Guide to EBIDA: What It Is, How It Works & How It's Used

Oct

2024

Guide to EBIDA: What It Is, How It Works, & How It’s Used

By Lauren Ward | SMB | Comments Off

Earnings before interest, depreciation, and amortization (EBIDA) is a measure of a company’s earnings that adds interest, depreciation, and amortization expenses back to the net income number. It is similar to, but not as commonly used as, earnings before interest, taxes, depreciation, and amortization (EBITDA).

Here’s a closer look at EBIDA, how this metric is calculated, and how it compares to EBITDA.

Key Points

• EBIDA stands for earnings before interest, depreciation, and amortization. It measures a company’s profitability by excluding non-operational costs like interest and non-cash expenses.

• EBIDA focuses on cash flow, helping assess its ability to generate income before accounting for debt and asset depreciation.

• It differs from EBITDA in that EBIDA includes taxes, focusing more on core operational performance without factoring in interest or non-cash asset write-offs.

• EBIDA is not a Generally Accepted Accounting Principles (GAAP) measure, so companies may calculate it differently.

What Is EBIDA?

EBIDA is a measure of the earnings of a company that adds interest (paid on debt), depreciation, and amortization expenses back to net income – the last line on the income statement. Unlike EBITDA, which adds back those items plus income taxes to net income, EBIDA does consider the effects of taxes on a company’s earnings.

How Does EBIDA Work?

EBIDA measures a company’s financial performance before the influence of accounting or financial decisions, such as how much debt (interest) the business has taken on or how much money it has invested in property, equipment, or licenses (depreciation/amortization).

While those expenses are initially subtracted from a company’s operating revenue to calculate its net income, EBIDA adds them back as another way to evaluate a company’s financial performance.

Here’s a look at what EBIDA specifically adds to net income:

• Interest: This is the interest a business pays on any loans, such as any type of small business loan. It is excluded from EBIDA because it reflects the financing structure of the business, rather than the company’s core operations. Adding back interest to net income also makes it easier to compare the relative performance of two companies with different capital structures.

• Depreciation: Depreciation is the process of writing off the cost of a tangible asset over the course of its useful life. Depreciation expenses will vary depending on whether a company has invested in long-term fixed assets that lose value due to wear and tear. It is excluded from EBIDA because it reflects historic investment decisions the company has made, but not its current operating performance.

• Amortization: Similar to depreciation, amortization is the process of writing off the value of an intangible asset, such as a copyright, patent, or license, over its useful life. An intangible asset is amortized because its value diminishes over time due to expiration. It is excluded from EBIDA for the same reasons that depreciation is excluded.

Recommended: 15 Types of Business Loans to Consider

EBIDA Formula

As with EBITDA, there is more than one formula for calculating EBIDA.

Formula 1:

Net income + Interest + Depreciation + Amortization = EBIDA

Formula 2:

EBIT (Operating Profit) + Depreciation + Amortization – Taxes = EBIDA

What Is EBIDA Used For?

EBIDA is not a commonly used performance metric. However, it can be helpful for comparing two different companies in the same industry because it shows earnings before the influence of accounting and financial deductions, which can vary depending on a company’s capital structure.

EBIDA is also used as a performance metric for companies that do not pay taxes, such as hospitals, religious organizations, charities, and other nonprofits. In this case, EBIDA can be used interchangeably with EBITDA.

EBIDA vs EBITDA

Both EBIDA and EBITDA are financial metrics that are sometimes used in place of net income to evaluate a company’s operational performance. With both metrics, interest on debt and the noncash accounting expenses (depreciation and amortization) are added back to net income. Unlike EBITDA, however, EBIDA does not add back income taxes.

Because it includes the tax expense in the earnings measure, EBIDA is considered to be a more conservative valuation metric than EBITDA. EBIDA removes an assumption made in EBITDA – that some of the money used to pay taxes can be used to pay down debt. EBITDA assumes this because interest payments on business loans are tax deductible. This lowers a company’s tax burden, giving it more money to pay off debt.

EBIDA, on the other hand, doesn’t assume that taxes can be lowered through interest expenses. As a result, it does not add taxes back to net income.

EBITDA is a much more commonly used performance metric than EBIDA. In fact, EBITDA and seller’s discretionary earnings (SDE) are typically the most common metrics used to value small and mid-sized businesses.

Neither EBIDA nor EBITDA are compliant with the Generally Accepted Accounting Principles (GAAP). However, EBIDA is somewhat closer to compliance than EBITDA because it does consider the effect of taxes on a company’s net income.

	EBITDA	EBIDA
Widely accepted as an earnings metric	✓	X
Adds back interest, depreciation, and amortization to net income	✓	✓
Includes the effect of income taxes on earnings	X	✓
Is listed on an income statement	X	X
Accepted by GAAP	X	X

Pros and Cons of EBIDA

Pros of EBIDA	Cons of EBIDA
Useful for comparing the operational performance of two companies in the same industry that have made different debt/investment choices	Is not widely used by analysts in any industry
Does not differ as much from net income as EBITDA	Can be deceptive as it will always be higher than net income
Can be a useful earnings measure for companies that do not pay taxes	Is not GAAP-compliant

Recommended: EBITDA vs Gross Profit

EBIDA Example

Let’s take a look at an EBIDA example using the following financial information for Company X:

Total revenue	$1,500,000
Cost of Goods Sold (COGS)	$250,000
Depreciation	$40,000
Amortization	$30,000
Interest Expense	$125,000
Taxes	$40,000
Selling General, and Administrative Expenses (SG&A)	$125,000

To calculate EBIDA, we’ll start with net income, which is total revenue minus COGs, SG&A, depreciation/amortization, interest, taxes, and other expenses. Net income for Company X is $890,000. Next, we’ll calculate EBIDA.

EBIDA = Net income + Interest + Depreciation + Amortization
EBIDA = $890.000 + $125,000 + $40,000 + $30,000

EBIDA = $1,085.000

Recommended: Traditional Income Statements, Explained

The Takeaway

Like EBITDA, EBIDA is a performance metric that allows analysts and investors to quickly gauge a company’s financial performance in a given reporting period. It includes the effect of taxes on net income, but it removes any costs associated with interest, depreciation, and amortization. Because of this, it can be considered a more conservative metric than EBITDA when analyzing a company. However, EBIDA is not commonly used.

Neither EBIDA nor EBITDA is GAAP-compliant. So if you’re applying for a small business loan, you can include your company’s EBIDA or EBITDA number, but you will still also need to include its net income.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

FAQ

How are EBIDA and EBITDA different?

EBIDA (earnings before interest, depreciation, and amortization) differs from EBITDA (earnings before interest, taxes, depreciation, and amortization) in that it does not add income taxes back to net income. Because of this, it is a more conservative approach to analyzing a company’s financial performance. EBIDA is also not as commonly used as EBITDA.

What does the acronym EBIDA stand for?

EBIDA stands for earnings before interest, depreciation, and amortization.

What is the formula for EBIDA?

Here are two formulas for EBIDA (earnings before interest, depreciation, and amortization):
Net income + Interest + Depreciation + Amortization = EBIDA
EBIT (Operating Profit) + Depreciation + Amortization – Taxes = EBIDA

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q324-034

Oct

2024

Net Operating Income vs EBITDA: Similarities, Differences, and How to Calculate

By Susan Guillory | SMB | Comments Off

Net operating income (NOI) and EBITDA (earnings before interest, tax, depreciation, and amortization) are similar metrics used to measure a company’s profitability based on its core business operations. Different industries choose different metrics. NOI is generally used in real estate to evaluate income-producing properties, whereas EBITDA is most often used to measure how efficiently a company is operating and how it compares to competitors.

Here’s a closer look at NOI vs. EBITDA, how each one is calculated, their similarities and differences, and why they are important.

Key Points

• Net operating income focuses on property-level profitability by excluding non-operating costs like taxes, while EBITDA measures overall business earnings before interest, taxes, depreciation, and amortization.

• NOI is commonly used in real estate to assess a property’s performance, while EBITDA is used across various industries to evaluate business profitability.

• The formula for EBITDA is net income + taxes owed + interest + depreciation + amortization.

• The formula for NOI is gross operating income – operating expenses.

• The main difference between the two is that EBITDA does not account for lost revenues from vacancies.

What Is Net Operating Income?

Net operating income, or NOI, is a measurement used to determine the profitability of an income-producing property. NOI determines the revenue of a property by subtracting gross operating expenses from gross income. While NOI is most frequently used in the real estate industry, it can be used by any company that earns income from a property.

With NOI, a property’s gross income is everything it earns minus any losses due to vacancies.

As a rule of thumb, an expense is considered an operating expense if not spending money on that cost would jeopardize the asset’s ability to continue producing income. Operating expenses commonly include property taxes, vendor and supplier costs, maintenance and repair, insurance, utilities, licenses, supplies, and overhead costs, such as expenses for accounting, attorneys, and advertising.

Since income taxes, loan interest and principal payments, capital expenditures (money spent on improvements or repairs), and amortization and depreciation (the gradual write-off of long-term assets) do not impact the potential of a real estate investment to make money, they are not included in NOI.

A lender may look at a company’s NOI if they are applying for a small business loan, such as a commercial real estate loan.

How to Calculate Net Operating Income

NOI measures a property’s ability to generate a profit from its operations. The NOI formula is:

NOI = Gross Operating Income – Operating Expenses

Pros and Cons of Using NOI

While NOI can give potential investors and lenders a good indication of how profitable a property will be, it also has some drawbacks. Here’s a look at the pros and cons of using NOI.

Pros of NOI	Cons of NOI
Helps determine the initial value of a potential investment property	Future rents and cash flow can be difficult to predict, which means NOI can sometimes be inaccurate
Gives investors a good idea of how much revenue they can expect to make	NOI may vary depending on how the property is managed
Shows lenders if the rental property is a safe or risky investment	Investors use slightly different methods to calculate NOI, so it isn’t universal

Recommended: Annual Revenue Meaning and Calculation

What Is EBITDA?

EBITDA (earnings before interest, taxes, depreciation, and amortization) is used to calculate the earnings that a business has generated from its core operations.

To calculate a company’s annual earnings, EBITDA factors in the cost of goods sold, general and administrative expenses, and other operating expenses. However, it doesn’t subtract costs that are not directly related to the company’s operations, namely interest paid on debt, amortization and depreciation expenses, and income taxes on business revenue. The reason is that these costs are outside of management’s operational control.

By adding these values back to net income (which is gross business income minus all business expenses), many analysts believe that EBITDA can be a better measure of company performance because it shows earnings before the influence of accounting and financial deductions. EBITDA can also be useful for comparing firms with different sizes, structures, taxes, and depreciation.

Your company’s EBITDA may be calculated by a potential investor or by a creditor when you’re applying for a business loan because it provides a snapshot into how well your company will be able to pay its bills and maintain or increase net income.

How to Calculate EBITDA

The two most commonly used ways to calculate EBITDA include:

Option 1:
Start with net income (the bottom line of the income statement), and then add back the entries for taxes, interest, depreciation, and amortization.

Net income + Taxes Owed + Interest + Depreciation + Amortization = EBITDA

Option 2:
Start with operating income (also referred to as operating profit or EBIT – earnings before interest and taxes) and add back depreciation and amortization.

Operating Income + Depreciation + Amortization = EBITDA

Recommended: Business Cash Management, Explained

Pros and Cons of Using EBITDA

Pros of using EBITDA include:

• It offers a clear view of operational performance by excluding non-operational expenses like interest, taxes, depreciation, and amortization.

• EBITDA simplifies comparison across companies with different capital structures.

• It helps assess cash flow potential and operational efficiency.

Cons of using EBITDA include:

• It can obscure important financial costs, such as debt and capital expenditures, leading to an incomplete financial picture.

• EBITDA may overstate profitability by ignoring non-cash expenses.

• Investors might be misled about a company’s long-term financial health if focusing solely on EBITDA.

NOI vs EBITDA Compared

NOI and EBITDA have some similarities, but also a couple of key differences. Here’s how the two formulas compare.

Similarities

Both NOI and EBITDA measure the profitability of a business or property without including income taxes, the cost of loans, amortization, or depreciation as expenses. NOI is essentially EBITDA within a real estate context. By stripping away incidentals, both NOI and EBITDA level the playing field, which makes them useful for comparing different properties and businesses.

Banks will often use NOI or EBITDA (depending on a borrower’s industry) before giving the green light on different types of business loans. These metrics help them determine whether or not the business will have the cash flow to pay back the loan.

Differences

NOI is primarily used to evaluate the profitability of an investment in a commercial or residential real estate property. EBITDA, on the other hand, is primarily used to evaluate the profitability of a company. As a result, NOI takes into account lost revenues from vacancies, whereas EBITDA does not.

	EBITDA	NOI
Loan size	Larger	Smaller
Evaluates profitability of a business	✓	✓
Accounts for lost revenues from vacancies	X	✓
Excludes income taxes	✓	✓
Excludes cost of loans	✓	✓
Excludes amortization and depreciation expenses	✓	✓

Example of EBITDA vs Net Operating Income

Let’s look at how NOI and EBITDA compare when they are applied to a business.

Let’s say you’re considering purchasing a multi-tenant apartment building. You know the property already brings in gross revenues of $1.5 million. Operating expenses are $500,000, and other expenses include:

• Lost revenues from vacancies: $50,000

• Interest: $4,000

• Tax: $100,000

• Depreciation: $50,000

• Amortization: $25,000

Here’s how to calculate the property’s NOI:

NOI = Gross Revenues ($1.5 million – $50,000 in vacancies) – Operating Expenses ($500,000)

NOI = $950,000

While EBITDA is not typically used to calculate profits of real estate, let’s look at what the building’s EBITDA would be for the sake of comparison.

To calculate EBITDA, you first need to figure out net income, which is gross revenues minus operating expenses:

$1.5 million (gross revenue) – $679,000 (operating expenses) = $821,000 (net income)

EBITDA = Net Income ($821,000) + Taxes Owed ($100,000) + Interest ($4,000) + Depreciation ($50,000) + Amortization ($25,000)

EBITDA = $1,000,000

The difference between the two – $50,000 – represents the lost income to vacancies, which is not factored into EBITDA.

Recommended: Net Present Value: How to Calculate NPV

Obtaining Small Business Financing

Both NOI and EBITDA calculate a company’s profitability by subtracting operating expenses from revenues. In addition, both metrics exclude income taxes, debt expenses, depreciation, and amortization, since these expenses are not related to the company’s core operations.

The key difference between NOI and EBITDA is that NOI is used for real estate and EBITDA is used for general businesses.

When it comes to small business loans, a lender will likely look at your NOI or EBITDA (depending on your company’s industry), along with other key financial metrics, to see whether you have enough positive cash flow to comfortably make payments on the loan.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

FAQ

Does net operating income mean the same thing as EBITDA?

Net operating income, or NOI, and EBITDA (earnings before interest, tax, depreciation, and amortization) are similar ways to calculate a business’s profitability. However, NOI is used for an income-generating property and EBITDA is used for a business.

Should EBITDA OR NOI be higher?

If you used EBITDA (earnings before interest, tax, depreciation, and amortization) and NOI (net operating income) to evaluate the same income-producing property, EBITDA would be higher because it does not account for lost income due to vacancies.

Can you have a negative EBITDA?

Yes, if a company has poor cash flow, its EBITDA (earnings before interest, tax, depreciation, and amortization) can be negative.

Photo credit: iStock/LumiNola

SOSMB-Q324-049

Oct

2024

Who Actually Owns My Student Loans?

By Ashley Kilroy | Going to College, Student Loans, student_loan | Comments Off

Your student loans are owned by the government or a financial institution like a bank, credit union, or online lender. Who owns your student loans depends on the type of loans you have.

Knowing which organization or entity owns your student loans is important for managing your payments — and for anyone who wishes to be an informed consumer. Here’s how to find out who owns your student loan debt.

Overview of Student Loan Ownership

Federal student loans are typically owned by the U.S. Department of Education (DOE), while private student loans are owned by the private lender who issued them.

However, both the DOE and private lenders may partner with a third party known as a loan servicer to manage your loans. The loan servicer handles billing and can also help you with repayment options, such as loan consolidation or income-driven repayment (IDR) plans for federal loans. Whether your loans are federal or private, your loan servicer is your resource for any questions or issues.

Student loan servicers can change, however. This can happen if your student loan is sold to another company, for instance. In this case, you should receive a notification by mail or email about who your new servicer is and where to send your payments. But even if you miss the notice, it’s still your responsibility to make sure your loan payments get to the new loan servicer by the due date.

If you choose to refinance your student loans, potentially for a more favorable interest rate or term, you will get a new lender and loan owner in the process.

Identifying Federal Loan Servicers

Your federal loan servicer is typically who you reach out to for anything related to your federal student loans. It’s important to know who they are and how to reach them.

How to Find Your Federal Loan Servicer

Once the DOE disburses your federal student loan, they will assign a loan servicer to manage it. The loan servicer will usually contact you directly. That way, when it’s time to start paying back student loans, you’ll know who to reach out to.

If you didn’t save their contact information, finding common student loan servicers is usually simple. Just log into your account dashboard at StudentAid.gov and go to the “My Loan Servicers” section. Or call the Federal Student Aid Information Center (FSAIC) at 800-433-3243.

The DOE sometimes moves student loans from one loan servicer to another. This transfer simply means a different company will be handling your loan and helping you manage it. For instance, you could talk to them about different student loan repayment options if you’re looking for another plan.

If your loan is transferred, the new loan servicer will typically inform you of the change by email or letter. Update your payment information with your bank or adjust the payment method for your monthly student loan bill to make sure your payments go through smoothly. Also, set up an account with the new servicer and double-check that your personal information is accurate so they can reach you if needed.

Identifying Private Loan Lenders

Determining who owns your private student loan can be a little more complicated. Here’s how to do it.

Checking Private Loan Ownership

There’s no one central website for private student loan servicers like there is for federal loans. To find out who owns your private student loans, you’ll need to individually contact each of your lenders.

Another option is to get your credit report from one of the three credit bureaus. Private lenders usually report loans, including student loans, to the credit bureaus, and the loan servicer should be listed on the report.

Why Loan Ownership Matters

Knowing who owns your student loan is critical for managing your student loan debt. Whether you’re still in college and not yet repaying your loans, or you’re paying off student loans early, your loan servicer is the one who handles the transactions and answers any questions you might have. They can also explain different repayment options and be a resource if you’re facing financial difficulties.

If you don’t know who your servicer is, you might miss important updates, payment deadlines, and opportunities to adjust your repayment plan.

The Takeaway

If you have federal student loans, the government owns your loans. With private loans, your loans are owned by a private lender. Both entities often use loan servicers to handle payments for your loan, so be sure to find out who your loan servicer is.

The owner of your loan may change over time. Student loans can be transferred or sold to other lenders. And if you decide to refinance your student loan — say, because you qualify for a lower interest rate or better term — you’ll get a new lender as part of that process.

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 loans be sold to other lenders?

Yes, a lender can sell your student loans. They may do so to free up capital and make other loans. Typically, the new owner of the loan will notify you of the change of ownership. Be sure to update your payment information with the new lender.

How can I find out who services my loans?

If you have federal student loans, you can log in to your account dashboard at StudentAid.gov and click on the “My Servicers” section to see who your loan servicer is. For private student loans, contact your lender directly for the information or pull your credit report, which should have the loan servicer listed.

What if I don’t recognize my loan servicer?

If you come across a loan servicer you don’t recognize, it’s a good idea to make sure they’re legitimate. Check with your lender to find out if this is the servicer they’re working with. Don’t give out any personal or sensitive information to anyone you don’t know. Be alert for scammers offering to help you with payments or loan forgiveness. Report anything that feels off or questionable. You can file a complaint online with the Department of Education’s Federal Student Aid.

Photo credit: iStock/Pla2na

SoFi Student Loan Refinance
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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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.

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.

SOSLR-Q324-020

Oct

2024

8 States That Will Help Pay off Student Loans

By Rebecca Safier | Going to College, Student Loans, student_loan | Comments Off

Americans owe more than $1.6 trillion in federal student debt, and the average graduate leaves college owing $29,400. Fortunately, your state may be able to help. There are a number of states that pay off student loans through student loan repayment assistance programs. Some of these plans are meant to entice people to move to the state, while others are available to residents who work in certain professions. If you can qualify for one of these programs, you could get a major chunk of your student loan debt repaid for you.

Overview of State Loan Repayment Programs

State loan repayment programs (LRAPs) offer student loan assistance to eligible borrowers who are paying back student loans. Some programs act as an incentive to encourage people to move into certain areas or become homeowners in the state. Others are available to residents who work in a certain field, such as health care or law.

Unlike federal loan forgiveness programs, which only forgive federal student loans, some states that pay off student loans through LRAPs will help you repay both private and federal student loan debt. However, like most other student loan repayment options, there are stipulations. For instance, you may have to commit several years to living or working in an area in order to receive the maximum benefits.

State-by-State Loan Repayment Assistance

Here are some of the states offering repayment assistance to qualifying student loan borrowers, which could help you pay off student loans early. This list is not exhaustive, so check with your state to find out if it offers LRAP opportunities.

California
The California State Loan Repayment Program offers assistance to primary care physicians, dentists, dental hygienists, physician assistants, nurse practitioners, certified nurse midwives, pharmacists, and mental/behavioral health providers who practice in designated California Health Professional Shortage Areas. Award amounts can equal $100,000 or more, depending on whether you work full-time or half-time and how many years you serve.

Kansas
Kansas offers up to $15,000 in student loan assistance over five years to new residents who move to one of its Rural Opportunity Zones (ROZ). You must have a newly established permanent residence in an eligible ROZ and live there for the five years of repayment to qualify for the full amount.

Maine
Maine offers several perks for student loan borrowers, including three LRAPs and a tax credit:

• Maine Dental Education Loan Repayment Program: This program offers repayment assistance up to $100,000 to dentists and dental health professionals working in underserved areas.

• Maine Health Care Provider Loan Repayment Pilot Program: Designated for health care providers who live and work in Maine for at least three years, this program offers up to $75,000.

• Nursing Education Loan Repayment Program: Established and new Maine residents who work as registered nurses or nurse educators for at least three years are eligible to receive up to $40,000 through this program.

• Student Loan Repayment Tax Credit: Student loan borrowers who earned at least $12,917 in Maine could claim a student loan tax credit up to $2,500 annually with a lifetime limit of $25,000.

Maryland
Maryland has a SmartBuy 3.0 program to help student loan borrowers become homeowners. To qualify for this program, you must owe at least $1,000 in student loans, purchase a home that meets the Maryland Mortgage Program guidelines, and borrow a mortgage from an approved Maryland SmartBuy lender. The program can provide up to 15% of the home purchase price (for a maximum of $20,000) for you to use to pay off your student loans.

Massachusetts
Health care providers in Massachusetts could receive as much as $50,000 in student loan repayment in exchange for working two years in an underserved community. You’ll need to be licensed to work as a primary care physician, dentist, physician assistant, clinical social worker, marriage and family therapist, or other qualifying health care profession.

Michigan
Michigan’s State Loan Repayment Program offers up to $300,000 in student loan assistance to health care providers who work in a designated shortage area. You must commit to a service term of at least two years to qualify for this program.

Ohio
The city of Hamilton in Ohio has a program to incentivize new residents to move to the area. The Hamilton Talent Attraction Program Scholarship offers up to $15,000 to borrowers who move to an area in the Hamilton city limits. It prefers graduates with a degree in science, technology, engineering, arts or mathematics.

Texas
The Texas Student Loan Repayment Assistance Program offers up to $6,000 per year to attorneys paying back student loans who work for a Texas legal aid program that’s receiving a grant from the Texas Access to Justice Foundation (TAJF). You also must have been licensed to practice law for fewer than 10 years and make no more than $80,000 per year.

Requirements and Eligibility

The requirements for state-provided LRAPs vary by program. Some are open to current residents, while others offer benefits to new residents who move to or buy a home in a certain area.

Programs that are designated for specific professionals often require you to work in a designated shortage area or with an underserved community. You’ll also generally need to commit to a certain service term, such as two or three years. Read over the fine print of a program’s requirements to see if it could be a good match for you.

If you can’t find a program that fits your specific situation, there are other ways to make it easier to repay your student loans. For instance, you might consolidate all your loans into one loan or refinance your student loans, ideally for a lower interest rate or better loan terms if you qualify. (Just be aware that refinancing federal student loans makes them ineligible for federal programs and protections like income-driven repayment.)

Application Process and Deadlines

The application process and deadlines also vary by loan repayment assistance program, and you can usually find this information on the official state or program website. You may need to fill out an application with details about your educational background and student loan debt. Often, a program requires you to commit to working half-time or full-time for a certain number of years.

These programs can be competitive, so make sure to get your application in well ahead of the stated deadline. Some programs also pay out a certain amount per month or year, so find out whether you need to submit additional applications to maintain your eligibility.

Loan Repayment vs Loan Forgiveness

Both loan repayment assistance programs and student loan forgiveness programs can help you pay off your education debt. However, loan repayment programs may offer assistance sooner, as some of these programs only require two or three years of service.

By contrast, the Teacher Loan Forgiveness program requires five years of service, while Public Service Loan Forgiveness requires 10. And income-based student loan repayment forgiveness requires 20 or 25 years of payments until your balance may be forgiven.

Loan repayment programs might also help you pay off both private and federal student loans, whereas only federal student loans are eligible for loan forgiveness programs.

Finally, loan repayment and loan forgiveness programs may have different tax implications. The loan forgiveness you get from PSLF is not taxable, for instance, whereas assistance you get from an LRAP could be treated as taxable income.

The Takeaway

When it comes to paying back your student loans, your state may be able to help. Several states offer loan repayment assistance programs to eligible borrowers who move to a certain area or work in a qualifying profession. By taking advantage of one of these programs, you may be able to get a major portion of your student loans paid off.

Even if your state doesn’t offer an LRAP, there are other ways to potentially make your payments easier, including student loan forgiveness, loan consolidation, and student loan refinancing for more favorable rates and terms for those who qualify. Carefully consider all your options for repaying student loan debt.

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

FAQ

What types of loans qualify for state repayment assistance?

State repayment assistance programs generally pay off federal student loans, and some will pay off private student loans as well. Check with each individual program to find out what types of loans qualify for repayment assistance.

Can you receive assistance from multiple state programs?

You may be able to receive assistance from multiple state programs — if, for instance, you live in one state and get assistance and then move to another state and get assistance there — but you likely can’t do this simultaneously. Most programs require you to live and work in-state to be eligible for student loan repayment benefits.

How much student loan debt can state programs cover?

State programs can cover a significant portion of your student loan debt. The LRAP for health care workers in Massachusetts offers up to $50,000, while Michigan’s health care worker LRAP can provide up to $300,000. However, the amount will depend on the program and the field you work in.

Photo credit: iStock/zimmytws

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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.

SOSLR-Q324-019

Oct

2024

What Is an Institutional Student Loan?

By Melissa Brock | Going to College, Student Loans, student_loan | Comments Off

An institutional student loan is a type of student loan you borrow from your college or university. Institutional loans are non-federal student loans, and the loan terms vary from school to school.

Institutional loans can help fill in the gaps other financial aid doesn’t cover. But it’s important to understand how these loans work to make sure they’re right for you.

Definition and Overview

Institutional loans are considered to be a type of private student loan. But unlike traditional private student loans, they are offered by your school rather than a private lender. Students may use these loans to help pay for college costs. However, some schools only allow the use of institutional loans for tuition and fees, and not for other education-related expenses.

Institutional loans are non-federal student loans. That means they don’t offer the same benefits that federal loans do, including deferment, forbearance, and student loan repayment options such as income-driven repayment plans.

How Institutional Student Loans Work

Institutional loans typically come in two types — short-term and long-term loans.

Short-term institutional loans generally have a low interest rate, but they may have a processing fee. These loans sometimes involve a credit check, and you’ll typically need to pay back student loans that are short-term within a few months. Check with your school about the specific repayment terms for the short-term institutional loans they offer.

Long-term institutional loans allow for longer repayment terms, such as 10 years, and payments may be deferred while you’re in school. The interest rates on these loans are usually higher, and the rate you get may depend on your creditworthiness.

Eligibility Criteria

To qualify for institutional student loans, borrowers typically must file the Free Application for Federal Student Aid (FAFSA). The eligibility criteria for these loans vary from institution to institution, so your best bet is to check with your school’s financial aid office.

Interest Rates and Fees

Interest rates for institutional loans range widely, depending on the school and whether the loan is short-term or long-term. Some colleges offer short-term loans with rates as low as 0% or 1%, while interest rates on long-term institutional loans may be 3% to 10%. Check with your school about the interest rates on these loans.

Repayment Terms and Options

The repayment term on an institutional loan is the amount of time the institution gives you to pay off your loan. Short-term loans typically need to be repaid quickly — in 90 days, say — while long-term loans have a repayment term of 10 years. Your school may offer different options for repayment, so be sure to inquire.

One option that you may not have with institutional loans is refinancing. With student loan refinancing, you replace your old student loans with a new loan that ideally has a lower interest rate or better terms. Refinancing might not be possible with institutional loans.

Pros and Cons of Institutional Student Loans

Institutional student loans may be a solution for students who need to bridge gaps in financial aid, but these loans have benefits and drawbacks to consider.

Pros of institutional loans:

• Quick payoff: Short-term institutional loans typically require repayment in several months. If you need financial assistance now and expect to have funds to repay the loans at the end of the term, they might be an option for you. By comparison, paying off federal student loans can take 10 years or more.

• Low interest rate: Some institutional loans have lower interest rates than federal or private student loans. But before committing to one of these loans, explore the different undergrad private student loan rates available to make an informed decision.

• May not require a credit check: You might not need to undergo a credit check to be approved for an institutional loan, especially if it’s a short-term loan.

Cons of institutional loans:

• No federal benefits. Institutional loans don‘t provide the same benefits that come with federal student loans, such as income-driven repayment plans and student loan forbearance.

• May require a credit check. With long-term institutional loans, your school may require a credit check to qualify. That could make these loans more difficult to obtain.

• May be tough to repay. Short-term loans typically need to be repaid in a few months. As a college student, that may not be feasible for you. In that case, you might want to consider low-income student loans instead.

• Refinancing might not be possible. Federal and private student loans can be refinanced, but institutional student loans may not be eligible for refinancing.

The Takeaway

Institutional student loans are offered by colleges and universities to help cover school costs like tuition and fees. They may be helpful to students who have reached their financial aid allotment for the semester or those who need financial help immediately and can repay the loan quickly.

But institutional loans do have drawbacks. Repaying them quickly can be challenging for college students. And borrowers may need to undergo a credit check to qualify for them. Before choosing an institutional loan, you may want to look into other financial aid options, such as grants and scholarships, or consider private student loans, which have the option of refinancing in the future, if that’s something you might be interested in. Weigh all the different choices to make the best decision for your situation.

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

FAQ

What are the benefits of institutional student loans?

Institutional loans offered by colleges and universities can help you cover school costs like tuition and fees if you’re coming up short. They may also offer low interest rates, quick repayment, and no credit check. However, make sure you can repay an institutional loan on time — the repayment term might be as short as three months.

Can institutional student loans be used for living expenses?

Whether an institutional loan can be used for living expenses depends on the institution. Some colleges and universities require borrowers to use institutional loans for tuition and fees. Check with your school to find out what their requirements are.

How do institutional student loans compare to federal loans?

Federal student loans offer more repayment options than institutional loans, and they also come with federal programs and protections you may want or need, such as deferment and forbearance. In comparison, short-term institutional loans typically take less time to pay off, which could make them appealing to those looking to avoid long-term student loan debt. The interest rates for some institutional loans may be lower than the interest rates for federal loans, but others may have higher rates.

It’s wise to explore the different requirements, terms, and benefits of each type of loan before you opt for one over the other.

Photo credit: iStock/dusanpetkovic

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

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

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.

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

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

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.

SOSLR-Q324-015