Jul
02
2025
4 Student Loan Repayment Options—and How to Choose the Right One for You

4 Student Loan Repayment Options — and How to Choose the Right One for You

By | Debt Payoff, Financial Independence, Fresh Out of School, Student Loans, student_loan | No Comments

It’s never too early to think about student loan repayment. Whether you’re still in college, or you recently graduated and are in the grace period before repayment begins, strategizing now can help you weigh the options.

If you’ve graduated and are already working and making payments, it can be a good idea to re-evaluate your repayment plan over time. As your financial circumstances change, the way you’d like to manage your student loans may also shift.

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

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

Key Points

•   The Standard Repayment Plan is the default option for federal student loans, offering fixed payments over 10 years, but it may not be the most cost-effective for everyone.

•   Income-Driven Repayment Plans adjust payments based on discretionary income and can lead to loan forgiveness after 20-25 years, though they may increase total interest paid.

•   Student Loan Forgiveness Programs are available for certain borrowers, such as those in public service or teaching, but require meeting eligibility criteria like 120 qualifying payments.

•   Student Loan Consolidation allows federal borrowers to combine multiple loans into one with a single payment, but it does not lower interest rates.

•   Student Loan Refinancing can reduce interest rates and lower payments, but refinancing federal loans with a private lender eliminates federal protections and repayment options.

Different Student Loan Repayment Options

Once you understand the details of your student loans, it’s time to think about your repayment options. The simple choice if you have federal student loans is the Standard Repayment Plan. It’s the “default” repayment plan, so unless you sign up for another option, this is the plan you’ll have. Under the Standard plan, you typically pay a fixed amount every month for up to 10 years.

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

The federal government also offers graduated and extended repayment plans for borrowers. With the Graduated Repayment Plan, payments start smaller and grow over time, while the Extended Repayment Plan stretches repayment over a period of up to 25 years and payments may be either fixed or graduated.

Opting for the Standard Repayment Plan may work for you, but for some borrowers, it’s not the most cost-effective choice. These borrowers may be eligible for special federal programs that can reduce the amount they owe monthly based on financial circumstances, and in some cases, forgive balances if they meet certain requirements.

Or some borrowers might be able to find a more competitive interest rate by refinancing their loans through private lenders.

💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing may make sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections, since refinancing federal loans makes them ineligible for federal benefits.

Here’s an overview of some student loan repayment options that may help if you are choosing a repayment plan:

1. Student Loan Consolidation

Federal student loan consolidation allows you to combine multiple federal student loans into a single new loan. You can’t consolidate private student loans using this federal program.

When you consolidate your federal student loans into a Direct Consolidation Loan, your new loan’s interest rate will be the weighted average of all your old student loans’ interest rates, rounded up to the nearest one-eighth of a percent. This means your interest rate won’t necessarily be lower than the rate you were paying before consolidation on some of your student loans — in fact, it could be slightly higher.

When you consolidate, you’ll also have the option to select a new repayment plan. The standard plan would still be available, but consolidation can also be a first step toward other plans of action, like student loan forgiveness or income-driven repayment.

2. Student Loan Forgiveness

Federal student loans are eligible for student loan forgiveness programs, and private student loans may qualify for some loan repayment assistance programs. For instance, some federal student loans and Direct Consolidation Loans are eligible for modified payment plans that forgive outstanding student loan balances.

Health care professionals, teachers, military service members, and those employed full-time by qualifying nonprofit or public service organizations may be eligible for certain federal student loan forgiveness programs. Some states and employers offer loan repayment assistance toward both federal and private loans for eligible workers.

Under the Public Service Loan Forgiveness (PSLF) program, those who have worked for qualified employers, such as the government or some nonprofit agencies, and have made 10 years of payments on a qualified income-driven repayment plan, can apply for forgiveness of all of their remaining federal student loan balances. That forgiveness is not considered taxable income.

The Federal Student Aid website has additional information on which federal student loans qualify for which types of forgiveness, cancellation, and/or discharge.

3. Income-Based Repayment

If the payments under the Standard Repayment Plan seem too high, federal student loans offer income-driven repayment plans, which tie the amount you pay to your discretionary income. The currently available options are Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn.

Income-driven repayment plans may help lower your monthly payments. In some cases, however, you might end up paying more over the life of the loan than you would have on the Standard Repayment Plan. That’s because with low monthly payments that stretch out over more years, you could be paying more in interest over time.

Additionally, with income-driven repayment plans, you may be eligible for student loan forgiveness if the remainder of your student loans aren’t paid off after 20 to 25 years of consistent, on-time payments.

4. Student Loan Refinancing

Refinancing student loans through a private lender offers the opportunity to consolidate multiple student loans into a single payment and potentially decrease your interest rate or lower your monthly payment.

Loan repayment terms vary based on the lender, and borrowers with better credit and earning potential (among other financial factors that vary by lender) may qualify for better terms and interest rates.

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

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

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

💡 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.

Can You Change Your Student Loan Repayment Plan?

If you have federal student loans, it is possible to change your repayment plan at any time, without any fees. You’ll have the option to choose from any of the federal repayment plan options, including income-driven repayment plans.

There is less flexibility to change the terms of a private student loan. Some private lenders may offer alternative payment plans for borrowers. Check with your lender directly to see what options may be available to you.

Recommended: Student Loan Calculator

SoFi Student Loan Refinancing

Refinancing is another avenue that can result in a new repayment plan. An important consideration, however, is that refinancing federal student loans will remove them from any federal programs or protections, so this won’t be the right choice for everyone.

The Takeaway

Federal student loan borrowers have the ability to change their repayment plan at any time, without being charged any fees. There are different plans to choose from, and you can look for one that suits your situation and needs.

Changing your repayment plan is a bit more challenging for private student loans, though some private lenders may offer alternative options for borrowers. Refinancing is another option that could allow some borrowers to adjust their repayment terms.

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 student loan repayment options are available to me?

Borrowers with federal student loans can choose from various federal repayment plans, including the standard 10-year repayment plan and income-driven repayment options. The SAVE plan, which was introduced by the Biden Administration at the end of June 2023, is no longer available. For private student loans, repayment options will be determined by the lender.

What is a standard repayment plan for student loans?

The Standard Repayment Plan for federal student loans involves fixed monthly payments over a period of 10 years. For consolidation loans, repayment may extend up to 30 years, depending on the loan amount.

How long is a typical student loan repayment?

The typical student loan repayment period may vary from individual to individual. The Standard Repayment Plan for federal loans is 10 years, but income-driven repayment plans or Direct Consolidation loans may have a term of up to 25 to 30 years. The repayment terms for private student loans vary by lender.

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).

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.


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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jul
02
2025

The Pros and Cons of Graduated Repayment Plans

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

Graduation from college or grad school is a time to celebrate a great achievement after years of hard work. But once the party is over, many graduates will be thinking of their next steps: new careers, new cities, and a life filled with new experiences and responsibilities.

For most recent grads, one of those responsibilities is a major one — managing and organizing the repayment of student loans. The average undergrad borrower leaves school with $35,530 in student loan debt, joining the growing population of Americans who, together, are repaying more than $1.7 trillion in student loans.

Key Points

•   Graduated repayment plans allow recent graduates to start with lower monthly payments that increase every two years, helping to accommodate entry-level salaries.

•   The repayment term for graduated plans is typically 10 years, allowing borrowers to pay off their loans relatively quickly while managing their cash flow.

•   Drawbacks include paying more interest over time due to lower initial payments and potential difficulty handling scheduled payment increases as salaries may not keep pace.

•   An extended graduated repayment plan offers lower monthly payments over a longer term of 25 years, but results in higher overall interest costs.

•   Refinancing student loans can provide a lower interest rate and streamlined repayment, but borrowers lose federal loan benefits such as forgiveness options and income-based repayment plans.

Student Loan Repayment Options

Managing the repayment of federal student loan debt requires strategy, organization, diligence, and a bit of know-how, especially when it comes to picking a repayment plan.

There are several federal repayment options: the standard plan, income-driven plans, and the graduated repayment plan, among others. New grads can also consider consolidating or refinancing their student loans into one new loan with a new rate and new terms. For a recent grad overwhelmed by new choices and decisions, parsing out the details of these loans can be a chore — one that frequently gets ignored.

The graduated repayment plan has been somewhat replaced by newer repayment options, like income-based and income-contingent plans. For some borrowers, though, this plan can be a useful way to begin repayment slowly but still pay off federal loans in 10 years (10-30 years for consolidation loans).


💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing can make sense if you qualify for a lower rate and don’t plan to use federal repayment programs or protections, since refinancing federal loans makes them ineligible for federal benefits.

How Do Graduated Repayment and Extended Graduated Repayment Plans Work?

Graduated Repayment Plan

The graduated repayment plan is designed to help keep repayment costs low for recent graduates who may have lower starting salaries, but who expect to see their salaries increase substantially over the next 10 years.

Under the graduated repayment plan, the repayment term for federal loans will be 10 years (10-30 years for consolidated loans), which is the same length as the standard repayment plan. With the standard repayment plan, you will pay the same fixed amount each month for the length of the term.

On the graduated plan, your payments will be lower than what you would pay if you were to stay on the standard plan, but never too low that you aren’t paying the amount of interest that is accruing each month. Then, every two years, your payment amount will increase.

Extended Graduated Repayment Plan

The extended graduated repayment plan is similar to the graduated plan, however, the repayment term is over 25 years rather than 10. Typically, borrowers who select this plan will have lower monthly payments than they would under the standard or graduated plan. While their payments will increase over time, they’ll do so more gradually than they would under the extended plan due to the longer term.

With this plan, borrowers may have a much lighter bill to pay each month than they would on many other plans. However, they will end up paying more in interest over time.

What Are the Benefits of a Graduated Repayment Plan?

The main benefit of the graduated repayment plan is that your payments will be low for the first few years of repayment. This can be a big help to recent graduates on entry-level salaries who may not have additional cash flow and are just learning how to build a solid financial foundation while staying within their budget.

Payments will increase over time, but your repayment term (for unconsolidated loans) is 10 years. This means that if you make scheduled payments, you’ll be finished paying off your debt relatively quickly. For Direct Consolidation Loans, your repayment period will depend on the amount of debt you have and could be between 10 and 30 years.

What Are the Drawbacks of a Graduated Repayment Plan?

There are a number of drawbacks to the graduated repayment plan, which can make it a less attractive option than some of the other repayment options available. First, even though you’ll be paying off your loans in 10 years, you will end up paying more in interest using this plan as opposed to the standard plan.

Why? Because with the graduated plan, you’re making lower payments in the first few years. As a result, you’re not paying down as much of the principal as you would be on the standard plan, which means you’re paying more in interest over time.

Another potential drawback is that your payments are scheduled to increase every two years. Depending on the amount you owe, these increases can be staggering.

While the lower payments up front might fit your budget as you start your career, it’s hard to predict whether your salary will increase at just the same rate as your payments will. However, if you end up having a difficult time making the higher payments that eventually come with a graduated repayment plan, you can switch to an income-based plan or an extended plan.

Refinancing Student Debt vs Graduated Repayment Plans

Once you’ve gotten settled into a steady job, another option to consider is refinancing your student loans with a private lender. When you refinance, you are essentially using one new loan to pay off all your current student loans. Then, you just have the new loan to repay, which will have a new interest rate and new terms.

There are a number of benefits to refinancing, including getting a lower interest rate, a lower monthly payment, or a shorter or longer loan term. Additionally, replacing all your loans with one loan will help you streamline your repayment. Some lenders even allow you to refinance private and federal loans together. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

Refinancing your loans with a private lender at a lower interest rate and shorter term can potentially save you thousands of dollars in interest over the life of your loan. However, when you refinance, you give up some of the benefits that come with keeping your federal loans, including student loan forgiveness and income-based repayment plans.

If you foresee a need to use any of these benefits that come with federal loans, it might not be in your best interest to refinance. But, if you have built a strong financial foundation and have a steady income coming in, refinancing could be the best strategy for paying your loans down quickly — and for saving money in the process.

💡 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.

Refinancing Student Loans with SoFi

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
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).

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.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jul
02
2025
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What Is a Direct Consolidation Loan?

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

A Direct Consolidation Loan combines federal student loans into a single loan with one monthly payment. If you have multiple federal student loans, this could be one way to simplify the repayment process and more easily stay on top of student loan payments. With a Direct Consolidation Loan, you may also be eligible for student loan forgiveness and income-driven repayment programs.

A Direct Consolidation Loan, however, doesn’t typically lower your interest rate. Instead, this type of loan is geared toward borrowers who want to streamline their monthly payments or qualify for loan forgiveness, as opposed to borrowers who want to save money on interest.

While consolidation of student loans can lower your monthly payment by extending your repayment timeline, you typically end up paying more overall due to the additional interest you pay when lengthening your loan term. Before you commit, make sure to run the numbers and consider the pros and cons of a Direct Consolidation Loan.

Is a Direct Consolidation Loan a Good Idea?

Deciding if student loan consolidation is right for you depends on whether your desire to simplify your payments outweighs the potential loss of some benefits.

Pros of Direct Consolidation Loans

Can simplify repayment: The first thing to consider is if you currently have multiple federal student loans with different servicers, meaning you have to log in to two or more separate accounts to pay your student loan bills each month. In this instance, consolidation can make life a little easier because the process will give you a single loan with a single bill each month.

Can lower your monthly payments: Consolidation can also lower your monthly payment amount by giving you up to 30 years to repay your loan or by giving you access to income-driven repayment plans. Keep in mind, though, that by extending your loan term and reducing your monthly payment, you will end up paying more in interest over the life of the loan.

Can allow you to switch from a variable to a fixed rate: If you have any variable-rate loans, consolidation will make it so you can switch to a fixed interest rate.

Can make loans eligible for forgiveness: If you consolidate loans other than Direct Loans, such as Perkins Loans (drawn before the program was discontinued), those loans may become eligible for Public Service Loan Forgiveness (PSLF) once consolidated.

Recommended: Fixed vs. Variable Rate Loans

Cons of Direct Consolidation Loans

Can lead you to make more payments and pay more in interest: Can lead you to make more payments and pay more in interest: When you consolidate your federal loans, your repayment period will be extended between 10 and 30 years. This means you will make more payments and pay more in interest if it adds time to your repayment term.

Can make you lose some benefits: Consolidation can also cost you some benefits that only non-consolidated loans are eligible for, such as access to some loan cancellation options. It’s a good idea to check in with your loan program before opting for a Direct Consolidation Loan.

Can cause you to lose credit for payments toward loan forgiveness: One of the most important things to consider before consolidating student loans is that if you are currently paying your loans using an income-driven repayment plan or have already made qualifying payments toward PSLF, consolidating your loans can result in the loss of credit for payments already made toward loan forgiveness. However, if you’re already working toward PSLF, a weighted average of the qualifying payments you’ve already made on your Direct Loans will be credited to your consolidation. This credit only applies to Direct Loans; other loan types won’t be considered.

How to Apply for a Federal Direct Consolidation Loan

The Direct Consolidation Loan application process is available through StudentLoans.gov and comes with no fees. You simply fill out the online application or you can print out a paper version and mail it. The entire online application process takes less than 30 minutes, on average.

Almost all federal student loans are eligible for consolidation. If you have private education loans, you cannot consolidate them with your federal loans. Also note that you can’t consolidate your loans while in school and must graduate, leave school, or drop below half-time enrollment in order to pursue consolidation. Parent PLUS Loans cannot be consolidated with loans in the student’s name.

You can also select which loans you do and do not want to consolidate on your loan application. For instance, if you have a loan that will be paid off in a short amount of time, you might consider leaving it out of the consolidation.

Remember to keep making payments on your loans during the application process until you are notified that they have been paid off by your new Direct Consolidation Loan. Your first new payment will be due within 60 days of when your Direct Consolidation Loan is paid out.

Repayment Plans for Consolidation Loans

A Direct Consolidation Loan will have a fixed interest rate that is the weighted average of all of the interest rates for the loans you are consolidating, rounded up to the nearest one-eighth of a percent. This means that the interest rate on your largest loan will have the most impact on your consolidation interest rate, whether that interest rate is high or low.

When you apply for a Direct Consolidation Loan, you must also be prepared to select a repayment plan. Many repayment plans are available for Direct Consolidation Loans, including:

•   Standard Repayment Plan

•   Graduated Repayment Plan

•   Extended Repayment Plan

•   Pay As You Earn Repayment Plan (PAYE)

•   Income-Based Repayment Plan (IBR)

•   Income-Contingent Repayment Plan (ICR)

Recommended: What Student Loan Repayment Plan Should You Choose? Take the Quiz

Consolidation for Defaulted Student Loans

Consolidation can also help student loans that are currently in default. Student loans will go into default after 270 days without payment, which can result in consequences and loss of benefits, such as damaging your credit score or possible wage garnishment.

Since loans in default are accelerated and the entire unpaid balance becomes due when you enter default, consolidation is worth considering since it allows you to pay off one or more federal student loans with the new Direct Consolidation Loan.

Once your consolidated loan is out of default, you can repay the Direct Consolidation Loan under an income-driven repayment plan or make three consecutive payments. Direct Consolidation Loans are eligible for benefits such as student loan deferment, forbearance, and loan forgiveness.

Refinancing vs Consolidation for Student Loans

For those interested in a better interest rate or more favorable loan terms, you could consider refinancing your student loans instead of consolidating them. Unlike consolidation, refinancing can combine both federal student loans and private student loans into one new loan with one monthly payment.

Keep in mind that refinancing can result in the loss of federal benefits since you’re working with a private company and not the government. If you plan on using income-driven repayment plans or student loan forgiveness, for example, it is not recommended to refinance with a private lender. However, for someone looking for lower interest rates or lower monthly payments, refinancing is an option to consider.

Note that you may pay more interest on your student loan over time if you refinance with an extended term.

The Takeaway

A Direct Consolidation Loan combines your federal loans into one new loan with one monthly payment. Pros may include lowering your monthly payments, allowing you to switch from a variable to a fixed interest rate, and making certain loans eligible for forgiveness. The major con of Direct Consolidation Loans is possibly paying more in interest over the life of the loan due to the extension of your loan term.

If the idea of consolidation appeals to you but the weighted consolidation interest rate won’t save you much over the life of your loan, you could consider applying for student loan refinancing with SoFi. SoFi offers an easy online application, competitive rates, and flexible terms. But remember, refinancing makes it so you’re no longer eligible for federal benefits.

See if you prequalify with SoFi in just two minutes.

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).

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.
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-Q225-060

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Jul
02
2025
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When Do You Have to Start Paying Back Student Loans?

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

Most federal student loans have a six-month grace period after you finish school or drop below half-time enrollment, during which borrowers don’t have to make payments. The payback terms on private student loans are set by individual lenders, which may or may not offer a grace period.

Keep reading to learn more on student loan repayment, including what the student loan grace period is, when to start paying back federal vs private student loans, what happens if you can’t begin making payments, and more.

Key Points

•   Federal student loan payments are typically due six months after graduation or dropping below half-time enrollment.

•   Private student loans may have different repayment periods, so it’s important to check with your lender for specific terms and conditions.

•   Interest on unsubsidized federal loans and most private loans continues to accrue during the grace period, potentially increasing the total amount you owe.

•   Borrowers facing financial hardship can request deferment or forbearance on federal student loans — though interest may continue accruing — while private lenders may offer hardship programs or other extensions.

•   Refinancing your student loans can help lower interest rates and monthly payments, making repayment more manageable and potentially saving you money over the long term.

What Is a Student Loan Grace Period?

A grace period is the time you’re given after graduation before you have to start paying back your student loans. The federal government and many private lenders understand that you might not find a steady job straight out of college.

Both Direct Subsidized and Unsubsidized Loans have a grace period. Direct PLUS loans for graduate students and parents don’t have a grace period. Make sure you understand which loan you have so you’re financially ready to start making payments.

While the grace period gives you time to find a job before you have to start making payments, it’s important to understand that unsubsidized federal student loans will continue to accrue interest during the grace period.

Usually, at the end of the grace period, the interest is capitalized onto the principal (or original amount borrowed). This becomes the new value of the loan, and interest continues to accrue based on this new value.

Recommended: How Much Money to Budget for Student Loans

Federal vs Private Loans: Key Differences

There are two main types of student loans: private student loans and federal student loans. Private student loans are borrowed from a bank, credit union, or online lender. Federal loans are backed by the U.S. Department of Education. Important differences between the two include:

•   Only federal student loans have standardized grace periods; many private student loans offer them, but it’s best to check with your lender to be sure.

•   Fixed interest rates on federal student loans are generally lower than for private loans.

•   Only federal student loans are eligible for income-driven repayment plans, deferment and forbearance, and federal loan forgiveness.

When to Start Paying Federal Student Loans

As noted above, both Direct Subsidized and Unsubsidized Loans offer a six-month grace period where loan payments are not required after a student graduates or drops below half-time enrollment.

•   Students who graduated in December 2022 or earlier will make their first payment after October 1, 2023.

•   Students who graduated in June 2023 will make their first loan payment in December.

When to Start Paying Private Student Loans

Some private student loans operate with a six-month grace period, similar to federal student loans, but not all. If you have a private student loan, check your loan terms to see if you have a grace period.

If you’re looking to take out a private student loan with a grace period, consider reviewing different lenders to see who has the best terms. Unlike federal student loans, interest rates for private student loans vary based on individual factors including your credit history. Because of this, your interest rate might be higher than it would be with federal loans.

Recommended: A Complete Guide to Private Student Loans

Can You Get More Time Before Paying Back Student Loans?

If you’ve already graduated and you’re having trouble finding a job in your field, you might be stretching your finances as thin as they go. Before you let late payments get the best of you, consider what options are available.

It may be possible to talk to the loan servicer about delaying your payments a little longer. Your lender doesn’t want you to be late either, and might be willing to work with you.

Extended Deferment or Forbearance

Borrowers with federal student loans might qualify for student loan deferment or forbearance, which allow you to temporarily pause payments. Keep in mind that interest may still accrue while your loans are in deferment or forbearance, depending on the type of loan you hold. You’ll be responsible for that interest regardless of when you start making your payments.

The start date of those repayments isn’t the only thing you should be concerned with. If you have student loans, lowering your payment amount is probably on your mind as well. Not sure what your monthly payment is? Use our student loan calculator to estimate your student loan payments.

Can You Lower Your Student Loan Payments?

Depending on the type of loans you have, there are a few different ways you can lower your student loan payments.

Consolidation

If you have many different federal student loans, you might want to consider student loan consolidation. Consolidating your existing loans with a Direct Consolidation Loan means combining all of your federal loans into a single loan and potentially lengthening the term so your payments go down. A longer term, however, means paying more interest over the (now longer) life of your loan.

Your new interest rate will be the weighted average of all your federal loans combined, rounded up to the nearest one-eighth of a percentage, which means consolidation might not lower your interest rate.

With federal student loan consolidation, you still remain eligible for federal benefits and protections.

Refinancing

Refinancing your student loans is taking out a brand new loan to pay off your existing student loan or loans. A refinanced loan uses your credit history to determine your interest rate. Ideally, refinancing will lead to a lower rate. It’s important to note that refinancing student loans forfeits protections that come with federal student loans, like forbearance and income-driven repayment plans.

It’s also possible to lengthen or shorten your loan term. Refinancing can be done with private student loans, federal student loans, or both. Just remember that lengthening the loan term may result in paying more in interest over the life of the loan.

Recommended: A Guide to Refinancing Student Loans

Income-Driven Repayment Plans

If you have federal student loans and have a lower income, you might want to look into Income-Driven Repayment plans. There are a few different IDR options that vary based on your income and family size. And recent changes by the Biden Administration make the plans an even better deal for borrowers.

All IDR plans forgive the remaining balance on your loans either 20 or 25 years after you begin paying the loan back. This could be an option to consider if you are a recent grad. Note that while the remaining balance is forgiven at the end of an IDR loan term, that amount may be considered taxable income by the IRS.

What Happens if You Don’t Start Paying Back Student Loans?

If you don’t start paying back your student loans, you can face some pretty serious financial consequences. Your loan will become delinquent after the first day of missed payments. Once you’re 90 days late making a payment on your federal loans, your loan servicer will report the delinquency to the credit reporting bureaus and your credit score will take a hit.

If you have a private student loan, your lender may report you to the credit reporting bureaus after just 30 days. A lower credit score can make it more difficult to secure credit and loans in the future, and if you do get a loan, it might come with less favorable terms and a higher interest rate.

Student Loan Default

After 270 days, your federal loans will enter default. Private loans may default after 120 days, and Federal Perkins Loans can enter default immediately after you miss a payment.

Once you’re in default, your credit will take another hit. You might also be subject to having your wages garnished (though the rules on this are different when it comes to federal vs. private student loans).

In addition to wage garnishment and damage to your credit, you may also experience the following negative consequences:

•   Late fees (typically up to 6% of missed payment amount for federal loans)

•   Loss of eligibility for loan deferment or forbearance

•   No longer able to choose your repayment plan for federal loans

•   The government may withhold your tax refund if you fail to pay federal loans

•   Loss of eligibility for financial aid

The Takeaway

The grace period for federal student loans typically lasts six months after graduation or dropping below half-time enrollment, giving you time to prepare for repayment.

If you can’t afford to resume your monthly payments, federal loan holders have options: deferment, an income-driven repayment plan, or refinancing. Some private student loans also offer grace periods; check with your loan servicer to find out.

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

How long do you have until you have to start paying back student loans?

You typically have a grace period of six months after graduating or dropping below half-time enrollment before you must start repaying federal student loans. Private loans may have different terms, so check with your lender for specific details.

What is the federal student loan grace period?

Most federal Direct Subsidized and Unsubsidized Loans offer a six-month grace period after you graduate, leave school, or drop below half-time enrollment, during which you’re not required to make payments.

How can I delay payments if I’m not ready to begin repayment?

Federal borrowers can request deferment or forbearance to temporarily pause payments — though interest may continue to accrue depending on your loan type. Private loan options vary by lender and may include hardship programs.

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).

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.


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.

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Jul
01
2025
How Rising Inflation Affects Student Loan Interest Rates

How Rising Inflation Affects Student Loan Interest Rates

By | Fresh Out of School, Going to College, Student Loans, student_loan | Comments Off on How Rising Inflation Affects Student Loan Interest Rates

Inflation indirectly causes student loan interest rates to rise. That’s because the government tends to increase interest rates to combat rising prices, which typically raises the cost of borrowing.

Student loan interest rates did in fact rise when the Federal Reserve began raising interest rates to combat inflation during the Covid-19 economic recovery. The fixed interest rate on newly disbursed federal student loans for undergraduates went from 2.75% in July 2020 to 6.93% for the 2025-26 academic year.

The fixed interest rate on newly disbursed federal student loans is largely determined by the high yield of the final 10-year Treasury note auction held each year in May. Bond yields are typically higher when interest rates go up.

High inflation is bad news for people seeking new student loans and those with variable interest rate loans, though people with fixed-rate loans won’t see their rates go up.

Key Points

•   Inflation can indirectly cause student loan interest rates by raising the cost of goods and services, which can cause interest rates on loans to rise.

•   The federal government sets the rates on federal student loans, and private lenders set the rates on private student loans.

•   Federal student loans maintain fixed interest rates over the life of the loan, unaffected by inflation changes.

•   Student loans with variable interest rates may fluctuate with changes in the market, including inflation.

•   Refinancing student loans at a lower rate can reduce borrowing costs and monthly payments.

What Exactly Is Inflation?

Inflation — the rising cost of everyday items — is an important economic factor to everyone from investors to policymakers to borrowers. The reason it matters to borrowers is that inflation can lead to higher interest rates on every kind of debt, including student loans.

Put simply, inflation means that the price of bread will be higher tomorrow than it is today and that here is Consumer Price Index (CPI) growth. So lenders may increase their interest rates during times of high inflation, given that borrowers will be paying the money back when those dollars will buy less. That’s one reason inflation and many interest rates have typically risen or fallen in step with each other.

The Federal Reserve is another reason. The country’s central bank plays a major role in managing the economy, especially with factors like interest rates and inflation.

The Fed began its rate-hiking campaign in March 2022 to combat high inflation and continued raising rates into 2023. Increases to the federal funds rate have prompted commercial banks to raise the price of consumer loans and other financial products, including private student loans. In 2024, as inflation cooled, the Fed began lowering rates.

What Does Inflation Mean for Student Loans?

To someone with student loan debt, inflation may not always be bad news. That’s because price inflation may influence wage inflation.

Inflation typically drives up the price of everything, including wages. As a result, some borrowers are paying back certain fixed-rate loans, for example, with dollars that have less value than the ones they borrowed.

There are exceptions. If a borrower took out a variable rate private student loan, it’s likely that inflation will lead to higher interest rates, which will translate into higher interest rates that the borrower has to pay. But if the borrower has a fixed-rate private student loan and their salary keeps up with the pace of inflation, then inflation can be helpful.

With the Federal Reserve holding steady on interest rates as of June 2025 to help keep inflation down, but the possibility that there may be a rate change later in the year, it’s worth checking to see whether your private student loan has a fixed or variable rate.

As a quick primer, fixed-rate loans have the same interest rate from when borrowers take out the loan to when they pay it off. Variable-rate loans change the interest they charge, which is influenced by Federal Reserve rate changes.

All federal student loans disbursed since July 2006 have fixed interest rates. Meanwhile, banks and other private lenders may offer fixed-rate and variable-rate private student loans.

When Does Refinancing Make Sense?

Student loan refinancing may be right for you if you qualify for a lower interest rate. The first step is to check the interest rates on your existing student loans against the rates offered by other lenders. If they offer a better rate, then it may be possible to pay off that student loan debt faster or reduce your monthly payments with refinancing.

A student loan refinancing calculator may come in handy as you weigh your options.

Some lenders refinance both federal student loans and private student loans. However, if you choose to refinance federal student loans with a private lender, you will give up federal benefits and protections like federal income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF).

If you qualify for a lower interest rate, student loan refinancing may reduce your borrowing costs. Refinancing for a longer term, however, may increase your total interest costs.

The Takeaway

Borrowers with variable-rate student loans may see their borrowing costs go up during times of rising inflation. Whether your student loans have a fixed or variable interest rate, the impact of consumer price inflation across the economy may impact your ability to make ends meet.

If you find student loan refinancing is right for you, SoFi can help. SoFi refinances federal student loans, parent PLUS loans, and private student loans with no origination or prepayment fees.

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

FAQ

How does inflation affect student loans?

Inflation affects student loans because the government typically raises interest rates in an attempt to help tame rising inflation. That, in turn, raises the cost of borrowing money — including for student loans. The interest rate on federal student loans has climbed from 3.73% in 2021 to 6.93% for the 2025-26 academic year.

How does inflation affect interest rates on loans?

When inflation rises, the cost of goods and services rises as well. Because borrowers are then repaying their loans with dollars that buy less, lenders may increase their interest rates on loans. In addition, the Federal Reserve typically raises the federal funds rate to help tame rising inflation, which can lead to an increase in interest rates for loans.

Why is my student loan interest rate going up?

Federal student loan interest rates are determined by federal law. On July 1 each year, the fixed interest rate for each type of loan resets. The interest rate is determined based on the high yield of 10-year Treasury notes plus a fixed interest rate increase. The interest rate on federal student loans are fixed, so they will remain the same over the life of your loan.

With private student loans, lenders set the interest rates and they may raise them if inflation is rising. Lenders typically offer a range of rates, and the rate a borrower gets generally depends on their credit history.

Photo credit: iStock/MicroStockHub

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).

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

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).

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.


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.

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