Oct
05
2023
apples on a seesaw

The Advantages and Disadvantages of Student Loan Refinancing

By | Fresh Out of School, Student Loans, student_loan | No Comments

Americans currently owe a total of over $1.63 trillion in federal student debt, with the average student borrower graduating with $29,100 in loans to pay off, according to the College Board.

If you have student debt, refinancing is one way you can change your repayment terms, which may make it easier or more affordable to pay off your student loans.

Student loan refinancing is when your existing loans are paid off by a new loan from a private lender, such as a bank, online lender, or other financial institution. The new loan may have a new term, a better interest rate, and adjusted monthly payments.

But there are pros and cons of refinancing student loans. While it may save you money, you can lose access to federal loan benefits and protections if you refinance federal student loans. Here’s what to consider to decide if this option is right for you.

The Pros of Student Loan Refinancing

Refinancing student loans has a number of potential benefits that could make it easier to repay your student loan debt. Here are some of the most common pros of refinancing student loans.

Take control of your student loans.
Ditch student loan debt for good.

Lowering Your Interest Rate

Perhaps the biggest benefit of refinancing student loans is the potential to secure a lower interest rate than the ones your loans currently have. If you’re paying a high interest rate, refinancing could be worth considering, especially in a low-rate environment

Rates vary by lender, but most offer the best rates to borrowers with strong credit and a steady source of income. If you’re earning a stable income and have a good FICO score of 670 or higher, you may qualify for a competitive student loan refinance rate.

And, when you refinance to a lower interest rate, you could end up reducing the amount of money you spend over the life of the loan. Lowering your rate can also result in a more affordable monthly payment.

Reducing Your Monthly Payment

When you refinance your existing student loans, you’re given the option to adjust your repayment term. You can often choose terms anywhere from five to 20 years, depending on the lender.

Extending the term of your loan could result in more affordable monthly payments. That said, you may pay more interest over the life of the loan if you refinance with an extended term. When choosing a new repayment term, try to strike a balance between a monthly payment you can afford and a repayment term that won’t rack up a burdensome amount in interest charges.


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

Getting a Single Monthly Payment

Paying your bills consistently and on time is key if you want to improve your credit or maintain good credit. Payment history is an important factor in your credit score so you don’t want to miss payments.

If you owe multiple student loans, refinancing can help you combine them into one, streamlining your bills to a single payment each month. With a single monthly student loan bill, it may be easier to stay organized, make your payments on time, and stick to your debt reduction plan.

Keep in mind that you don’t have to refinance multiple student loans. You can choose to refinance a single loan if it would yield you a better interest rate. And if you do owe several loans, you can cherry-pick which ones you would like to refinance (if any) and leave the others as they are — the choice is up to you.

What’s more, federal loan borrowers also have the option of federal loan consolidation, which involves combining federal loans into a single Direct consolidation loan. This process won’t lower your interest rate, but it will keep your loans federal and help simplify repayment. Note that private student loans are not eligible for federal loan consolidation.

Choosing Between Variable and Fixed Rate Loans

When you refinance your loans, you might have the option to choose a fixed or variable rate loan. If you prefer the security of a stable rate over a longer period of time, consider choosing a fixed rate loan.

If you plan on repaying your student loans ahead of the term, you might consider choosing a variable rate. Variable rates often start lower than fixed rates, but could increase over time.

Applying With a Cosigner — or Releasing One From Your Loan

If you’ve recently graduated and haven’t built up much credit, you may benefit from applying with a cosigner. A cosigner accepts legal responsibility for your loan in the event that you’re not able to pay it.

If your cosigner has better credit and a higher income than you do, they may look more favorable to the lender, which could ultimately help you qualify for a lower interest rate. Even if you aren’t required to borrow with a student loan cosigner, some lenders might still give you the option to have one on the loan.

On the flip side, refinancing also gives you the opportunity to release a cosigner from your existing student loan. Not all lenders allow you to remove a cosigner from your loan, and those that do often have a set of eligibility requirements in order to apply for one, such as a year or two of on-time payments, a credit check, or proof of employment.

If you can refinance a co-signed student loan in your own name, you can assume full responsibility for the loan and let your student loan cosigner off the hook. Some lenders also let students take over Parent PLUS loans from their parents through refinancing, if they can meet eligibility requirements on their own.


💡 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.

The Cons of Student Loan Refinancing

While refinancing your student loans might end up lowering your interest rate or making payments easier to manage, it’s not the right decision for everyone. As mentioned earlier, there are both pros and cons of refinancing student loans. Here are some of the possible disadvantages of refinancing student loans:

Losing Access to Federal Repayment Plans

When you refinance your federal student loans with a private lender, you lose access to federal repayment plans. This includes the Standard, Graduated, and Extended Repayment plans. This could be especially important if you are planning on taking advantage of any federal income-driven repayment plans, as you would no longer be eligible.

The government offers four income-driven plans: PAYE, Income-Based Repayment, Income-Contingent Repayment, and the new SAVE plan. The SAVE plan offers the most affordable structure for borrowers to date, and it’s worth exploring if you’re having trouble paying your student loan bills on your current plan.

Since refinancing federal student loans replaces them with a private loan, you’ll also lose the opportunity to qualify for programs such as the Public Service Loan Forgiveness program, which forgives the loans of graduates working in the public sector after 10 years. It’s important to review your student loans in detail and determine which federal plans you may want to take advantage of before you consider refinancing federal student loans.

No Longer Eligible for Federal Repayment Protections

If you refinance your federal student loans with a private lender, you won’t be eligible for repayment protections like student loan deferment or forbearance. Both deferment and forbearance might give you the opportunity to temporarily pause or lower your monthly payments.

When your loan is in deferment you may or may not be responsible for paying the accrued interest on the loan. However, if your loan is in forbearance you will be responsible for paying the accrued interest on the loan.

Starting in the spring of 2020, the Department of Education offered emergency forbearance at 0% interest on all federal student loans. However, that forbearance came to an end in the fall of 2023. President Biden’s federal loan forgiveness initiative was also struck down by the Supreme Court, so that offer is no longer an option for borrowers.

Losing Any Remaining Grace Periods

Most federal student loans have a grace period — usually the first six months after you graduate — where you don’t have to make any loan payments. If you refinance your loan shortly after graduation, you might lose out on that benefit if the private lender doesn’t honor existing grace periods.

Difficult to Qualify

Unlike most federal loans, you’ll need to show that you’re creditworthy to secure a student loan refinance with a private lender — or have a cosigner with good credit who is willing to take full responsibility for your loan if you’re not able to.

The better your credit history, the more likely you are to qualify for competitive interest rates. Eligibility requirements vary from lender to lender, so it’s a good idea to shop around and compare your options. SoFi, for example, evaluates factors including employment and/or income, credit score, and financial history.

Refinancing Can Cause Repayment to Take Longer

When you refinance a student loan, you can change the terms of your loan, such as the interest rate or the term of the loan. If you increase the term of your loan, it will take longer to repay it. And even though you may lower your monthly payments, you’ll likely pay more total interest over time.

Federal Student Loan Consolidation

Student loan consolidation is different from refinancing. A Direct Consolidation Loan allows you to combine multiple federal student loans into one federal loan, resulting in a single monthly payment.

When you consolidate your loans into a Direct Consolidation Loan, you won’t necessarily lower your interest rate. The new interest rate will be a weighted average of the interest rates on your previous loans, rounded up to the nearest one-eighth of 1%.

When you consolidate your federal loans through the federal government, however, you should still have access to most federal loan benefits like income-based repayment, deferment, and forbearance.

Student Loan Refinancing With SoFi

Everyone’s financial situation is different, and it’s important that you make the best decisions for your individual circumstances. When you refinance, lenders will review your current financial situation, earning potential, and credit score (among other financial factors) to determine your new interest rate.

If you decide to move forward with student loan refinancing, consider SoFi. When you refinance with SoFi, there are no origination fees or prepayment penalties. See what you could save by refinancing with the SoFi student loan refinance calculator.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

How hard is it to qualify for student loan refinancing?

Private lenders take into account a range of factors when considering eligibility for student loan refinancing, such as your credit history, debt-to-income ratio, and employment. Applying with a qualified cosigner can help you qualify or access better rates if you can’t meet a lender’s credit requirements on your own.

Do refinanced student loans have lower interest rates?

When you refinance your student loans, a private lender pays off your existing loans and issues you a new loan with new terms. One of the potential benefits of refinancing is that you may be able to secure a lower interest rate than your existing loans. The best rates typically go to borrowers with strong credit or a creditworthy cosigner.

Can you refinance student loans with a cosigner?

Applying for student loan refinance with a creditworthy cosigner may help you qualify if you don’t meet a lender’s eligibility requirements for refinancing. Having a cosigner may also help you secure a more competitive interest rate.

Can refinanced student loans still be forgiven?

No, refinanced student loans are not eligible for federal loan forgiveness programs. Once you refinance a federal student loan, you lose access to federal benefits and protections, such as forgiveness.

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.


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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSL0923026

Read more
Oct
05
2023
pregnant woman on smartphone

PAYE vs Repaye vs SAVE: What’s the Difference?

By | Financial Independence, Student Loans, student_loan, Terminology | No Comments

Struggling to make your federal student loan payments? An income-based repayment plan may ease the burden. Previously, two of the primary income-based plans were Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). But the former is no longer taking new enrollees, and the latter has been replaced by a new program — the SAVE Plan. In all cases, the plans adjust your monthly loan payments based on your income and family size. In this article we’ll look at how SAVE compares to the old REPAYE, as well as to the PAYE Program.

PAYE vs REPAYE: An Overview

The former PAYE and REPAYE federal student loan payment plans were similar, but differed in a few key areas. Both plans had income-based repayment terms generally set at 10% of a borrower’s discretionary income.

Some borrowers didn’t qualify for PAYE because the initial enrollment step required partial financial hardship as determined by your annual discretionary income and family size. You couldn’t enroll into PAYE if your federal student loan monthly payment would be lower under the Standard Repayment Plan. You also cannot enroll into PAYE after June 30, 2025; however, current PAYE enrollees can remain on the plan after that date.

The 2023 debt ceiling bill officially ended the three-year Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1, 2023, and payments to resume in October 2023 under any federal student loan repayment plan.

Here are the key differences between the former PAYE and REPAYE plans:

•   PAYE required partial financial hardship to sign up for first-time enrollment

•   No new PAYE enrollees are being accepted, but borrowers already enrolled in PAYE can continue repaying under that plan after July 1, 2025

•   REPAYE did not require low-income, moderate-income, or partial financial hardship to enroll

•   REPAYE no longer exists as a federal student loan repayment plan

SAVE vs REPAYE

Saving on a Valuable Education (SAVE) Plan is the federal income-driven repayment (IDR) plan that replaced REPAYE in July 2023. If you were enrolled on the REPAYE Plan at that time, you’ve been automatically enrolled into the SAVE Plan.

The SAVE Plan is essentially a major upgrade to the former REPAYE Plan, as shown in the table below:

SAVE

 REPAYE
$0 monthly payment if your income is within 225% of the federal poverty guideline (or less than $32,805 for a single borrower and $67,500 for a family of four in 2023). Fewer borrowers qualified for a $0 monthly payment because the threshold was set at 150% of the federal poverty guideline.
Your loan balance won’t grow over time if your monthly payment amount is less than the interest accruing. It was possible for borrowers to see their loan balances grow over time if their monthly payment was insufficient to pay the accrued interest.
Inclusion of your spouse’s income is not required if you file your taxes separately. Inclusion of your spouse’s income was required
Beginning July 2025, payment amounts are based on 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average for borrowers who have both. Payment amounts were based on 10% of discretionary income
Beginning July 2025, borrowers with original principal balances of less than $12,000 can have their remaining loan balance forgiven after 10 years of monthly qualifying payments. Loan forgiveness would only occur after 20 years of monthly qualifying payments for undergraduate loans and 25 years for graduate loans

SAVE vs PAYE

Both SAVE and PAYE are federal income-driven repayment plans not available to private student loan borrowers. New enrollments in PAYE ended in July 2025.

The below table highlights the key differences between SAVE and PAYE:

SAVE

 PAYE
Annual adjusted gross income does not determine your eligibility for this IDR plan. Enrolling into this plan typically required low or moderate income, also known as a partial financial hardship.
You don’t have to pay if your income is below 225% of the federal poverty guideline. You don’t have to pay if your income is below 150% of the federal poverty guideline.
Beginning July 2025, payment amounts are based on 5% of one’s discretionary income for undergraduate loans, 10% for graduate loans, and a weighted avera.ge for borrowers who have both. Payment amounts are generally 10% of one’s discretionary income, but never more than the 10-year Standard Repayment Plan amount.
Also beginning July 2025, borrowers with original principal balances of less than $12,000 can have their remaining loan balance forgiven after 10 years of monthly qualifying payments. Your remaining loan balance is forgiven after 20 years of monthly qualifying payments.
There’s no deadline to enroll and make payments on this plan. No new enrollments will occur after July 1, 2025, but current enrollees can remain on this IDR plan after that date.

Depending on your original principal balance amount, student loan forgiveness on the SAVE Plan may occur after 10 to 25 years of monthly qualifying payments beginning in July 2025.

If you’re a federal student loan borrower working toward Public Service Loan Forgiveness, you may qualify for forgiveness of any remaining loan balance after 10 years of qualifying payments.

Recommended: Student Loan Forgiveness Programs


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

What Is the Interest Subsidy?

The SAVE Plan has a permanent interest subsidy, whereas the PAYE Plan offers a temporary interest subsidy to eligible borrowers.

If you’re on the SAVE Plan, 100% of your unpaid accrued interest is not charged if your monthly payment is less than the interest accruing. The effect of this permanent interest subsidy is that your loan balance won’t grow over time if your SAVE Plan monthly payment is less than the interest accruing.

Under the PAYE Plan, the U.S. Department of Education may provide an interest subsidy if your monthly payment is less than the interest accruing. This PAYE Plan interest subsidy is discontinued after the first three years of repayment and only applies to Direct Subsidized Loans and the subsidized portion of Direct Consolidation Loans.

Some borrowers on the PAYE Plan may see their loan balances grow over time. This can happen if you’re not covered by an interest subsidy when making a monthly payment that’s insufficient to pay the accrued interest. (Effective July 1, 2023, your unpaid accrued interest is not capitalized if you switch from PAYE to another repayment plan, fail to recertify your income, or no longer have a partial financial hardship.)

Recommended: Direct vs. Indirect Student Loans: What’s the Difference?

Answers to Common Questions

How do I apply for a federal IDR plan?

You only need to submit one application for any federal income-driven repayment plan and will need to supply financial information. It will take about 10 minutes. The Federal Student Aid Office also will recommend a repayment plan based on your input. Remember that private student loans are not eligible for federal IDR plans.

I want to apply for PAYE. How is partial financial hardship defined?

Unfortunately, there’s no option to apply for PAYE after July 1, 2025.

What if I’m in PAYE and no longer demonstrate hardship?

Your loan payments will stop being based on your income. Instead, your monthly payment will be based on the amount you would pay under the 10-year Standard Repayment Plan. Your maximum required payment in PAYE will never be higher than the 10-year standard payment amount.

What if I forget to recertify my income and family size?

If you’re on the SAVE Plan, failing to recertify your income and family size may switch you to an alternative repayment plan with a larger monthly payment.

If you’re on the PAYE Plan, failing to recertify by the annual deadline may give you a larger monthly payment resembling what you would pay under the Standard Repayment Plan.

Auto-recertification is available beginning in July 2025 if you agree to securely share your tax information with the U.S. Department of Education.

Does a Parent PLUS Loan qualify for SAVE?

No. Federal Parent PLUS Loans are not eligible for the SAVE plan.

Recommended: Types of Federal Student Loans

Income-Driven Repayment Alternatives

One of the alternatives to federal income-driven repayment is student loan refinancing. You can refinance your student loans — private and federal — with a private lender and potentially qualify for a lower interest rate. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

The federal Direct Consolidation Loan program combines federal student loans into a single federal loan, but the interest rate is the weighted average of the original loans’ rates rounded up to the nearest eighth of a percentage point, which means the borrower usually does not save any money. Lengthening the loan term can decrease the monthly payment, but that means you may spend more on total interest.

Federal IDR plans like SAVE offer federal protections and benefits, such as access to the Public Service Loan Forgiveness program. Any loans you refinance with a private lender will not be eligible for PSLF, Teacher Loan Forgiveness, or federal IDR plans. A student loan refinancing calculator can help you determine whether student loan refinancing is right for you.



💡 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.

The Takeaway

The SAVE Plan is generally the most affordable federal student loan repayment plan. It replaced the former REPAYE Plan and offers a permanent interest subsidy, among other perks that you couldn’t get with PAYE.

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.

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


SoFi 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).

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.

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

SOSL0923004

Read more
Sep
12
2023

How to Get Out of Student Loan Debt: 6 Options

By | Debt Payoff, Student Loans, student_loan | No Comments

Dealing with substantial student loan debt can be overwhelming, especially if you find yourself struggling to make your payments.

Fortunately, there are some options that may help minimize the amount of money you pay back on your federal student loans, such as the Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.

When trying to figure out how to get rid of student loans, it’s important to understand that you might be able to reduce your monthly payment with a student loan refinance. Or you may be able to temporarily postpone your federal loan payments through deferment or forbearance.

Key Points

•   Federal programs like Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) can reduce or eliminate federal student loan debt.

•   Refinancing student loans may lower monthly payments and total interest paid.

•   Deferment or forbearance options allow temporary suspension of federal loan payments.

•   Disability discharge is available for federal student loans if the borrower has a permanent disability.

•   Bankruptcy is a last resort for discharging student loans, requiring proof of undue hardship.

Options to Get Out of Repaying Student Loans Legally

1. Loan Forgiveness Programs

Depending on your eligibility, there are a few different federal loan forgiveness programs available to borrowers with federal student loans. These programs could help you get out of paying a portion of student loan debt as they forgive your loan balance after a certain number of years.

President Joe Biden proposed a federal student loan debt cancellation of up to $20,000 for those who met household income eligibility. However, the Supreme Court ruled against Biden’s plan, saying the president did not have the necessary authority to take such action. Since then, President Biden has announced various programs to provide relief for those carrying federal loans, along with calling attention to existing plans.

Each forgiveness program has different eligibility criteria.

Teacher Loan Forgiveness

This federal student loan forgiveness program forgives the loans of highly qualified teachers. Depending on the subject area they teach, teachers who meet the eligibility requirements may have up to $17,500 or up to $5,000. Teachers are eligible to apply for this loan forgiveness program after they have completed five years of service.

Recommended: Explaining Student Loan Forgiveness for Teachers

Public Service Loan Forgiveness

This program is designed for those working in public service. In order to qualify, applicants must meet the programs eligibility requirements, including:

•   Work for a qualified employer

•   Work full-time

•   Hold Direct Loans or have a Direct Consolidation Loan

•   Make 120 qualifying payments on an income-driven repayment plan

Borrowers who are interested in pursuing PSLF will have to follow strict requirements in order to qualify and have their loan balances forgiven.

🛈 While SoFi does not offer loan forgiveness solutions, we do offer student loan refinancing, which could help you save money on your student loan debt.

2. Income-Driven Repayment Plans

Income-driven repayment plans for federal student loans tie a borrower’s monthly loan payments to their income and family size.

The repayment period for income-driven repayment plans varies from 20 to 25 years. While these plans help make loan payments more affordable for borrowers, extending the loan terms may result in accruing more interest over the life of the loan.

President Biden has announced the creation of the Saving on a Valuable Education (SAVE) Plan , which replaces the existing Revised Pay As You Earn (REPAYE) Plan. Borrowers on the REPAYE Plan will automatically get the benefits of the new SAVE Plan.

The SAVE Plan, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size. According to the White House, the SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

Starting next summer, borrowers on the SAVE Plan will have their payments on federal undergraduate loans cut in half (reduced from 10% to 5% of income above 225% of the poverty line).

A beta version of the updated IDR application was made available in early August 2023 and includes the option to enroll in the new SAVE Plan. The DOE says that if you apply for an IDR plan (such as the SAVE Plan) in the summer of 2023, your application will be processed in time for your first federal student loan payment due date.

Recommended: The SAVE Plan: What Student Loan Borrowers Need to Know About the New Repayment Plan

3. Disability Discharge

When working out how to get rid of student loans, take into account that It may be possible to have federal student loans discharged if you have a permanent disability. To be eligible for the disability discharge, you need to show the Department of Education that you are not able to earn an income now or in the future because of your disability.

To do so, you need to get an evaluation from a doctor, submit evidence from Veterans Affairs, or show that you are receiving Social Security Disability Insurance. You cannot apply for disability discharge until you have been disabled for 60 months unless a doctor writes a letter saying that your disability and inability to work will last at least 60 months.

4. Temporary Relief: Deferment or Forbearance

Federal student loan repayment was put on pause over three years ago due to the Covid-19 shutdown. As part of the agreement reached in the Debt Ceiling bill, the Department of Education’s student loan forbearance program ends in 2023, with interest resuming on September 1, 2023 and payments due beginning in October 2023.

However, in late June, President Biden announced the creation of the On-Ramp Program . The Department of Education is instituting a 12-month “on-ramp” to repayment of federal student loans, running from October 1, 2023 to September 30, 2024, so that “financially vulnerable borrowers” who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Apart from the On-Ramp Program, forbearance and deferment both offer borrowers the ability to pause their federal student loan payments if they qualify.

Depending on the type of loan you have, interest may continue to accrue even while the loan is in deferment or forbearance. However, applying for one of these options can help borrowers avoid missed payments and potentially defaulting on their student loans.

Note that private student loans don’t offer the same benefits as federal student loans, but some may offer their own benefits.

5. Student Loan Refinancing

This option won’t get rid of your student loans, but it could help make student loans more manageable. By refinancing your student loans, you can potentially qualify for a lower interest rate, which can possibly lower your monthly payments or save you money on interest over the life of your loan.

If you refinance with a private lender, you can also change the length of your student loan. While private lenders can refinance both your federal and private student loans, you do lose access to the protections that federal student loans provide, such as income-based repayment programs, on the amount that is refinanced.

6. Filing for Bankruptcy: A Last Resort

Bankruptcy is a legal option for the problems caused by people struggling with how to take out student loans. However, it is rare that student loans are eligible for discharge in bankruptcy. In some instances, if a borrower can prove “undue hardship,” they may be able to have their student loans discharged in bankruptcy.

Filing for bankruptcy can have long-term impact on an individual’s credit score and is generally a last resort. Before considering bankruptcy, review other options, such as speaking with a credit counselor or consulting with a qualified attorney who can provide advice specific to the individual’s personal situation.

Recommended: Bankruptcy and Student Loans: What You Should Know

The Takeaway

When you are learning how to take out student loans, the future debt may not be obvious. It can be challenging to pay student loan debt, but there are options that can temporarily reduce or eliminate your payment. It is only in extremely rare circumstances that student loans can be discharged in bankruptcy.

For federal student loans, some options that can help alleviate the burden of student loan debt include deferment or forbearance, which may be helpful to those who are facing short-term issues repaying student loans. Another avenue to consider may be income-driven repayment plans, which tie a borrower’s monthly loan payments to their income, helping make monthly payments more manageable.

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.


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.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSL0723003

Read more
Aug
23
2023
How to Use a Personal Loan for Loan Consolidation

How to Use a Personal Loan for Loan Consolidation

By | Debt Payoff, Financial Independence, personal_loan | No Comments

If you have multiple loans or credit cards with high interest rates, you might feel like you are continually paying interest and not making much headway on the principal of the debt. By consolidating those debts into one loan — ideally with a lower interest rate — you may be able to reduce your monthly payments or save on interest. Using a personal loan to consolidate debt can be one way to accomplish this goal.

This guide tells you everything you need to know about how loan consolidation works, what types of loans benefit from consolidation, and when to start the consolidation process.

Key Points

•   Loan consolidation is the process of combining multiple debts into one, usually using a new loan or line of credit to pay off existing debts.

•   Types of loan consolidation include student loan consolidation, credit card consolidation, and general loan consolidation.

•   Loan consolidation can help simplify finances, lower interest rates, and shorten the time until debt is paid off.

•   Downsides to loan consolidation include potentially high interest rates, fees, and the possibility of adding to debt if credit cards are used again.

•   Using a personal loan for loan consolidation can be a financially savvy move if you have a good credit history and score.

What Is Loan Consolidation?

Loan consolidation, at its most basic, is the process of combining multiple debts into one. Usually, this means using a new loan or line of credit to pay off your existing debts, consolidating multiple payments into one.

For example, imagine you have the following debt:

•   $5,000 on a private student loan

•   $10,000 in credit card debt on Card A

•   $10,000 in credit card debt on Card B

Your private student loan may have a high interest rate, and your credit card interest rates probably aren’t much better. Each month you’re making three different payments on your various debts. You’re also continuing to rack up interest on each of the debts.

When you took out those loans, maybe you were earning less and living on ramen you bought on credit. But now you have a steady job and a good credit score. Your new financial reality means that you may qualify for a better interest rate or more favorable terms on a new loan.

A personal loan, sometimes called a debt consolidation loan, is one way to help you pay off the $25,000 you currently owe on your private student loan and credit cards in a financially beneficial way.

Using a debt consolidation loan to pay off the three debts effectively condenses those debts into one single debt of $25,000. This avoids the headache of multiple payments with, ideally, a lower interest rate or more favorable repayment terms.

Recommended: Using Credit Cards vs. Personal Loans

What Types of Loan Consolidation Are Available?

There are different types of loan consolidation. Which one is right for you depends on your financial circumstances and needs.

Student Loan Consolidation

If you have more than one federal student loan, the government offers Direct Consolidation Loans for eligible borrowers. This program essentially rolls multiple federal student loans into one. However, because the new interest rate is the weighted average of all your loans combined, it might be slightly higher than your current interest rate.

You may also be able to consolidate your student loans with a personal loan. If you’re in a healthy financial position with a good credit score and a strong income (among other factors), a personal loan might give you more favorable repayment terms, including a lower interest rate or a shorter repayment period.

Consolidating federal student loans may not be right for every borrower. There are some circumstances in which consolidating some types of federal student loans may lead to a loss of benefits tied to those loans. By the way, you don’t have to consolidate all eligible federal loans when applying for a Direct Consolidation Loan.

Credit Card Consolidation Loan

If you’re carrying balances on multiple credit cards with varying interest rates — and those interest rates are fairly high — a credit card consolidation loan is one way to better manage that debt.

Credit card loan consolidation is the process of paying off credit card debt with either a new, lower interest credit card or a personal loan that has better repayment terms or a lower interest rate than the credit cards. Choosing to consolidate with a personal loan instead of another credit card means potential balance transfer fees won’t add to your debt.

General Loan Consolidation

Let’s say you have multiple debts from various lenders: some credit card debt, some private student loan debt, and maybe a personal loan. You may be able to combine these debts into a single payment. In this case, using a personal loan to consolidate those debts would mean you would no longer have to deal with multiple monthly payments to multiple lenders.

Awarded Best Personal Loan by NerdWallet.
Apply Online, Same Day Funding

Why Consider Loan Consolidation?

There are many reasons to consider loan consolidation, but here are some of the most common:

•   You’re a minimalist. Did you join in the “pandemic purge”? If your home looks less cluttered and you’d like your finances to match, you might be thinking about financial decluttering by consolidating some of your high-interest debt into one personal loan that has a lower interest rate or terms that work better for your budget.

•   Your financial circumstances have improved. Maybe you spent some time living off student loans to finish your degree, and now you’ve started your dream job. You have a steady salary, and you’ve taken control of your finances. Because of your financial growth, you may be able to qualify for lower interest rates than when you first took out your loans. Loan consolidation can reward all that hard work by potentially saving you money on interest payments.

•   Your credit card interest rates are super high. If thinking about the interest rate on your current credit cards makes you want to hide under your desk, consolidating those cards with a personal loan may be just what you’re looking for. High interest rates can add up over the time it takes to pay off your credit card. Using a personal loan to consolidate those cards can potentially reduce your interest rate and help you get your debt paid off more quickly.

Are There Downsides to Loan Consolidation?

Using a personal loan to consolidate debt may not be the right move for everyone. Here are some things to think about if you’re considering this financial step.

Potentially High Interest Rate

Not everyone can qualify for a personal loan that offers a lower interest rate than the credit cards you want to pay off. Using a credit card interest calculator will help you compare rates and see if consolidating credit cards with a personal loan is worth it for your financial situation.

Fees May Apply

Looking for a lender that offers personal loans without fees can help you avoid this potential downside. Keep an eye out for application fees, origination fees, and prepayment penalties.

Recommended: Find Out How a Balance Transfer Credit Card Works

Putting Your Assets at Risk

If you choose a secured personal loan, you pledge a particular asset as collateral, which the lender can seize if you don’t pay the loan according to its terms.

Possibility of Adding to Your Debt

The general idea behind consolidating debt is to be able to pay off your debt faster or at a lower interest rate — and then have no debt. However, continuing to use the credit cards or lines of credit that have zero balances after consolidating them into a personal loan will merely lead to increasing your debt load. If you can get to the root of why you have debt it may make it easier to remain debt free.

The Takeaway

Using a personal loan to consolidate debt can be a financial savvy move — especially if you have the credit history and score to qualify for a low interest rate and favorable loan terms. Consolidating multiple credit cards and loans with a single personal loan can help simplify your finances, lower the interest you pay, and shorten the time until you’re debt free.

If you’re thinking about consolidating credit card or other debt, a SoFi Personal Loan is a strong option to consider. SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

Learn more about unsecured personal loans from SoFi.

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


SoFi 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).

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL0822005

Read more
Jun
15
2023
6 Benefits of Refinancing Student Loans

6 Benefits of Refinancing Student Loans

By | Fresh Out of School, Student Loans, student_loan | Comments Off on 6 Benefits of Refinancing Student Loans

Refinancing allows you to consolidate your existing student loans — you trade multiple loans for one student loan payment. When you refinance, you may be able to lower your monthly payments, reduce your interest rate, shorten your repayment terms, save money, and even add or remove a cosigner.

It’s a good idea to ask yourself, “Why refinance student loans?” before you start searching for the right private lender for you. Read on for a list of the benefits that may come your way when you refinance your student loans.

What Is Student Loan Refinancing?

Student loan refinancing involves consolidating your student loans with a private lender. In the process, you receive a new loan with a new rate and term. Moving forward, you’d make payments to that private lender on that one loan only.

It’s worth noting that refinancing is not the same as consolidating through a Direct Consolidation Loan. A Direct Consolidation Loan means that you combine multiple federal loans into one federal loan through the U.S. Department of Education. You usually don’t save money with a Direct Consolidation Loan, because the resulting interest rate is a weighted average, rounded up to the nearest ⅛ of a percent.

You may be able to refinance your federal student loans and private student loans all at once. However, it’s important to remember that refinancing your federal student loans means that you lose access to federal benefits and protections like income-driven repayment plans, some deferment and forbearance options, and loan forgiveness programs for certain borrowers, such as Public Service Loan Forgiveness. Federal student loans come with benefits and repayment options unique to them.

Is Refinancing Your Student Loans Worth It?

Is refinancing student loans a good idea for you? There are some benefits of refinancing student loans, like securing a lower monthly payment or a more competitive interest rate.

Continue reading for more information on when refinancing your student loans may make sense for your specific situation. Remember that not everyone will benefit from each of these advantages — it depends on your own needs.

1. Lower Monthly Payments

Refinancing may lower your monthly payments because you may lower your interest rate.

Or refinancing can lower your monthly payments if you lengthen your loan term. Extending your loan term, however, means you may pay more in interest over the life of the new loan. Some private lenders may offer lengthier repayment terms, varying from five to 25 years.

2. Reduced Interest Rates

In the context of reduced interest rates, refinancing student loans is probably worth it, especially if you choose a shorter loan term. That said, it’s important not to assume anything. It’s a good idea to take all calculations and factors into consideration before you pull the trigger on a refinance.

Private student loan lenders may offer both variable and fixed interest rates. Variable interest rates fluctuate depending on the situation in the broader market. They may begin at a lower rate but increase over time. In contrast, fixed interest rates stay the same throughout the life of your loan. If you are planning to pay off your loan quickly, you may consider a variable interest rate refinance.

3. Shorter Repayment Terms

Your repayment term refers to the number of years that you spend repaying your loan. A shorter repayment term may save you money because you’ll pay interest over a fewer number of years. In general, loans with a shorter repayment term come with lower interest costs over time but higher monthly payments. On the other hand, loans with a longer repayment term usually come with lower monthly payments.

It’s important to calculate your monthly payment and decide whether a higher monthly payment can fit into your budget.

4. Opportunity to Save Extra Money

Qualifying for a lower interest rate and either shortening your repayment term or keeping your current loan term may allow you to save money. Not only that, but when you don’t have several student loan payments to juggle, it may be easier to budget by lessening the confusion of having to make multiple loan repayments.

5. Consolidating Loan Payments

The perks of refinancing aren’t all money related. As mentioned earlier, you can simplify your loans and eliminate the confusion of having to make several loan payments every single month. Organizing your loan payments can go even further than this. Simplifying all of your bills (not just your student loans) may even give you some of the same psychological benefits of a Marie Kondo tidy-up, such as improving mental health, time management, and productivity.

Simplifying could also help you avoid missing payments, which can affect your credit score.

6. Adding or Removing a Cosigner

Applying for a cosigner release removes a cosigner from loans.

Why might you want to remove a cosigner from your loans through refinancing? You may no longer want a cosigner to remain responsible for repaying your debt if you were to default. Cosigning can also have implications for a cosigner’s debt-to-income (DTI) ratio, the ratio between the amount of debt they have related to their income. Their credit will show the extra debt they took on when they cosigned for you.

Learn more about refinancing student debt without a cosigner.

Tips for Finding a Lender

Ready to find a lender? Start by getting quotes from a few lenders, which usually just takes a few minutes online. Once you have several estimates, compare rates among lenders. Make sure you look at annual percentage rates (APRs), which represent the true cost of borrowing — they include fees as well.

Beyond getting a low-interest rate, you also want to look carefully at repayment terms. Are you looking at a shorter- or longer-term length? Choosing your current term length or a shorter term can help you save money.

Using a calculator tool for refinancing student loans can also help you estimate how much money you may save and give you a sense of what your monthly payments might be.

Life Changes That Can Make Student Loan Refinancing Worth It

Certain life changes and situations can also make refinancing worth it. For example, if you want to raise your credit score, save more money, or buy a house, you may want to consider refinancing.

•   Higher credit score: Making payments on time helps boost your credit score. One refinanced student loan payment is much easier to keep track of than multiple student loan payments. Simplifying can help prove that you’re a reliable borrower.

•   Save money for other things: If you want to save for a new living room set or for your child’s college fund, for example, refinancing can change your interest rate and help you save money over the long term.

•   Lower your debt-to-income (DTI) ratio: When you’re on the hunt for another type of loan, such as a mortgage loan to buy a home, you may discover that you need to lower your DTI. Refinancing your student loan debt can help you pay off your loans faster and therefore lower your DTI more quickly.

Learn more in our guide to refinancing student loans.

Explore SoFi’s Student Loan Refinancing Options

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. And 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.

Photo credit: iStock/stockfour

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


SoFi 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).

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.

SOSL0422005

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ 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.

©2026 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender