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Free money for college sounds too good to be true, but it’s a real thing. It comes in the form of scholarships and grants, which almost never have to be repaid.

Families may need to put in effort to find scholarships and grants, but the hustle can pay off.

Free Money for College‽

Yes, that’s right. Scholarships and grants are gifts that reduce the need to take out student loans.

The average student loan debt loads, rounded up, are as follows, according to EducationData researchers:

•   $37,700 for undergraduate students

•   $80,500 for master’s degree holders

•   $132,300 for doctorate holders

Depending on your perspective, that might seem like a lot or might seem manageable. But let’s say a borrower was eligible for free money and left it on the table: That, unfortunately, does happen.

Here are details about the two types of financial aid gifts.

What Are Scholarships?

The many types of scholarships include merit scholarships, which are not based on financial need.

Academic and athletic scholarships are well known, but merit aid also may be determined by community involvement, dedication to a field of study, or your ability to do a killer duck call or create promwear from duct tape.

Scholarships can also be based on a specific trait, like your race, ethnicity, or gender, if you’re a first-generation college student, or where you live.

Scholarships are awarded by companies, nonprofits, states, religious groups, employers, individuals, and professional and social organizations. A big source of merit scholarships is colleges themselves.

What Are Grants?

Grants are awarded by the federal government, state government, private companies, and nonprofits.

Almost all federal and state grants for college are need based, but some nonprofit and for-profit organizations offer need- or merit-based grants.

Students who plan to attend a community college, career school, or four-year college are smart to complete a FAFSA application each year. Information in the Free Application for Federal Student Aid determines what kinds of federal financial aid they qualify for, including grants.

Most states and schools use FAFSA information to award non-federal aid, so even higher-income families may benefit from submitting an application.

How Much Does Free Money for College Help?

Scholarships and grants can make a big difference in lightening the college debt load.

Take a look.

How Families Pay for College
Average college expenditure in the 2021-22 academic year	$25,300
Parent and student income and savings	54%
Scholarships and grants	26%
Borrowed money	18%
Relatives and friends	2%
Source: Sallie Mae “How America Pays for College 2022” report

Finding Scholarships and Grants

With federal and institutional grants, you are automatically considered for need-based financial aid when you submit the FAFSA.

Finding private scholarships can take more time and effort.

Federal Student Aid recommends that students start researching scholarships the summer after their junior year of high school. An ambitious few start before that.

Researching Scholarships

Here are ideas to look for scholarships:

•   Consider using a database like Scholarships.com that lets you create a profile with all of your information, which could help you match with scholarships and grants.

•   Use the Department of Labor’s CareerOneStop site to sort more than 9,000 opportunities for financial aid.

•   Try more than one scholarship search tool. The nonprofit College Board also offers one.

•   Ask college financial aid offices about their scholarship availability and process.

•   See if your employer or your parents’ employers offer college aid.

•   Look for scholarships offered by foundations, religious or civic groups, local businesses, and organizations related to your field of interest.

You don’t have to be a scholar or standout athlete to get a scholarship. Students may have success finding non-academic scholarships for, like, an awesome duck call.

Finding those private scholarships and completing the essay and application will take time, however.

Recommended: Search Grants and Scholarships by State

Researching Grants

Grants are typically awarded in a federal financial aid package.

In addition to federal grants, schools may award institutional grants.

It’s a good idea to take a shot at free money by submitting the FAFSA each year when it becomes available or soon after.

The Sallie Mae “How America Pays for College” report found that 75% of families were not aware that the FAFSA is available on Oct. 1 and that 36% did not file an application because they thought their income was too high to qualify for aid.

Other Options to Help Pay for College

There are many ways to pay for school, and students and their parents may use a combination of methods to cover the cost of attendance, an estimate of the total cost of attending a particular college for one year.

Paying for College With Student Loans

Most students leave school with debt, thanks to all the costs of college, which go well beyond tuition and fees.

When it comes to private vs. federal student loans, most students first go for federal student loans.

For one thing, an undergrad might qualify for Direct Subsidized Loans. The government pays the interest on those loans as long as the student is enrolled at least half-time. The interest is also covered for six months after the student leaves school, graduates, or enters a period of deferment.

For another, borrowers may qualify for an income-based repayment plan, Public Service Loan Forgiveness, or federal deferment or forbearance down the road.

Not all students or parents will be able to rely solely on federal aid to cover all their bases, though, and that’s where a private student loan could come in handy.

Private student loans don’t come with all the borrower protections and programs that federal student loans do, but they can be used to cover any remaining school-certified costs, here or abroad, from transportation to books and lodging.

The interest rate may be competitive with federal student loan rates. Also, most federal student loans have loan fees — a percentage of the total loan amount — whereas a private student loan may have no fees.

Federal Work-Study

The federal work-study program allows students to earn money that can be used to pay day-to-day expenses. Students who demonstrate financial need may be eligible for jobs on or off campus.

Not all colleges participate in the program.

Does a Student Ever Have to Repay a Grant?

Federal Student Aid says the only time you might have to repay all or part of a federal grant is when:

•   You withdrew early from the program for which the grant was given to you.

•   Your enrollment status changed. If, for example, you switch from full-time to part-time enrollment, your grant amount will be reduced.

•   You received outside scholarships or grants that reduced your need for federal student aid.

•   You received a TEACH Grant, but you did not meet the service obligation. In that case, the grant could be converted to Direct Unsubsidized Loans.

If you don’t meet the expectations of a scholarship, such as GPA or credit-hour minimums, you could lose the gift and have to pay out of pocket.

When it comes to sports, the head coach decides whether an athletic scholarship will be renewed. Injury or poor academics can sack an athletic scholarship.

NCAA Division I and II colleges alone award more than $3.7 billion in athletic scholarships each year. But only a tiny fraction of high school students are offered athletic scholarships, and an even tinier number get a full ride.

Recommended: FAFSA Tips and Mistakes to Avoid

So Who Wants Free Money for College?

Changes to the federal application for student aid are afoot. What hasn’t changed is the benefit of filling out the FAFSA on or soon after Oct. 1 for the next school year. Funding is limited and often doled out on a first-come, first-served basis.

And, to reiterate, other student aid programs piggyback off the FAFSA.

The FAFSA considers student income, parent income and assets, and family size to calculate the expected family contribution (EFC).

The EFC is used to determine whether a student qualifies for federal grants like the Pell Grant, for low-income families; federal student loans; or work-study. The maximum Pell Grant award for the 2023-2024 year is $7,395.

Some FAFSA changes will be launched this year. Starting with the 2023-24 award year, for example, students incarcerated in federal and state correctional facilities will be eligible for Pell Grants.

The “Student Aid Index” will replace the “expected family contribution” starting with the 2024-25 award year, to clarify the misunderstood EFC.

The Takeaway

Free money for college is a real thing. Grants and scholarships are worth seeking out because they reduce the need to take out student loans. But if you still need to borrow, there’s no shame in that game. Most students do.

If you’re a student or parent and don’t anticipate being able to cover every cost of college in any given year, consider a SoFi Private Student Loan.

SoFi offers undergraduate, graduate, and parent student loans — with a variety of repayment options and no fees whatsoever.

Get your rate on a private student loan within three minutes.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. 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.
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.
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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Community colleges offer a more affordable path to a Bachelor’s degree for students who are interested in transferring to a four-year institution. Students at community college can fulfill general education requirements on a flexible schedule while earning their associates degree. However, community colleges don’t offer a Bachelor’s degree option and can lack student life and extracurricular opportunities.

Community colleges can be a great fit for some students while others may prefer to start out at a four-year college or university. As you explore your choices, review the differences between community colleges and four-year universities. See how they stack up with what you’re looking to get out of a college career.

What Is a Community College?

Community colleges are one type of post secondary institution. Sometimes called junior colleges, these are educational institutions that offer two-year degrees and a path to transferring to a four-year college or university.

Community College vs University: How They Compare

Community colleges, as mentioned generally offer two-year associates degrees. In comparison, colleges and universities often offer four-year degrees such as a Bachelor of Arts or Sciences.

Similarities

Both types of colleges have some similarities, including the types of aid that you may receive to attend.

Financial Aid

It’s possible to get student loans for community colleges. Students at both community colleges and four-year schools may qualify for the same types of federal financial aid. These options may include scholarships, grants, and federal student loans.

Prerequisite Courses

Community colleges will offer some of the same prerequisite courses as universities. Classes like General Chemistry 101 or Microbiology 101 are similar at community colleges and students may be able to transfer these prerequisite courses toward a four-year degree if they choose to transfer.

Academic Challenge

It’s easy to think of community college classes as a breeze to complete — but, in many cases, community colleges offer academically rigorous classes that cover material comparable to those offered at four-year institutions. Additionally, community college professors do not conduct research, so there may be more of a focus on in-classroom instruction at community colleges than at four-year colleges or universities.

Differences

There are also plenty of differences between attending a community college vs. university. In addition to the estimated time to earn a degree and the type of degree available, these include things like the cost of attendance, class size, and the application process.

Cost

Attending a community college can be significantly cheaper than going to a four-year university. For example, at schools that are part of the California Community College system, the cost of classes is $46 per credit unit. According to the Education Data Initiative, the average cost per credit at a four-year university with in-state tuition is $390.

Class Size

The average class size can vary dramatically depending on the school you attend. Community colleges typically have class sizes that hover around 25 to 30 students, depending on the course and school. Some four-year universities can have class sizes into the hundreds, especially for intro-level courses.

Application Process

The application process at a university vs. community college can be much more competitive. At many four-year colleges, the application process consists of requirements like a college essay, recommendation letters, and high school transcripts. Additionally, schools may have strict deadlines for admissions each year.

Community colleges often offer more flexibility in the application process. Many community colleges are open access, meaning almost anyone can enroll in classes. There may be restrictions for certain programs or classes, for example, classes required for nursing programs.

Campus Life

While some community colleges may offer on-campus housing for students, a large number of them will continue to live at-home or off-campus. This can make on-campus life feel very different than at a four-year college where most students live on-campus.

Similarities and Differences Between Community College vs. University
Topic	Community College	Colleges and Universities
Financial Aid	Both types of schools may be eligible for federal student aid.	Both types of schools may be eligible for federal student aid.
Prerequisite Courses	Both types of schools offer general education or prerequisite courses like General Chemistry 101 or American History 101.	Both types of schools offer general education or prerequisite courses like General Chemistry 101 or American History 101.
Cost	Community colleges are significantly cheaper than four-year institutions.	Colleges and universities are generally more expensive than community colleges.
Class Size	Class sizes at community colleges are generally smaller than at four-year institutions.	Class sizes may be larger at some colleges or universities. At some schools, intro level courses can have hundreds of students in a single class.
Application Process	The application process for community college is usually more lenient than at four-year institutions.	Colleges and universities often have strict requirements that may include a college essay, letters of recommendation, and standardized testing.
Campus Life	Because many students live off-campus, campus life may be less robust than at four-year institutions.	Many colleges and universities are known for having a rich on-campus life available for students and offer a variety of extracurricular activities.

Pros and Cons of Attending a Community College

There are both downsides and benefits of community college. Community colleges can offer an affordable path to get a four-year degree, but transferring and a lack of on-campus community can detract from the community college experience.

Pros of Community College

Cost

One of the top pros in the community college column is the price tag. As previously outlined, courses at community college can be significantly less costly than at a four-year institution. For students who are paying for college without parents’ help, starting at a community college can help them significantly lower the cost of their overall degree.

Additionally, students may be able to continue living at home with their family, which can cut costs even further since they won’t be paying for room and board.

Flexibility

Community colleges have flexible scheduling options that can make working while you are in school easier.

Students may also be able to take a variety of classes if they are not sure what field or major they’d like to pursue at a four-year college.

Qualified Professors and Small Class Sizes

As already mentioned, community colleges may offer smaller classes. These small class sizes can lead to more hands-on professors and lecturers — who may be just as qualified as those at larger universities.

Cons of Community College

Limited Curriculum and Degree Programs

Community colleges can be a good place to explore interests and fulfill requirements for a four-year degree. But they may be limited in the types of courses available. Students who are interested in exploring or fulfilling general education programs.

Need to Transfer for Bachelor’s Degree

To pursue a Bachelor’s degree, community college students will need to transfer to a four-year institution.

Lack of On-Campus Life

Because many students live off-campus, on-campus activity and extracurriculars may be limited.

Pros and Cons of Attending a Community College
Pros of Attending a Community College	Cons of Attending a Community College
Cost. Community colleges are generally more affordable than other educational institutions.	Limited Curriculum and Degree Programs. Students may be limited in the types of programs and degree options available.
Flexibility. Students can choose from a variety of class times that may make it easier to work while studying and can allow them to explore a variety of academic interests.	Need to Transfer for a Bachelor’s Degree. Community colleges typically offer up to an Associate’s Degree.
Qualified Professors and Small Class Sizes. Class sizes at community colleges hover around 25 to 30 students.	Lack of On-Campus Life. Campus life and extracurriculars may be more robust at a four-year institution.

Pros and Cons of Attending a University

Attending a four-year college or university can have pros and cons — just like its community college counterpart. Some benefits of universities include improved long-term earning potential and the opportunity to build a network. The major downside can be the steep cost.

Pros of a University

Long-Term Earning Potential

Bachelor’s degrees can lead to a significant boost in earning potential. According to the Georgetown University Center on Education and the Workforce, individuals with Bachelor’s degrees can earn up to 31% more than those with an associate’s degree.

Plus, a Bachelor’s degree is sometimes a prerequisite for careers in some fields, like human resources, marketing, or computer science and software engineering.

On-Campus Life and Extracurriculars

Many colleges have a rich on-campus life with an active student body and a variety of extracurriculars. Depending on your interests and the school you attend you could participate in the school’s television and radio station, join an intramural sports team, and more.

Build a Network

Many colleges have a strong and extensive alumni network that students can tap into post-graduation while they look for a job. While you are attending school, you’ll also build soft-skills like time-management, organization, and interpersonal communication that can be invaluable in the professional world.

Cons of a University

Cost

One of the biggest downsides to college is the cost. According to the College Board, the average cost of tuition and fees at private four-year institutions was $38,070 during the 2021-2022 school year. Add in costs for room and board and other living expenses and it can be easy to see why some students may be dissuaded from pursuing a four-year degree.

Social Distractions

With all of the hustle and bustle at a college, it can be challenging to balance work, well-being, and fun. With parties, extracurriculars, sports, and more it can be easy for students to get distracted from their studies.

Can You Combine Community College and University?

Yes! It’s very possible to attend a two-year community college and then transfer to a four-year college to complete your Bachelor’s degree. Many community colleges have articulation agreements in place with local state schools that can make it easier to transfer credits.

Check in with your academic advisor as you complete community college classes to be sure they will transfer to the college of your choice.

Figuring Out What’s Right for You

As you’re crafting your own pro/con list, here are some questions to ask yourself before making your decision.

•   Do I want to live at home or on campus? If you’re hoping to be close to family or need to stay in town for a job, finding a community college campus nearby could be the right call.

•   Do I want to join clubs and organizations? While community colleges offer lots of activities, universities typically provide a lot more for students to partake in.

•   Do I have enough money to go to a big school? Whether a major state school or a private college or university, student loan debt could follow you for a long time after you graduate.

•   Where is my support system? Not having friends and loved ones around may make school more difficult for some. If your support system is vital to you, and you can’t find a big school near your close family, opting for a community college might be better.

•   Is this the best option for my major? Determining what you want to pursue as a career is a big deal. If you aren’t certain about what you want to do, you might not want to move far away quite yet. Or alternately, maybe getting some distance from your close friends and family will help you find your direction.

The Takeaway

Community colleges can offer a more affordable path to a four-year degree. Universities can offer a rich on-campus experience and a strong long-term earning potential. Depending on your personal situation, either or both could be a good fit. Once you decide where you want to go, you’ll need to figure out how to pay for college. Typically, students rely on a few different funding sources to fund their education including scholarships, grants, work-study, and student loans.

If you’ve exhausted your federal student loan options, private student loans may be something to consider. They can help fill in funding gaps, but keep in mind, may lack borrower protections available to federal student loan borrowers.

SoFi doesn’t offer funding for community college classes, but does for undergraduate degrees and some graduate certificate programs. If you’re looking for funding to cover some higher education costs, consider SoFi. Student loans from SoFi have no fees and as a SoFi member, borrowers will qualify for additional benefits like career coaching.

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

Is community college easier academically than university?

Community colleges often have qualified professors and courses that are comparable to those offered at a four-year institution. The course selection and degree programs available at a community college may be more limited than at a university.

Is getting a degree from a community college worth it?

Getting a degree from a community college can be worth it. In addition to securing an associate’s degree, you may be able to transfer to a four-year institution to continue your education to get a Bachelor’s degree. Doing this can be less expensive than pursuing a Bachelor’s degree exclusively at a four-year institution.

Is going to community college a good way to cut down on the cost of a 4 year college degree?

The cost of classes at a community college is typically significantly cheaper than the cost at a four-year institution. Starting out at a community college transferring to complete your degree can significantly cut the cost of tuition. Plus, community college students may have the option to live at home which can reduce room and board expenses.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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. SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
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.
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All student loans are not alike. In fact, shopping around for a loan is not so different from buying a car. Some lenders offer better deals than others. And it helps if you know a little something about what’s “under the hood.”

Read on to find out what to look for when comparing student loans — from interest rates and fees to payback terms and special protections for borrowers. Soon, you’ll be able to choose a loan with confidence that it’s the right one for you.

But First, the FAFSA

Before turning to private student loans, you’ll want to complete the Free Application for Federal Student Aid, or FAFSA. Federal financial aid includes grants, scholarships, and work-study programs, which don’t need to be paid back. The FAFSA also gives you access to federal student loans, which are generally a better deal than private loans. The financial aid office at your preferred college can also help you navigate the different types of loans available to students.

4 Key Factors to Consider When Comparing Loans

Once you’ve completed the FAFSA, you may realize that you’ll need to cover some education costs with a private lender. Weighing the factors below will help you choose the right lender and loan for you.

1. How Much Do You Need to Borrow?

When calculating how much you’ll need to borrow the first year, answer the following questions to the best of your knowledge:

•   Will you have an off-campus job?

•   Will you receive any tuition assistance from your family?

•   How is tuition structured at your institution? At some colleges, you may pay per credit. Other colleges have flat tuition, regardless of how many credits you take.

•   Living expenses should be a part of your calculations. Are there ways to trim those costs? For example, can you live at home or with roommates? Can you rely on public transportation instead of your own car?

•   How many years will it take to complete your course of study? Does it make sense to take an accelerated program and complete coursework in fewer years? On the flip side, can you stretch out coursework to make more time for a part-time job?

•   Do you need to spend all four years at your first-choice college? Some students minimize their overall tuition bill by spending a year or two at a state or community college before transferring to a pricier dream school.

This isn’t an exact science, so don’t sweat the nickels and dimes. The goal is to avoid over-borrowing, because you’ll be paying interest on your loans. Also, there’s no rule that says you need to accept the largest loan offered, if you can get by on less.

You may even want to look at how well your future income will cover your bills after graduation. Search job listings and talk to recent grads in your potential field of study to get the scoop on entry-level salaries.
All this will give you a solid understanding of how much you’ll need to borrow. The next step is to compare the loans available from a variety of lenders.

Recommended: Cash Course: A Student’s Guide to Money

2. Do You Need a Cosigner?

Private loan terms are mostly determined by the borrower’s financial history, employment status, and credit score. The longer your history and higher your score, the better your interest rate. Since most students have a minimal credit history, they often apply for student loans with a cosigner.

A cosigner is someone who agrees to pay the loan in case the main borrower is not able to. A cosigner needs to provide financial information (such as employment status) and agree to have their credit checked. Should there be any issues with repayment on the loan, both the borrower’s and the cosigner’s credit may be affected.

Some borrowers can have a hard time finding someone with good credit who is willing to cosign. Knowing before you begin the loan process whether you’ll need a cosigner and who that cosigner will be can speed the application process. (If you have a minimal credit history, you’ll probably need a cosigner regardless of which lender you use.) Learn more about whether you need a cosigner.

3. What Are the Loan Terms?

Your loan “terms” will determine the overall cost of your loan and your monthly payments. These terms include:

Interest Rate

Your interest rate will partly determine how much money you owe over the life of the loan. Many private lenders have an online tool that allows potential borrowers to see their estimated interest rate before they apply for the loan. First, you can check out the average interest rates for student loans.

Interest rates may be either fixed or variable. A fixed-rate means the rate won’t change during the life of the loan. A variable rate can fluctuate over time. Variable rates may start lower than fixed rates but can go higher in the future. Sometimes, a variable rate makes sense for people who plan to pay off the loan quickly. A fixed rate is a good idea for people who want to budget the same amount per month.

Length of Loan

A shorter loan term typically has higher monthly payments but is less expensive, since interest has less time to accrue. A longer repayment period usually has lower monthly payments, but will cost you more in interest overall.

Another factor to consider is prepayment penalties. This is when a lender charges you a fee for paying off your loan before the end of the loan term. Many private lenders allow prepayment without any fees, but make sure to check with any lenders you are considering.

Repayment Options

Repayment schedules vary by lender. Some may allow borrowers who are in school to defer payment until after they graduate. Others may allow student borrowers to make interest-only payments.

Find out whether or not the lender offers flexibility in switching repayment plans during the life of the loan.

Loan Fees

Lenders make money on loans by charging borrowers interest. Some student loan lenders also charge additional fees. Student loan fees may include:

•   Origination fees – charged by the lender for processing the loan

•   Late payment fees

•   Returned-check fees

•   Loan collection fees

•   Forbearance and deferment fees

Before you choose a private loan, find out what fees (if any) you may incur.

Recommended: How Do Student Loans Work?

4. How Good Is the Lender’s Customer Support?

The above three factors are what’s known as “loan terms.” The last factor has to do with how the lender will support you, the borrower, during the life of the loan. This includes:

Customer Service

If you have questions or concerns, how can you contact your lender? Can you call a live person, or must you deal with a chatbot?

Financial Tools

Some lenders offer financial resources and tools to their borrowers, such as webinars, articles, and calculators.

Unemployment Protection

Some lenders may offer benefits that protect borrowers who are temporarily unable to pay their bills due to unemployment. For example, SoFi offers unemployment protection for some borrowers who have accounts in good standing and lose their job through no fault of their own.

The Takeaway

If you’re new to borrowing money — as most undergrads are — you may not know what to consider when choosing a student loan. Before you shop around, determine how much you need to borrow by creating a college budget that includes tuition and fees, books and supplies, and living expenses. Then decide whether you’ll need a cosigner for the loan — someone with good credit who can help secure you a lower interest rate than you’d qualify for on your own. When comparing loans from different lenders, you’ll want to look at the interest rate, length of the loan, any fees and penalties, and the lender’s reputation for customer service. It all comes down to saving money over the life of the loan. If you’re careful, you won’t pay more than you need to.

If you’ve exhausted your federal financial aid options and still need funds to cover your cost of attendance, private student loans are one option to consider. Private student loans with SoFi have no fees, including no origination fees or late payment penalties. In fact, SoFi was named a Best Private Student Loans Company by U.S. News and World Report in 2022.

SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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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When you’re in college, you don’t have a lot of control over the interest rates on your student loans. With federal loans, the U.S. Department of Education sets the rate each year for all borrowers. And if you get private student loans, a limited credit history can make it hard for young people to score favorable terms.

But once you graduate, there are a few things you can try to save money on interest. Here are a few tips that may lower your interest rate on student loans.

Choose the Right Repayment Plan

If you don’t choose a specific repayment path, you’re typically opted into the Standard Repayment Plan. In this plan, your payments are generally based on a 10-year timeline. But this one-size-fits-all plan is not the best option for everyone.

The federal government also offers four income-driven repayment (IDR) plans, where the monthly payments are based on your income and family size. While choosing one of these plans may lower your monthly payments, it will likely not alleviate how much interest you pay over time. In fact, you might even pay significantly more.

After 20 or 25 years, depending on the IDR plan, any remaining balance is forgiven. However, the amount forgiven may be considered taxable income by the IRS. So even though your student loan debt goes away, prepare yourself for a big tax bill that year.

Another money-saving repayment option for federal student loans is the Public Service Loan Forgiveness (PSLF) program. If you work in a qualifying public service job — for the government or a nonprofit organization — you might be eligible to have your student loans forgiven after 10 years of service.

You can confirm whether your work qualifies here. You’ll want to submit an Employment Certification as soon as possible to be sure that you’re on track to qualify.

Recommended: 4 Student Loan Repayment Options, and How to Choose

Consolidate Your Student Loans

Have multiple student loans floating around that you’d love to combine into one? Consider loan consolidation, where you’ll merge all your student loans into one easy monthly payment with a single interest rate. Here’s the rub, though: Consolidation alone does not necessarily get you a lower student loan interest rate. It just offers you one payment instead of multiple.

When consolidating federal student loans, you can use a Direct Consolidation Loan. Your new interest rate is simply the weighted average of all your current student loan interest rates. The weighted average might be a smidge higher than the interest rates you were paying previously. Often folks utilize consolidation to stretch out the life of their student loan, which lowers your payments but may increase the amount you owe over time.

Even though consolidation itself is not a direct way to get a better rate on your student loans, it can be helpful if you’re having trouble keeping track of your monthly payments. Consolidation may also be useful if you want to merge non-direct federal loans (like Perkins loans) with direct loans, in order to qualify for income-driven repayment and/or loan forgiveness programs.

By the way, the term “consolidating” is often used interchangeably with “refinancing,” but they technically mean different things. When refinancing student loans, you also happen to be consolidating, but it is done with the goal of achieving a more favorable interest rate on your student loans.

Recommended: The Basics of the Student Loans

Set Up Automatic Payments

Many student loan servicers — both federal and private — offer an interest rate discount if you set up autopay on your account. Depending on the servicer, you can lower your student loan interest rate. SoFi, for example, offers a 0.25% autopay discount.

The reason servicers offer this discount is that by setting up automatic payments, you’re less likely to miss payments and default on the loan.

In addition to getting a lower student loan interest rate, you’ll also (hopefully!) have peace of mind knowing that you won’t accidentally miss a payment. If you feel you’re putting a little too much money toward student loans, check with your loan servicer to see whether they offer an autopay discount.

Get a Loyalty Discount

In addition to an autopay discount, some private student loan companies also offer a loyalty discount when you have another eligible account with them.

If you’re already a member with SoFi, for instance, you receive an interest rate discount of 0.125% on all new loans.

Other lenders may require that you have an eligible checking or savings account with them to qualify for the bonus, and you may even get a bigger discount if you make your monthly payments from that account.

To get an idea of how a change in interest rate would impact your loan, take advantage of a student loan refinance calculator to see what your new payments could be.

Refinancing Your Student Loans

Scoring discounts with your current servicer can help you get a lower student loan interest rate, but there is another option to consider. Depending on your financial profile, you may qualify for a lower student loan interest rate than what you’re currently paying with student loan refinancing.

There are multiple advantages to refinancing student loans. You can potentially lower your interest rate by bundling several loans (federal and private) into one new loan. And if you shorten your loan term, you may be able to pay off your student loans much faster and pay less in interest over the life of your loan.

Student loan refinancing is ideal for borrowers with high-interest student loans who have good credit scores and know they won’t use any of the federal loan benefits, like student loan forgiveness. (All federal loan benefits, including income-based repayment, will be lost if you refinance.)

Here are a few things that can help you improve your chances of getting a lower student loan interest rate with refinancing:

•   A high credit score: Lenders typically have a minimum credit score requirement, so the higher your score, the better your chances of getting a low rate usually are.

•   A low debt-to-income (DTI) ratio: Your income is also an important factor that lenders consider, especially as it relates to your overall debt burden. If a smaller portion of your monthly income goes toward debt payments, it shows you may have more income to dedicate to your new loan’s payments.

•   A co-signer: Even if your credit and income situation is in good shape, having a co-signer with great credit and a solid income might help your case.

•   A variable rate: Some student loan refinance lenders offer both variable and fixed interest rates. Variable interest rates may start out lower but increase over time with market fluctuations. Fixed rates, stay the same over the life of the loan. If you’re planning on paying off your student loans quickly, a variable rate might save you money.

•   The right lender: Each lender has its own criteria for setting interest rates, so it’s important to shop around to find the best lender for your needs. Some lenders, including SoFi, even allow you to view rate offers before you officially apply.

Lower Your Student Loan Interest Rate

There are several ways to get a lower student loan interest rate. It can be as easy as calling your servicer to find out what discounts are available. You can also choose a new repayment plan, consolidate your federal loans, or refinance federal and private loans. With refinancing, you may secure a lower interest rate if you have a high credit score, low debt-to-income ratio, a cosigner, or a variable interest rate. Just know that when refinancing federal student loans, borrowers lose federal protections and forgiveness.

If you’re considering refinancing your student loans with SoFi, you can check your interest rate in just a few minutes. And it won’t take much time beyond that to officially apply. Depending on which refinancing options you choose, you can potentially save money on interest over the life of the loan.

Take control of your student loan debt by refinancing with SoFi. See if you qualify to secure a lower student loan interest rate in just two minutes.

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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.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
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.
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The growing cost of college means that parents or grandparents who intend to pay part or all of the tab for a child need to chart a course. A tax-advantaged 529 plan is one way to save for future education costs.

Although 529 plans have been around since 1996, many parents still aren’t sure how they work. Yet they are worth knowing about in detail.

Read on to get the full story on 529 plans and whether opening one is the right move for you.

529 Plan Basics

Also known as a qualified tuition program, a 529 plan allows a parent (or anyone else) to prepay a student’s college tuition or contribute to an education savings account.

Contributions are not tax-deductible, but distributions are tax-free if they are used for qualified education expenses for the beneficiary.

There are two kinds of 529 plans — named, by the way, for Section 529 of the federal tax code — and every state offers at least one. Learn the difference.

Prepaid Tuition Plan

A prepaid tuition plan allows you to prepay tuition and fees at certain colleges and universities at today’s prices for a child’s future educational needs. Such plans are usually available only at public schools and for in-state students. Only nine are accepting new applicants, and the funds saved are typically not able to be used for room and board.

The main benefit of a prepaid college plan is that you could save big on the price of college by prepaying before prices go up. And contributions are considered gifts, so deposits up to a certain threshold each year ($17,000 in 2023, or $34,000 for a married couple splitting gifts) qualify for the annual and lifetime gift-tax exclusion.

A few special-case guidelines to note:

•   If your child doesn’t attend a participating college or university, you will likely be able to use the funds you set aside at another school. Another option may be to transfer the plan to an eligible sibling. What if no one in the family plans on attending college? Most plans will refund your money, perhaps minus a cancellation fee.

•   If your state government doesn’t guarantee the plan, you may lose the payments you’ve made if the state runs into budget shortfalls.

•   Prepaid tuition plans may charge an enrollment fee and ongoing administrative fees.

•   Although most of the plans can’t be used for room and board, Florida Prepaid Plans, for example, offer a prepaid dormitory plan of two semesters of dorm fees for each year of state university coverage.

An alternative to the state-sponsored plans is the Private College 529 Plan, which has over 300 participating institutions nationwide.

Recommended: Private vs Public College

Education Savings Plan

The second type of 529 plan is an education savings plan. Here’s how it works:

•   You can contribute monthly, quarterly, or annually, or deposit a lump sum. Beyond parents making regular payments, 529 plans can be a clever way for the extended family to give a meaningful gift on birthdays or holidays. There is no limit on how much you can add yearly, but you’ll have to fill out gift tax Form 709 if you contribute more than the annual gift amount.

•   While contributions are not deductible on the federal level, many states provide tax benefits for saving in a 529 plan, such as deducting contributions from state income taxes or giving matching grants. Check your local tax laws to see if you qualify.

•   Once you contribute, you will likely have a range of investment options to choose from. These vary from state to state and may include mutual funds and exchange-traded funds (ETFs).

•   You may want to tailor your choices to the date you expect to withdraw the money — you can possibly be more aggressive if you have a longer timeline, but may sway more conservatively if you only have a few years. One option is to choose a target-date fund, which would automatically adjust your portfolio to become more conservative as your child’s college years approach. That usually means a greater share of stocks initially and more bonds and cash over time.

•   Money can be withdrawn tax-free from a 529 savings plan to pay for any “qualified higher education expense,” which includes tuition, fees, books, computers, and room and board.

•   You can make withdrawals as long as your child is enrolled at least half-time at an accredited school, regardless of where in the United States it is, and occasionally abroad. Parents can also withdraw up to $10,000 a year to pay for K-12 tuition expenses and for student loan repayment.

•   If you withdraw money for the above expenses, you won’t have to pay federal income tax, and often state income tax, on your earnings. If you withdraw the funds for other reasons, you’ll have to pay taxes, and you may or may not be able to avoid the 529 withdrawal penalty, a 10% federal tax penalty on the earnings.

•   Starting in 2024, families with leftover savings in a 529 college savings account may be able to roll it to a Roth IRA tax- and penalty-free. That is one of several retirement savings changes that are part of the Secure 2.0 Act.

One last note: It is possible to change the beneficiary of a 529 plan to another eligible family member. For example, you can switch to a younger child if your oldest got a scholarship. That’s another 529 account benefit to note.

How 529 Savings Plans Compare With Other Options

Why create any investment plan for your child? Time. By investing funds, 529 accounts give your money the chance to grow over time.

If you just leave your savings in cash or even a high-interest savings account, you may actually be losing money as the years go by, as it likely won’t keep up with inflation.

The 529 plan also has advantages when it comes to calculating financial aid. When you complete the FAFSA, the Free Application for Federal Student Aid, money in these accounts owned by either a dependent student or by a parent is considered a parental asset on the FAFSA. Approximately the first $10,000 won’t be counted toward the expected family contribution.

For more than that, only up to 5.64% of the amount saved counts when the government calculates the “expected family contribution” in deciding on the financial aid package. (For other student assets, up to 20% of the savings can count in the calculation.)

So while a 529 may slightly reduce financial aid, it will likely save more overall by reducing the number of federal or private student loans needed.

New rules affect grandparent-owned 529 plans. Distributions have counted as student income on the next year’s FAFSA, assessed at up to 50%. But starting with the 2023-2024 school year, grandparents’ 529 plan savings will have no impact on the student, which might incentivize parents to contribute to grandparent-owned plans instead of the other way around.

Now let’s look at some options.

Recommended: Financial Aid for Higher-Income Families

Coverdell Account

Like a 529 plan, a Coverdell account, also called an Education Savings Account (ESA), is a tax-advantaged savings account to pay for qualified education expenses.

Unlike a 529 account, total contributions from all sources to a Coverdell account cannot exceed $2,000 annually per beneficiary. Another difference is income limits: You can only use an ESA if your modified adjusted gross income is less than $110,000 (singles) or $220,000 (married couples filing jointly).

You can only make contributions until the child reaches age 18, and all funds must be withdrawn by the time the beneficiary reaches age 30. A 529 plan generally does not restrict the age of the beneficiary.

Basic Brokerage Account

Instead of a 529 plan, some families may favor a brokerage account, which affords the freedom to choose whatever investments they want and the ability to use proceeds for any need a young person has.

The main benefit of a 529 plan is that you don’t have to pay capital gains tax on any distributions used for qualified education expenses. Many families, however, pay a 0% long-term capital gains tax rate anyway. (Long-term capital gains apply to a security held for a year or more. The day-to-day increases or decreases in an asset’s value before it is sold are unrealized gains and losses.)

For 2023, married couples filing jointly with taxable income of $89,250 or less and single filers with $44,625 or less may qualify for the 0% long-term capital gains rate.

A 529 account, then, may be of greatest use to families that need an additional tax shelter.

Recommended: How to Reduce Taxable Income for High Earners

Traditional IRA

Withdrawals from a traditional IRA before age 59½ that are used for qualified higher education expenses are not subject to the 10% early distribution penalty — but you will still pay income tax on the distribution.

Money in a qualified retirement plan is not reported on the FAFSA, but distributions may be reported as untaxed income, and income is weighted much more heavily than assets for financial aid. Remember that a 529 savings plan will have a limited impact on the financial aid offer a student receives.

It is generally thought that retirement plans should be used for just that, and not for college expenses.

Roth IRA

With a Roth IRA, you can withdraw contributions tax- and penalty-free at any time, but distributions will be reported as untaxed income on the FAFSA, reducing eligibility for need-based financial aid.

You generally must be at least age 59½ and have had the Roth account for at least five years to withdraw earnings tax- and penalty-free. If you are under 59½, you may be able to avoid a penalty (but not taxes) if you withdraw earnings to pay for qualified education expenses.

Some people opt to max out their Roth IRA contributions and then invest additional money in a 529 plan.

UGMA and UTMA Accounts

You can open a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act account on behalf of a child under age 18. The adult custodian controls the money, but gifts and transfers irrevocably become the property of the child.

As with a 529 plan, annual contributions to a UGMA or UTMA account are unlimited, and gifts below the annual gift threshold do not need to be reported to the IRS on gift tax Form 709.

Unlike college savings plans, there is no penalty if the account assets aren’t used to pay for college. Once the minor reaches adulthood, the money is turned over to the former minor, who can use the assets for college or anything else.

But custodial accounts have drawbacks when compared with 529 savings plans: The accounts offer no tax benefits when contributions are made. Earnings are subject to taxes. And a custodial account is counted as a student asset on the FAFSA and will weigh more heavily against financial aid eligibility than parents’ assets or assets held in a 529 account or an ESA.

Choosing a 529 Savings Plan

Every state offers a 529 savings plan, but not all are created equal. When trying to find the best 529 college savings plan, you may want to think about the tax benefits and the fees.

First, you may want to understand whether you qualify for a state income tax deduction or credit for your contributions, based on your state of residence and the plan. Check your state laws and consult a tax professional to learn more about your particular situation.

Some states, such as New York, only offer deductions to in-state taxpayers who use their plan. Other states, including Pennsylvania, allow residents to take a deduction regardless of which state’s plan they use.

Some states, like Indiana, offer income tax credits instead of deductions. And other states, such as North Carolina, don’t offer any deductions for 529 contributions.

The next thing you could consider are the fees associated with your plan, which could include enrollment fees, annual maintenance fees, and asset management fees. Some states let you save on fees if you have a large balance, contribute automatically, are a state resident, or opt for electronic-only documents.

The Takeaway

For many students, the cost of college can be eased with a tax-advantaged 529 savings plan. The accounts allow for tax-free growth of funds that can help dreams of affording higher education come true.

529 plans are still rarely used, though, whereas most college students take on loans to get through school. If savings and federal student aid don’t cover all the costs of college, a private student loan could be a solution.

Federal programs like income-driven repayment and deferred interest on some federal student loans do not apply to private student loans, but a private student loan can help fill gaps in need.

SoFi offers private student loans for undergrads, graduate students, parents, MBA and law students, and future health care professionals that come with competitive rates and no fees.

Check your rate on a student loan from SoFi, named a best private student loan company by U.S. News and World Report.

FAQ

Are 529 plans worth it?

A 529 plan can be a worthwhile college savings vehicle, depending on a family’s situation. If the student is definitely going to attend college and if the state of residence offers tax benefits for these savings, or a prepaid tuition plan, it can be a good option.

Why shouldn’t you invest in a 529 plan?

For some people, a 529 may not be the best option. If a family is unsure whether a child will attend college, lives where there aren’t state-level tax breaks for these programs, or thinks they can earn higher returns elsewhere, they might not want to open a 529 college savings plan.

Is a 529 plan better than a savings account?

A savings account offers more flexibility than a 529 college savings plan, but it won’t offer the tax advantages that a 529 does. With a 529 account, contributions will grow tax-free, and withdrawals for qualified education expenses are also not subject to taxes.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. 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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

* The SoFi 0.25% autopay interest rate reduction requires you to agree to make your scheduled monthly payments by an automatic monthly deduction (ACH) from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The discount will not reduce the monthly payment; instead, the discount is applied to the principal loan balance and is intended to help pay the loan down faster. Enrolling in autopay is not required to receive a loan from SoFi.

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