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Is an Employee’s Student Loan Repayment Benefit Taxed As Income?

For employees lucky enough to work for a company that offers a student loan repayment program, the benefits of this perk are clear: Employees get “free money” from their employers to help pay down their student loans.

Under employer student loan repayment programs, employers help employees pay back their student loans in amounts that vary from company to company. This monetary assistance can be a great help to individuals struggling with student loan debt—and may even ultimately have an impact on the economy. However, prior to 2020, employer contributions were subject to both payroll and income tax, which means that for employees, the benefit wasn’t quite as big as it might first appear.

That changed in early 2020, when the Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded on this financial assistance by making all employer-match contributions up to $5250 tax-free, exempt from both payroll and income tax.

While the measure implemented in the CARES Act was due to expire in January 2021, the new stimulus bill signed by President Donald Trump in December 2020 has extended that tax-free benefit for another 5 years, with a new expiration of January 1, 2026.

Understanding Employer Match of Student Loan Repayment

What is an employer student loan repayment program? It’s a way for companies to help alleviate their employees’ student loan debt burden by offering them a match (up to $5250, tax-free) on payments they make toward their student loans every year. Employers make a regular contribution to an employee’s student loan balance, say $100 a month for example, while the employee continues to make regular payments.

In this way, employees can pay down more of their student loan balance and/or interest. Prior to the CARES Act, an employer’s student loan contributions were considered taxable income, but now till 2026 they will be tax-free and fall under the same maximum (up to $5250), as tuition reimbursement benefits from an employer.

There are a number of services available to companies who are looking to manage this kind of benefit. Just like the companies designed to help HR departments manage other benefits like health care, financial institutions can help assist with student loan repayment plans.

Companies with Student Loan Repayment Benefits

Employer student loan repayment programs are still rather new—only about 10% of companies offer them. To get a sense of what kinds of programs different employers offer, here are several examples of companies who have this incentive in place:

•  In 2019, Chegg, the education technology company best known for online textbook rentals, began offering its employees $1,000 annually toward student loan debt, with an additional equity grant of up to $5000 annually.
•  Estée Lauder, the cosmetics company, launched their student loan benefit program in 2018, by offering $100 monthly for payback, with a cap of $10,000 total.
•  In 2017, Fidelity, the brokerage firm, started offering a similar program by providing newer employees below a certain title $2,000 per year, up to $10,000 for student loan repayment matching.
•  Also in 2017, Live Nation, entertainment and events, began contributing $100 monthly to student loans, maxing out at $6,000 in repayment.
•  Penguin Random House, the book publisher, began in 2018 to reimburse up to $1,200 yearly (capped at $9,000) for student loans, for a full-time employee who has been with the company at least one year.
•  PwC, also in the financial services industry, also offers $1,200 annually, up to $10,000 total for student loan payments.
•  SoFi offers one of the more unique employer student loan repayment programs on the market, offering $200 a month in reimbursement with no cap.

Implementing a student loan repayment program with a matching contribution will depend on a company’s size and resources.

But this kind of incentive can appeal to potential new employees. Most companies do not require employees who leave the organization to repay the benefit. Paid out monthly, it can really help with the most burdensome student loan payments, which some employees might find more valuable than, say, a year-end bonus.

Save on Student Debt while Saving for Retirement

Helping employees pay down student loan debt, while also still saving for retirement, is a benefit that could really increase the appeal of an employer loan repayment program.

In 2018, the IRS cleared a path for employers to create a different kind of student loan payoff program that could help attract employees. The program was created by Abbott Laboratories, but companies of all sizes could use a similar approach.

The IRS allowed Abbott to help its employees save for retirement and pay down student debt, with a new program that allows people who direct a certain amount of their paycheck to pay off student loans to also get a contribution from Abbott for their retirement accounts.

Abbott’s program might inspire more employers to implement similar programs, where the company can make a tax-free contribution to the employee’s 401(k), on the condition the employee makes student loan payments.

The Takeaway

With the recent extension of the rules set forth in the CARES Act, employer student loan repayment contributions up to $5250 are payroll-tax and income-tax free until January 2026. For individuals whose company offers such a benefit, this makes it more useful than ever before in paying down student loan debt.

Just like a 401(k) retirement match, a company that offers a student loan repayment program is basically offering you extra money. For many employees, even an extra $100 a month could be enough to help them get out of debt faster and feel more confident about their financial security.

To make the most of student loan repayment benefits and pay down loans in the most efficient way possible, it’s always a good idea to evaluate your current payment plan. For some individuals with federal student loans, switching to an income-driven repayment plan or consolidating your loans could make monthly loan payments more manageable.

For individuals with multiple student loans, or both private and federal student loans, it might make sense to consider refinancing your student loans through a private lender, such as SoFi. Refinancing combines multiple student loans—federal or private—into a single loan with one monthly payment. And refinancing can potentially lower your overall interest rate or give you access to more favorable loan terms. That said, refinancing with a private lender means forfeiting access to federal loan benefits like income-driven repayment plans, deferment, and public service loan forgiveness. Nonetheless, if your credit score and earnings have improved since graduating from college, refinancing might be a way to pay less in interest with a lower interest rate and a shorter repayment term.

Find out more about refinancing student loans with SoFi.


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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
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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-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.

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.
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Do Student Loans Count as Income?

For many students, securing financing for their education is the first major financing event of their lives—and it can feel overwhelming.

On top of sorting out whether you’re eligible for federal student loans and the difference between subsidized and unsubsidized loans, you may be confused about whether student loans count as income. In a nutshell, the answer is no, student loans are debt, and do not count as income.

Fellowships and other forms of financial grants, however, may be counted as income, depending on how the funds are spent. And loans that are forgiven have counted as income.

Read on for more about the tax implications of student loans, grants, and student loan repayment. Of course, this is just a helpful guide as you begin to explore the basics of student loans and taxes; always seek out a tax professional to help you with your specific situation.

Are Student Loans Taxable?

There are multiple types of student loans—each with their own unique terms. As noted earlier, though, student loans are not taxed as income.

This is true of other types of loans generally as well, like credit card spending, mortgages, and personal loans (unless the loan is forgiven)—basically most credit that needs to be repaid. The IRS considers student loans a form of debt—not income—therefore, it is not taxed.

The only time that student loans (or other types of debt) can be taxed is if they are forgiven during repayment. If you are eligible for a federal student loan forgiveness program and have met the requirements (which vary, and may include stipulations like making eligible payments for 20 to 25 years via an income-driven repayment plan or completing eligible public service work/payment requirements, and others), the remaining balance on your student loans (the amount forgiven) may be taxed as income, depending on the repayment plan. This could amount to a hefty tax bill.

Are Scholarships Taxable?

The high-level answer to this question is: it depends. There are many different forms of scholarships, grants, and fellowships that are awarded to students to cover the costs of studying and research. Some are need-based and some are merit-based. The basic difference between scholarships and loans is that a scholarship is given while a loan is borrowed. You won’t typically have to pay back a scholarship, but you do have to pay back a loan.

Most scholarships are not taxed when you are enrolled in a formal educational institution and the scholarship is directly used to cover the costs of tuition, fees, books, and supplies used for study.

There are some situations in which scholarships can be taxed, however. For instance, a scholarship can be taxed as income if you use it to cover what are considered “incidental” expenses related to your education such as travel, room and board, and supplementary equipment and supplies.

Another type of scholarship that can be taxed is a scholarship that has a service-related requirement to it. This frequently applies to scholarships for graduate students. If you are required to teach, provide research assistance, or perform other services as a condition of your scholarship, it can be taxed as income and you will be required to report the scholarship as part of your gross income.

(For more about which types of scholarships are considered income and what scholarship-related activities are taxable, check out IRS Publication 970 .)

Does Financial Aid Come with Any Tax Benefits?

Student loans aren’t usually taxable as income, and in fact may come with a tax benefit that is meant to make repayment a little easier on borrowers investing in their education. The Student Loan Interest Deduction allows you to deduct the amount of interest you have paid on your student loans up to a maximum of $2,500 per year, if your modified adjusted gross income is less than $80,000 (or $160,000 for joint filers.)

For instance, let’s say you have $30,000 in federal student loans with a 7% interest rate on that amount over a standard repayment period of 10 years. On the Standard Repayment Plan, your monthly payment could be about $350, of which roughly $175 is interest. So, in your first year of repayment, you could be paying about $2,100 in interest. In this scenario, you may be eligible to deduct that from your annual gross income, meaning you could pay less in taxes. This deduction can also help defray some of your repayment costs.

How Can I Make My Student Loan Repayment Easier?

The costs of student loans come in the form of the interest you pay each month on what you borrow. The example above, of a $30,000 loan with a 7% interest rate, shows just how much student loan borrowing can cost you per year. Over a standard repayment period (10 years), you would hypothetically pay roughly $11,800 in interest in addition to repaying the $30,000 principal.

So what can make repayment easier, other than the student loan interest deduction? One option is to refinance your student loans with a private lender.

If you already have private and/or federal student loans, you may be able to refinance your student loans at a lower interest rate than you currently are paying. If you are eligible to refinance your student loans, you could shorten your term length, qualify to lower the interest rate on your loans, or possibly lower your monthly payment (by extending your term). But there can be some drawbacks to think about.

For instance, federal student loans come with several benefits and protections such as forbearance, deferral, and income-driven repayment plans that private loans do not offer. If you think you might need some of these benefits, or if you are eligible for student loan forgiveness, it might not be the right time to refinance.

However, if you have a steady income and good cash flow—along with other aspects of your financial picture that are appealing to a lender—and you are ready to focus on paying down your loans, refinancing might be the right solution for you.

SoFi is a leader in the student loan space, offering refinancing options to help you save on the loans you already have.

The Takeaway

Generally, student loans are not considered income, so are not taxed. The exception is when your federal student loan is forgiven. In that case, the IRS may count the cancelled debt as taxable income. Educational grants and scholarships, on the other hand, may or may not count as income. Typically, they are taxed when they are spent on expenses outside of tuition and fees, such as room and board and travel.

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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.

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.
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How to Study for the MCATs

It’s no secret, the MCAT is notoriously difficult. Thankfully, by learning how to study for the MCATs, medical school hopefuls may be able to improve their scores come testing day, which could bring them one step closer to fulfilling their dreams.

Here are a few ways in which prospective medical school students can study for the MCATs and go the distance with their goals.

What Are the MCATs?

MCAT stands for Medical College Admission Test® (MCAT®) . The test, which the Association of American Medical Colleges (AAMC) creates and administers every year, is multiple-choice and standardized. Medical schools have been utilizing it for more than 90 years to determine which students should gain admission.

Most medical schools in the United States and some in Canada will require that students take the MCATs. Every year, more than 85,000 prospective medical school students take it.

There are four sections to the MCATs, including critical analysis and reasoning skills, biological and biochemical functions of living systems, chemical and physical foundations of biological systems, and psychological, social, and biological foundations of behavior.

Students will receive five scores: one for each section, and then one total score. In each section, they can get a score ranging from 118 to 132, and the total score ranges from 472 to 528. Generally, a competitive MCAT score is a total of 509 or above, which would place a student in the 80th percentile.

The average MCAT score for all medical school applicants is between a 500 and 508. Usually, students will receive scores 30 to 35 days after they take the exam.

Keep in mind that MCAT scores, while important, are just one part of a medical school application. Medical schools often review other factors, including things like a student’s:

•  GPA
•  Undergraduate coursework
•  Experience related to the medical field, including research and volunteer work
•  Letters of recommendation
•  Extracurricular activities
•  Personal statement

If a student has a high GPA from a competitive undergraduate school, for instance, and they don’t score very high on the MCATs, they may still have a chance of getting into a medical school.

Getting a competitive score on the MCAT can give applicants an edge, especially when applying to ultra-competitive medical schools. One way students can help improve their chances of getting a desirable score on the MCAT is to learn how to study for the unique demands of the test.

Studying for the MCAT

One of the first things a student can do when determining how to study for the MCAT is to create a study plan. A well-crafted study plan will review what materials the student should review in order to prepare for the exam.

The AAMC Website

One jumping off point – review the material covered on the MCAT. The AAMC provides an in-depth outline on their website . Obviously, the same questions students will see on the actual exam won’t be listed, but sample questions that are similar to the real questions are.

The website allows students to download the entire exam content in a PDF and watch tutorial videos. For instance, according to the AAMC’s guide , the Biological and Biochemical Foundations of Living Systems section of the MCAT “tests processes that are unique to living organisms, such as growing and reproducing, maintaining a constant internal environment, acquiring materials and energy, sensing and responding to environmental changes, and adapting.”

The section has 59 questions, and students get 95 minutes to complete them.

Online Resources

There are a variety of other online resources students can explore to help them review. For example, the AAMC currently recommends students take a look at Khan Academy’s MCAT Video Collection , where there are more than 900 videos and 3,000 questions that students can use to review. This content will be available for students to access until September 2021.

There are also MCAT study apps like MCAT Prep from Varsity Tutors LLC and MCAT Prep by Magoosh that students can download and use to study.

Books, Textbooks, and Class Resources

It may also help to buy or borrow books from the library that go into detail on the MCAT. Students should just make sure that the books they’re reading are up to date.

It can also be helpful to review class notes and study guides from courses you’ve taken that are related to MCAT materials. Some schools have study groups and other academic support resources for students who are studying for the MCAT. If you’re currently enrolled in classes, take a look to see what might be offered at your campus.

Practice Tests

AAMC offers official sample MCAT practice exams online , and they cost $35 each. Taking practice tests can help students familiarize themselves with the exam. Taking practice tests can also be important in helping students understand the timing of each section.

Study Groups and Tutors

Getting an MCAT tutor who has taken the test could also be helpful. A tutor will generally be able to provide guidance on what kind of questions a student can expect and effective methods and tips for studying. Additionally, a tutor could help a student stay motivated and hold them accountable.

Students can find tutors by asking friends and family members who have taken the MCATs recently for recommendations. There are also test preparation companies that provide resources for students to find tutors online or in person.

A search on an independent website like Google or Yelp can help students be sure that the test prep company they are looking into is legitimate.

Study groups can also be a tool to help students who are preparing for the MCAT. Students can find others who are on the same trajectory and plan to take the test and go to medical school around the same time as them. If possible, find a group where each student has a different strength and weakness, this way each student can learn from one another.

It may help to use a shared calendar or another tool to make sure everyone is on the same page for dates, times, and locations for when the study group will meet. Students can find MCAT study groups by looking on Google and/or signing up for virtual groups on Facebook.

Important Dates to Keep in Mind

Students can take the MCATs several times throughout the year, from late January through September. There are hundreds of test locations around the U.S. and Canada as well as select locations around the globe.

If a student’s preferred MCAT test date or location is not available, they can sign up for email notifications to see if it becomes available down the line.

If students are ready to take the test in 2021, they can see the full schedule of testing dates on the AAMC’s website. In light of the COVID-19 pandemic, the AAMC has released protocols for in-person testing in the coming year. While they currently plan to offer in-person testing, they acknowledge that this may change. Learn more about the AAMC’s approach here .

Paying for the MCATs and Medical School

The registration fee for the MCAT exam is $320, and that includes distribution of scores. There may be additional fees for changes to a registration, a late registration, and for taking the test at international sites.

The AAMC does offer a Fee Assistance Program to students who are struggling to pay for the test and/or medical school applications. To be eligible for the Fee Assistance Program, students must meet the following eligibility requirements:

•   Be a US Citizen or Lawful Permanent Resident of the US.
•   Must have a total family income that is 400% or less than the 2019 national poverty level for their family size.

Note that the Fee Assistance Program will review financial information of the student and the student’s parents, even if the student is considered independent.

Keep in mind that along with the MCAT fee, applying to medical school can be quite expensive. Most medical schools in the US utilize the AAMC’s American Medical College Application Service® (AMCAS®). To apply to schools in 2021, students will generally pay a first-time application fee of $170, as well as $41 for each additional school.

Some medical schools may require a secondary application, and those fees range depending on the school. Students may also need additional money to travel to and tour schools.

The application process is just one portion of the cost of med school. After being accepted, there’s the cost of tuition, books, and more. The average cost of the first year of medical school at a public school with in-state tuition is $37,556, which includes tuition, fees, and health insurance.

The average cost for the first-year at a private medical school is $60,665. According to the AAMC, the median debt for medical school graduates is $200,000.

Paying for School with the Help of SoFi

Paying for the MCATs and medical school can be a challenge. SoFi understands this, which is why they offer students no-fee private student loans and the opportunity to refinance their current student loans.

Note that refinancing federal student loans eliminates them from any borrower protections like Public Service Loan Forgiveness, income-driven repayment, and deferment options, so it may not be the right choice for everyone.

Applications for a private student loan or refinancing loan with SoFi can be completed entirely online. SoFi members gain access to career coaching, special events, and more.

Worried about the cost of medical school? Learn more about options available with SoFi, like private student loans to help pay for medical school or refinancing existing student loans—either of which could help you make your med school dreams a reality.



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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
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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-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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Can the President Cancel Student Loan Debt?

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. (Update: the suspension has since been extended to January 31, 2021.) Once President-elect Biden takes office on Jan. 20, 2021, he may further extend the CARES Act’s provision for federal student loan forbearance.

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

Since then, however, 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 February 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 well 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.


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.

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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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Should All Student Loan Debt Be Forgiven?

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 student loan 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 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.

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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