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While the principal of a student loan isn’t tax deductible, the interest you pay on it can be — and that includes refinanced student loans. If you’re eligible, you may be able to deduct up to $2,500 from your taxable income.

The amount you can deduct is dependent on your income; as you earn more, the amount you can deduct is decreased and eventually eliminated. You also must have paid interest on a qualified student loan, one taken out to pay for qualified higher education expenses, such as tuition, books, or room and board.

Here’s what to know about refinanced student loans and tax returns, including when interest on student loans is tax deductible, how tax deductions differ from tax credits, and how refinancing can affect taxes.

What Is a Tax Deduction?

For starters, it’s helpful to review what a tax deduction is: A tax deduction lowers your taxable income by reducing the amount of your income before you or a tax professional calculates the tax you owe.

For example, a $100 exemption or deduction reduces your taxable income by $100. So it would reduce the taxes you owe by a maximum of $100 multiplied by your tax rate, which can range from 0% to 37%. So your deduction could reduce your taxes between $0 to $37.

And before considering how refinancing affects your taxes, it’s helpful to review what happens when you refinance a student loan: Your lender “swaps out” (or “pays off”) your existing loans and gives you a new loan with new terms. A student loan refinance may be beneficial if you get a lower interest rate and/or a lower repayment amount, which can save you money in the long run.

If you’re considering refinancing federal student loans, however, it’s important to understand that you would lose access to certain federal benefits and protections, such as Public Service Loan Forgiveness or federal deferment and forbearance.

Recommended: 26 Tax Deductions for College Students and Other Young Adults

The Difference Between a Tax Deduction and a Tax Credit

Keep in mind that a tax deduction is not the same as a tax credit. While a tax deduction reduces your taxable income, a tax credit directly reduces your taxes.

Tax credits give you a dollar-for-dollar reduction on your taxes. In other words, if you qualify for a $2,000 tax credit, the tax credit lowers your tax bill by that exact amount — $2,000.

Recommended: Tax Season 2022: A Guide to Understanding Your Taxes

How Does Paying Student Loans Affect Taxes?

If you paid qualified student loans during the year, you may be eligible for the student loan interest tax deduction. This deduction can reduce your taxable income by the amount of student loan interest you paid during the year — up to $2,500.

Note that the interest on student loans is tax deductible, not your total payment amount (which includes the principal). You can claim it without having to itemize deductions on your tax return because it’s taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040.

Who Is Eligible for the Student Loan Interest Deduction?

The student loan interest deduction is an “above the line” deduction, which means that it is deducted to calculate your adjusted gross income (AGI).

As mentioned earlier, the interest paid must be for a qualified student loan that you take out for yourself, your spouse, or a dependent for qualified undergraduate or graduate education expenses, such as tuition, books, or room and board. In addition, the expenses must have been incurred within “a reasonable period of time” prior to or after taking out the loan, according to the IRS.

Recommended: How Income Tax Withholding Works

For taxable years beginning in 2022, your modified adjusted gross income (MAGI) must also amount to less than $70,000 ($145,000 if filing a joint return). Your amount will be phased out (reduced) if your MAGI is between $70,000 and $85,000 ($140,000 and $170,000 if you file a joint return).

You cannot claim the deduction at all if your MAGI is $85,000 or more ($175,000 or more if you file a joint return). You also will not qualify for the deduction if you are married filing separately.

Are Refinanced Student Loans Tax Deductible?

Yes, you can get a tax deduction on the interest you’ve paid on refinanced or consolidated student loans as long as the new loan refinanced qualified student loans.

Recommended: Where Is My Tax Refund?

How does refinancing affect taxes? Refinancing your federal loans to a private loan may not have much of an impact on your taxes because it’s based on income. If you’re a high earner, you may not even qualify for a student loan interest deduction.

Refinancing may save you more money in the long run than a student loan interest deduction because it’s a deduction, not a tax credit. It’s important to do the math or consult a tax professional before you make a final decision.

Refinance Qualifications

It’s also worth taking a look at common eligibility requirements for a refinance. For most borrowers, the soonest you can refinance is usually after graduating. In addition to a degree, you often need to have:

•   A debt-to-income (DTI) ratio under 50%: Your DTI refers to how much of your income goes toward debt and how much goes toward your regular income. It’s best to keep your DTI under 50%, but being over doesn’t necessarily mean you won’t qualify for a student loan refinance.

•   Minimum credit score of 650: Your credit score is a three-digit number that shows how well you pay back debt. It’s best to have a minimum credit score of at least 650 to be eligible for student loan financing. Again, your personal situation will be considered before determining whether you qualify for a refinance.

•   A steady job and/or consistent income: You may need to prove that you have a steady job and have enough savings to be able to pay for at least two months’ worth of regular expenses.

•   A certain balance amount: In most cases, lenders will require you to have a certain minimum balance on your student loans in order to qualify for a refinance.

Refinancing Your Student Loans With SoFi

If you’re thinking about refinancing your student loans, SoFi offers flexible terms with fixed or variable rates. You can apply online, and there aren’t any fees.

Learn more about refinancing your student loans with SoFi.

FAQ

What refinance costs are tax deductible?

When it comes to refinancing and taxes, lenders usually don’t charge any upfront fees to refinance your student loans, which means that there aren’t any refinance costs to deduct.

When you make payments on a qualified student loan — including refinanced student loans — you may be eligible for the student loan interest deduction.

Is it worth it to claim student loan interest?

Yes, when it comes to student loans and tax returns, you may be able to deduct up to $2,500 from your taxable income if you’re eligible.

To be able to claim the deduction, your modified adjusted gross income (MAGI) must be less than $70,000 ($145,000 if filing a joint return). You’ll also experience a phased-out deduction if your MAGI is between $70,000 and $85,000 ($140,000 and $170,000 if you file a joint return).

The amount of deduction you can claim starts to phase out at MAGIs of $70,000 for individuals and $140,000 for those who file jointly. It disappears entirely at MAGIs above $85,000 and $170,000 for joint filers.

Are student loan payments tax deductible?

Only the interest you pay on your student loans is tax deductible. Whole student loan payments (which include principal) are not tax deductible.

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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Photo credit: iStock/Drazen Zigic
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Wondering what to do about your undergraduate school loans before starting graduate school? There are several options to consider, including deferment and refinancing college student loans.

Some grad students defer loan repayment while enrolled in school or refinance college student loans before starting a graduate program. As with your undergraduate student loans, the right choice for you will depend on a range of factors, such as whether you have federal or private student loans as well as how you plan to pay for grad school. Here’s an overview of the pros and cons of graduate school loan refinancing.

Grad School Student Loans

Before considering whether you should refinance your college student loans, it may be helpful to consider how you’ll be paying for graduate school. The average cost of public, in-state tuition for graduate school was $12,410 for the academic year 2019-2020, according to the National Center for Education Statistics. For a private institution, that number more than doubles to $26,597. In fact, graduate student loans account for 40 percent of federal student loans, according to The Center for American Progress.

You may be eligible for various types of student financial aid, including federal loans and private student loans. You’ll likely want to start by pursuing options such as grants (federal or private) that don’t need to be repaid, work-study programs, and federal loans.

Federal loans offer some benefits and protections, such as fixed interest rates, income-driven repayment plans, and access to forgiveness programs. As a grad student, you can apply for a Direct Unsubsidized Loan and Direct Grad PLUS Loan. (Direct Subsidized Loans are only an option for undergrads.) If federal options don’t cover what you’ll need to pay for grad school, private loans may be an option. Here are the most common grad school student loans.

Recommended: How Do Student Loans Work?

Direct Unsubsidized Loans

With federal Direct Unsubsidized Loans, students enrolled at least part-time can access financing at a fixed interest rate. Unlike Direct Subsidized Loans, the government doesn’t pay for accrued interest while you’re in school, during the loan’s grace period, or if a loan is in deferment. This means you’re responsible for repaying all interest charges that incur.

Although you can choose not to pay interest while you’re in school and during periods of deferment, the accumulated interest will capitalize. Capitalized interest means the unpaid interest charges are added to your principal balance, so that when you start making student loan payments, you’ll pay interest on a larger balance.

Your school will determine how much in Direct Unsubsidized Loans you can borrow each academic year, up to the maximum of $20,500. (Students enrolled in certain health profession programs may be eligible for additional loan amounts.) Any existing undergraduate federal loans you have will count toward the $138,500 aggregate federal loan limit for grad students and may affect the amount you’re able to borrow.

Direct Grad PLUS Loans

Graduate and professional students enrolled at least half-time can also look into federal fixed-rate Direct Grad PLUS Loans if they need more funding. Direct PLUS Loans are the only federal loan program that require a credit check.

Like Direct Unsubsidized Loans, you’re fully responsible for all interest charges that accrue. You also have the option to let interest charges capitalize on the account if you choose not to make interest payments while you’re in school or during deferment.

The maximum you can borrow through a Direct Grad PLUS Loan is the cost of attendance minus any existing financial aid you’ve received.

Private Student Loans

Private student loans offer non-federal funding from a private institution, like a bank, online lender, college, or credit union.

Private student loans can come with fixed or variable interest rates, and eligibility criteria and terms differ between lenders. Graduate students who’ve built a positive credit history might qualify for more competitive rates. Students with adverse credit — or those applying to grad school who haven’t graduated college yet — might require the help of a cosigner to qualify.

If you’re considering a private student loan, always compare multiple offers from different lenders to find the lowest rate for you.

Do You Have to Pay Undergraduate Loans While in Graduate School?

If you have federal student loans and you’re enrolled at least half-time at an eligible school, you can opt to defer payment on your loans while you’re in graduate school.

In-school deferment for a federal loan is typically automatic after your school reports your enrollment status. Expect to receive a notice from your loan servicer that your loans are in deferment. If your loans aren’t automatically placed on deferment, ask your school to report your enrollment status.

Keep in mind that if you defer federal loan payments while you’re in school, interest on deferred Direct Unsubsidized Loans from your undergrad years will continue to accrue and capitalize. You also won’t make any progress toward loan forgiveness, if you plan on participating in programs like Public Service Loan Forgiveness.

Choosing when to pay back student loans and whether to take advantage of federal loan deferment is a personal decision that depends on your individual financial situation.

If you borrowed private student loans while pursuing your undergraduate degree, you’ll need to contact your lenders about your options. Not all private lenders offer in-school deferment and eligibility may vary.

Recommended: Examining How Student Loan Deferment Works

Should I Refinance Before Grad School?

If you only have federal Direct Subsidized Loans, you don’t need to make payments while in school and, since interest doesn’t accrue, it won’t make sense to refinance. If you have Direct Unsubsidized or private student loans, however, refinancing college student loans might help lower your monthly obligation by extending your loan term or lowering your interest rate.

Keep in mind if you refinance a federal loan with a private lender, you’ll lose access to federal protections and benefits. And extending your term may mean that when you start making payments, you may pay more interest over the life of the loan and will be in debt longer. To find the choice that’s right for you, it’s helpful to look at the pros and cons of graduate school loan refinancing.

Refinancing College Student Loans, Explained

A student loan refinance lets you put one or multiple student loans, federal and/or private, into a new loan — ideally, with a lower interest rate. This loan is provided by a private lender, and it will pay off your original student loans in full. In turn, you’ll repay the lender under the new refinance loan which can be at a fixed or variable rate, as well as a different repayment term. As mentioned earlier, if you refinance a federal loan with a private lender, it will no longer be eligible for federal benefits and protections.

If your goal is to reduce the monthly loan payments for private and/or unsubsidized loans while you’re in grad school, for example, you might consider extending your term to make smaller payments over time.

Pros of Refinancing Before Grad School

Refinancing is a repayment strategy that offers some advantages.

Lets You Change Your Loan Term

When you refinance, you can change the specific repayment terms of your original undergraduate loan — electing, for example, a 10-year term instead of a five-year one (again, this may result in your paying more interest over the life of the loan.)

Allows for a Reallocation of Your Monthly Budget

A longer term reduces your monthly payment amount. As a grad student, freeing up money upfront can help pay for graduate school expenses, like textbooks, lab equipment, and fees.

Simplifies Repayment for Two or More Undergraduate Loans

Student loan refinancing helps simplify your repayment experience. Instead of managing payment amounts and due dates for multiple undergraduate loans, a student loan refinance results in one monthly payment and one due date to remember.

Cons of Refinancing Before Grad School

Although there are advantages to refinancing college student loans, there are downsides, too.

You may pay More Interest Over Time

Again, an extended repayment term may result in paying more interest over time, and paying more toward your education loan overall. It also prolongs the amount of time you’ll be in debt.

You’ll Lose Access to Federal Loan Forgiveness

Refinanced federal student loans won’t be eligible for forgiveness or other current or future federal loan benefits. This applies to all refinanced student loans, regardless of whether they originated as a federal loan.

Some Refinance Lenders Don’t Offer Academic Deferment

If you originally had federal loans from your undergrad, you’ll no longer receive automatic in-school deferment after refinancing. Although some lenders, like SoFi, offer eligible members in-school deferment, not all lenders do. This means you might be required to continue refinance payments while you’re studying for your grad program.

Pros: refinancing college student loans	Cons: refinancing college student loans
Extending your loan term can help lower your monthly payment.	Extending your student loan term means paying more interest over time.
Monthly savings can be put toward graduate expenses today.	Refinancing a federal loan means losing access to student loan forgiveness programs.
You can simplify repayment for multiple undergraduate loans into one new loan.	Not all refinance lenders offer in-school deferment while you’re in grad school.

Refinancing Student Loans With SoFi

If you’ve decided to refinance your student loans, comparing a few different lenders can help you find the right fit for your needs. SoFi’s student loan refinancing offers flexible terms, no fees, no prepayment penalties — and you can view your rate in 2 minutes.

Learn more about a SoFi student loan refinance today.

FAQ

Can you refinance student loans before graduation?

Yes, you can technically apply for a student loan refinance at any time. But proceed with caution when refinancing federal loans. Doing so removes you from the federal loan system and you’ll lose access to income-driven repayment plans, loan forgiveness, and other federal loan benefits and protections. Also, for Direct Unsubsidized loans, there is a six-month grace period after graduation, when payments aren’t due yet.

If I go to grad school, can I defer my loans?

Yes, you can defer federal student loans as long as you’re enrolled at least half-time in grad school. However, if your federal student loans aren’t Direct Subsidized, the interest may still accrue.

Do undergraduate loans affect grad school student loans?

Yes, for federal loans, undergraduate loans count toward the $138,500 aggregated loan limit that graduate students are allowed to borrow. Your available federal loan funds toward grad school might be limited, based on how much you borrowed as an undergraduate student.

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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Once you are in an Income-Based Repayment (IBR) plan, you will need to recertify your income based repayment annually, by providing updated information about your income and family size. The government uses this information to calculate your payment amount and adjust it if necessary.

You can easily recertify online or by mail. Read on to find out when to recertify your income-based repayment, how to do it, and more.

What Is Income Based Repayment?

Income Based Repayment plans are offered for federal student loan borrowers to help make their payments more manageable. It’s an option to keep in mind when choosing a loan or if your current federal loan payments are high relative to your income. The program is intended to set your student loan payment at an amount that is affordable to you each month.

There are four income-driven repayment programs, including the income-based repayment plan. For all of these plans, your payment amount is generally based on a percentage of your discretionary income, defined by the U.S. Department of Education. In the case of IBRs, discretionary income is “the difference between your annual income and 150% of the poverty guideline for your family size and state of residence.”

IBR payments are determined as 10% of your discretionary income if you are a new borrower, someone with no outstanding balance on a Direct Loan or Federal Family Education Loan (FFEL) when they receive one of these loans on or after July 1, 2014.

If you’re not a new borrower, payments are generally 15% of your discretionary income.

Your payment will never be more than the 10-year Standard Repayment Plan amount, which is the standard repayment plan for the Federal Direct Loan program and FFELs.

Each income-driven repayment plan has a different loan period. For IBRs, it’s 20 years for new borrowers and 25 years for those who aren’t considered new borrowers.

Any loan balance that remains unpaid at the end of the repayment period will be forgiven.

Recommended: Your 2022 Guide to Student Loan Forgiveness

Which Federal Loans Are Eligible for an Income Based Repayment Plan?

IBR plans are available for the following types of federal loans:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans made to graduate or professional students

•   Direct Consolidation Loans that did not repay any PLUS loans made to parents

•   Subsidized Federal Stafford Loans

•   Unsubsidized Federal Stafford Loans

•   FFEL PLUS Loans made to graduate or professional students

•   FFEL Consolidation Loans that did not repay any PLUS loans made to parents

•   Federal Perkins Loans, if consolidated.

Income Based Repayment plans are not available to FFEL PLUS loans or Direct PLUS loans that are made to parents. They are also not available for Direct Consolidation Loans or FFEL Consolidation Loans that repaid PLUS loans to made parents.

Recommended: 4 Student Loan Repayment Options — and How to Choose the Right One for You

What Is Student Loan Recertification?

You will only need to apply for an income-driven repayment plan once. When you do, you will be required to provide information about your income. You may be asked to provide your adjusted gross income if you’ve filed a tax return in the last two years or your income doesn’t differ that much from the income you reported on your tax return.

If your income is significantly different from the income on your tax return, or you haven’t filed one in the last two years, you may be asked for alternative documentation. The government will require you to recertify your income information and family size at least once each year.

How to Recertify Income Based Repayments

You can take care of your IBR recertification online at studentaid.gov . Filing your application online ensures that it is sent to each of your loan servicers. Alternatively, you may provide paper applications to each of your loan servicers if you haven’t filed a tax return in the last two years or your income has changed significantly since you filed your last return.

To file online, go to the student aid website above, click on “Manage My Loans,” and then click on “Recertify an Income-Driven Repayment Plan.” You’ll need to log in with your federal student aid ID.

Then enter information about your family, including family size, your marital status, and your spouse’s income, if applicable. You can connect directly to your tax return to verify your income information. And if your income has changed since your last tax return, you can send in more recent pay stubs.

To recertify by mail, you can download the Income-Driven Repayment Plan Request form , fill it out and attach the required documents. You’ll send the request to the address provided by your loan servicer.

When to Recertify Income Driven Repayment Plans

The government paused income-driven repayments as part of its COVID-19 relief program. The program included suspended loan payments, 0% interest, and stopped collections on defaulted loans. Payments will remain paused through May 1, 2022. Paused payments will count toward IDR forgiveness.

Borrowers are not required to recertify before their payments restart. The earliest they might be required to do so is November 2022.

In normal times, you are required to recertify your income and family size each year, two months before your current 12-month payment period ends. If your income decreases or your family grows, you may recertify earlier than that to help ensure that your payment stays manageable.

If you fail to recertify your IBR plan by the annual deadline, your monthly payment will switch to the amount you would pay under the Standard Repayment Plan. You’ll be able to make payments based on your income again when you update your income information.

The Takeaway

Income Based Repayment plans are available to most federal student loan borrowers and can be a great way to make sure your student loan repayments work with your budget. Recertification is a critical step each year to alert the government to changes in your situation that might affect your payment size.

Refinancing is another way to manage your student loan debt, especially if you have private loans that don’t qualify for government assistance programs. If you’re considering refinancing federal loans, just be sure the amount you save outweighs the benefits of income-driven programs, potential student loan forgiveness, or other federal loan protections, all of which you lose access to when you refinance.

Visit SoFi to explore options for student loan refinancing. SoFi offers a competitive rate, flexible terms, no hidden fees, and no prepayment penalty — and you can view your rate in 2 minutes.

FAQ

Can you recertify student loans early?

Yes, you can recertify early, and it may even be a good idea if your family has grown or your income has decreased.

How do I recertify my student loans?

You can recertify your student loans online at the Federal Student Aid website (studentaid.gov), or by downloading and mailing in the Income-Driven Repayment Plan Request form with any supporting documentation.

When should I recertify my student loans?

You should recertify your student loans two months before your current 12-month payment period ends.

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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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If you’re having trouble making your student loan payments or just want to know if you can make a change to your payments, it’s worth looking into the options, such as refinancing student loans or an income-driven repayment plan.

Student loan refinancing is available for both private or federal student loans while income-driven repayment plans are only an option for federal student loans. Here’s what to know about both options as well as the pros and cons of each.

What Is Student Loan Refinancing?

When you refinance a student loan, a private lender pays off your student loans and gives you a new loan with new terms. For example, the interest rate and/or the loan term may change. You can’t refinance loans through the federal government, however. You can only refinance federal student loans (or private student loans) through a private lender.

If you’re a graduate with high-interest Direct Unsubsidized Loans, Graduate PLUS loans, and/or private loans, a refinance can change how quickly you pay off your loans and/or the amount you pay each month.

Pros of Student Loan Refinancing

When considering refinancing your student loans, there are several benefits. You can:

•   Lower your monthly payments: Lowering your monthly payment means you can save money or spend more in other areas of your life instead of putting that cash toward paying student loans. (Depending on the length of the loan term, however, you may end up paying more in total interest.)

•   Get a lower interest rate than your federal student loan interest rates: This can result in paying less interest over the life of the loan (as long as you don’t extend your loan to a longer term.)

•   Decrease your debt-to-income ratio (DTI): Your DTI compares your debt payments to your income. So if you lower your monthly payments, you could be lowering your DTI ratio –and a lower DTI can help when applying for a mortgage or other type of loan.

Recommended: What’s the Average Student Loan Interest Rate?

Cons of Student Loan Refinancing

That said, refinancing federal loans can have some drawbacks as well. They include:

•   No longer being able to take advantage of federal forbearance: When you refinance your student loans through a private lender, you no longer qualify for federal forbearance, such as the Covid-19-related payment holiday. However, it’s worth noting that some private lenders offer their own benefits and protections after you refinance.

•   No longer being able to tap into income-driven repayment plans, forgiveness programs, or other federal benefits: Refinancing federal student loans means replacing them with private loans — and forfeiting the protections and programs that come with them.

•   Possibly seeing your credit score get dinged: Your lender may do a hard credit history inquiry (or pull), which can affect your credit score.

What Are Income Driven Repayment Plans?

Put simply, income-driven repayment plans are plans that base your monthly payment amount on what you can afford to pay. Under the Standard Repayment Plan, you’ll pay fixed monthly payments of at least $50 per month for up to 10 years. On the other hand, an income-driven repayment plan considers your income and family size and allows you to pay accordingly based on those factors — for longer than 10 years and with smaller loan payments. Income-driven repayment plans are based on a percentage of your discretionary income.

You can only use an income-driven repayment plan for federal student loans. If you qualify, you could take advantage of four types of income-driven repayment plans:

•   Revised Pay As You Earn Repayment Plan (REPAYE Plan): You typically pay 10% of your discretionary income over the course of 20 years (for loans for undergraduate study) or 25 years (for loans for graduate or professional school).

•   Pay As You Earn Repayment Plan (PAYE Plan): You typically pay 10% of your discretionary income but not more than the 10-year Standard Repayment Plan amount over the course of 20 years.

•   Income-Based Repayment Plan (IBR Plan): As a new borrower, you typically pay 10% of your discretionary but never more than the 10-year Standard Repayment Plan amount over the course of 20 years. If you’re not a new borrower, you’ll pay 15% of your discretionary income but never more than the 10-year Standard Repayment Plan amount over the course of 25 years.

•   Income-Contingent Repayment Plan (ICR Plan): As a new borrower, you typically pay the lesser of the two: 20% of your discretionary income or a fixed payment over the course of 12 years, adjusted according to your income over the course of 25 years.

How do you know which option fits your needs? Your loan servicer can give you a rundown of the program that may fit your circumstances. You must apply for an income-driven repayment plan through a free application from the U.S. Department of Education.

Note: Every income-driven plan payment counts toward the Public Service Loan Forgiveness Program (PSLF). So if you qualify for this program, you may want to choose the plan that offers you the smallest payment.

Recommended: How Is Income-Based Repayment Calculated?

Pros of Income Driven Repayment Plans

The benefits of income-driven repayment plans include the following:

•   Affordable student loan payments: If you can’t make your loan payments under the Standard Repayment Plan, an income-driven repayment plan allows you to make a lower monthly loan payment.

•   Potential for forgiveness: Making payments through an income-driven repayment plan and working through loan forgiveness under the PSLF program means you may qualify for forgiveness of your remaining loan balance after you’ve made 10 years of qualifying payments instead of 20 or 25 years.

•   Won’t affect your credit score: This may be one question you’re wondering, whether income-based repayment affects your credit score? The answer is: no. Since you’re not changing your total loan balance or opening another credit account, lenders have no reason to check your credit score.

Cons of Income Driven Repayment Plans

Now, let’s take a look at the potential downsides to income-driven repayment plans:

•   Payment could change later: The Department of Education asks you to recertify your annual income and family size for payment, which is recalculated every 12 months. If your income changes, your payments would also change.

•   Balance may increase: If your monthly payment ends up being lower than the interest accrued, the remaining interest could be added to your overall loan balance.

•   There are many eligibility factors: Your eligibility could be affected by several things, including when your loans were disbursed, your marital status, year-to-year changing income, and more.

Refinancing vs Income Driven Repayment Plans

Here are the factors related to refinancing and income-driven repayment plans in a side-by-side comparison.

	Refinancing	Income-Driven Repayment Plan
Lowers your monthly payments	Possibly	Possibly
Changes your loan term	Possibly	Yes
Increases your balance	Possibly	Possibly
Is eventually forgiven if you still haven’t paid off your loan after the repayment term	No	Yes
Requires an application	Yes	Yes
Requires yearly repayment calculations	No	Yes

Choosing What Is Right for You

When you’re considering whether to refinance or choose an income-driven repayment plan, it’s important to take into account the interest you’ll be paying over time. It could be that you will pay more interest because you lengthened your loan term. If that’s the case, just make sure you are comfortable with this before making any changes. Many people who refinance their student loans do so because they want to decrease the amount of interest they pay over time – and many want to pay off their loans sooner.

That said, if you’re thinking about a refinance option, you’ll also want to make sure you are comfortable forfeiting your access to federal student loan benefits and protections.

Refinancing Student Loans With SoFi

Refinancing your student loans with SoFi means getting a competitive interest rate. You can choose between a fixed or variable rate – and you won’t pay origination fees or prepayment penalties.

Find out if you pre-qualify to refinance your student loans with SoFi in just a few minutes.

FAQ

Is income-contingent repayment a good idea?

Right now, the federal government has put a hold on federal student loan repayment. However, once the payment pause expires, it might be a good idea for the right situation, particularly if you have a low income or are unemployed. Having trouble making your student loan payments and already “using up” options for unemployment deferment or economic hardship could make income-contingent repayment worth it.

You may defer payments if you receive public assistance, serve in the Peace Corps, make less than minimum wage or fit into the poverty guidelines, you may defer payments. If you can’t find employment at all, you may defer payments for up to three years.

What are the disadvantages of income based repayment?

The biggest disadvantage of income-based repayment is that you stretch out your loan term from the standard repayment plan of 10 years to longer — up to 25 years. This means that more interest will accrue on your loans and you could end up paying more on your loan before your loan term ends.

Does income based repayment get forgiven?

Yes! Making payments through an income-driven repayment plan as well as working toward forgiveness through the Public Service Loan Forgiveness (PSLF) program means that after 10 years of qualifying payments, you could get any remaining loan balance forgiven, instead of after 20 or 25 years.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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It may seem to you that droves of college students collect diplomas every year, but how many students actually start college and graduate — at the same college?

The most recent data from the U.S. Department of Education National Center for Education Statistics (NCES) reported in 2019 that the overall six-year graduation rate for bachelor’s degree-seeking full-time undergraduate students at four-year degree-granting institutions in fall 2013 was 63%.

Graduation rates refer to the percentage of a school’s students who complete their program within 150% of the published time for the program. It’s important not to confuse graduation rates with retention rates, which refer to the percentage of students who continue at a particular school the next year. In other words, the retention rate is the percentage of students who finish their first year and return for a second year.

We’ll walk through what the college graduation rate can tell you about a school, why it’s important, as well as outline a good graduation rate. We’ll also break down graduation rates by state and colleges (from lowest to highest), discuss some reasons that students might not graduate, and how to overcome some of these obstacles.

What Does the College Graduation Rate Tell Us?

As a prospective student, understanding the difference between graduation rates and retention rates, you are better prepared to compare these percentages against the schools on your list. Comparing the graduation rate of your first-choice college gives a definite indication of whether the schools fall above or below the average. It’s a quick way to find out how many students finish their degrees “on time” and also tells you the type of institutions that deliver the highest graduation rates. Based on available statistics, private, nonprofit institutions graduate students at a higher rate.

Why Is Knowing the Graduation Rate Important When Selecting a College?

When you’re researching colleges, many different things matter to different students. Athletes may want to know more about their individual athletic programs. English majors may want to know how many professors are published writers.

However, among all the different factors you can research, graduation rate remains one of the most important for all prospective students to understand.

Why? The graduation rate serves as a gauge for many things — student satisfaction and happiness in addition to indicating how many students graduate in a timely manner. However, it’s not the only metric you want to consider when you choose a college. Other priority considerations include teacher-to-student ratio, retention rate, loan default rates, and selectivity.

Two trusted websites compile information on graduation rates: College Navigator and College Results Online.

•  College Navigator : College Navigator compiles information from about 7,000 colleges and universities in the United States. College Navigator breaks down both retention rates and graduation rates on its site, and you can also access these rates by race/ethnicity and gender.

•  College Results Online : College Results Online also lists both rates and retention rates for institutions. You can also cross-index certain peer institutions against each other to compare graduation and retention rates.

What Is a Good Graduation Rate for a College?

The best graduation rates in the U.S. are from schools that have a graduation rate in the 90th percentile, which many of the Ivy League schools have. For example, let’s take a look at a few six-year graduation rates based on College Navigator data:

•  Harvard University: 98%

•  Yale University: 96%

•  Cornell University: 95%

However, you can still find high graduation rates within highly selective liberal arts colleges:

•  Amherst College: 95%

•  Davidson College: 93%

•  Claremont McKenna College: 92%

It’s important to remember that since these highly selective schools only admit students with top-tier credentials, they naturally attract some of the most driven students on the planet, resulting in a high graduation rate.

So, what is a good graduation rate for a college? Does this mean that a college in the 80th or even 70th percentile isn’t a good school or that it isn’t the right school for you? Absolutely not. As mentioned before, other factors play into the mix as well, based on your personal preferences and interests. The right fit for you may be a school with a 70% graduation rate. The better the fit, the more likely you will graduate on time.

Lowest Graduation Rate College in the United States

Unfortunately, the college with the lowest graduation rate in the U.S. isn’t a highly popularized statistic. However, if, during your own research, you see a school that graduates at or below 60%, you may want to probe your admissions counselor at the college for the reasons why rates are so low and find out more about how the college plans to improve.

Average College Graduation Rate in the United States

When digging a bit more into the 2019 NCES report, it states that the average college graduation rate (more specifically, the six-year graduation rate) was:

•  62% at public institutions

•  68% at private nonprofit institutions

•  26% at private for-profit institutions

Overall, 60% of males and 66% of females graduate within six years, and females had a higher six-year graduation rate at the following types of institutions:

•  Public institutions (65% female vs. 59% male)

•  Private nonprofit institutions (71% female vs. 64% male)

However, at private for-profit institutions, males had a higher six-year graduation rate than females (28% vs. 25%).

How does the U.S. Department of Education arrive at this data? The NCES uses Integrated Postsecondary Education Data System (IPEDS), a system of interrelated surveys conducted annually by NCES through institutions.

The IPEDS graduation rate is calculated like this:

Graduation Rate =
Number of students who completed their program within a specific percentage of normal time to completion / Number of students in the entering cohort

College Graduation Rates by State

Here are the college graduation rates by state, according to World Population Review :

State	College Completion (or Higher)
Massachusetts	44%
Colorado	41%
New Jersey	40%
Maryland	40%
Virginia	39%
Connecticut	39%
Vermont	38%
New York	37%
New Hampshire	37%
Washington	36%
Minnesota	36%
Illinois	35%
Utah	34%
Rhode Island	34%
Oregon	34%
California	34%
Kansas	33%
Hawaii	33%
Nebraska	32%
Montana	32%
Maine	32%
Delaware	32%
Pennsylvania	31%
North Carolina	31%
Georgia	31%
Wisconsin	30%
Texas	30%
North Dakota	30%
Florida	30%
Arizona	30%
Alaska	30%
South Dakota	29%
Missouri	29%
Michigan	29%
Iowa	29%
South Carolina	28%
Ohio	28%
Idaho	28%
Wyoming	27%
Tennessee	27%
New Mexico	27%
Indiana	27%
Oklahoma	26%
Alabama	26%
Nevada	25%
Louisiana	24%
Kentucky	24%
Arkansas	23%
Mississippi	22%
West Virginia	21%

Number of College Graduates in the 21st Century

In the past 20 or so years, the number of college graduates has increased. According to information published by Education Data , in 2001 approximately 1.24 million students graduated from college with a bachelor’s degree. In 2018, that number reached 1.98 million.

Reasons Why College Students Don’t Graduate

When looking at graduation rates, let’s turn the tables a bit and take a look at a few reasons why students might not graduate. Depending on the student, these could include things like the high cost of tuition, trying to balance work and school, or poor academic performance.

Cost

The increasing price tags aren’t a new reason that students leave school. When it gets too expensive, they may feel they have no way out. According to the National Association of School and Financial Aid Administrators (NASFAA) , an analysis of 2,000 colleges and 10 theoretical students found that 48% of families with annual incomes above $160,000 could afford the colleges on the list. Those with a family income over $100,000 could afford more than one-third of the colleges. Finally, the theoretical students from lower-income backgrounds could only afford up to 5% percent of the colleges.

Recommended: What is the Average Cost of College Tuition? 

Balancing Work and School

Many undergraduates work part-time jobs to help pay their way through college. Students often get stuck in the quagmire of trying to keep up with both work and school, which can be a challenging balancing act. Many seasonal jobs for college students exist, which means you might be able to get a job during the summer instead of working during the school year.

Transferring

Transferring colleges sometimes means some credits get lost in translation. When transfer students are forced to retake classes, it not only costs more financially, but they also have to spend extra time pursuing their degree. This sometimes means that students often face trouble getting enough credits to graduate.

Poor Grades

Sometimes, students simply can’t make the grades. Even if it happens during just one semester, it can cause students to shy away from college altogether. In particular, first-generation college students, those who are low-income students, as well as minority students, are vulnerable and question whether they really belong in college.

Being Denied a Student Loan

Being denied a student loan or other types of financial aid can be a huge deterrent to continuing on in college. However, remember that there are ways around it — including seeking a loan through a different lender.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

Overcoming the Obstacles as a College Student

What can you do to overcome the obstacles and successfully graduate from college? Let’s find out. We’ll list a few things you can do to help you stay the course:

•  Get organized with everything — school work, athletics, homework, and more.

•  Get support from family and friends.

•  Create healthy habits. Eat nutrient-dense meals, get enough sleep, and stay healthy.

•  Carefully consider the best ways to pay for college and focus on managing your money.

•  Get to know professors and academic support professionals at your college or university.

•  Work on your time management skills so you have the time you need for important assignments.

•  Take care of your mental health. If you are struggling to balance the many priorities of being a college student, reach out to family or friends for help. If you need additional support, contact your campus’ health and wellness center to see what counseling resources are available to students.

•  Investigate transfer options early on if you attend a community college so you know how to make the transition smoother.

Recommended: FAFSA Guide

Ways to Fund College

Making sure you have a concrete plan to pay for college is one of the best ways to make sure you successfully graduate. Let’s walk through a few tips for making sure you have all your ducks in a row.

•  Fill out the Free Application for Federal Student Aid (FAFSA®).
This is the first step in applying for federal financial aid, including grants, scholarships, and low-interest-rate federal student loan options.

•  Search for scholarships. Ask the college or university you plan to attend about scholarships they offer. Don’t forget to search around in your community as well.

•  Get a work-study job. If you qualify for work-study this can be an opportunity to earn a bit of money for college expenses. This is a federal program in which you earn money and your school pays you for that work via a check, usually every week, every two weeks, or every month.

•  Look into private loans. If you need to fill the gap between scholarships, grants, and federal student loans, look into private loans to help you make it across the graduation stage. These may lack the borrower protections afforded to federal student loans (like deferment options or income-driven repayment plans) and are therefore generally only considered after other financing sources have been exhausted.

Recommended: The Differences Between Grants, Scholarships, and Loans

The Takeaway

A school’s graduation rate is a reflection of the percentage of students that graduate within 150% of the published time frame. This is different from a school’s retention rate which is a measurement of how many students remain at a school from year to year. A school’s graduation rate can be an informative benchmark as you evaluate and compare schools during the application process.

If you are a current college student, you can do a lot to make sure you stay the course, including taking care of yourself, using scholarships and grants to your advantage, getting academic help, and making sure (if needed) that you have the right private loans to make it all happen.

Ready to find private student loans to make sure you get to throw your cap at graduation? Visit SoFi and learn more about private student loans and the low rates we have to offer. Our friendly experts can also help you decide your best course of action.

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Photo credit: iStock/digitalskillet

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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