Starting a family comes with an entirely new set of responsibilities. One of the most important, yet frequently overlooked, necessities is setting up a will. This crucial document outlines tons of important details should you pass away, including what happens to your child.
Estate planning for parents can be broken down into just a few digestible steps. Here’s everything you need to think about, plus tips on how to organize all of your documents.
Estate Planning for New Parents
1. Draft a Will
About 67% of Americans don’t have a will. Setting up a will can be simpler than it seems. A will is a document that outlines how you want things handled after you pass away, including distribution of assets and how any minor children to be cared for.
While some people with complex investments and multiple properties may want to hire a lawyer for help, younger, healthy individuals can seek out online services that can walk them through the steps to make a will and sometimes have no initial cost.
Then, you can follow the execution instructions, which typically include signing your will in front of eligible witnesses. Check your state’s individual requirements. Sometimes, you must have your will notarized in order to become valid. Many banks and public libraries offer this service for free.
If you’re married, consider drafting a joint will with your spouse. This gives you the ability to plan for different scenarios, like what happens when one spouse passes away versus both passing away at the same time. Remember to regularly update your will whenever a major life change occurs, like having another child or adding new major assets.
💡 Quick Tip: We all know it’s good to have a will in place, but who has the time? These days, you can create a complete and customized estate plan online in as little as 15 minutes.
2. Choose an Executor
When you’re setting up a will, you’ll need to choose an executor. This is the person responsible for handling the legal and logistical aspects of disbursing your assets. They are also responsible for filing any remaining taxes and settling your debts.
Consequently, your executor should be someone you trust and who has the ability to handle the tasks involved. This is especially important when you have young children because the executor’s ability to tie up your finances will impact your kids’ inheritance.
Once you choose an executor, let them know that you’ve chosen them. Give them a quick rundown of what to expect, and also let them know where to find your will and other relevant documents.
3. Name a Guardian
When you start having kids, you also need to name a guardian to care for them if you pass away before they reach legal adulthood. There are a lot of things to consider when making this important decision.
First, think about the potential guardian’s ability to care for children. Are their grandparents too old to take care of them? Does the guardian live far away from other friends and family who could serve as a support system?
Also consider their financial capabilities and their ability to manage any assets you leave to help pay for your kids’ expenses.
Finally, think about your values and who would raise your children in a way that’s similar to your own parenting style. Also realize that your kids will be going through a tough time, so their guardian would ideally be someone whom they trust and would provide emotional comfort.
If you have more than one child, make sure you name a guardian for each one, even if it’s the same person. That means you need to update your will every time you have a new baby. Be as explicit as possible when naming a guardian; for instance, if you pick a sibling and their spouse, name both individuals as coguardians.
4. Set Up the Right Accounts
Some types of accounts may help you pass on your assets without having to pay as much in taxes. It’s an important part of the estate planning process and can help you maximize the amount of money you’re able to pass onto your kids. A trust fund can protect the money from being spent too quickly, either by the guardian or your children themselves.
You can implement safeguards as to how much money can be taken out and when. Even if your kids are of legal age, you can put annual withdrawal limits on the trust to prevent a young adult from overspending. Alternatively, even if you pick a guardian to oversee the emotional wellbeing of your children, that same person may not be the best at handling money. Choosing a trust can limit their spending on behalf of your children as well.
There are many different types of trusts, so you may consider consulting an estate planning attorney to choose the best one for your family’s needs.
💡 Quick Tip: A trust is a customized estate planning tool that can be helpful for your heirs in addition to a will.
5. Designate Beneficiaries
The final step of estate planning for parents is to designate a beneficiary for every account and insurance policy you have. Include bank accounts, retirement and other investment accounts, and life insurance policies.
When choosing beneficiaries, find out how each type of account is taxed for the recipient. Also create a list of all of your account numbers and other pertinent details and include them with your will. This makes it easy for your executor to locate all of your assets. Include debt information as well, like your mortgage and/or auto loan servicer.
You can also update beneficiaries as life changes. For instance, you might initially name your spouse as your life insurance beneficiary. But if they pass away before you, it’s time to update that designation to someone else.
6. Safely Store Your Documents
Once you’ve drafted your will and signed it in accordance with your state’s laws, it’s time to store all of the appropriate estate planning documents to make it easy for your executor and beneficiaries to access.
Lots of documents are now stored online, but you’ll still need to keep your original, signed will in physical form. You can keep it in a fire-proof box at home, or in a safety deposit box at your local bank. Be sure your executor knows where and how to access your documents.
7. Outline Access to Financial Accounts
Remember to keep an up-to-date list of all your financial accounts that need to be taken care of. Bank statements should include the account numbers to make it easy for your executor to find. Also include the location of any valuable items, like art or jewelry.
Finally, it’s helpful to include the contact information for any professionals you work with, like an accountant, financial advisor, and estate attorney. Include insurance policy numbers, loan details, credit card numbers, and any other financial accounts that would need to be closed.
The Takeaway
Estate planning for parents isn’t a one-time event. Get started when you have your first child, but also review your intentions and make changes at least once a year. That way, you always have an up-to-date and comprehensive will that reflects your current financials and family structure.
When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 15% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.
Create a complete and customized estate plan in as little as 15 minutes.
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Consolidating credit card debt is a common use of personal loans. And it makes sense, given that personal loans typically have lower interest rates than credit cards (which currently average 24.58%).
But what about saving money on an existing personal loan? Can you refinance a personal loan, ultimately saving money on interest or lowering your monthly payment? The answer is, yes. However, it may not make sense for every person or every type of personal loan.
Read on to learn why you might refinance a personal loan, how the process works, plus the pros and cons of a personal loan refinance.
While there may be a variety of reasons to refinance a loan, it mainly comes down to two.
1. To lower the overall interest rate and total interest paid.
2. To lower the monthly payment.
These two might seem like the same thing, but they’re not.
When you refinance any type of loan, you are essentially replacing your old loan with a new loan that has a different rate and/or repayment term. If the new loan has a lower annual percentage rate (APR), you can save money on interest. If the APR is the same but the repayment term is longer, you can lower your monthly payments, making them easier to manage, but won’t save any money. (In fact, a longer repayment term generally means paying more in interest over the life of the loan.)
Another reason why you might consider refinancing a personal loan is to consolidate your debts (so you just have one payment) or to add or remove a cosigner.
Possible Advantages of Refinancing a Personal Loan
Here’s a look at some of the benefits of refinancing a personal loan.
Pay Less in Interest
If you are able to qualify for a personal loan with a lower APR, it may be possible to save a significant amount of money over time, provided you don’t extend your loan term. You can also save on interest by shortening your existing loan term, since this allows you to pay off the loan sooner.
Lower Your Monthly Payment
Refinancing to a lower APR and/or extending the length of the loan can lower your monthly payment. A lower monthly bill could help you get back on track, especially if you’ve been struggling to make your monthly payments.
Consolidate Multiple Debts
If you have a personal loan as well as other debts (such as credit card debt), you can use a new personal loan to consolidate those debts into one loan and a single monthly payment. If your new loan has a lower APR than the average of your combined debts, you may also be able to save money.
Possible Disadvantages of Refinancing a Personal Loan
Refinancing a personal loan might not be the right move for everybody. Here are some disadvantages to consider.
You May Pay More in Interest
If you refinance a personal loan using a loan that has a longer repayment term, you could end up paying much more in interest over the life of the loan.
You May Have to Pay an Origination Fee
Many personal loan lenders charge origination fees to cover the cost of processing and closing the loan. This is a one-time fee charged at the time the loan closes and, in some cases, can be as high as 10% of the loan. Since the fee is deducted before the loan is disbursed to you, it reduces the amount of money you actually get.
You Might Get Hit with a Prepayment Penalty
Some lenders charge a fee if you pay off the loan before the agreed-upon term, which is known as a prepayment penalty. If your original lender charges you a prepayment penalty, it could cut into your potential refinancing savings.
Refinancing a Personal Loan
If you are thinking about refinancing a personal loan, here are some steps you’ll want to take.
Check Your Credit Report and Score
To benefit from personal loan refinancing, you typically need to have better credit than you had when you got your original personal loan. With a stronger credit profile, you might qualify for a lower APR on the new personal loan.
You can access your credit report for free from each of the three major credit bureaus — Equifax, TransUnion, and Experian — through Annualcreditreport.com. It’s a good idea to scan your reports for any errors and, if you find one, report it to the appropriate bureau.
You can typically access your credit score for free through your credit card company (it may be listed on your monthly statement or found by logging in to your online account).
Shop Around for Loans
Every bank has different parameters for determining who they’ll offer loans to and at what rate, so it’s always worth it to shop around. This could mean looking at traditional banks, credit unions, and online-only lenders.
Many lenders will give you a free quote through a prequalification process. This typically takes only a few minutes and does not result in a hard inquiry, which means it won’t impact your credit score. Prequalifying for a personal loan refinance can help compare rates and terms from different lenders and find the best deal.
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Applying for a Loan
Once you’ve decided on a lender who can help you refinance to a new loan, it’s time to formally apply. You’ll likely need to submit several documents, including pay stubs, recent tax returns, and a loan payoff statement from your original lender (which will show how much is still owed).
Paying Off the Old Loan
Once you have your new loan funds, you can pay off your original loan. You’ll want to contact your original lender to find out what the process is and follow their instructions. It’s also a good idea to ask your original lender for documentation showing the loan has been paid off.
Making Payments on the New Loan
Be sure to confirm your first payment due date and minimum payment amount with your new lender and make your first payment on time. You may want to enroll in autopay to ensure you never miss a payment. Some lenders even offer a discount on your rate if you sign up for autopay.
The Takeaway
Can you refinance a personal loan? Yes, and doing so may allow you to get a better rate and/or more affordable payments. However, you’ll want to factor in any fees (such as origination fee on the new loan and/or a prepayment penalty on the old loan) to make sure the refinance will save you money. Also keep in mind that extending the term of your loan can increase the cost of the loan over time.
If you’re interested in exploring your personal loan refinance options, SoFi could help. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Can you refinance a personal loan?
Yes, it is possible to refinance a personal loan. Refinancing involves taking out a new loan to pay off the existing personal loan, ideally with more favorable rates and terms. However, whether you can refinance your personal loan will depend on factors such as your creditworthiness, the terms of the original loan, and the policies of the new lender.
Does refinancing a loan hurt your credit?
Refinancing a loan can have both positive and negative impacts on your credit. Initially, the process of refinancing may result in a hard inquiry on your credit report, which can cause a temporary decrease in your credit score. However, if you use the refinanced loan to pay off the existing loan and make timely payments on that loan, it can positively impact your credit over time.
Can I refinance a personal loan with another bank?
Yes, it is possible to refinance a personal loan with another bank. Many banks, credit unions, and online lenders offer loan refinancing options. This allows you to transfer your personal loan balance to a new loan with a new lender. However, eligibility criteria, terms, and interest rates will vary by lender. It’s a good idea to shop around, compare offers, and consider factors such as interest rates, fees, and repayment terms before deciding to refinance with another bank.
What are the pros and cons of refinancing a personal loan?
The pros of refinancing a personal loan include the potential to:
• Secure a lower interest rate
• Reduce monthly payments
• Consolidate multiple debts into a single loan
• Switch to a more favorable lender
This can result in savings on interest costs and improved cash flow. However, there are also potential downsides to consider, which include:
• Paying an origination fee for the new loan
• Getting hit with a prepayment fee from your original lender
• Extending your loan term can increase the total cost of the loan
It’s important to weigh the pros and cons before you pursue a personal loan refinance.
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One critical step for creating financial security is establishing a financial plan. A well-crafted financial plan can help you achieve your goals, like buying a house, crushing your debt, or saving for retirement. Knowing that you’re prepared financially to face what’s ahead can help create peace of mind.
A solid financial plan will be different for everyone, but there are a few cornerstones to consider as you build your personal financial road map.
6 Steps To Creating a Financial Plan
A financial plan is not just another word for budget or debt-reduction plan. It’s the long-term roadmap that could help make your vision for the future a reality. The smaller pieces, like budgets and debt-payoff strategies, are tools to help you get there.
And whether you sit down with a financial planner or do it yourself, the act of writing down not only what you want, but how you plan to get it, could help take it out of your head and make it real.
While the idea of coming up with an overall financial plan for yourself might seem overwhelming, you can make the process manageable by breaking it down into these six basic steps.
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1. Setting Your Goals
While everyone’s financial goals will be different based on their individual situation, these are some common goals that tend to rise to the top of the list:
• Having an emergency fund. Generally, you’ll want to have to have at least three to six months worth of living expenses set aside in an emergency savings account. (If you’re self-employed or your income fluctuates, you might aim for six to 12 month’s worth of expenses.) This can be used to cover those unexpected expenses that invariably pop up, or float you through a loss of income, without wrecking your plan.
• Growing your 401(k) or other retirement accounts. If your employer offers a matching contribution, consider contributing at least 100% of what they’ll match. Combine that with the magic of compound interest, and you could see your balance grow at a nice pace.
• Eliminating high-interest debt. It’s no secret that eliminating your credit card debt could not only save you a significant sum in the long run but also help improve your credit profile.
While those three objectives often top the list, here are some other goals you may want to include in your financial plan:
• Establishing (and maintaining) good credit. If your dreams include large purchases, or even starting a small business, a bad credit score can be a deal-breaker. Generally, the minimum number needed to buy a home is 620 for a conventional loan. (If you’re struggling with bad credit, there are strategies that could help you build your credit profile.)
• Paying off your student loans. If this is one of your financial goals, you’re in good company — more than 43 million Americans currently carry student loan debt. And while a student loan is generally considered “good” debt, it still accrues interest.
• Living within your means. Ideally, you don’t want to put anything on your credit card that you can’t pay off in full at the end of the month (or relatively soon thereafter), since this is an expensive form of debt.
• Saving for your kids’ education. No one can predict what the higher-ed landscape will look like when your kids are ready to start filling out applications. But we do know that the average cost for tuition and living expenses in the U.S. is $36,436 per student per year, and that costs have had an annual growth rate of 2% over the past 10 year.
• Growing your investment portfolio. This might include items like your 401(k) or individual retirement account (IRA), but it can also mean a foray into the world of stocks and mutual funds. Becoming a smart investor can not only be a goal by itself, but one avenue to achieving other financial goals.
The goals that you choose as part of your financial plan may be on vastly different timelines, and you may need to accomplish one before you can move on to another. It can help to group financial goals into categories based on their time horizon — short term, mid-term, and long-term goals.
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2. Understanding Your Resources
Knowing exactly what you have to work with might be one of the most important keys to building a plan that works. To put the entire puzzle together, though, you’ll need to find all the pieces.
One way to get started is to gather up all your paper and electronic bank statements, billing accounts, and portfolio documents. This might include:
Income: Salary, investment income, alimony Expenses: Bank statements reflecting withdrawals or other debits, monthly billing statements, and other sources of everyday spending Assets: Savings accounts, home equity, or physical items you own (car, collectibles, etc.) Liabilities: Credit card debt, student loans, mortgage(s), and any other sources of debt
Next, you can use these documents to calculate your net worth. While you may not think you have much or any net worth, this is a worthwhile exercise because it establishes a baseline you can later use to measure growth in your net worth over time.
To create a net worth statement, simply list all of your assets (such as bank and investment accounts, real estate, valuable personal property) and then all your debts (like credit cards, mortgages, student loans). Your assets minus your liabilities equals your net worth.
If you find that your liabilities exceed your assets, don’t panic. This is a common scenario when you’re just starting out, particularly if you have a mortgage and student loans. With a financial plan in place, your net worth should grow over time.
3. Analyzing Monthly Cash Flow
Next, it’s a good idea to get a sense of your monthly cash flow — what’s coming in and what’s going out. You can use your bank statements from the last three or so months to come up with an average cash inflow and outflow.
If you find that your monthly outflow equals your monthly inflow (i.e., you’re not saving anything) or your outflow actually exceeds your inflow (meaning you’re living beyond your means), you’ll want to drill further down into the outflow column.
Start by making a list of all your spending categories and the average you spend on each per month. Then divide the list into two main categories: essential spending (e.g., rent/mortgage, utilities, groceries, insurance, debt payments) and non-essential spending (such as entertainment, shopping, travel, clothing). This exercise may immediately reveal some simple ways to reduce spending and expenses.
4. Updating Your Budget
While a budget sounds restrictive, it’s really nothing more than a plan to make sure that your spending aligns with your priorities. There are all different kinds of budgets but one simple approach is the 50/30/20 rule. To use this rule, you divide your after-tax income into three categories:
• Needs (50%)
• Wants (30%)
• Savings and debt repayment beyond the minimum (20%)
If you found (in the above step) that your outflow equals or exceeds your monthly inflow, you’ll want to take a closer look at your non-essential spending list and look for places to cut. Every dollar your free up can then be diverted into saving for your short- and long-term goals.
💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.
5. Tackling High-Interest Debt
Getting out from under high-interest debt (such as credit card balances, payday loans, or rent-to-own payments) is an important part of any financial plan.
There are several ways to go about paying down debt. With the avalanche method, for example, you list your debts from the highest interest rate to the lowest. You then throw all of your extra cash to the highest interest debt while continuing to make the minimum monthly payment on the others. Once you’ve paid off the highest interest debt, you move on to the next-highest interest debt, and so on.
With the snowball method, you list your debts from smallest to largest based on balance size. You then put all your extra cash toward the debt with the smallest balance, while making the minimum monthly payment on the others. When that is paid off, you move on the next-smallest debt, and so on. This approach can help you stay motivated by achieving early wins.
You might also consider debt consolidation, which involves transferring your credit card debt to a balance transfer card or personal loan with a lower interest rate — allowing you to focus on just one monthly payment.
6. Investing in Your Future
Once you have a solid emergency fund in place and expensive debt under control, you can start focusing on ways to grow your wealth over time.
While you may think of investing as something for rich people, investing can be as simple as putting money in a 401(k) and as easy as opening a brokerage account (many have no minimum to get started).
Part of your financial plan might include increasing your contributions to your retirement accounts. You might also look at allocating any other available income to a taxable investment account that can add to your net worth over time. Your plan for investing should take into account your investment risk tolerance and future income needs.
It’s been a few months since you implemented your financial plan, and so far, so good. But things may have changed a bit.
You paid off one credit card, so you need to reallocate that payment to the next debt. Or, a goal that used to be at the top of your list isn’t so important any more.
Reviewing your plan can mean not only making adjustments, but simplifying. This can include automating any new payments, consolidating new debts, or opting out of paper statements to reduce clutter.
Are There Any Downsides To Creating a Financial Plan?
Financial planning can help you feel more confident and in control over your personal finances. But it does come with a few downsides. Here are some to keep in mind:
• It can be time-consuming. The process of going through your finances and understanding your income, expenses, and savings takes time, effort, and patience. It can also take some time to see tangible results of your efforts.
• Financial predictions may not come to pass. You may set financial goals based on how much you expect to earn in a high-yield savings or an investment account. However, interest rates and investment returns are subject to conditions you can’t control or always predict.
• It’s not one and done. It is not enough to make a financial plan and stick with it. It’s important to keep track of your progress and regularly reassess and adjust your plan as your financial situation, your goals, and market conditions change over time.
Is Creating a Financial Plan Viable for Everyone?
Yes. Financial planning is a tool that anyone can use, regardless of age, income, net worth, or financial goals. While it sounds fancy, financial planning is simply a way to document your personal and financial goals, come up with a plan to reach those goals, and make sure you stay on track to meet those goals.
What’s more, you can create a financial plan at any time, whether you’ve just started working or have been part of the workforce for years. You can hire a professional financial planner to help, or you can write a financial plan yourself (with the help of the steps listed above.)
The Takeaway
Creating a financial plan is an important step toward financial security. To get started with your personal financial plan, you’ll want to prioritize your financial goals, review your current income and spending, and then analyze and make changes in a way that will help you meet the financial goals you set.
Keep in mind that a financial plan isn’t set in stone. As your life changes, you’ll want to adjust your financial plan to fit your needs.
Having the right accounts in place can go a long way toward helping you achieve your financial goals.
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FAQ
How do you write a financial plan?
You can enlist the help of a professional financial planner or write a financial plan yourself. Generally, the first step is to write down your financial goals, assess your net worth. and identify your spending habits. From there, you can come up with a spending, saving, and debt reduction plan that will help you achieve your goals and build your future financial security.
What are the components of a financial plan?
A financial plan can be customized to your individual needs, but generally includes the following components:
• Financial goals (short-, medium-, and long-term)
• Statement of net worth
• Cash flow analysis
• Monthly spending budget
• Debt repayment plan
• Retirement savings plan
• Investment plan for other goals
What are examples of financial plans?
There are many different types of financial plans, and you don’t need to do them all at once. Some examples include:
• Cash flow planning and budgeting This involves looking at how much money you have coming in and going out and establishing a plan as to how you will spend your money each month.
• Insurance planning This assesses your risk exposure and develops strategies to protect against those risks.
• Retirement planning This aims to calculate how much money you will need in your retirement fund to live comfortably after you retire.
• Investment planning This involves looking at all of your future goals, such as purchasing a house, sending kids to college, and retirement, and coming up with a savings and investing plan to meet those goals.
• Tax planning This looks at ways to reduce your income taxes with tax deductions, tax credits, and any other opportunities that are available to taxpayers.
• Estate planning This involves making arrangements for the benefit and protection of your heirs.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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Since private student loans are held by a private bank or lender, you can’t refinance private student loans to federal loans.
The reverse, however, is possible. You can refinance private and federal student loans into a new private student loan with a new, ideally lower, interest rate. When you refinance federal student loans, it’s important to understand you lose access to federal benefits and protections.
Here’s what to know about why you can’t convert private student loans to federal loans, how you can combine both into a new refinanced loan, and how to make the choice that’s right for you.
Transferring Private Student Loans to Federal Loans
It isn’t possible to refinance private student loans to federal loans since private loans can only be held and owned by private financial institutions. Your federal student loans, on the other hand, can be converted into a private loan.
Although private and federal loans serve the same purpose — to finance your education — they differ in significant ways. One of the biggest distinctions is that private loans are not eligible for federal programs and benefits.
For example, federal student loan mandates during the COVID-19 pandemic offered automatic protection for federal borrowers. All federal student loans were put on administrative forbearance so that loan payments were paused without penalty. Also, borrowers weren’t responsible for any interest that accrued during this time.
While the payment pause came to an end in fall 2023, federal student loans are eligible for a number of other federal benefits, including income-driven repayment plans, deferment options, and forgiveness programs like Public Service Loan Forgiveness and Teacher Loan Forgiveness.
Since private student loans don’t come from the Department of Education, however, they do not qualify for these federal programs — and there’s no way to make them eligible.
While there’s no way you can refinance private student loans to federal loans, the reverse is possible: You can convert a federal loan to a private loan to combine your federal and private student debt into a new private loan.
Refinancing
You can combine federal and private student debt by refinancing your federal student loans into a private loan. Refinancing is offered by a private lender and requires a credit check. This repayment option lets you refinance existing federal loans, private student loans, or a combination of both into a new private student loan.
The new refinancing lender pays your original loan(s) in full and creates one refinanced student loan for the total amount it paid on your behalf. Over time, you’ll repay your new lender your principal refinance amount, plus interest charges.
Overall, a student loan refinance can help you combine multiple loans into a single loan at a new rate and potentially better terms. It also results in one monthly payment. Depending on your credit score and other qualifying factors, it might help you access a lower interest rate.
Be aware that since a refinanced federal loan is no longer a part of the federal student loan system, you’re giving up federal benefits and protections if you refinance a federal student loan.
Federal student loans can be combined, or consolidated, through the federal Direct Loan program. When you consolidate your federal loans, they are combined into a single new loan with a new interest rate that’s an average of all of your existing federal loan rates, rounded up to the nearest eighth of a percent.
Some reasons to consolidate your federal loans include simplifying your payments and qualifying for federal student loan programs such as income-driven repayment plans or Public Service Loan Forgiveness (if your existing federal loans weren’t eligible for these programs to begin with).
Private loans are not eligible for federal loan consolidation. As mentioned earlier, you can only combine federal and private student loans together when you refinance your loans into a new private loan.
Benefits of Federal Student Loans
Although converting your federal student loans into a private loan might have its advantages, there are serious caveats to consider before moving forward. Ultimately, refinancing federal loans through a private lender means you’ll lose access to valuable federal benefits and protections.
Debt Forgiveness
A major benefit that federal student loans offer, compared to private student loans, is access to student debt forgiveness and cancellation. Depending on your personal situation, you might be able to have a large portion of your federal student debt forgiven.
Some programs offered for federal loans include:
• Public Service Loan Forgiveness (PSLF). Borrowers who work full-time for a government entity or not-for-profit organization might be eligible for loan forgiveness. While working for a qualified employer, you must enroll in an income-driven repayment plan and make 120 qualifying payments toward your federal loans. Afterward, your remaining federal loan balance is forgiven.
• Teacher Loan Forgiveness (TLF). Under TLF, educators who work full-time at an approved low-income school or service agency can earn up to $17,500 in forgiveness. You must agree to a five-year service contract and meet other requirements.
• Perkins Loan Cancellation. If you have eligible Perkins Loans, you might be eligible for loan cancellation or discharge, depending on your employment service or unique circumstances.
Income-Driven Repayment
Federal student loan borrowers who are struggling to afford their standard 10-year monthly payments can explore one of the Department of Education’s income-driven repayment (IDR) plans.
There are four types of income-driven repayment:
• Pay As You Earn (PAYE)
• Saving on a Valuable Education (SAVE)
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
Each repayment plan calculates your monthly payment based on a percentage of your discretionary income and your family size. Some borrowers under an IDR plan may qualify for a $0 per month payment. Most of the plans offer a longer repayment period of 20 or 25 years, though the new SAVE plan will offer a 10-year term for borrowers who took out $12,000 or less starting in July 2024. After completing your repayment term, your remaining eligible federal loan balance is forgiven.
You might suddenly be hit with financial hardship, like being temporarily unemployed or experiencing an accident that inhibits your ability to make payments. In this stressful situation, federal student loans provide the option to request payment deferment or forbearance.
These federal protections pause your federal student loan payment requirement without penalty. During this time, interest still accrues and is added to your principal balance.
You’re ultimately responsible for repaying it back, as well as any interest that capitalizes when payments resume. However, this guaranteed postponement offers financial relief during difficult times.
Some private loans may offer deferment or forbearance options during times of financial hardship, but the options vary by lender.
💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
How Private and Federal Student Loans Differ
To decide whether refinancing your federal loans into a private loan makes sense for you, it’s important to know how private student loans vs. federal student loans differ.
Federal Student Loans
Private Student Loans
Provided by the U.S. government.
Provided by a private financial institution.
Most programs don’t require a credit check.
Good credit, or a cosigner, is generally required.
Fixed interest rates.
Fixed or variable rates offered.
Payments are deferred until you leave school or drop below half-time.
Payments might be due while you’re enrolled in school, but this varies by lender.
Income-driven repayment options available.
Repayment plans vary by lender.
Access to loan forgiveness or cancellation.
Generally doesn’t offer loan forgiveness.
Offers interest subsidies for borrowers with financial need.
If you have private student loans, refinancing can be advantageous if you qualify for a lower interest rate that reduces your overall education debt. Use a student loan refinancing calculator to estimate your savings.
Before refinancing a federal student loan, decide whether you might need to leverage government benefits, like income-driven repayment or loan forgiveness programs. You’ll lose these useful benefits by refinancing all of your federal loans.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Is it possible to change private student loans to federal?
No, there is no way to change private student loans to federal loans. However, you can refinance your private and federal loans together, ideally to qualify for a lower rate or better loan terms. If you go this route, you will be changing your federal student loan(s) into a private loan.
Is it possible to change federal student loans to private?
Yes, you can change a federal student loan to a private student loan through refinancing. A private refinance lender will pay off your original federal loan, and you’ll have to make payments to your new private lender for the principal balance, plus interest. Changing your federal student loans to a private loan, however, will mean you lose access to federal repayment plans, forgiveness programs, and other protections.
How can you combine private and federal student loans?
You can combine private student loans and federal student loans with a refinance student loan. Student loan refinancing is provided by a private lender, so any federal loans you refinance will become private and you’ll lose the government benefits and protections you had under the federal loan system.
Photo credit: iStock/YayaErnst
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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.
The average student loan borrower takes out $29,100 to pay for college, according to College Board’s Trends in Student Aid 2022 report. In 2022, 16% of borrowers had their student loans in default. The amount of federal loans in default represents 10% of the total federal student loan portfolio, or $146.8 billion out of $1.48 trillion.
Federal student loan default, which occurs after 270 days of missed payments, is most common among borrowers with low balances. The three-year default rate for borrowers who owe $5,000 or less is 24%, while it’s just 7% among those who owe $40,000 or more. Overall, the average balance of defaulted student loans is $21,600.
The History and Importance of the Default Rate
What’s known as the three-year default rate is a highly watched number because it’s the figure the U.S. Department of Education uses to determine if colleges and universities qualify to receive federal student aid. If a school’s default rate exceeds a certain benchmark three years in a row, it could lose eligibility for Title IV funding.
The student loan default rates have generally trended down over the last two decades. In March 2020, the Department of Education paused collections on most student loans in default. It’s also offering a Fresh Start program that allows borrowers to easily get their loans out of default and back into good standing.
While the federal government focuses on the three-year student loan default rate, the rate may be higher over the life of the loan. For instance, EducationData.org finds that 25% of borrowers default within five years of when their repayment starts.
Students who were enrolled in private for-profit colleges are the most likely to have student loans in default, data shows.
Don’t let your loans go into default.
See how student loan refinancing can help.
The Difference Between Defaulting on a Loan and Being Delinquent
Borrowers participating in the Federal Direct Loan program or the Federal Family Education Loan (FFEL) program are considered in default if they miss nine months or 270 days of payments. Borrowers can face a number of serious consequences if they default on a loan, including losing the opportunity to defer payments or choose a repayment plan.
It may also damage your credit, and your tax refunds may be withheld and applied to what you owe on your loans. The government could even garnish a portion of your wages to apply to your loan. Finally, your loan holder can sue you, and if that’s the case, you may be responsible for the court fees.
With a delinquency, you still have time to start making payments again and restore your relationship with your lender. You’re considered delinquent on federal student loans the day after you miss your first payment, and you’ll remain delinquent until you resume payments and make up the past due amount.
If it’s been 90 days since your last payment, the lender can report you to credit agencies, and those missed loan payments can go on your credit report, which can affect your ability to borrow in the future. And with a bad credit report, you may have trouble getting credit cards, home loans, and even arranging for utilities or homeowner’s insurance.
What Options are Available to Make My Loans More Affordable?
To avoid becoming part of the student loan default rates, it’s important to take action. If you are delinquent on your student loans or think you may be heading that way, you can seek deferment of your payments, or forbearance, which is a federal benefit to stop making payments for a period of time. However interest may still accrue. You could also choose a federal income-based repayment program that bases your monthly payment on your income and family size.
Another option is to refinance your student loans with a private lender. With student loan refinancing, you may be able to get a lower interest rate or more favorable terms to help reduce your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)
Keep in mind that if you need access to federal protections and programs, such as income-driven repayment programs, refinancing federal student loans likely wouldn’t make sense for you. That’s because when you refinance federal loans, they become ineligible for these special benefits.
As you’re pondering your options for refinancing, a student loan refinancing guide can be helpful for walking you through the process.
If, after doing your research, you decide that now is the right time for refinancing, you’ll want to shop around for the best rates and terms. SoFi offers loans for student loan refinancing with low fixed or variable rates, flexible terms, and no fees. And you can find out if you prequalify in just two minutes.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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.
