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On the 2020 presidential campaign trail, Joe Biden ran in part on a student loan reform platform. On top of suggesting potential changes to existing federal student loan forgiveness programs, Biden floated the possibility—both in Tweets and in campaign speeches—that he supported a proposal to forgive $10,000 in federal student loan debt. All of this might lead borrowers to wonder, “Can the president cancel student loan debt?”

Still, the economic upheaval brought about by COVID-19 has underscored the demand for student loan reform—by members of both the Republican and Democratic parties. But, different governmental leaders have diverging ideas of how student loan reform might get addressed.

Presently, there’s no clear answer to how student loan relief will be handled—including whether the new president aims to forgive some federal student loan debts. Student loan reform is likely to remain a political lightning rod in the upcoming months and years.

Right now, the Congressional balance is in limbo until the Georgia runoffs for Senate on January 5, 2021. And regardless of the outcome of those races, new legislative proposals can often take months or years to wind their way through the US Congress. Proposals passed into law can often look quite different than the campaign talking points.

While the political environment is evolving quickly and there’s a lot of uncertainty, here’s an overview of some ways the next president might tackle the question of student loan forgiveness—including a discussion of which sorts of student loans could be impacted.

Can the President Forgive Student Loan Debt by Executive Order?

So, can the president unilaterally cancel student debt? Such sweeping federal student loan reform has not yet happened via an executive order. And, given the close partisan split in Congress, it’s uncertain whether the next president will opt to pursue student loan cancellation via executive action.

Recently, current Senate Minority Leader Chuck Schumer suggested that President-elect Biden could have the power of executive order to eliminate up to $50,000 of student loan debt. And, while it may technically be under the legal authority of a president to forgive federally-issued student debt, Biden has not indicated that this is something he would undertake by executive order.

An executive order cancelling student loan debt would likely be a controversial move. Consequently, it may be more likely that the next president would use executive orders to extend a pause in federal student loan repayments. As part of the CARES Act, which passed in March 2020, debt repayments to existing federal student loans were put into forbearance and interest was set at 0%.

President Trump then signed an executive order in August, which extended the suspension of payments and 0% interest through the end of 2020. Theoretically, President Trump could sign an additional executive order further extending the CARES Act’s provision for federal student loan forbearance.

If that does not happen, the next president could opt to sign a similar executive order—after being sworn in on January 20th, 2021.

Student Loan Relief As Part Of a New Stimulus Package

It’s possible that a lame-duck Congress will pass an additional stimulus bill in the upcoming weeks. The severity of the COVID-19 crisis in the country has prompted bipartisan calls for action.

And, congressional leaders have discussed resuming stimulus discussions in the upcoming weeks. But what’s still unclear is what additional federal stimulus money would be appropriated for. Right now, Congress is at an impasse as to the scope of new stimulus funds.

In October 2020, the House of Representatives passed an updated HEROES Act, addressing ongoing COVID-19 relief measures. The act extended federal student loan forbearance, while also expanding the types of educational loans eligible for relief to include:

•  Institutionally held Perkins loans
•  Federal Family Education Loans
•  Health and Human Service student loans

But, since then, the HEROES Act has stalled in the Republican-controlled Senate— with ongoing conversation between the parties focused on the size and scope of any potential stimulus relief in the near future.

Could Student Loan Relief Affect Private Student Loans?

Politicians championing relief, including $10,000 forgiveness options, have not specified what types of loans this forgiveness would cover.

Some legislation proposed by Democrats has proposed forgiving $10,000 in private loans (aka educational debt not held by the US government). But, it’s unclear how the mechanics for this sort of private student loan forgiveness policy would be enacted or funded.

Given that Senate Republicans have been actively pushing for a scaled-back stimulus package, it seems unlikely there will be comprehensive student loan reform in the next stimulus bill (assuming there is a next one).

Of course, a multitude of factors can impact the future of stimulus legislation—including which party will control the two chambers of Congress. Senate control will not be decided until after the Georgia runoff election on January 5, 2021.

Identifying Existing Repayment Options

With uncertainty about whether a presidential executive order might extend federal student loan forbearance (or even cancel some student debts), some borrowers may feel as if their financial obligations are held in the hands of Congress.

For borrowers with student loans, it could be a good idea to focus on the aspects of their educational debt that they can control. One place federal borrowers can start is to determine if they qualify for existing federal student loan repayment programs—including income-driven repayment, deferment, and public service student loan forgiveness.

Those whose federal student loan repayments are (currently) scheduled to resume in January may want to come up with a plan for paying down what they owe in educational debt.

Federal borrowers whose financial circumstances have taken a hit may be eligible for an economic hardship deferment on federal student loans—even if there is no additional stimulus legislation surrounding forbearance.

Some borrowers are also taking cues from the economy. The Fed’s pledge to maintain a low interest rate for the years ahead has led some private lenders to lower their student loan interest rates. Some individuals may opt to explore the pros and cons of student loan refinancing.

When discussing student loan refinancing, it’s important to understand the refinancing process. For example, SoFi refinances private and federal student loans.

When federal student loans are refinanced through a private lender, the borrower forfeits eligibility for federal repayment programs as well as federal protections like forbearance and deferment. (With private loan refinancing, a new private loan replaces the borrower’s existing educational debt—generally including new loan terms and rates).

Certain private lenders offer hardship programs to provide a cushion for the unexpected—like being laid off for no fault of your own. (Not all lenders offer these programs, so it’s key to read the lender’s terms and fine print). For example, SoFi offers unemployment protection to eligible borrowers.

When weighing whether to pursue student loan refinancing, some borrowers find it useful to research the rates and terms offered by lenders, including any fees or penalties.

The Takeaway: Keep an Eye on Government Actions

Dramatic headlines can spread like wildfire on social media. But, it’s important to understand what legislation (if any) is behind politicians’ promises and press releases.

Until legislation passes both chambers of Congress, it’s unlikely that federal student loan debt will be unilaterally cancelled in the near future (but not legally impossible with a presidential executive order).

That said, federal COVID-19 stimulus discussions may yet fast-track certain changes, such as the possibility of continued forbearance on federal student loan repayments into 2021.

Keeping up to date on communication with lenders may help borrowers stay on top of any necessary payments or paperwork, if or when the laws or orders affecting student loans change.

There may also be ongoing legislation on a state level in regards to student loan reform. For example, after the CARES Act act was passed in March, New Jersey approved payment relief options for residents who hold private student loans. This included forbearance relief, waived late payments, and working with eligible borrowers on assistance programs.

Keeping an eye on national and state-specific legislation could help borrowers to understand any changes to how some types of student loans debts are calculated or repaid.

And, naturally, if a Tweet or rumor sounds too good to be true, borrowers can do due diligence—researching how much of the news is political rhetoric vs. enacted policies with legal weight behind them.

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In our efforts to bring you the latest updates on things that might impact your financial life, we may occasionally enter the political fray, covering candidates, bills, laws and more. Please note: SoFi does not endorse or take official positions on any candidates and the bills they may be sponsoring or proposing. We may occasionally support legislation that we believe would be beneficial to our members, and will make sure to call it out when we do. Our reporting otherwise is for informational purposes only, and shouldn’t be construed as an endorsement.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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Student loans are a significant issue in the United States, where consumers have more than $1.7 trillion in total student loan debt. More than two-thirds of members of the class of 2019 graduated with federal and private student loans, owing an average of nearly $30,000 per borrower.

Broken down by degree levels, the debt increases. Graduate students who receive a degree leave school with an average of $66,000 in debt. Law students are saddled with an average of $113,300. And medical students, $223,700.

The numbers are staggering, and forgiving or eliminating student loan debt has been a concept broached by several people in the political arena. Sen. Elizabeth Warren, for instance, has suggested that the next US president cancel up to $50,000 of outstanding federal student loans per borrower.

“Canceling student loan debt will relieve a huge burden on families during COVID-19 and beyond, close the racial wealth gap, and boost our economy,” a press release from Warren’s office reads.

President-elect Joe Biden has suggested that Congress immediately forgive student loan debt up to $10,000 for all borrowers. He has also proposed forgiving all student loans for those who attended public colleges or historically Black colleges and universities and earn less than $125,000.

But Biden’s proposals depend on Senate approval, which is far from a sure thing. Though he is being pushed to bypass Congress and use executive authority to cancel billions of dollars in student loan debt, such a sweeping action would almost certainly face a legal challenge.

Who’s in Favor?

More than half (54%) of Americans say student debt is a “major problem” for the country, according to a poll from Politico and Morning Consult. And 58% of registered voters say they would support a plan eliminating all existing student loan debt—and a plan to make public colleges, universities, and trade schools tuition-free, according to a poll from Hill-HarrisX.

In late November, 238 organizations sent a letter calling for Biden and Vice President-elect Kamala Harris to cancel federal student debt when they take office. Signers included the American Federation of Teachers, the Children’s Defense Fund, and the NAACP.

“Before the COVID-19 public health crisis began, student debt was already a drag on the national economy, weighing heaviest on Black and Latinx communities, as well as women,” the letter reads. “That weight is likely to be exponentially magnified given the disproportionate toll that COVID-19 is taking on both the health and economic security of people of color and women.

To minimize the harm to the next generation and help narrow the racial and gender wealth gaps, bold and immediate action is needed to protect student loan borrowers, including Parent PLUS borrowers, by cancelling existing debt.”

Proponents of canceling student loan debt point out that the government is partially responsible for this debt crisis. Because many states slashed higher education funding after the 2008 recession, tuition at both public and private colleges has gone up steeply, and many students have been forced to take out even more in loans.

Unfortunately, the increase in student loan balances hasn’t gone hand in hand with a bump in post-college salary. The result is a national situation where borrowers owe increasingly more in student loans but don’t have the paycheck to aggressively tackle their balances.

This has been especially harmful for Black students, who are more likely to have to take out student loans to go to school and who face a biased job market when they leave school, according to the Economic Policy Institute.

Data shows that within six years of starting college, 32% of all Black borrowers who had started repayment defaulted on their student loans, compared to only 13% of white borrowers.

Although the government has created income-driven repayment options that seek to keep monthly student loan payments affordable, signing up isn’t without its downsides.

Since these income-driven plans often lengthen loan terms, borrowers may pay significantly more interest on their loans over time. Also, any forgiven balance at the end of their loan term is typically treated as taxable income.

Why Isn’t Forgiving Student Loan Debt a Slam-Dunk?

There are several reasons why forgiving student loan debt may not be a straightforward positive. The first is that according to U.S. tax laws, debt that’s forgiven is a taxable event. Under income-driven student loan repayment plans, for instance, if you make consistent, on-time payments for the life of the loan (20 or 25 years, depending on when you borrowed), any balance remaining at the end of your loan term is forgiven—but whatever’s forgiven is considered taxable income.

“If you forgive $10,000 of somebody’s debt, you’re not handing them $10,000, so how are they going to pay that tax?” asks Sandy Baum, a nonresident senior fellow for the Center on Education Data and Policy at the Urban Institute. “There are bills in Congress to change that, and it would make sense to change that, certainly, but right now the law says it’s taxable.”

Even Jason Furman, a Harvard professor who was President Barack Obama’s chief economist, thinks forgiving student loan debt is a lose-lose game. On Nov. 15 he tweeted: “Student loan debt forgiveness likely has a multiplier close to zero. Forgiveness is taxable. If this negative cash flow effect outweighs interest savings (it) would even be net negative.”

The second issue pundits raise with this plan is that it’s being sold as a stimulus: If the government forgives people’s student loan debt, they’ll put money back into the economy, the thinking goes. But forgiving debt isn’t the same as handing people a check. And, Baum argues, the government could be targeting the wrong audience.

“If you want the biggest stimulus, you’re going to give it to people who are going to spend most of it, which is lower-income people,” Baum says. “It’s not people with a lot of student debt, who are most likely to be employed. A lot of people who went to college have jobs.”

Then there’s the idea that forgiving student loan debt could free up money that cash-strapped consumers can spend elsewhere.

Student loan borrowers are “having to make choices between paying their student loan and paying the rent,” Biden said on Nov. 16. “It should be done immediately.” But thanks to COVID-related legislation that was extended by executive order, federal student loan payments have been suspended — and interest set to 0% — through Dec. 31. (The current administration did not respond to our question of whether it would extend the suspension into 2021.)

In fact, an analysis from Moody’s suggests that although forgiving student loan debt could provide a stimulus much like a tax cut, there are other potential issues with making this move, including:

•  Canceling student loan debt could add between $86 billion and $108 billion a year to the GDP over a 10-year period. Less aggressive measures to forgive some loans and restructure payments for others could amount to $120 billion over a decade.
•  It might encourage future borrowers to borrow more in student loans, with the hope that their future debts will be forgiven also.
•  It could have little effect on wealth inequality, since about two-thirds of outstanding debt currently sits with the top 50% of earners.

Last, the federal government so far isn’t planning to forgive student loans that borrowers hold with private lenders, which account for about $132 billion of outstanding student loans, according to MeasureOne.

What Are the Alternatives?

Instead of targeting only student loan borrowers who qualify for relief, the government could provide a stimulus check to all Americans, and Americans could decide for themselves how to use it.

Even if someone has $10,000 in outstanding student loans, Baum suggests, they might prefer to use a check to put a down payment on a house or pay off high-interest credit card debt.

“If you gave people a choice, in the end they might pay the rent or do something else with it,” Baum says. “If you want to help people the most, you actually give them more flexibility about how to spend the money.”

Then there’s the higher education system itself. Canceling or forgiving student loan debt may provide only temporary relief as long as tuition levels continue to rise. There are other facets of Biden’s plan that, if implemented, may more effectively address student debt as a systemic issue, including:

•  Make two years of community college free for all students.
•  Make public colleges and universities tuition-free for all families with incomes under $125,000.
•  Double the maximum value of Pell Grants.
•  Create a new forgiveness program for those working for schools, the government, and other nonprofit entities, in which borrowers receive $10,000 in student debt relief for every year of national or community service, up to five years.

Tackling Your Student Loan Debt

There’s no telling when or if some form of more long-term relief might appear for student loan borrowers. If you’re struggling under the weight of your student debt, there are strategies that might help:

•  Alternative payment plans: Federal student loans come with a variety of repayment options, one of which might suit your situation.
•  Direction of overpayments: If you make extra payments on your student loans, you may instruct your servicer to apply them to your principal, rather than the next month’s payment plus interest.
•  “Found” money: If you receive a work bonus or tax refund, applying it to your student loans can help reduce your balance faster.
•  Refinancing: Refinancing student loans (private and/or federal) into one new loan with a private lender could lower your monthly payment and interest rate, and make it easier to manage payments. (Just know that refinancing federal student loans with a private lender means losing access to federal repayment and forgiveness programs.)

The Takeaway

There is no quick fix for student loan debt, which will take further discussion from stakeholders on all sides.

“There are a lot of people with loud voices who vote and who are educated middle class who don’t really want to have to pay back student loan debt, and they’d be really excited about” proposals to forgive the debt, Sandy Baum, of the Urban Institute, says. “But there are other ways to go about it.”

Consider refinancing with a fee-free loan from SoFi, the leading student loan refinancing provider.

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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
In our efforts to bring you the latest updates on things that might impact your financial life, we may occasionally enter the political fray, covering candidates, bills, laws and more. Please note: SoFi does not endorse or take official positions on any candidates and the bills they may be sponsoring or proposing. We may occasionally support legislation that we believe would be beneficial to our members, and will make sure to call it out when we do. Our reporting otherwise is for informational purposes only, and shouldn’t be construed as an endorsement.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Graduating from college and starting your career is a time filled with questions and excitement. On the one hand, everything is new and getting to check all the “firsts” (first solo apartment, first salaried job, first absolutely terrible post-grad roommate) off your list is incredibly rewarding.

On the other hand, some of those first financial questions can be just a bit overwhelming, especially when it comes to student loans.

Understanding your student loans, whether they are private or federal, and how much you need to pay to make a dent is all new territory and brings on even more questions. But know that you’re not alone. The latest numbers suggest over 44 million people in the country have a total of over $1.6 trillion in student loan debt .

As you start managing your post-grad budget, you might realize that student loan payments are a large portion of your monthly bills. If that’s the case, it’s a good idea to start learning about ways to reduce monthly payments or pay back loans faster.

An important note: As a result of COVID-19, the US Department of Education automatically put federal student loan borrowers in forbearance until the end of 2020–allowing borrowers, temporarily, to stop making monthly payments (and no interest is accruing during this time, either). Whether this provision will be extended or not, it’s important to understand what no interest and no required payments could mean for you if you have federal student loans.

Student loan refinancing is one other option. Can it get you a lower interest rate? How does refinancing differ from student loan consolidation? And will any of this save you money?

The most important answer, first: Yes, student loan consolidation or refinancing can save you money. However, they are both different, and you’ll need to figure out which option is a better fit for you. Now let’s get into the nitty-gritty.

There are a few things to be aware of before you refinance federal student loans. We’ve gathered some frequently asked questions about federal student loan refinancing to help you decide whether it’s right for you.

What is Federal Student Loan Refinancing?

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

Interest rates on federal student loans are fixed and set by the government annually, whereas 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.

When you refinance a federal student loan into a private loan, however, you lose the benefits and protections that come with a federal loan, like deferment and public service-based loan forgiveness, which is worth keeping in mind. However, the new loan could mean a lower interest rate and paying off loans sooner.

How Are Refinancing and Consolidation Different?

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 essentially signing new loan terms on a new loan to replace your old student loans.

Consolidation takes your student loans and bundles them together. Different servicers manage direct consolidation loans, allowing federal borrowers to repay with one monthly bill. Consolidation, however, does not typically get you a lower interest rate (you’ll see why in the next paragraph). Refinancing, on the other hand, takes your old loans and finances them at new interest rates with a private lender.

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 eighth of a percent, which means you don’t usually save any money there. If your monthly payment goes down, it’s usually the result of lengthening the loan term, which means you’ll spend more on total interest in the long run.

When you refinance federal and/or private student loans, you’re given a new—ideally, better, if you qualify—interest rate based on your financial profile. That lower rate can translate into total interest savings, or you may be able to lower your monthly payments, or you may choose to shorten your payment term.

What Are Potential Benefits to Refinancing Federal Student Loans?

The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you can save thousands over the life of the new loan. You can also lower your monthly payments (which typically means lengthening your term and accepting a higher interest rate) or shorten your term (this typically means higher monthly payments but more total interest savings). 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).

Recommended: Not sure which route to take with your student debt? Use our Student Loan Help Center to explore your options.

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-issued student loans. Those benefits fall into three main categories:

Deferment/Forbearance

Most federal loans will allow you to put payments on hold through deferment or forbearance when experiencing financial hardship. Student loan deferment allows you to pause subsidized loan payments without accruing interest, but unsubsidized loans will still accrue interest.

Student loan forbearance allows you to reduce or pause payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance; so check lender policies before refinancing.

Special Repayment Plans

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. It’s important to note that these plans typically cost more in total interest over the life of the loan, and that private lenders do not offer these programs.

Potential Student Loan Forgiveness

Some federal student loans are eligible for forgiveness under certain circumstances. Common forgiveness programs are for public service workers or teachers, or those who’ve participated in an income-driven repayment plan for 20 or 25 years, depending on the plan. Private loans do not offer forgiveness.

Related: Do You Qualify For Public Service Loan Forgiveness?

Common Questions Around Refinancing Your Federal Loans

Who Typically Chooses Federal Student Loan Refinancing?

Many borrowers who refinance are refinancing graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates than federal student loans for undergraduates.

In order to qualify for a lower interest rate, it’s helpful to show strong 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 (illustrated by your credit score), the lower your new interest rate may be, regardless of the lender you choose. While many lenders look at credit score as part of their analysis, however, it’s not the single defining factor. Underwriting criteria will vary and is different from lender to lender, which means it can pay to shop around.

For example, SoFi evaluates a number of things, including employment and/or income, credit score, and financial history. For full eligibility requirements for student loan refinancing, check here.

Are There Any Fees Involved in Refinancing Federal Loans?

It depends on the lender, but SoFi allows you to refinance with no application or origination fees.

Should I Choose a Fixed or Variable Rate Loan?

Most federal 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.

Here’s what you should know:

Fixed Rate Refinancing Loans Typically Have:

•   A rate that stays the same throughout the life of the loan
•   A higher rate than variable rate refinancing loans (at least at first)
•   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 or LIBOR. A lower initial rate than fixed rate refinancing loans
•   Payments and total interest cost that change based on interest rate changes
•   A cap, or maximum interest rate

Generally speaking, a variable rate loan can be a cost-saving option 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.

What Happens if I Lose My Job or Can’t Make Loan Payments for Other Reasons?

Some private lenders offer forbearance—the ability to put loans on hold—in cases of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. SoFi, for example, offers Unemployment Protection to qualifying borrowers who lose their jobs through no fault of their own.

In those cases, SoFi suspends monthly loan payments and provides job placement assistance during the forbearance period. This benefit is offered in three-month periods and capped at 12 months.

For policies on disability forbearance, it’s best to check with the lender directly, as this is often considered on a case-by-case basis.

Do Refinance Lenders Allow Co-Signers/Co-Signer Release Options?

Many private lenders do allow co-signers and some allow co-signer release options. SoFi allows co-signers, but no option for co-signer release for refinanced student loans. However, if you have a co-signer and your financial situation improves, you can apply to refinance the co-signed loan under your name alone.

Refinancing Federal Student Loans

Is this the right option for you? It depends on how much you might save and whether you might qualify for a lower interest rate from a student loan refinance, versus how likely you are to use the important benefits and protections that come with having federal student loans.

You can use our student loan refinancing calculator to get an idea of how much you might save with a lower interest rate. In general, many borrowers refinance federal graduate student loans and PLUS loans, since those have historically offered less competitive rates.

Next, ask yourself: Are you going to use the programs or benefits that come with federal student loans? These include income-driven repayment plans, as well as loan forgiveness for teachers, doctors, or even lawyers and other public servants in public service. If that’s you, great, but if it’s not, that’s OK too.

There are some downsides to income-driven student loan repayment plans, too. You can end up paying more in interest or get hit with a tax bill on the amount that’s forgiven at the end of the repayment period.

However, depending on your financial situation, that flexible student loan repayment plan could be a saving grace. It likely depends on how much you have in federal student loans and how confident you are about your repayment options.

The last thing you’ll want to consider before you opt to refinance your student loans is the terms of your new refinance loan. Weigh all the costs and benefits, and figure out what makes sense for you. We know you can do it. After all, you’re a college graduate.

If refinancing feels right for you, you can check your rates in two minutes with SoFi. SoFi’s student refinance loan is a private loan and does not have the same repayment options/benefits offered by federal programs.

You should explore and compare federal and private loan options, terms, and features to determine what is best for you and your situation.

Ready to refinance your student loans? Start today!

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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
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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College is expensive. That means that even if you saved up your pennies since you were five, are currently working two part-time jobs, with a clutch of scholarships in tow, you might still need a little extra student loan cash to help you pay for your degree.

There are a number of ways to finance your college education, but the two most common options are federal and private student loans. Federal student loans are fairly straightforward, but private loans can get a bit murky.

After all, there are a lot of options when it comes to things like private student loan interest rates, term lengths, and approval criteria. It can be hard to understand what makes one lender or type of private student loan better than another.

That’s why it’s important to learn as much as you can about private student loans so that you’re better able to decide if they’re right for you, and find the private student loans that work best for your situation.

What are Private Student Loans?

Often when people talk about student loans, they’re referring to federal student loans which are given out by the government and have a common set of criteria around things like interest rates, repayment plans, and forgiveness programs.

When it comes to federal student loans, you apply for them by filling out the FAFSA® (Free Application for Federal Student Aid) form which allows the government to determine your financial need in relation to your family’s income and the school you’ll be attending.

In contrast, private student loans are student loans that are offered by banks or private lenders to help people pay for school. To apply for them, you have to fill out a loan application like you would for any other loan, like a mortgage or an auto loan.

How much you can borrow won’t just depend on the costs of your degree, but typically depends primarily on personal financial factors like your credit score and income and the credit score and income of your co-signer (should you need or opt to have one).

Private student lenders set their own terms in regard to term lengths, private student loan interest rates, repayment plans, and underwriting criteria. For that reason, one private student loan lender can offer options that are very different from another private student loan lender. That’s why it’s so important to seek out private student loans that are right for you—there can be a huge difference between one lender and another.

The Benefits of Private Student Loans

There are a lot of benefits when it comes to private student loans. For many students, they can mean the difference between paying tuition and fees in full or not being able to. One key benefit of private student loans is that you can apply for them at any time of the year—unlike federal student loans.

For that reason, they can potentially help you with those end-of-term funding shortfalls. Just be sure to plan ahead since it may take awhile for the private loans to clear your account depending on the lender.

Private student loans are often used to make up the difference between what a student is able to borrow in federal student loans and their remaining need after things like scholarships, federal or state grants, work-study, or part-time jobs are factored in.

The maximum amount that you can borrow through federal government student loan programs depends on things such as whether you’re an undergraduate or a graduate or professional student and whether you’re a dependent or an independent student.

With federal student loans, the maximum amount first-year dependent undergraduates can borrow in subsidized and unsubsidized student loans is $5,500 for the year. Graduate or professional students can borrow up to $20,500 per year.

MeasureOne Private Student Loan Report

The lifetime maximum for a dependent undergrad is $31,000, and the lifetime cap for graduate students is $138,500 in federal student loans, including undergraduate study. When students need more than these caps, they often turn to private loans.

Another benefit of private student loans is that you have more control over things like private student loan interest rates. There are private student loans that offer you the option of either fixed or variable interest rates.

Private student loans may also have more choices in regard to loan terms. Many allow you to choose between five, 10, and 20-year term lengths on your loans.

Some private student loans do not charge origination fees, though you should check the fine print on your award to make sure.

The Downsides of Private Student Loans

Despite the fact that private student loans could be the difference between going to your first choice school and having to settle for your safety school, there are some downsides.

One big downside is that they often require a co-signer. After all, most high school and college students don’t make enough income or have a strong credit history (among other personal financial factors that can take years to build) to qualify for private student loans on their own.

According to the MeasureOne Private Student Loan Report , as of June 2020, 91% of undergraduate private student loans given out had a co-signer. Plus, 62% of graduate private student loans are cosigned.

The good news is that some private student loans allow for something called “https://www.sofi.com/learn/content/applying-for-a-student-loan-cosigner-release/.” That means that after you make a certain number of on-time payments, you can apply to have the co-signer removed from the loan.

Another change in the industry is that more lenders are shifting their lending criteria away from simply looking at things like income and credit score to also looking at things like your grades and income potential. That means that hopefully more students may be able to qualify for private student loans without having to get a co-signer.

(Although, we should note here that federal student loans for undergraduates don’t require cosigners at all, and don’t take a student’s income or credit history into account.)

Since private student loan interest rates are set based in part on how big of a credit risk applicants represent, you might also find yourself paying more than you would for federal student loans.

Federal student loans offer different types of income-driven repayment programs and things like loan forgiveness for public service employment and deferment protections that aren’t available with private student loans.

For example, you could apply for an income-driven repayment plan with federal student loans that, if you qualified, would allow you to pay just 10% to 20% of your income towards your student loans and then could forgive those loans after 20 to 25 years. In contrast, when you lock in your term length on your private loans, you can’t typically change your repayment term unless you refinance those loans.

Other people express concern that private student loans lead students to borrow more than they will be able to afford to repay, or to borrow amounts that will make repayment much more difficult. Responsible borrowing is critically important, especially when it comes to student loan debt, and only you and your family will know what’s right for you.

Another downside of private student loans is that they are generally not dischargeable in bankruptcy unless the borrower files an adversary complaint and meets an undue hardship test. This is unlike other types of unsecured consumer loans, like lines of credit or credit cards.

Should You Consider Private Student Loans?

When it comes to whether or not to take out private student loans, what matters is what’s right for you. Maybe you weren’t able to qualify for enough funding in the form of federal student aid and need a little bit in private student loans to top you off. Or maybe you experience an emergency mid-way through the term and need more money than you expected.

Whatever the reason, it’s important that you look into your options to find a private student loan that works for you. There are a number of different kinds of companies that offer competitive interest rates and flexible term lengths to choose from. You could also look for loans that don’t have origination fees and offer extra services like cosigner release and deferment.

Private Student Loans with SoFi

If you have exhausted your federal loan options and still need to cover tuition fees, private student loans with SoFi may be a great option for you.

SoFi offers competitive rate private student loans with flexible repayment options. There are absolutely no fees (no origination fees, no late fees, and no insufficient fund fees). Plus, it only takes minutes to check your rate.

If you are looking to borrow for school, SoFi can help.

See your interest rate in just a few minutes—with no pressure to sign up.

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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.
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 private student loans are subject to program terms and restrictions and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. View payment examples. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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It’s never too early to think about student loan repayment. Whether you just started college, or you recently graduated and are still in the ‘grace period’ before repayment, strategizing now may help you find a student loan repayment plan that works for you before making you make a single payment.

If you’re graduated, working, and already signed on to one payment plan, it’s easy to overlook the other choices. But you can make changes to your student loan repayment plan even if you’re not in a financial crunch.

It’s also a good idea to re-evaluate your plan over time. As your financial circumstances change, the way you want to manage your student loans may shift.

Before considering your options, take inventory of all your student loans. Be sure to list out the principal, the interest rate, the repayment period, and the servicer for each loan.

All federal student loans issued in recent years have fixed interest rates, but many private student loans or older federal student loans have variable rates. If the rate is variable, be sure to note that as well.

Student Loan Repayment Options
Once you understand your student loans, it’s time to think about your repayment options. The effortless choice, of course, is to do nothing and just pay your bills as they come.

Simply put, it means you pay back your student loan(s) under the interest rate and terms you agreed to when you initially signed the paperwork. For federal student loans, this is formally called the Standard Repayment Plan, and it typically means paying a fixed amount every month for up to 10 years.

There’s no “standard repayment plan” for private student loans; the interest rate may vary based on market factors, and your repayment term might be shorter or longer.

There’s nothing wrong with opting for the Standard Repayment Plan—except that for some borrowers, it’s not the most cost-effective choice. Some borrowers can save by refinancing their loans through private lenders.

Others may be eligible for special federal programs that can reduce the amount owed monthly based on financial circumstances, and in some cases, forgive balances if you meet certain requirements. Here’s what you need to know about various student loan repayment options:

1. Student Loan Consolidation
Federal student loan consolidation lets you combine multiple federal student loans into a single new loan. You can’t consolidate private student loans using this federal program.

When you consolidate your federal student loans into a Direct Consolidation Loan, it doesn’t necessarily reduce your overall interest rate.

Your new loan’s interest rate will be the weighted average of all the old student loans’ interest rates, rounded up to the nearest eighth of a percent. This means your interest rate might actually be slightly higher than the rate you were paying before consolidation on some of your student loans.

When you consolidate, you may also be able to pick a new repayment plan. The Standard plan would still be available, but consolidation can also be a first step toward other plans of action, like loan forgiveness or income-driven repayment.

2. Student Loan Forgiveness
Student loan forgiveness is exactly what it sounds like—it erases some of your student loan debt. Some federal student loans, and Direct Consolidation Loans, are eligible for modified payment plans that forgive outstanding student loan balances.

Health care professionals, teachers, military service members, and those employed full-time by qualifying non-profit or public service organizations may be eligible for certain federal student loan forgiveness programs.

Some types of forgiveness aren’t completely free, however. Federal student loan balances forgiven under income-driven repayment plans may be considered income by the IRS, meaning that you might need to pay taxes on that amount.

Those taxes might still be less than paying the forgiven principal amount, but it can be an unpleasant surprise at tax time if you’re not prepared.

One notable exception is the Public Service Loan Forgiveness (PSLF) program. After 10 years of payments on a qualified income-driven repayment plan, those who have worked for qualified employers, such as the government or some non-profit agencies, can apply for forgiveness of all of their remaining federal student loan balances.

That forgiveness is not considered taxable income.

Additionally, you can see on this page here which federal student loans qualify for which types of forgiveness, cancellation, and/or discharge.

3. Income-Based Repayment
If the payments under the Standard Repayment Plan seem too daunting, federal student loans offer a variety of graduated and income-driven repayment plans. A graduated repayment plan, for example, means that the payment starts smaller and grows over time, while income-based repayment plans tie the amount you pay to the discretionary income you earn.

These income-driven repayment plans come in a variety of flavors and configurations, but an important takeaway is that, in many cases, you may end up paying more over the life of the loan than you would have on the Standard Repayment Plan.

That’s because, with low monthly payments that stretch out over more years, you could be paying more in interest over time. If your balance is high, your lower, income-adjusted monthly payments may not even be covering the interest that accompanies the principal (the set amount of money you’re given when you take out the loan). So rather than shrinking, your student loan balances could be growing over time as unpaid interest accumulates.

The upside is that if your job situation is less defined and you know you’ll need to tap the reduced payment rates these plans provide, choosing an income-driven repayment plan makes that possible.

Additionally, you’re still able to qualify for some student loan forgiveness programs if the rest of your student loans aren’t paid off after 20 to 25 years of consistent, on-time payments. However, again, it’s worth keeping in mind that you might be on the hook to pay income taxes on the remaining loan amount that is forgiven, depending on the repayment plan you qualify for.

4. Student Loan Refinancing
Refinancing student loans through a private lender offers the opportunity to consolidate multiple student loans into a single payment and potentially decrease your interest rate.

Loan repayment terms vary based on the lender, and terms and interest rates are often more favorable for those with better credit and earning potential (among other financial factors that vary by lender).

For potential borrowers with an interest in saving money over the life of their student loan, refinancing can provide overall value by offering market interest rates.

One important thing to know about refinancing, however, is that once you refinance a federal student loan into a private loan, you can’t undo that transaction and later consolidate back into a federal Direct Consolidation Loan.

This can be relevant for professionals in health care or education where federal student loan forgiveness plans are offered, or for those considering long-term employment in the public sector.

Further, refinancing federal student loans with a private lender renders them ineligible for important borrower benefits and protections, like income-driven repayment and deferment.

Which student loan repayment plan makes the most sense for you? Consider refinancing with SoFi as an option that could potentially save you money.

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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SLR17109

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