount of interest owed over the life of the loan.
Pros and Cons of Student Loan Deferment
Student loan deferment can help borrowers who are struggling financially, but it may not be the right choice for everyone. Here are some pros and cons to consider when evaluating deferment options for federal student loans.
Pros
Cons
Borrowers are able to temporarily suspend or lower the monthly payments on their student loans.
On most federal student loans, interest continues to accrue. This may significantly increase the total cost of borrowing over the life of the loan.
Borrowers may qualify for deferment for periods of up to three years.
Because interest may continue to accrue during deferment, other options — like income-driven repayment plans — may be more cost-effective in the long term.
Types of Student Loan Deferment
For federal student loans, there are a few different deferment options. Here are the details on some of the most common reasons borrowers apply for deferment.
In-School Deferment
Students who are enrolled at least half-time in an eligible college or career program may qualify for an in-school deferment. If you are enrolled in a qualifying program at an eligible school, this type of deferment is generally automatic. If you find the automatic in-school deferment doesn’t kick in when you are enrolled at least half-time in an eligible school, you can file an in-school deferment request form.
Unemployment Deferment
Those currently receiving unemployment benefits, or who are actively seeking and unable to find full-time work, may be able to qualify for unemployment deferment. Borrowers can receive this deferment for up to three years.
Note that under the new ‘Big, Beautiful Bill,” loans made after July 1, 2027 are no longer eligible for deferments based on unemployment hardship.
Economic Hardship Deferment
This type of deferment may be an option for borrowers who are receiving merit-tested benefits like welfare, who work full-time but earn less than 150% of the poverty guidelines for your state of residence and family size, or who are serving in the Peace Corps. Economic hardship deferments may be awarded for a period of up to three years.
Note that under the ‘Big, Beautiful Bill,’ loans made after July 1, 2027 are no longer eligible for deferments based on economic hardship.
Military Deferment
Members of the U.S. military who are serving active duty may qualify for a military service deferment. After a period of active duty service, there is a grace period in which borrowers may also qualify for federal student loan deferment.
Cancer Treatment Deferment
Individuals who are undergoing treatment for cancer may qualify for deferment. There is also a grace period of six months following the end of treatment.
Other Types of Deferment
There are other situations and circumstances in which borrowers might be able to apply for deferment. Some of these include starting a graduate fellowship program, entering a rehabilitation program, or being a parent borrower with a Parent PLUS Loan whose child is enrolled in school at least half-time.
Consequences of Defaulting on Federal Student Loans
If you simply stop making payments as outlined in your loan’s contract, you risk defaulting on your student loan. Default timelines vary for different types of student loans.
Most federal student loans enter default when payments are roughly nine months, or 270 days, past due. Federal Perkins Loans can default immediately if you don’t make any scheduled payment by its due date.
Consequences of defaulting on federal student loans includes:
• Immediately owing the entire balance of the loan
• Losing eligibility for forbearance, deferment, or federal repayment plans
• Losing eligibility for federal student aid
• Damage to your credit score, inhibiting your ability to qualify for a car or home loan or credit cards in the future
• Withholding of federal benefits and tax refunds
• Garnishing of wages
• The loan holder taking you to court
• Inability to sell or purchase assets such as real estate
• Withholding of your academic transcript until loans are repaid
Consequences of Defaulting on Private Student Loans
The consequences for defaulting on private student loans will vary by lender but could include repercussions similar to federal student loans, and more, including:
• Calls, letters, and notifications from debt collectors
• Additional collection charges on the balance of the loan
• Legal action from the lender, such as suing the borrower or their cosigner
To avoid these negative consequences, it’s best to contact your lender as soon as you think you may miss a payment. Your lender may be more willing to work with you prior to your loan entering default.
• Enrolled in an approved rehabilitation program for the disabled
Borrowers who re-enroll in college or career school part-time may find that their federal student loans automatically go into in-school deferment with a notification from their student loan provider.
Loans may also keep accruing interest during deferment — depending on what types of federal student loans the borrower holds. Borrowers are still responsible for paying interest if they have a:
• Direct Unsubsidized (Stafford) Loan
• Direct PLUS Loan
If you don’t pay the interest during the deferment period, the accrued amount is added to your loan principal, which increases what you owe in the end.
Private lenders aren’t required to offer deferment options, but some do. For example, some might allow you to temporarily stop making payments if you:
• Lose your job
• Experience financial hardship
• Go back to school
• Have been accepted into an internship, clerkship, fellowship, or residency program
• Face high medical expenses
Typically, even while a private student loan is in deferment, the balance will still accrue interest. This means that in the long term, the borrower will pay a larger balance overall, even after the respite of deferment.
In most cases, even with accrual of interest, deferment is preferable to defaulting. Borrowers with private loans could contact the lender to ask what options are available.
The Limits of Student Loan Deferment
Keep in mind that deferment is not a panacea. By definition, it’s temporary. Federal student loan borrowers will ultimately need to go back to making payments once they are no longer deferment-eligible. For example, a borrower’s deferral might end if they leave school, even if their ability to pay has not improved.
Federal loans can only be deferred for up to three years. With private loans, there may not be an option to defer at all, and if it is an option, the limit may be no more than a year.
Other Options for Reducing Federal Student Loan Payments
Besides student loan deferment, you have other choices if you can’t afford the total cost of your monthly payments. Here’s a look at some alternatives to deferment.
If you qualify, you may be able to reduce your monthly payment based on your income. Enrolling in an income-driven repayment plan won’t have a negative impact on your credit score or history. On certain income-driven repayment plans, student loan balances can be forgiven after 20 or 25 years, depending on the payment plan that the borrower is eligible for.
Starting on July 1, 2026, income-driven repayment plans PAYE, ICR, and SAVE will be replaced by a new Repayment Assistance Plan (RAP). The existing IDR plans will be eliminated by July 1, 2028. With RAP, payments range from 1% to 10% of adjusted gross income with terms up to 30 years. After the term is up, any remaining debt will be forgiven.
Forbearance
Student loan forbearance is another way to suspend or lower your student loan payments temporarily during times of financial stress, typically for up to nine months in a 24-month period under the new Repayment Assistance Plan. Generally, forbearance is not as desirable as deferment, since you will be responsible for accrued interest when the forbearance period is over no matter what type of federal loan you have.
When comparing deferment vs. forbearance, you’ll want to keep in mind that there are two types of forbearance for federal student loan holders: general and mandatory.
General student loan forbearance is sometimes called discretionary forbearance. That means the servicer decides whether or not to grant your request. People can apply for general forbearance if they’re experiencing:
• Financial problems
• Medical expenses
• Employment changes
General forbearance is only available for certain student loan programs, and is only granted for up to nine months at a time. At that point, you are able to reapply for forbearance if you’re still experiencing difficulty. General forbearance is available for:
• Direct Loans
• Federal Family Education Loan (FFEL) Program loans
• Perkins Loans
Mandatory forbearance means your servicer is required to grant it under certain circumstances. Reasons for mandatory forbearance include:
• Serving in a medical residency or dental internship
• The total you owe each month on your student loan is 20% or more of your gross income
• You’re working in a position for AmeriCorps
• You’re a teacher that qualifies for teacher student loan forgiveness
• You’re a National Guard member but don’t qualify for deferment
Similar to general forbearance, mandatory forbearance is granted for up to nine month periods, and you can reapply after that time.
Another Option to Consider: Refinancing
Depending on your personal financial circumstances, another long-term solution could be student loan refinancing. This involves applying for a new loan with a private lender and using it to pay off your current student loans. Qualifying borrowers may be able to secure a lower interest rate or the option to lengthen their loan’s term and reduce monthly payments. Note that lengthening the repayment period may lower monthly payments, but will generally result in paying more interest over the life of the loan.
Refinancing could be a good option for borrowers with strong credit and a solid income, among other factors. Unlike an income-driven repayment plan, your monthly payment wouldn’t change based on your income.
Either way, you’ll want to keep in mind that refinancing federal student loans with a private lender means you no longer have access to any federal borrower protections or payment plans. So, if you are taking advantage of things like income-driven payment plans or deferment, you likely don’t want to refinance. But for other borrowers, student loan refinancing might be a useful solution.
If you have more than one student loan, refinancing could also simplify your repayment process.
If you take out a federal student loan and at some point need to pause or reduce your payments, you may be able to qualify for deferment, forbearance, or an income-driven repayment plan. Each option has its pros and cons.
If you’re considering a private student loan (or refinancing your federal loans), keep in mind that private loans don’t come with government-sponsored protections like forbearance and deferment. However, private lenders may offer hardship and deferment programs of their own.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
How long can you defer student loans for?
Depending on the type of deferment you are enrolled in, federal loans can be deferred for up to three years. Private student loans may not offer an option to defer payments, and if they do, the limit will be set by the individual lender.
Why would you defer student loans?
Deferment can be helpful if you are facing a temporary financial hurdle because they allow you to pause or reduce your payments for a period of time.
Are there any reasons not to defer student loans?
Most loans will continue to accrue interest during periods of deferment. When the deferment is over, this accrued interest is then capitalized on the loan. This means it’s added to the existing value of the loan. Moving forward, interest is charged based on this new total. This can significantly impact the total amount of interest that a borrower has to pay over the life of a loan.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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