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How to Defer Student Loans When Going Back to School

Are you eager for new learning opportunities and expanding your career potential? Maybe it’s time to go back to school. But if you still have student loans from your undergraduate degree, you may be wondering what options will be available to you as you return to your studies.

One option is student loan deferment, which allows you to temporarily pause your student loan payments. As with most financial decisions, there are pros and cons to deferring your student loans. Here’s more information about student loan deferment and what it could mean for your financial future.

What Is Student Loan Deferment?

Deferment is a program that allows you to temporarily stop making payments on your federal student loans or to temporarily reduce your monthly payments for a specified time period.

This is similar to another option—forbearance—but unlike forbearance, depending on the type of student loan you have, you will not be charged interest on the loan while it is in deferment. As explained by the Department of Education , if you hold one of the following types of loans, you will not be responsible for paying interest on your loan while it is in deferment:

•  Direct Subsidized Loan

•  Subsidized Federal Stafford Loan

•  Federal Perkins Loan

•  The subsidized portion of a Direct Consolidation Loan

•  The subsidized portion of a Federal Family Education Loan (FFEL) Consolidation Loan

If you have one of the following types of loans, you will be responsible for paying the accrued interest on your loan while it is in deferment:

•  Direct Unsubsidized Loan

•  Unsubsidized Federal Stafford Loan

•  Direct PLUS Loan

•  FFEL PLUS Loan

•  The unsubsidized portion of a Direct Consolidation Loan

•  The unsubsidized portion of a FFEL Consolidation Loan

If you are responsible for paying interest on your student loans while they are in grad school deferment, you have two options: 1) you can make interest-only payments on the loans while they are in deferment; 2) if you choose not to make these interest-only payments, the accrued interest will capitalize on the loan when the deferment period is over.

Who Is Eligible for Deferment?

In order to qualify for student loan deferment , students must meet certain criteria including:

•  You’re enrolled at least part-time at a qualifying university

•  You’re unemployed or unable to find employment (for up to three years)

•  You’re experiencing an economic hardship

•  You’re currently volunteering in the Peace Corps

•  You’re on active-duty military service (or are in the 13 months following that service)

•  You’re in an approved graduate fellowship program

•  You’re in an approved rehabilitation program (for disabled students)

Requesting a Deferment

If you’re interested in deferring student loans to go back to school, you’ll need to apply for an in-school deferment. Most likely, you will request the deferment directly through your loan servicer—there is usually a form for you to fill out. When you request a deferment, you’ll also need to provide some sort of documentation to prove that you qualify for a deferment.

If you are enrolled in an eligible college or career school at least half-time, your loan may be placed in deferment automatically . If it is, your loan servicer will notify you that deferment has been granted. If you enroll at least half-time and do not automatically receive a deferment, you will need to contact the school in which you are enrolled. The school will then send the appropriate paperwork to your loan servicer, so that your loan can be placed in deferment.

Pros and Cons of Student Loan Deferment

Deferment is a popular program for student loan borrowers. In the first quarter of 2018, 3.3 million federal loan borrowers were in deferment. The biggest benefit of student loan deferment is the ability to temporarily postpone student loan repayment.

If you are deferring for extreme financial hardship, deferment allows you to free up money to pay off bills that require immediate attention like rent or electricity.

For students who have qualified for deferment through community service, like a stint in the Peace Corps, deferment gives them the opportunity to serve their community without any added stress from student loan payments.

While temporarily pausing loan repayment may seem like a blessing, it can come at a cost, especially if your student loans are not subsidized by the government. When in deferment, interest continues to accrue on your loan. And at the end of your deferment period, that interest will be capitalized on the loan. (This means that the accrued interest will be added to the principal balance of the loan. So ultimately, you’ll be paying interest on top of interest.)

This can mean you end up paying even more money over the life of the loan. To see how much deferring your student loans could cost, you can use an online calculator to get an estimate of how much interest will accrue while the loan is in deferment.

The Pros and Cons to Student Loan Refinancing

If you have private loans that aren’t eligible for federal student loan deferment, refinancing your student loans is another option to consider. You may also want to think about refinancing when you’re done with your graduate degree to pay off your loans at a potentially lower interest rate.

When you refinance, your existing student loans are paid off with a new loan from a private lender. If you are refinancing private loans before going back to graduate school, you may be after a lower monthly payment, which you could potentially qualify for when refinancing your loans and extending the loan term.

Alternately, if you’re looking to refinance after graduate school, you could potentially qualify for a lower interest rate, which could reduce the amount of money you spend over the life of the loan. The lender will use your credit score and earning potential to determine what interest rate you’ll qualify for. And thanks to your new graduate degree, you could have significantly increased your earnings.

Another big benefit of student loan refinancing? You’re able to combine all of your student loan payments into one, easy-to-manage payment. With SoFi, you can even combine both private and federal student loans.

If you hold only federal student loans, however, you could look into a Direct Consolidation Loan , which allows you to consolidate federal loans into one loan with a single monthly payment. The new interest rate will be the weighted average of your current interest rates (rounded to the nearest one-eighth of 1%), so unlike refinancing, when you consolidate your student loans, you won’t necessarily qualify for a lower interest rate.

If you are, or plan on, taking advantage of your federal loans’ flexible repayment plans or student loan forgiveness programs, refinancing might not be the best option for you. A major con of student loan refinancing is that you’ll lose access to federal loan benefits when refinancing with a private lender—including deferment and income-driven repayment plans.

Refinancing Your Loans with SoFi

Use SoFi’s student loan refinance calculator to see what refinancing your student loans with SoFi could look like. When you refinance with SoFi, there are no application fees, origination fees, or prepayment penalties. With SoFi, the application process can be completed easily online in just a few minutes.

Are you interested in refinancing your student loans to see if you qualify for a lower interest rate? See what your rate with SoFi could be in just two minutes.



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.
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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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Pros and Cons of Refinancing Student Loans

The rising cost of higher education means more and more students are leaving university with not just degrees, but a bundle of debt as well. The average student borrower has $37,172 in loans to pay off.

And the student debt crisis shows no signs of disappearing anytime soon. As of February 2018, the Federal Reserve reported that “between 2001 and 2016, the real amount of student debt owed by American households more than tripled, from about $340 billion to more than $1.3 trillion.” And currently, Americans owe a grand total of $1.5 trillion in student loan debt.

It seems that dealing with student debt is an almost universal problem for those graduating from college and grad school these days. So, what options do these borrowers have?

One of the best things a borrower with student debt can do is craft a plan for repaying their student loans. While it can seem tempting to avoid the problem, that will only make it worse. One option available to student loan holders is refinancing.

First, let’s explain what student loan refinancing is. Student loan refinancing is a process by which your existing loans are paid off by a new loan from a private lender, usually a bank or online refinancing company, like SoFi. The new loan will have a new term, interest rate, and monthly payments.

The Pros of Student Loan Refinancing

When it comes to student loan refinancing, it isn’t always an easy decision. Here are some of the most notable pros for student loan refinancing:

Getting a Single Monthly Payment

When you refinance your loans, you’ll combine them into a new loan with one single monthly payment. This can make your student loan payments easier to manage.

It’s important that you make your payments on time every month, and having just one loan to pay off can make that much easier. And, when you refinance through a private lender, like SoFi, you can sometimes combine both federal and private student loans.

Lowering Your Interest Rate

One of the biggest potential benefits of refinancing student loans is securing a lower interest rate than the ones your loans currently have. If you’re paying a high interest rate, refinancing could be worth considering.

Since you’ve graduated, you may have significantly improved your earning potential, thanks to that new degree. If you took the opportunity to build credit while you were in college, you could qualify for a lower interest rate when you refinance. And, when you refinance to a lower interest rate, you could end up reducing the amount of money you spend over the life of the loan. This is not necessarily true if you end up extending your loan term—but if you do opt to extend your repayment timeline, you could instead lower your monthly payments.

Customizing Your Repayment Term

When you refinance your existing student loans, you are given the option to adjust your repayment term. Instead of the standard 10-year plan for federal loans, you could shorten or lengthen the term of the loan, giving you more control over your repayment plan.

Lowering Your Monthly Payment

When you refinance, you could potentially to lower the monthly payments on your loan by extending the term of your loan. Note that extending the term of your loan could mean you pay more money in interest over the life of the loan.

Choosing Between Variable and Fixed Rate Loans

When you refinance your loans, you might have the option to choose a fixed or variable rate loan. If you prefer the security of a stable rate over a longer period of time, you might consider choosing a fixed rate loan.

If you plan on repaying your student loans ahead of the term (just make sure there are no prepayment penalties), you might consider choosing a variable rate, which may start lower than the fixed rate loans, but could increase over time.

You Can Apply with a Cosigner

If you’ve recently graduated and haven’t built up much credit yet, you could potentially benefit from applying with a cosigner. If your cosigner has better credit and a higher income than you do, they may look more favorable to the lender, which could ultimately help you qualify for a lower interest rate. Even if you aren’t required to borrow with a student loan cosigner, some lenders might still give you the option to have one on the loan.

The Cons of Student Loan Refinancing

While refinancing your student loans might end up lowering your interest rate or making payments easier to manage, it’s not the right decision for everyone. Here are some of the downsides to consider before you refinance your student loans:

Losing Access to Federal Repayment Plans

When you refinance your federal student loans with a private lender, you will lose access to federal repayment plans . This includes the Standard, Graduated, and Extended Repayment plans. This could be especially important if you are planning on taking advantage of any income-driven or income-sensitive repayment plans , which you also won’t be able to access.

Related: 20 Year Student Loan Refinance vs Income-Drive Repayment

And you won’t have the opportunity to qualify for the Public Service Loan Forgiveness program. It’s best practice to review your student loans in detail and determine which plans you qualify for and which plans you intend to take advantage of before you considering refinancing.

No Longer Eligible for Federal Repayment Protections

You won’t be eligible for federal repayment protections like deferment or forbearance when you refinance your federal student loans with a private lender. Both deferment and forbearance might give you the opportunity to temporarily pause or lower your monthly payments.

When your loan is in deferment you may or may not be responsible for paying the accrued interest on the loan. However, if your loan is in forbearance you will be responsible for paying the accrued interest on the loan.

Some refinancing lenders, including SoFi, do offer unemployment protection which allows qualifying borrowers to pause their monthly loan payments in the event they unexpectedly lose their job. At SoFi, members also gain access to a career coach who can help as they search for their next job.

Losing Any Remaining Grace Periods

Most federal student loans have a grace period—usually the first six months after you graduate—where you don’t have to make any loan payments. If you refinance your loan shortly after graduation, you might lose out on that benefit if the private lender doesn’t honor existing grace periods.

Federal Student Loan Consolidation

Student loan consolidation is different from refinancing. A Direct Consolidation Loan allows you to combine multiple federal student loans into one federal loan, resulting in a single monthly payment.

When you consolidate your loans into a Direct Consolidation Loan, you won’t necessarily lower your interest rate. The new interest rate will be a weighted average of the interest rates on your previously existing loans, rounded up to the nearest one-eighth of 1%.

However, on the plus side, when you consolidate your federal loans through the federal government, you should still have access to most federal loan benefits like income-based repayment, deferment, and forbearance.

Student Loan Refinancing With SoFi

Everyone’s financial situation is different and it’s important that you make the best decisions for your individual circumstances. When you refinance, lenders will review your current financial situation, earning potential, and credit score (among other financial factors) to determine your new interest rate.

If you’ve decided to move forward with student loan refinancing, consider SoFi, the leading student loan refinancing provider. When you refinance with SoFi, there are no origination fees or prepayment penalties. See what you could save by refinancing with the SoFi student loan refinance calculator.

Refinancing your student loans with SoFi could lead to a lower interest rate. See what your rate would be in less than two minutes.


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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
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Qualifying for the Public Service Loan Forgiveness Program

As a college graduate, getting started in your career and planning for your financial future should be top priorities. For 44 million college graduates , part of this includes repaying student loans. The average college student graduates with approximately $37,172 in student loan debt.

Repaying student loans can cost a substantial amount of money when you factor interest into the equation, but if you’re planning on working for a non-profit organization or a government agency, public service loan forgiveness could save you years’ worth of payments. But federal loan forgiveness is not necessarily for everyone.

Another option is potentially refinancing your student loans at a lower interest rate—an appealing way to save money over the life of your student loan, especially if you don’t qualify for public student loan forgiveness.

After starting your new post-graduation career and creating a budget, you’ll also want to consider your student loan repayment options and have a plan for managing your student loans.

As with any loan option, there are pros and cons to the Public Service Loan Forgiveness (PSLF) program. You’ll have to decide if it’s right for you or if refinancing your loans could be a better option for your finances in the long run.

What Is Public Service Student Loan Forgiveness?

Also known as PSLF, the Public Service Student Loan Forgiveness is a federal program that may forgive or cancel the remainder of your Direct Student Loans if you work in a qualifying public service job and meet certain stringent criteria, including making 120 qualifying monthly payments. There is no cap on how much can be forgiven, so if you are able to meet the criteria, the rest of your loan goes away.

What Are Public Service Loan Forgiveness Qualifying Jobs?

The first step to qualifying for any kind of federal loan forgiveness program is filling out the employment certification form . Often people wait until after a few years of making payments before filling out the employment certification form, only to then find out those payments didn’t qualify because their job didn’t meet the requirements.

In general, PSLF qualifying jobs are more about the employer than about the specific role you’re filling at the organization. The important thing is that the employer qualifies as a public service organization.

That includes government organizations and 501(c)3 tax-exempt non-profit organizations. There are a few non-profit organizations that are not officially 501(c)3 but still qualify—but only if they provide certain types of qualifying public services. Working as an AmeriCorps or Peace Corps volunteer also counts as a qualifying job.

Employers that don’t qualify—even though working for them can include meaningful and important jobs: Labor unions, partisan political organizations, non profit organizations that are not official 501(c)3 tax-exempt organizations, and any for-profit companies.

You also must be working full-time in the qualifying job, which generally means at least 30 hours per week or whatever your employer’s definition of full-time is.

Other Requirements for the Public Service Loan Forgiveness Program

There are a number of other requirements and specifications necessary to qualify for public student loan forgiveness. For example, only Direct Loans are eligible for PSLF.

If you have other kinds of federal student loans, particularly if you borrowed before July 1, 2010, then you may be able to consolidate your federal student loans into one qualifying federal Direct Consolidation Loan.

However, none of the payments you might have made on your Direct Loan before consolidation will count toward your 120 monthly qualifying payments.

The slightly more confusing part of the requirements are the 120 monthly qualifying payments. These do not necessarily need to be consecutive—if you leave a qualifying employer, you do not lose credit for previous payments you may have made under the employer.

The payments do have to be on qualifying repayment plan, however. Generally, to qualify for federal loan forgiveness programs, you need to be on an income-driven repayment plan. There are four different kinds offered, with the most desirable being the Pay As You Earn Repayment Plan (PAYE) and the Income-Based Repayment Plan (IBR). These typically set a cap on how much your monthly student loan payment will be based on how much you’re currently earning.

For example, if you’re on the Income-Based Repayment Plan, then your monthly payments will be either 10% or 15% of your discretionary income (depending on when your loan was disbursed), but never more than your payment would have been under the standard federal 10-year repayment plan. Your discretionary income is calculated each year based on your family size, location, and salary.

If you’re making income-based payments each month, then it might take longer to pay off your loan because your repayment term will be longer (20-25 years for IBR and 20 years for PAYE), and you’ll be paying interest during that whole time—which adds to the total amount you’ll end up paying.

However, if you meet all the requirements and make the payments, then you could ultimately have your loan forgiven. But even after you’ve made all the 120 qualifying monthly payments, you do not automatically get loan forgiveness or have the rest of your loan cancelled. You still need to apply.

Is Public Service Loan Forgiveness Right for You?

While loan forgiveness seems like the ultimate dream, there are downsides, too. Income-driven repayment plans are, obviously, tied to your income.

That means if you have a large loan but a small income and are making very small payments on your student loan, then you could end up paying more over the life of the loan as the interest compounds and gets added to the remaining balance.

If for some reason you make the 120 qualifying monthly payments but then aren’t able to get the remainder of your loan forgiven, all that extra interest could end up costing you. And, unfortunately, many students find it challenging to get their loan forgiveness application officially approved.

Another downside is that your loans have to remain as federal direct loans in order to qualify for potential forgiveness. That means you cannot consolidate or refinance them as private loans, even if the lower interest rates might save you money.

For example, the federal interest rate for undergrad Direct Loans is set at 5.05% through June 30, 2019. A $37,000 federal loan, paid back over 10 years, with a monthly payment of $393, would end up costing you about $10,202 in interest payments on top of the principal. That’s a lot of money.

Student Loan Refinancing with SoFi

And, of course, there’s the fact that if you want to pursue a career that doesn’t fall under the public service definition, then you might want to consider other student loan repayment options, like refinancing. When you refinance your student loans, you take out a new loan—potentially with a new interest rate or loan term.

Depending on your earning potential and credit score, you could qualify for a lower interest rate, which might reduce the amount you pay in interest over the life of the loan.

When you refinance with SoFi, there are no origination fees or prepayment penalties. And if you lose your job, you could qualify for Unemployment Protection, which allows you to put your loan into forbearance for a cumulative total of 12 months.

Learn more about whether refinancing your student loans with SoFi may be right for you.


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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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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Finding Jobs That Pay Off Student Loans

Jobs that help pay off a portion of student loans are becoming more common and for a good reason. The average student loan borrower has $33,310 in student loan debt . And with projections that millennials will make up 75% of the labor force by 2025 , employers are becoming more conscious of the needs of their employees.

Still, companies that help to repay a portion of student loans are in the minority, so you may have to do some research to get student loan assistance as a benefit. To help you, here’s what to know about what’s available, companies that offer this perk, and what you can do to try and negotiate for it.

Types of Job-Based Student Loan Assistance Programs

There are two types of student loan assistance you may receive through an employer: repayment assistance programs where your employer is a participant and repayment assistance benefits your employer offers directly.

Repayment Assistance Programs

Depending on your chosen career, you may be eligible to receive student loan assistance through a federal- or state-based program. There are several programs for those working in public service careers, like the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs.

That said, these programs typically require you to commit to working in a specific job or a certain area (like medicine, law, or military service, for example) for a set number of years, which can be challenging if you don’t enjoy the job or want a different career path somewhere else.

But if you fulfill your service obligation, you may get as much as your full student loan balance forgiven.

Repayment Assistance Benefits

About 4% of employers in the U.S. offer student loan repayment assistance as a benefit, according to the Society for Human Resource Management . But that may change, now that the IRS allows employers to use an employee’s 401(k) contribution match for student loan repayment.

The terms of a repayment assistance benefit can vary by employer. For example, some may offer it as a match of the employee’s payments and others may simply pay a set amount toward an employee’s loan balance each month.

The amount you receive from a repayment assistance benefit may be less than what you might get through a government repayment assistance program. But you may not need to commit to a service obligation to qualify, and you may be able to negotiate how much you’ll receive.

8 Major Companies that Repay Student Loans

Hundreds of large and small employers offer jobs that pay off student loans, but it’s not always easy to find out which ones provide the benefit. To help you get started, here are 10 well-known companies that repay student loans.

1. Abbott Laboratories

The company’s Freedom 2 Save program functions a bit differently than other repayment assistance benefits in that it combines efforts to pay off student loan debt and save for retirement.

Full- and part-time employees who qualify for the company’s 401(k) plan and contribute 2% of their pay toward student loan repayment, will receive a contribution of 5% of their salary in their 401(k) account. Employee 401(k) contributions aren’t required.

2. Chegg

Full-time employees of the education company receive an annual contribution to their student loan payments.

3. Estee Lauder

The beauty company provides employees with $100 per month in student loan assistance, up to a total of $10,000.

4. Fidelity

As an employee of the investment brokerage firm, you’ll receive annual student loan repayment assistance—the maximum benefit is $10,000.

5. Nvidia

If you’ve graduated within the last three years, Nvidia will match your student loan payments dollar for dollar up to $500 per month. The lifetime cap is $30,000.

6. Penguin Random House

Employees who have been with the publisher for at least one year can receive up to $1,200 in student loan repayment assistance each year, for a total of $9,000 over seven-and-a-half years.

7. PricewaterhouseCoopers

As a participating associate or senior associate, you can receive $1,200 in student loan payments each year.

8. SoFi

As an employee with SoFi, you’ll get $200 each month in student loan repayment assistance.

Negotiating a Student Loan Repayment Benefit

If you’re looking for a job, keep an eye out for companies that repay student loans as an employee benefit. If you can’t find one, you can still try to negotiate the benefit for into your total compensation. Here are some ways to do it.

Doing Your Research

Tools like Payscale and Glassdoor can help give you an idea of the salary and benefits that may be available from various companies. Look at what the company you’re interested in typically offers as well as what you might get with a similar position somewhere else.

If anything, this process can give you a better idea of what you’re worth. But it will also give you a benchmark that you can use to negotiate for student loan repayment benefits, along with other aspects of your compensation.

Making Your Interests Clear

Helping a potential employer understand why student loan repayment is important to you can help set the stage for the entire conversation.

In addition to salary, employers can consider several other factors to make up your total compensation. So knowing what’s most important to you can help them make a more attractive offer.

Asking for a Signing Bonus Instead of Monthly Payments

While a signing bonus isn’t specifically designed as a student loan repayment benefit, you can use it that way. In fact, making a lump sum payment toward your student loans could help you accelerate your student loan debt repayment timeline.

Asking for the Opportunity to Revisit the Request in the Future

If you can’t manage to persuade a potential employer to provide you with student loan assistance, that may not be the end of it. You could ask for the chance to talk about your compensation again in six months or a year.

During that time, you may be able to prove to your employer that it’s worth the investment on their part. Or you may have planted a seed for the employer to create a student loan repayment benefit for all employees.

Making Student Loan Repayment a Priority

Whether or not you can find jobs that pay off student loans, you can still make it a priority to eliminate your student debt as quickly as possible. A student loan repayment assistance benefit can help you achieve that goal, but it can’t do it on its own.

As such, it’s essential to consider other options to save money, such as refinancing your student loans.

If you qualify, you may be able to reduce your interest rate or your monthly payment. With a lower interest rate you could potentially save money over the life of your loan.

When you refinance with SoFi, there are no prepayment penalties or origination fees. You can start taking control of your student loan debt and get a quote in just two minutes.


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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice
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Should I Pay Off Student Loans, Save, or Invest?

You’re a successful college graduate. You made it through all of your classes and secured a job in your chosen field. You’re on your way to building a successful career and establishing your life as an adult.

Now that you’re in full-on adult mode, you’ll have to start making some pretty big decisions. What are your short-term goals? What are your long-term goals? How are your finances stacking up to help you get there?

One of the questions many young adults face is whether it’s better to pay off student loans (or other debt), save, or invest. With rising levels of student debt across the nation, this question is not uncommon. College students who graduated in 2016 have an average of $37,172 in debt .

So when it comes to determining where to put your hard-earned resources, what should you do? You don’t have to think of it as choosing between one goal and another. With some strategic thinking and careful planning for your financial future, you could do all three

Making a Budget

A good first step to any financial conundrum is to fully evaluate the situation. You could start by gathering all of your financial documents including tax statements, bank statements, credit card statements, and statements on student loans or other debts. Then, list out all of your monthly expenses—fixed expenses, like rent, and variable, like dining out.

Now, tally up all sources of income and list out your savings. After you’ve done this, you should have a pretty clear idea of how much money you’re spending, what you’re spending it on, and how that compares with the money you are bringing in every month.

Now that you have a big picture view of your spending habits, is there any room to make changes? Take a look at any of your current subscription services with monthly payments—if you’re not actively using them, maybe it’s time to cancel.

If you’re willing to call your internet or cable provider, you could try to negotiate a lower rate. After you’ve made any changes to your spending, make a new budget—one that details how much money you’re going to put toward your student loans, your savings, and your investments.

Making Payments on Your Loans

Regardless of what your financial goals are, you probably don’t want to forget about your loans and the payments due on them. Failing to make payments and allowing your loan to become delinquent or go into default can have serious consequences for your finances and credit score.

By paying the monthly minimum payments, you can make sure you stay in good standing with your loan servicer while still making progress toward your loan repayment.

Revising Your Loan Repayment Plan

If you are having difficulty making monthly payments on your loan due to temporary financial issues, you could consider putting the loan into deferment or forbearance. Just know that while the loan is in forbearance you will be responsible for paying the accrued interest on the loan.

And depending on the type of loan you have, you may be responsible for accrued interest during deferment as well. If your issues with repayment will last more than a couple of months, consider adjusting your student loan repayment plan.

If you have federal loans, you can change your repayment plan at any time, at no cost to you. The standard repayment plan for federal student loans is a fixed monthly payment over a 10-year term. If this is too much for your current financial situation, there are other repayment plans to consider.

The Extended Repayment and Graduated Repayment plans offer repayment terms over 15 or 20 years, which could make your payments more manageable on a monthly basis.

There are also four Income-Driven Repayment plans which allow you to pay a portion of your discretionary income—usually 10%, 15%, or 20%—over 20 or 25 years. These options would lower your monthly payments, meaning you would have more money to save for a rainy day or to invest. But, it’s important to note that by extending your repayment term, you will be paying more in interest over the life of the loan.

Another alternative to consider is refinancing your student loans. Refinancing could allow you to lower your interest rate, adjust your monthly payments, or customize your repayment term. When you refinance, you take out a new loan with a private lender. However, this means you forfeit federal loan benefits, such as access to income-driven repayment plans, deferment, or federal loan forgiveness programs. So, if you’re taking advantage of a federal loan program, refinancing might not be for you.

Whether you’ve freed up some of your earnings with an income-driven repayment plan or by refinancing, you may be able to redirect some of those funds into your savings account. If you’re not sure what your first savings goal should be, you could consider saving for an emergency fund. Putting aside money for a rainy day can help you stay on top of your loan payments even in the face of an unexpected financial hit.

Paying Off High-Interest Debt

When it comes to debt, the interest rates on student loans are relatively low. While you are making monthly payments on your student loans, it could be smart to tackle any high-interest debt you have laying around.

For example, credit card APRs can range anywhere from 15% to 20% , which means debt can rack up quickly. If you are carrying credit card debt, you might try either the debt snowball or debt avalanche
method
to pay it down.

With the debt snowball method, you’ll focus on your smallest debt first, regardless of the interest rate. The idea is that by paying off your smallest debt first, you’ll stay motivated to continue making payments on your debt. After you pay off your smallest debt, you move on to the next smallest, and so on, until all of your debt is paid off. The accomplishment of repaying your debts provides motivation to continue paying off the money you owe.

With the debt avalanche method you’ll focus on the debt with the highest interest rate first. Make a list of all your debts by order of descending interest rate. While making your minimum monthly payments on all the debts, you would “attack” the loan with the highest interest rate with as many extra payments as you can. This method can require more discipline, but keeping track of how much you are saving in interest can be a great motivator.

Another option for getting your credit card debt under control is to consolidate it with a personal loan. Personal loans often have lower interest rates than high-interest credit cards and, as a result, you could save money on interest.

Another benefit of consolidating your credit card debt: You’ll only be responsible for making one monthly payment to one lender instead of multiple payments to a variety of credit card companies and lenders.

Keep in mind that you’ll need to keep those credit card balances low after paying them off, since running them back up has the potential to make your credit profile less attractive to lenders due to the increased total debt.

Building Your Emergency Fund

Now that you have a handle on your debts, it’s time to talk saving. As we mentioned earlier, the first order of business you might consider is building an emergency fund. You can use this fund to cover any unexpected expenses that might occur due to a medical emergency, sudden layoff, car repairs, etc. Even starting with a small amount can help when emergency expenses pop up.

Saving for Your Retirement

Saving for retirement is important. Whether contributing to your 401(k) or IRA, what you are fundamentally doing is investing. And when it comes to investing for your future, one of your biggest assets is time. To see how your retirement goals stack up, take a look at SoFi’s retirement calculator.

If you are eligible for an employer-sponsored 401(k) plan, it could be smart to take advantage of it. Some employers offer a matching contribution up to a certain percentage when you contribute to a 401(k).

Employer contributions are determined at the discretion of the company. Take a look at your employer policy and see if you’re able to contribute enough to get the full employer match.

Another option for retirement savings is an IRA, or Individual Retirement Account. There are two types of IRAs, traditional or Roth, and they differ in two key ways. First, you can only contribute to a Roth IRA if your income falls below a certain limit.

Second, traditional IRAs allow you to deduct some of your contributions on your tax returns now, meaning you pay taxes on distributions when you retire. With a Roth IRA, you contribute funds after taxes, but you can withdraw money in retirement without paying taxes on it.

Is It Better to Pay Off Student Loans, Save, or Invest?

As you move through life, retirement will be just one of your many financial goals. You may want to work toward buying a house, saving for a child’s education, or taking an extravagant vacation. No matter what your financial goals are, investing could help you meet them.

The key to understanding whether it is better to invest or pay off student loans is opportunity cost. Student loans often have relatively low-interest rates, and if you’ve refinanced your loans, you may have secured an even lower rate.

For example, say your student loan interest is 4%, while the stock market has (hypothetically) yielded average returns of 7% over the last five years. Generally speaking, earning 7% interest makes more financial sense than paying down debt at 4% interest. Investing comes with risk, but investing can be a great way to grow your money in the long run.

Investing With SoFi

With SoFi’s automated investing platform, SoFi Invest®, you’ll gain access to a team of financial advisors and cutting-edge automated investing technology. We’ll work with you to determine your financial goals and risk tolerance.

Then, we’ll set up your account to meet those preferences and we’ll auto-balance your investments to keep them in line with your goals as the market changes. And anyone can invest—you can get started with as little as $100!

When you’re ready to take control of your financial future, SoFi Invest is here to help.


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.
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 [about bankruptcy].
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
on credit.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through `SoFi Wealth, LLC. SoFi Securities, LLC, member
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