Student Loans Archives | Page 30 of 130

Jun

2022

Are Refinanced Student Loans Tax Deductible?

By Melissa Brock | Fresh Out of School, Student Loans, student_loan | Comments Off

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.

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.

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.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

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). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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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Jun

2022

Refinancing Student Loans Before Grad School: What You Need to Know

By Jennifer Calonia | Fresh Out of School, Going to College, Student Loans, student_loan | Comments Off

Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

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.

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.

CLICK HERE for more information.

Photo credit: iStock/kali9
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Jun

2022

College Graduation Rates: How Many People Graduate College?

By Melissa Brock | Going to College, Student Loans, student_loan | Comments Off

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.

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.

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.

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.

Photo credit: iStock/digitalskillet

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 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, 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.
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SOSL1121004

Jun

2022

Can You Go to Jail for Not Paying Student Loans?

By Kevin Brouillard | Going to College, Student Loans, student_loan | Comments Off

The national student loan debt reached $1.6 trillion in 2022. With such a large amount of debt, staying on top of debt and other financial obligations can be challenging.

If you’re having trouble making monthly payments, you might be wondering what happens if you don’t pay your debt.

While you cannot be arrested or put in jail for failing to pay your student loans, there are repercussions for missing student loan payments, including damage to your credit and wage garnishments.

This guide will examine the potential legal and financial consequences of not paying debt, as well as offer tips for tackling student loan debt.

Going to Jail for Debt

Not all debt is treated equally by the law. So when can you go to jail for debt?

When debt is ordered by a court, which is the case for child support, missing payments could put you at risk of jail time. To clarify, an arrest would be made for violating a court order, rather than being unable to pay child support.

Failing to pay federal taxes is another situation that could result in jail time, depending on the circumstances. Not paying your taxes could lead to a civil suit with fees and fines, whereas tax evasion or fraud can carry a prison sentence with a conviction.

The key difference is that the latter involves knowingly misrepresenting your finances to get out of paying taxes when you actually have the means to.

Can You Go to Jail for Not Paying Student Loans?

No, you can’t be arrested or put in prison for not making payments on student loan debt. That’s because failing to pay back debt is a civil offense — not a criminal one.

Under civil law, a lender or creditor can sue borrowers to collect the money owed to them. A civil suit may require a court summons, which if ignored, could lead to jail time for failing to appear in court.

Dealing with debt collectors and a potential lawsuit can be overwhelming. If you’re in this situation, note that the Fair Debt Collection Practices Act ensures certain protections from abusive and illegal debt collection practices.

Statute of Limitations on Debt

In terms of debt collection, the statute of limitations refers to the amount of time that creditors have to sue borrowers for debt that’s past due.

Federal student loans don’t have a statute of limitations. This means that federal loan servicers can collect your remaining student loan balance when you stop making payments. Keep in mind that the federal government doesn’t have to sue you to start garnishing wages, tax refund, and Social Security checks.

The statute of limitations on private student loans ranges from 3 to 10 years based on where you live currently or at the time you borrowed, though this may vary.

But when does the statute of limitations on debt start? Depending on the state, the clock starts ticking as soon as you miss a payment or on the date of your most recent payment. Making a partial debt payment could also reset the timer on the statute of limitations.

What Are the Consequences of Not Paying Off Student Loan Debt?

Depending on the type of loan and lender, you may have to start making monthly payments as soon as it’s disbursed. Meanwhile, certain types of federal loans (Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan) and some private student loan options offer a six-month grace period before payment is due.

If you miss a payment, the loan becomes delinquent, even if missed by one day. However, covering payments on private student loans within 90 days before they enter default can prevent lenders from reporting your non-payment to credit bureaus and a subsequent hit to your credit score. For federal loans, you have 270 days before loans are considered in default.

When loans enter default, borrowers become vulnerable to the consequences of not paying debt. In addition to a lower credit score, borrowers could be sued by collection agencies to have their wages and government benefits garnished. Defaulting on federal loans could rule out any future student loan assistance from the government.

Borrowers in severe financial distress may consider filing for bankruptcy. It is extremely rare to have student loan debt discharged in bankruptcy. It’s worth noting that student loans will only be discharged in Chapter 7 or 13 bankruptcy if the borrower can prove that repayment would cause undue hardship.

This is ultimately decided in an adversary proceeding in bankruptcy court, and may be challenged by creditors. The legal costs of doing so are prohibitive for many borrowers declaring bankruptcy.

Review your options for tackling debt early to avoid ending up with debtors’ prison student loans.

Recommended: Types of Federal Student Loans

Tips for Getting Out of Student Loan Debt

Falling behind on your student loans can be stressful. Fortunately, there are options for getting back on track.

Here are 10 ways to get out from under your student loan debt:

1. Budget

It’s hard to manage your finances without a plan. Creating a personal budget is a helpful way to keep your spending in check and determine how much you can afford to allocate to paying off debt.

Sticking to a budget can take discipline. Setting up automated savings can help ensure you set aside enough money for your student loan payment and essential expenses each month.

Knowing how a student loan works, including the interest rate, minimum payment, and the loan term, is foundational to a sound budget.

2. Increase Cash Flow

Reining in your spending with a budget is a good place to start, but it may not be enough for getting out of debt. Having some extra cash on hand can help manage debt payments and offer some breathing room within your monthly budget.

Taking on a part-time job, freelance work, or selling nonessential personal belongings are a few ways to increase cash flow.

3. Create a Debt Reduction Plan

After taking inventory of all your debts, creating a debt reduction plan is a strategic way to map out how you’ll approach repayment.

A popular system is the avalanche method, which calls for putting any extra cash towards the debt with the highest interest rate while making minimum payments on other balances.

Another option is the snowball method, which focuses on ticking off the smallest debt balances in succession while still taking care of minimum payments on other debt.

Comparing how your current and projected debt compares to the average debt by age can help inform how you approach debt reduction.

4. Debt Consolidation

If you have multiple debts, it can be difficult to prioritize repayment. They’ll likely all have different interest rates, minimum payment amounts, and dates when payment is due.

Consolidating debt under one loan can streamline the repayment process and potentially lock in better terms for a portion or all of your existing debt.

5. Ask for Help

Asking your lender for a lower monthly payment that you can afford is a possibility worth trying. Reaching out early on can potentially increase your chances of success, as it saves the lender time and money spent on debt collection.

Getting support from friends or family can help too, whether it’s putting money towards debt payments or co-signing on a loan to consolidate debt.

6. Check State Loan Programs

The federal government offers student loan forgiveness to borrowers who meet certain eligibility criteria, such as working in a certain profession or having a permanent disability.

Similar programs are available at the state-level across the country, and generally base eligibility on specific professions or financial hardship.

For instance, the Rural Iowa Primary Care Loan Repayment Program can provide up to $200,000 towards repaying eligible student loans for doctors who commit to working five years in designated locations.

Meanwhile, the NYS Get on Your Feet Loan Forgiveness Program offers up to 24 months of debt relief to recent graduates in New York who are participating in a federal income-driven repayment plan.

7. Ask Employer About Tuition Reimbursement Programs

Besides health insurance and a 401(k), your employer may provide other benefits, including tuition reimbursement programs, to support and retain their employees.

Often, these programs are focused on annual tuition expenses that employees incur while studying and working concurrently. Still, employers may offer to contribute to student loan payments as well.

8. Refinance Your Student Loans

Many borrowers choose to refinance their student loans to qualify for a lower interest rate, thus paying less over the life of the loan.

Your income and credit history will impact your ability to refinance, so this strategy may be less fruitful if your student loans are in default. Additionally, refinancing federal student loans will eliminate them from federal borrower protections and payments, such as income-driven repayment plans or federal forgiveness programs. If you are taking advantage of these programs, refinancing may not be the right choice for you.

9. Set Up Income-Based Plan

If you have federal student loans, there are four income-driven repayment plans you can apply for to make your monthly payments more manageable. These include:

• Revised Pay As You Earn Repayment Plan

• Pay As You Earn Repayment Plan

• Income-Based Repayment Plan

• Income-Contingent Repayment Plan

The monthly rate is based on family size and discretionary income — usually between 10% to 20%. What’s more, all four plans forgive any remaining balance at the end of the 20- or 25-year repayment period. Note that in some situations, you may be required to pay taxes on the forgiven amount, according to IRS rules.

10. Find New Repayment Plan

Besides income-based repayment, borrowers can explore a variety of other federal repayment plans to help pay off debt.

For example, the graduated repayment plan helps recent college grads find their financial footing by setting smaller monthly payments at first before increasing every two years.

The Takeaway

Although you won’t go to jail for failing to pay your student loans, there are financial consequences, like wage garnishments, subpar credit, and civil lawsuits from debt collectors.

Finding a student loan with a competitive interest rate and flexible repayment terms can help avoid the stress and repercussions of not paying student loans.

If you’re exploring lenders, check out SoFi. Private student loans from SoFi come with no fees and a six-month grace period. And with multiple repayment plans, you can choose the option that best aligns with your budget.

Find out what you qualify for with just a few clicks.

FAQ

Do student loans go away after 7 years?

No, student loans won’t disappear after 7 years. However, late payments or defaulting on a loan will be removed from your credit report after 7 years.

How long before student loans are forgiven?

The Public Service Forgiveness Program requires 10 years of service for student loan forgiveness, while income-based repayment plans take 20 to 25 years of repayment to have the remaining balance forgiven. State programs may offer more rapid repayment assistance and forgiveness.

Can student loans seize bank accounts?

Yes, but not right away. Lenders must first sue and get a court judgment to garnish your bank account.

Photo credit: iStock/shadrin_andrey

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 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.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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Jun

2022

Title IV Financial Aid: What It Is and How It Works

By Josephine Nesbit | Debt Payoff, Going to College, Student Loans, student_loan | Comments Off

Federal financial aid funds are generally referred to as Title IV under the Higher Education Act of 1965 (HEA) and are administered by the U.S. Department of Education. Title IV funds may come from grants, work-study, or student loans. It’s important that students understand all of their options when it comes to paying for college.

Here are some more details about Title IV financial aid, how it works and how these funds can help pay for school-related expenses.

What Is Title IV?

Under the HEA, Title IV refers to federal financial aid funds. Title IV of the HEA authorizes student financial aid programs of the federal government, which are the primary source of direct federal support to students attending certain institutions of higher education (IHEs). These institutions include public, private nonprofit, and proprietary institutions, which must meet a variety of criteria to participate in Title IV programs.

Federal aid awarded to students can be used to pay for tuition and fees, room and board, books and supplies, and transportation. Federal financial aid is mainly distributed to students through federal student loans, grants, and work-study.

In 2021, Federal Student Aid (FSA) processed more than 17.6 million FAFSA® forms — otherwise known as the Free Application for Federal Student Aid. In 2021, $112 billion was delivered via Title IV financial aid to more than 10.1 million postsecondary students and their families. These students attended 5,600 active institutions of postsecondary education that participate in federal student aid programs.

Different Types of Title IV Funds

Title IV doesn’t include all forms of financial aid that can be used to help pay for college. Here is what Title IV does cover.

• Direct Subsidized Loans are a type of federal student loan available to undergraduates where a borrower isn’t generally responsible for paying interest while in school. Direct Subsidized Loans are only available to students who demonstrate financial need.

• Direct Unsubsidized Loans are loans available to undergraduates and graduates where a borrower is fully responsible for paying the interest regardless of the loan status. Interest accrues from the date of disbursement and continues throughout the life of the loan.

• Direct PLUS Loans are federal loans available to graduates or professional students and parents of dependent undergraduate students to help pay for college or career school.

• Direct Consolidation Loans are federal loans that allow the borrower to combine multiple federal student loans into a single new loan.

• Federal Grant Programs offer eligible students financial assistance by the U.S. government out of the general federal revenue. Title IV covers several federal grant programs, including Federal Pell Grants, the Federal Supplemental Educational Opportunity Grant Program, the Teacher Education Assistance for College and Higher Education (TEACH) Grant Program and the Iraq and Afghanistan Service Grant Program.

• Federal Work-Study Program is a federally-funded program that offers part-time employment to students in financial need, allowing them to earn money to help pay for school-related expenses.

Who Is Eligible for Title IV?

To be eligible for federal student aid, you must meet basic eligibility requirements . Students must:

• Demonstrate financial need for most programs.

• Be a U.S. citizen or an eligible non-citizen.

• Have a valid Social Security number.

• Be enrolled or accepted for enrollment as a regular student in an eligible degree or certification program.

• Enrolled at least half-time for Direct Loan Program funds.

• Maintain satisfactory academic progress.

• Sign the certification statement on the FAFSA stating that you are not in default on a federal student loan, you do not owe money on a federal student grant, and you will only use federal student aid for educational purposes.

• Show you’re qualified to obtain a college or career school education by having a high school diploma or its equivalent or enrolling in an eligible career pathway program and meeting one of the “ability-to-benefit” alternatives.

Some Title IV programs have additional eligibility criteria specific to the program. Check with your school’s financial aid office for more information or questions on a particular program.

Recommended: FAFSA Guide

What Can Title IV Loans Be Used For?

Title IV loans can be used for tuition and fees, room and board, books and classroom supplies, transportation and even some eligible living expenses. Tuition is typically the largest expense. According to the College
Board , the average college tuition including fees for a private four-year nonprofit institution in 2021-2022 is $38,070 while the average for a public, out-of-state four-year institution is $27,560 and $10,740 for a public four-year institution with in-state tuition.

Beyond tuition, Title IV loans can also be used to purchase books and school supplies, like a backpack, laptop, and notebooks. To help reduce costs, you can purchase used textbooks or rent them through your school or other services. Title IV loans can also help cover housing expenses and food costs, even if you live off-campus, and pay for the maintenance of your car, fuel, or bus and taxi fares.

If Title IV loans are used inappropriately, the school can report it to the Department of Education via a hotline and you may be held liable for those funds.

Title IV Payments

As mentioned, grants, scholarships, and work-study attained through Title IV generally don’t need to be repaid. However, as mentioned, student loans do need to be repaid.

Once you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment and you must make Title IV payments. However, if you have a Direct Subsidized Loan or a Direct Unsubsidized Loan, there is a six-month grace period before you are required to start making regular payments. Graduate and professional student PLUS borrowers will be placed on an automatic deferment while in school and for six months after graduating, leaving school, or dropping below half-time enrollment.

When your loan enters repayment, your loan servicer will automatically enroll you on the Standard Repayment Plan, which spreads monthly payments over a 10-year period. This can be changed at any time for free. You can also make prepayments on your loan while you are in school or during your grace period.

Your loan servicer will provide you with a repayment schedule with the due date of your first payment, the number and frequency of payments and the amount of each payment. Your monthly payment depends on your chosen repayment plan. Most Title IV loan services will send out an email when your billing statement is ready to be viewed online.

What to Do if Your Title IV Loans Aren’t Enough

If your Title IV loans aren’t enough to cover all costs, there are other options.

You can apply for scholarships or grants, which are a form of gift aid that typically do not need to be repaid. Scholarships are awarded based upon various criteria, such as academic or athletic achievement, community involvement, job experience, field of study, financial need and more. Most grants for college are need-based.

Another option is a part-time job. Your school may have job boards that list on-campus jobs for students or you could check external job sites for part-time opportunities.

Once you’ve exhausted every other option, private student loans are another possibility to consider. Private student loans can be used to cover college costs, but they are issued by banks, credit unions, and online lenders rather than the federal government. Private student loans are also credit-based and the lender will have their own eligibility criteria. The lender will typically review factors including your credit history, income, debt, and whether you’re enrolled in a qualified educational program. If you don’t have enough credit history or enough proof of income, you may choose to apply with a cosigner. Adding a cosigner with an established credit history can help improve your application and potentially allow you to qualify for a more competitive loan.

If you take out student loans, you can refinance them after you graduate to save money when it’s time to repay. Refinancing involves taking out a new loan and using it to repay all your existing loans, which can include federal loans and private loans. Refinancing student loans with a private lender also means forfeiting federal loan benefits like deferment, forbearance or income-driven repayment plans.

The Takeaway

Title IV financial aid has given millions of students the means to afford and attend college, university and trade school. And if you don’t receive enough Title IV aid, it doesn’t mean you’re out of luck when it comes to funding your college education. By applying for scholarships, taking on part-time jobs, applying for private student loans or refinancing, you can make your dreams a reality.

If refinancing seems like an option for you, consider SoFi. It only takes minutes to apply, even with a cosigner, and there are no fees, period.

Check out student loan refinancing with SoFi and find what works for you.

FAQ

What is the purpose of Title IV?

Federal Student Aid is responsible for managing the student financial assistance programs under Title IV of the HEA. The FSA’s mission is to ensure that all eligible students benefit from federal financial assistance throughout postsecondary education.

What is included in Title IV?

Title IV provides grant, work-study, and loan funds to students attending college or career school.

Is Title IV a loan?

Title IV does include federal student loans such as Direct Unsubsidized and Subsidized loans. However, Title IV funds are also distributed to students through federal grants and work-study programs.

CLICK HERE for more information.

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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/martin-dm
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