Feb
04
2026
Student Loan Forgiveness Tax Bomb, Explained

Do You Have to Pay Taxes on Forgiven Student Loans?

By | Fresh Out of School, Student Loans, student_loan | Comments Off on Do You Have to Pay Taxes on Forgiven Student Loans?

The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But tax on student loan forgiveness is a different matter.

The American Rescue Plan (ARP) Act specifies that student loan debt forgiven between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.

This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, nonfederal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans may also qualify.

However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about taxes on student loans, including which forgiven student debt is taxable and by whom.

Key Points

•   Because of the American Rescue Plan Act, student loans forgiven between 2021 and 2025 are exempt from federal taxation.

•   Eight states — Arkansas, California, Illinois, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin — still tax forgiven loans.

•   Use a student loan forgiveness tax calculator to estimate potential state tax liability.

•   Set aside monthly payments to save for potential tax bills on forgiven student loans after 2025.

•   Explore the student loan interest deduction to help reduce federal taxable income.

Types of Student Loan Forgiveness Programs

Federal student debt can typically be canceled through an income-driven repayment plan (IDR) or forgiveness programs. However, as of February 2026, applications for some income-driven repayment plans are on hold due to legal challenges. You can find out more about this situation on the Federal Student Aid (FSA) website.

Here are some common federal forgiveness programs and how typically they work.

Public Service Loan Forgiveness (PSLF)

If you are employed full-time for the government or a nonprofit organization, you may be eligible for Public Service Loan Forgiveness for federal student loans like federal Direct Loans.

After you make 120 qualifying payments under an income-driven repayment plan for an eligible employer, the PSLF program forgives the remaining balance on your federal student loans.

However, because IDR plans are currently not accepting applications, and you must achieve forgiveness by repaying your loans under one of these plans, you will likely need to wait before you can start working toward PSLF. You can get more details about PSLF on the FSA website.

Income-Driven Repayment (IDR) Forgiveness

IDR options generally offer loan forgiveness after borrowers make consistent payments for a certain number of years. However, forgiveness on all but one of the IDR plans is paused as of February 2026.

On an IDR plan, how much you owe each month is based on your monthly discretionary income and family size. These are the types of IDR plans.

•   Income-Based Repayment: With IBR, payments are generally about 10% of a borrower’s discretionary income, and any remaining balance is forgiven after 20 or 25 years. On the IBR plan, forgiveness (after the repayment term has been met) is still proceeding as of February 2026, since this plan was separately enacted by Congress.

•   Pay As You Earn (PAYE): The monthly payment on PAYE is about 10% of a borrower’s discretionary income, and after 20 years of qualifying payments, the outstanding loan balance is forgiven. As of February 2026, forgiveness has been paused for borrowers who were already enrolled in this plan.

•   Income-Contingent Repayment (ICR): The monthly payment amount on ICR is either 20% of a borrower’s discretionary income divided by 12, or the amount they would pay on a repayment plan with a fixed payment over 12 years, whichever is less. After 25 years of repayment, the remaining loan balance is forgiven. As of February 2026, forgiveness has been paused for borrowers who were already enrolled in the plan.

Teacher Loan Forgiveness

With Teacher Loan Forgiveness (TLF), teachers who have been employed full-time for five consecutive years at an eligible school and meet certain other qualifications may be eligible to have up to $17,500 of their federal Direct Subsidized and Unsubsidized Loans and federal Stafford Loans forgiven.

Recommended: Do Student Loans Count as Income?

Which Student Loan Cancellations Are Not Federally Taxed?

When it comes to student loan forgiveness and taxes, under the provisions of the ARP Act, private or federal student debt for postsecondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that these borrowers are not required to report their discharged loan amount as earned income, and the forgiven amount is not taxable.

Beyond the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness don’t have to pay taxes on their canceled loan amount. The PSLF program explicitly states that earned forgiveness through PSLF is not considered taxable income.

Which Student Loan Cancellations Are Federally Taxed?

Borrowers who receive loan cancellation after successfully completing an income-driven loan repayment plan can generally expect to pay taxes. However, those whose debt was or will be discharged in the years 2021 through 2025, will not need to pay federal taxes on their forgiven loans due to the ARP Act.

Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation.

💡Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Which States Tax Forgiven Student Loans?

Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.

As of February 2026, the eight states that say certain forgiven loans are taxable are:

•   Arkansas (except for loans forgiven through PSLF)

•   California (except for loans forgiven through PSLF)

•   Illinois (except for loans forgiven through PSLF)

•   Indiana (except for loans forgiven through PSLF, TLF, and certain other programs)

•   Minnesota (except for loans forgiven through PSLF)

•   Mississippi

•   North Carolina

•   Wisconsin (except for loans forgiven through PSLF and TLF).

Additional states tend to conform to federal tax laws, so it’s important to consult a qualified tax professional who is knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.

How to Prepare for Taxes on Forgiven Student Loans

If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take to get ready.

Step 1: Calculate Your Potential Tax Bill

The first step when preparing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.

To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.

Step 2: Choose the Right Plan

Although IDR plans are not currently accepting applications, they are designed to help keep borrowers’ monthly payments to a manageable amount while they’re awaiting loan forgiveness. All of these repayment plans calculate a borrower’s monthly payment based on their discretionary income and family size.

Step 3: Prioritize Saving

If you’re expecting loan forgiveness after 2025, it might be beneficial to start allocating extra cash flow to a dedicated tax savings fund now. Incrementally setting money aside over multiple years can ease the burden of a sudden lump-sum tax bill down the line.

Another way to potentially save some money is to take the student loan interest deduction on your taxes each year, if you qualify. The deduction, which is up to $2,500 annually, can reduce your taxable income.

You’ll need your student loan tax form to make sure you are eligible for the deduction. The form should be sent to you by your loan servicer or lender. You’ll file the form with your taxes.

Recommended: Guide to Student Loan Tax Deductions

What If I Can’t Afford to Pay the Taxes?

If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest may accrue on such plans.

The Takeaway

Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due on forgiven loans, depending on where the borrower lives.

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


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

FAQ

Is loan repayment considered taxable income?

If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the CARES Act, which was signed into law in 2020, employer assistance loan payments up to $5,250 made each year from 2021 through 2025 are tax-free.

Will refinancing my student loans help me avoid taxes?

Refinancing student loans does not involve taxes. However, the interest you pay on a refinanced student loan may qualify for the student loan interest deduction. If you’re eligible, you may be able to deduct up to $2,500, which could lower your taxable income.

Will student loan forgiveness be taxed after 2025?

The American Rescue Plan Act stipulates that forgiven student loans will not be taxed from 2021 through 2025. Currently, there are no plans to extend that tax relief beyond 2025.

Are state taxes different for forgiven student loans?

While states typically follow the federal tax policy, five states say that certain forgiven loans are taxable. Those five states are: Arkansas (except for loans forgiven through Public Service Loan Forgiveness), Indiana (except for loans forgiven through PSLF, Teacher Loan Forgivenesss, and certain other programs), Mississippi, North Carolina, and Wisconsin (except for loans forgiven through PSLF and TLF).

What steps should I take if I owe taxes on forgiven student loans?

If you owe taxes on forgiven student loans, calculate how much you’ll owe in taxes with the forgiven loan amount factored into your taxable income. Then, once you have the estimate of what you owe, you can start saving up to pay it. One way to do this is to put away the monthly amount you previously paid on your student loans to help offset the amount you owe. So if your student loan payment was $100 a month, deposit that amount monthly into a savings account, and use it to help pay what you owe in taxes.

Photo credit: iStock/fizkes

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

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


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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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

SOSLR-Q125-020

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Feb
02
2026
Three female college graduates in caps and gowns talk and laugh together as they walk on campus.

Student Loan Grace Period: How Long Is It?

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

As you prepare for life after graduation, one important step is figuring out whether you’re required to make monthly student loan payments right away or if you have what’s called a student loan grace period.

Read on to learn what a student loan grace period is, when it starts, the student loan grace period ending date, and how you might extend yours. You’ll also find tips on how to use your grace period to help get your finances in order before you start making student loan payments.

Key Points

•   Grace periods allow new graduates time to get settled before starting student loan payments.

•   Federal student loans typically have a six-month grace period; some Perkins loans have nine months.

•   Private student loans may or may not offer a grace period. Those that do typically offer a six-month grace period for undergraduates.

•   Interest accrues during the grace period for most federal and private student loans.

•   Making early payments can reduce interest costs and the principal balance of student loans.

What Is a Grace Period for Student Loans?

A student loan grace period is a window of time after a student graduates and before they must begin making loan payments. The purpose of a grace period is to give new graduates a chance to get a job, get settled, select a repayment plan, and start saving a bit before their student loan grace period ending date arrives and their payment due dates kick in. Most federal student loans have a grace period, and some private student loans do as well.

Grace periods also apply when a student leaves school or drops below half-time enrollment. Active members of the military who are deployed for more than 30 days during their grace period may receive the full grace period upon their return.

How Long Do Student Loan Grace Periods Last?

The grace period for federal student loans is typically six months. Some Perkins loans can have a nine-month grace period. When private lenders offer a grace period on student loans, it’s usually six months as well.

Keep in mind that, as noted above, not all student loans have grace periods.

Recommended: The Average Cost of College Tuition

Which Student Loans Have a Grace Period?

Whether you have a grace period depends on what kind of loans you have. There are two main types of student loans: federal and private student loans.

Federal Student Loans

Most federal student loans have grace periods.

•   Direct Subsidized Loans and Direct Unsubsidized Loans have a six-month grace period.

•   Grad PLUS loans technically don’t have a grace period. But graduate or professional students get an automatic six-month deferment after they graduate, leave school, or drop below half-time enrollment.

•   Parent PLUS loans also don’t have a grace period. However, parents can request a six-month deferment after their child graduates, leaves school, or drops below half-time.

Keep in mind: Borrowers who consolidate their federal loans lose their grace period. Once your Direct Consolidation Loan is disbursed, repayment begins approximately two months later. And if you refinance, any grace period is determined by your new private lender.

Private Student Loans

The terms of private student loans vary by lender. Some private loans require that you make payments while you’re still in school. When private lenders do offer a grace period, it’s usually six months for undergraduates and nine months for graduate and professional students.

At SoFi, qualified private student loan borrowers can take advantage of a six-month grace period before payments are due. SoFi also honors existing grace periods on refinanced student loans.

If you’re not sure whether your private student loan has a grace period, check your loan documents or call your student loan servicer.

Will Interest Accrue During the Grace Period?

For most federal and private student loans, interest is charged during the grace period — even though you aren’t making payments on the loan. In some cases, this interest is then added to your total loan balance (a process called interest capitalization), effectively leaving you to pay interest on your interest.

In 2023, federal regulations changed so that the interest that accrues during a borrower’s grace period is not capitalized. According to the Federal Student Aid website, “the interest that accrues during your grace period will be added to the outstanding balance of your loan, but it will not be capitalized.”

Smart Ways to Use Your Student Loan Grace Period

If you are in a financially tight spot after you graduate or during your break from school, a student loan grace period can offer some much-needed breathing room. Here’s how you can put your grace period to good use.

Organize Your Finances Before Payments Begin

Take this time to create a new post-grad budget. Which approach you use is up to you: the 70-20-10 Rule, the envelope budget method, or zero-based budgeting. The important thing is to determine your monthly income and expenses, setting aside enough to pay down debts and save a little.

Enroll in Autopay to Avoid Late Fees

Missed student loan payments can incur penalties and hurt your credit score. Setting up autopay means one less thing you have to remember. Some student loan lenders (like SoFi) will even discount your interest rate for setting up automatic payments. Federal student loans also offer a discount for enrolling in autopay.

Make Early Payments to Reduce Interest Costs

Just because you don’t have to make payments toward student loans during a grace period doesn’t mean you can’t. If you are in a financial position to make payments during a grace period, you should. It can help keep your loan’s principal balance from growing on certain types of student loans and the accruing interest from potentially capitalizing during your grace period.

If you can, direct some extra money toward your principal balance. Because student loans are amortizing loans, when you enter repayment, your early payments largely go largely toward the interest. Making additional principal payments can help reduce the total amount of interest you’ll pay, and even potentially reduce your loan term.

Explore Repayment Plan Options Before the Grace Period Ends

Once your grace period is over for your federal loan, you’ll be automatically enrolled in the 10-year Standard Repayment plan. However, if you’re concerned about making your payments, several income-driven repayment plans are currently available. These plans generally reduce your payment to a small percentage of your discretionary income.

You can use a student loan repayment calculator to calculate your monthly payments and what they might be.

Consider Consolidating or Refinancing Your Student Loans

These two terms are often used interchangeably, but there are important differences between them. When it comes to student loan consolidation vs refinancing, both options combine and replace existing student loans with a single new loan.

Student loan consolidation with a Direct Consolidation Loan allows you to combine several federal student loans into one new federal loan. The resulting interest rate is the weighted average of prior loan rates, rounded up to the nearest ⅛ of a percent. However, as noted above, borrowers who consolidate their federal loans lose their grace period.

Student loan refinancing is when you consolidate your student loans with a private lender and receive new interest rates and terms. Your student loan refinancing rate — which ideally would be lower — is determined by your credit history.

Using a student loan refinancing calculator can help you estimate how much refinancing might save you.

Can You Extend Your Student Loan Grace Period?

If your loan doesn’t qualify for a grace period or if your student loan grace period is ending and you want to extend it, you have options. You may delay your federal student-loan repayment through deferment and forbearance.

Both options are similar to a grace period in that you won’t be responsible for student loan payments for a length of time. The difference is in the interest.

When a loan is in forbearance, loan payments are temporarily paused, but interest will accrue on all loan types during the forbearance period. This can lead to substantial increases in what you’ll pay for your federal loans over time. You’ll want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans. (The good news is that for most types of loans, the interest that accrues during forbearance no longer capitalizes.)

During deferment, by contrast, interest will not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans. Other types of federal loans may still accrue interest during deferment, and that interest will capitalize upon exiting deferment unless you were enrolled in an income-driven repayment plan.

While grace periods are automatic, you’ll need to request a student loan deferment or forbearance and meet certain eligibility requirements. In some cases — during a medical residency or National Guard activation, for example — a lender is required to grant forbearance.

Pros and Cons of Using Your Full Grace Period

A grace period can be beneficial since it gives you time to get your financial situation in order before you need to start repaying your loans. However, there are also disadvantages to a grace period. Here are some pros and cons to weigh as you’re thinking about when to start paying student loans.

Pros

•   A grace period gives you time to find a job after graduation and start earning a salary.

•   You can create a budget and start saving money to put toward your student loan payments.

•   For those with Direct Subsidized loans, interest does not accrue on these loans during the grace period

Cons

•   With many student loans, interest does accrue, which increases the overall amount you need to repay.

•   The interest may also capitalize and be added to the principal balance of your loan so that you’re effectively paying interest on the interest.

•   Having more debt to repay can increase your debt-to-income (DTI) ratio, which could impact your credit score and your ability to borrow money for other purposes, such as taking out a mortgage.

The Takeaway

Federal student loan grace periods are typically six months from your date of graduation, during which you don’t have to make payments. Most federal student loans have grace periods. Private student loan terms vary by lender. However, some lenders, like SoFi, match federal grace periods for undergrad loans.

During your grace period, you may want to make payments anyway, even interest-only payments, to prevent your balance from growing. The grace period is a good time to create a new budget, choose a repayment plan, and set up autopay.

If you have trouble making your payments, you have options, from income-driven repayment plans to loan consolidation to refinancing.

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

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

FAQ

How do I know if my student loan has a grace period?

To find out if your student loan has a grace period, check your loan documents. As part of the terms and conditions stated on the documents, you should find information about a grace period if there is one, including how long it is. If you can’t find your loan documents or you’re still not sure if your loan has a grace period, call your loan servicer.

Can I start making payments before my grace period ends?

Yes, you can start making payments before your grace period ends. If you can afford to do so, making early payments can help keep your principal balance from growing and interest from accruing and potentially capitalizing. Even if you make interest-only payments, it can help reduce the total interest you’ll pay on the loan.

What happens if I don’t make a payment after my grace period?

If you fail to make student loan payments after your grace period ends, your loan could eventually go into default. A student loan is considered in default once you are nine months late on your payments. This could damage your credit rating and your future ability to take out a loan. If you’re having trouble making your loan payments, contact your loan servicer right away to see what your options are. You may be able to apply for income-driven repayment, forbearance, or deferment.

Does refinancing affect my grace period?

Whether refinancing affects your grace period depends on the lender. Some private lenders, like SoFi, will honor your grace period, but with others, student loan repayment may begin right away. Check with your refinancing lender.

Are grace periods the same for federal and private student loans?

No, grace periods are not the same for federal and private student loans. Federal student loans typically have a six-month grace period, though some Perkins loans have a nine-month grace period. Not all private lenders offer a grace period. Those who do typically offer a six-month grace period for undergraduates, and nine months for graduate students.

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

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

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

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


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

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

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

SOSLR-Q126-005

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Feb
02
2026
A person is typing on a laptop, which is on a chalkboard table surrounded by drawings of school supplies.

Should I Refinance My Federal Student Loans?

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

Refinancing federal student loans can either help you pay down your loans sooner (by shortening your term) or lower your monthly payment (by extending your term). However, when you refinance federal student loans with a private lender, you may lose federal benefits and protections.

Refinancing is not a simple decision to make. Read on to learn more about federal student loan refinancing and whether it’s right for you.

Key Points

•   With refinancing, you can pay off your federal student loans sooner or lower your monthly loan payments.

•   Refinancing involves rolling your private and federal loans into a new private loan with a different term and interest rate.

•   The benefits of refinancing include potential savings on interest, lower monthly payments, and streamlined repayments.

•   Refinancing your student loans with a private lender involves careful consideration, as you lose the benefits and protections that come with government-held student loans.

•   Factors such as your credit score, your income, and market conditions can influence the terms of your student loan refinancing.

What Is Federal Student Loan Refinancing?

If you graduated with student loans, you may have a combination of private and federal student loans. Federal student loans are funded by the federal government. Direct Subsidized Loans and Direct PLUS Loans are both examples of these.

Interest rates on federal student loans are fixed and set by the government annually. The rate for the 2025-26 school year is 6.39% for undergraduate students. Private student loan rates are set by individual lenders. If you’re unhappy with your current interest rates, you may be able to refinance your student loans with a private lender and a new — ideally lower — interest rate.

Recommended: Types of Federal Student Loans

Can I Refinance My Federal Student Loans?

It is possible to refinance your federal student loans with a private lender, but you lose the benefits and protections that come with a federal loan, such as income-based repayment plans and public service-based loan forgiveness. On the plus side, refinancing may allow you to pay less interest over the life of the loan or pay off your debt sooner.

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-hidden-fees loans, you could save thousands.

How Do Refinancing and Consolidation Differ?

Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re signing different terms on a new loan to replace your old student loan(s).

Consolidation bundles multiple federal student loans together, allowing borrowers to repay with one monthly bill. However, it does not typically get you a lower interest rate. When you consolidate federal student loans through the Direct Consolidation Loan program, the resulting interest rate is the weighted average of the original loans’ rates, rounded up to the nearest one-eighth of a percent. This means you don’t usually save any money. If your monthly payment goes down, it’s usually because the loan term has been extended, and you’ll spend more on total interest in the long run.

Refinancing, on the other hand, rolls your existing federal and private loans into a new private loan with a different loan term and interest rate. When you refinance federal and/or private student loans, you get a new interest rate. This rate can be lower if you have a strong credit history, saving you money. You may also choose to lower your monthly payments or shorten your payment term (but not both).

Recommended: Student Loan Consolidation vs Refinancing

What Are the Potential Benefits of Refinancing Federal Student Loans?

Potential Savings in Interest

The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you could save thousands over the life of the new loan. Plus, you may be able to switch out your fixed-rate loan for a variable-rate loan if that makes more financial sense for you (more on variable rates below).

Lower Monthly Payments

You can also lower your monthly payments, which typically involves lengthening your loan term and paying more in overall interest. (Shortening your term usually results in higher monthly payments but more savings in total interest.)

Streamlining Repayments

Refinancing multiple loans into a single loan can help simplify the repayment process. Instead of multiple loan payments with potentially different servicers, refinancing allows you to combine them into a single monthly payment with one lender.

What Are the Potential Disadvantages of Refinancing Federal Loans?

When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-held student loans. Those benefits fall into three main categories:

Deferment/Forbearance

Most federal loans will allow current borrowers to put payments on hold through deferment or forbearance when they are experiencing financial hardship. Student loan deferment allows you to pause your subsidized loan payments without accruing interest, while unsubsidized loans continue to accrue interest.

With student loan forbearance, you can reduce or pause your payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance — check your lender’s policies before refinancing.

Special Repayment Plans

Current federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make payments based on your discretionary income. However, it’s important to note that these plans typically have a higher total interest over the life of the loan. Private lenders do not offer these programs.

Student Loan Forgiveness

Teachers, firefighters, social workers, and other professionals who work for select government and nonprofit organizations may apply for Public Service Loan Forgiveness (PSLF). Changes made by the former Biden Administration have made qualifying easier — even for borrowers who were previously rejected. Learn more in our guide to PSLF.

The Teacher Loan Forgiveness program is available to full-time teachers who complete five consecutive years of teaching in a low-income school. Find out more in our Teacher Loan Forgiveness explainer.

You may be eligible for forgiveness under an income-driven repayment (IDR) plan after 20 or 25 years of payments. Most of the current plans are scheduled to close in the coming years, leaving only Income-Based Repayment for current borrowers or the new Repayment Assistance Plan, which launches in July 2026. Learn about your options in our guide to IDR plans.

Private student loan holders are not eligible for these programs.

Potential Advantages of Refinancing Federal Student Loans Potential Disadvantages of Refinancing Federal Student Loans
Lower Interest Rate: Refinancing provides an opportunity to qualify for a lower interest rate, which may result in cost savings over the long term. There is also the option to select a variable rate for individual financial circumstances. Loss of Deferment and Forbearance Options: These programs allow borrowers to temporarily pause their payments during periods of financial difficulty.
Adjustable Loan Term: This allows borrowers to make lower monthly payments, usually by extending the loan term, which could make loan payments easier to budget for but may increase the total amount of the loan in the long run. Loss of Federal Repayment Plans: Loan holders become ineligible for special repayment plans, such as income-driven repayment.
Getting a Single Monthly Payment: Combining existing loans into a new refinanced loan can help streamline monthly bills. Loss of Loan Forgiveness: Borrowers become excluded from federal forgiveness programs, including Public Service Loan Forgiveness.



How Many Times Can You Refinance Your Student Loans?

There is no limit to the number of times you can refinance your student loans. Each time you refinance, you essentially take out a new loan to pay off the old one, ideally with better terms. However, it’s important to ensure that refinancing is beneficial for your financial situation. Here are some key considerations:

Improved Financial Situation

You might qualify for better loan terms if your credit history or financial circumstances have changed for the better.

•   Credit Score: If your credit score has improved, you may qualify for a lower interest rate.

•   Income: A higher or more stable income can make you eligible for better loan terms.

•   Debt-to-Income Ratio: A lower debt-to-income ratio can also help you secure more favorable terms.

Market Conditions

•   Interest Rates: If market interest rates have decreased since your last refinancing, you might be able to get a better rate.

•   Promotional Offers: Keep an eye out for new promotional rates or special offers from lenders.

Loan Terms

•   Shorter Terms: Refinancing to a shorter loan term can reduce the overall interest you pay.

•   Extended Terms: If you seek lower monthly payments, extending the loan term can provide relief, though it may increase the total interest you pay over the life of the loan.

•   Consolidation: Refinancing multiple loans into a single loan can simplify your payments and possibly offer you better terms.

The Takeaway

If you’re looking to pay off your federal student loans sooner or lower your monthly payments, refinancing could be a feasible option. Potential benefits include getting a lower interest rate, adjusting the loan term, and streamlining repayments into a single loan.

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

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



FAQs on Refinancing Your Federal Student Loans

Who typically chooses federal student loan refinancing?

Many borrowers who refinance have graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered students less competitive rates than federal student loans. To qualify for a lower interest rate, it’s helpful to show high income and a history of managing credit responsibly, among other factors. The one thing many refinance borrowers have in common is a desire to save money.

Do I need a high credit score to refinance federal loans?

Generally speaking, the better your history of dealing with debt (which is reflected in your credit score), the lower your new interest rate may be, regardless of your chosen lender. However, though many lenders look at credit scores as part of their analysis, it’s not the single defining factor. Underwriting criteria vary from lender to lender, so shopping around is advisable.

For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. Check here for current eligibility requirements.

Are there any fees involved in refinancing federal loans?

Fees vary and depend on the lender. That said, SoFi has no application or origination fees.

💡 Quick Tip: Enjoy special member benefits and no hidden fees when you refinance student loans with SoFi.

Should I choose a fixed- or variable-rate loan?

Generally speaking, a variable-rate loan can save you money if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise — taking your loan’s rate with it.

Most federal student loans are fixed-rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable-rate loan.

Fixed-rate refinancing loans typically have:

•   A rate that remains the same throughout the life of the loan

•   A higher rate than variable-rate refinancing loans (initially, at least)

•   Payments that stay the same over the life of the loan

Variable-rate refinancing loans typically have:

•   A rate that’s tied to an “index” rate, such as the prime rate

•   A lower initial rate than fixed-rate refinancing loans

•   Payments and total interest costs that vary based on interest rate changes

•   A cap, or a maximum interest rate

What happens if I lose my job or can’t afford loan payments?

Some private lenders offer forbearance — the ability to put loans on hold — in case of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. For policies on disability forbearance, check with the lender directly, as this is often considered on a case-by-case basis.

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

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


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

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

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.

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

SOSLR-Q126-012

Read more
Feb
02
2026
A smiling woman using a laptop to research and compare the differences between a HELOC and student loan.

Home Equity Line of Credit (HELOC) vs Student Loan

By | Fresh Out of School, Student Loans, student_loan | Comments Off on Home Equity Line of Credit (HELOC) vs Student Loan

Student loans are often the go-to choice for families who need help paying for a child’s college education. But as you put together your financing plan, you may find there are other options worth considering — including using a home equity line of credit, or HELOC — to cover some college costs.

Both types of borrowing have advantages and disadvantages that may influence your decision to use one or both to pay for school. Read on for a look at student loans vs. HELOCs and how each can be used to help with your family’s educational and financial goals.

Key Points

•   Both a HELOC and a student loan can be a good option to pay for college, but there are important differences to consider, including interest rates, fees, repayment terms, credit requirements, tax deductibility, and borrowing limits.

•   There are also key differences between federal student loans and private student loans.

•   Some people may choose to combine a HELOC with a student loan.

•   In addition to a HELOC and student loans, there are other ways to help pay for college.

•   A HELOC is not the same as a home equity loan.

What Is a HELOC?

A home equity line of credit, or HELOC, is a revolving line of credit provided by a private lender and secured with the equity you have in your home.

HELOCs are sometimes confused with home equity loans, but they are not the same thing. Because a HELOC is a line of credit, you pay interest only on the amount of money you’ve actually borrowed. Payments can vary from month to month. As you replenish the account by making payments, you can borrow from it again. With a lump-sum home equity loan, a borrower receives all the money upfront and pays interest on the entire loan amount from day one.

A HELOC can be used to pay for just about anything — including tuition, books and supplies, housing, transportation, and other college expenses. But because the line of credit is secured with your home, if you fall behind on your payments, you risk foreclosure. And should you decide to sell your home, you may be required to repay what you currently owe.

Recommended: Different Types of Home Equity Lending

What Are Student Loans?

Student loans allow students and, in some cases, their parents, to borrow money to pay for a college education. Here’s how the two main types of student loans work:

Federal Student Loans

There are a few different types of federal student loans, and each has its own rules when it comes to how much you can borrow and how the money is repaid. But generally, they offer lower interest rates than many other types of loans and include more protections for borrowers, including temporary relief programs in case of financial hardship and even the potential for loan forgiveness.

To apply for federal student aid, you must submit the Free Application for Federal Student Aid (FAFSA®) form. If you qualify for assistance and accept what’s offered, the school will apply your federal loan funds to your outstanding account charges (tuition, fees, etc.). Whatever is left after that will then be turned over to you to use for other educational costs.

Private Student Loans

Private student loans are issued by nongovernment lenders, such as banks, credit unions, and other financial service companies. Because the federal government does not back these loans, they do not offer the same repayment options or safety-net protections as federal loans. So if your family (student and/or parents) qualifies for federal student loans, you’ll probably want to tap those first. However, if you’ve exhausted your federal financial aid and require additional funds, you may find you can get the help you need by borrowing through a private lender.

Key Differences Between a HELOC and Student Loans

While you may decide to use federal or private student loans, a HELOC, or all three types of financing to help pay for a college education, it’s important to be aware of some key differences in how they work.

Interest Rates

•   Federal student loans are usually the way to go for borrowers who are looking for the lowest interest rates available. The government sets a fixed interest rate for these loans, so once you sign on the dotted line, you can expect to pay the same rate for the life of the loan. But different types of federal student loans have different interest rates, and the way interest starts accruing on these loans also varies. If you have a subsidized loan, for example, you won’t accrue any interest while you’re in school, for six months after you leave school, or during any deferment. The U.S. Education Department pays the interest during these periods. The interest on an unsubsidized loan starts accruing immediately, however, and it is the borrower’s responsibility.

•   Private student loans are generally available with a choice of a fixed or variable interest rate, but the individual lenders set these rates, and they can vary quite a bit. It’s important to shop for the most competitive offer based on your creditworthiness and other qualifications.

•   HELOCs have a variable interest rate, which means the rate fluctuates over time. This can be good or bad, depending on which way interest rates are going. If rates drop, the borrower can benefit; but if they rise, it may make it harder to keep up with the payments. Still, because a HELOC is secured with your home, the interest rate may be lower than with unsecured borrowing, such as a personal loan or credit card. And because it’s a line of credit and not a lump-sum loan, you’ll be charged interest only on the amount you’ve actually borrowed.

Recommended: Student Loan Interest Rates Guide

Fees

•   Federal student loan borrowers are often surprised to learn they’ll be expected to pay an origination fee on each loan they receive. Origination fees are currently 1.057% for federal subsidized and unsubsidized loans for undergraduate and graduate students, and 4.228% for federal PLUS loans for parents and graduate students. The lender who is servicing the loan also may charge a fee if a payment is more than 30 days late.

•   Private student loan fees can also vary based on the lender you choose. Some may charge an origination fee or fees for late payments, while others, including SoFi, have zero account fees on student loans.

•   HELOC fees vary depending on the lender, but they often include application/origination, notary, title search, appraisal, credit report, document prep, and recording fees. There also may be an annual maintenance fee and charges for early termination or account inactivity.

Repayment Terms

•   Federal student loans offer the most repayment options for borrowers, including a fixed payment plan that ensures loans are paid off within 10 years and income-driven plans that base your monthly payment on your earnings and your family size. Some borrowers may also be able to have a portion of their loans forgiven. And those who have multiple federal student loans may choose to consolidate them into a single Direct Consolidation Loan. Another plus: Student and parent borrowers may be eligible for a deferment period if they become unemployed, experience an economic hardship, or serve in the military. (Be aware that repayment terms and deferments are set to change for new borrowers beginning July 1, 2026.)

•   Private student loans have different repayment terms depending on the lender and can often be repaid over a period of 10 to 15 years or longer, usually starting six months after graduation. There is no loan forgiveness with a private student loan, but some lenders, including SoFi, may offer borrowers a student loan deferment period that’s similar to what some federal loans offer. However, you can expect your loan to continue accruing interest during this time.

•   HELOC borrowers are usually required to make at least a minimum monthly payment during their account’s “draw” period. When the draw period ends — typically after 10 years — access to the line of credit ends and the lender sets up a repayment schedule based on the balance owed.

Credit Requirements

•   Federal student loan borrowers who are undergraduates don’t have to worry about passing a credit check as part of their application process — and they don’t need a cosigner to get a loan. Though parents and graduate students do have to pass a credit check to get a federal loan, there’s no required minimum credit score.

•   Private student loan lenders may have different credit requirements, but all borrowers (including undergraduates) should expect to go through a credit check. Lenders generally will be looking for a solid credit history, a good to excellent credit score, and other factors that show the borrower — alone or with the help of an eligible student loan cosigner — has the ability to repay the loan.

•   HELOC credit requirements can vary, but lenders typically require that you have at least 15% to 20% equity in your home, a healthy debt-to-income ratio that shows you can afford to take on the added debt load, and a credit score that indicates you can reliably repay the money you owe.

Tax Deductibility

•   Federal student loan interest payments can qualify for a tax deduction of up to $2,500, as long as you use the loan to pay eligible higher education expenses for yourself, your spouse, or a dependent. And you don’t have to itemize deductions on your return to get the tax break: The interest you pay is considered an income adjustment, so there’s no separate form to fill out.

•   Private student loan interest payments qualify for the same tax deduction as federal student loans, with the same requirements.

•   HELOC borrowers can now claim their interest payments as a deduction, regardless of how the funds are used. Prior to 2026, interest paid on money used for college didn’t qualify for a tax break.

Borrowing Limits

•   Federal student loans have different borrowing limits based on the loan type and your student status (undergraduate or graduate) or if you’re a parent.

•   Private student loan limits can vary by lender; there is no set borrowing limit as with most federal loans. However, the maximum amount you can borrow may be based on your school’s estimated cost of attendance minus any other forms of financial aid you receive, your creditworthiness, and other factors.

•   HELOC lenders may allow you to tap up to 90% of your home equity. For example, if your home is valued at $350,000 and you owe $250,000, you might qualify for a $90,000 HELOC: 350,000 – 250,000 = 100,000 x .90 = 90,000.

Alternative Options

Although you can use a HELOC to pay for college — especially if you find you need more money than you can get in student loans — there are other options that could help your family manage education costs.

Scholarships and Grants

A wide range of scholarships and grants are available to students who are willing to take the time to do some research and apply. And this type of financial aid, which can come from private organizations, colleges, and other sources, doesn’t have to be repaid.

Work Study or a Part-Time Job

A work-study program or part-time job can also help pay some college costs. A student can check with the financial aid office at their school to learn more about participating in federal or state work-study programs. And local businesses like coffee shops, restaurants, retail stores, and markets often hire college workers to help out at night and on the weekends.

529 Plans

If your student is still a few years away from attending college, you may want to look into a state-sponsored 529 college savings plan, also known as a qualified tuition program. These tax-advantaged plans offer parents and others an opportunity to save ahead for a family member’s college expenses.

The Takeaway

Using a HELOC vs. student loans to pay for college has advantages and disadvantages. Because you have to pay interest only on the amount you actually borrow, a HELOC can be an affordable alternative, or addition, to lump-sum student loans. And since your home is used as collateral with a HELOC, the interest rate may be lower than with some other borrowing options. Of course, this also means you could lose your home if you can’t make your HELOC payments.

You may want to exhaust any federal financial aid for which your family is eligible — and check out potential private student loan offers — before turning to a HELOC for help. Federal student loans offer borrower protections you can’t expect with a HELOC, and you won’t be putting your home at risk.

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

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

FAQ

Can I use both a HELOC and student loans?

Yes, if the federal financial aid for which you are eligible doesn’t cover all your college costs, you may choose to combine a HELOC with both federal and private student loans. You may want to compare all your options before moving forward, however, and it may be helpful to make a plan for how you expect to use and repay the money you borrow.

Does the interest rate on a HELOC vary?

Yes, a HELOC comes with a variable interest rate, which means the rate you pay fluctuates based on the benchmark interest rate.

Are student loan interest rates fixed?

Federal student loans have fixed interest rates, so you’ll pay the same rate for the life of the loan. Private student loans may be offered with a choice of a fixed or variable interest rate.

Can you use a HELOC to pay off student loans?

If you can qualify for a lower interest rate, you might consider using a HELOC to pay off your student loans. But it’s important to keep in mind the upfront and ongoing costs that come with a HELOC. You’ll also lose the protections that student loans offer borrowers and could put your home at risk if you can’t make your HELOC payments.

Photo credit: iStock/andresr

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

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

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


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


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

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

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.

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 .

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.

SOISL-Q126-013

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Jan
29
2026
Group of graduates in caps and gowns joyfully tossing their hats in the air to celebrate graduation outdoors.

Examining the True Cost of an MBA Degree

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

A Master of Business Administration (MBA) is a highly valued degree in the business world and can put you on a path to a successful and high-paying career. However, these degrees don’t come cheap. In fact, the total cost of an MBA in the U.S. can range from around $78,000 (for in-state students at a public school) to $270,000 (for a private top tier university), including full-time tuition, mandatory fees, textbooks, supplies, technology costs, and living expenses.

Is it worth it? The answer depends on myriad factors, including what school you go to, what financial aid you qualify for, and your future career goals. Read on for a closer look at the real costs and benefits of getting an MBA.

Key Points

•   The total cost of an MBA in the U.S. can range from $78,000 to $270,000, including tuition, fees, and living expenses.

•   Choosing a public, in-state, part-time, or online MBA program can significantly lower the overall cost of the degree.

•   The true cost of an MBA includes tuition, administrative fees, books, housing, and the opportunity cost of lost salary.

•   On average, MBA graduates see a nearly 70% increase in salary, earning around $120,000 annually.

•   Funding options for an MBA include employer sponsorships, federal and private student loans, and scholarships or fellowships.

MBA School Requirements

To be accepted into an MBA program, students typically need to submit proof of a bachelor’s degree from an accredited institution, a personal statement, letters of recommendation, and a resume. Many business schools also require a standardized test score such as the GMAT or GRE.

Once enrolled, full-time MBA students generally need to complete 60 credits over two years. Some accelerated MBA programs may be finished in as little as one year. A part-time MBA program is designed to accommodate working students and generally takes three to five years to complete.

💡 Quick Tip: You can fund your education with a competitive-rate, no-fees-required private student loan that covers up to 100% of school-certified costs.

MBA School Costs

How much an MBA costs will depend on a variety of factors, including school prestige, location, whether the school is public or private, and the program format (e.g., full-time, part-time, or online). MBA costs are also influenced by a student’s ability to qualify for financial aid, scholarships, and employer assistance.

Private and Public MBA Tuition

Going to a public university as an in-state student is often the most cost-effective way to get an MBA. For example, 2025-26 tuition at the University of Michigan’s Ross School of Business was $18,962 for first-year in-state students, compared to $64,556 for nonresidents. Private business schools typically run even higher. For example, the tuition at Columbia Business School was $91,172 for first-year MBA students in 2025-26.

Total Cost of an MBA

The total cost of an MBA degree means more than just tuition expenses. Many MBA students will have to pay for living expenses, textbooks, transportation, and extracurricular activities. This more comprehensive expense list is used to calculate the total cost of attendance.

Additional Expenses (Fees, Books, Housing)

Here’s a breakdown of other approximate costs you can expect to pay per year when pursuing an MBA degree:

•   Fees: $240-$6,470

•   Books & Supplies: $1,200

•   Food and Housing: $16,250-$28,500

•   Loan Fees: $64

•   Opportunity Costs: $160,000 or two years of missed salary

Recommended: Is Getting an MBA Worth It?

How Much Does an Online MBA Cost?

Relocating or commuting may not be feasible for all prospective MBA students. Choosing an online MBA program can offer more flexibility and a lower overall cost for some students. Tuition for an online MBA degree varies widely, ranging anywhere from $11,000 to $126,000 per year depending on the school.

Recommended: The 14 Best Jobs for MBA Graduates

Cost-Benefit Analysis of Getting an MBA

At the lower end, tuition costs for business schools may come in around $16,400 (for an in-state student at a public university). At the higher end, it can run around $90,000 a year. Total cost of attendance, including food and housing, books, supplies, and other living expenses put the price tag even higher.

Even considering the increase in salary for those who graduate prestigious programs — Yale graduates make a median base salary of $175,000 a year — those upfront costs of tuition can be intimidating.

When weighing costs and benefits, you’ll want to also consider that many MBA programs offer scholarships, based on merit or need. NYU reports awarding merit-based scholarships to 20% to 25% of students, while around 50% of MBA students at Stanford receive need-based aid averaging $50,000 per year.

Average Salary Boost After Graduation

Generally, you can expect a nearly 70% increase in your salary after completing an MBA. Research suggests that MBA graduates earn around $120,000 per year on average, which is $50,000 higher than the average salary of graduates with only a bachelor’s degree.

Keep in mind that a number of things can influence your salary after graduating with an MBA, including the school you attended, the industry you work in, your location, and your pre-MBA salary. Plus, your salary is typically only your base pay. Many jobs for MBA graduates also offer a hiring bonus, stock options, relocation funds, and other high-value benefits, which can significantly boost your earnings.

Time to Break Even on Investment

How long it will take you to break even on your investment in an MBA will depend on the cost of your program and the career you choose after graduation. On average, MBA graduates start seeing a return on their investment (ROI) in five to six years.

Ways to Pay for Your MBA

Assuming you don’t have six figures in savings you can tap to pay for business school, you may need to get creative to cover the costs. Here are some ways to pay for your MBA.

Employer Sponsorship

Employer sponsorship for an MBA involves companies partially or fully funding an employee’s degree in exchange for continued service, typically for one to three years post-graduation. Some employers may require you to sign an agreement that you will repay funds if certain conditions aren’t met.

Student Loans

Depending on your financial situation, you may want to consider applying for a student loan, whether private or federal, to pay for your MBA.

Federal Student Loans

MBA students may borrow up to $20,500 per year in Direct Unsubsidized Loans from the Federal government. The interest rate is currently fixed at 7.94% for loans dispersed by July 1, 2026.

While Federal Grad PLUS Loans will no longer be available as of July 1, 2026, borrowers who already received a Grad PLUS loan before June 30, 2026, can continue borrowing under current terms through the 2028-29 academic year.

To apply for federal student loans for graduate school, you need to complete the Free Application for Federal Student Aid (FAFSA®) form.

Private Student Loans

Private student loans — available through banks, credit unions, and online lenders — can be a key resource for bridging the gap when federal aid, scholarships, and grants fall short. Unlike federal loan options, these loans generally require a credit check and often a cosigner. While terms vary by lender, students can typically borrow up to the full cost of attendance for an MBA program. In addition, some lenders offer specialized MBA loans with tailored repayment terms. Just keep in mind that private student loans generally don’t offer the same borrower protections as federal student loans (such as income-driven repayment plans or loan forgiveness options).

💡 Quick Tip: Master’s degree or graduate certificate? Private or federal student loans can smooth the path to either goal.

Scholarships and Fellowships

Many business schools automatically consider applicants for merit scholarships based on GMAT/GRE scores, previous educational achievements ,and professional experience. A number of top schools also offer sizable need-based fellowships, which can significantly reduce your out-of-pocket expenses.

MBA scholarships are also available through private organizations and foundations. This type of funding may be awarded based on identity or affinity (such as being a woman or a Native American). Some business schools publish a list of scholarships awarded by external sources, including the amounts and requirements.

Graduate Assistantships or Part-Time Work

Getting a graduate assistant position can also help you pay for business school. These positions typically involve assisting faculty with research or administrative activities and may offer a stipend or hourly wage. Alternatively, you might be able to work as a teaching assistant (TA) or pick up a side gig or part-time job while studying to help you pay for MBA school.

Factors to Consider When Choosing an MBA Program

If you’re trying to decide which MBA program is right for you, here are two key factors to consider:

ROI by Program Type and School Ranking

When comparing business schools, it can be helpful to research the average ROI. This is typically calculated by dividing the average earnings of recent graduates by the average student debt incurred. According to a July 2025 U.S News analysis, these schools offer some of the best ROIs:

 

Business School Salary-to-Debt Ratio
University of Georgia (Terry) 6.6-to-1
Fordham University (Gabelli) 6.5-to-1
CUNY Bernard M. Baruch College (Zicklin) 6-to-1
University of Texas at Dallas (Jindal) 4.1-to-1
Michigan State University (Broad) 3.9-to-1
Arizona State University (W.P. Carey) 3.7-to-1
University of South Carolina (Moore) 3.6-to-1
University of Massachusetts—Amherst (Isenberg) 3.6-to-1
Brigham Young University (Marriott) 3.6-to-1
Lehigh University 3.3-to-1

Recommended: Student Loan Payment Calculator

Program Format: Full-Time, Part-Time, or Executive MBA

You’ll also need to decide whether you want a full-time, part-time, or Executive MBA program. Here’s a closer look at each option:

•   Full-Time MBA: This can be a good choice for any student looking for full immersion in the student experience. It can also be ideal for early-career professionals looking for a significant career pivot (such as switching from engineering to investment banking or consulting). Full-time enrollment often provides greater access to scholarships, summer internships, and on-campus recruiting opportunities. However, it requires two years of lost income and often comes with high tuition fees.

•   Part-Time MBA: Studying part-time can be a good choice for mid-career professionals who want to move into management or get a promotion within their current field without losing income. Part-time programs offer flexibility scheduling, allow you to keep your salary, and may give you access to tuition assistance. On the downside, it can take three to five years to complete your degree. Plus networking/internship opportunities are typically more limited compared to full-time tracks.

•   Executive MBA (EMBA): An EMBA is specifically designed for mid-to-senior-level working professionals. It offers you a chance to advance your leadership skills without quitting your job, typically through a part-time, flexible format (such as every other weekend). While graduates receive the same Master of Business Administration credential as traditional MBA students, the program’s structure and focus are tailored to working executives. Tuition is often higher than a traditional MBA but is sometimes employer-sponsored.

The Takeaway

The true cost of an MBA degree extends beyond tuition to include fees, living expenses, and the opportunity cost of lost income. While the price tag can be significant, ranging from $78,000 to $270,000 for two years of full-time study including living expenses, the investment often yields a substantial return, with graduates seeing an average salary boost of nearly 70%.

By carefully evaluating the cost of attendance, exploring funding options like scholarships and loans, and considering the program’s potential ROI, prospective students can maximize their investment and make an informed decision about pursuing an MBA.

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


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FAQ

How much does it cost to get an MBA?

How much an MBA costs depends on factors like school prestige, program format (e.g., full-time, part-time, or online), and location. The average total cost in the U.S. generally ranges from $78,000 to $270,000, which includes two years of tuition, mandatory fees, and living expenses. You can save money by choosing an online or part-time program from a public university. These avoid expensive living costs and often have lower tuition rates than full-time, on-campus programs, while allowing you to keep working.

Is an MBA worth it?

An MBA can be worth it if it aligns with your career goals, provides valuable skills, and offers strong networking opportunities. It often leads to higher salaries and better job prospects, but the return on investment depends on the program’s reputation and your personal career trajectory.

Is an MBA worth it after 40?

Yes, an MBA can still be a valuable investment after age 40, especially if you are a mid-to-senior-level professional targeting an Executive MBA (EMBA) to advance into leadership roles. An EMBA is specifically designed for working executives and can boost your salary and broaden your network without requiring you to take a career break. The key is to choose a program that aligns with your specific career goals and offers a strong return on investment (ROI) for your current stage in life.

What’s the average student loan debt for MBA graduates?

The average debt for an MBA graduate is $76,996, according to the Education Data Initiative. Roughly 58% of MBA holders have student loan debt.

Do online MBA programs offer the same ROI as in-person programs?

Online MBA programs can offer a comparable, and sometimes even better, return on investment (ROI) compared to in-person programs. While in-person MBAs from top-tier schools often lead to higher immediate post-graduation salaries, online MBAs often provide a faster break-even point by minimizing upfront expenses and allowing students to remain employed while studying.

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