Fresh Out of School Archives

Jul

2025

What Happens When Your Student Loans Go to Collections?

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

When a borrower stops making payments on student loans for a period of time, they could end up in default. And in some cases, lenders may send defaulted loans onto collections.

If your student loans end up in collections, it can have serious financial consequences. Your credit score may be damaged, and sometimes your wages may be garnished. While it can be very stressful, there are steps you can take to fix the problem.

Table of Contents

How Student Loans End Up in Collections
What Does It Mean to Have a Loan Sent to Collections?
What Happens When Your Loans Go into Default and Collections?
How to Get Your Loans Out of Default
What to Do If Your Student Loan Goes to Collections
Preventing Default: Refinance Student Loans
The Takeaway
FAQ

Key Points

• When student loans go into collections, it can severely impact credit scores and may lead to wage garnishment.

• Collections agencies are tasked with recovering debts and may charge additional fees.

• Engaging with collections agencies can lead to possible repayment negotiations or plans.

• Federal student loans allow wage garnishment without a court order, unlike private loans which require legal action.

• Defaulting on student loans can result in losing eligibility for further federal aid and damage financial standing.

How Student Loans End Up in Collections

Student loans don’t go away until you’ve paid them off. If you haven’t been paying off your student loans, your debt can go into default because you are failing to fulfill your contractual obligation to repay your loan.

Americans owe $1.77 trillion in student loan debt as of 2025. When you consider that the average federal student loan debt is more than $37,000 per borrower, it’s no surprise that some have trouble keeping up with it. In fact, an average of 6.24% of student loans are in default at any given time.

Delinquent Federal Student Loans

The first day after missing a payment on a federal student loan, the loan becomes delinquent. The loan will remain delinquent until the overdue balance is paid or the borrower makes alternate arrangements, such as applying for deferment or forbearance or switching their payment plan.

After 90 days of missing payments for federal student loans, the loan servicer will report the late payments to credit bureaus, which could negatively impact the borrower’s credit score.

Federal Student Loans in Default

For federal student loans, you typically go into default after you haven’t paid your loan bill for nine months or 270 days. When in default, the entire balance of the loan comes due. But just because a loan is in default, doesn’t mean it automatically goes to a collections agency.

At this point, you may have the opportunity to make arrangements with your loan servicer. For example, your lender may help you tailor solutions that lower your monthly bill to make payments more manageable for you.

However, if you don’t come to an agreement, your lender can send your debt to a collections agency that will collect it for them.

Private Student Loans in Default

The timeframe may vary for private loans depending on the terms and conditions of the loan. Generally speaking, private student loans may go into default after 90 days of missed payments. You should read your loan agreement for more information on when your loan provider will send your defaulted loans to collections.

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What Does It Mean to Have a Loan Sent to Collections?

Once your debt is sent to a collections agency, that agency will do everything they can to get you to pay. Unfortunately, on top of collecting the debt, collections agencies typically charge fees.

Once your debt is in collections, the collections agency might try to work out a repayment plan with you as a first step. If you continue to not pay, the agency can then take actions to recoup the money, such as trying to garnish your wages.

Garnishment means the agency can take a certain amount from each paycheck and apply it toward your debt — in the case of federal student loans, it cannot be more than 15%. For federal student loans, lenders are not required to take the borrower to court before garnishing wages.

Private student loans function differently. They are not subject to the same special regulation as federal student loans. Private lenders interested in garnishing wages must follow garnishment rules laid out for private debt. In this case, the lender is required to take the borrower to court and obtain a judgment in their favor before any wages can be garnished.

What Happens When Your Loans Go into Default and Collections?

Some other not-so-great things can happen when your loans go into default and collections.

First, if you have defaulted on federal student loans, you may lose access to various federal loan repayment plans and forbearance or deferment on federal loans. These programs are important tools designed to make it easier for you to pay off your loans. Loan forgiveness is offered to those who have jobs in certain government, healthcare, and nonprofit sectors. Forbearance allows you to temporarily stop making student loan payments or reduce the amount you pay each month.

Your credit score may take a hit, as well. With both private and federal student loans, the lender or the collections agency will report the late payments to the three major credit bureaus, and that might then lower your credit score.

A low credit score might cost you down the line, making it difficult to secure future loans at reasonable interest rates. It may even mean you won’t qualify for a loan at all.

How to Get Your Loans Out of Default

The best thing you can do to avoid your student loans going into default and being sent collections is to pay your bills on time. If you think you’re going to miss a payment, reach out to your loan provider to see if they’ll offer support.

But if you’ve defaulted, there may still be options for you to recover.

Options for Federal Student Loans

If you have federal student loans, you can try to rehabilitate your student loan in collections. Here’s how the program works: After you’ve made three consecutive on-time, voluntary, full payments on a defaulted federal loan, you can consolidate your federal loans.

The new direct loan pays off the old loans in full and consolidates them. Once you have made nine out of 10 consecutive, voluntary, on-time payments to this new loan, the loan may be rehabilitated and the default may be removed from your record.

With a Direct Consolidation Loan, your eligible federal loans will be combined into one loan with a fixed interest rate — and the new rate will be the weighted average of the rates on the loans being consolidated (rounded up to the nearest one-eighth of 1%).

Options for Private Student Loans

When it comes to private student loans, private lenders may or may not offer borrowers the opportunity to rehabilitate their loans. You should contact your lender and ask what you can do to get your loan out of default. Sometimes borrowers who have rehabilitated a private student loan may ask to have the default removed from their credit report, but there is no guarantee that it will be removed.

Additionally, it’s important to note that some lenders may charge off private student loans that are delinquent for 120 days, or a set period of time, which may vary from lender to lender. When a lender charges off a loan, it means they have written off the loan as a loss and close the account. They typically sell your loan to a debt buyer or collections agency, but you are still legally obligated to pay off the loan. If the debt is charged off, the lender may not be willing to work with the borrower.

What to Do If Your Student Loan Goes to Collections

If you do find yourself in the unfortunate situation of having debt in collections, there might be steps you can take.

First, you could talk to your collections agency. Remember: Collections agencies want you to pay. It’s in their best interest for you to ultimately pay back your loan. In many ways, this is a situation in which the ball is in your court.

When you talk to them, the collections agency might offer payment options tailored to your individual circumstances, depending on if you’re employed and how much money you earn.

They might offer solutions such as allowing you to pay a discounted lump sum, or they might set up a manageable monthly payment plan if you don’t have much income.

Having your loans in default or collections might have serious effects on your credit and your financial stability. If you’re afraid of defaulting on your loans, or if you already have, consider taking action as fast as you can. Taking control of the situation could help keep it from getting worse.

Preventing Default: Refinance Student Loans

Refinancing student loans can be a strategic move to prevent default by lowering monthly payments and interest rates. When you refinance, you replace your existing loans with a new one that often has more favorable terms, making it easier to manage your debt. This can provide much-needed relief, especially if you’re struggling with high interest or a tight budget.

Keep in mind, though, that when you refinance federal student loans with a private lender, you lose access to federal benefits, such as student loan forgiveness and income-driven repayment plans.

The Takeaway

In an ideal world, the best way to avoid going into student loan default is to make payments on time and in full. If you have competing financial priorities, however, it may be difficult for you to pay your loans on time.

If your student loans end up in collections, it may damage your credit score, and with federal loans, your wages may be garnished. There are steps you can take to rehabilitate your defaulted loans, depending on whether you have private or federal loans.

To avoid default, it’s best to make your payments on time. If you’re struggling to make your payments, consider student loan refinancing.

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

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

FAQ

What happens when student loans are sent to collections?

When student loans are sent to collections, your credit score drops, and you face increased interest rates and fees. Collection agencies may contact you frequently, and you could experience wage garnishment, tax refund offsets, and legal action.

What happens if you never pay off student loans?

If you never pay off student loans, consequences include damaged credit, wage garnishment, tax refund offsets, and potential legal action. Federal loans can also lead to loss of eligibility for federal benefits and increased interest. Private loans may result in more aggressive collection tactics.

How long can student loans stay in collections?

Student loans can remain in collections indefinitely, but the impact on your credit score typically diminishes over time. However, collectors can continue to pursue repayment, and the debt may be sold to other collection agencies, leading to ongoing financial and legal issues.

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

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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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

SOSLR-Q325-012

Jul

2025

Do Student Loans Count as Income?

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

On top of sorting out whether you’re eligible for federal student loans and the difference between subsidized and unsubsidized loans, you may be wondering how student loans may impact your taxes and 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 can count as income.

Read on for more about the tax implications of student loans, grants, and student loan repayment. Just keep in mind that this is simply 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.

Table of Contents

Are Student Loans Taxable?
Are Scholarships Taxable?
Do Student Loans Come with Any Tax Benefits?
Are Employer Student Loan Payments Taxable?
How Can I Make My Student Loan Repayment Easier?
FAQ

Key Points

• Student loans are classified as debt and do not count as taxable income, unlike certain types of forgiven loans which may be taxed.

• Scholarships and grants can be taxable under specific circumstances, particularly if used for non-qualified expenses like room and board.

• The Student Loan Interest Deduction allows borrowers to deduct up to $2,500 in interest paid on student loans, subject to income limits.

• Employer contributions towards student loans are tax-free up to $5,250 annually, but any amount above this limit is considered taxable income.

• Refinancing student loans may help reduce monthly payments or interest rates, but it may also result in losing federal loan benefits.

Are Student Loans Taxable?

As noted earlier, though, student loans are not taxed as income.

This is generally true of other types of loans as well, like mortgages, and personal loans (unless the loan is forgiven) — basically most debt 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. These are typically referred to as qualified educational expenses.

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 (with some exceptions) 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 .)

Do Student Loans Come with Any Tax Benefits?

Student loans aren’t usually taxable as income, and in fact, they 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 paid on both federal and private student loans, up to a maximum of $2,500 per year. In order to be eligible to deduct the full amount in 2025, your modified adjusted gross income (MAGI) must be $85,000 or less (or $170,000 for married couples filing jointly). The amount you’re allowed to deduct in 2025 is gradually reduced if your modified MAGI is more $85,000 but less than $100,000 (or more than $170,00 but less than $200,000 for married couples filing jointly. Income above these thresholds renders you ineligible for the deduction.

As a tax deduction, the amount deducted helps to lower your overall taxable income, potentially resulting in a lower tax bill or higher tax refund. This deduction can also help defray some of your repayment costs.

Recommended: Income-Based Student Loan Repayment

Are Employer Student Loan Payments Taxable?

An increasingly popular benefit offered in some workplaces is help with education costs and student loan repayment. Employers such as Aetna, Fidelity Investments, Google, and more offer student loan assistance programs to employees.

Currently, employers are allowed to contribute up to $5,250 toward employees’ qualified education costs tax-free. Payments or reimbursements above that amount are considered taxable income for the employee. It’s important to note that this special tax treatment is temporary, however, and expires December 31, 2025. After this date, the full amount of any employer contributions toward education expenses or student loan repayment will be taxed as income.

How Can I Make My Student Loan Repayment Easier?

The cost of a student loan comes in the form of the interest you pay each month on the balance owed. Consider this example: Say you have a $30,000 loan with a 7% interest rate. On the 10-year Standard Repayment Plan, you would 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 you may pay more interest over the life of the loan if you refinance with an extended term.

There are other potential drawbacks to think about. For instance, federal student loans come with several benefits and protections such as deferment, forbearance, income-driven repayment plans, and certain forgiveness programs 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.

The Takeaway

Generally, student loans are not considered income, so they are not taxed. The exception is when some or all of your student loan balance is forgiven. In some cases, the IRS may count the canceled 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.

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

FAQ

Does a student loan count as a source of income?

No, a student loan does not count as a source of income. The IRS considers student loans a form of debt, not income, which means, in most cases, that they are not taxed. The only time student loans may be taxed as income is when they are forgiven during repayment.

Do student loans count as household income?

No, student loans do not count as household income. The only time student loans may be considered as income is when the loans are forgiven during repayment. If you have forgiven student loans, you may want to consult with a tax professional about your situation.

Is student financial aid considered income?

It depends on the type of financial aid you receive. For example, student loans are not considered income. Most scholarships used to pay for qualified education expenses are not considered income. A Pell Grant, as long it is used for qualified educational expenses, is also not considered income.

However, earnings from a work-study job, and scholarships that require you to teach or perform other services, are generally considered taxable income. You may want to consult a tax professional about your specific situation.

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

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

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

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

SOSLR-Q325-006

Jul

2025

What Is Student Loan Exit Counseling?

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

College students who took out federal student loans and graduate, withdraw, or drop below half-time enrollment must complete student loan exit counseling. Student loan exit counseling, or FAFSA exit counseling, helps students better understand their federal student loans and what their options for repayment are.

Key Points

• Exit counseling is a mandatory requirement for federal student loan borrowers.

• It provides a comprehensive overview of student loan details, interest rates, and repayment plans.

• Exit counseling explains consequences of default and options for deferment and forbearance.

• Basic financial planning and budgeting tips are included to help manage loan repayments.

• Private student loans are not covered in this counseling process.

What to Expect With Student Loan Exit Counseling

Depending on your school, students typically complete their exit counseling online or through an in-person meeting with a counselor at the school’s financial aid office. Schools may also offer online counseling programs to review all of the important information regarding paying back student loans. Each student should check their school’s website to find out what their options are.

How Long Does Exit Counseling Take?

Generally, student loan exit counseling takes about 20 to 30 minutes if completed online. If the student meets with a counselor or has specific questions, it might take longer. Although a presentation about financial planning might not sound all that exciting, it’s a great idea to take advantage of the learning and soak up as much knowledge as possible.

Recommended: 9 Smart Ways to Pay Off Student Loans

How to Prepare for Exit Counseling

Before student loan exit counseling, the student must prepare some information. First, they should know the outstanding balances on their current federal student loans. This can be found on the Federal Student Aid website.

The student should gather the names, addresses, email addresses, and phone numbers for a close relative, two references that live in the United States, and their employer, if they have one. The Department of Education requires this information in the event that a borrower defaults on their loans and cannot be contacted.

During the student loan exit counseling, the student will also spend some time mapping out their potential salary and living expenses, such as rent and utilities, so that they can create an expected budget.

Recommended: How to Create a Budget in Six Steps

Topics Covered in Student Loan Exit Counseling

Topics you’ll encounter in student loan exit counseling include understanding your loans, plans and options to repay, how to avoid default, prioritizing financial planning, and choosing a repayment plan.

Understanding Your Loans

During the first portion of student loan exit counseling, the student receives a summary of their federal student loans, including total balance, terms and conditions, and the date that the first payment is due.

Next, counseling will cover the interest rates on student loans. Each loan has a set interest rate that depends on the loan type (subsidized, unsubsidized, PLUS, etc.) and the year dispersed. Students may want to write these interest rates down so that they can calculate their monthly payments in a later section.

Plans to Repay

Next, student borrowers will learn all about the rules of student loan repayment. They typically have control over the repayment plan that they choose, so it is wise to understand the pros and cons of all options.

For example, income-driven repayment plans may lower the borrower’s monthly bill (in accordance with their income), but could cost them more in interest over time. Keep an eye out for the differences between plans.

Borrowers are provided with a number of helpful student loan repayment calculations. Most students going through student loan exit counseling will see calculations that show how expensive it can be to utilize a grace period. Interest still accrues during a grace period and as it accrues, it is capitalized, which means it is added to the balance of the loan. Yet another calculator shows the borrower how much can be saved by making additional payments.

Student borrowers are also provided with logistical repayment information, such as in what scenarios you should contact your loan service provider.

Avoiding Default

Not paying loans on time so that they fall into delinquency could have consequences in many areas of a borrower’s life. Therefore, during student loan exit counseling, there is a large focus on borrowers avoiding default on their student loans.

This section will discuss the consequences for both a borrower’s federal loans (such as loss of student loan deferment options) and for career and future income (such as wage garnishment and impact to credit scores).

It will also cover options in the event that a borrower cannot make payments, such as deferment and forbearance, and the pros and cons of each of these options.

This section will also explain federal loan consolidation, student loan forgiveness programs, loan discharge for the permanently disabled, and how to settle student loan disputes.

Prioritizing Financial Planning

The borrower’s program should discuss budgeting, credit management, and other basics of money management. Borrowers are encouraged to consider their short-term and long-term financial goals.

Repayment Information

Last, a borrower chooses a repayment plan, enters in their new contact information, employer or future employer’s information, and provides the names and contact information of references. The borrower’s loan servicer then reviews the information and provides the borrower with a repayment plan.

According to Federal Student Aid, the borrower is told to list their preferred repayment options, at which point their loan service will make a final decision and assign the borrower a repayment plan.

What Your Exit Counselor Doesn’t Tell You

Student loan exit counseling is necessary, important, and required of all students with federal student loans. But overall, the program is pretty light and quick.

Think about it: Some borrowers could have tens of thousands or even hundreds of thousands of dollars to pay back and get just 20 minutes of guidance as they click through some online slides. This information very easily could be part of a full, multi-credit course at a university.

Also, there is some important information that a borrower just won’t receive in exit counseling, and that’s information on how to handle their private student loans. While there are some similarities, private student loans will have many of their own nuances that are imperative to understand.

For example, private loans determine their own repayment plans and generally don’t offer deferment or forbearance options, and they may or may not allow for advance prepayment on a loan.

Student Loan Refinancing

Federal student loan exit counselors and programs generally do not cover student loan refinancing. Refinancing is the process of paying off student loans—both federal and private—with a new loan, ideally at a lower rate of interest.

Refinancing could potentially help lower a borrower’s interest rate and combine multiple loan payments into one.This is different from federal loan consolidation, a program offered through the government that takes a weighted average of the existing loans’ interest rates. The main purpose of a federal loan consolidation is to simplify monthly payments; whereas a refinance through a private lender ideally lowers your interest rate.

With refinancing, the lender pays off your government loans with a private loan. It’s important to note that refinanced loans are not eligible for federal repayment programs such as income-driven repayment, deferment, and public service loan forgiveness.

For borrowers who have no plans to use these programs, it may be worth considering refinancing. You may qualify for a better interest rate through refinancing if your credit score or financial situation has improved since you initially took out your loans as a student.

Regardless, it is a great idea to go into student loans exit counseling with a clear head. Paying back your loans is no small feat, so it will be so worth it to do some hard work up-front to make the rest of the process as smooth as possible.

If you do decide to refinance your student loans now or down the line, consider SoFi. SoFi offers flexible terms and no origination or prepayment fees.

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

FAQ

What happens if you don’t complete exit counseling?

Exit counseling for federal student loans is required. Failure to complete exit counseling could result in your school withholding your diploma or official transcript. This could affect your ability to apply for a job that requires a transcript or diploma or apply to graduate school.

What is an exit interview for student loans?

Student loan exit counseling helps students understand their federal student loans, repayment options, and interest rates. It also provides students with tips for avoiding delinquency and default on their loans. At the end of exit counseling, students choose a repayment option.

What happens if you never pay off your student loans?

The consequences for failing to repay student loans can be severe. After 270 days of missed payments, federal student loans go into default. At that point, the entire unpaid balance of your loan and any interest owed is due immediately. Your wages may be garnished and your tax refunds withheld. The default is reported to the credit bureaus and damages your credit rating, which could take years to rebuild and impact your ability to buy a house or a car. And finally, your lender or loan servicer can take you to court.

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

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

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

SOSLR-Q225-069

Jul

2025

What to Do After You Graduate From Law School

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

Life after law school can be an exciting time as you look forward to your new career. There are plenty of opportunities available to those with a JD. Some avenues to consider include practicing law at a firm; specializing as an attorney in a field like patents, contracts, immigration (and many more); working as general counsel in-house at a corporation; or even pursuing a career in government.

The path you choose depends on the type of law you studied, your interests, and your past experiences. According to the Bureau of Labor Statistics (BLS), the median salary for lawyers in 2024 was $151,160 annually.

Once you find your first post-law school gig, you will also likely have to start thinking about repaying any law school student loans.

Key Points

• Career paths after law school include working at a law firm, clerking for a judge, pursuing an advanced degree, or transitioning into non-legal careers like politics, journalism, or lobbying.

• Law school graduates often carry significant student loan debt, with an average of $130,000, making repayment strategies a key financial priority.

• Making interest payments while still in school can help reduce total loan costs and prevent interest from accruing.

• Budgeting effectively post-graduation can help balance savings, emergency funds, credit card payments, and student loan repayment.

• Refinancing law school loans may lower interest rates and simplify payments, but it removes access to federal benefits like income-driven repayment and loan forgiveness programs.

Finding Jobs After Law School

After getting a law degree, what to do really depends on why you decided to go to law school in the first place. Did you have dreams of working at a major law firm, becoming a public defender, or going solo with your own practice?

Maybe you’ve decided you no longer want to practice law and would rather apply your new skills to a relevant career or continue to further your education. If you are considering what to do after law school, you can start by examining what workplace environment you find the most exciting and attainable.

Landing at a Law Firm

A law firm is an obvious choice for where to work after getting your JD. But the size, location, and culture of the law firm can greatly impact your experience and job satisfaction. Attorneys working at smaller firms may offer stronger partnership prospects than larger law firms. However, depending on location, the pay could be comparatively lower, and your training may come in the form of on-the-job experience.

While the path to promotion may be longer at a larger firm, they may have more resources and a higher salary. Depending on your preferences and career interests, a major law firm with a big name might be a better fit to help you find your specialty.

Considering a Clerkship

A clerkship is an important career milestone for many attorneys. Usually taking place under the guidance of a certain judge, a clerkship allows law school graduates to see the inner workings of the legal system. Many are considered prestigious resume boosters and offer valuable first-hand experience working under a judge and a leg up on networking from the start.

There are federal and state court clerkships, but federal opportunities like with Supreme Court or circuit court judges can be more difficult to secure because of their prestige. However, state clerkships can also be beneficial, especially if you plan on practicing in the local area.

Getting an Advanced Degree

If you have a desire to specialize in a specific field of law, staying in school to get a post-JD degree is another avenue to consider after getting a law degree.

You might want to pursue this type of degree after having some relevant work experience, which can help you first figure out what particular field of law you want to study. These specialty degrees include Air and Space Law, Sports Law, Global Food Law, Cannabis Law, and more.

Alternative Careers Outside Law

Pivoting after law school to a different career is another option to consider when looking at jobs. If you, like many, have graduated with six-figures worth of student loan debt, you’ll obviously want to find a steady job so you can make regular student loan payments.

Other jobs that may fit with the skill set you curated in law school may include political advisor, journalist, lobbyist, and teacher.

Tackling Law School Debt

Depending on your earning potential and chosen career path, it might make sense for you to aggressively pay off your law school debt in 10 years or less.

Another option is to try to maximize your law school loan forgiveness opportunities.

In order to make your degree count towards your personal and professional goals, figuring out how to approach your debt is a key part of what to do after law school.

Ready to tackle your law school debt?
Refinancing your student loans
could help you pay it off faster.

Making Payments While Still in School

While the government does not require you to make payments on most federal student loans while still in school, you could consider paying the amount of student loan interest that builds up each month to help keep your student loan debt from growing.

Whether you need to pick up a side hustle or prioritize how much you save, making at least interest-only payments on your student loans while still in school can help reduce the amount of interest that will accrue on your student loans. This can ultimately reduce the amount of interest that accrues and help set you up for success after law school.

Sticking to Budget Basics

After your law degree, it can be wise to take stock of your budget and work to balance your goals for savings, emergency funds, credit card payments, and student loans. The average student loan debt from law school currently sits at $130,000, so you’ll want to prioritize making a plan to get these paid off as quickly and efficiently as possible.

Ultimately, you’ll likely want to pick a student loan repayment plan that works for your personal budget, no matter what jobs after law school you are considering. You may decide to pay down debt while also building up a basic emergency fund as part of your financial foundation.

Refinancing Law School Loans

Refinancing your law school loans means that a private lender will issue one new loan that pays off your existing federal and/or private student loans. This new loan comes with new terms, ideally with a lower interest rate or shorter repayment period. Instead of paying multiple student loans, such as from undergraduate and graduate school, there is only one new loan to pay off.

While there are many advantages to student loan refinancing, be aware that refinancing federal loans means that you will not be able to take advantage of benefits like income-driven repayment plans and Public Service Loan Forgiveness. So it may not make sense if you are taking advantage of one of these benefits or plan to in the future.

The Takeaway

Life after law school can mean something different for everyone. Whether you pursue a private practice, family law at a small firm, or corporate law at a large one, there are many career opportunities to pursue as you pay off your student loan debt.

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

FAQ

What is the next step after graduating law school?

There are many career opportunities available after graduating law school, including joining a law firm, doing a clerkship with a state or federal judge, getting an advanced degree to specialize in a specific type of law, or switching to a different career in which you can use the skills you learned in law school, such as a teacher, a political advisor, or a lobbyist.

What jobs can you get if you graduate law school?

Jobs you can get after you graduate law school include working at a small or large law firm, becoming a clerk to a state or federal judge, landing a position as in-house counsel at a corporation, or working for the government or a nonprofit. To help decide which path is right for you, consider your interests and career goals.

What field of law pays the most?

Typically, the highest-paid lawyers specialize in such areas as corporate law, tax law, intellectual property law, medical malpractice, and entertainment law.

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

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

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

SOSLR-Q225-068

Jul

2025

A man stands on a staircase in an office building, looking at a tablet.

Tips on How to Pay for MBA School

By Sarah Brooks | Budgeting & Goals, Building Your Career, Fresh Out of School, Life & Career, Student Loans, student_loan | No Comments

Getting a Master of Business Administration is an investment. Tuition costs vary widely depending on the school, but the average cost of an MBA is $60,410 for a program in the U.S.

If you’re committed to pursuing an MBA, the reality is that a higher income is probably still a few years away. However, you’re responsible for the cost of schooling now. It can be daunting, but there are options for making business school more affordable. Here are a few tips to consider as you craft a plan to pay for your MBA program.

Key Points

• Earning an MBA degree is expensive. One way to help cover the cost is to save up if you’re currently employed to reduce the amount you may need to borrow in student loans.

• Take advantage of “free money”: Apply for need- or merit-based scholarships, grants, and fellowships from schools you’re considering attending.

• Find out if your company will pay for part or all of your MBA. In return, they may require that you commit to working at the company for a certain amount of time.

• Apply for federal loans student loans by filling out the Free Application for Federal Student Aid (FAFSA®); graduate students may qualify for Direct Unsubsidized and PLUS Loans.

• Research and compare private student loans if federal loans don’t cover the full costs of your degree.

Saving Up in Advance

If you’re already employed, and especially if you earn a high salary, it may make sense for you to stay in your gig for a few more years and put money away toward your degree. The more you save now, the less you may have to take out in loans later. If you’re interested in accelerating your savings, consider cutting your expenses to prepare for the lifestyle change of becoming a student again.

Taking Advantage of Free Money

There are a plethora of scholarships, grants, and fellowships available for business students. If you manage to land one, they can help reduce your costs slightly or significantly, depending on the size of the award.

When hunting for scholarships, consider starting with the schools you’re thinking of attending. Many institutions offer their own need- or merit-based scholarships and fellowships, some of which may even fund the entire cost of MBA tuition. Many of these are geared toward specific groups of students.

Awards may be based on academic excellence, entrepreneurship, and for those committed to careers in business or finance. Contact your school’s admissions or financial aid departments to learn about the opportunities you qualify for.

Getting Sponsored by a Company

Some employers offer to pay for all or part of an MBA degree. In exchange, they may require that you work there for a certain time period beforehand and commit to maintaining your employment for some time after you graduate.

Some companies may offer relatively modest grants, while others might offer to cover the bulk of tuition costs. Some companies that offer tuition reimbursement for employees pursuing MBAs include Deloitte, Google, Apple, Intel, AT&T, and Expedia Group.

If you can land a job at a company that offers this benefit, it can be a major help in paying for school and reducing your debt burden. Just be sure that you’re willing to meet the commitments, which in most cases means staying with your employer for a while.

Taking Out Student Loans

If you can’t cover the full cost of tuition and living expenses through savings, scholarships, or sponsorships, borrowing student loans is another option. You might first consider borrowing from the federal government, as federal loans offer certain borrower protections and flexible student loan repayment options.

Federal Student Loans

To apply for federal student loans, first fill out the Free Application for Federal Student Aid (FAFSA®). The school you attend will determine the maximum you’re able to take out in loans each year, but you don’t have to take out the full amount. You might choose to only borrow as much as you need, since you’ll have to pay this money back later—with interest, of course.

Graduate students are generally eligible for Direct Unsubsidized Loans (up to $20,500 each year) or Direct PLUS Loans. Neither of these loans is awarded based on financial need.

Both of them accrue interest while the student is enrolled in school. Unless you pay the interest while you’re in school, it will get capitalized (or added to the principal of the loan), which can increase the amount you owe over the life of the loan.

Direct Unsubsidized Loans have a six-month grace period after graduation in which you won’t have to make principal payments (remember, interest still accrues). Direct PLUS Loans do not have a grace period but grad students automatically get a six-month deferment after they graduate. No principal payments are due during this time.

Private Student Loans

If you aren’t able to borrow as much as you need in federal loans, you can also apply for MBA student loans with private lenders, including banks and online financial institutions.

Private student loans have their own interest rates, terms, and possible benefits. Make sure to research the different lenders out there and see which is the best fit for your financial situation.

Paying Student Loans Back

Taking out a big loan can be daunting, but there are options for making repayment affordable, especially with federal loans. The government currently offers three income-based repayment plans that tie your monthly payment to your discretionary income and family size.

If you run into economic hardship, you can apply for a deferment or forbearance, which may allow eligible applicants to reduce or stop payments temporarily.

If you put your degree to use at a government agency or nonprofit organization, you may also qualify for Public Service Loan Forgiveness. If you meet the (extremely stringent) criteria, this program will forgive your loan balance after you make 120 qualifying monthly payments (10 years) under an eligible IDR plan.

Refinancing Student Loans

If you’re still paying off student debt from college or another graduate degree as you enter your MBA program, you could consider looking into student loan refinancing.

This involves applying for a new loan with a private lender and, if you qualify, using it to pay off your existing loans. Particularly if you have a solid credit and employment history, you might be able to snag a lower interest rate or reduced monthly payment.

While there are many advantages of refinancing student loans, there are also disadvantages, as well. If you refinance federal student loans, you lose access to federal forgiveness programs and income-based repayment plans. Make sure you do not plan on taking advantage of these programs before deciding to refinance your student loans.

The Takeaway

MBA programs can offer a valuable opportunity to advance your career and increase your income, but they can also come with a hefty price tag. Options to pay for your MBA degree can include using savings, getting a scholarship, grant, or fellowship, or borrowing student loans. Everyone’s plan for financing their education may be different and can include a combination of multiple resources.

Making existing loans manageable while you’re in school can go a long way to making your MBA affordable. Down the line, you can consider refinancing the loans you take out to get you through your MBA program. You can get quotes online in just a few minutes to help figure out whether refinancing can get you a better deal.

If you do decide to refinance your student loans, consider SoFi. SoFi offers flexible terms and no origination or prepayment fees.

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

FAQ

How do I fund my MBA program?

Ways to fund an MBA program include looking for scholarships, grants, and fellowships for business students (contact your school to see what’s available), checking to see whether your employer will pay some or all of the cost of your degree (ask your company’s benefits coordinator), or taking out federal and/or private student loans.

How can I get an MBA cheaper?

To reduce the cost of an MBA, look for scholarships that will pay some or all of the expense for earning your degree. Ask the schools you’re considering to see what they may offer — many institutions offer need- or merit-based scholarships for MBA students. In addition, if you are currently employed, check with your employer to find out if they will cover some of the costs of your degree. Some companies offer this as an employee benefit.

How much should I pay for an MBA?

The average cost of an MBA is $60,410 for two years. However, depending what school you attend, the cost may be well over $100,000. For example, the cost of earning an MBA at Harvard is approximately $161,304.

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

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

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

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

SOSLR-Q225-063

What Happens When Your Student Loans Go to Collections?

How Student Loans End Up in Collections

Delinquent Federal Student Loans

Federal Student Loans in Default

Private Student Loans in Default

Refi now to pay off loans & reach your goals faster with a shorter term.

What Does It Mean to Have a Loan Sent to Collections?

What Happens When Your Loans Go into Default and Collections?

How to Get Your Loans Out of Default

Options for Federal Student Loans

Options for Private Student Loans

What to Do If Your Student Loan Goes to Collections

Preventing Default: Refinance Student Loans

The Takeaway

FAQ

What happens when student loans are sent to collections?

What happens if you never pay off student loans?

How long can student loans stay in collections?

Do Student Loans Count as Income?

Are Student Loans Taxable?

Are Scholarships Taxable?

Do Student Loans Come with Any Tax Benefits?

Are Employer Student Loan Payments Taxable?

How Can I Make My Student Loan Repayment Easier?

The Takeaway

FAQ

Does a student loan count as a source of income?

Do student loans count as household income?

Is student financial aid considered income?

What Is Student Loan Exit Counseling?

What to Expect With Student Loan Exit Counseling

How Long Does Exit Counseling Take?

How to Prepare for Exit Counseling

Topics Covered in Student Loan Exit Counseling

Understanding Your Loans

Plans to Repay

Avoiding Default

Prioritizing Financial Planning

Repayment Information

What Your Exit Counselor Doesn’t Tell You

Student Loan Refinancing

FAQ

What happens if you don’t complete exit counseling?

What is an exit interview for student loans?

What happens if you never pay off your student loans?

What to Do After You Graduate From Law School

Finding Jobs After Law School

Landing at a Law Firm

Considering a Clerkship

Getting an Advanced Degree

Alternative Careers Outside Law

Tackling Law School Debt

Ready to tackle your law school debt? Refinancing your student loans could help you pay it off faster.

Making Payments While Still in School

Sticking to Budget Basics

Refinancing Law School Loans

The Takeaway

FAQ

What is the next step after graduating law school?

What jobs can you get if you graduate law school?

What field of law pays the most?

Tips on How to Pay for MBA School

Saving Up in Advance

Taking Advantage of Free Money

Getting Sponsored by a Company

Taking Out Student Loans

Federal Student Loans

Private Student Loans

Paying Student Loans Back

Refinancing Student Loans

The Takeaway

FAQ

How do I fund my MBA program?

How can I get an MBA cheaper?

How much should I pay for an MBA?

JOIN THE COMMUNITY

Student Loan Refinancing

Personal Loans

Online Investments

Other

Refi now to pay off loans &
reach your goals faster with a shorter term.

Ready to tackle your law school debt?
Refinancing your student loans
could help you pay it off faster.

Student Loan
Refinancing

Personal
Loans

Online
Investments