The average student loan borrower takes out $29,300 to pay for college, according to the College Board. At any given time, more than 6% of these student loans are in default, and within the first three years of repayment, 10.3% of borrowers will enter default.
Federal student loan default occurs when a borrower fails to make payments on their student loans for 270 days. This can lead to serious consequences, including wage garnishment, loss of eligibility for federal financial aid, and damage to credit scores.
Keep reading to learn more on student loan default, including the history and importance of the default rate, the average student loan default period, how to make your loans more affordable so you can avoid default, and more.
Key Points
• The student loan default rate measures the percentage of borrowers who fail to make payments for 270 days or more.
• As of recent data, the overall federal student loan default rate is around 6%, but it varies significantly by school type and borrower demographics.
• Community colleges and for-profit institutions have higher default rates compared to public and private nonprofit colleges.
• Defaulting can have severe financial consequences, including damaged credit, wage garnishment, and loss of eligibility for federal aid.
• Ways to prevent student loan default include deferment, forbearance, income-driven repayment plans, and refinancing your student loans.
The History and Importance of the Default Rate
What’s known as the three-year default rate is a highly watched number because it’s the figure the U.S. Department of Education uses to determine if colleges and universities qualify to receive federal student aid. If a school’s default rate exceeds a certain benchmark three years in a row, it could lose eligibility for Title IV funding.
The student loan default rates have generally trended down over the last two decades. In March 2020, the Department of Education paused collections on most student loans in default. It also offered a Fresh Start program that allowed borrowers to easily get their loans out of default and back into good standing. As of October 2, 2024, the Fresh Start program has ended.
The average student loan default period refers to the typical length of time it takes for a delinquent federal student loan to be classified as “in default.” For most federal loans, this period is 270 consecutive days — about nine months — of missed payments.
The federal government focuses on the three-year student loan default rate. Education Data Initiative finds that 10.3% of borrowers default within the first three years of when their repayment starts.
Students who were enrolled in private, for-profit colleges are the most likely to have student loans in default, data shows. In fact, within the first 12 years of repayment, more than 50% of those loans end up in default.
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The Difference Between Defaulting on a Loan and Being Delinquent
Borrowers participating in the Federal Direct Loan program or the Federal Family Education Loan (FFEL) program are considered in default if they miss nine months or 270 days of payments. Borrowers can face a number of serious consequences if they default on a loan, including losing the opportunity to defer payments or choose a repayment plan.
It may also damage your credit, and your tax refunds may be withheld and applied to what you owe on your loans. The government could even garnish a portion of your wages to apply to your loan. Finally, your loan holder can sue you, and if that’s the case, you may be responsible for the court fees.
With a delinquency, you still have time to start making payments again and restore your relationship with your lender. You’re considered delinquent on federal student loans the day after you miss your first payment, and you’ll remain delinquent until you resume payments and make up the past due amount.
If it’s been 90 days since your last payment, the lender can report you to credit agencies, and those missed loan payments can go on your credit report, which can affect your ability to borrow in the future. With a bad credit report, you may have trouble getting credit cards, home loans, and even arranging for utilities or homeowner’s insurance.
What Options are Available to Make My Loans More Affordable?
To avoid becoming part of the student loan default rates, it’s important to take action. If you are delinquent on your student loans or think you may be heading that way, you can seek deferment or forbearance, which is a federal benefit to stop making payments for a period of time. However, interest may still accrue. You could also choose a federal income-based repayment program that bases your monthly payment on your income and family size.
Refinance Your Student Loans
Another option is to refinance your student loans with a private lender. With student loan refinancing, you may be able to get a lower interest rate or more favorable terms to help reduce your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)
Keep in mind that if you need access to federal protections and programs, such as income-driven repayment programs, refinancing federal student loans likely wouldn’t make sense for you. That’s because when you refinance federal loans, they become ineligible for these special benefits.
The Takeaway
The student loan default rate is a critical indicator of financial distress among borrowers, with significant variations based on school type and demographic factors. Understanding the risks and exploring preventive measures like deferment, forbearance, income-driven repayment plans, and student loan refinancing can help borrowers avoid the severe consequences of default.
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
What is the overall federal student loan default rate?
As of recent data, the overall federal student loan default rate is around 10%, though it can vary significantly depending on the type of school and borrower demographics.
How can you prevent student loan default?
To prevent student loan default, explore options like deferment, forbearance, and income-driven repayment plans. You can also look into refinancing your student loans for a better rate or terms, which may help reduce your monthly payment and prevent default.
What are the consequences of defaulting on student loans?
Defaulting on student loans can lead to damaged credit, wage garnishment, and loss of eligibility for federal financial aid.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Defaulting on student loans can happen after a borrower misses a series of payments on their loan. The number of loan payments missed before the loan enters default is different depending on whether the loans are federal or private, but the consequences of defaulting on either type can be severe. Ramifications include having the loans go to a collections agency and potential negative impacts on your credit score.
Read on to learn more about what student loan default is and what happens if you default on student loans.
Key Points
• Missing just one federal student loan payment leads to delinquency, which can be reported to credit bureaus after 90 days of missed loan payments.
• Federal student loans default after 270 days of nonpayment, while private loans typically default after 90 to 120 days, though this may vary by lender.
• Default on federal loans results in the remaining loan balance becoming immediately due in full, wage garnishment, and loss of eligibility for forgiveness and forbearance, among other consequences.
• Private loan default can lead to collection agency involvement.
• Options to avoid default include contacting the lender, loan rehabilitation, loan consolidation, refinancing, and seeking credit counseling or legal aid.
What Is Student Loan Default?
Student loan default is a term for when you stop paying student loans by failing to make the required monthly payments on federal or private loans.
For example, if a borrower is having issues making monthly payments on their federal student loans and they stop paying them, after a certain number of missed payments, the loan will enter default.
There are serious repercussions for defaulting on student loans. What happens if you default on student loans is the balance of your loan becomes due in full immediately, your wages may be garnished, and your credit rating is damaged, among other consequences.
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How Long It Takes to Enter Default
The length of time it takes to enter default depends on the type of student loan you have. For federal Direct loans and Federal Family Education Loans (FFEL), if a borrower fails to make a payment for 270 days, their loan is considered to be in default. (If a borrower has a federal Perkins loan, their loan can be deemed to be in default after just one missed payment.)
Private student loans have a different timeline for default, which can vary by lender. In general, however, private student loans are considered to be in default after 90 or 120 days of missed payments, depending on the lender.
Student Loan Default vs. Delinquency
Student loan delinquency is the early stage of missing a required loan payment. If you fail to pay over an extended period, you could face greater consequences for reaching late-stage delinquency.
Federal student loans are considered delinquent when you’re past due on a required payment by at least one day but less than nine months. Federal student loans are typically reported to the credit bureaus as delinquent if you are 90 or more days past due.
A delinquent federal student loan typically goes into default if you fall at least 270 days past due on required payments.
Lenders of private student loans can set their own parameters for delinquency vs. default. Banks, credit unions, and online lenders offer private student loans. Some may consider you in default if you are 90 or more days delinquent on a private student loan. Others may define default as falling 120 days past due after receiving a final demand letter.
Can You Default on Student Loans?
Yes, it’s possible for borrowers to default on student loans. If you are struggling to make monthly payments on your federal student loans and just stop paying them, after a certain number of missed payments, the loan will be in default.
Private student loans can also go into default, though, as mentioned above, this can happen more quickly than it does with a federal student loan.
Defaulting on federal student loans is a process that takes place over a period of nonpayment. Typically when you first miss a payment, the loans are delinquent but not yet in default. At 90 days past due, your lender can report your missed payments to credit bureaus. And, as mentioned above, when you reach 270 days past due, your student loans are typically considered in default.
For private student loans, the terms for default can vary. Private student loan lenders may consider you in default if you’re 90 or 120 days or more past due on a required payment.
Private lenders may also place student loans in default if the borrower declares bankruptcy, passes away, or defaults on another loan. Terms can vary by lender, so if you have private student loans, double-check how they define default.
Defaulting on student loans can have serious consequences, but there are ways to avoid defaulting on your student loans — or recover if your loans are currently in default.
What Happens When Your Student Loans Default?
Here are four potential consequences of what happens if you default on student loans.
1. Collection Agencies Might Come Knocking
When a borrower defaults on student loans, the lender may eventually turn the debt over to a collection agency. The collection agency will then attempt to recover the payment, typically reaching out to you with frequent letters and phone calls.
Collection agencies may also attempt to determine what other assets, including bank accounts or property, would allow you to pay your debt. On top of dealing with regular calls from debt collectors, you may also be responsible for paying any additional fees the collection agency charges on top of your student loan balance.
2. Loan Forgiveness and Forbearance Options Are No Longer on the Table
Student loan default on federal loans means that the federal government can revoke your access to programs that might make it easier for you to pay your loans, including loan forgiveness or forbearance. This means that even if you qualify for something like the Public Service Loan Forgiveness program, you could be rendered ineligible if you let your loans go into default.
3. Your Credit Score Might Be Impacted
Once your student loans are in default, the lender or the collection agency will report your default to the three major credit bureaus. This means that your credit score could take a hit. A low credit score can make it harder for you to get a competitive interest rate when borrowing for other needs, like a car or home loan. In fact, having federal student loans in default can make it difficult to buy or sell real estate and other assets.
4. You Might Have to Give up Your Tax Refund, or a Portion of Your Wages
If your loan holder or a collection agency can’t recover the amount owed, they can request that the federal government withhold your tax refund and even garnish some of your income. For example, if you filed your taxes and were eligible for a refund, the government would instead take that refund money and apply it toward your defaulted student loan balance. On top of that, the government can garnish your wages, which means that they can take up to 15% of each paycheck to pay back your loans.
5. You Could Lose Eligibility for Future Federal Aid
When your federal student loans go into default, you lose eligibility for additional federal aid, such as federal loans and federal Pell Grants. If you were planning to return to school, for instance, you will not be able to get federal student aid to do so.
How Can You Get Student Loans Out of Default?
Defaulting on student loans is a serious matter, but the good news is that there are ways of getting out of default.
To help recover from defaulted student loans, first, stop avoiding collection calls. If your student loan provider or a collection agency is calling, your best bet is to meet your lender or the agency head-on and discuss your options. The lender or the collection agency will be able to talk through the repayment options available to you based on your personal financial situation. They want you to pay, which means that they might be able to help find a payment plan that works for you.
The lender may be able to offer options tailored to your individual circumstances, such as satisfying the debt by paying a discounted lump sum, setting up a monthly payment plan based on your income, consolidating your debts, or even student loan rehabilitation for federal loans (see more about this below). Don’t let your fear stop you from reaching out to your lender or the collection agency.
How to Avoid Defaulting on Student Loans
Of course, even if you can get yourself out of student loan default, the default can still impact your credit score and loan forgiveness options. That’s why it’s generally best to take action before falling into default. If the student loan payments are difficult for you to make each month, there are things you can do to change your situation before your loans go into default.
First, consider talking to your lender directly. The lender should be able to explain any alternate student loan repayment plans available to you.
For federal loans, borrowers may be able to enroll in an income-driven repayment (IDR) plan. These repayment plans aim to make student loan payments more manageable by basing them on the borrower’s discretionary income and family size. This can make the loans more costly over the life of the loan, but the ability to make payments on time each month and avoid going into default are valuable.
There are currently, as of August 2025, several options for income-driven repayment. Depending on the plan you enroll in, the repayment term is extended to 20 to 25 years and payments are capped at 10% to 20% of your income. However, the U.S. domestic policy bill that was passed in July 2025 eliminates a number of student loan repayment plans. For borrowers taking out their first loans on or after July 1, 2026, there will be only two repayment options: the Standard Repayment Plan, which is a 10- to 25-year repayment plan, and the Repayment Assistance Program (RAP).
RAP is similar to previous income-driven plans that tied payments to income level and family size. On RAP, payments range from 1% to 10% of adjusted gross income for up to 30 years. At that point, any remaining debt will be forgiven. If your monthly payment doesn’t cover the interest owed, the interest will be cancelled.
One thing to be aware of is that while an income-driven repayment plan might help make monthly payments more manageable, extending the length of the loan means you could end up paying more interest than you would on the Standard Repayment Plan. The good news is that if you still have a balance at the end of the repayment term, your remaining debt is discharged (although it may be taxed).
Is Refinancing an Option?
Student loan refinancing could potentially help you avoid defaulting on your student loans by combining all your student loans into one new loan. When you refinance student loans, you might be able to secure a lower interest rate or loan terms that work better for your situation.
However, if a borrower is already in default, refinancing defaulted student loans could be difficult. When a student loan is refinanced, a new loan is taken out with a private lender. As a part of the application and approval process, lenders will review factors including the borrower’s credit score and financial history among other factors.
Borrowers who are already in default may have already felt an impact on their credit score, which can influence their ability to get approved for a new loan. In some cases, adding a cosigner to the refinancing application could help improve a borrower’s chances of getting approved for a refinancing loan. But know that if federal student loans are refinanced they are no longer eligible for federal repayment plans or protections.
Help on Defaulted Student Loans
If you default on a federal student loan, here are some programs that can help you get them out of default.
Loan Rehabilitation
To apply for student loan rehabilitation, contact your loan servicer. In order to rehabilitate your federal student loan you must agree to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the payment due date. This agreement must be completed in writing. All nine payments must be made within 10 consecutive months.
Private student loans do not qualify for federal student loan rehabilitation. Federal Direct Loans or loans made through the Federal Family Education Loan (FFEL) program qualify for student loan rehabilitation.
Loan Consolidation
Consolidating your federal student loans into a Direct Consolidation Loan is another option to get your defaulted federal student loans out of default. To consolidate defaulted federal student loans into a new Direct Consolidation Loan you have two options, which are:
• Repaying the consolidated loan on an income-driven repayment plan.
• Making three monthly payments on the defaulted loan before consolidating. These payments must be consecutive, voluntary, on-time, and account for the full monthly payment amount.
Again, private student loans are not eligible for consolidation through a Direct Consolidation Loan.
Consumer Credit Counseling Services (CCCS) are usually non-profit organizations that offer free or low-cost counseling, education, and debt repayment services to help people facing financial difficulties.
If you’ve defaulted on a student loan, a credit counselor may be able to help by looking at your entire financial situation along with your student debt, laying out your options, then working with you to come up with the best option for student loan debt relief.
If you’re struggling with multiple debts, a credit counselor may be able to set up a debt management plan in which you make one monthly payment to the credit counseling organization, and they then make all of the individual monthly payments to your creditors.
While counselors usually don’t negotiate down your debts, they may be able to lower your monthly payments by working with your creditors to increase your loan terms or lower interest rates.
Just keep in mind: Credit counseling agencies are not the same thing as debt settlement companies. Debt settlement companies are profit-driven businesses that often charge steep fees for results that are rarely guaranteed. Debt settlement can also do long-term damage to your credit.
To avoid debt settlement scams and ensure you find a reputable credit counselor, you might start your search using the U.S. Department of Justice’s list of approved credit counseling agencies.
Legal Aid or Financial Hardship Support Services
For borrowers who need legal help with defaulted student loans, there are some legal aid resources available. Legal aid is typically free of charge to those below a certain level of income or who meet other requirements. To find legal aid in your state (if it is available), check LawHelp.org, a national nonprofit that provides referrals to legal aid.
Another resource is the American Bar Association’s Legal Help Finder, which can help low-income borrowers locate free legal help.
If you don’t qualify for free legal help with your student loans, the National Association of Consumer Advocates may be able to assist you in finding a lawyer in your area who handles student loan issues.
The Takeaway
Student loan default can have serious negative effects on your credit score and financial stability. If you’re worried about defaulting on your student loans, or you have already defaulted, consider taking immediate steps to remedy the situation before it gets worse. Contact your lender or loan servicer to learn about options available, such as loan rehabilitation, loan consolidation, and refinancing your loans.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Does a defaulted student loan ever go away?
It is possible to rehabilitate or consolidate a defaulted federal student loan to get it out of default so that it “goes away.” Some private lenders may offer programs or assistance to borrowers facing default, but they are not required to do so.
Will my student loans come out of default if I go back to school?
No, if you have student loans already in default, going back to school will not remove them from default. Students who have student loans in default will need to get the loans out of default before they can qualify to borrow any additional federal student loans.
Are defaulted student loans forgiven after 20 years?
Defaulted loans are not forgiven after 20 years. Students in default may consolidate or rehabilitate their loan and then enroll in an income-driven repayment plan, which could potentially qualify them for loan forgiveness at the end of their loan term, up to 25 years.
Can defaulted student loans affect my taxes or wages?
Yes, if you default on federal student loans, the government may garnish your wages — which means your employer may be required to withhold a portion (typically up to 15%) of your pay and send it to the loan servicer to repay your loan. In addition, your tax refunds may be withheld and the money applied to repayment of your defaulted loan.
What are the fastest ways to recover from student loan default?
Loan consolidation is generally one of the fastest ways to recover from student loan default. To do it, a borrower consolidates their defaulted loans into a new Direct Consolidation Loan, which immediately ends the default status of the loans. The borrower must agree to repay the consolidation loan on an income-driven repayment (IDR) plan or they must make three consecutive on-time full monthly payments before consolidating.
Just be aware that when you consolidate a defaulted loan or loans, the default remains on your credit report for seven years.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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• Income-driven repayment plans base monthly student loan payments on income and family size, extending loan terms to 20 or 25 years.
• Three income-driven repayment plans are currently available: Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn.
• Income-driven repayment plans offer borrowers more flexibility in managing student loan debt.
• Alternative repayment options for current borrowers include the Standard Repayment Plan, the Graduated Repayment Plan, and the Extended Repayment Plan.
• Changes to all federal student loan repayment plans are expected due to recent legislation.
If you’re on the standard 10-year repayment plan and your federal student loan payments are high relative to your income, a student loan income-driven repayment plan may be an option for you.
Income-driven repayment bases your monthly payments on your income and family size. Due to recent legislation, your options for income-driven plans will be changing over the next few years.
Read on to learn about which repayment plans are currently available and what to expect in the near future.
What Is an Income-Driven Repayment Plan?
Income-driven student loan repayment plans were conceived to ease the financial hardship of government student loan borrowers and help them avoid default when struggling to pay off student loans.
Those who enroll in the plans tend to have large loan balances and/or low earnings. Graduate students, who usually have bigger loan balances than undergrads, are more likely to enroll in a plan.
The idea is straightforward: Pay a percentage of your monthly income above a certain threshold for 20 or 25 years. On the Income-Based Repayment (IBR) plan, you are then eligible to get any remaining balance forgiven.
Income-driven repayment plans are also the only repayment options that will help you qualify for the Public Service Loan Forgiveness program. (Standard Repayment also qualifies, but you probably wouldn’t have any debt left to forgive after 10 years.)
In mid-2025, about 12.3 million borrowers were enrolled in an income-driven repayment plan.
💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing may make sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections. Note that refinancing with a longer term can increase your total interest charges.
How Income-Driven Plans Differ from Standard Repayment?
So, how do income-driven repayment plans work? Do income-driven repayment plans accrue interest? And how do they compare to the Standard Repayment Plan?
Income-driven repayment adjusts your monthly student loan payment in accordance with your income and family size. It also extends your loan terms to 20 or 25 years. These plans are meant to provide relief for borrowers who have trouble affording payments on the standard plan. If your income changes, your monthly payments will change along with it.
Your loans do accrue interest on an income-driven plan, but the IBR plan offers some relief. Specifically, the government will pay any interest charges that your monthly payments don’t cover on subsidized loans for up to three years. However, you’re responsible for all the interest after this three-year period. You always have to pay the interest that accrues on unsubsidized loans.
By contrast, the Standard Repayment Plan doesn’t calculate your monthly payments based on your income. Instead, it gives you a fixed monthly payment based on a 10-year repayment term (or a 10- to 30-year term for Direct Consolidation Loans). By making this payment each month, you’ll pay off your full balance at the end of your term. The minimum payment on the Standard Plan is $50.
Federal student loans automatically go on Standard Repayment unless you apply for an alternative. If you prefer an income-driven plan, you can apply for it on the Federal Student Aid website.
Types of Income-Driven Repayment Plans
There are currently three income-driven repayment plans open to borrowers: Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn. The SAVE plan is no longer available, and a new plan called the Repayment Assistance Plan will be introduced in the summer of 2026. Here’s a closer look at each plan.
Pay As You Earn Repayment Plan (PAYE)
PAYE is currently available to borrowers, but it’s set to close and won’t be accepting new enrollments on or after July 1, 2027. Since PAYE will be shutting down, you’ll have until July 1, 2028 to switch to Income-Based Repayment or the new Repayment Assistance Plan.
To qualify for PAYE, you must be a new borrower as of October 1, 2007 and have received a Direct loan disbursement on or after October 1, 2011. Plus, you’re only eligible if your monthly payment on PAYE is less than what it would be on the Standard 10-year plan.
PAYE sets your monthly payments to 10% of your discretionary income and extends your loan terms to 20 years. Find out more about how PAYE compares to REPAYE (which is now closed).
Income-Based Repayment Plan (IBR)
While most of the current income-driven repayment plans will close in the coming years, IBR will remain open and available to current borrowers. If you’re currently on SAVE, PAYE, or ICR, you have the option of switching to IBR when (or before) your plan gets shut down.
On Income-Based Repayment, you’ll pay 10% of your discretionary income each month on a 20-year term if you first borrowed after July 1, 2014. If you borrowed before that date, your monthly payment percentage will be 15% and your repayment term will be 25 years.
IBR will forgive your remaining balance if you still owe money at the end of your term (after the Department of Education finishes updating its systems). PAYE and ICR no longer offer loan forgiveness, but you can get credit for your PAYE and ICR payments if you switch to IBR.
Income-Contingent Repayment Plan (ICR)
The Income-Contingent Repayment plan is the only income-driven option for borrowers with Parent PLUS loans (and you have to consolidate first). It sets your payments to 20% of your discretionary income and has a repayment term of 25 years. Note that the discretionary income calculation for ICR is different (and less generous) than the one used for the other income-driven plans.
Similar to PAYE, the deadline to enroll in ICR is July 1, 2027, and you have until July 1, 2028 to switch to IBR or RAP. Otherwise, you’ll automatically be moved to RAP. If you’re a parent borrower, you may want to enroll in ICR while you still can. Parent loans are not eligible for RAP, so you won’t have an income-driven repayment option if you miss the ICR enrollment deadline.
Income-Sensitive Repayment Plan
The Income-Sensitive Repayment plan is open to low-income FFEL borrowers. Direct loans, which replaced FFEL loans in 2010, are not eligible. On Income-Sensitive Repayment, your monthly payments will increase or decrease based on your annual income. You’ll make payments on your loans for up to 10 years.
SAVE Plan (Saving on a Valuable Education)
The SAVE plan is no longer available, but some SAVE borrowers remain in limbo as they wait to see what’s next for their student loans. Introduced by the Biden administration in 2023, the SAVE plan offered lower monthly payments and faster loan forgiveness than the other income-driven options.
It was struck down by legal challenges from Republican-led states, and SAVE borrowers were placed in an interest-free forbearance starting in the summer of 2024. Interest started accruing again on August 1, 2025, and the DOE is encouraging borrowers to switch to an alternative plan.
However, some SAVE borrowers are waiting it out to extend their forbearance as long as possible. Those who don’t make a move may end up in IBR and see their payments resume in mid-2026. SAVE will be eliminated completely by June 30, 2028.
RAP Plan (new Repayment Assistance Program)
The Trump administration’s “One Big Beautiful Bill” created the RAP program and will implement it starting in the summer of 2026. Existing borrowers will be able to access RAP or IBR, while new borrowers as of July 1, 2026 will only have RAP or the new Standard Repayment Plan.
While the existing IDR plans use discretionary income, the new RAP will base your payments on your adjusted gross income (AGI). Depending on your income, you’ll pay 1% to 10% of your AGI over a term that spans up to 30 years.
If you still owe money after 30 years, the rest will be forgiven. The government will cover unpaid interest from month to month, as well as make sure your loan’s principal goes down by at least $50 each month.
All borrowers are required to pay at least $10 per month on RAP. This plan may offer lower monthly payments than the current IDR options, but you could also pay more interest over the life of the loan due to the longer repayment term.
How Income-Based Student Loan Repayment Works
In general, borrowers qualify for lower monthly loan payments if their total student loan debt at graduation exceeds their annual income.
To figure out if you qualify for a plan, you must apply at StudentAid.gov and submit information to have your income certified. The monthly payment on your income-driven repayment plan will then be calculated. If you qualify, you’ll make your monthly payments to your loan servicer under your new income-based repayment plan.
You’ll generally have to recertify your income and family size every year or allow the DOE to access your tax information and recertify for you. Your calculated income-based payment may change as your income or family size changes.
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Pros and Cons of Income-Driven Repayment
Pros
• Borrowers gain more affordable student loan payments.
• Any remaining student loan balance is forgiven after 20 or 25 years of repayment on the Income-Based Repayment plan.
• An economic hardship deferment period counts toward the 20 or 25 years.
• The government pays all or part of the accrued interest on some loans in some of the income-driven plans for a period of time.
• Low-income borrowers may qualify for payments of zero dollars, and payments of zero still count toward loan forgiveness. On the new RAP option, the minimum monthly payment will be $10.
• The IBR plan and new RAP plan offer some interest benefits if your monthly payments don’t cover your full interest charges.
Cons
• Stretching payments over a longer period means paying more interest over time.
• Forgiven amounts of student loans are free from federal taxation through 2025, but usually the IRS treats forgiven balances as taxable income (except for the PSLF program).
• Borrowers in most income-based repayment plans need to recertify income and family size every year.
• If a borrower gets married and files taxes jointly, the combined income could increase loan payments.
• The system can be confusing to navigate, especially with all the legal challenges and recent legislation.
Other Student Loan Repayment Options
If you’re wondering, “Is an income-driven plan good for me?” consider the fact that income-driven repayment plans aren’t your only option for paying back student loans. Here are a few alternatives that are currently available.
Standard Repayment Plan
The Standard Repayment Plan involves fixed monthly payments over 10 years. Starting in the summer of 2026, the new Standard Plan will have fixed payments over a term that’s based on your loan amount. Your term will be 10 years if you owe less than $25,000 and go up to 25 years for balances over $100,000.
Graduated Repayment Plan
The Graduated Repayment Plan spans 10 years for most loans, but it can go from 10 to 30 years for consolidation loans. On Graduated Repayment, your monthly payments start out low and increase every two years. Like the current Standard Plan, you’ll be out of debt at the end of your term. However, you’ll end up paying more interest on this graduated plan. Graduated Repayment may be a good fit for borrowers whose income is low starting out but expect it to increase over time.
Extended Repayment Plan
Extended Repayment gives you 25 years to pay back your loans, but you must owe more than $30,000 and have borrowed after October 7, 1998. You can choose fixed payments or graduated payments. Unlike IBR, there’s no loan forgiveness at the end of the Extended Plan. Your monthly payments will go down when you extend your term, but you’ll pay more interest overall.
When you apply for an IDR plan, you can upload documentation verifying your income or allow the DOE to access your tax information and import it into your application. Along with sharing your income, you’ll need to provide your mailing address, phone number, and email. If you’re married, you’ll also provide your spouse’s financial information.
Annual Recertification Process
Every year, you have to recertify, or update, your income and family size so your loan servicer can adjust your monthly payments accordingly. This recertification is required even if your income or family size hasn’t changed.
If you fail to recertify your plan, your servicer will no longer base your payments on your income. Instead, you’ll pay the amount you would on the standard 10-year plan. If you fail to recertify IBR, you’ll have the added consequence of interest capitalization, meaning your interest charges will be added to the principal balance of your loan.
You can recertify your plan on the Federal Student Aid website by uploading documentation of your income. Alternatively, you can allow the DOE to access your federal tax information and automatically recertify your plan for you.
If you don’t give your consent for this (or aren’t eligible for auto-recertification), you’ll have to manually recertify your plan each year.
The Takeaway
Income-driven repayment can offer relief if you’re struggling to afford your monthly payments. These plans adjust your monthly student loans bills based on your income while giving you a lot more time to pay back your debt. Plus, income-driven plans (and the current Standard Plan) are the only plans that qualify for PSLF. A downside of IDR plans, however, is that you’ll likely pay more interest with an extended term.
Your options for IDR will also be changing due to recent legislation from the Trump administration. Most of the current plans will be shut down, leaving only Income-Based Repayment for current borrowers or the new Repayment Assistance Plan. For those who borrow after July 1, 2026, the only income-driven plan option will be the Repayment Assistance Plan. Staying informed about these changes will help you decide which income-driven repayment plan is best for you.
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
Is income-based repayment a good idea?
For borrowers of federal student loans with high monthly payments relative to their income, income-based repayment can be a good idea. Just be aware that your options will be changing in the coming years.
What is the income limit for income-based student loan repayment?
Some income-driven repayment plans require that your monthly payments be less than on the standard 10-year plan. You’ll generally meet this guideline if your student loan debt is higher than your discretionary income or makes up a big portion of your income.
What are the advantages and disadvantages of income-based student loan repayment?
The main advantage is lowering your monthly payments, with the promise of eventual loan forgiveness on the IBR plan if all the rules are followed. Plus, income-driven plans are essentially the only ones that qualify for PSLF. A disadvantage is that you have to wait for 20 or 25 years depending on the plan you’re on and how much you owe. You’ll likely also pay more interest on this longer term.
How does income-based repayment differ from standard repayment?
With the standard repayment plan, your monthly payments are a fixed amount that ensures your student loans will be repaid within 10 years. Under this plan, you’ll generally save money over time because your monthly payments will be higher. With income-driven repayment, your monthly loan payments are based on your income and family size. These plans are designed to make your payments more affordable. If you still owe a balance after 20 or 25 years on IBR, the remaining amount is forgiven.
Who is eligible for income-based repayment plans?
With the PAYE and IBR plans, in order to be eligible, your calculated monthly payments, based on your income and family size, must be less than what you would pay under the standard repayment plan. Under the ICR plan, any borrower with eligible student loans may qualify. Parent PLUS loan borrowers are also eligible for this plan if they consolidate their parent loans first.
How is the monthly payment amount calculated in income-based repayment plans?
With income-based repayment, your monthly payment is calculated using your income and family size. Your payment is based on your discretionary income, which is the difference between your gross income and an income level based on the poverty line. The income level is different depending on the plan. For IBR, your monthly payment is 10% or 15% of your discretionary income, depending on when you borrowed.
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Student loan debt can be overwhelming, especially as interest builds and payments drag on for years after graduation. For borrowers seeking relief, one strategy that sometimes comes up is using a personal loan to pay off student loans. On the surface, it may seem like a simple debt-swap — replace one loan with another and, ideally, secure better terms. But is it a smart idea?
While personal loans can be used for many things, they are generally not the best option for paying off student loans. Many lenders prohibit using personal loans for educational costs (including SoFi), which includes paying off student loans. Even if you can find a lender that does allow it, there are pros and cons to using a personal loan to pay off your student loan balance. Here’s what you need to know.
• Many lenders do not allow you to use a personal loan for paying off student loans.
• Personal loans often have higher interest rates and shorter terms than student loans.
• A lower interest rate can sometimes be secured, potentially reducing overall debt costs.
• Federal protections like deferment and forgiveness are lost when using a personal loan.
• Other repayment options, such as federal consolidation loans, student loan refinancing, and income-driven repayment plans, may be a better fit.
Personal Loans vs. Student Loans
At first glance, personal loans and student loans might seem similar. Both provide a lump sum of money up front, require you to pay it back in monthly payments, and charge interest. But the structure, purpose, and protections of each are different.
Student loans are specifically designed to help finance education. They often feature relatively low interest rates and deferred repayment while in school. In the case of federal student loans, they also offer unique benefits like income-driven repayment (IDR) plans, forbearance during hardship, and potential forgiveness programs.
Personal loans, by contrast, are loans that can be used for virtually any legal purpose. Common uses for personal loans include home renovations, unexpected emergencies, medical expenses, major events like weddings, and debt consolidation (when you combine multiple high-interest debts into a single loan with a potentially lower interest rate).
Personal loans tend to carry shorter repayment terms (often two to seven years), and their interest rates can vary widely based on your credit score. Importantly, they don’t offer any of the protections or flexible repayment options that federal student loans provide.
Note: While SoFi personal loans cannot be used for post-secondary education expenses, we do offer private student loans with great interest rates.
Can You Use a Personal Loan to Pay Off Student Loans?
It depends. While it may technically be possible to use a personal loan to pay off your student loans, either federal or private, many lenders do not allow you to use the proceeds of a personal loan for this purpose.
This restriction exists largely due to regulatory and risk concerns. Education-related lending in the U.S. is heavily regulated, and lenders that want to offer student loan refinancing must meet specific legal and compliance standards. To avoid those complications, many personal loan providers choose not to allow their products to be used for anything related to student loans or education.
If you are unsure if a lender will allow you to use the funds to pay off your student debt, it’s a good idea to let them know this is your intent at the outset. This could be a reason why you would be denied for a personal loan. However, if you use the proceeds of a personal loan for a prohibited use, you’ll be violating the loan agreement and might face legal consequences or be required to repay the full amount of the loan immediately.
So while using a personal loan to pay off student debt is theoretically possible, finding a lender that allows it — and does so under favorable terms — could be a major challenge.
Private vs. Federal Student Loans
If you do happen to find a lender that permits this use, it’s crucial to consider what kind of student loans you’re dealing with.
Private student loans often come with fewer borrower protections and may carry higher interest rates than federal loans. If your credit is excellent and the new personal loan offers a better rate and shorter term, using it to pay off private loans could make financial sense — if permitted by the lender.
Federal student loans, however, come with significant advantages that you will lose if you switch to a personal loan. These include access to IDRs, deferment and forbearance options, and the possibility of forgiveness through Public Service Loan Forgiveness (PSLF). Giving up these benefits for a loan that’s less flexible could be risky.
Pros and Cons of Using a Personal Loan to Pay off Student Loans
If you can find a lender that allows it, here are some pros and cons of using a personal loan to pay off student debt.
Pros
• Potentially lower interest rate: If you took out private student loans with a relatively high rate and currently have strong credit, you may be able to qualify for a personal loan with a lower rate than your student loans.
• Predictable payments: If you have a private student loan with a variable interest rate, using a fixed-rate personal loan to pay it off will provide you with a fixed monthly payment, which can make budgeting simpler.
• Faster repayment timeline: Because personal loans usually have shorter terms, using a personal loan to pay off your student debt could help you eliminate your student loan debt more quickly — provided you can afford the higher payments.
Cons
• Loss of federal protections: If you’re paying off federal student loans, you’ll forfeit benefits like IDR plans, deferment, forbearance, and forgiveness opportunities, which can provide a valuable safety net.
• Higher monthly payments: Because personal loans generally have shorter repayment terms than student loans, your monthly payments may be higher, even if the interest rate is lower.
• No tax benefits: You can generally deduct student loan interest, up to $2,500, from your taxable income each year. Interest on personal loans, on the other hand, doesn’t qualify for a similar tax break.
Other Ways to Pay Off Student Loans
If using a personal loan to pay off your student loans isn’t feasible or cost-effective, here are some other student loan repayment options to consider.
Student Loan Refinancing
Student loan refinancing involves taking out a new student loan from a private lender to replace one or more existing loans, ideally at a lower interest rate. Unlike personal loans, there are numerous options available when it comes to finding a lender that will refinance your student loans.
Be aware, though: Refinancing federal loans with a private lender will still eliminate federal protections. Also keep in mind that refinancing student loans for a longer term can increase the overall cost of the loan, since you’ll be paying interest for a longer period of time.
If you have federal loans and your payments are unaffordable, you may qualify for an IDR plan. Generally, your payment amount under an IDR plan is a percentage of your discretionary income and remaining debt may be forgiven after decades of consistent repayment.
Keep in mind that under the new domestic policy bill, many existing federal IDR plans will close by July 1, 2028. After those plans are eliminated, borrowers whose loans were all disbursed before July 1, 2026, can choose between the Repayment Assistance Plan (RAP) and Income-Based Repayment (IBR) plan.
Federal Loan Consolidation
Federal loan consolidation allows you to combine multiple federal loans into a single loan with a weighted average interest rate. Consolidation can simplify repayment and may help you qualify for certain forgiveness programs, but you won’t necessarily save on interest.
Loan Rehabilitation
If your federal loans are in default, loan rehabilitation allows you to make a series of consecutive, agreed-upon payments (usually nine over ten months) to bring your loan current. This also removes the default status from your credit report and restores eligibility for federal benefits. To begin the loan rehabilitation process, you must contact your loan holder.
Currently, borrowers can only use a rehabilitation agreement to remove their loans from default once. Starting July 1, 2027, borrowers will be able to use rehabilitation to exit default twice.
The Takeaway
While the idea of using a personal loan to pay off student loans might seem appealing, it may not be a viable nor an advisable solution. Many lenders prohibit using personal loan funds for education-related expenses, including paying off student loans. Even if you find a lender that allows it, the trade-offs can be significant, especially if you’re dealing with federal student loans.
Instead, you might explore options designed specifically for managing student debt, such as student loan refinancing, consolidation, or enrolling in an income-driven repayment plan. These programs may offer benefits that are better fit to your situation.
Debt repayment strategies are not one-size-fits-all. It’s important to carefully evaluate your options — and read the fine print — before making a move that could impact your financial future for years to come.
While SoFi personal loans cannot be used for post-secondary education expenses, they can be used for a wide range of purposes, including credit card consolidation. SoFi offers competitive fixed rates and same-day funding for qualified borrowers. See your rate in minutes.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
Can you consolidate student loans with a personal loan?
Technically, you might be able to use a personal loan to pay off student loans, but it’s not true consolidation — and many lenders don’t allow it. Personal loan lenders will often explicitly prohibit using loan funds for education-related expenses, including paying off existing student loans. Even if permitted, this route eliminates federal protections like income-driven repayment and forgiveness programs. Alternatives such as federal consolidation or student loan refinancing can be safer and more effective ways to manage or streamline student loan repayment.
What are the risks of using a personal loan to pay off student debt?
Using a personal loan to pay off student debt carries several risks, starting with the fact that many lenders prohibit this use altogether. If you find a lender that allows it, keep in mind that using a personal loan to pay off federal student loans will mean losing federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. Personal loans also typically have higher interest rates and shorter repayment terms than student loans, which could increase your monthly payments.
Does paying off student loans with a personal loan hurt your credit?
Many personal loan lenders don’t allow you to use a personal loan to pay off student loans. But if you can find one that does, paying off student loans with a personal loan may impact your credit in several ways.
Initially, your credit could dip temporarily due to the new account and hard inquiry. However, if you make regular, on-time payments, the loan could have a positive influence on your credit profile over time. On the other hand, missed payments could negatively affect your credit. It’s important to consider lender rules and your ability to manage repayment before using a personal loan to pay off student loans.
Are there better options than personal loans for student debt?
Yes, there are a number of options that may be better than personal loans for paying off student loans. Federal consolidation loans can combine multiple federal loans into one, simplifying repayment. Income-driven repayment plans for federal loans adjust payments to your earnings, making them more manageable. Refinancing with a private lender might reduce rates and monthly payments Additionally, some employers offer student loan repayment assistance, which can significantly ease the financial burden.
Can using a personal loan to pay student loans disqualify you from forgiveness programs?
Yes. If you pay off your federal student loans with a personal loan, you’ll forfeit federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. The same is true if you refinance your federal student loans with a private student loan lender.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
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.
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Getting out of debt can feel overwhelming — especially if you’re broke or living on a low income. When you’re struggling to cover everyday living expenses, finding extra money to pay down debt might seem impossible. Minimum payments barely make a dent, and the cycle of debt just keeps going.
The good news? No matter your financial situation, there are strategic steps you can take to reduce and eventually eliminate your debt. The key is persistence, planning, and making the most of the resources you have. Here’s a step-by-step guide to help you get out of debt, even if your income is limited.
• Creating a budget helps you understand and take control of your finances, essential for debt management.
• Even small changes in spending habits can free up funds for debt repayment.
• Negotiating with lenders can reduce interest rates, making your payments go further.
• Some balance transfer credit cards offer 0% interest temporarily, which can help you pay off debt faster.
• Debt consolidation with a personal loan can simplify payments and lower interest if you can qualify for a lower rate.
Begin by Creating a Budget
The first step to getting out of debt with no money is building a basic budget. While budgeting might sound like a punishment, it’s really a tool for empowerment. It helps you understand where your money is going and gives you a plan to use it more effectively.
Evaluating Income vs. Expenses
Start by gathering the last few months of financial statements, then use them to calculate your average monthly income and average monthly spending. If you find that you tend to spend as much as (or more than) you earn each month, your budget needs adjusting. This could mean reducing expenses, increasing your income, or both.
Tracking Every Dollar
To find places to cut your spending, it helps to list out your typical spending categories and how much you’re spending on each, on average, each month. Another option is to track your spending for a month or two using a budgeting app that automatically tallies and categories your expenses in real time.
Once you see exactly where your money is going, you can identify areas to reduce spending and redirect that money toward your debt.
💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.
Categorizing Needs vs. Wants
Once you’ve tracked your expenses, you’ll want to separate them into two categories: needs and wants. Needs are essential expenses like rent, groceries, medications, and utilities. Wants are nonessentials like dining out, entertainment, and impulse purchases. Understanding this distinction helps you prioritize spending — and start making cuts in the right places.
Change Your Spending Habits
How you manage your day-to-day spending can make or break your journey out of debt. Small changes add up, and the sooner you adjust your habits, the faster you’ll see progress.
Cut Subscriptions and Reduce Discretionary Spending
An easy way to free up funds is to cut some line items out of your budget completely. For example, you might cancel streaming services you rarely watch or a membership to a gym you seldom use.
Also look for ways to chip away at discretionary spending. For example, you might brew your morning coffee at home rather than buy it at the local coffee bar, cook more meals and eat out less, and pause clothing or hobby shopping unless it’s essential. These changes don’t have to be forever — just until you get your debt under control.
Use Cash or Debit Only
If you’re trying to pay off debt with no money, it’s wise to avoid adding to that debt balance. One way to do that is to switch to paying cash or debit for all purchases. This adds a layer of accountability because you can’t spend more than you currently have in the bank. You can also try the envelope system — using actual cash and envelopes or digitally with an app — to help you stick to spending limits in each category.
Delay Gratification and Set Spending Rules
For nonessential purchases, consider adopting the 24-hour rule: This involves waiting a full day before you buy something you don’t truly need. This delay gives you time to evaluate the purchase, consider whether you really want it and can afford it, and potentially avoid regretful spending. You can also set monthly spending limits for categories like entertainment, eating out, or clothing — and stick to them.
If cutting expenses still doesn’t leave room for debt repayment, increasing your income becomes critical. Fortunately, there are ways to do this without needing a second full-time job.
Take on a Side Hustle or Gig Work
Today’s gig economy offers a range of opportunities to earn extra cash. Whether it’s walking dogs, babysitting, delivering food or groceries, assembling furniture, or merely standing in line, side hustles are more available than ever before. If you have professional skills — like writing, editing, web development, graphic design, marketing, social media, or tutoring — you might pick up extra income by freelancing.
Any extra earnings can be funneled right into paying down debt.
Sell Unused Items or Assets
Look around your home for things you no longer need, such as clothes, gadgets, furniture, or collectibles. Selling them on platforms like Facebook Marketplace, OfferUp, or eBay can generate quick cash to make an extra payment.
Use Windfalls or Refunds Strategically
If you receive a tax refund, work bonus, rebate, or cash gift, resist the urge to spend it. Instead, put it toward your highest-interest debt to speed up your payoff timeline.
Apply for a Lower Interest Rate
High interest rates can trap you in debt longer. Reducing them makes every dollar you pay go further.
Negotiate With Lenders
Don’t be afraid to call your lenders and ask for a lower interest rate. Be honest about your situation, especially if you’ve been making payments on time. Some creditors are willing to reduce rates or waive fees to help you stay on track.
You might also enlist the help of a nonprofit credit counseling organization. For a small fee, they will negotiate with your creditors on your behalf to lower rates and set up a payment plan you can afford. You then make a monthly payment to the organization and they distribute the payments to your lenders.
Use Balance Transfers
If you have a good credit score, you might qualify for a balance transfer credit card that offers 0% interest for an introductory period. This can give you breathing room to pay down your balance faster. Just make sure you pay it off before the promo period ends — or you could face high interest again.
Consider a Personal Loan
If you’re juggling multiple high-interest debts, consolidating them into a single loan may simplify repayment and reduce your costs — if you qualify for a lower interest rate.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.
• Potentially lower interest rate: If you qualify for a consolidation loan with a lower interest rate than your current credit cards, you can save money on interest charges over time.
• Simplified payments: Consolidating multiple bills into one makes it easier to manage and keep track of your payments.
• Faster debt repayment: If you’re able to get a loan with a lower interest rate and potentially a shorter repayment period, you may be able to pay off your debt faster.
• Can help you build credit. Paying down your balances lowers your credit utilization ratio (how much of your available credit you are currently using), which is factored into your credit scores. Also, making consistent, on-time payments on the consolidated debt can have a positive impact on your credit profile over time.
Cons
• Short-term credit score impact:Applying for a new loan for consolidation can result in a hard inquiry on your credit report, which can temporarily lower your score.
• Need good credit to qualify for favorable rates: If your credit is fair or poor, you may not qualify for consolidation loans with significantly lower interest rates than you’re paying on your credit cards. This can negate the primary benefit of consolidation.
• Fees and add-on charges: Some debt consolidation loans may involve paying fees, such as origination fees, application fees, and late fees, which can add to your costs.
• Risk of accumulating more debt: If your spending habits don’t change, you might accumulate new debt on the old credit cards once they’re paid off, leading to a worse financial situation than before consolidation.
Getting out of debt with little to no money is a difficult journey — but it’s entirely possible with focus and the right strategy. Start by understanding your financial situation, cutting unnecessary spending, and creating a practical budget. From there, look for ways to boost your income, lower your interest rates, and be intentional with every financial decision.
Debt freedom generally doesn’t happen overnight. It typically takes small, consistent actions, a willingness to make sacrifices, and a commitment to changing long-term habits. But every step you take can build momentum and help you change your financial situation for the better.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
How do I pay off debt with no savings?
If you have no savings, start by creating a realistic budget and identifying nonessential expenses to cut. Focus on making minimum payments on all debts to avoid penalties, then direct any extra funds to the smallest balance (debt snowball) or highest interest rate (debt avalanche), ticking off debts one by one.
Other helpful steps include increasing income through side gigs or selling unused items and contacting creditors to see if they might lower your interest rate. Progress may be slow at first, but consistency is key.
Can I negotiate my debt if I have no money?
Yes, many creditors are willing to negotiate if you explain your financial hardship. Start by contacting them directly and asking about options like lower interest rates, reduced payments, or temporary forbearance. In some cases, you may be able to settle your debt for less than you owe, though this can impact your credit. Be honest and document all communication. If you’re overwhelmed, consider working with a nonprofit credit counseling agency to help you negotiate and manage your debts.
What’s the fastest way to get out of debt while broke?
When you’re broke, getting out of debt fast means combining aggressive budgeting with creative income strategies. You’ll want to cut unnecessary expenses, pause subscriptions, and track every dollar. At the same time, try to boost income through side gigs, freelance work, or selling unused items. Other key moves include tackling debt one by one and calling your creditors to request lower rates or payment plans. It won’t be easy, but focused effort can create real progress even with limited means.
Should I consider a personal loan if I have no savings?
A personal loan can consolidate high-interest debts and simplify payments, but it’s risky without savings. If you lose income or face an emergency, you might struggle to keep up with the new loan. Before applying, review your credit score and compare interest rates to ensure the loan actually lowers your costs. Consider this option only if you have a stable income and a clear repayment plan. Otherwise, explore budgeting, negotiating with creditors, or credit counseling as safer first steps.
How can I build an emergency fund while paying off debt?
Start small — you might aim for a $500 emergency fund before aggressively tackling debt. To get there, set aside $10 to $25 per week by cutting nonessentials like dining out or unused subscriptions. Automate your savings so it becomes a habit, and use windfalls like tax refunds, cash gifts, or side hustle income to grow your fund faster. Having even a modest cushion prevents you from relying on credit cards during emergencies, which helps you stay on track with debt repayment in the long run.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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 .
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