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As a student, it can be easy to focus solely on the college application process and completely forget about financial aid. You spend so much time studying for the SATs (or ACTs) and tweaking your college essay so it perfectly represents you that after you’ve been accepted and the reality of tuition payments sets in, you might feel momentary panic.

It’s no secret that college tuition is expensive. Students and parents save for years to pay for higher education, but sometimes that’s just not enough. According to a Sallie Mae® study, parental income and savings covered 48% of college costs in 2025, while student income and savings covered 12% of the costs.

Many people rely on financial aid to bridge the payment gap. Financial aid may come from multiple sources, including scholarships, grants, work-study, federal student loans, and private student loans. Keep reading for a look at financial aid secrets you should know.

Types of Financial Aid

Scholarships and grants are extremely useful forms of financial aid, since students are not typically required to pay back the money they receive. An online survey of students and parents found that 27% of college families in 2024-25 relied on scholarships and grants to cover a portion of college expenses, according to Sallie Mae’s study.

Scholarships, grants, and savings often aren’t enough to cover the cost of attending college. Sallie Mae says 23% of college families borrowed money to help pay for college in 2024-25. Some families used home equity loans and credit cards, but federal student loans represented the most frequently used source of borrowed money, followed by private student loans.

To top it all off, the financial aid application process can be confusing. Between federal aid and other scholarships, it can be difficult to keep everything straight.

Most often, the first step in applying for financial aid is filling out the Free Application for Federal Student Aid (FAFSA). You can begin filling out the FAFSA on October 1 for the following academic year. The federal FAFSA deadline for the 2026–27 academic year is June 30, 2027, but you’ll likely want to file well before the school year starts, as colleges and states may have their own FAFSA deadlines.

Making the effort to apply for financial aid early can have a positive impact on your tuition bill. Below are seven financial aid secrets you should know.

Financial Aid Secrets You Should Know

1. Decision Day vs Summer Melt

May 1 is usually decision day, the deadline when prospective college students must decide which college they plan to attend in the fall. But even after this deadline, students can change their minds. This phenomenon is known to industry professionals as “summer melt,” and sometimes it’s triggered by FAFSA verification setbacks.

Students who receive insufficient need-based financial aid, for example, might be compelled to reconsider their college enrollment decisions. Summer melt can give you an opportunity to select a more affordable school for you if you’ve encountered a FAFSA verification roadblock.

Summer melt is a common problem that causes schools to lose students during the summer. Because of this, schools may have a bit of secret wiggle room in their acceptance policy to admit new students over the summer for the fall semester.

Recommended: Should You Choose a College Based on Price?

2. Writing a Letter

You might be able to take advantage of summer melt with this secret: Write a letter. After you get your financial aid offer, you could write a letter to your school’s financial aid office to open the lines of communication.

Let them know how excited you are to attend school in the fall. That’s where you could include a thoughtfully worded inquiry for any additional aid that you might qualify for as a result of summer melt.

When students decide to switch schools or not attend at the last minute, it means that they also won’t be using their financial aid award, which could now be available to other students.

3. Calling the Financial Aid Office

Another way to potentially take advantage of summer melt is to call your school’s financial aid office. Instead of calling immediately after you receive your financial aid award, think about calling in June or July. This allows financial aid offices time to account for students who have declined their financial aid packages.

An appropriately timed call to the financial aid office at your school could mean additional financial aid is allocated to your package. There are no guarantees, of course, but it never hurts to ask.

4. Submitting Paperwork and Applications on Time

Every school’s financial aid office has to follow a budget. Some financial aid is offered on a first-come, first-served basis, so it helps to submit forms, such as the FAFSA, and other applications on time or even ahead of schedule.

You may be out of luck if you apply for assistance after your university’s financial aid office has met its budget for the year. Some states have early winter deadlines for awarding scholarships and grants. Tennessee residents, for example, should complete their FAFSA by April 1 for priority consideration for a state-funded Tennessee Student Assistance Award grant.

5. Being Prepared

Have the basics ready to go before you sit down to fill out the FAFSA. If you have all of the information you need before you begin filling out the FAFSA, you’ll likely have an easier time filling out the information.

Usually, each parent and the student will need to create a username and password, which is called the Federal Student Aid ID (FSA ID). You’ll also need:

•   Social Security numbers (for you and your parents)

•   Bank statements and records of untaxed income (possibly)

•   You and your parents’ tax returns (aid awards are based on income from two years ago)

•   Any W-2 forms

•   Net worth calculations of your investments (for students and parents)

6. Being Wary of Services That Charge You for Help

If you need assistance filling out the FAFSA, avoid any services that charge you. The first F of FAFSA stands for free, so there is no need to pay for a service to fill the form out for you.

If you need assistance filling out the FAFSA, there are plenty of online resources through the U.S. Department of Education.

7. Filing the FAFSA Every Year

For every year you’re a student and want to receive federal aid, you’ll have to file the FAFSA. Get in the habit of filing it every fall so you’re closer to the top of the financial aid pile.

The Takeaway

Navigating financial aid can feel overwhelming, but understanding key strategies can significantly impact your college funding.

To maximize your chances for financial aid, keep key dates in mind, including decision day and when summer melt is likely to occur. Write a letter or call the school’s financial aid office to benefit from changes in the school’s financial aid budget. Use free online resources to answer your FAFSA questions, and be sure to fill out the FAFSA thoroughly every year.

FAQ

What is the most common FAFSA mistake?

The most common Free Application for Federal Student Aid (FAFSA) mistake is providing incorrect or incomplete information, such as inaccurate income details or failing to list all schools you’re considering. Errors can delay processing or reduce financial aid eligibility, so double-check entries and ensure all required documents, such as tax returns, are accurate and up to date.

How can I maximize my financial aid eligibility?

To maximize financial aid eligibility, submit the Free Application for Federal Student Aid (FAFSA) early, accurately report income, and reduce assets in the student’s name. Explore scholarships and grants, appeal for additional aid if circumstances change, and ensure all financial aid deadlines are met. Focus on schools with robust need-based aid programs for added support.

How do I get a bigger financial aid package?

To secure a larger financial aid package, submit the Free Application for Federal Student Aid (FAFSA) early and accurately, apply for scholarships and grants, and appeal for more aid if your financial situation changes. Choose schools with strong aid programs, minimize student-owned assets, and maintain good academic performance to qualify for merit-based assistance.

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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.

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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 specified that student loan debt forgiven from 2021 to 2025, and incurred for postsecondary education expenses, would not be counted as income and therefore would not incur a federal tax liability.

This included 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 have qualified.

Following the expiration of the ARP Act, the taxation of forgiven student loans varies by state, as some states 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.

Types of Student Loan Forgiveness Programs

Federal student debt can typically be canceled through an income-driven repayment plan (IDR) or forgiveness programs. However, recent changes have affected certain IDR plans, including the SAVE plan, which was terminated following a court order in March 2026. You can find out more about this situation on the Federal Student Aid (FSA) website.

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

Public Service Loan Forgiveness (PSLF)

If you’re employed full-time for the government or a nonprofit organization, you may be eligible for Public Service Loan Forgiveness for federal student loans such as 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. 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.

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:

•   Repayment Assistance Plan (RAP): RAP is a new IDR option implemented in July 2026. It bases monthly payments on your adjusted gross income, ranging from 1% to 10%. Your monthly payment amount adjusts as your income changes, and any remaining balance after 30 years will be forgiven.

•   Income-Based Repayment (IBR): With IBR, payments are generally about 10% of a borrower’s discretionary income, and any remaining balance is forgiven after 20 or 25 years.

•   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. However, note that PAYE will be discontinued on July 1, 2028, after which borrowers will have to switch to another 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. Like the PAYE plan, ICR will end on July 1, 2028.

To be eligible for each of these plans, besides RAP, you must not have received any new loan, including a new consolidation loan, on or after July 1, 2026.

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 forgiven in the years of 2021 through 2025 was not federally taxed. This meant that these borrowers were 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 discharged in the years 2021 through 2025 do 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 they were 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 2026, the eight states that say certain forgiven loans are taxable are:

•   Arkansas (except for loans forgiven through PSLF)

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

•   Mississippi

•   North Carolina

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

Other states have varying 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 on 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’re receiving and the forgiven amount.

To avoid sticker shock, you can use a student loan forgiveness tax calculator, such as 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’re 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.

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 did not count as earned income and weren’t federally taxed. That said, in 2026, 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.

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 One Big Beautiful Bill Act, which expanded upon some terms of the Coronavirus Aid, Relief, and Economic Security Act that expired in 2025, employer assistance loan payments up to $5,250 made each year 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 Forgiveness, 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 and 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).

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