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What is Student Loan Refinancing?

With all the benefits that come with higher education, there’s one potential pain point that can easily sour the mood—paying for it. With the rising cost of college, more and more students are taking out student loans to finance their educations.

On average, students graduating from undergraduate programs carry approximately $33,310 in student loan debt . And for those students pursuing additional degrees, the student loan burden is even higher. But what options are available to those facing the reality of student debt?

One possible solution is student loan refinancing. At its core, student loan refinancing is the process of taking out a new loan to pay off your existing student loans. This leaves you with just one loan with a new interest rate, monthly payment, and loan terms.

What Does Student Loan Refinancing Do?

If you borrowed federal student loans, they were granted based on the information you filled out in your Free Application for Federal Student Aid (FAFSA®). All federal student loans since July 1, 2006 are fixed-rate loans, and the interest rate is determined by Congress. Those loans could have been either subsidized or unsubsidized, depending on your financial need at the time you filled out your FAFSA.

If you took out private loans, the interest rate was determined based on your or your parents’ credit scores and other financial factors. As a young student, it’s likely you didn’t have a long credit history or employment history (hence getting your parents to cosign). Because of this, most lenders would have considered you a risky borrower, which means you likely either applied with a cosigner or took out a loan with a relatively high interest rate.

Refinancing student loans gives you the opportunity to change that. When you refinance your student loans, you usually do so with a private bank or lender, like SoFi, who will review your credit history and earning potential (among other financial details) to determine your new interest rate.

Since you’ve graduated, you may have significantly improved your finances. And if you took the opportunity to build up some credit in college, you could qualify for a lower interest rate when you refinance.

This is one of the biggest potential benefits of refinancing your student loans. With a lower interest rate, you could stand to reduce the money you spend in interest over the life of the loan, especially if you also shorten your loan term. If, on the other hand, you lengthen your loan term, you’re unlikely to reduce the amount of interest you pay over the course of the loan.

When you originally borrowed your student loans, you likely agreed to a certain repayment term. Refinancing may allow you to adjust your repayment terms, though of course which terms you have access to is up to the lender’s discretion. On the other hand, you could also extend the loan term, which could get you lower monthly payments, but likely means you pay more in interest over time.

If you refinance your student loans, instead of having multiple loans and multiple monthly payments, you’d have one single loan payment.

If you refinance federal student loans, they’ll become private loans, which means you’ll lose access to federal repayment plans . This is especially important to note if you plan on taking advantage of programs like income-driven repayment or Public Service Loan Forgiveness (PSLF).

You’ll also lose access to federal borrower protections like deferment and forbearance , which allow you to temporarily pause your monthly payments if you are facing financial or personal hardship.

However, some refinancing lenders, including SoFi, offer unemployment protection which could allow you to temporarily pause your monthly payments if you lose your job. And at SoFi, you’ll also have access to a career coach who can help you with your job search.

Choosing a student loan repayment plan and strategy is a personal decision. Take the time to carefully review your current loan terms and benefits before you decide to refinance. There are a variety of refinancing options out there and it’s important to do your research and find a reliable lender or stick with your original federal student loan repayment plan.

How Do You Refinance Your Student Loans?

The student loan refinancing process will vary slightly by lender. Before you make any decisions, you may want to check the rates at multiple lenders to make sure you are getting a competitive rate. Many online lenders and banks will let you check your interest rate online in just a couple of minutes.

If you meet the lender’s eligibility requirements, you’ll most likely see a few different options with varying repayment terms. You’ll also usually get to choose between a variable rate and a fixed rate loan.

After you get the quotes, you can compare the estimates and lenders. You may want to review things like the interest rate, any fees associated with the loan, and the lender’s reputation.

If you decide to continue with a lender, you’ll have to file a formal application to refinance your student loans. When you formally apply, lenders will conduct a hard credit check (which could affect your credit score). To apply, most lenders require the following items:

•  Proof of citizenship

•  Proof of income

•  A valid ID number

•  Official statements for all of your federal and private student loans

If you are applying with a cosigner, you’ll also need to submit their information—your lender should inform you about what you’ll need.

Refinancing Your Student Loans with SoFi

If you’re interested in seeing how refinancing can help you take control of your student loan debt, you can use SoFi’s student loan refinancing calculator. If you decide refinancing is the right choice for you, at SoFi, there are no origination fees or prepayment penalties.

When you’re ready, you can get a rate quote from SoFi in less than two minutes.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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What Is the Prime Interest Rate?

Whether you’re taking out a personal loan or applying for a mortgage, chances are you’ll inevitably run into the term “prime interest rate.” And, there’s an even stronger chance that you may not know exactly what it means at first.

Here’s the deal—a prime rate is the interest rate at which banks charge their best customers. It’s the lowest rate offered to individuals and corporations that are considered low risk by banks—those with good credit history who aren’t likely to miss payments or default on their loan.

How Is the Prime Interest Rate Set?

Individual banks determine their prime interest rate. While the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate.

The federal funds rate is the rate that banks charge each other on an overnight basis and is established by the Federal Open Market Committee.

The banks lend each other money in order to meet the reserve requirement , which is also set by the Federal Reserve. This is the minimum amount of cash a bank must have in their vault or at the closest Federal Reserve bank. If one bank has excess cash, the bank has a financial incentive to lend that excess cash to a bank that has less than its federally mandated amount. The reserve requirement acts as a lending limit for banks and also ensures that they have enough cash on-hand for the start of business each day.

The federal funds rate is changed for a variety of reasons—to decrease inflation for instance, or stimulate growth. In 2008, the federal funds rate was lowered to 0.25%, in order to encourage bank lending and mitigate the growing financial crisis. The highest the federal funds rate has ever been was 20% in 1980.

Typically, the prime rate is set about three percentage points higher than the Federal Reserve’s rate. Since each bank sets its own prime rates, a popular measurement of the current prime rate is the Wall Street Journal’s prime interest rate . This is determined by polling 30 of the largest US banks. If 23 of the banks have changed their prime rates, the Wall Street Journal prime rate will change as well.

Because the prime interest rate is typically aligned with the federal funds rate, it’s highly susceptible to change—The Federal Open Market Committee meets eight times a year, so prime rates may change accordingly. A look at the history of the prime rate in the last thirty+ years will show you how much variation can occur. Over the past few years, the Federal Open Market Committee has been increasing the federal funds rate. It was increased once in 2015, once in 2016, three times in 2017, and four times in 2018 . Current projections anticipate the federal funds rate could be up to 3.1% in 2021 .

Why Is the Prime Interest Rate Important?

The prime interest rate impacts all kinds of loans, including interest rates for mortgages, credit cards, auto loans, and personal loans. Typically, banks and lenders will use the prime interest rate as a benchmark for setting interest rates for their customers.

This can be especially relevant to consumers who borrow variable rate loans. Changes in the federal funds rate and prime interest rate can impact variable rate credit cards, adjustable rate mortgages, home equity lines of credit, and more . The interest rate on variable loans are based on these market interest rates and therefore change over time. Variable interest rates, including those on credit cards, are often expressed as the prime rate plus a certain percentage .

Unlike fixed-rate loans, monthly payments on any variable loan could change considerably from month-to-month. This is why fixed-rate loans can be a more desirable alternative than variable loans for some borrowers.

Though rates are largely influenced by the Federal Reserve, borrowers have little control or way of predicting the rates from year to year. Even when the Federal Reserve predicts growth, interest rates can rise due to a variety of factors , causing your monthly bill to rise with it.

Beyond individual borrowers, the prime interest rate also influences the financial market as a whole. A low prime rate makes it easier and less expensive to borrow loans which increases liquidity in the market.

Historically, when the prime rate is low the economy grows, and when the prime rate is high economic growth slows down .

The prime rate isn’t the only benchmark that banks use to inform interest rates. Banks also often use the London Interbank Offer Rate (LIBOR). The LIBOR is the rate that banks charge each other for short-term loans . The federal funds rate, prime interest rate, and LIBOR rates generally fluctuate together . When the three rates are out of synch it can be an indicator of an issue with the financial markets .

Personal Loans with SoFi

An increase in the prime rate and federal funds rate can be an indicator that changes are ahead for consumers . Pay attention to interest rates on personal accounts , especially if they have variable rates, as the federal funds rates and prime rates fluctuate. When those benchmark rates change, it might means adjustments to interest rates are just around the corner.

If you are in need of a personal loan, know that a variable rate loan isn’t the only option. At SoFi, you can borrow a fixed-rate, unsecured personal loan, and complete the application entirely online. A personal loan could also be an option for consolidating credit card debt. It could mean the opportunity to eliminate a variable rate credit card and even potentially decrease the overall interest rate on the debt.

When you borrow a SoFi personal loan, there are no prepayment penalties or origination fees. You’ll also gain access to other member benefits like career counseling and unemployment protection, which could potentially allow you to temporarily pause your payments if you unexpectedly lose your job.

With a personal loan, you’ll have access to the money you need quickly, and depending on your credit score and other personal financial factors, usually at a lower interest rate than most credit cards.

Need to take out a personal loan? Check out SoFi’s personal loans to get money for that future project you’ve been saving for.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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 .


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Stock Market Terms Every Trader Should Know

If you are new to trading stocks, the insider lingo of stock market terms can be off-putting. But learning some basic stock trading terminology is a great place to begin before investing any money. For any new investor just getting into trading, these are the top basic stock terms to know before you start.


Buying stock, also known as shares or equity, is like owning a piece of a company. You purchase stock in a company, and receive a proportional part of that corporation’s assets and earnings. The price of stock is different for each company and fluctuates over time.

This is why you hear the phrase, “Buy low, sell high” because if you invest in an organization when their stocks are priced lower, and then the company grows and makes money, you may be able to make a profit if you sell that stock at a higher price later on. (To be clear, that’s not advice we’re giving—it’s just an investment adage you might hear around town.)


To trade in the stock market means the buying and selling of a stock. For every seller, there is a buyer on the other side. This transfer, shares of stock in exchange for money, requires an agreement on price. People who trade can be small individual investors, or larger entities like banks and insurance companies, whose buy or sell orders might be executed for them by a stock exchange trader.

Stock Symbol

Also known as a ticker symbol, this short abbreviation helps traders identify stocks from various companies. The limit is usually one to five characters, made up of letters and numbers, and is often tied closely to the company’s own name—AAPL for Apple, for instance, or V for Visa.

Bid and Ask

Any potential buyer bids a certain price for stock, and the seller asks for a specific price for the same stock. Buying or selling at the market means you will accept any current bid or ask price, resulting in a market order.

When the bid and ask prices match, a sale takes place, on a first-come basis if there is more than one buyer. The bid-ask spread is the difference between the highest price a buyer is willing to bid, and the lowest price a seller is willing to ask.


Short for stockbroker, this is a professional who executes buy and sell orders on behalf of clients, typically for a fee or commission. Brokers usually work for a brokerage firm. This person can also serve as a financial advisor, understanding the markets and making investment decisions that will ideally lead to profit for their clients.


The payment made from a company to its shareholders, often drawn from earnings. Usually, these are made in cash, but sometimes they are paid out as additional stock shares. They are typically paid on an annual or quarterly basis, and typically only come from more established companies, not startups.


A stock yield is the ratio of annual dividends divided by the share price. For example, if a stock is set to pay $1 in dividends over the next year, and is currently trading for $50, the yield would be 2%. Dividends and yield are both an important reflection of a company’s value, but only a piece of the puzzle.


Collectively, all of the financial assets, such as stocks, that an investor currently owns. Building up a diversified portfolio means investing in many different assets that perform differently so that if one asset falls in value, other assets will hopefully pick up the slack.


A stock exchange can be a physical in-person location, like the NYSE, where transactions take place on a trading floor. Here, traders shout their bid and offer prices, known as open outcry. Other stock exchanges such as the NASDAQ are electronic only, where everyone uses computers to manage trades.

Market Cap

Market capitalization is the total dollar market value of a company’s outstanding shares—which is the stock currently held by all shareholders. The market cap is calculated by multiplying the number of outstanding shares by the share price.

Since it refers to the organization’s total value of all shares of stock, it is an important number to consider relative to future growth expectations or when comparing companies in the same sector.


Besides buying at face value, aka a market order, there are also limit orders, good til canceled orders, and day orders. More advanced traders, or with the help of a broker, can negotiate stock prices. A limit order will only allow someone to buy or sell stock at a specific price or better.

A day order is exactly what it sounds like—an order to buy or sell that automatically expires if it is not executed that same day. Good til canceled (GTC) orders can be good for investors who do not wish to consistently watch stock prices and can place buy or sell orders at specific price points, and keep them for many weeks. If the market price hits the price of the GTC before it expires, the trade will execute.


Volatility really comes down to the range a stock price changes over time. If the price stays stable, then the stock has low volatility. If the price jumps from high to low and then back to high often, it would be considered more of a high-volatility stock.


Market liquidity is essentially how easily shares of stock can be converted to cash. The market for a stock is “liquid” if its shares can be sold quickly, and the act of selling only minimally impacts the stock price.

Trading Volume

For a stock trading on a stock exchange, the stock volume is typically reported as the number of shares that changed hands during any given day. It’s important to note that even with an increasing price, if it’s paired with a decreasing volume, that can mean a lack of interest in a stock.

A price increase or drop on a larger volume day (i.e., a bigger trading day) is a potential signal that the stock has changed dramatically.

Averaging Down

If an investor already owns some stock but then purchases additional stock after the price has dropped, this is known as averaging down. It results in a decrease in the overall average price for which you purchased the company stock. Investors can profit if the company’s price subsequently recovers.


The Initial Public Offering is the process by which a company first sells stocks to the public. A company’s goal is to sell a predetermined number of shares to the public at the best possible price. Not all large companies are public; IKEA and Mars Candy are still privately held, meaning they have a small number of shareholders and individuals aren’t able to invest in them. But going public offers the company a lot of money for it to grow, by raising a lot of money quickly with a new group of large investors.

Blue Chips

Sadly, not a fun stock market-themed snack. These are largely considered to be top-notch stocks you can invest in long term. These stalwarts of the stock market are well-established, large, and financially sound companies like Disney, Intel, and Coca-Cola.

Bull and Bear Markets

When someone refers to a bull market, it means broadly that the market is “up.” A bear market on the other hand, means the market is “down.” A bull market typically describes an economy that is growing and optimistic, while a bear market indicates the opposite, with loss on investments and general pessimism about the economy.

This can be as simple as the difference between rising and falling stock prices, but also takes into account things like job creation or loss, and unemployment rates.

No matter when you start investing, it’s always important to have a great team supporting you as you navigate the stock market. If you are looking for a smart, painless way to begin, SoFi offers wealth management using automated investing, with access to our human financial advisors.

SoFi Invest offers goal planning, working with individuals to achieve goals, and making a plan for your investments. We also focus on diversification, and we can help you choose from thousands of assets available for investing.

As a SoFi Invest member, you can start online investing with as little as $1 today.

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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.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
The information provided is not meant to provide investment, tax or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory and automated services offered through SoFi Wealth LLC. An SEC registered investment advisor. SoFi Securities LLC, member FINRA / SIPC .


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What is a Checking and Savings Account?

Do you have multiple accounts that hold your money across different banks? If you’re like a lot of people, you keep one account for your savings, and yet another for checking. Some people have additional accounts for their retirement savings or after-tax investments—but that’s a whole different can of worms.

For those looking for a better way to manage their checking and savings, there’s another account that should be on your radar: a checking and savings account. It’s a hybrid between a checking and a high-yield savings account. You can write checks and they’ll even issue you a debit card. In this article, we’ll answer the question, “What is a checking and savings account,” along with a discussion of their benefits, how they’re used, and who might benefit from using this type of account.

What Is a Cash Management Vehicle?

A checking and savings account—also known as a cash management vehicle—is designed to manage cash, make payments, and earn interest. It’s a hybrid between a checking and savings account.

Cash management accounts typically come equipped with checking account features such as a debit card and ATM withdrawals. They also typically pay a higher rate of interest than keeping your money in a traditional savings account. If you have a checking account, you know how little they pay in interest; .08% is the national average .

Cash management accounts are often all-in-one accounts, and they can combine features of a checking account, brokerage account, and an interest-bearing savings account. (Not all checking and savings accounts include all these features, though.)

While checking and savings accounts used to be limited to those with high balances in brokerage accounts, this is no longer always the case. For example, online-only financial services companies are breaking the mold by offering similar accounts to those without a brokerage account or without having to meet a minimum balance requirement. They’re able to offer higher interest rates because they don’t maintain brick and mortar locations.

SoFi Checking and SavingsSoFi Checking and Savings

What to Look for in a Checking and Savings Account

While most checking and savings accounts share similarities, they won’t all be the same. Here are some items to consider when shopping around for a checking and savings account.


FDIC (Federal Deposit Insurance Corporation) insurance protects your money in the event your bank goes belly-up. For your safety and protection, it is essential that your checking and savings account is FDIC-insured. Some banks offer more coverage by using a system that spreads their deposits across several banks (this is done behind the scenes). For example, SoFi Checking and Savings offers $1.5 million in FDIC insurance per account.

Interest Rate

Generally, you’re able to get a higher rate of interest within a checking and savings account than you are with a savings account at a brick and mortar bank. This interest rate will likely not be as high as in an online-only savings account, the trade-off being that an online-only savings account will usually limit your access to your money. SoFi Checking and Savings has aspects of a high-yield savings account and a checking account.


When deciding on an account, you’ll want to investigate its accessibility. Cash management accounts usually offer either a credit card or debit card hooked up to the account, allowing you to use it as if it were a checking account.

Most will also allow you to withdraw money at an ATM and set up bill pay. (For comparison, some high-yield savings accounts only allow you to access your money a certain number of times per month. Limiting the number of transactions in an account allows them to offer a higher interest rate.)


As with most types of bank accounts, there is a possibility for fees, such as monthly or annual account maintenance fees, or fees to use out-of-network ATMs. Conversely, some checking and savings accounts will actually reimburse you for any ATM fees you incur.

If you travel internationally, also be sure to check the account’s policy on international transactions and ATM usage. SoFi Checking and Savings, for instance, reimburses 100% of all ATM fees, even internationally, on qualified accounts.

Bank Locations

Brick and mortar locations for checking and savings accounts are limited because in the past, most checking and savings accounts have been offered by brokerage banks. Brokerage banks do have physical locations, but they’re often limited to large cities.

If it’s important to you to be able to walk into a location, you’ll want to research whether there is on near you. Online-only banks specifically opt out of providing physical locations, often so they can offer more by way of interest rates. This will likely become more common as financial services move the majority of their operations online.

Who Should Use a Checking and Savings Account?

Because a cash management vehicle is a hybrid between checking and high-yield savings accounts, they would suit anyone who would like to consolidate the two. Most financially savvy folks understand that larger cash balances should be earning more interest than is offered in a “regular” checking account, but dislike coordinating checking and savings accounts at different banks.

Really, anyone looking to consolidate and elevate their finances should, at the very least, research a cash management vehicle to see whether it makes sense given their financial goals and the structure of their current accounts.

A checking and savings account is an excellent place to save up for short to mid-term goals, such as an emergency fund, a down payment for a home, for a wedding, or an exotic trip to celebrate paying off student loans.

As the landscape of financial services changes, it’s a good idea to stay up to date on advances in technology and improvements to the services provided to consumers. For a long time, brick and mortar banks had very little competition, as the physical locations (and convenience) were paramount to effective banking. As banking moves online, those with the most branches won’t necessarily be the ones providing the best customer service or the most competitive interest rates.

SoFi, who has been leading the charge in refinancing student loans to lower rates, is expanding its business to offer a checking and savings account that offers an interest rate competitive with high-yield savings accounts. They’re able to do so precisely because they don’t maintain physical branches—and understand the need for a more versatile checking and savings account that’s easy to use and and has no fees.

Thinking about merging checking and saving into one, interest-bearing account? Get the best of checking and savings—in one account. Learn more about SoFi Checking and Savings today!

SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Neither SoFi nor its affiliates is a bank.
SoFi Checking and SavingsTM is offered through SoFi Securities, LLC, member FINRA/SIPC.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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How Student Loans Work: The ABCs Of Student Loan Options & Terms

There are so many upsides to investing in your education—the personal enrichment and possibility of a bright and fruitful future being the most obvious. But, there are also some potential downsides that are hard to ignore, one of the main ones—if you’re like so many others—being the debt you may accrue.

Before you start losing sleep over your looming financial obligations, read on to gain a better understanding of how student loans work, starting with “the language of loans.”

Getting a grasp on certain student loan terms and concepts can benefit you in a few ways. For one thing, you’ll be able to better understand your student loan options, which means you can more easily compare features and fine print. That allows you to make confident decisions about your loans and, perhaps most importantly, save some money along the way.

So, what are the student loan terms every borrower should know? Here are a few of the big ones:

The Basics of Student Loans

Borrowing a loan can have long-term financial consequences so it’s important to fully understand the fees and interest rates that will affect the amount of money you owe. Here are a few of the most important terms to understand before you take out a student loan:


This is the original amount of money borrowed, plus any capitalized interest and fees. Capitalized interest is accrued interest that is added to the principal balance.


The loan term is the amount of time the student loan will be in repayment. Loan terms vary by lender, and if you have a federal loan, you are usually able to select your repayment plan.

Annual Percentage Rate

Commonly referred to as APR—this is the cost of borrowing, expressed as an annual percentage. APR includes any fees associated with the loan, providing a more comprehensive view of what you are being charged. Depending on the fees associated with your loan, the APR could be a bit higher than the interest rate.

Accrued Interest

The amount of interest that has accumulated on a loan since your last payment.

The Potential Student Loan Pitfalls

Once you understand loan basics and have secured your student loans, there are a few more terms to know. Making sure you understand your repayment terms and options like deferment or forbearance will allow you to find the best strategy to pay off your student loans quickly.


The temporary postponement of student loan repayment during which time interest typically continues to accrue. If your student loan is in forbearance you can either pay off the interest as it accrues, or you can allow the interest to accrue and it will be capitalized at the end of your forbearance.

You will usually have to apply for forbearance with your loan holder and will sometimes be required to provide documentation proving you meet the criteria for forbearance. For a loan to be eligible for forbearance, there must be some unexpected temporary financial difficulty.


Similar to forbearance, deferment is the temporary postponement of student loan repayment. During deferment, interest may or may not continue to accrue, depending on the type of student loan you have. In
the case of federal loans , the government may pay the interest on your Perkins, Direct Subsidized and/or Subsidized Stafford loans.

Capitalized Interest

This is when accrued interest is added to your loan’s principal balance. Most student loans begin accruing interest as soon as you borrow them. While you are often not responsible for repaying your student loans while you are in school or during a grace period or forbearance, interest will still accrue during these periods. At the end of said period, the interest is then capitalized, or added to the principal of the loan.

If you make your payments on time each month, you’ll keep accrued interest in check. However, after a period of missed or reduced payments (such as forbearance), accrued interest may be capitalized, which can cost you more money in the long run.

When interest is capitalized, it increases your loan’s principal. Since interest is charged as a percent of principal, the more often interest is capitalized, the more total interest you’ll pay. This is a good reason to use forbearance only in emergency situations, and end the forbearance period as quickly as possible.


The act of combining two or more loans into one single loan with a single interest rate and term. The resulting interest rate is a weighted average of the original loan rates.

Consolidating can make your life simpler with one monthly bill and payment, but it’s important to understand that it doesn’t actually save you any money. In fact, if you opt for lower payments when consolidating, this is typically accomplished by lengthening your loan term, which means you’ll pay more interest over the life of the loan.

The Potential Money-Savers

Building a repayment plan and sticking to it is one of the best ways to repay your student loans quickly, while spending the least amount of money on interest. Now that you understand what could cause your interest to skyrocket, here are a few terms that could help you reduce the money you spend over the life of your loans.

Automated Clearing House (ACH)

This is an automatic loan payment that transfers directly out of your bank account to your lender or loan servicer each month. The benefits of ACH are two-fold—not only can automatic payments keep you from forgetting to pay your bill, but many lenders also offer interest rate discounts for enrolling in an ACH program.

Refinancing Your Student Loans

Refinancing is the act of taking out a new loan at a lower interest rate and using it to pay off your original loan(s). Often times, refinancing your student loans allows you to lower your interest rate on your loans.

This is one of the fastest ways to slash your student loan burden. Not only does refinancing reduce the total amount of interest you’ll spend over time, but it can also decrease your monthly payments or allow you to pay off your loan sooner.

To see how refinancing your student loans could help alleviate some financial burden, take a look at SoFi’s student loan calculator. When you refinance with SoFi, there are no origination fees, application fees or prepayment penalties.

With good earning potential and credit history, you could qualify for a lower interest rate than the one you currently have. Refinancing your loans could help you manage your student loan payments.


Paying off a loan early or making more than the minimum payment. Both federal and private loans allow for penalty-free prepayment, which means you can pay more than the monthly minimum or make extra payments without incurring a fee.

The more you do it, the sooner you’re done with your loans—and the less interest you’ll spend over the life of your loan.

Whether you need help paying for school or help paying off the loans you already have, SoFi offers competitive interest rates and great member benefits as well.

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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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or 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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