Mar
19
2025

A Complete Guide to Private Student Loans

By | Fresh Out of School, Student Loans, student_loan | No Comments

The average cost of college in the U.S. is $38,270 per year, including books, supplies, and daily living expenses, according to the Education Data Initiative. While grants and scholarships can significantly lower your out-of-pocket expenses, they typically don’t cover the full cost of your college education.

Student loans, both federal and private, can help bridge this gap in financial aid to allow you to attend the college of your choice. Federal student loans are funded by the government. They tend to offer the best rates and terms, but come with borrowing limits. If you still have gaps in funding, you can turn to private student loans.

Private student loans are funded by banks, credit unions, and online lenders. Private lenders set their own eligibility criteria, and interest rates generally depend on a borrower’s creditworthiness. While private student loans don’t offer all the same borrower protections as federal loans, they can still be a smart choice to help you pay for educational expenses, as long as you do your research.

This guide offers private student loan basics, including what they are, how they work, their pros and cons, and how to apply for one.

Key Points

•   Private student loans are offered by banks, credit unions, and online lenders. They are a funding option for students after federal student loans have been exhausted.

•   Approval for private student loans typically depends on the borrower’s creditworthiness; students may need a cosigner due to limited credit history.

•   Private loans may lack flexible repayment plans and protections that federal loans offer.

•   Funds are usually sent directly to the educational institution to cover tuition and fees; any remaining amount is disbursed to the student.

•   It’s essential to thoroughly research and compare private loan options, considering factors like interest rates, repayment terms, and borrower protections, before making a decision.

What are Private Student Loans?

Often when people talk about student loans, they’re referring to federal student loans, which are provided by the federal government. Private student loans, by contrast, are funded by banks, credit unions, and online lenders. Students typically turn to private student loans when federal loans won’t cover all of their costs.

You can use the money from a private school loan to pay for expenses like tuition, fees, housing, books, and supplies. Interest rates for private student loans may be variable or fixed and are set by the lender. Repayment terms can be anywhere from five to 20 years.

Unlike federal student loans, borrowers must pass a credit check to qualify for private student loans. Since most college students don’t have enough credit history to take out a large loan, a cosigner is often required.

💡 Quick Tip: New to private student loans? Visit the Private Student Loans Glossary to get familiar with key terms you will see during the process.

How Do Private Student Loans Work?

How Private Student Loans Work

Loan amounts, interest rates, repayment terms, and eligibility requirements for undergraduate private student loans vary by individual lender. If you’re in the market for a private student loan, it’s key to shop around and compare your options to find the best fit.

To get a private student loan, you need to file an application directly with your lender of choice. Based on the information you submit, the lender will determine whether or not you are approved and, if so, what rates and terms you qualify for.

If you’re approved, the loan proceeds will typically be disbursed directly to your university. Your school will apply that money to tuition, fees, room and board, and any other necessary expenses. If there are funds left over, the money will be given to you to use toward other education-related expenses, such as textbooks and supplies.

Repayment policies vary by lender, but typically you aren’t required to make payments while you’re attending school. Some lenders will allow you to defer payments until six months after you graduate. However, interest typically begins accruing as soon as the loan is dispersed. Similar to unsubsidized federal student loans, the interest that accrues while you’re in school is added to your loan balance.

The Pros and Cons of Private Student Loans

Pros of Private Student Loans

 Cons of Private Student Loans
Apply any time of the year May require a cosigner
Higher loan amounts Less flexible repayment options
Choice of fixed or variable rates No loan forgiveness programs
Quick application process Can lead to over-borrowing
Options for international students No federal subsidy

If federal financial aid — including grants, work-study, and federal student loans — isn’t enough to cover the full cost of college, private student loans can fill in any gaps. Just keep in mind that private student loans don’t offer the same borrower protections that come with federal student loans. Before taking out a private student loan, it’s a good idea to fully understand their pros and cons.

The Benefits of Private Student Loans

Here’s a look at some of the advantages that come with private student loans.

Apply Any Time of the Year

Unlike federal student loans, which have application deadlines, you can apply for private student loans any time of the year. As a result, they can be helpful if you’re facing a mid-year funding shortfall or if your college expenses go up unexpectedly.

Higher Loan Amounts

Federal loans have annual maximums. For example, a first-year, dependent undergraduate can borrow up to $5,500 for that year. The aggregate max a dependent student can borrow from the government for their entire undergraduate education is $31,000. Private student loan limits vary with each lender, but you can typically borrow up to the full cost of attendance, minus any financial aid received.

Choice of Fixed or Variable Interest Rates

Federal loans only offer fixed-rate loans, while private lenders usually give you a choice between fixed or variable interest rates. Fixed rates remain the same over the life of the loans, whereas variable rates can change throughout the loan term, depending on benchmark rates.

Variable-rate loans usually have lower starting interest rates than fixed-rate loans. If you can afford to pay off your student loans quickly, you might pay less interest with a variable-rate loan from a private lender than a fixed-rate federal loan.

Quick Application Process

While federal student loans require borrowers to fill out the Free Application for Federal Student Aid, or FAFSA, private student loans do not. You can apply for most private student loans online in just a few minutes without providing nearly as much information.
In some cases, you can get a lending decision within 72 hours. By comparison, it typically takes one to three days for the government to process the FAFSA if you submit electronically, and seven to 10 days if you mail in the form.

Options for International Students

While you never want to default on your student loans (since it can cause significant damage to your credit), it can be nice to know that private student loans come with a statute of limitations. This is a set period of time that lenders have to take you to court to recoup the debt after you default. The time frame varies by state, but it can range anywhere from three to 10 years. After that period ends, lenders have limited options to collect from you.

However, that’s not the case with federal student loans. You must eventually repay your loans, and the government can even garnish your wages and tax refunds until you do.

Options for International Students

International students typically don’t qualify for federal financial aid, including federal student loans. Some private lenders, however, will provide student loans to non-U.S. citizens who meet specific criteria, such as attending an eligible college on at least a half-time basis, having a valid student visa, and/or adding a U.S. citizen as a cosigner.

When we say no fees required we mean it.
No late fees
when you take out a student loan with SoFi.

The Disadvantages of Private Student Loans

Private student loans also have some downsides. Here are some to keep in mind.

May Require a Cosigner

Most high school and college students don’t make enough income or have a strong credit history to qualify for private student loans on their own. Though some lenders will take grades and income potential into consideration, most students need a cosigner to qualify for a private student loan. Your cosigner is legally responsible for your student debt, and any missed payments can negatively affect their credit. If you can’t repay your loans, your cosigner is responsible for the entire amount.

The good news is that some private student loans allow for a cosigner release.That means that after you make a certain number of on-time payments, you can apply to have the cosigner removed from the loan.

Less Flexible Repayment Options

Federal student loans offer several different types of repayment plans, including income-driven repayment (IDR) plans, which calculate your monthly payment as a percentage of your income.

With private student loans, on the other hand, usually the only way to reduce your monthly payment is to refinance the loan to a lower interest rate, a longer repayment term, or both. Keep in mind that by lowering your monthly payment via a longer repayment period, you’ll typically end up paying more in interest over the life of the loan.

No Loan Forgiveness Programs

Federal student loans come with a few different forgiveness programs, including Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness. While these programs have strict eligibility requirements, they can help many low-income borrowers. Private lenders, on the other hand, generally don’t offer programs that forgive your debt after meeting certain requirements.

If you’re experiencing financial hardship, however, the lender may agree to temporarily lower your payments, waive a payment, or shift to interest-only payments.

Can Lead to Over-Borrowing

Private loans typically allow you to borrow up to 100% of your cost of attendance, minus other aid you’ve already received. Just because you can borrow that much, however, doesn’t necessarily mean you should. Borrowing the maximum incurs more interest over the duration of your loans and increases your payments, which can make repayment more difficult.

Recommended: How to Save Money in College

No Federal Subsidy

Subsidized federal student loans, awarded based on financial need, come with an interest subsidy, meaning the government pays your interest while you’re in school and for six months after you graduate. This can add up to a significant savings.

Subsidies don’t exist with private student loans. Interest accrues from Day One, and in some cases, you might need to make interest payments while still in school. If you don’t pay the interest as you go, it’s added to your debt as capitalized interest when you finish school. (This is also the case with federal unsubsidized loans.)

Federal vs Private Student Loans

Here’s a look at the key differences between federal vs. private student loans.

Federal Student Loans vs. Private Student Loans

The Application Process

Federal student loans are awarded as a part of a student’s financial aid package. In order to apply for federal student loans, students must fill out the FAFSA each year. No credit check is needed to qualify.

To apply for private student loans, students need to fill out an application directly with their preferred lender. Application requirements vary depending on the lender. A credit check is typically required.

Recommended: Financial Aid vs Student Loans

Interest Rates

The interest rates on federal student loans are fixed and are set annually by Congress. Once you’ve taken out a federal loan, your interest rate is locked for the life of the loan.

For the 2025-2026 school year, the federal student loan interest rate is 6.39% for Direct Subsidized and Unsubsidized Loans for undergraduates, 7.94% for Direct Unsubsidized Loans for graduate and professional students, and 8.94% for Direct PLUS loans for parents and graduate or professional students.

Private lenders, on the other hand, are free to set interest rates. Rates may be fixed or variable and depend on several factors, including your (or your cosigner’s) credit score, loan amount, and chosen repayment term. Private student loan rates may start as low as 3.47%, according to the Education Data Initiative.

Repayment Plans

Borrowers with federal student loans can select from several different federal repayment plans , including income-driven repayment plans. You can defer payments while enrolled at least half-time and immediately after graduation.

Repayment plans for private loans are set by the individual lender. Many private student loan lenders allow you to defer payments during school and for six months after graduation. They also have a variety of repayment terms, often ranging from five to 20 years.

Keep in mind that for federal student loans, access to all income-based plans is currently cut off for new borrowers while the Trump administration reevaluates.

Options for Deferment or Forbearance

Federal student loan borrowers can apply for deferment or forbearance if they encounter financial difficulties while they are repaying their loans. These options allow borrowers to pause their loan payments (interest, however, will typically continue to accrue).

Some private lenders may offer options for borrowers who are facing financial difficulties, including short periods of deferment or forbearance. Some also offer unemployment protection, which allows qualifying borrowers who have lost their job through no fault of their own to modify payments on their student loans.

Loan Forgiveness

Borrowers with federal student loans might be able to pursue loan forgiveness through federal programs such as PSLF or Teacher Loan Forgiveness, or after paying down their balances on an IDR plan for a certain period of time.

Since private student loans aren’t controlled by the government, they are not eligible for federal loan forgiveness programs. Though private lenders will often work with borrowers to avoid default, private student loans are rarely forgiven. Generally, it only happens if the borrower becomes permanently disabled or dies, but even then it is up to the specific lender.

Should You Consider Private Student Loans?

There are many different types of student loans. It’s generally a good idea to maximize federal student loans before turning to private student loans. That way, you’ll have access to income-driven repayment plans, loan forgiveness programs, and extended deferment and forbearance periods.

If you still need money to cover tuition or other expenses, and you (or your cosigner) have strong credit, a private student loan can make sense.

Private student loans can also be useful if your expenses suddenly go up and you’ve already maxed out federal student loans, since they allow you to access additional funding relatively quickly. You might also consider a private student loan if you don’t qualify for federal loans. If you’re an international student, for example, a private loan may be your only college funding option.

Another scenario where private student loans can make sense is if you only plan to take out the loan short-term. If you’ll be able to repay the loan over a few years, private student loans could end up costing less overall.

Recommended: When to Apply for Student Loans

How to Get a Private Student Loan

Here’s a look at the steps involved in getting a private student loan.

1.    Shop around. Your school may have a list of preferred lenders, but you’re not restricted to this list. You can also do your own research to find top lenders. As you evaluate lenders, consider factors like interest rates, how much you can borrow, the loan term, when you must start repayment, any fees, and if the lender offers any hardship programs.

2.    See if you can prequalify. Some lenders allow borrowers to get a quote by filling out a prequalification application. This generally involves a soft credit inquiry (which won’t impact your credit score) and tells you what interest rates and terms you may qualify for. Completing this step can help you decide if you need a cosigner.

3.    Gather your information. To officially apply for a private student loan, you typically need to provide your Social Security number, birthdate, and home address, as well as proof of employment and income. You may also need to provide other financial information, such as your assets, rent or mortgage, and tax returns. If you have a cosigner, you’ll have to provide their personal and financial details as well.

4.    Submit your application. Once you’ve completed your application, the lender will typically contact your school to verify your information and eligibility. They will then process the student loan and notify you about your approval and disbursement of your money.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

Does Everyone Get Approved for Private Student Loans?

No, not everyone gets approved for private student loans. Lenders assess various factors to determine eligibility, such as credit history and income. Students with limited credit history may need a cosigner to qualify. Here are the key factors lenders consider:

•   Credit score

•   Income and employment status

•   Debt-to-income ratio

•   Cosigner’s creditworthiness

•   Enrollment status at an eligible school

If you don’t meet these qualifications, you can apply with a cosigner who does.

Apply for a Private Student Loan with SoFi

Private student loans are offered by banks, credit unions, and online lenders to help college students cover their educational expenses. They are not part of the federal student loan program, and generally do not feature the flexible repayment terms or borrower protections offered by federal student loans.
However, private student loans come with higher loan limits, and the borrowing costs are sometimes lower compared to their federal counterparts.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Why would someone get a private student loan?

Students typically turn to private student loans when federal loans won’t cover all of their costs. Private student loans come with higher borrowing limits than their federal counterparts. The aggregate max dependent students can borrow from the government for their entire undergraduate education is $31,000, which is sometimes not nearly enough to cover the cost of attendance.

With private loans, on the other hand, you can typically borrow up to the total cost of attendance, minus any financial aid received, every year. This gives you more flexibility to get the financing you need. Keep in mind, though, that private student loans do not come with the same federal protections and benefits offered by federal student loans.

Will private student loans be forgiven?

Private student loans aren’t funded by the government, so they don’t offer the same forgiveness programs. In fact, private student loan forgiveness is rare.

If you experience financial hardship, however, many lenders will work with you to stay out of default. They may agree to temporarily lower your payments, waive a payment, or switch to interest-only payments. Or, you might qualify for deferment or forbearance, which temporarily postpones your payments (though interest continues to accrue).

Are private student loans paid to you or the school?

Private student loans are typically disbursed directly to the school to cover tuition, fees, and other educational expenses. Any remaining funds after those costs are covered are then refunded to the student, which can be used for additional expenses like housing, textbooks, and personal living costs.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

SOISL-Q125-021

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Mar
18
2025
students studying

10 Ways to Prepare for College

By | Student Loans, student_loan | No Comments

Preparing to go to college starts long before your senior year in high school. In fact, soon after starting your freshman year in high school, you may want to begin thinking about what you can do to put your best foot forward on your college applications.

With the right college preparedness plan, choosing where to apply, filling out your applications, and getting into your top choices can be significantly easier. Here’s a smart 10-step plan that can help ensure you are ready for college when the time comes.

Key Points

•   As a high school student, taking necessary high school courses and enrolling in Advanced Placement (AP) or International Baccalaureate (IB) classes can strengthen your academic foundation and potentially earn college credits.

•   Dedicating time to study for the SAT or ACT can enhance your test-taking skills and improve scores, which are critical components of college applications.

•   Honing strong study skills is essential for managing the rigorous coursework expected in college.

•   Engaging in sports, clubs, or community service can enrich your high school experience and make your college application more compelling.

•   Understanding the costs associated with college and exploring financial aid options, such as scholarships and grants, can help manage the financial burden.

10 Ways to Get Prepared for College

1. Take the Required Courses

It’s a good idea to consult with your high school guidance counselor about what classes you should take for college preparation. Generally, high school students will take courses like:

•   English (American and English literature)

•   Math (Algebra I and II, Geometry, Trigonometry, and Calculus)

•   Science (Biology, Chemistry, Physics, and Earth Science)

•   Social studies (U.S. History, U.S. Government, World History, and Geography)

•   Foreign language

•   Arts

Completing these courses demonstrates to college admissions officers that you can handle a rigorous curriculum. It also prepares you for college-level coursework, allowing you to meet prerequisites for specific majors and improve your chances of excelling in advanced subjects.

2. Enroll in AP, IB, and College Courses

Your high school may offer you the opportunity to take Advanced Placement (AP) or International Baccalaureate (IB) classes, which are college-level and will allow you to earn college credit. Then, you can skip these courses when you get to college and ensure you have a head start.

Both require that you take exams, and you can send your scores to colleges. Keep in mind that IB classes would be more useful if you plan on going to college outside the U.S., since only U.S.-based schools recognize AP coursework.

3. Do Test Prep

A key step in preparing for college is studying for the SAT or ACT. Taking one of these tests is required for many college applications in the U.S. You can study by forming study groups with friends, taking the PSATs/pre-ACTs and practice tests, getting an SAT/ACT tutor, and enrolling in SAT/ACT practice classes.
You may want to look at the average SAT/ACT score of students who have been admitted to your top choice schools and aim to get those scores — or higher — to ensure your application impresses the admissions officers.

Recommended: ACT vs. SAT: Which Do Colleges Prefer?

4. Hone Your Study Skills

In college, you’re going to take a rigorous set of courses. Your academics are likely to be more challenging than they were in high school. This means you should hone your study skills now to prepare for college. Find a quiet place to study, turn off all distractions, organize your lecture notes, join study groups, and take breaks when you need them in order to effectively study.

5. Go to College Fairs

Whenever there is a local college fair happening, try to attend it. That way, you can learn about different colleges you may want to apply to. Typically, a college fair will consist of college representatives who set up booths, give presentations, talk to prospective students, and hand out pamphlets about their schools. College fairs can be a great opportunity to learn about a number of colleges in a short time period.

College fairs also allow you to connect with representatives at the colleges. As an attendee, you’ll have the opportunity to ask the representatives specific questions and take the handouts so you can continue your research at home.

Recommended: Ultimate College Application Checklist

6. Take College Tours

Before applying to a school, try to go on a campus tour to see what it’s all about. A college that has a great website or looks good on paper may not end up being the right fit once you actually visit it. While on the tour, ask your student tour guide and other students around about the pros and cons of the school to get a real feel for whether or not you’d like it there.

Some colleges may do interviews as a part of the application process. If you’re heading to campus for a college interview, make time for a tour too.

7. Meet With Your High School Guidance Counselor

Your high school guidance counselor can help you with preparing for college in a number of different ways. They can advise you on what classes to take and extracurricular activities you can enroll in to ensure you have a competitive college application when the time comes.

Your counselor can also help you determine what you want to major in and the kind of career you might enjoy by steering you toward career fairs and giving you a test that will show your strengths and reveal your talents. If you’re worried about paying for college, they can let you know your options and ensure you fill out all the right forms in time.

8. Fill Out a FAFSA Form

The Free Application for Federal Student Aid (FAFSA®) is the form you need to fill out each year to apply for federal financial aid. This includes federal grants, scholarships, work-study, and federal student loans. Some schools also use the information provided on the FAFSA to determine scholarship awards.

If you anticipate needing support to cover the cost of attendance in college, this is usually the place to start. The FAFSA for the 2025-26 school year is available now.

9. Look Into Student Loans

Filling out the FAFSA isn’t the only thing on your financial to-do list when you’re prepping for college. You could also weigh your student loan options. As mentioned, the FAFSA puts you in contention for federal student loans — among other tuition subsidies like work-study or grants. Federal student loans have fixed interest rates, which means the rate will not change for the duration of the loan.

Each year, Congress determines what the fixed interest rate on federal student loans will be — and interest rates vary across federal undergraduate loans, including PLUS loans for parents and grad students. While these loans can be an important resource when it comes to funding your education, there are limits to the amount you can take out each year. For example, first-year undergraduates currently have a federal loan limit of $5,500.

If federal aid and other sources of funding aren’t enough to cover the cost of tuition, you may consider looking into private student loans to fund the rest of your education. Private student loans don’t always offer the same benefits as federal student loans — like the option to pursue Public Service Loan Forgiveness or student loan deferment — so they are generally considered only after all other options have been reviewed and exhausted.

Recommended: Private Student Loans vs Federal Student Loans

10. Apply for Scholarships

Once you start applying to colleges, you may also want to search out and apply for private scholarships. Your school may offer specific scholarships you can apply for that will help you pay for your education. Online databases are another resource to check out. One option is Fastweb, a free national scholarship database that matches you to scholarships, internships, and grants you could potentially qualify for.

You can also use SoFi’s scholarship search tool to find scholarships based on your location, field of study, religious affiliation, and more.

Recommended: The Complete Guide on Going to College

The Takeaway

There are many things you can do to prepare for college. Above all else, you’ll want to focus on your academics and make your college application as competitive as possible so that you can get into the school of your dreams.

You’ll also want to think about what your education will potentially cost and come up with a plan for how you will pay for college. Your options include savings, grants, scholarships, work-study, and federal or private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What are some effective ways to stay organized when preparing for college?

To stay organized, you can create a detailed checklist of application deadlines, scholarship opportunities, and required documents. Using digital planners or apps to manage tasks and setting reminders for important dates will keep you on track and reduce stress.

How can high school students improve their chances of getting into their desired college?

High school students can improve their chances of getting into their desired college by maintaining a strong GPA, participating in extracurricular activities, and volunteering in the community. Additionally, writing a compelling personal statement and securing strong letters of recommendation can make a positive impression on admissions officers.

What financial steps should students take before starting college?

Students should research scholarship opportunities, apply for financial aid through FAFSA, and create a budget for tuition and living expenses. Opening a savings account and exploring part-time job options can also help manage costs and reduce the need for student loans.

About the author

Kylie Ora Lobell

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa, and her work has been featured by MoneyGeek, Slickdeals, TaxAct, and LegalZoom. Read full bio.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOISL-Q125-020

Read more
Mar
11
2025
How Do I Get My Student Loan Tax Form?

Understanding Student Loan Tax Forms: How To Get and Use Them

By | Going to College, Student Loans, student_loan | Comments Off on Understanding Student Loan Tax Forms: How To Get and Use Them

If you’re a borrower who paid interest on a qualified student loan, it’s possible to deduct some or all of that interest on your federal income tax return with a special tax form for student loans.

To do so, you’ll need a student loan tax form known as IRS Form 1098-E. You can use this form to report how much you paid in student loan interest on your tax return. One copy of the form will go to the IRS when you file your taxes, and you’ll keep the other.

To learn how to get your student loan interest tax form, when to deduct student loan interest, and how to file a student loan tax form, keep reading.

Key Points

•   Form 1098-E is a tax form sent by loan servicers or lenders to student loan borrowers who paid at least $600 in student loan interest for the year.

•   The student loan interest deduction amount is up to $2,500, based on Modified Adjusted Gross Income (MAGI) and tax filing status.

•   Borrowers use Form 1098-E to help calculate the amount of student loan interest deduction they qualify for when filing their federal income taxes.

•   Common errors include failing to claim the student loan interest deduction, misreported interest amounts, and claiming an incorrect deduction amount.

•   International students may qualify for the student loan interest deduction if they meet specific criteria.

Common Student Loan Tax Forms and Their Purpose

The IRS Form 1098-E is a tax form for student loans that’s sent out by your loan servicer or your lender.

The loan servicer is required to send borrowers a 1098-E to complete their taxes if the borrower paid at least $600 in student loan interest during the tax year. Typically, loan servicers get the forms out by the end of January, since the interest forms for student loans and tax season coincide.

If you have more than one loan servicer, you’ll receive a 1098-E form from each one.

Why Student Loan Tax Forms Matter

The student loan interest tax form is designed to give people with student loan debt the opportunity to deduct from their federal income taxes some of the interest that they paid for the year on their loan. It is one of the student tax deductions borrowers may be able to claim.

If you paid at least $600 in interest on a qualified student loan (meaning a loan taken out to cover higher education expenses such as tuition, fees, books, and supplies), the lender you paid that interest to should send you a 1098-E. This includes federal loans, private loans, and refinanced student loans.

Recommended: Do Student Loans Count as Income>

Uses of a Student Loan Tax Form

The student loan tax form is used to calculate your student loan interest deduction on your tax return.

As long as you meet certain conditions, you may be eligible to deduct up to $2,500 in student loan interest from your taxable income:

•   You paid interest on a qualified student loan for yourself, your spouse, or your dependents in the previous tax year.

•   Your filing status is anything except married filing separately.

•   Your income is below the annual limit.

•   You are legally obligated to pay the interest, not someone else.

•   If you’re filing a joint return, neither you nor your spouse is being claimed as a dependent on another person’s tax return.

Eligibility for the student loan interest deduction is determined based on a borrower’s modified adjusted gross income (MAGI). At a certain higher income bracket, the deduction is reduced or eliminated.

•   For taxpayers filing as single: The deduction for 2024 is reduced when a borrower’s MAGI is more than $80,000 of MAGI, and the deduction is eliminated at $95,000.

•   For taxpayers filing jointly: The 2024 deduction is reduced when MAGI is more than $165,000, and the deduction is eliminated at $195,000.

How to Obtain Your Student Loan Tax Forms

To obtain your student loan interest tax form and ensure you aren’t missing any tax documents this season, there are a few steps you can take:

1.   Go directly to your loan servicer’s website, where a downloadable 1098-E form will likely be available.

2.   Call your loan servicer if you’re unable to visit their website.

3.    If you don’t know who your loan servicer is, visit StudentAid.gov, then complete steps 1 and 2.

If you have private student loans, or you’ve refinanced your student loans, contact your lender directly.

Recommended: What Is IRS Form 1098?

How to Fill Out a Student Loan Tax Form (Form 1098-E)

When it comes to filling out a student loan tax form, the IRS provides detailed instructions for the current tax season to help financial, educational, and governmental institutions and borrowers cover all their bases.

According to the IRS, if a loan servicer receives student loan interest of $600 or more from an individual during the year in the course of their trade or business, they must:

•   File a 1098-E form and;

•   Provide a statement or acceptable substitute, on paper or electronically, to the borrower

There are two boxes on the 1098-E form:

•   Box 1 is the amount of student loan interest received by the lender. It’s important to note, this figure represents interest paid, not loan payments made.

•   Box 2, if checked, denotes the fact that the amount in Box 1 does not include loan origination fees and/or capitalized interest for loans made before September 1, 2004.

Once you, as the student loan borrower, receive the 1098-E form, it’s up to you to include it when you file your taxes.

How and When to Deduct Student Loan Interest

Student loan interest deduction is a type of federal income tax deduction for student loan borrowers that lets them deduct up to $2,500 of the interest paid on qualified student loans from their taxable income. It’s one of the tax breaks available to students and their parents to help them pay for college.

To know when to deduct student loan interest, it’s important to understand if you meet the necessary qualifications:

Your student loan was taken out for the taxpayer (you), your spouse, or your dependent(s).

•   Your student loan was taken out when you were enrolled at least half-time in an academic program that led to a degree, certificate, or recognized credential.

•   Your student loan was used for qualifying education expenses such as tuition, textbooks, supplies, fees, or equipment (not including room and board, insurance, or transportation).

•   Your student loan was used within a “reasonable period of time,” and its proceeds were disbursed 90 days before the beginning of the academic period in which they were used or 90 days after it ended.

•   The college or school where you were enrolled is considered an eligible institution that participates in student aid programs.

Do International Students Have a Different Tax Form?

For international students, it’s possible to deduct student loan interest from a foreign country, as long as their student loan is qualified (meeting the requirements listed above) and they’re legally obligated to make student loan payments on that loan.

There’s no need for international students to acquire a special international student tax form, however. The year-end financial statement from their loan servicer is typically sufficient enough proof for them to claim the student loan interest.

How to Claim the Student Loan Interest Deduction

To claim the student loan interest deduction you’ll need Form 1098-E that shows you paid at least $600 in interest on a qualified student loan for the tax year in question. If you have more than one loan servicer, you should get multiple 1098-E forms.

If your MAGI is in the range where student interest deduction is reduced, as noted above (more than $80,000 for single filers and $165,000 for joint filers), you can generally follow the instructions on the student loan interest deduction worksheet in Schedule 1 of Form 1040 to figure out the amount of your deduction when filing your federal income taxes. Then, you can enter the calculated interest amount on Schedule 1 of the 1040 under “Adjustments to Income.”

Keep in mind that the student loan interest deduction reduces your taxable income for the year — it’s not a credit that reduces dollar-for-dollar the amount of taxes you owe. This is a major difference between a tax credit vs tax deduction.

Common Mistakes to Avoid When Filing Student Loan Tax Forms

It’s important to be accurate when filing student loan tax documents. Some common mistakes to watch out for include:

•   Failing to claim the deduction. Don’t overlook Form 1098-E. This can happen during the busy tax season when there is a lot of paperwork to keep track of. Keep an eye out for the form in the mail, or log onto your loan servicer’s website to download before the tax filing deadline.

•   Incorrect interest amount on Form 1098-E. Review your 1098-E form carefully to make sure all the information on it is correct. Double-check the interest amount listed on the form with your records of the loan payments, including interest, you’ve made.

•   Claiming an incorrect amount for the deduction. The amount of student loan interest tax deduction you can claim depends on your MAGI and tax filing status. As noted, you’re eligible for a reduced deduction if your MAGI is more than $80,000 as a single filer and $165,000 as a joint filer. Follow the instructions on Schedule 1 of Form 1040 to figure how much of a deduction you can claim, or consult a tax professional.

•   Filing when ineligible for the deduction. As discussed, not all borrowers are eligible for the student loan interest deduction. Your student loans must be qualified and your MAGI must be below the cut-off levels to qualify for a full or reduced deduction. Those whose MAGI is $95,000 or more as single filers or $195,000 or more as joint filers are ineligible for the deduction.

The Takeaway

If you paid interest on a qualified student loan for yourself or a dependent, you can likely deduct at least some of that interest on this year’s tax return. This applies to federal, private, and refinanced student loans. Once you’ve determined when and whether you’re able to deduct student loan interest and how to file a student loan interest tax form, watch for your loan servicer to send you a copy of your 1098-E or visit your loan servicer’s or lender’s website to download the form.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What is Form 1098-E and how do I use it?

Form 1098-E is a tax form for student loans sent out by your loan servicer or lender. The form is sent to borrowers who paid at least $600 in interest on their student loans for the year. If you have more than one loan servicer or lender, you’ll receive a 1098-E from each one. You can then use the form to help calculate your student loan interest tax deduction on your federal tax return.

Can I deduct student loan interest if I’m still in school?

If you’re making student loan payments while you’re in school — even if you’re making interest-only payments — you may be able to claim the student loan interest deduction as long as you paid $600 or more in interest for the year.

How do I know if I qualify for a student loan tax deduction?

You should qualify for a student loan tax deduction if you: have a qualified student loan, paid at least $600 in interest during the tax year, are legally obligated to pay interest on a qualified student loan, cannot be claimed as a dependent on someone else’s return, have a tax filing status that is anything except married filing separately, and your MAGI is under the annual cut-off amount.

Do private student loans qualify for tax deductions?

Qualified student loans, including private student loans, are eligible for the student loan interest deduction as long as you paid at least $600 in interest on your loans for the year in question.

What should I do if I didn’t receive my student loan tax form?

If you didn’t receive your student loan tax form, go to your loan servicer’s or lender’s website where you should be able to download a copy of the form. If you can’t find it there or you have questions, call your loan servicer for assistance.

Photo credit: iStock/FG Trade

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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.

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.

SOSLR-Q125-026

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Feb
26
2025
woman studying

How to Study for the MCATs

By | Building Your Career, Fresh Out of School, Life & Career, Student Loans, student_loan | Comments Off on How to Study for the MCATs

So you want to go to medical school and become a doctor? Then you know that the MCAT, a rigorous test, is likely in your future. Since it’s an important qualifying test for medical school and can be challenging, you likely want to arm yourself with info and prepare well for it.

Here, you’ll learn some of the most important information, such as:

•   What are the MCATs

•   How to start studying for the MCATs

•   How to pay for the MCATs and medical school.

Read on, and hey: You’ve got this!

Key Points

•   The MCAT is a challenging, standardized, multiple-choice exam taken to qualify for medical school admission.

•   A competitive MCAT score is 514 or above, which results in a 70% acceptance rate to medical school.

•   Preparing for the MCAT is important. The Association of American Medical Colleges (AAMC) offers free and paid practice tests for MCAT preparation.

•   The registration fee for the MCAT is $335, with extra fees for changes or late registration.

•   The cost of attending medical school is on the rise. The average debt for medical school graduates is $234,597.

What Are the MCATs?

MCAT stands for Medical College Admission Test® (MCAT®). The test, which the Association of American Medical Colleges (AAMC) creates and administers every year, is multiple-choice and standardized. Some important facts:

•   Medical schools have been utilizing it for more than 90 years to determine which students should gain admission.

•   Most medical schools in the United States and many in Canada will require that students take the MCATs. Every year, more than 85,000 prospective medical school students take it.

•   There are four sections to the MCATs:

◦   Critical analysis and reasoning skills

◦   Biological and biochemical functions of living systems

◦   Chemical and physical foundations of biological systems

◦   Psychological, social, and biological foundations of behavior.

•   Students will receive five scores: one for each section, and then one total score.

◦   In each section, they can get a score ranging from 118 to 132, and the total score ranges from 472 to 528.

◦   Generally, a competitive MCAT score is a total of 514 or above, which results in a 70% acceptance rate to medical school.

The average MCAT score for all medical school applicants is currently 506.3. Usually, students will receive scores 30 to 35 days after they take the exam.

Keep in mind that MCAT scores, while important, are just one part of a medical school application. Medical schools often review other factors, including things like:

•   Your GPA

•   Undergraduate coursework

•   Experience related to the medical field, including research and volunteer work

•   Letters of recommendation

•   Extracurricular activities

•   Personal statement.

Because of this array of inputs, If a student has a high GPA from a competitive undergraduate school, for instance, and they don’t score very high on the MCATs, they may still have a chance of getting into a medical school.

Getting a competitive score on the MCAT can give applicants an edge, especially when applying to ultra-competitive medical schools. One way students can help improve their chances of getting a desirable score on the MCAT is to learn how to study for the unique demands of this test.


💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

Studying for the MCAT

One of the first things a student can do when determining how to prepare for the MCAT is to create a study plan. A well-crafted study plan will review what materials the student should review in order to prepare for the exam.

That said, there’s no one best way to prep for the MCAT. Consider these options; you might use one or a variety of techniques.

The AAMC Website

One great place to get started is the AAMC website, which provides an in-depth outline of the test on their website. Obviously, the same questions students will see on the actual exam won’t be listed, but sample questions that are similar to the real questions are. Students may find helpful tutorials and other content as well.

Online Resources

There are a variety of other online resources students can explore to help them review. For example, the AAMC currently recommends students take a look at Khan Academy’s MCAT Video Collection, where there are more than 1,000 videos as well as thousands of questions that students can use to review.

There are also MCAT study apps like MCAT Prep by MedSchoolCoach and MCAT Prep by Magoosh that students can download and use to study.

Books, Textbooks, and Class Resources

How else to prep for the MCATs? It may also help to buy or borrow books from the library that go into detail on the MCAT. One word of advice: Students should just make sure that the books they’re reading are up to date. Information (and the MCAT) get refreshed often; you don’t want to be studying yesterday’s medical data.

It can also be helpful to review class notes and study guides from courses you’ve taken that are related to MCAT materials. Some schools have study groups and other academic support resources for students who are studying for the MCAT. If you’re currently enrolled in classes, take a look to see what might be offered at your campus. You might luck out with some great ways to learn more.

Practice Tests

AAMC offers official sample MCAT practice exams online. You can access two for free, and others for a cost of $35 each. Taking practice tests can help students familiarize themselves with the exam. Taking practice tests can also be important in helping students understand the timing of each section.

Study Groups and Tutors

Here are other ideas for how to start studying for the MCAT:

•   Getting an MCAT tutor who has taken the test could also be helpful. A tutor will generally be able to provide guidance on what kind of questions a student can expect. Plus, they will likely have hands-on experience with effective methods and tips for studying.

If you decide that how to prep for the MCAT should involve a tutor, ask friends and fellow students who have taken the MCATs recently for recommendations. There are also test preparation companies that provide resources for students to find tutors online or in person. Do check reviews and references.

•   Study groups can also be a tool to help students who are preparing for the MCATs. Students can find others who are on the same path and work together to build proficiency. If possible, find a group where each student has a different strength and weakness. This can maximize students learning from one another.

•   It may help to use a shared calendar or another tool to make sure everyone is on the same page for dates, times, and locations for when the study group will meet.

•   Want to find a study group as part of how to prepare for the MCATs? Search engines, professors’ recommendations, school bulletin boards/online groups, and fellow students are good bets.



💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

Important Dates to Keep in Mind

Now that you know the ins and outs of preparing for the MCAT, what about taking the test itself? Students can take the MCATs numerous times throughout the year, from January through September. There are hundreds of test locations around the U.S. and Canada as well as select locations around the globe.

If a student’s preferred MCAT test date or location is not available, they can sign up for email notifications to see if it becomes available down the line.

Recommended: Refinancing Student Loans During Medical School

Paying for the MCATs and Medical School

As you explore the best way to prepare for the MCAT and plan your medical school journey, you’ll likely be keeping costs in mind and thinking about ways to pay for college. Here are details to note.

Paying for the MCATs

The registration fee for the MCAT exam is $335, and that includes distribution of scores. There may be additional fees for changes to a registration, a late registration, and for taking the test at international sites.

The AAMC does offer a Fee Assistance Program to students who are struggling to pay for the test and/or medical school applications. To be eligible for the Fee Assistance Program, students must meet the following eligibility requirements:

•   Be a US Citizen or Lawful Permanent Resident of the US.

•   Meet specific income guidelines for their family size.

Note that the Fee Assistance Program will review financial information of the student and the student’s parents, even if the student is considered independent.

Keep in mind that along with the MCAT fee, applying to medical school can be quite expensive. Most medical schools in the US utilize the AAMC’s American Medical College Application Service® (AMCAS®). To apply to medical schools, students will generally pay a first-time application fee of $175, as well as $46 for each additional school.

Some medical schools may require a secondary application, and those fees range depending on the school. Students may also need additional money to travel to and tour schools.

Medical School Costs

The application process is just one portion of the expense of med school. After being accepted, there’s the cost of tuition, books, and more, and these medical school costs have been rising steeply lately.

•   The average cost per year of medical school at a public school is $53,845, which includes tuition, fees, and living expenses.

•   The average cost per year at a private medical school is $67,950. The average debt for medical school graduates is currently $234,597. Debt after medical school can go even higher when you add in undergraduate loans.

Obviously, that’s a significant number and can make you wonder how to pay for medical school. First, do remember that medical school is a path to a rewarding and challenging career, as well as potentially a lucrative one. The average medical school graduate earns more than $158,000, with high earners enjoying salaries above the $400K mark, according to ZipRecruiter data.

In addition, be sure to search for scholarships and grants you might be eligible for. This type of gift money generally doesn’t need to be repaid.

Paying for School with the Help of SoFi

Paying for the MCATs and medical school can be a challenge. SoFi understands this, which is why they offer students private student loans and the opportunity to refinance their current student loans.

Keep in mind, however, that if you refinance with an extended term, you may pay more interest over the life of the loan. Also note that refinancing federal student loans means forfeiting their benefits and protections, so it may not be the right choice for everyone.

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
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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.

SOSLR-Q125-005

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Feb
13
2025
woman holding smartphone and coffee

APR vs Interest Rate

By | Debt Payoff, Student Loans, student_loan, Terminology | No Comments

When the interest rate and annual percentage rate (APR) are calculated for a loan — especially a large one — the two can produce very different numbers, so it’s important to know the difference when evaluating what a loan will cost you.

Basically, the interest rate is the cost of borrowing money, and the APR is the total cost, including lender fees and any other charges.

Let’s look at interest rates vs. APRs for loans, and student loans in particular.

Key Points

•   The interest rate is the cost of borrowing the principal amount, expressed as a percentage.

•   The annual percentage rate (APR) includes the interest rate plus additional fees, providing a total cost view.

•   Higher interest rates result in higher monthly payments and total costs over the loan term.

•   Additional fees in the APR include closing costs, origination fees, and mortgage points.

•   Considering both interest rate and APR is crucial for making informed loan decisions.

What Is an Interest Rate?

An interest rate is the rate you pay to borrow money, expressed as a percentage of the principal. Generally, an interest rate is determined by market factors, your credit score and financial profile, and the loan’s repayment terms, among other things.

How Interest Rates Work

Most people who take out a home mortgage loan opt for a fixed-rate mortgage. The borrower repays the amount borrowed, plus interest, in equal monthly installment payments over a period of 10, 15, 20, or 30 years. The higher the interest rate, the more they will pay each month and over the life of the loan. To see how interest rates affect payment amounts, try plugging different rate numbers into a mortgage calculator.

Some homebuyers opt for an adjustable-rate mortgage. In this scenario, there is typically an introductory period with an interest rate that might be lower than the available rate on a fixed-rate loan. But after that, the rate can periodically adjust (up or down), following market rates.

What Is APR?

If a loan were to have no other fees, hidden or otherwise, the interest rate and APR could be the same number. But because most loans have fees, the numbers are usually different.

How APRs Work

An APR is the total cost of the loan, including fees and other charges, expressed as an annual percentage. Compared with a basic interest rate, an APR provides borrowers with a more comprehensive picture of the total costs of the loan. The bulk of mortgage fees come in the form of closing costs and origination fees. Generally, closing costs average 3% to 6% of your mortgage loan principal, but each lender is different. Some borrowers also pay for mortgage points, also known as discount points, to lower the interest on their home loan. All of this would factor into the APR. Understanding these costs can help you get a clear picture of the total cost of a loan.

The federal Truth in Lending Act requires lenders to disclose a loan’s APR when they advertise its interest rate. In most circumstances, the APR will be higher than the interest rate. If it’s not, it’s generally because of some sort of rebate offered by the lender. If you notice this type of discrepancy, ask the lender to explain.

APR vs. Interest Rate Calculation

The bottom line: The interest rate percentage and the APR will be different if there are fees (like origination fees) associated with your loan.

How is APR Calculated?

To calculate APR, you first need to add the interest and the total fees for your loan. Then you divide by the principal amount borrowed. Divide the result by the total number of days in your loan term (for a 20-year loan, for example, you would divide by 7,300). Multiply the result by 365 (to get a yearly number) and then again by 100 (to arrive at an APR percentage).

Here’s the APR formula:

APR = ((Interest + Fees / Loan amount) / Number of days in loan term) x 365 x 100

Let’s say you’re comparing loan offers with similar interest rates. By looking at the APR, you should be able to see which loan may be more cost-effective, because typically the loan with the lowest APR will be the loan with the lowest added costs.

So when comparing apples to apples, with the same loan type and term, APR may be helpful. But lenders don’t always make it easy to tell which loan is an apple and which is a pear. To find the best deal, you need to seek out all the costs attached to the loan.

You may find that a low APR comes with high upfront fees, or that you don’t qualify for a super-low advertised APR, reserved for those with stellar credit.

How Are Interest Rates Calculated?

Calculating the total interest you’ll pay on a home loan is pretty simple with online tools. You can see the total interest you’ll pay on a loan quickly by plugging your loan amount, interest rate, and loan term into a mortgage calculator. (If you want to see what your monthly payment will be when you factor in property taxes and home insurance, use a mortgage calculator with taxes and insurance.)

How APR Works on Home Loans

Not all homebuyers understand the true cost of their mortgage loans. If you’re considering multiple loan offers (perhaps you’ve gone through mortgage prequalification with a few lenders), you can look at the APRs on the offers to compare them against one another.

One caveat regarding APR: Because fees associated with a home mortgage are usually paid at the beginning of the loan, the APR won’t reflect the true annual cost of the loan if you sell the property or refinance before the mortgage term is up.

How Interest Rates Work on Home Loans

Most home mortgages are amortizing loans, so although the monthly payment on a fixed-rate loan remains constant, the amount of interest you’ll pay with each payment will differ. Typically, more of a borrower’s monthly payment is made up of interest early in the life of the loan; as the loan ages, the reverse is true and more of the payment chips away at the principal. An amortization table for your loan should be provided in your loan documents.

Benefits of Government-Backed Mortgages

Some would-be homeowners find themselves comparing different types of mortgages (as well as different interest rates and APRs) when considering how to finance their purchase, and government-backed mortgages will have a different profile than conventional loans.

A government-backed mortgage such as an FHA loan or a VA loan may have a low down payment (or no down payment), which is a key benefit, especially for first-time homebuyers, who typically have fewer resources to pull from. It may also have different upfront fees than a conventional mortgage. An FHA loan, for example, usually requires mortgage insurance. If the borrower makes a down payment of 10% or more, after 11 years the lender can remove the mortgage insurance requirement, but many borrowers need to refinance to get rid of the insurance payment. The cost of this mortgage insurance factors into the APR.

The Takeaway

APR vs. interest rate is a key factor you’ll want to consider when deciding on a loan, because the APR reflects the fees involved in the loan. Even when it comes to government-backed home loans, fees are part of the story. So don’t just look at a loan’s interest rate — take the time to compare the APR as well.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What’s a good APR?

A good APR will depend on your individual profile as a borrower, with your credit score being a key factor. To see how the APR you’re being offered on a home loan compares with the national average, search for “national average XX-year mortgage APR” (with XX being your loan term in years). Then look at the percentages side by side.

What’s a good interest rate?

A good interest rate is one that’s below the posted national average interest rate for your loan type when you search online. Borrowers with less-than-stellar credit scores won’t qualify for the best rates, however, so what’s a good interest rate for you will depend on your personal credit score and financial profile.

Does 0% APR mean no interest?

Zero percent APR means that no interest is charged for a set period of time. This is a term commonly seen on credit card offers and car loans. If you go this route, make sure you note the length of the no-interest promotional period and that you make your payments on time during the period, as missing payments can trigger interest to build on the debt.

Does refinancing your mortgage help lower rates?

Refinancing your mortgage may help lower your interest rate if rates have dropped since you initially purchased your home, or if your credit score and other aspects of your financial profile have improved significantly. It’s important to consider closing costs associated with a refinance, however, before deciding that it makes sense to chase a lower rate.

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.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.



*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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