A currency carry trade is a popular type of forex trade, whereby an investor borrows in a low-interest currency in order to invest in a currency with a higher rate.
Putting on a carry trade is one way to take advantage of discrepancies between the interest rates of different currencies, particularly if the investor uses leverage.
This strategy can be risky, however, owing to the fact that interest rates, and currency values, can fluctuate at any time. The use of leverage adds additional risk, if the trade moves in the wrong direction.
Key Points
• A currency carry trade involves borrowing funds in a low-rate currency and investing in assets in a higher-yielding currency.
• Thus, a currency carry trade is a way to profit from differences in interest rates.
• This is a popular forex strategy, owing to its relative simplicity: An investor just needs to find the appropriate currency pair to execute the carry trade.
• Because interest rate differentials may be small, some investors use leverage to maximize potential gains.
• The risk of loss is high, however, if interest rates suddenly change.
🛈 While SoFi offers exposure to foreign currencies through its alternative investment funds, it does not offer forex trading at this time.
What Is a Currency Carry Trade?
In a carry trade, forex traders borrow money at a low interest rate in order to invest in a currency where they can buy an asset with a higher rate of return. In the forex markets, a carry trade is a bet that one foreign currency will hold or increase its value relative to another currency, and that interest rates will also remain steady.
Of course, this active investing strategy hinges on whether or not interest rates and exchange rates are in the investor’s favor. The wider the interest rate spread between two currencies, the better the potential returns for the investor.
Even in cases with a relatively small rate differential, though, investors who use this strategy often employ leverage to maximize potential profits.
How Do You Execute a Carry Trade?
A carry trade strategy can be a relatively simple way to increase an investor’s returns, assuming they can find a currency with a higher rate and one with a lower rate, and that exchange rates between the two currencies remain relatively stable. In that way, it’s similar to understanding “spread trading” as it relates to stocks.
Currency Carry Trade Basics
Imagine that U.S. interest rates are at 5%, but the interest rate in Japan is 1% — a 4% spread. The yen would be considered the funding currency for the carry trade because the rate is lower, and the dollar is the asset currency (which typically has a higher rate).
A trader could borrow 1 million yen at 1%, and buy an asset such as a U.S. bond that has a 4% yield. When the bond matures, the investor could collect the bond yield, repay the yen they borrowed at 1%, and pocket the difference.
There is a wild card here, though, which is that both interest rates and currency values can change — sometimes suddenly — which can cause the trade to move in the wrong direction.
Here is an example of how the exchange rate and interest rate come into play in a currency carry trade.
Carry Trade Example
In this example the investor will borrow 1 million yen at 1%, and an exchange rate of 145 yen to the dollar.
1 million yen / 145 = $6,896.55
The investor could take the $6,896.55 and invest in a U.S. security that pays 4%, and collect that amount after a year.
$6,896.55 x $0.04 = $275.86
Total = $7,172.41
Now the investor has to repay the 1 million yen they borrowed at 1%, for a total of 1,000,100 yen, or $6,897.24
They subtract the principal from the ending balance in dollars:
$7,172.41 – $6,897.24 = $275.17
The resulting profit of $275.17 is 4% of the original spread between the interest rate spread of the two currencies.
The concept of a carry trade is simple, but in practice, it can involve investment risk.
In the above example, neither the exchange rate nor the interest rates moved — which in real life is highly unlikely.
Most notably, there’s the risk that the currency or asset a trader is investing in (the British pounds in our previous example) could lose value. That could put a damper on a trader’s expected returns, as it would eat away at the gains the difference in interest rates could provide.
Currency prices tend to be very volatile, and something as mundane as a monthly jobs report released by a government can cause big price changes.
Given the risks, carry trades in the currency markets may not be the most appropriate strategy for investors with a low tolerance for risk.
The Takeaway
Using a currency carry trade strategy is a popular one in the forex markets because it’s relatively easy to find currency pairs with an interest rate difference that can be exploited for a potential gain. The risk, though, lies in the potential for currency rates to shift, as well as interest rates.
FAQ
How does a carry trade work?
A currency carry trade works when two currencies are relatively stable, but one offers a much lower rate than the other. This makes it possible to borrow the funding currency to invest in a higher-yield security in the asset currency, and pocket the difference, minus the interest rate owed on the principal borrowed.
What happens when a carry trade moves in the wrong direction?
There are various risk factors when using a carry trade strategy. One is that the lower-rate currency could strengthen against the asset currency, and the investor would effectively repay a larger amount than they borrowed, thus cutting into any profit.
What is the forex market?
The forex market is where financial institutions, as well as individual investors, trade foreign currencies. The forex market is the largest in the world, and it’s possible to trade 24/7 — which is different from most markets, which have open and close hours.
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Jobs that help pay off a portion of student loans have become more common and for a good reason. The average federal student loan borrower has over $38,000 in student loan debt, while borrowers with private student loans owe more than 41,000, on average, according to the Education Data Initiative.
Companies that help to repay a portion of student loans are still in the minority, however, so you may have to do some research to get student loan assistance as a benefit. To help you, here’s what to know about jobs that help pay off student loans, companies that offer this perk, and what you can do to try and negotiate for it.
• More and more companies in the U.S. are offering student loan assistance programs
• Some careers, such as healthcare, law, public service, and education offer repayment assistance programs or student loan forgiveness programs, typically in return for service commitments.
• A number of major companies offer employees help in repaying their student loans, including Hulu, New York Life, and SoFi.
• Student loan borrowers who receive student loan assistance may owe taxes on some canceled debt.
• When interviewing for a job that doesn’t offer student loan repayment assistance, individuals can try to negotiate the benefit into their total compensation.
Types of Job-Based Student Loan Assistance Programs
There are two types of student loan assistance you may receive through an employer: repayment assistance programs where your employer is a participant and repayment assistance benefits your employer offers funds to the employee or the employee’s loan servicer directly.
Repayment Assistance Programs
Depending on your career field, you may be eligible to receive student loan assistance or student loan forgiveness through a federal or state program. There are several programs for those working in public service careers, like the Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness programs, which cancel existing balances for eligible borrowers who meet certain requirements.
That said, these programs typically require you to commit to working in a specific job or a certain area (such as medicine, law, or military service, for example) for a set number of years, which can be challenging if you don’t enjoy the job or want to pursue a different career path somewhere else.
But if you fulfill your service obligation, you may get as much as your full student loan balance forgiven.
According to data from the International Foundation of Employee Benefit Plans, 14% of employers in the U.S. offered student loan repayment assistance as a benefit in 2024 — up from 4% in 2019.
The terms of repayment assistance benefits can vary by employer. For example, some may offer to match a portion of the employee’s payments and others may simply pay a set amount toward an employee’s loan balance each month.
The amount you receive from a repayment assistance benefit may be less than what you might get through a government repayment assistance program. But you may not need to commit to a service obligation to qualify, and you may be able to negotiate how much you’ll receive.
Types of Jobs That Offer Student Loan Forgiveness
In order to qualify for certain types of loan forgiveness, borrowers may need to meet certain employment requirements. Here are some of the jobs that could potentially allow someone to qualify for federal student loan forgiveness programs.
1. Federal Agency Employee
The federal student loan repayment program exists for employees of the federal government, and allows a portion of their federal student loans to be paid off each year. The benefit permits for up to $10,000 in payments each calendar year, not to exceed a total of $60,000 for any one employee.
In order to qualify for this student loan repayment assistance, the employee is required to sign onto a minimum three-year contract with the agency. If they leave the agency early, they’ll need to repay any benefits received.
2. Public Service Worker
If you work full-time in the public service sector for a qualifying organization, such as the government or a non-profit, you may qualify for Public Service Loan Forgiveness (PSLF).
To pursue PSLF, borrowers need to have Direct loans and be enrolled in an income-driven repayment plan. (If you have other types of federal loans, such as Perkins loans, you’ll need to consolidate them into a Direct Consolidation Loan to qualify.) Forgiveness is awarded after making 120 qualifying payments and certifying all employers.
3. Medical Field
The Association of American Medical Colleges maintains a database with information on loan assistance programs for doctors by state.
Medical professionals who work in certain underserved areas may also qualify for loan forgiveness through the National Health Service Corps Loan Repayment Program. In this program, medical professionals must commit to working for at least two years at an NHSC-approved site in a Health Professional Shortage Area (HPSA).
Refinancing medical school student loans may be another option to consider for medical professionals who are not pursuing any loan forgiveness programs. Refinancing could potentially allow borrowers to secure a more competitive interest rate, if they qualify. Just be aware that refinancing federal loans makes them ineligible for federal forgiveness programs and other programs and protections.
4. Automotive Professionals
Professionals in the automotive industry may qualify for loan forgiveness through the Specialty Equipment Market Association (SEMA) Loan Forgiveness Program. To be eligible, you must work for a SEMA member business and have at least $2,000 in outstanding debt, among other qualifications.
5. Lawyer
In addition to PSLF, there are other lawyer-specific programs that provide assistance to lawyers paying off student loan debt. These include the Department of Justice Attorney Student Loan Repayment Program and the John R. Justice (JRJ) Program.
6. Teacher
Student loan forgiveness for teachers is available. Teachers who work in special education are considered highly qualified teachers or work in underserved areas may qualify for the Teacher Loan Forgiveness Program. The amount of loan forgiveness available is dependent on the teacher’s area of specialty and can be either up to $17,500 or up to $5,000.
7. Peace Corps
Peace Corps volunteers may be eligible to defer their loans or pursue PSLF. Additionally, while on a qualifying repayment plan, payments could be as low as $0 per month while volunteering.
8. Veterinarian
Veterinarians who work in underserved areas may qualify for up to $40,000 in student loan repayment assistance through the U.S. Department of Agriculture’s Veterinary Medicine Loan Repayment Program. Eligible veterinarians must agree to serve in a NIFA-designated veterinarian shortage situation for a period of three years to qualify.
15 Major Companies that Repay Student Loans
Hundreds of large and small employers offer jobs that pay off student loans, but it’s not always easy to find out which ones provide the benefit. To help you get started, here are 15 well-known companies that repay student loans.
1. Abbott Laboratories
The company’s Freedom 2 Save program functions a bit differently than other repayment assistance benefits in that it combines efforts to pay off student loan debt and save for retirement.
Full- and part-time employees who qualify for the company’s 401(k) plan and contribute at least 2% of their eligible pay toward student loan repayment will receive a 5% contribution to their 401(k) account. Employees aren’t required to contribute to their 401(k) to receive these funds.
2. Aetna
In addition to a tuition reimbursement program, healthcare company Aetna also matches student loan payments for eligible employees who meet certain requirements. For full-time employees, the program matches student loan payments up to $2,000 per year, with a lifetime maximum of up to $10,000 for qualifying loans.
3. Ally Financial
Financial services company Ally provides $100 per month toward student loan payments, with a lifetime maximum cap of $10,000. Employees also receive a monthly $100 contribution to a 529 plan with a $10,000 lifetime maximum.
4. Chegg
Education company Chegg has paid out more than $1 million toward employee student loan debt through its Equity for Education benefit. For entry-level employees through manager level, those who have worked at the company for at least 2 years receive up to $5,000 annually. Employees at the director or vice-president level can receive up to $3,000 annually.
5. Estee Lauder
The beauty company provides employees with $100 per month in student loan assistance, up to a lifetime maximum of $10,000.
6. Fidelity
As a full-time employee of the investment brokerage firm, you may be eligible to receive up to $15,000 toward your student loan payments.
7. Google
Google matches up to $2,500 in loan payments per employee each year.
8. Hulu
Streaming service Hulu pays up to $1,200 a year per employee who has been at the company for at least one year to help pay off their student loans, up to $6,000.
9. Live Nation
Entertainment company Live Nation Live Nation matches employee contributions of up to $100 per month, or $1,200 a year. The lifetime maximum is $6,000 in benefits. Employees must be employed with the company for at least six months to qualify.
10. New York Life
New York Life’s student loan assistance program contributes $170 per month toward student loans that are in good standing. Employees can receive up to $10,000 while enrolled in the program.
11. Nvidia
As a Nvidia employee, you can receive up to $350 a month toward your student loan payments. The lifetime cap is $30,000 in assistance. To be eligible, you must be a full-time or part-time U.S. employee working 20 hours or more per week.
12. Penguin Random House
Penguin Random House offers eligible employees $100 a month toward their student loans.
13. PricewaterhouseCoopers (PwC)
As a participating associate or senior associate, you can receive $1,200 in student loan payments each year with a maximum benefit of $7,200.
14. SoFi
As an employee with SoFi, you’ll get $200 each month in student loan repayment assistance.
15. Staples
Eligible employees for the Staples student loan assistance program include active, full-time U.S. associates with at least one outstanding loan obligation. Participants must also have obtained or are in the process of receiving a degree from an accredited institution. The company pays $100 per month toward loan principal for 36 months.
How Is Student Loan Assistance Taxed?
If you receive student loan assistance or cancellation, it’s important to understand the tax consequences. Depending on the situation, you could be responsible for a tax bill.
The IRS typically considers canceled debt to be taxable income. That includes most student loan debt forgiveness or discharge, except for PSLF. However, the American Rescue Plan Act of 2021 exempts borrowers who are working toward loan forgiveness from having their forgiven balances taxed if their loans were discharged between January 1, 2021, and December 31, 2025. This only applies to federal taxes, though, and some states may still require forgiven student loans to be taxed as income.
As for employer-sponsored assistance programs, a temporary pandemic-era provision allows employers to contribute up to $5,250 per year in tax-free funds toward qualified education costs for employees. Any contributions above that amount are considered taxable income for the employee. However, this special tax treatment expires December 31, 2025, after which any amount of employer payments or reimbursements for education expenses or student loan repayment will be taxed as income.
Negotiating a Student Loan Repayment Benefit
If you’re looking for a job, keep an eye out for companies that repay student loans as an employee benefit. If you can’t find one, you can still try to negotiate the benefit into your total compensation. Here are some ways to do it.
Doing Your Research
Resources such as Payscale and Glassdoor can help give you an idea of the salary and benefits that may be available from various companies. Look at what the company you’re interested in typically offers as well as what you might get with a similar position somewhere else.
If anything, this process can give you a better idea of what you’re worth. But it will also give you a benchmark that you can use to negotiate for student loan repayment benefits, along with other aspects of your compensation.
Making Your Interests Clear
Helping a potential employer understand why student loan repayment is important to you can help set the stage for the entire conversation.
In addition to salary, employers can consider several other factors to make up your total compensation. So knowing what’s most important to you can help them make a more attractive offer.
Asking for a Signing Bonus Instead of Monthly Payments
While a signing bonus isn’t specifically designed as a student loan repayment benefit, you can use it that way. In fact, making a lump sum payment toward your student loans could help you accelerate your student loan debt repayment timeline.
Asking for the Opportunity to Revisit the Request in the Future
If you can’t manage to persuade a potential employer to provide you with student loan assistance, that may not be the end of it. You could ask for the chance to talk about your compensation again in six months or a year.
During that time, you may be able to prove to your employer that it’s worth the investment on their part. Or you may have planted a seed for the employer to create a student loan repayment benefit for all employees.
Making Student Loan Repayment a Priority
Whether or not you can find jobs that pay off student loans, you can still make it a priority to eliminate your student debt as quickly as possible. A student loan repayment assistance benefit can help you achieve that goal, but it can’t do it on its own.
As such, it’s essential to consider other options to save money, such as refinancing your student loans. While refinancing can be a helpful option for some borrowers, it won’t make sense for everyone, however. If federal student loans are refinanced, they’ll lose eligibility for federal programs and benefits, such as PSLF or income-driven repayment plans.
If you qualify, you may be able to reduce your interest rate or your monthly payment. With a lower interest rate you could potentially save money over the life of your loan.
The Takeaway
Many companies offer student loan repayment assistance as a part of their employee benefits package. Some jobs might also offer the opportunity for the borrower to apply for student loan forgiveness. For example, there are programs available for medical professionals, teachers, and those that work in the government or non-profit sector.
Another opportunity for managing student loans is refinancing, which could allow qualifying borrowers to lower their interest rates — making the loan more affordable in the long run. If you’re interested in refinancing, consider the options available at SoFi.
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 careers pay off student loans fastest?
High-paying jobs may help borrowers repay their student loans quickly. However, some jobs may allow borrowers to pursue a loan forgiveness program. While these programs may not expedite the repayment process, they could help make student loan repayment more manageable.
What companies pay off student loans?
Companies including SoFi, Fidelity, Penguin Random House, and Nvidia all offer student loan repayment assistance programs. Specific benefits vary by company.
What kind of jobs qualify for student loan forgiveness?
The type of job that qualifies for student loan forgiveness may vary depending on the program. Jobs in the government or non-profit sector may qualify a borrower for Public Service Loan Forgiveness. Teachers may qualify for Teacher Student Loan Forgiveness programs. Some medical professionals may qualify for programs such as the National Health Service Corps Loan Repayment Program.
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If your bills are piling up, you might be considering bankruptcy. But can you declare bankruptcy on student loans?
While it has been technically possible for bankruptcy to clear student loans, it was difficult and rare. But in 2022, a streamlined process was created for borrowers with “undue hardship” which allows debtors to navigate the bankruptcy application system easier than previous years.
Read on to learn about the key requirements to have student loans released in bankruptcy.
• A new process introduced in 2022 simplifies proving undue hardship for student loan discharge in bankruptcy.
• Borrowers must show inability to pay, good faith efforts to earn income and manage expenses, and a situation unlikely to improve.
• Chapter 7 cancels all debt, and borrowers must have a limited income in order to qualify.
• Chapter 13 reorganizes and lowers debt with a flexible repayment plan.
• Bankruptcy can harm credit scores, complicating future financial transactions and incurring costs.
What Is Student Loan Bankruptcy?
There is no targeted “student loan bankruptcy” process, but borrowers sometimes use the term when referring to being released from student loans after filing for bankruptcy. Although it’s possible to be absolved of student loan debt this way, the process has been complex and bankruptcy has serious consequences for your financial future.
If you’re still considering student loan bankruptcy, read on to find out when you can and can’t discharge student loans through bankruptcy, different types of bankruptcy, and the requirements needed to prove “undue hardship.”
When Can Student Loans Be Discharged Through Bankruptcy?
In bankruptcy, “discharge” is the legal term for clearing or releasing your debts. Student loan discharge requires that the debtor prove to the court that they will suffer from “undue hardship” if forced to repay. Until now, the burden of proof was typically greater for federal student loans than private loans.
The specific qualifications of undue hardship vary by state, but may include:
• You have become physically or mentally disabled.
• You have dependents that you support.
• You have a disabled dependent — such as a spouse or child — who requires 24-hour care.
• You are under- or unemployed, and can show a “foreclosure of job prospects” in your industry.
• You have made a good-faith effort to repay your loans over time.
• You have previously attempted to address your student loans through deferment or other protections.
• Your disposable income is not used for nonessential purchases, such as restaurant meals, brand-name clothes, and vacations.
• Your situation is unlikely to improve in the future.
When Can’t Student Loans Be Discharged Through Bankruptcy?
Historically, it has been extremely difficult to get out of federal student loans through bankruptcy. If that kind of legal loophole existed, the argument went, there would be nothing to stop people from completing college or grad school and then immediately declaring bankruptcy.
However, it will be almost impossible when:
• The debtor cannot prove any undue hardship.
• The individual’s only debt is student loans. (In fact, you won’t even be allowed to file for bankruptcy.)
• Someone is a recent grad. Not enough time may have elapsed to prove a history of hardship and a good-faith effort to repay loans.
💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Changes to the Student Loan Bankruptcy Process
In November 2022, the Department of Justice announced changes to the way student loans are handled in bankruptcy court. Under the new process, debtors complete a 15-page attestation form confirming that they meet the definition of undue hardship. The bankruptcy judge, under guidance from the Justice Department and Department of Education, will assess the request and make a decision to fully or partially discharge the debt.
Recommendations are guided by a new set of clearer, fairer, and more practical standards for “undue hardship”:
• Present ability to pay. Meaning the debtor’s expenses equal or exceed their income.
• Future ability to pay. Based on retirement age, disability or chronic injury, protracted unemployment, or similar facts.
• Good faith efforts. Referring to the debtor’s reasonable efforts to earn income, manage expenses, and repay their loan.
Debtors are no longer disqualified based on not enrolling in income-driven repayment.
Understanding Bankruptcy
Bankruptcy is a way of clearing your debts through the court system. Before granting bankruptcy, the court will sort through an individual’s assets and determine which debts to forgive. Some debts are more difficult to discharge than others, such as taxes, alimony, child support, criminal fines — and student loans.
People looking to discharge student loans are required to file either Chapter 7 or Chapter 13 bankruptcy before taking additional steps. If you file for bankruptcy but lose your student loan case, the rest of the bankruptcy will stand — you can’t undo it.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, sometimes referred to as liquidation bankruptcy, is generally filed as a last resort. In this process, assets of the person filing for bankruptcy are “liquidated,” or sold, by the bankruptcy trustee. Some property is exempt — such as a primary residence and vehicle — but everything else will be unloaded. Generally, people who consider Chapter 7 are those with minimal assets and a lower income.
Chapter 13 bankruptcy is sometimes referred to as a “wage earner’s plan.” In this case, people filing bankruptcy can create a repayment plan to pay off their debts. Depending on someone’s financial situation, repayment may take place over three or five years.
Chapter 13 bankruptcy is more suited to individuals with valuable assets or who are earning considerable income. In order to file Chapter 13, total secured and unsecured debts must be $2,750,000 or less.
See the table for the main differences between Chapter 7 and Chapter 13 at a glance.
Chapter 7
Chapter 13
Timeframe
Several months
3 to 5 years
Cost
Court filing fees, lawyer fees, plus assets given up
Court filing fees, lawyer fees, plus assets given up
Income requirement
Must be below the state median
Must have enough disposable income to pay down debts over 5 years
Credit consequences
Negative impact on credit report for 10 years
Negative impact on credit report for 7 years after discharge
Benefits
The court wipes select debts. Collections stopped.
Upon completion of payment plan, remaining balance may be discharged. Foreclosure and collections stopped.
Private Student Loans and Bankruptcy
In the few cases when a court approved the discharge of student loans, they were likely to be private student loans. Private loans do not have the same protections as federal loans in cases of financial hardship, and so borrowers were more inclined to file for bankruptcy. However, a borrower must file a kind of sub-lawsuit to have their student loan documents reviewed by the court.
Up to now, federal student loans were especially hard to discharge through bankruptcy. Even if you made it that far, the burden of proof was greater for federal student loans than private loans. The new process described above is meant to remedy this situation.
Federal student loans do come with built-in protections for struggling borrowers, like deferment, forbearance, and income-driven repayment plans. These options can provide relief to borrowers experiencing temporary financial setbacks. See below for details on these programs.
While bankruptcy can provide some relief to individuals who are overwhelmed by immense debts, it also has serious consequences. Bankruptcy is generally a last resort and can have lasting impact on an individual’s credit score.
A low credit score can make it almost impossible to qualify for credit cards, a mortgage, or a car loan. It can also lower the chances of qualifying for a rental apartment and utilities.
To have a shot at a student loan bankruptcy discharge, an individual must first file for bankruptcy. They must then initiate a separate court filing, known as an “adversary proceeding.” This is essentially a request that the court find that repaying the student loans is an undue hardship to both the individual and their dependents.
Here is a brief overview of the process and its challenges:
Cost of Filing for Bankruptcy
The first step is to file for bankruptcy — likely Chapter 7. The cost of filing is fixed at $338, but the cost of an attorney varies depending on where you live, the attorney’s reputation and experience, and the complexity of your case.
The average cost of an attorney in Chapter 7 bankruptcy is about $2,400. Because of the complexity and challenges of getting student loan debt discharged, it’s recommended that you retain a student loan attorney to help you through the process.
If you are filing Chapter 13, the filing fee is $313, and the average attorney fee is $2,500 to 3,500.
Adversary Proceedings
While your bankruptcy case is still open, you’ll need to file a separate but related complaint, which will begin an additional lawsuit known as an “adversary proceeding,” or AP. The court will review the complaint and the circumstances of your undue hardship and make a decision.
There is a $350 AP filing fee, which may be waived in bankruptcy cases.
Undue Hardship
The last step is to prove in your AP lawsuit that repaying your student loans have and will continue to cause undue hardship. While this may feel like an accurate assessment of your situation, proving undue hardship means meeting the specific standards described above.
In the event that the court finds in your favor, there are a few different things that can happen:
• The loans might be fully discharged. This means that the borrower will not need to make any more loan payments. All activity from collections agencies will stop too.
• The loans may be partially discharged. In this case, the borrower will still be required to repay the portion of the debt that is not discharged.
• The loan terms may change. The borrower will still be required to repay the debt, but there will be new terms on the loan, such as a lower interest rate.
Alternatives to Declaring Bankruptcy
Fortunately, there are alternative options to declaring bankruptcy. To help you decide which path to take, you may want to consult with a credit counseling agency or a student loan attorney who can provide more personalized advice.
Note that some of the options below apply to either federal student loans or private student loans, but not both.
Student Loan Deferment and Forbearance
For short-term solutions for federal student loans, consider student loan deferment or forbearance. These options allow borrowers to temporarily pause their loan payments. Unlike declaring bankruptcy, federal student loans in deferment or forbearance generally don’t have a negative effect on your credit.
Income-Driven Repayment Plans
Another option for federal student loans is switching to an income-driven repayment plan, which ties your monthly payments to your discretionary income. If your income is low enough to meet the thresholds for these plans, this could bring payments down significantly — even to $0 — though interest will still continue to accrue.
Special Circumstances
In some cases, someone may qualify for automatic or administrative discharge of their federal student loans. In this case, the borrower isn’t required to appear in bankruptcy court.
Some circumstances that might necessitate an administrative discharge include:
• If the borrower is “totally and permanently disabled.”
• Death of the borrower.
• If the school closed while the borrower was enrolled or shortly thereafter.
• If the borrower was the victim of identity theft, and the loans are not really theirs.
• If the borrower withdrew and the school failed to properly reimburse their tuition.
• If the borrower was misled by the school — about certification, job prospects, etc.
Negotiating With Your Lender
Private student loan lenders may offer temporary assistance programs that can help borrowers who are struggling to make payments on a short-term basis.
It may also be worth negotiating: You may want to contact the loan servicer or lender and ask for additional repayment options. In general, servicers or lenders would rather receive a smaller sum of money from you than nothing, so it’s typically in their best interest to work with you.
Is Refinancing an Option?
If you’re looking for a long-term solution, refinancing your student loans may be worth looking into. Refinancing your student loans means transferring the debt to another lender, with new terms and new (ideally lower) interest rates.
Some borrowers may be able to qualify for a lower interest rate than the federal rate depending on their financial standing. But keep in mind that when federal student loans are refinanced, they lose eligibility for federal student loan borrower protections — like the deferment, forbearance, and income-driven repayment plans mentioned above.
If you’re looking to refinance, make sure you do your research and see if you can find competitive rates with a lender you trust.
Starting the Bankruptcy Process
If you are struggling with your student loan payments, they may be the least of your problems next to high-interest credit card debt. Your first step is to consult a debt counselor or financial advisor, who can lay out all your options. If they agree that bankruptcy is your best, or only, path forward, it’s time to find a bankruptcy attorney who has experience with student loans.
The Takeaway
Changes to the student loan bankruptcy process has streamlined the process, making it easier to navigate. However, declaring student loan bankruptcy is still fairly complex. In addition bankruptcy can be expensive and negatively impact your credit report for years.
Aside from bankruptcy, federal student loan borrowers who are struggling with their monthly payments may want to consider deferment, forbearance, or an income-driven repayment plan. And in some cases, refinancing may make sense. Getting a lower interest rate can lower your monthly payments. Just remember, when you refinance federal loans, you lose access to federal protections and benefits.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Can you declare bankruptcy on student loans?
Historically, it was only in rare circumstances that someone could have their federal student loans discharged in bankruptcy. But a new streamlined process helps identify appropriate cases and support discharge. The aim is to help borrowers who meet the requirements for discharge but did not know it.
What happens if you file for bankruptcy on student loans?
As part of the new process, you will fill out an attestation form that the Department of Justice will use to determine if it will recommend that your debt or part of your debt be discharged. It’s ultimately up to the bankruptcy judge, but a recommendation from Department of Justice attorneys can go a long way.
Can private loans be discharged through bankruptcy?
Private student loans may be discharged through a complex process that starts with filing for bankruptcy. Your best bet is to contact a debt counselor or student loan attorney who can assess your situation and determine your odds of success.
How are Chapter 7 and 13 different for student loans?
Chapter 7 bankruptcy is generally for people with few assets and low incomes and it typically cancels all of a borrower’s debt. Filing Chapter 13 can help a borrower preserve their assets. It typically helps them reorganize and lower their debt. With Chapter 13, they mnay end up paying off their student loans on a more flexible schedule that can help them catch up.
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.
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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.
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A health maintenance organization, or HMO, is a type of health insurance plan that typically offers lower premiums and out-of-pocket costs in exchange for members using the plan’s network of providers.
That network is usually confined to a certain city or geographic area.
An HMO can be a good choice for healthy people who don’t anticipate needing a lot of specialized care in the coming year.
However, these plans tend to offer less flexibility in where you can go for care than other types of health plans, such as preferred provider organizations (PPOs).
Read on to learn if an HMO could be the right plan for you and your family.
Key Points
• HMO plans offer lower costs and less paperwork.
• HMOs restrict healthcare providers and have geographic limitations.
• HMOs require a primary care physician for care coordination.
• PPO plans provide more flexibility but with higher premiums.
• HMOs limit out-of-network care, while PPOs allow it at a higher cost.
How Do HMOs Work?
HMOs contract with a group of doctors, hospitals, and other healthcare providers within a certain area for a negotiated fee.
In return for accepting lower payments, HMOs offer providers a steady stream of patients. Insurers can then pass the savings onto patients in the form of lower premiums and out-of-pocket costs.
To take advantage of these lower costs, HMO members must, for the most part, receive care only from network providers.
This starts with your primary care physician (PCP). HMO members typically should choose a PCP from the plan’s network. Your PCP takes care of annual check-ups and other medical needs that require an office visit.
In an HMO, your PCP is typically also the gatekeeper for your other health needs. To see a specialist, such as a podiatrist or a dermatologist, you would likely need to first visit your PCP to get a referral to a specialist within the network.
There are often some exceptions to network-only care, however. Emergency care received out-of-network is usually covered. And, with some preventive care services, such as mammograms and gynecological visits, you may be able to see a network doctor without first getting a referral.
In cases where you may have a serious health condition requiring a specialist not included in the network, the HMO may cover that treatment as long as you request pre-approval.
In addition to low premiums, there are often low or no deductibles with an HMO. Instead, the plan will typically charge a copayment, or copay, for each clinical visit, test, or prescription.
How Do HMOs Compare With Other Types of Health Insurance?
Another commonly available health plan offered by employers and health insurance companies is a preferred provider organization, or PPO. These plans have many features in common with HMOs, but also a few key differences.
As with an HMO, members of a PPO plan have access to a network of providers. When they use providers within that network, they will typically pay less out-of-pocket costs, such as copays.
Unlike an HMO, however, care outside of the network is usually also covered, but at an additional cost.
How much the PPO will pay for an out-of-network doctor may be capped at what the PPO deems the “customary and usual” payments for providers in your area. Depending on where you live, that could mean a small or potentially large additional out-of-pocket cost.
Depending on where you live, that could mean a small or potentially large additional out-of-pocket cost.
Another key difference between these two types of plans: With a PPO, you typically do not need a referral to see a specialist, either within or outside of the network.
In addition, PPO plans usually have deductibles, while some HMOs do not. PPO plans also typically have more expensive premiums than HMOs.
However, not having to see your PCP (and pay a copay) to get a referral to a specialist can be a cost saver for members of PPOs.
It can be a good idea to weigh the advantages and disadvantages of HMOs before you choose a plan, just as you would with any other type of insurance coverage.
Here are some of the most common pros and cons.
Advantages of HMOs
• Lower costs. Premiums, deductibles, and copays are usually lower with an HMO compared to other types of health care plans. Some plans even have no deductible. Your out-of-pocket costs will also likely be lower for your prescriptions.
• Less paperwork. Because your care is managed through your PCP and you are receiving care through the HMO network, billing tends to be less complicated for those with an HMO.
• Care is often high quality. Because preventive services are generally fully covered and because your PCP can act as your advocate for early intervention medical care, many people find HMOs provide good quality of health care.
Disadvantages of HMOs
• Provider restrictions. With an HMO, you must choose a primary care physician from the plan’s network. This doctor will manage your care and refer you to specialists within the network. If your current doctor is not in the HMO network, you would likely need to switch.
• Restricted emergency care. Emergency care is usually covered even if it is received from out-of-network providers. But HMOs often have strict rules on what constitutes an emergency and which emergency providers will be covered.
• Geographic restrictions. Because HMO networks are usually located within one geographic area, your network of providers will only be available within that location. That means if you’re traveling and you need medical care, those bills may not be covered, unless it is an emergency. Also, dependent college children who attend school out of state are usually not covered.
HMO plans can be an efficient, low-cost way to manage your health care needs. These plans can foster a close relationship with your primary care physician, who can help you navigate both preventive and specialty care.
Some consumers feel the restrictions on receiving care from out-of-network providers and the hassles of getting a referral can be an obstacle to optimal care.
HMOs are often compared to PPOs, which generally allow members more freedom to see out-of-network providers (though going out of network may cost more). PPOs typically don’t require referrals to see specialists.
To determine which type of health plan is best for you, you’ll likely want to weigh the costs and plan offerings against your budget and health needs. Before choosing a plan, it might also be helpful to track your spending for a few months to see how much you are currently spending on medical care.
When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.
Find affordable auto, life, homeowners, and renters insurance with SoFi Protect
FAQ
What are some downsides of having an HMO?
One drawback of having an HMO is that you’ll likely need to get a referral before seeking specialized care. Also, you generally can only see doctors within your plan’s network.
What does an HMO not cover
Coverage varies by insurer and plan, but in general, HMOs do not cover care from out-of-network providers, except in emergency situations.
Are HMO plans cheaper than PPO plans?
Generally speaking, yes. HMO plans tend to have lower monthly premiums and lower out-of-pocket costs than PPO plans.
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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.
Many students take out loans to pay for college. While federal student loans don’t require a credit check, private student loans typically do. And, since students often don’t have much credit history, they typically require a cosigner. A cosigner can be a parent, other family members, friends, or even mentors.
Since a cosigner will be responsible for paying back your loan in the event you’re unable to, it’s important to choose someone you feel comfortable entering a financial agreement with. A cosigner with good credit and high income could result in lower interest rates on your loans.
Read on for a simple, step-by-step guide on how to get someone to cosign your student loan.
• Before asking someone to cosign, make sure they understand the significant financial responsibility they are taking on. A cosigner is equally liable for the loan and their credit score can be affected if payments are missed.
• Select a cosigner who has a strong credit history and a stable income. This increases the likelihood of loan approval and can help secure a lower interest rate.
• Clearly explain why you need a cosigner and how you plan to manage the loan. Provide a detailed budget and a repayment plan to show your commitment and financial responsibility.
• Highlight the benefits of cosigning, such as helping you build credit and gain access to better loan terms. Emphasize that their support can significantly impact your educational and financial future.
• Look for lenders that offer cosigner release options after a certain number of on-time payments. This can provide a way for the cosigner to be removed from the loan, reducing their long-term financial burden.
How to Ask Someone to Cosign Your Private Student Loan
You may have someone in mind who would make a good student loan cosigner. The problem is, how do you ask someone to cosign a loan? It’s a big ask, and approaching the topic can be intimidating.
What follows are some tips that can help ensure you come to the conversation prepared.
1. Research Your Financial Aid Options First
Before you ask someone to cosign a private student loan, it’s a good idea to explore all of your college funding options. Around 85% of students receive some form of financial aid to pay for college.
Filling out the Free Application for Federal Student Aid, or FAFSA®, will give you access to any federal student aid you may be eligible to receive. This might include grants, work-study, federal subsidized loans, federal unsubsidized student loans, and even private scholarships. Completing the FAFSA is free, and it’ll also show potential cosigners that you’ve done your due diligence and have tapped all your available options to pay for college before asking for help.
2. Explain Why You Need a Cosigner
Once you’ve decided who you want to ask to be your cosigner, it’s important to come to the table with a clear explanation of why you need a cosigner and what costs the loan will cover. You’ll want to be prepared to share details on your own savings, debts, and credit history. This shows a cosigner why you need help and what kind of risk they would be taking on.
Providing a clear picture of what you have and what you need demonstrates that you’re taking your education and financial goals seriously. Having followed tip #1, you’ll be in a position to show the funding gap between your own funds plus any aid you’ve received and the cost of attendance at your chosen college.
3. Outline Your Plan for Repaying the Loan
When asking someone to cosign a student loan, it’s a good idea to let them know that you have a plan for repayment and exactly what that plan is. Some private lenders allow you to defer making payments until after graduation, while others require you start making interest-only payments while still in school. Either way, you’ll want to have an idea for how you will make those payments on your own.
Failing to make payments on time each month will impact both you and your cosigner, so it’s a good idea to also make a backup plan in case something doesn’t work out. This might be getting a part-time job in any field if you find that it takes longer than expected to get hired in your chosen field.
Demonstrating your plan for repayment can help build your potential cosigner’s confidence and help them feel more comfortable about entering into a cosigner agreement with you.
4. Make Sure They Understand What They’re Agreeing To
Before moving forward to a written agreement, it’s a good idea to go over the requirements and responsibilities for being a cosigner. For starters, your cosigner must meet a minimum credit score and demonstrate a certain minimum monthly income. The exact requirements will depend on the lender.
You’ll also want to let them know that, as a cosigner, they have a legal obligation to make sure the loan is repaid, and that any late or missed payments on the loan can impact both your and their credit scores.
While these risks can feel intimidating to bring up, outlining your plan to avoid loan default can help address their concerns and show you’re taking the commitment seriously.
A cosigner release effectively removes a cosigner from a loan, freeing them from any continued responsibility for repayment of your loan. Private lenders may offer the option for a cosigner release if you, at a certain point down the road, meet certain credit requirements and have a strong track record of on-time payments.
Discussing a plan or timeline for when your cosigner will be released from their responsibilities shows that you’re being considerate of the risks of being a cosigner and the impact it can have on their finances. While you may not have the strongest qualifications as a borrower today, your creditworthiness can build over time as you consistently make on-time loan payments.
You might also have the option of refinancing your student loan and, in the process, releasing your cosigner from the original loan agreement.
6. Give Them Time to Think
Cosigning a loan is a serious commitment and whomever you ask may need some time to think over the decision. For this reason, it’s a good idea to approach your potential cosigner early on so you have plenty of time to talk through the agreement and, if necessary, pursue another option.
Handling Potential Concerns and Objections
Cosigners will likely have questions and potential concerns about how the agreement could impact their finances, as well as your relationship. After you’ve made your pitch, it’s important to hear them out and be open to their input to reach an agreement that works for you both.
If a cosigner has objections that you can’t resolve, it may be time to seek out a different cosigner.
Formalizing the Cosigner Agreement
If the person you ask to cosign your loan says “yes,” it’s time to find the right private student loan for your needs. It’s generally a good idea to shop around and compare rates and terms from different lenders, including banks, credit unions, and online lenders. Some lenders allow you to prequalify for a student loan online, without impacting your (or your cosigner’s) credit score. This allows you to compare offers, go over rates and terms with your cosigner, and decide which loan is the best fit.
When you officially apply for the loan, you and your cosigner will need to provide a number of financial documents to the lender, so be sure to give your cosigner time to gather all their paperwork.
Repaying the Loan Responsibly
When you take out a private student loan, you’ll typically have a choice of several repayment plans. Which one you choose can have a significant impact on both your monthly payment and total cost of the loan. Options may include:
• Immediate repayment: This means you make full monthly payments while still in school. Doing so will minimize the interest you pay, resulting in the greatest savings.
• Interest-only repayment: Here, you’ll pay only the interest on your loan while you’re still in school. Payments will be lower than immediate repayment, but you won’t chip away at your loan balance (or save as much on interest).
• Partial interest repayment: This involves making a fixed monthly payment while still in school that only covers part of the interest you owe. Payments will be lower than interest-only plans, but your loan balance will grow.
• Full deferment: Here, you’ll pay nothing while you’re enrolled in school. During this time, though, your loan balance grows.
Once you choose a plan, you’ll want to create a budget for the minimum payment you owe each month. It’s also a good idea to enroll in autopay, to ensure you never miss a payment. Some lenders also offer a rate discount if you enroll in autopay.
After you’ve graduated and your finances allow, you may be able to make extra principal-only payments — this can help lower the total interest you pay over the life of the loan.
The Takeaway
If you need a cosigner on your student loan, you have options. Whether you choose a parent, other family member, friend, or mentor, it’s important to be transparent about the requirements and risks that go into being a cosigner.
Coming to the conversation prepared can build trust and confidence with potential cosigners and put you on the path to funding your education.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
How do you convince someone to cosign a loan?
You’ll want to be transparent, as well as fully prepared for the conversation. Explain how the loan will support your long-term educational and financial goals, how you plan to make future loan repayments, and why you are a trustworthy borrower.
Who can I ask to be my cosigner?
It’s common for students to use parents or family members as cosigners, but there are no rules stating that your cosigner must be a relative. You can also ask mentors or family friends who are invested in your success. Just keep in mind that a cosigner will need to meet the lender’s financial and credit requirements.
Can I hire someone to be a cosigner?
There are businesses that advertise online that they will cosign your student loans for a fee, but borrower beware. These are often scams in which the “cosigner” requests cash payment in advance, then disappears. Or, the business might be legitimate but will require you to give them a portion of the loan in exchange for cosigning. Generally, it’s not worth the risk or cost.
What percentage of student loans are cosigned?
Roughly 91% of undergraduate private loans are cosigned. About 43% of graduate school loans from private lenders require a cosigner.
How do I assess my creditworthiness before seeking a cosigner?
To assess your creditworthiness, you’ll want to check your credit score and take a look at your credit reports.
You can often access your credit score for free through your bank or credit card company (check your statements on log into your online account). You can access your credit reports from the three main consumer credit bureaus (Equifax®, Experian®, and TransUnion®) for free at AnnualCreditReport.com.
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SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
