student with flannel on laptop

6 Ways to Save Money for Grad School

Figuring out how to save money for graduate school can be overwhelming, especially if you are still paying off loans for your undergrad degree. But finding the money to pay for school doesn’t always mean you have to pick up a side hustle or take on more debt. It is possible to save for graduate school if you plan ahead and adjust your current budget. Here are some ways to help save up.

Strategies to Save Up for Grad School

1. Splitting Up Your Paycheck

If you are currently working and get regular paychecks, one of the simplest ways to start saving more is to automate as much of the process as possible. If your workplace has direct deposit, you could contact HR and see if you are able to add another bank account, and designate a certain amount from every paycheck to go into your savings account.

It can be as much or as little as you’d like, but putting the money directly into savings makes it harder to spend right away. By automatically transferring the money into your savings account, you eliminate the hassle of manually parting with it.

Recommended: How to Automate Savings

If your company doesn’t offer the option to split your paycheck to multiple accounts, you can contact your bank directly or check online to see if they offer a recurring transfer. Banks are typically able to set up transfers for you automatically on your payday.

To decide how much money you’re able to save each month, review your monthly budget before starting. If you don’t have one, put one together.

2. Opening a Separate Savings Account

While you shouldn’t necessarily open a new account for every savings goal in your life, as that could get messy fast, setting up a new, separate savings account with your bank for grad school is another way to potentially maximize your money.

Opening a new account with a specific goal could help you keep track of the goal and make your progress tangible. Having a separate account specifically for school can also help you manage and keep track of spending on books and other school-related costs.

These first two ideas can work together to get you progressing on your savings goal. It can be intimidating to commit to allocating some of your budget for savings, but if you make the process regular and automatic, you may be surprised to find how little you miss that extra cash.

3. Don’t Forget Financial Aid

The Free Application for Federal Student Aid is not just for student loans—you could also receive work-study and grants by filling out the FAFSA®. Just like undergraduate applications for federal financial aid, students must demonstrate need, must be a U.S. citizen or eligible noncitizen, and be enrolled or accepted as a regular student pursuing a degree beyond a bachelor’s (here’s the eligibility criteria right from the Department of Education .

However, when graduate students fill out the FAFSA, they may be considered independent, meaning their parents’ income is no longer taken into consideration.

Recommended: Independent vs Dependent Student: Which One Are You?

For some people, this might actually mean they are eligible for more financial aid as an independent individual. The amount a student is awarded will be based on factors including their income and financial assets. Students cannot be in default on a prior student loan to be eligible for additional aid.

Regardless of dependency status, graduate students may be eligible to receive PLUS Loans. These unsubsidized loans can be taken out in amounts up to the cost of attendance, but be aware you can’t have an adverse credit history to qualify.

There’s also the option of financial aid that isn’t typically repaid, in the form of scholarships or other grants, or scholarships from your state based on field of study, interest, or school type.

File your FAFSA as soon as possible after October 1, the year before each enrollment period. Since there are limited funds, the sooner you file, the better chance you may have of getting the most aid possible.

4. Checking With Your Current Employer

Even if you are not in a career where your employer is expected to pay for a graduate degree, a lot of companies may offer some contribution to ongoing education if it’s possible to show that it will be relevant to your job.

Tuition reimbursement varies depending on your company and industry, but some may offer tuition assistance to their employees. While it might not cover your entire graduate school cost, a tuition reimbursement benefit from your company could significantly lower the amount you need for school, which in turn could lower your dependence on loans.

If you have existing student loan debt from your undergraduate education, check to see if your company offers employees a match (up to a certain amount yearly) on payments made toward student loan debt every year. In this way, employers can make a regular contribution to help with your student loan balance, while you make your regular payments, too.

5. Considering Schools Abroad

Schools in Europe, South America, and Africa may be significantly less expensive than universities in the United States. But, before enrolling in graduate school abroad, make sure you understand how your industry will accept and transfer over any foreign degrees. You’ll want to make sure that your grad school degree is a decent ROI.

While the cost of living might be higher in some other countries, international graduate programs can also save you time; some PhD programs in Europe are only three to four years, as compared to six or seven in the U.S.

6. Refinancing Current Student Loans

If you are currently paying off undergraduate student loans, the idea of juggling paying for grad school and paying off undergrad loans may seem daunting. It’s helpful to get your current debt situation under control before saving for graduate school. One option that could potentially result in monthly savings is student loan refinancing.

Refinancing your student loans could potentially result in a lower interest rate, which could mean lower monthly payments (depending on the loan term), potentially freeing up room in your monthly budget. A lower interest rate could also mean spending less money over the life of the loan.

If you want to start saving for graduate school, refinancing existing loans and putting any difference in what you paid before toward savings could be one way to boost your savings.

It’s important to know that loan refinancing means you’re no longer eligible for federal student loan forgiveness, deferment, and income-driven repayment. But, some private lenders, including SoFi offer forbearance options for students who are in graduate school.

A lower overall interest rate can help you with your goal of saving money to pay for graduate school, helping to make your savings goals more manageable as you embark on this exciting next step in your career.

The Takeaway

Graduate school doesn’t necessarily mean taking on more debt. Those looking to focus their savings plan for graduate school can review their monthly budget and automate as much of their savings as possible. Additional options to pay for college include federal student aid including federal student loans, scholarships, grants, and work-study. Some students may even consider pursuing their graduate degree abroad to attend a more affordable university.

Refinancing is an option that could help students with undergraduate loans reduce their interest rate. In the case when savings and federal aid isn’t enough to pay for grad school, private student loans may be an option. Private student loans may not offer the same benefits as federal student loans (like income-driven repayment plans or protections for borrowers facing financial hardship), so they are generally borrowed after all other sources of funding have been exhausted.

SoFi offers competitive rates on both refinanced loans and private student loans. Plus, borrowers who lose their job through no fault of their own may qualify for SoFi’s Unemployment Protection, which allows them to temporarily pause their loan payments.

Going to graduate school and want to learn about how loan refinancing could help you? At SoFi, pre-qualifying for student loans or refinancing is easy and convenient—you’ll get your rates in a matter of minutes.


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SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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 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.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Should Parents Cosign on Student Loans?

If your child chooses to get a private student loan, they will most likely need to have a cosigner. Should parents cosign on student loans? That depends on your tolerance for risk, your child’s projected ability to repay the loan, and if it makes sense for your family.

Cosigning for a student loan has pros and cons. There are also alternatives that can help bridge the gap between education costs and what you’re able to pay. Here’s an overview of some key facts to know about cosigning on private student loans.

Why are Student Loans Cosigned so Often?

It’s no secret that the cost of college education has skyrocketed. The annual tuition for a private, nonprofit college has tripled to $37,200 in the last 20 years. And that doesn’t include room, board, or any other fees. Add those in and you can expect to pay an average of $53,949 a year for a private, nonprofit college. Prices for public universities have also increased, with the current annual in-state tuition at a four-year, public university at $9,580. Room, board, and fees average an additional $16,284, for a total average annual cost of $25,864.

And when savings, federal student loans, federal work-study, and scholarships or grants can’t fill the gap, students may look to private lenders to help them cover the rest. Unfortunately, students just starting out usually don’t have the credit history needed to get a loan from a private lender, so cosigners sometimes step in.

But do students have to have a cosigner for a private student loan? Almost always. Since many lenders won’t lend money to young adults with no or little credit history, they typically require cosigners. Roughly 91% of all private undergraduate student loans have a cosigner.

What Are the Downsides to Cosigning My Child’s Loan?

If you’re looking to privately fund your child’s education costs, it means they likely need the help to pay for college, just like many Americans do. But cosigning for your child’s private student loan is not without potential repercussions.

One of the chief considerations before cosigning concerns your relationship with your child. If something goes wrong—missed payments, extended unemployment, or worse, default—the potential for financial stress could create the possibility of misunderstandings and hurt feelings. If your relationship with your child is already tenuous, bringing financial stress into it will likely not help.

In addition, cosigning could put your own finances at risk. You may have the most responsible young adult in the whole state, but if something goes awry and the loan goes into default, the lender may sue you or hire a collection agency to try to recoup the debt.

A default might also tarnish your credit score. Simply signing the loan also affects your score. Even if you’re not the one making payments, you’re still responsible for the loan, according to the major credit bureaus.

What Are Alternatives to Cosigned Loans?

The First Step for Federal Aid: FAFSA®

Do parents have to cosign a private student loan? The answer in the previous section was “almost always.” The “almost” part of that answer is “not if they can find other sources of funding.” Scholarships and grants, which don’t have to be repaid, are a good place to start, but they often don’t cover the entire cost of an entire college education. The first source of funding that should be exhausted before any others is federal student aid .

Filling out the Free Application for Federal Student Aid (FAFSA®) is the first step to figuring out how much federal (and frequently state) financial assistance your child is eligible for. You’ll add your financial information that will determine the amount of federal assistance, which includes Direct Subsidized Loan, Direct Unsubsidized Loans, and other student aid from the federal government, like grants and work-study. Some states and colleges also base merit aid on FAFSA information, so the application is an important one for all types of financial aid, not just federal.

Building Their Credit Score

There are also some other pathways to consider when trying to find loans without a cosigner. One good idea is to have your child start building their credit history. A credit score is typically enhanced over time as the record of their successful payments grows, along with other factors like their outstanding debt, credit mix, and more.

Your student might start by either getting a secured credit card at a credit union or other financial institution, then showing they can make timely monthly payments on a purchase.

If your student is trustworthy and mature, you could also consider adding them as an authorized user to a credit card you already have. You’ll be responsible for making the monthly payments, but they could benefit from your financial behavior.

Scholarships

Like the real estate mantra concerning location, the college payment mantra might be, “Scholarships, scholarships, scholarships!” Money you don’t have to pay back? Yes, please.

The FAFSA will help colleges determine what federal student aid, scholarships, and grants your child might qualify for, but don’t let your student stop there.

Scholarships come in all sizes and from diverse sources, including local and national organizations, heritage associations, and various writing and other contests sponsored by nonprofits and other organizations. It might help to look at groups that your family might be closely associated with, such as unions, professional associations, or alumni organizations.

Keep in mind that your child can apply for scholarships while they are still in college, because some are tied to college majors, and your student is likely to have settled on a major after the first year or two. This could open up scholarship options that couldn’t be considered before they declared a major.

Budgeting

You might also be able to forego cosigning a student loan by making strategic decisions about education costs. Can your student reduce the overall cost of college by ditching the meal plan, living off campus, or even attending a significantly less expensive college?

Or, instead of paring down expenses, maybe your student could consider boosting their income to avoid the need for a cosigner on a student loan. One idea might be to take a year off to work—this may be enough to close the gap, avoiding the need for a loan altogether.

Loans for Parents

Parents who don’t mind shouldering more of the cost can also take out their own federal student loans with the Direct PLUS Loan , sometimes referred to as a “parent PLUS loan.”

Even though your student benefits from the loan, they are not the borrower and you’ll be solely responsible for paying it back. Some parents may consider working out a repayment arrangement between themselves and their student. If this will be the expectation, however, it’s a good idea to discuss the arrangement with your student before taking out this type of loan.

Direct PLUS Loans can also be taken out by graduate or professional students. Whether a parent or a graduate student, there is a downside for the borrower. The interest rate for Direct PLUS Loans is often higher when compared to other federal student loans—6.28% for the 2021-2022 school year. But you won’t be asking yourself, “Should a parent cosign a student loan?” because you’re helping fill the gap without depending on your student to pay the loan back.

The Takeaway

There are options available to eligible students before considering a private student loan. However, if all other options have been exhausted, a private student loan can be a good choice to help your child complete their college education.

SoFi Private Student Loans allow cosigners and have low rates, no fees, and flexible repayment options. And when opting for automated payments from your checking or savings account, you could be eligible for an interest rate reduction.

Find your rate in just 3 minutes with an easy online application.


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 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 Lending Corp. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products 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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5 Smart Ways to Pay for Law School

5 Smart Ways to Pay for Law School

When you realize that the average tab for law school tuition and fees approaches $50,000 a year and that most young lawyers report owing at least $150,000, your reaction might be as dramatic as a Perry Mason moment.

How to pay for the privilege of adding J.D. to your name and bellying up to the bar exam while keeping your wits about you?

Hitting the Books, Paying the Price

The cost of law school has been rising for decades and has outpaced the inflation rate.

The average tab for tuition and fees for out-of-state students during the 2020-2021 school year was $47,300, according to a U.S. News survey of ranked law schools, which also found that the 10 most expensive law schools had an average cost of $69,600.

Columbia Law again topped the list. The cost of attendance , which forms the basis for financial aid and includes room and board, came to $107,625 for the 2021-22 school year.

The paper chase leaves most law school grads in deep debt. According to a 2020 American Bar Association survey of more than 1,000 new lawyers, more than 75% owed $100,000 or more at graduation, more than half owed at least $150,000, and a quarter owed more than $200,000.

The average student loan debt was $165,000, the survey found.

So here are ideas to squire students toward esquire, and beyond.

How to Pay for Law School

1. Apply for Federal Aid and Look for Merit Aid

Filling out the Free Application for Federal Student Aid (FAFSA®) allows you to find out whether you qualify for federal and state loans, and how much you can borrow.

The FAFSA® may be a familiar presence since undergrad days, but now you’ll most likely be considered an independent student. You may be eligible for a Direct Unsubsidized Loan (current rate: 5.28%), Direct PLUS Loan (current rate: 6.28%), or the work-study program.

Keep in mind that the aggregate federal student loan limit, which includes federal loans for undergraduate study, is $138,500 for graduate or professional students.

Most law schools also offer some form of financial aid based on demonstrated financial need.

Then there are law school scholarships. You can apply for scholarships and grants through your school or external organizations.

If you’re going into public interest law, you can research the many programs that offer tuition assistance or student loan forgiveness for working in eligible legal areas.

Finally, you can check whether your school offers graduate student assistantships, which would cover some of your tuition in exchange for helping with research or teaching.

2. Consider a Part-Time Job or Temp Work

It can be challenging to make a side job jibe with your academic responsibilities, but if you can manage it, making some money while you’re still in school is the best way to reduce the debt you take on.

It might be a good idea to see if you can get a job that also boosts your résumé, such as working for a professor or as a paralegal.

Even if you can’t commit to a consistent job, you might consider temping during breaks or slow periods. A staffing agency can quickly set you up with work for a matter of weeks. Short-term work can include customer service, data entry, or serving as an executive assistant.

If you have additional skills, such as a background in accounting or IT, you can qualify for more specialized roles that demand higher pay. Some temp agencies even specialize in staffing for legal organizations.

3. Attend Law School Part Time

It’ll take longer to complete your degree, but working full time while you go to law school part time is another way to support yourself as you go.

Part-time programs usually allow you to earn your J.D. in four years rather than three. The downside is that you might miss out on opportunities such as clinics, summer clerkships, and student organizations.

4. Look Into Military Aid

The Department of Veterans Affairs (VA) has many educational benefit programs. One of the most popular is the Post-9/11 GI Bill program (Chapter 33), which provides eligible veterans and members of the Reserves with funding for tuition, fees, books, and housing.

Harvard Law is one of the schools that participates in the Yellow Ribbon Program, part of the law that created the Post-911 GI Bill. The VA matches school aid contributions made to eligible veterans. At Harvard, the combination of grants is expected to cover the full cost of tuition and fees each year.

5. Think About Private Student Loans or Refinancing

After merit aid and federal student loans, you could consider a private student loan to fill any gaps.

If you have loans from your undergraduate education or your first year or two of law school, refinancing with a private lender may allow you to take advantage of a lower interest rate, and, depending on the loan term you choose, could lower your monthly payment or put you on track to repay your loans faster.

Keep in mind that refinancing federal student loans means you give up federal deferment, forbearance, income-based repayment plans, and loan forgiveness programs. However, some private refinance lenders provide flexible options while you’re in school or experiencing economic hardship.

Paying for Bar Exam Expenses

Sitting for the bar exam, a two-day affair, entails prep, the exam itself, and possibly travel expenses.

Bar review courses, from BarMax to Quimbee, Crushendo, Kaplan, and Barbri, can cost thousands. Registration for the bar exam varies from state to state. For first-time takers, the cost can be several hundred dollars.

If you’re working for a law firm, your employer will usually cover the cost of the prep course. And many firms will pay review course fees for prospective employees.

Still, if you find yourself short, you could take out a “bar loan” in your final semester of law school or up to a year after graduating. A bar loan is a private loan.

A personal loan can be taken out any time, if you qualify, and could have a lower interest rate than a credit card.

The Takeaway

How to pay for law school? It can be as difficult a challenge as earning a law degree. Funding school, and managing debt afterward, requires savvy, research, and probably several approaches.

Could a private student loan help fill in gaps? SoFi Private Student Loans come with competitive rates, four repayment options, and no fees.

Get a rate quote in just three minutes.


We’ve Got You Covered

Need to pay
for school?

Learn more →

Already have
student loans?

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SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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 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 Lending Corp. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Closed School Loan Discharge Eligibility

Closed School Loan Discharge Eligibility

The Department of Education allows federal student loan borrowers to seek a student loan discharge in certain circumstances. One such scenario involves a discharge related to permanent school cancellation.

If your college or university closes while you’re enrolled you may be wondering if you still have to repay loans you took out to fund your education. Closed school loan discharge can relieve you of the financial responsibility of repaying federal student loans.

There are certain eligibility requirements you need to meet to qualify for a closed school discharge. Understanding the guidelines, along with other options for student loan discharge, can help with managing your student debt.

What Is School Cancellation Loan Discharge?

The Department of Education can discharge up to 100% of federal student loans through the closed school discharge program.

The types of loans eligible for school closure discharge include:

• Federal Direct Loan Program loans (including Subsidized and Unsubsidized loans, consolidation loans, Parent PLUS loans and graduate PLUS loans)

Federal Family Education Loan Program (FFEL) loans

Federal Perkins loans

School cancellation discharge of eligible loans is not the same as loan forgiveness. Federal loan forgiveness programs, including the Public Service Loan Forgiveness program (PSLF) and Teacher Loan Forgiveness, have service and repayment requirements. With PSLF, you’re required to work in a public service job and make 120 qualifying payments toward your loans. Teacher Loan Forgiveness requires you to teach in a qualifying school for five consecutive years to be eligible for loan forgiveness.

A closed school loan discharge, on the other hand, imposes no requirements with regard to any minimum number of payments you need to make toward your loans or work service commitments. If you qualify, your obligation to make payments to your loans disappears.

Recommended: Types of Federal Student Loans

Who’s Eligible for Closed School Loan Discharge?

Borrowers may qualify for a school cancellation discharged if their school closed and they meet any of these conditions:

• They were enrolled at the time of the closure

• They were on an approved leave of absence when the closure occurred

• The closure occurred within 120 days of their withdrawal from the school and their loans were first disbursed before July 1, 2020

• The closure occurred within 180 days of their withdrawal from the school and the loans were first disbursed after July 1, 2020

Borrowers may not qualify for any discharge of student loans related to a school closure if:

• The student’s withdrawal happened outside the 120-day or 180-day windows allowed, based on the date of their first loan disbursement

• They are continuing education at another school

• They completed all coursework toward their degree before the school closed, even if they haven’t formally received a certificate or diploma

If any one of those things happens to be true then it’s possible a borrower won’t qualify for a closed school loan discharge.

How Does A Closed School Discharge Work?

If the school closes while a student is enrolled, they can apply for a federal student loan discharge. In general, students who meet the eligibility criteria will automatically receive an application from the Department of Education. The application is also available on their website.

Automatic Closed School Loan Discharge

School closure discharge is automatic if the school closed between November 1, 2013 and July 1, 2020 and the borrower hasn’t enrolled in another school within three years of the date of the closure. The Department of Education handles the closure for the borrower, there’s no need to complete the application. However, borrowers who would prefer to fill out the application, are able to do so.

Once your loans are discharged, the borrower is no longer responsible for paying anything toward them. But while an application for closed school discharge is under review it is important to continue making payments toward the loans as usual if they’re already in repayment. This can help avoid late payments.

Any discharged loans are removed from a borrower’s credit reports once the discharge is complete. That includes your entire payment history as well as negative items such as late payments.

Other Options for Discharging Student Loans

If you aren’t eligible to have your loans discharged because of school cancellation, there are some other scenarios that may allow it.

Disability Discharge

For example, you could apply for a discharge of your loans if you become totally and permanently disabled. The disability discharge option is available to eligible borrowers who owe:

• Federal Direct loans

• FFEL program loans

• Federal Perkins loans

It’s also open to TEACH Grant program recipients. In order to be eligible for a student loan disability discharge, you must be able to provide proof of your disability through a physician, the Social Security Administration, or the Department of Veterans Affairs. You’ll need to complete a separate application for this type of discharge and once approved, you’re subject to a three-year monitoring period to certify that you lack sufficient income to pay your loans.

Discharge in Death

Student loans can also be discharged due to the death of the borrower. That includes loans taken out by a student as well as Parent PLUS loans. In the case of Parent PLUS loans, discharge is an option if the parent who took out the loans passes away. To qualify for a death discharge of student loans, proof of death (i.e. a death certificate) must be submitted to the Department of Education.

In Rare Cases: Declaring Bankruptcy

Though it is rare, bankruptcy may be another option for discharging federal student loans, though it can be difficult to achieve. In order to have student loans discharged through bankruptcy, the borrower must be able to prove through an adversary proceeding that having to repay their loans would cause a sustained undue financial hardship for both themselves and their family.

Filing a bankruptcy case could result in all of the loans being discharged, some of them being discharged or none of them being discharged. Declaring bankruptcy adversely affects a person’s credit score and is generally a last resort. Always consult with a qualified and trusted financial advisor, accountant, or attorney before considering bankruptcy.

Other Options for Managing Student Loans

Federal student loan borrowers who are ineligible for other forms of discharge or student loan forgiveness may want to consider alternative options such as income-driven repayment options or student loan refinancing instead.

Income-driven repayment plans are offered to borrowers with federal student loans and consider a borrower’s discretionary income when determining their loan terms and payments. This can help make monthly payments more manageable but may make borrowing the loan more expensive over the life of the loan by extending the loan term.

Student loan refinancing may allow qualifying borrowers to secure a more competitive interest rate or loan terms. Though, keep in mind, refinancing any federal student loans will eliminate them from federal plans and protections, including income-driven repayment plans and closed school loan discharge.

Does School Closure Discharge Apply to Private Student Loans?

Federal closed school discharge applies to federal student loans only. Borrowers with private student loans wouldn’t be able to apply for a discharge through the Department of Education should their school close.

It may be possible to contact your private student loan servicer to see if any type of discharge option is available. Your lender may be able to offer a solution for handling private student loans if your school closed while you were enrolled and you have no plans to re-enroll elsewhere.

The Takeaway

Closed school loan discharge can help erase federal student loan debt, in the event a qualifying borrower’s school has closed. But if your school remains open or you have private student loans, you may need to consider other possibilities for keeping up with your payments.

Refinancing student loans could help borrowers secure a lower interest rate. Know that refinancing a federal student loan into a private loan eliminates it from federal student loan borrower protections, like income-driven repayment plans, deferment, and loan forgiveness options. So it may not be the best option for everyone.

If you’re considering student loan refinancing, take the time to look around for the best loan rates and repayment terms for you. SoFi, for example, offers competitive student loan refinancing rates with no hidden fees. Weighing student loan refinancing alongside other options can help make your loans more manageable.

Learn more about student loan refinancing with SoFi.

Photo credit: iStock/jacoblund


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
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.
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Income-Contingent Repayment Plan, Explained

Income-contingent payment (ICR) plans are one kind of Income-driven repayment plan, which can help make federal student loan payments more affordable. The income-contingent repayment plan allows you to extend your loan repayment period while reducing monthly payments to help them better align with your income. Any remaining loan amounts due at the end of your ICR plan term may be forgiven.

An ICR may be a good fit if you’re just starting your career and aren’t earning a lot of money. You may also consider an income-contingent repayment plan if you’re hoping to qualify for federal Public Service Loan Forgiveness (PSLF).

But is an ICR plan right for you? And what are the pros and cons of income-contingent repayment? Weighing the benefits alongside the potential downsides can help you decide if it’s an option worth pursuing managing your student loan debt.

What Is Income-Contingent Repayment (ICR)?

Income-driven repayment plans, including ICR, set your monthly payment amount based on use your household size and income. Depending on how much you make and how many people there are in your household, it’s possible that you could have no monthly payment at all.

Like other income-driven repayment plans offered by the Department of Education (DOE), an ICR plan aims to make it easier to keep up with federal student loan payments.

With income-contingent repayment, your monthly payments are capped at the lesser of:

•   20% of your discretionary income
•   What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted for your income

Of the four income-driven repayment options, income-contingent repayment oldest plan and the only one that sets the payment cap at 20% of discretionary income. With income-based repayment (IBR), Pay as You Earn (PAYE) and Revised Pay As You Earn (REPAYE), monthly student loan payments max out at 10% of your discretionary income.

The interest rate for an ICR plan stays the same for the entirety of the repayment term. The rate would be whatever you’re currently paying for any loans you’ve consolidated or the weighted average of all loans you haven’t consolidated.

Recommended: PAYE vs REPAYE: What’s the Difference?

How an ICR Plan Works

Income-contingent repayment can reduce your federal student loan payments, allowing you to pay 20% of your discretionary income each month or commit to making fixed payments based on a 12-year loan term.

You have up to 25 years to repay all loans enrolled in the plan. If you still have remaining payments after 25 years of monthly payments, the DOE will forgive the balance. But while you may not owe any more payments on the loan, the IRS considers student loan debts forgiven through ICR or another income-driven repayment plan to be taxable income, so you may owe taxes on it.

Income-contingent repayment plans always base your monthly payment on income and family size. This means that if your income, or your family size, changes over time, your monthly payments could change as well. By comparison, if you’re enrolled in the 10-year Standard Repayment Plan, your monthly payments would be the same for the entire repayment term.

Here’s an example of what your payments might look like on an ICR plan versus a Standard Repayment plan, assuming you’re single, make $50,000 a year, get 3.5% annual raises, and owe $35,000 in federal loans at a weighted interest rate of 5.7%.

Standard

ICR Plan

Savings
First month’s payment $383 $319 $64
Last month’s payment $383 $336 $47
Total payments $45,960 $49,092 -$3,132
Repayment term 10 years 12.4 years -2.4 years

As you can see, an income-contingent repayment plan would lower your monthly payments. But it would take you longer to pay your loans off and you’d pay more than $3,000 more in interest charges over the life of the loan. If you start earning more while you’re on the ICR plan, your payments could also increase.

If you get married, and you and your spouse file your taxes jointly, your loan servicer will use your joint income to determine your loan payment. If you file separately or are separated from your spouse, you’ll only owe based on your individual income.

Recommended: How is Income Based Repayment Calculated?

Who Is Eligible for an Income-Contingent Repayment Plan?

Anyone with an eligible federal student loan can apply for the income-contingent repayment plan. Eligible loans include:

•   Direct student loans (subsidized or unsubsidized)
•   Direct consolidation loans
•   Direct PLUS loans made to graduate or professional students

Other types of federal student loans may also be enrolled in income-contingent repayment plans if you consolidate them into a Direct loan first. For example, you could use an ICR plan to repay consolidated:

•  Federal Stafford loans (subsidized or unsubsidized)
•  Federal Perkins loans
•  Federal Family Education Loan (FFEL) PLUS loans
•  FFEL consolidation loans
•  Direct PLUS loans for parents

The income-contingent repayment is the only income-driven repayment plan option that allows you to include loans taken out by parents. So if you borrowed federal loans to help your child pay for college, you could enroll in an ICR plan (after consolidating your loans) to make the payments more manageable.

Two types of loans are not eligible for income-contingent repayment or any other income-driven repayment plan. Those include:

•  Private student loans
•  Federal student loans in default

If you’ve defaulted on your federal student loans you must first get them out of default before you can enroll in an income-driven repayment plan. The DOE allows you to do this through loan consolidation and/or loan rehabilitation. Either one can help you get caught up with loan payments and loan rehabilitation will also remove the default from your credit history.

Pros and Cons of ICR Plans

Income-contingent repayment is just one option for paying off student loans, and it may not be right for everyone. It’s important to look at both the advantages and potential disadvantages before enrolling in an ICR plan.

Pros of income-contingent repayment:

•   Can lower your monthly payments
•   Parent loans are eligible for income-contingent repayment, after consolidation
•   Extends the loan term out to 25 years to repay student loans
•   Remaining loan balances are forgivable
•   Qualifying repayment plan for PSLF

Cons of income-contingent repayment:

•   Other income-driven repayment plans could result in a lower payment
•   Taking longer to repay loans means paying more in interest
•   If your income changes, your payments could increase
•   Enrolling certain loans requires consolidation first
•   Forgiven loan amounts are taxable

If you’re interested in an income-driven repayment plan, it may be helpful to do the math first to see how much you might pay with different plans. An income-based repayment option, for example, might lower your payments even more than ICR so it’s worth running the numbers through a student loan repayment calculator.

The Takeaway

Income-contingent repayment plans are something you might consider if you have federal student loans. With an ICR plan, you can tailor your payments to your income, making it easier to follow your budget from month to month.

But an income-driven repayment plan won’t reduce the interest rate you pay on your student loans. That’s something you can do, however, with student loan refinancing.

When you refinance student loans, you take out a new loan to pay off your existing ones. If you’re able to secure a lower interest rate on the new loan and don’t extend the term length of the loan, you could pay less in total interest over the life of the loan while having lower monthly payments. This could give you more breathing room in your budget.

That said, the interest rate isn’t the only factor to consider. Refinancing federal loans into private loans forfeits the protections and privileges that federal student loans provide, such as the ability to enroll in an income-based repayment plan or access to some forbearance or deferment programs.

With SoFi Student Loan Refinancing, you can take advantage of competitive rates on refinance loans. It’s easy to compare rates from multiple lenders online and get pre-qualified.

If you’re struggling to keep up with student loan payments, consider all the options open to you, including an ICR plan and refinancing. Most importantly, stay in touch with your loan servicers to avoid falling behind.



SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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