You can check a credit card balance in a variety of ways, including online, in an app, over the phone, or on your statement. This can be a smart financial move. It’s easy to swipe a credit card and lose track of exactly how much you’re spending. That’s why it’s critical to check your credit card balance on a regular basis.
By checking your credit card balance, you’ll know how much you owe so you can make payments or adjust your spending accordingly. Here, you’ll learn more about how to check a balance on a credit card and why your credit card balance matters.
What Is a Credit Card Balance?
There are two different types of balances consumers will come across when it comes to their credit cards: current balances and statement balances.
The statement balance is the total balance owed at the end of the billing cycle. If someone wants to avoid paying interest, they need to pay off their statement balance in full each month. The current balance, on the other hand, is the total amount owed plus any fees, charges, credits, and payments that have been added to the account since the billing cycle ended. Given how credit cards work, it’s not necessary to pay the entire current balance to avoid interest charges.
In addition to their current balance and statement balance, each month the cardholder will also be told what their ://www.sofi.com/learn/content/credit-card-minimum-payment/”>credit card minimum payment is. This is the lowest amount of their balance that they can pay in order to remain in good standing with their credit card issuer. They’ll need to pay interest on the remaining unpaid balance.
A credit card balance represents the total amount owed to the credit card issuer. If the cardholder wants to avoid paying interest on their remaining balance, they’ll need to pay off their credit card balance in full each month. So, for budgeting purposes, it’s helpful to know what that balance is.
A credit card balance also can indicate how high or low someone’s credit utilization ratio is. This ratio compares how much credit someone is using to how much credit they have available based on their credit card limits.
It’s generally advised to keep your credit utilization ratio under 30% — but the lower, the better. Paying off a credit card balance in full each month can also help keep credit utilization low.
Additionally, checking your credit card balance each month can allow you to spot any unusual or potentially fraudulent charges on your credit card. If anything is amiss, you could then quickly contact your issuer and dispute the credit card charge.
Reviewing a credit card statement can also help consumers identify where to cut back their spending so they can save more or afford to pay down more credit card debt.
How to Check a Credit Card Balance
Even if you’re confident you can pay off your balance in full each month, it’s smart to stay on top of your credit card balance for the reasons mentioned above. Read on to learn how to check the balance on your credit card.
Log In to the Mobile App or Go Online
Thanks to mobile banking and credit card apps, it only takes a few seconds to check a credit card balance from a smartphone. Mobile apps can make it very easy to check a credit card balance on the go. It’s also possible for consumers to check their credit card balances by logging onto their online accounts from a computer, smartphone, or tablet.
Contact the Card Issuer
It’s also possible to call the credit card issuer directly to confirm what your current credit card balance is. The phone number to call is printed on the credit card and also listed on the credit card issuer’s website. Keep in mind your issuer may provide different numbers to call depending on your reason for calling.
Send a Text to Your Bank
Don’t love making phone calls? Some banks and credit card issuers also allow account holders to text them to check their account balance, which is a speedy and convenient way to get an update.
Check Your Statements
Each month, an account holder usually receives a paper credit card statement through the mail or over email. The Account Summary section of the statement will outline what the statement balance on the credit card as well as the following details, which are given what a credit card is:
Regularly checking your credit card balance is smart for a number of reasons. In addition to helping you stay on top of your spending and how much you owe, it can also help you to monitor your credit utilization and check charges for any fraudulent activity. Checking your credit card balance is easy to do online, on an app, with a phone call, via text, or on your credit card statement.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Can you transfer a balance to a new credit card?
It’s possible to transfer a balance from one credit card to a new one by using a balance transfer credit card. Typically, balance transfer cards come with a low or 0% introductory APR, which makes it possible to pay down debt without spending too much on interest for a temporary period of time. Keep in mind that balance transfer fees will typically apply.
What is a credit card balance refund?
When someone pays off their credit card balance before getting a refund for a purchase they made, that results in a negative credit card balance. To get that money back, you can either request a refund or wait for the funds to get applied to your future credit card balance.
What happens if I overpay my credit card balance?
If someone overpays their credit card balance for whatever reason, they can either have that balance applied to a future purchase or they can request a credit card balance refund.
What does a negative balance on a credit card mean?
Having a negative credit card balance means that someone has a credit card balance that is below $0. For example, if someone pays off their credit card balance and then requests a $250 refund from a merchant, they would end up with a negative balance of $250. The credit card issuer would then owe that money to the account holder.
What happens if you cancel a credit card with a negative balance?
If someone chooses to close a credit card that has a negative balance, they need to request a refund before they close their account. Some credit card issuers will issue this refund automatically, but it’s best to confirm the refund is happening before closing an account.
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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.
Though putting together enough money to purchase a home has always been tough for younger buyers, rising prices and higher interest rates have made it especially difficult for Gen Z (those born from the mid-to-late 1990s and the early 2010s) to get a foot in the door of the housing market.
As they wait on the sidelines for the chance to buy their first place, many are feeling “real estate FOMO” — the fear that they’re missing out on a major life milestone and opportunity to build wealth that others have managed to achieve. Let’s take a look at some of the obstacles Gen Z is facing and learn the steps that could help as you save for, and search for, a home.
What Does FOMO Mean?
FOMO, or the fear of missing out, is a term used to describe the feeling that others are doing better than you are. Maybe they’re achieving goals that you haven’t yet reached, or experiencing things that you currently don’t have the wherewithal to accomplish (financially or otherwise). FOMO is often used in the context of missing out on a social event — a concert, for example, or a party you weren’t invited to. But it also can pertain to wanting to purchase things others in your social circle have — a better car, clothes, trips, or jewelry, for example.
FOMO spending is when the fear of missing out pushes you to spend money — maybe more than you should — to keep up with your peers. (Older generations often refer to this as “keeping up with the Joneses.”) Real estate FOMO can have that effect. It might lead someone to buy a house before they’re ready, or to get a mortgage loan on a house they can’t comfortably afford. But it also can make homebuyers reluctant to pull the trigger on a purchase, if they think they’ll find a better home at a better price if they just wait a while. And for members of Gen Z, social media can exacerbate those feelings.
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How to Deal with FOMO in Real Estate
There are a few different things you may want to consider doing if you think FOMO is getting in the way of making smart homebuying decisions.
If You Feel You Need a Reality Check…
It never hurts to revisit your budget to see how much house you can truly afford. Using a home affordability calculator can help you set some limits. It also may be useful to talk to a financial advisor about how buying a home — or a home at a particular price — could affect your other goals. If you see a property you’re interested in purchasing, run the numbers in a mortgage calculator to get a sense of what your monthly payments would be.
If You Find Yourself Trying to “Time the Market”…
It can be tough to predict when home prices or interest rates will go down. Instead, you might want to talk to a real estate agent about the best time of year to look for housing bargains in your area. Or you could shift your search from a pricey “hot” area to a place where the cost of living is more affordable. Also, if you find a home you think you’ll stay in long-term, you may want to keep mortgage refinancing in mind as an option for lowering costs down the road.
If You’re Feeling Triggered by What Others Have…
Looking at too many listings (or home improvement shows, or friends’ house-proud social media posts) has a way of leading you away from your personal “must-haves.” When that happens, it helps to take a moment (perhaps with a social-media hiatus?) to reprioritize and get back on track.
What Are the Barriers for Gen Z Home Buyers?
Some of the obstacles Gen Z homebuyers face are the same as those would-be homeowners have encountered off and on for generations. Home prices are high. Mortgage interest rates, though nowhere near the double digits they were throughout much of the 1980s, still feel nerve-rackingly elevated. Housing inventory is low. And though inflation is cooling, gas, groceries, and other costs are still taking a toll on household budgets.
But Gen Z has some issues to contend with that other generations may not, including:
Down Payment Costs
Higher-priced houses can require larger down payments, and that can make getting into the housing market increasingly difficult. First-time homebuyers typically put down less than repeat buyers — about 8% compared to 19%, according to the National Association of Realtors® 2023 Profile of Home Buyers and Sellers. That still could be a hefty chunk of change to come up with, however, considering the median home price in the U.S. is currently around $420,000.
Student Loan Debt
A college education may help Gen Z graduates earn a higher salary, but many report that student debt is slowing their progress toward certain milestones, including buying a home. Those college loans can make it even more difficult for younger buyers to save for a down payment or make higher monthly mortgage payments. You can afford a mortgage if you have student loans, but student debt can factor into your debt-to-income ratio (DTI), which may affect whether or not you qualify for a mortgage or what interest rate you’re offered.
Higher Rent Payments
Rising rental costs are another factor that may be affecting Gen Z’s ability to save for a home. According to Zillow’s monthly Observed Rent Index, the typical U.S. rent in March 2024 was $1,983, a 3.6% year-over-year increase.
Adulting = Insecurity
When you’re in a new (or new-ish) career, out on your own with bills to pay, and you’re not sure where life might take you next (a new job, a new town, a new partner, a new baby?), navigating life after college can be daunting enough without the homebuying headaches. While some in Gen Z have found a way to get into the housing market despite the barriers, others are waiting until their personal life feels more stable.
How Does Gen Z Approach Home Buying?
For some in Gen Z, buying a home may not be as significantly linked to achieving success as it was for older generations. (According to a 2023 GoDaddy survey, only 40% of Gen Z respondents chose “yes” when asked if homeownership indicated a person had achieved the American Dream, compared to 44% of millennials, 49% of Gen Xers, and 50% of boomers.) Still, it remains a goal for many, who are finding ways to make it happen — by taking on roommates, moving to a state with a lower cost of living, working a side gig to earn more money, or living with their parents after college to save money.
Where Is Gen Z Buying Homes?
As you might expect, Gen Z-ers who live in or can easily move to more affordable locations are more likely to buy homes than those in large cities where home prices are higher. According to a Redfin report, the typical home price for Gen Z buyers in 2022 was $255,000 or less — much lower than the overall median price in the U.S. that year.
Realtor.com recently listed Jacksonville, NC; Elkhart, IN; Lima, OH; Waterloo, IA; Cumberland, MD; Watertown, NY; St. Joseph, MO; Hinesville, GA; Dubuque, IA; and St. Cloud, MN, as the 10 metropolitan areas with the largest percentage of Gen Z buyers in 2022.
Gen Zers aren’t facing the double-digit mortgage rates their parents and grandparents paid in the early 1980s. And they aren’t trying to buy a home during a depression or recession. Still, thanks to inflation and other factors — including an uptick in the number of affordable homes being snapped up by investment companies — this is a challenging time to become a homeowner.
According to Redfin, 30% of 25-year-olds owned their own home in 2022 — so it is doable. That homeownership rate is lower than what the baby boomers had (32%) when they were 25. But it’s actually a bit higher than the rate for millennials (28%) and Gen Xers (27%) when they were that same age.
Steps for Gen Z Home Buyers to Consider
For Gen Z, patience, flexibility, and creativity may be the keys to success in today’s tough housing market. Here are some steps to consider as you pursue homeownership:
Know Before You Go
The more you know about the homebuying process, the more confident you can feel about the decisions you make. Get to know the things you can do on the front end (like improving your credit score, lowering your DTI ratio, and researching first-time homebuyer programs and loans). And as you start your home search, consider listing your wants vs your needs, learning about the different types of mortgage loans, and going through the mortgage preapproval process.
Keep Expectations in Check
Here’s where FOMO can really get in your way: The house you can afford may not be anything close to the designer houses you see on social media and TV. But an affordable starter home can be a stepping stone to the home of your dreams. If you aren’t sure what you can manage, talk to a professional, such as your financial advisor, a real estate agent, or a mortgage professional.
Cast a Wide Net
If you can’t afford the trendiest neighborhood or a house directly on the beach, you may want to try searching in areas that are similar or nearby. If you can relocate, you could take your search even broader, looking at states that have what you want but at a lower price.
If high housing costs and other factors are getting in the way of your plans to buy a home, and you feel a strong sense of FOMO creeping up on you, try not to get sucked into overspending — or turned off to homeownership altogether. Staying true to your budget and your goals, and getting some assistance in finding the right home and home loan, can help you avoid feeling pressured into bad decision-making.
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FAQ
What does FOMO mean in real estate?
The fear of missing out (FOMO) in real estate is the worry that you aren’t where you should be when it comes to homeownership — perhaps because you haven’t yet purchased a home, or you don’t have the same level of home you see others in your peer group moving into.
What housing markets are dropping the fastest?
According to CoreLogic’s U.S. Home Price Insights report for 2024, several locations on both coasts of Florida are likely to experience price drops this year, as well as the Atlanta-Sandy Springs-Roswell area in Georgia, and the Youngstown-Warren-Boardman area in Ohio and Pennsylvania.
What is the slowest month for the housing market?
Winter is typically the slowest time of year for the housing market, while spring and summer are the busiest seasons.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
According to the latest figures from the Federal Reserve, 30% of U.S. adults had student loan debt upon leaving school.
Student loan debt is a significant financial burden for many Americans, impacting their ability to save, invest, and achieve financial milestones. As higher education costs continue to rise, more students and families rely on loans to fund their education.
Understanding the scope and scale of student loan debt in the United States is crucial for grasping its economic and social implications. Keep reading to learn how many Americans have student loan debt, the average amount borrowed, student loan debt by demographics, and more.
How Many People in the USA Have Student Loans?
The total student loan debt crisis amounts to $1.74 trillion in unpaid student loans as of the second quarter of 2024. This outstanding balance is spread among 43.2 million U.S. borrowers.
Federal student loans account for 91.2% of all U.S. student loan debt, according to the Education Data Initiative. However, U.S. adults are also burdened by private student loans.
As of Q3 2023, Americans have amassed a total of $130.28 billion in private student loans — accounting for 7.5% of outstanding student loans in the country.
The College Board’s Trends in College Pricing and Student Aid 2023 report found that the average four-year, public bachelor’s degree graduate left school with $27,400 in student debt. Bachelor’s recipients from private nonprofit institutions left school with an average of $33,600 in student debt.
Student Loan Debt by Age
U.S. adults ages 35 to 49 have a total aggregated balance of $635.7 billion in federal loans across 14.7 million borrowers. On average, a borrower in this age group has a student debt balance of $43,200, according to College Board.
Age
Total Balance
Average Balance per Borrower
Up to age 24
$103.4 billion
$14,600
25 to 34
$497.5 billion
$32,900
35 to 49
$635.7 billion
$43,200
50 to 61
$297.4 billion
$45,700
62 and older
$112.8 billion
$41,600
The next-highest total balance, at $497.5 billion, falls on borrowers ages 25 to 34. The 15.1 million borrowers in this age group have an average loan balance of $32,900.
Borrowers with the highest average balance ($45,700) are those who are 50 to 61 years — this group accounts for 6.5 million borrowers in the U.S.
Student Loan Debt by Race and Gender
According to the Education Data Initiative, 64% of the total U.S. student loan debt is held by women.
Men borrow an average of $29,862 in student loans. By contrast, each woman carries an average of over $30,000 in student debt.
Race/Ethnicity (Women)
Cumulative Debt
Asian
$25,252
Black or African American
$37,558
Hispanic or Latina
$27,029
White
$31,346
Black women face the greatest hurdle when it comes to student loan debt. According to AAUW, Black or African American women carry the highest cumulative student debt by race and ethnicity at $37,558. This figure includes the principal amount and student loan interest rate charges.
Student Loan Borrowers by Debt Size
According to the U.S. Department of Education, most student loan borrowers (9.9 million as of 2023) owe between $20,000 and $40,000. Close to half of all borrowers (42%) owe between $10,000 and $40,000, and only one million borrowers have student debt totaling $200,000 or more.
How Many People Have Student Loans by Demographic?
According to the Education Data Initiative, middle-income students are most likely to take out student loans. For students living on campus, 63.6% used federal student loans, compared to 39.7% of students who lived with their parents.
Among married undergraduates, 52% accepted federal loans. 54.1% of independent undergraduate students relied on federal student loans to help fund their education.
What Percentage of College Students Take Out Student Loans?
The percentage of students who borrow student loans vary based on factors like degree type and institution.
According to the Education Data Initiative, 31.5% of undergraduate students accepted student loans from the federal student loan program.
About 52% of bachelor-seeking students attending a private nonprofit received federal student loans, while 49% of bachelor’s students enrolled at a public college received federal loan aid.
Among master’s degree students, 53.6% who attended a private nonprofit school received federal aid, compared to 52.5% who attended a public institution.
Finally, 79.5% of students pursuing a professional doctorate degree at a private nonprofit received student loans. Of those who attended a public college, 31% of doctoral candidates have student loan debt.
Collectively, Americans have an outstanding student loan balance of $1.74 trillion in total. Private student loans makeup $130.28 billion of that, and the rest is federal student loans.
The Takeaway
Americans are carrying a significant student debt burden after leaving school. New and currently enrolled college students will likely see continued rising education costs.
Despite these figures, one of the benefits of student loans is that they can provide access to college for students who might otherwise not be able to finance their education. To pay for college, students can turn to cash savings, scholarships, grants, and federal and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Who holds the majority of student debt?
According to the College Board, borrowers ages 35 to 49 hold the majority of outstanding federal student debt at $635.7 billion, with an average balance of $43,200 per borrower.
What is the average student debt in the U.S.?
According to the Education Data Initiative, the average federal student loan debt as of 2024 is $37,843 per borrower. Counting private student loans, that number is $40,681 per borrower.
What is the total amount of student debt owed by Americans?
Americans owe $1.74 trillion in federal and private student loans as of 2024.
How do you get rid of student loan debt?
To get rid of student loan debt, you can make consistent payments, consider refinancing for better rates, apply for income-driven repayment plans, or seek loan forgiveness programs if eligible. Strategies like budgeting and making extra payments can help accelerate debt repayment and reduce the total interest paid.
What happens to student loan debt when you die?
When a borrower dies, federal student loan debt is typically discharged and does not need to be repaid. For private student loans, policies vary by lender; some may discharge the debt, while others may require repayment from the borrower’s estate or a cosigner if one exists.
How does student loan debt affect the economy?
Student loan debt affects the economy by reducing borrowers’ purchasing power, delaying homeownership, and impacting savings and retirement plans. High debt levels can limit consumer spending and hinder economic growth. Additionally, it may discourage potential students from pursuing higher education, affecting workforce skills and overall economic productivity.
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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.
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.
Student loan consolidation can streamline the federal student loans you’ve accumulated over the years. That can make it easier and possibly more affordable to pay down your debt. But this kind of consolidation can also have downsides, like being in debt longer and possibly paying more interest overall.
Currently, one-third of federal student loan debt is in the Direct Consolidation Loan program, according to EducationData.org. To understand your options, read on to take a closer look at the pros and cons of consolidating student loans and what options you may have. Equipped with this info, you can decide whether debt consolidation is the right next step for you.
What Is Student Loan Consolidation?
A Direct Consolidation Loan is a federal loan under the William D. Ford Direct Loan Program. Consolidation lets you combine one or more existing federal student loans into a new Direct Consolidation Loan. Here are some more details to note:
• You don’t have to combine all of your federal loans; instead, you can select which eligible loan you’d like to consolidate. The consolidated loan balance is the total remaining principal from the loans you’ve chosen to merge, including any unpaid interest.
• The loan will have a new interest rate and a longer repayment term. The loan servicer that’s managing your Direct Loan Consolidation repayment might change, too.
• Most federal Direct Loans and Federal Family Education Loans (FFELs) can be consolidated.
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Pros of Consolidating Student Loans
Student loan consolidation presents a handful of advantages that help you take control over your repayment journey. Below are the top benefits of a Direct Consolidation Loan of your federal student loans.
Easier to Manage
Over your education, you might’ve opened new loan accounts for various academic years. These loans have different monthly payment amounts and due dates, and they are also likely maintained by different loan servicers.
At its forefront, consolidation simplifies your repayment experience by bundling multiple loans into one neat package. You’ll have one outstanding balance to focus on with just one payment due date to remember so there’s less chance of accidentally missing it (a plus for your credit). And if you have any questions about your loans, you only need to reach out to one servicer.
More Time to Pay Off Your Student Loans
Consolidating your student loans resets your repayment clock. Direct Consolidation Loan terms can be as long as 30 years if you choose a Standard or Graduated Repayment Plan. (Do note, however, that extending your loan term can mean paying more interest over the life of your loan.)
Your maximum timeline to pay back the consolidated loan also depends on your loan’s principal balance:
• 10-year term for amounts under $7,500
• 12-year term for $7,500 to $9,999
• 15-year term for $10,000 to $19,999
• 20-year term for $20,000 to $39,999
• 25-year term for $40,000 to $59,999
• 30-year term for $60,000 or greater
If you need more runway to pay down your federal student debt, a consolidation loan might be an option.
Can Have a Lower Monthly Payment?
Thanks to the extended repayment term that a Direct Consolidation Loan offers, you’re left with a lower monthly payment. The loan’s repayment is stretched over a longer period so your fixed installments are much smaller than you originally had. (As mentioned above, though, you may pay more in interest over the repayment term if you extend it.)
For example, let’s say you’re combining two loans:
• Loan 1 is $15,000 at 6%
• Loan 2 is $30,000 at 6.4%
Your original monthly payment for loans 1 and 2 are $166.53, and $339.12, respectively. That’s $505.65 per month in student loan payments.
If you consolidate both loans your principal balance is $45,000. Over a 25-year term at 6.25%, your monthly payment is $296.85 — that’s more than $200 less each month.
Unlocks Income-Contingent Repayment for Parents
If you have a qualifying federal student loan, enrolling in one of four income-driven repayment (IDR) plans can help you access lucrative federal benefits, like Public Service Loan Forgiveness (PSLF). However, Direct PLUS Loans for parents aren’t eligible for IDR.
A consolidation loan gives borrowers with Direct Parent PLUS Loans a way into one IDR plan, the Income-Contingent Repayment (ICR) Plan. After consolidating Parent PLUS Loans, parents can repay the new loan under ICR over 25 years.
The ICR Plan calculates monthly payments either at 20 percent of your discretionary income, or the equivalent of an (income-adjusted) fixed payment over a 12-year period — whichever is lower.
You Can Choose a Federal Loan Servicer
When you have a federal student loan disbursed to you, the account is automatically assigned to a loan servicer. You don’t get a choice in which entity services your loan. Subsequent loans are also automatically assigned to a servicer and not necessarily the same one.
When applying for a Direct Consolidation Loan, you get to choose which loan servicer you prefer. If you’ve had a bad experience dealing with a servicer in the past, consolidation gives you the power to choose a servicer that might be a better fit. It’s currently the only way to switch your loan servicer within the federal system.
Although student loan consolidation offers notable benefits, it also presents a number of potential downsides. Here are a few disadvantages to consider.
Unpaid Interest From Existing Loans, Capitalizes
An easily overlooked downside of loan consolidation involves unpaid interest. If you have unpaid interest on any of the loans you’re combining, the interest is added to your principal balance. This is called interest capitalization.
This means that your new consolidation loan will have a higher principal balance. And moving forward, you’ll pay interest on this higher balance. This could result in paying more for your student debt overall.
You Might Be in Debt Longer
You might be positioning yourself to stay in debt longer than your original repayment timeline. Although a longer term is helpful for lowering monthly payments, it can take a toll on you in other ways.
• Being in debt longer can take a toll on your mental health. A 2023 study of 331 college graduates found that having high debt was tied to anxiety, depression, and problematic substance abuse.
• Additionally, being in debt longer might result in delaying other life and financial goals, like buying a first home, starting a family, or saving money for retirement.
Longer Repayment Means More Interest
Another long-term negative effect of loan consolidation is that it can result in paying more interest over time. Although a longer term results in smaller installment payments, it means you’re delaying paying off your debt.
This delay comes at a cost in the form of interest charges. The more interest you pay toward your loan, the more your total borrowing cost.
Losing Federal Loan Benefits
Consolidating your federal student loans might result in lost borrower benefits. Some benefits at stake are interest rate discounts and principal rebates.
A Direct Consolidation Loan also typically resets any payment credit you’ve earned toward federal loan forgiveness under PSLF or an IDR plan. Past qualifying payments that were made before you consolidated won’t count toward the payment requirement for forgiveness. This can ultimately push back your loan forgiveness eligibility.
A one-time IDR account adjustment is in effect through December 31, 2023. If you consolidate your loans before January 1, 2024, qualifying IDR payments will still count toward loan forgiveness. After the adjustment deadline, however, you’ll lose this valuable payment credit.
(Worth noting: If you consolidate your federal student loans with a private loan, you forfeit federal benefits and protections. You’ll learn more about this option below.)
The Application Process Takes Time
How long it takes to consolidate student loans can also be an issue if you’re in a time crunch. Although filling out the application takes an estimated 30 or less, the process overall takes longer. Depending on your unique student loan situation, it can take anywhere from four to six weeks to complete the consolidation process.
Pros of Consolidation
Cons of Consolidation
Simpler repayment experience
Prior unpaid interest added to principal
Extends your term
Keeps you in student debt longer
Lowers installment payments
Might pay more interest
ICR access for parent PLUS borrowers
Lost access to some federal benefits
Lets you choose your servicer
Process isn’t instant
Weighing the Pros and Cons for Yourself
Now you’ve learned what are the pros and cons of student loan consolidation when it comes to federal funds. There’s a lot to mull over if you’re entertaining the idea of consolidating student loans. Pros and cons (and how you prioritize them) might shift depending on your overall repayment strategy.
• For example, consolidating your loans might make sense if you simply want to declutter your loan accounts or need a lower monthly payment. It might also make sense if your current loan type doesn’t qualify for loan forgiveness or an IDR plan, and consolidation is your only way forward.
• However, consolidation might not be for you if you’re not working toward loan forgiveness and want to pay the least amount of money toward your education in the shortest time.
Alternatives to Student Loan Consolidation
Sometimes, consolidating student loans isn’t the best approach depending on your situation. If you’re on the fence about pursuing a Direct Consolidation Loan, here are a few other alternatives.
Income-Driven Repayment Plan
If your student loan payment is too difficult to manage and you won’t be able to afford it for the foreseeable future, ask your servicer about an income-driven repayment plan.
IDR plans calculate your monthly payment using your income and family size information. Payments are restricted to a small percentage of your discretionary income, and all plans have a longer-than-standard repayment period.
Most borrowers have four types of IDR plans to choose from:
• Saving on a Valuable Education (SAVE). Payments are typically 10% of your discretionary income. Its term is 20 years if all your loans are for undergraduate study or 25 years if you’re repaying any graduate-level loans under the plan. This SAVE Plan replaces the REPAYE program.
• Pay As You Earn (PAYE). Payments are generally 10% of your discretionary income over a 20-year term.
• Income-Based Repayment (IBR). Your payment is 10% or 15%, over a 20- or 25-year term, depending on when you got the loan.
• Income-Contingent Repayment (ICR). Over a 25-year term, you’ll pay the lesser of 20% of your discretionary income or the income-adjusted fixed payment you’d pay across 12 years.
Additionally, if you still have a loan balance after completing the plan term, the remainder is forgiven. However, the forgiven balance might be considered taxable income on your federal return.
Deferment or Forbearance
If you can’t manage your current student loan payment due to a temporary financial situation, consider deferment or forbearance.
These relief options are a short-term solution that lets you pause your required federal loan payments until your finances stabilize.
Typically, interest still accrues while you’re in student loan forbearance, and certain loans still accrue interest in deferment. Additionally, the months you’re in deferment or forbearance might not be credited toward loan forgiveness.
Student Loan Refinance
If you have loans that aren’t eligible for consolidation or you have strong credit and aren’t pursuing other federal benefits, refinancing student loans with a private loan is another alternative.
Student loan refinancing is offered by private lenders. You can refinance federal and existing private student loans during this process. The refinancing lender pays off your existing student loan balances and creates a new refinance loan in their place.
The new loan will have a new loan agreement, interest rate, and term. The repayment plans you can access will depend on your lender. Always check your rate with a handful of lenders to find an offer that fits your needs. A student loan refinancing calculator can help you see whether refinancing can save you money.
Keep in mind that refinancing federal loans results in losing access to federal benefits and programs. Learn more about the differences between private and federal student loans before changing your repayment strategy.
The Takeaway
Consolidation can be a useful strategy for some borrowers, but it’s not necessarily for everyone. Take stock of your short- and long-term repayment goals and how the pros and cons of consolidating federal student loans affect them. For instance, a lower monthly payment could be the right choice for one person, but the fact that you might be paying more interest for an extended term could be a no-go for someone else.
If a Direct Consolidation Loan isn’t right for you, explore other repayment paths, including refinancing student loans.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Can student loan consolidation affect your credit score?
Consolidating student loans can affect your credit in indirect ways. For example, payment history is the biggest factor for your FICO® score. Securing a manageable monthly payment via consolidation might help you avoid being late or missing a loan payment. These consistent payments by your due date can build your credit over time.
Can consolidated student loans be forgiven?
Yes, Direct Consolidation Loans are an eligible loan type for federal student loan forgiveness programs. Consolidated loans can be included if you’re earning forgiveness through programs, like Public Service Loan Forgiveness and through an income-driven repayment plan.
Does consolidating student loans lower interest rates?
No. Your Direct Consolidation interest rate is calculated based on the weighted average of the rates on your consolidated loans. This average is then rounded up to the closest one-eighth of a percent, and there’s no rate cap in place.
Photo credit: iStock/Jovanmandic
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
The federal Direct Consolidation Loan program can help you manage your federal student loans. However, it also means a new loan account turns up on your credit report. You may be concerned about whether consolidating student loans in this way has a positive or negative impact on your credit. The short answer is that it can indirectly do both, but to varying degrees.
To help you understand exactly how your credit could change, read on. You’ll learn the ins and outs, so you can decide whether consolidating your student loans is the right financial move to make.
Key Points
• Consolidating student loans can simplify repayment by combining multiple loans into one, potentially reducing the likelihood of missed payments and improving credit scores indirectly.
• Closing older accounts through consolidation may negatively affect the length of credit history, which could result in a temporary decrease in credit scores.
• Federal Direct Consolidation does not require a credit check and can be beneficial for managing federal student loans, though it forgoes certain federal protections if refinancing.
• Alternatives to consolidation include income-driven repayment plans and deferment options, which can provide temporary relief without altering the credit score significantly.
• Weighing the pros and cons of consolidation is crucial, as it might lead to a more manageable payment structure while potentially impacting credit history and future loan options.
Can Student Loan Consolidation Have a Positive Impact on Your Credit Score?
If you are considering ways to better wrangle your debt, you may wonder, “Does consolidating student loans help my credit?”
Good question. Your borrowing activity and repayment habits do impact your credit score. One of the biggest — yet indirect — effects that consolidation has on your credit score is making your payments simpler. Consider these points:
• Thirty-five percent of your FICO® score is based on your payment history. Making consistent and full monthly payments has the most dramatic impact on your credit score on a day-to-day basis.
• However, your student debt is likely spread across multiple loans taken out during your years of education. Each of these loans has its own payment amount and due date, making it difficult to manage.
• A Direct Consolidation Loan can cut through the clutter. It streamlines your repayment experience, which may mean you are less likely to miss a due date or forget a payment altogether. It can set you up for a positive payment history, which is an indirect way that you can see a credit score increase after student loan consolidation.
• Incidentally, unlike private refinance loans, it will not involve a hard credit inquiry, which usually lowers your credit score a bit for a short period of time.
• Fifteen percent of your FICO credit score calculation looks at the length of your credit history. It considers the age of your oldest credit account, like the first student loan you borrowed during your freshman year of school, and the age of your newest account. It also determines the average age of all of your open accounts.
• Having open accounts that you’re actively repaying helps you build credit over time. Consolidating your original student loans effectively closes those older accounts.
• This altered length of credit history could result in a less favorable treatment for your score. The impact on your score, however, is lessened over time as you make timely payments toward your consolidated loan.
Federal vs Private Student Loan Consolidation and Credit Score
Federal Direct Consolidation is exclusively a repayment option offered by the US Department of Education. This process doesn’t require a credit check, as noted above, and most federal loans can be consolidated.
In terms of private student loans, they are ineligible for Direct Loan consolidation. However, you can refinance existing federal student loans or private loans with a private lender. Understand these points:
• If you decide to refinance student loans with a private lender, the process is similar to Direct Loan Consolidation in that it combines existing education loans into one. You can do this both as undergraduate and graduate school loan refinancing.
• The newly refinanced loan is considered private student debt. It may be for a lower rate than you previously had, or it could offer a lower monthly payment for a longer term. (Note that when you refinance with an extended term, you may pay more interest over the life of the loan.)
• The refinance lender pays off the student loans you’ve chosen to include and creates a new refinance loan. You’ll repay the refinance lender for the total balance of the combined loan, but at a new rate and repayment terms.
• It’s important to recognize that when you refinance federal loans as private loans, they will no longer qualify for federal benefits and protection programs, such as deferment and forbearance. For these reasons, it’s wise to carefully consider whether refinancing federal loans is the right option for you.
Alternatives to Student Loan Consolidation
If, after weighing the pros and cons of student loan consolidation, you find it’s not for you, there are other repayment options available.
Income-Driven Repayment
One advantage of a Direct Consolidation Loan is it lets you make smaller monthly installments over a longer term. If, however, you can’t make your monthly federal loan payments for the foreseeable future, ask your servicer about income-driven repayment (IDR).
IDR offers repayment terms of 20 or 25 years, depending on the plan you’re on. Your income, family size, and chosen IDR plan determine what your reduced monthly payment is. For some eligible borrowers, your monthly payment could be as low as $0.
Additionally, if you still have a remaining balance after completing your IDR plan, the balance might qualify for loan forgiveness.
Federal Deferment or Forbearance
If you’re experiencing short-term financial hardship, you might be able to delay your federal student loan payments temporarily. The Department of Education offers deferment and forbearance programs that let you pause your payments without the loan going into default.
Keep in mind that while loans are in deferment, interest might accrue on certain federal loans. If you’ve requested forbearance, interest is charged during this period, regardless of the federal loan you have.
Student Loan Refinancing
Private student loans, mentioned above, aren’t eligible for the two alternatives just described. However, they may be a good solution in some situations. For instance, they might be a helpful option if you have private student loans that you are struggling to pay or have federal student loans and don’t have plans to take advantage of federal benefits (remember, you’ll forfeit those plus other protections).
Since private student loan refinancing requires a credit check, it’s best for borrowers with good credit. A student loan refinance might help you secure a lower interest rate or a lower monthly payment at a different repayment term. Private lenders have their own eligibility requirements, rates, and refinancing offers.
Consolidating your federal loans has little direct effect on your score over the long term. Its effect on your age of credit accounts might temporarily lower your score. However, if consolidating means securing a lower, more manageable payment or unlocking federal benefits, the impact on your credit might be worth it.
However, if your main concern is getting relief from high monthly student loan payments, speak to your loan servicer or lender ASAP to see if your loans qualify for other repayment options. In some cases, refinancing with a private lender may be a good decision.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Can consolidating student loans directly raise your credit score?
No, consolidating your student loans doesn’t directly raise your credit score. It can simplify your monthly payments and possibly reduce your payment amount (though possibly extending your term and charging more interest over the life of the loan). These factors can help you maintain on-time payments, which can help build your score.
Can consolidating student loans directly lower your credit score?
Does student loan consolidation hurt your credit? It might temporarily lower your score: Loan consolidation can add a new open account to your credit record while closing an older one, which negatively affects your average length of credit history. Also, a new private loan can involve a hard credit inquiry, which can temporarily reduce your number.
Are there any indirect effects of student loan refinancing on your credit score?
Yes. Private student loan refinancing requires a hard credit check. This credit inquiry can temporarily lower your score by a few points for a short period of time. Additionally, refinancing might affect your average age of credit accounts and other factors that contribute to your credit score.
Photo credit: iStock/Ridofranz
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
