Oct
12
2023
man on his laptop

Student Loan Deferment vs Forbearance: What’s The Difference?

By | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments
Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

If you’re struggling to keep up with student loan payments, rest assured you are not alone.

There are many reasons why you may be having difficulty with your loans. Some students may struggle to find a job after graduation or some may not earn as much as they anticipated right out of the gate. For those with federal student loans, forbearance and deferment options exist for these very reasons.

When Student Loan Payments Become Too Much

When monthly student loan payments become insurmountable, the worst thing to do is nothing at all. When a borrower stops paying their student loans, they may go into default. This has the potential to devastate an individual’s credit score.

In default, borrowers could also face relentless collection agencies or could even have their wages garnished. Plus, in most cases, student loans can’t be discharged even if the borrower files for bankruptcy.

There is a temporary exception, however. The Biden administration instituted an “on-ramp” period to protect financially vulnerable borrowers from the consequences of missing payments following the pandemic-era federal payment pause that ended in October. From Oct. 1, 2023 to Sept. 30, 2024, borrowers who miss their student loan payments will not have those missed payments reported to the credit bureaus or referred to collections agencies. Their loans will also not be considered delinquent or in default.

Once the on-ramp period is over, however, the usual repercussions for missing payments will be back in place. Even so, borrowers with federal student loans may have other options for pausing or temporarily reducing their monthly payments if they’ve found themselves in a tough financial spot. Namely, borrowers can apply for either student loan deferment or forbearance from the federal government in order to avoid default.

It can be tough to figure out the difference between these two programs and which is best for your situation. Here’s a breakdown of the differences between student loan deferment and forbearance.


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

What Is The Difference Between Deferment and Forbearance?

Let’s start with the similarities: Both deferment and forbearance allow a borrower to temporarily lower or stop making payments on their federal student loans for a defined period of time, if they qualify. In both cases, the borrower needs to contact their loan servicer, submit a request, and provide the documentation requested by the loan servicer.

The main difference between the two is that, while in deferment, borrowers are not required to pay the interest that accrues if they have a qualifying loan.

Specifically, interest is not owed on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans.

Interest payments are still required on Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans, FFEL Plus Loans, and unsubsidized portions of Direct Consolidation Loans and FFEL Consolidation Loans.

With federal student loan forbearance, borrowers are always responsible for paying the interest that accrues, regardless of what kinds of federal loans they have.

You can either pay the interest as it adds up during the forbearance period, or you can have it added to your interest balance at the end.

Who Is Eligible for Deferment?

Deferment is tailored to people who are facing financial difficulties. Loans can be deferred for up to three years.
To qualify, you need to be enrolled in school at least half-time, in the military, in another eligible post-graduate role, or unable to find a full-time job. You may also qualify for a deferment if you’re seeking cancer treatments, are enrolled in an approved rehabilitation program, or are serving in the Peace Corps.

If a borrower is enrolled in an approved graduate program, they may be able to defer their loans for an additional six months after enrollment ends.

Recommended: Examining How Student Loan Deferment Works

Who Is Eligible for Forbearance?

The two types of forbearance are mandatory and general. Mandatory forbearance must be granted if you qualify, while general forbearance is up to your loan servicer to approve you or not.

Mandatory Forbearance

Loan servicers are required to grant mandatory forbearance to qualifying borrowers. Depending on the type of federal student loan, borrowers may be eligible if they are in a medical or dental internship or residency, serving in AmeriCorps or the National Guard, or working as a teacher and performing a teaching service that qualifies for teacher loan forgiveness.

Borrowers may also qualify if their monthly student loan payment is at least 20% of their gross monthly income. Again, this will depend on the type of loan they have. Note: Mandatory forbearance is granted for up to a year at a time. If you’re still facing financial challenges when the forbearance period ends, you can request another, up to a cumulative total of three years.

General Forbearance

With general forbearance, it’s up to the loan servicer to decide whether to grant it and only certain federal student loans are eligible (Direct Loans, FFEL, and Perkins Loans). Like mandatory forbearance, general forbearance can only be granted for 12 months at a time. There is a three-year cumulative limit on general forbearances.

Borrowers can apply for a general forbearance if they’re unable to make loan payments because of financial hardship, medical bills, or changes in their job (such as reduced pay or unemployment). If there are other reasons they’re unable to pay, it’s also possible to make that case to the loan servicer, but the decision will be theirs to make.

Forbearance vs. Deferment for Student Loans: Which Option to Choose?

If your federal student loan type and circumstances allow you to, it’s best to apply for deferment since it allows you to get a break on interest during the deferment period. However, if you’ve already exhausted the maximum time for a deferment or your situation doesn’t fit the narrow eligibility criteria, then it could make sense to apply for a forbearance.

If your ability to afford your loan payments is unlikely to change anytime soon, or if you have private loans and/or federal loans that don’t qualify for a deferment or forbearance program, you may want to consider other solutions, such as an income-driven repayment plan or student loan refinancing.

How Does an Income-Driven Repayment Plan Work?

Another way to potentially reduce your federal student loan payment is to apply for an income-driven repayment plan. The government offers four different income-driven plans—including the newest plan, Saving on a Valuable Education (SAVE)—which cap the borrower’s monthly payments at a small percentage of their discretionary income.

The plan a borrower qualifies for depends on the type of loan they have and when it was borrowed. Depending on the plan, your monthly payment will generally be reduced to 10-20% of your discretionary income (or as low as 5% starting in July 2024 for certain SAVE plan participants). The repayment term is also extended up to 25 years. If you still have a balance once the repayment period is up, the remaining debt is forgiven. However, you may have to pay taxes on the canceled debt.

How Can Student Loan Refinancing Help?

For some borrowers, refinancing student loans can be an option that helps them reduce their monthly payment or lower their interest rate. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.) Refinancing involves taking out a new loan from a private lender and using it to pay off existing federal or private loans, effectively combining multiple loans into one.

The new loan will have a new term and interest rate, which has the potential to help borrowers save on interest or the amount they pay over the life of the loan. Borrowers with a solid credit score and employment history (among other positive financial indicators) are especially likely to be able to qualify for favorable terms.

Keep in mind that if you refinance federal loans, you will no longer qualify for the federal benefits we discussed in this post, including deferment, forbearance, or income-driven repayment programs. Make sure to weigh the pros and cons of refinancing carefully before moving forward.

However, some private lenders do offer temporary relief if you experience financial hardship. Rather than stopgaps that can require you to reapply year after year, refinancing can help you gain a long-term plan for getting your payments under control.

With SoFi, it’s possible to refinance loans without paying any hidden fees or penalties at either a fixed or variable interest rate.

The Takeaway

Deferment and forbearance are both options that allow borrowers to temporarily pause payments on their federal student loans.

Deferment differs from forbearance in that some borrowers may not be required to pay interest that accrues during deferment, depending on the type of loan they have. With forbearance, borrowers are generally required to cover interest that accrues while the loan is in forbearance.

Borrowers who anticipate having trouble making monthly federal student loan payments in the long-term might consider applying for income-driven repayment plans, which ties monthly payments to the borrower’s income level.

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


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

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


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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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

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Oct
12
2023
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How Do Student Loans Affect Your Credit Score?

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

Student loans don’t just help you pay for your college education. They also allow you to build a credit history, which can be useful when it comes time to get a mortgage or take out a car loan. The key, though, is to make regular on-time payment – or you may wind up with the sort of credit history that negatively impacts your ability to borrow money in the future.

Here’s a look at how student loans can affect your credit score.

How Is My Credit Score Calculated?

First, it can be helpful to know how your credit score is calculated. There are several types of credit scores, but FICO scores are the most commonly used by top lenders.

Your FICO score is calculated using five categories of data found in your credit reports, which each category weighted differently.

Category

 Weight in Scoring
Payment History 35%
Amounts Owed 30%
Length of Credit History 15%
New Credit 10%
Credit Mix 10%

Based on these calculations, there are a few ways you can build good credit and maintain a good credit score. Paying your bills on time is a big one, since your payment history is the most heavily weighted factor. Paying down existing debt and keeping credit card balances low will also have a big effect. Less impactful, but important strategies, also include diversifying the types of credit you have, avoiding opening too many new accounts at once, and keeping accounts open to lengthen the average age of your credit history.

Serious savings. Save thousands of dollars
thanks to flexible terms and low fixed or variable rates.

What Student Loan Factors Affect My Credit Score?

Now that you know how credit scores generally work, you might be wondering how your student loans specifically impact your score.

Again, one of the biggest ways your student loans can affect your credit is whether or not you pay them on time. If you’re a responsible borrower who continually makes on-time student loan payments, you will see positive shifts in your credit score over time.

But if you fail to repay a loan or continually make late payments, your credit score will likely see a dip. If you default on your student loan, your credit score could drop significantly. The lender may also send your account to a collections agency, and you may have a more difficult time securing credit in the future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Does a Late Student Loan Payment Affect My Credit Score?

Making payments on time is important, but what you might not realize is exactly how damaging late payments can be. Even if your credit history is pristine, it only takes one report of 30 days past due to change your score. Once a late payment is reported to the credit bureaus, it could remain on your credit report for up to seven years.

To help ensure your payments are on time, you might want to set up an automatic payment plan. Most lenders will even give you a small discount on your interest rate for doing so. If you know you can’t make a payment on time, talk to your lender or loan servicer right away. The Department of Education, which is the lender for four types of Direct Loans, and even some private lenders, offer loan deferment or forbearance. These options allow a borrower to temporarily suspend payments, which will minimize the impact on their credit score.

Does It Hurt to Pay Off Student Loans Quickly?

Repaying student loans quickly will always improve your credit score, right? Not necessarily. In fact, you could even see a small, temporary dip in your credit score right after paying off a loan. There are several reasons for this. If student loans are your primary source of open credit, closing those accounts means you’re no longer building payment history. Prematurely paying off a loan can also change your credit mix or credit utilization.

But credit score is just one factor to consider when deciding how quickly to pay off a student loan. You may want to think about how much extra interest you’d pay by leaving the account open. Carrying a high loan balance could also make it harder to qualify for new loans, which is something to keep in mind when it comes time to buy a home or car.

Notorious Big Bad D’s: Delinquent and in Default

Student loans affect credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you’re even one day late with a payment, you’ll be considered delinquent and may be charged a penalty.

Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.

After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full along with any accrued interest, fines, and penalties.

(Note that the on-ramp that’s in place for federal student loan repayment from October 2023 through September 2024 temporarily shields borrowers from the most immediate consequences of delinquency and default.)

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

When you’re shopping around for the best interest rate possible on a private student loan, lenders may pull your credit file. This is called a hard inquiry, and each one could temporarily knock a few points off your credit score.

To help protect your FICO score, try to finish shopping for rates and finalizing your loan within 30 days. Researching rates and getting quotes ahead of time can give you a good idea of whether you’ll qualify for a loan before you formally apply.

You may also want to ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual hard inquiry, but getting prequalified allows you to compare interest rates without impacting your credit score.

Will Refinancing Student Loans Help My Credit?

Because refinancing involves taking out a new loan with new terms to pay off existing debt, refinancing student loans affects your credit score—both positively and negatively.

In the short-term, refinancing will involve a hard credit inquiry and may cause a temporary ding to your credit. Again, as long as you keep your loan shopping to a short period, multiple inquiries will be treated as one, and should have a minimal impact on your score.

In the long-run, refinancing student loans at a lower interest rate can have an indirect positive effect on your credit. For example, if refinancing lowers the amount you pay each month, you may be more likely to make payments on time. You may also pay off your loans faster, which can help you reduce your overall debt and improve your score. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

If you refinance federal loans with a private lender — in effect, turning your federal loans into a private loan — rest assured that credit bureaus don’t view these two types of loans any differently. However, when you refinance your federal loans, you will lose certain federal protections, such as income-driven repayment plans, deferment or forbearance, and loan forgiveness programs.

Do I Need a Good Credit Score to Take Out a Student Loan?

Your credit score may be a factor when you’re applying for a student loan. It all depends on the type of loan you’re planning to take out. Most federal loans don’t have a minimum credit requirement, which is why nearly every borrower gets the same interest rate regardless of their financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.

Credit scores are typically more of a factor with private student loans. Lenders often consider your score when determining student loan approval and interest rate. In general, the better your score, the better your rate will be.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

Which Credit Scores Do Private Lenders Use?

When considering your student loan application, most private lenders look at your FICO® score. This score, which ranges from 300 to 850, helps lenders determine whether to extend credit and at what interest rate.

Because FICO is used widely throughout the lending industry, including by mortgage lenders and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

The Takeaway

Student loans can help borrowers establish a solid credit history, which can ease the way for future borrowing opportunities and attractive interest rates. The key is to pay what you owe on time, every time.

Paying a loan off early or shopping around for rates could cause a small, temporary dip in credit scores. Being late with a payment — or stopping payment altogether — may lower your credit score and hurt your ability to qualify for another loan.

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


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

FAQ

Do student loans help build credit?

Student loans are an opportunity for borrowers to build credit and establish a solid credit history, which can help when it’s time to get a mortgage or take out a car loan. The key is to make regular, on-time payments.

How can I improve my credit score if I have student loans?

Payment history is one factor of your overall credit score, so making regular, on-time payments on your student loans can help you build credit.

How is my credit score determined?

Your credit score is calculated using five different categories of data. These include payment history, amounts owed, length of credit history, new credit, and credit mix.

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

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


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-criteria 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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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

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Oct
12
2023
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Can You Stop Student Loan Wage Garnishment?

By | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments
Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

While on the work grind at the office, you get an email from the HR department, inviting you down to pay them a visit. Uh-oh. What could possibly be up? You’re a rock star on the job, so you cannot imagine what the trouble could be.

The good news: you’re not getting fired. The bad news: they tell you that part of your wages are going to be garnished in order to pay back your outstanding school loans.

What Is Student Loan Wage Garnishment?

Student loan wage garnishment is a tough thing to face; what makes it doubly troublesome is the official letter from the U.S. Department of Education that notifies your employer that a percentage of your paycheck will now go directly to paying back your outstanding student loan balances.

This may be something that would be a big enough bummer when you’re the only one who knows about it. When your employer is let in on the secret, and ordered by the government to reconfigure your paycheck, the awkwardness knows no bounds.

Student loan wage garnishment does not make it easy for you or your employer . Your company’s payroll department generally executes (and sometimes calculates) the student loan garnishment amount, and forwards the payments to the correct agency or creditor. In some cases, your employer can be held liable for the full amount or a portion thereof for failure to comply with the garnishment. This can include interest, court fees, and legal costs.

If it’s any consolation, you would not be alone in this situation. Let’s start with the macro: according to
CNBC , more than one million people default on their student loans each year. By the year 2023, nearly 40% of borrowers are expected to default on their student loans. Outstanding debt in the U.S. has tripled over the last decade and now exceeds $1.5 trillion. That number far exceeds the traditional debt of autos and credit cards.

Now for the micro: according to a study by the ADP Research Institute , 7.2% of employees had their wages garnished in 2013 (the latest research we could find on this). Of that total, 2.9% of those garnishments were from student loan and court-ordered consumer debt garnishment.

Defaulting on your student loan is not ideal. We’re going to share some details on federal student loan garnishment, and how you can avoid defaulting on your loans.


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

How Does Federal Student Loan Garnishment Work

Your wages can’t be garnished out of nowhere. It starts with your loan becoming delinquent, which happens the first day after you miss a payment. Your loan will remain delinquent until you pay back everything you owe.

If you are more than 90 days delinquent on your payment, your loan servicer reports the missed payments to the three national credit bureaus (Equifax, Experian, and TransUnion). This will negatively affect your credit, as payment history makes up 35% of your score.

Eventually, if you still fail to repay your debt, the government may resort to garnishing your wages and/or withholding your tax refund, which they can do without a court order. Legally, they can garnish up to 15% of your disposable pay. Disposable income is calculated by taking your gross income, and then subtracting your tax obligations and other withholdings such as Social Security, Medicare, state tax, city/local tax, health insurance premiums, and involuntary retirement or pension plans.

The good news is that there is a temporary exception to this process. To help financially vulnerable borrowers transition to making their student loan payments after an automatic, three-year pause that ended in October, the Biden administration implemented an “on-ramp” period. From Oct. 1, 2023 through Sept. 30, 2024, borrowers who miss payments will not be considered delinquent or in default, have missed payments reported to the credit bureaus, or have their loans referred to collections agencies.

Ways To Help Prevent Your Student Loan From Becoming Delinquent

If you are concerned about wage garnishment for your federal student loans, there are proactive steps you can take to keep your account from becoming delinquent in the first place:

Scheduling automatic payments. You can have the monthly obligation automatically and electronically deducted from your checking or savings account.

Building an emergency savings fund. You can save at least six months of backup funds that you can use specifically to make your monthly payments. This may come in handy should you be without income for a time.

Ways To Help Prevent Your Student Loans From Going Into Default

Based on your financial circumstances, there are a few options available that may allow you to make your student loan payments more affordable or even put them on a temporary hold:

Income-Driven Repayment (IDR) Plans: With these plans, your student loan payments are adjusted based on your discretionary income. Depending on the plan you choose, the government typically extends your repayment terms and readjusts your monthly payment, and may eventually forgive the balance of your loan. The newest IDR plan, the SAVE Plan, will provide the lowest monthly payments once it’s fully implemented in July 2024.

Forbearance or Deferment: If making payments is becoming or has become nearly impossible, you can ask your lender to defer your payments or request forbearance. If they agree and you qualify, you can delay your payments and avoid default.

Student Loan Refinancing vs Consolidation

If student loan wage garnishment is the nightmare that comes true, here are two options that may be able to stop it: consolidating or refinancing your student loans. First, know the difference between the two (and it’s a pretty big one):

When you refinance student loans, you’re actually paying off your existing loans with a new loan from a private lender. In this process, you can possibly reduce your payments and make them more affordable. (You may pay more interest over the life of the loan if you refinance with an extended term.) Or you may be able to lower your interest rate. However, you also will lose out on certain benefits that come with federal student loans, like deferment and forbearance, and lose your eligibility for all other federal student loan programs.

When you consolidate your federal student loans with the federal government, you essentially “bind” them all together into one, big loan. Sounds like a plan, but there can be a few downsides; this could result in you paying more in interest over the life of your new, consolidated loan because the interest rate on your consolidated federal loan will be the weighted average of all your loans, rounded to the nearest eighth of 1%. You can also only consolidate your federal loans under a Direct Consolidation Loan, which has its own requirements if you’re already in default, and isn’t available for private student loans.

Consolidating a Defaulted Loan

According to the U.S. Department of Education, if you want to consolidate a defaulted loan, you must make “satisfactory repayment arrangements” on the student loan with your current loan servicer before you consolidate.

If you want to consolidate a defaulted loan that is being collected through garnishment of your wages, or that is being collected in accordance with a court order after a judgment was obtained against you, you may only do so if the garnishment order has been lifted or the judgment has been vacated.

Refinancing Your Student Loans

You may be able to combine your private and federal loans into one brand-new, private refinanced loan.

You may be a good candidate for student loan refinancing if you have a steady income, a consistent history of on-time debt payments, and you don’t have need for federal student loan benefits—among other important personal financial factors. (When you refinance your federal loans with a private lender, you can no longer access any federal loan benefits.)

A lender will most likely offer you a few choices for your refinanced student loan: fixed and variable interest rates, as well as a variety of repayment terms (this is often based on your credit history and current financial situation). If you qualify for refinancing, your new loan should (hopefully) come with a new interest rate or a new loan term that can lower your monthly payments.(You may pay more interest over the life of the loan if you refinance with an extended term.)

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

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

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


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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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

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Oct
12
2023
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Should You Hire a Student Loan Consultant?

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

If you dread your student loan payments each month because you aren’t sure whether you can afford to cover the minimum payment, know that there are solutions to make student loans more manageable. One option is hiring a student loan consultant to help create a customized repayment plan.

While some borrowers might find their advice valuable, either might find it’s not worth the expense – especially if they’re already struggling to find a way to make their loan payments. Here’s what you should keep in mind if you’re thinking of working with a student loan consultant.

What Is a Student Loan Consultant?

Americans owe nearly $1.8 trillion in collective student loans. As student loan debt has increased, student loan consultants have emerged to help students navigate the loan process. Most student loan consultants work independently from colleges or universities, and are not affiliated with specific repayment programs. Student loan consultants work one-on-one with borrowers to identify their repayment needs and try to set them up on a path of debt payoff success.

Knowing What They Can Help With

There are five main ways a student loan consultant can help you:

•   Recommending a student loan repayment strategy

•   Offering personalized guidance specific to your finances

•   Explaining student loan jargon

•   Researching your loan details

•   Communicating with lenders on your behalf

Before seeking out a student loan consultant, it might be helpful to identify your specific needs. If you don’t understand the difference between consolidation and refinancing, for example, then talking with a consultant about student loan jargon could be helpful.

If calling lenders sends you into a panic, maybe that’s where you want the consultant’s help. And if you’re struggling to make your minimum monthly payments, you could potentially talk to a consultant about finding a better student loan repayment plan.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Understanding What You’re Paying For

The cost of a student loan consultant can vary widely, and can come in the form of an hourly fee, flat rate, or annual fee. You could expect to pay anywhere from as little $50 to upwards of $600 or more for help from a student loan counselor. Making sure their services are worth the money you are paying is important, of course, and that can be done by confirming that their services aren’t something you could do on your own—like finding a federal income-driven repayment plan (which we’ll get into below). It’s also important to ensure that the cost doesn’t prevent you from making your student loan payments.

Before speaking with a consultant, finding out what is possible and what sounds too good to be true can help you weed out any scammy student loan consultants. And when you’re trying to understand what you can do on your own (without a consultant’s help), a good place to start is the Consumer Financial Protection Bureau .

Knowing What Programs Are Available for Free

A fair number of programs to help with student loan payments are available to everyone, without a fee. For example, before seeking out a student loan consultant, you could look into enrolling in a federal income-driven repayment (IDR) plan.

Typically, when you graduate from college or reduce your attendance to under half-time, you’re automatically put on the 10-year Standard Repayment Plan. However, borrowers looking to reduce the monthly payments on their federal student loans may qualify for an IDR plan, which reduces your monthly payment to a small percentage of your discretionary income and extends the repayment term up to 25 years (the exact details depend on the specific plan you choose). After the repayment period is up, any remaining balance is forgiven (but may be subject to taxes).

The newest IDR plan, Saving on a Valuable Education (SAVE), caps monthly payments at 5% to 10% of your discretionary income and shields more of your income from the payment calculation compared to older plans. It also forgives student loan debt as soon as 10 years into repayment for borrowers with smaller starting balances.

Because these repayment plans extend your loan term, you may pay more interest over the life of your loan. Even so, it could bring much-needed immediate relief and result in some loan forgiveness.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Asking a Neutral Party for Help

If you have a conflict regarding one of your federal student loans, you can ask for help from the Federal Student Aid Ombudsman Group , which serves as a neutral party. They can resolve discrepancies with loan balances and payments, and help identify loan repayment options. You can also try to resolve the dispute before contacting the Ombudsman Group. Or you can file a complaint through the Consumer Financial Protection Bureau.

Considering a Nonprofit Credit-Counseling Agency

The National Foundation for Credit Counseling can help you find a qualified credit counseling agency, which can aid you in creating a budget and even negotiating a new payment plan with creditors. The U.S. Department of Justice also offers an online database of credit-counseling agencies .

Making Sure the Consultant Isn’t Providing a Redundant Service

It’s important to make sure the consultant’s service isn’t something you could do on your own. For example, you could lower your monthly payment on your federal student loans by opting for an income-driven repayment plan without paying a consultant for their services.

You can also consider consolidating your federal loans through a Direct Consolidation Loan, which is also free. A Direct Consolidation Loan allows you to combine all of your federal loans into one, and gives you a new interest rate that’s a weighted average of your current interest rates, rounded up to the nearest eighth of a percent. While you won’t have a lower overall interest rate, you could lower your monthly payments and simplify the repayment process.

Refinancing Your Student Loans

If you’re looking for alternative ways to pay off your student loan debt, you could also consider student loan refinancing. When you refinance your student loans, you take out a new loan with a private lender and then use the proceeds to pay off one or more existing student loans. Ideally, the refinanced loan has a better interest rate and terms.

Extending your loan term through refinancing can lower your monthly payments. But it does mean paying more in interest over the life of the loan.

Alternatively, refinancing to a lower interest rate and shorter loan term could cost you less in interest over the life of the loan and help you pay it off faster. Keep in mind, however, that refinancing with a private lender means you’ll no longer be able to access federal loan benefits like income-driven repayment plans.

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

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

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


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

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.

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

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2023

What’s Next After My Student Loan Was Sold to Another Company?

By | Fresh Out of School, Student Loans, student_loan | Comments Off on What’s Next After My Student Loan Was Sold to Another Company?

If your student loan was sold to another company, you will be notified of your new servicer and make your same monthly payment to them. Your old lender will send the monthly payments to your new lender while this transition occurs, but it’s still ultimately up to you to make sure it’s getting to the new lender by the payment due date.

Selling student loans between companies is a common practice, but learning that your loan was sold to another company might feel jarring if you aren’t prepared for what this entails. If a student loan transfer occurs while you’re paying back your loan, here’s what you should know.

Student Loans Explained

Student loans are an installment-based financing option for students who don’t have cash on-hand to pay for their education. Federal loan funds are offered by the Department of Education, such as Direct Loans. You can also borrow private student loans from non-government sources, such as banking institutions, credit unions, and online lenders.

When you borrow a student loan, the lending company provides you with a lump-sum loan disbursement to pay for school. In exchange, you agree to make incremental monthly payments to the lender for the principal loan balance, plus accrued interest. Your repayment period is predetermined and is on your loan agreement. Typically, you’ll have multiple years to repay your student loan in full.

Most federal student loans, such as Direct Subsidized Loans and Direct Unsubsidized Loans, are not due until you graduate, withdraw, or drop below half-time enrollment. You will also have a six-month grace period on these loans. Private student loans typically are not due while in school, either, and may come with their own grace period. This will vary by lender, so make sure to look at all the details of the loan before signing.

How Selling Student Loans Works

While you’re engaging with your lender or servicer during the repayment period, a separate process can take place behind the scenes among lenders.

Whether you have federal or private student loans, the existing company that owns your loan might sell or transfer your student loans to another lender or servicer. How selling student loans works is essentially how it sounds. The current owner of your loan sells the loan account for the cost of the loan balance, plus an additional fee based on the loan terms.

Lenders sell the student loans they create to get the account off of its balance sheet and to increase their liquidity. Since the loan is sold at a premium, the original lender uses that money to create more loans for new borrowers.

Your Loan Servicer After a Student Loan Transfer

The new company that purchased your loan might technically be your lender and loan servicer; in this case, you’d make payments directly to your new lender.

Conversely, your new lender might have purchased your loan, but hired a third-party company to service the loan. In this scenario, you’d send your monthly payments to the third-party servicer that’s partnering with the loan company.

What to Do If Your Student Loan Is Transferred to Another Company

Transferring lenders shouldn’t greatly impact you or the terms of your loan. During the time leading up to the official transfer date and shortly afterward, however, you can protect yourself with a few simple steps.

Expect an Alert From the Company

Your current loan company should communicate the student loan transfer in advance. Typically, you’ll receive an email or mailed letter which details the new company’s name and contact information, transfer date, and possibly payment instructions for your repayment plan.

During this preliminary period, continue making payments based on your usual due date. If you just stop paying your student loan, you risk incurring late payments or delinquency.

Make Sure It Is Not a Scam

When public announcements about student loan transfers are released, scammers might take advantage of unsuspecting borrowers by posing as their new lender or servicer.

For example, you might receive an unsolicited phone call from a scammer alleging that they need your credit card number to set up your student loan account for auto-pay.

The best way to avoid scams for student loans during a transfer is by confirming the new company’s name and contact information directly with your original lender.

Contact New Company

Once you’ve confirmed who’s taking over your student loans, reach out to the new company to ask how you should make payments once your loan is transferred to its system.

After the transfer takes place, create an online account through the company’s website to access your student loan details. From there, make sure your payment information is correct and that you’ve enrolled in automatic payments, if desired. Upon creating your account, double-check that the loan data the company received matches your records.

This includes your remaining loan amount balance, interest rate, term, and repayment plan. If anything is incorrect, contact your servicer immediately to correct the issue.

Can I Refinance My Student Loans If They Are Transferred?

If your student loan was sold and you are dissatisfied with your experience with the new company, refinancing can be an option.

Refinancing student loans lets you transfer your student loan to another lender. The difference with this type of transfer is that it creates an entirely new loan in place of your old one. With a new refinance lender, your loan details, such as interest rate and terms, will change.

No two lenders have the exact same refinance student loan offer. Borrowers with a strong credit profile and low debt-to-income ratio, however, can qualify for the most competitive interest rates.

If you choose to refinance your federal student loans with a private lender, you will lose access to certain federal benefits, such as student loan forgiveness and income-driven repayment plans. If you are currently using these benefits or plan to in the future, it is not recommended to refinance your student loans.

Refinancing Your Student Loans With SoFi

Selling student loans is ultimately one way in which financial institutions can secure enough liquidity to create new loans for students. Although you don’t have control over whether your loan is sold or not, it doesn’t affect the fine details of your student loan debt. You’ll still owe the amount that’s unpaid for the duration of your term and be charged the same rate.

You do, however, have the option to refinance your student loans with a new loan and new lender. If you do choose to refinance, consider SoFi. Refinancing with SoFi lets you access low rates and it only takes two minutes to see if you prequalify.

FAQ

What happens when your student loan gets sold?

If your loan was sold to another company, your original loan’s unpaid balance, interest rate, and repayment terms remain the same. You’ll need to direct your payments to the new company if it’s also servicing your loan. If the new company purchased your loan, but is not servicing it, reach out to them to confirm where your payments should be sent.

What happens when student loans are transferred?

Your student loan details, including your outstanding balance, interest rate, and repayment period, won’t change during a student loan transfer. Before the transfer takes place, you’ll receive a notice from your lender or servicer. Once the transfer is complete, check your loan details to ensure it’s accurate, and confirm where to send future payments so they arrive on time.

Can a student loan be sold to a collections agency?

Yes. Student loans that are in default — meaning the borrower has stopped making payments for an extended period — can be sold to a collections agency. The collection agency will take every legal measure to collect the unpaid debt, including suing you in court.

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


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

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

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

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