Fresh Out of School Archives

Apr

2025

Are Refinanced Student Loans Tax Deductible?

By Melissa Brock | Fresh Out of School, Student Loans, student_loan | Comments Off

While the principal of a student loan isn’t tax deductible, the interest you pay on it can be — and that includes refinanced student loans. If you’re eligible, you may be able to deduct up to $2,500 from your taxable income.

The amount you can deduct is dependent on your income; as you earn more, the amount you can deduct is decreased and eventually eliminated. You also must have paid interest on a qualified student loan – that is, one taken out to pay for qualified higher education expenses, such as tuition, books, or room and board.

Here’s what to know about refinanced student loans and tax returns, including when interest on student loans is tax deductible, how tax deductions differ from tax credits, and how refinancing can affect taxes.

Key Points

• Interest on refinanced student loans is tax-deductible, up to $2,500, if the loan was used for qualified education expenses.

• Eligibility depends on income: deductions phase out between $80,000–$90,000 MAGI ($160,000–$180,000 for joint filers) and are unavailable above those limits.

• The deduction applies only to interest paid, not the total loan payment.

• Refinancing can impact taxes by changing the amount of interest paid, which affects deduction eligibility.

• While refinancing can lower interest costs, it removes access to federal benefits like income-driven repayment and loan forgiveness.

What Is a Tax Deduction?

For starters, it’s helpful to review what a tax deduction is: A tax deduction lowers your taxable income by reducing the amount of your income before you or a tax professional calculates the tax you owe.

For example, a $100 exemption or deduction reduces your taxable income by $100. So it would reduce the taxes you owe by a maximum of $100 multiplied by your tax rate, which can range from 0% to 37%. So your deduction could reduce your taxes between $0 to $37.

And before considering how refinancing affects your taxes, it’s helpful to review what happens when you refinance a student loan: Your lender “swaps out” (or “pays off”) your existing loans and gives you a new loan with new terms. A student loan refinance may be beneficial if you get a lower interest rate and/or a lower monthly payment, which can save you money in the long run. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

If you’re considering refinancing federal student loans, however, it’s important to understand that you would lose access to certain federal benefits and protections, such as Public Service Loan Forgiveness, federal deferment and forbearance as well as income-driven repayment options.

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

The Difference Between a Tax Deduction and a Tax Credit

Keep in mind that a tax deduction is not the same as a tax credit. While a tax deduction reduces your taxable income, a tax credit directly reduces your taxes.

Tax credits give you a dollar-for-dollar reduction on your taxes. In other words, if you qualify for a $2,000 tax credit, the tax credit lowers your tax bill by that exact amount — $2,000.

How Does Paying Student Loans Affect Taxes?

If you paid qualified student loans during the year, you may be eligible for the student loan interest tax deduction. This deduction can reduce your taxable income by the amount of student loan interest you paid during the year — up to $2,500.

Note that the interest on student loans is tax deductible, not your total payment amount (which includes the principal). You can claim it without having to itemize deductions on your tax return because it’s taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040.

Who Is Eligible for the Student Loan Interest Deduction?

The student loan interest deduction is an “above the line” deduction, which means that it is deducted to calculate your adjusted gross income (AGI).

As mentioned earlier, the interest paid must be for a qualified student loan that you take out for yourself, your spouse, or a dependent for qualified undergraduate or graduate education expenses, such as tuition, books, or room and board. In addition, the expenses must have been incurred within “a reasonable period of time” prior to or after taking out the loan, according to the IRS.

For taxable years beginning in 2023, your modified adjusted gross income (MAGI) must also amount to less than $80,000 ($160,000 if filing a joint return). Your amount will be phased out (reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).

You cannot claim the deduction at all if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). You also will not qualify for the deduction if you are married and filing separately.

Recommended: How Income Tax Withholding Works

Are Refinanced Student Loans Tax Deductible?

Yes, you can get a tax deduction on the interest you’ve paid on refinanced or consolidated student loans as long as the new loan refinanced qualified student loans.

Refinancing affects your taxes only insofar as the refinancing might change how much interest you pay in a given year – and thus, how much you can deduct. For instance, if refinancing lowers the amount of interest you pay below the $2,500 deduction amount, then that would mean you can’t deduct as much on your taxes. Still, refinancing may save you more money in the long run than a student loan interest deduction because it’s a deduction, not a tax credit. It’s important to do the math or consult a tax professional before you make a final decision.

Recommended: Where Is My Tax Refund?

Refinance Qualifications

It’s also worth taking a look at common eligibility requirements for a refinance. For most borrowers, the soonest you can refinance is usually after graduating. In addition to a degree, you often need to have:

• A debt-to-income (DTI) ratio under 50%: Your DTI refers to how much of your income goes toward debt and how much goes toward your regular income. It’s best to keep your DTI under 50%, but being over doesn’t necessarily mean you won’t qualify for a student loan refinance.

• Minimum credit score of 650: Your credit score is a three-digit number that shows how well you pay back debt. It’s best to have a minimum credit score of at least 650 to be eligible for student loan financing. Again, your personal situation will be considered before determining whether you qualify for a refinance.

• A steady job and/or consistent income: You may need to prove that you have a steady job and have enough savings to be able to pay for at least two months’ worth of regular expenses.

• A certain balance amount: In most cases, lenders will require you to have a certain minimum balance on your student loans in order to qualify for a refinance.

Refinancing Your Student Loans With SoFi

If you’re thinking about refinancing your student loans, SoFi offers flexible terms with fixed or variable rates. You can apply online, and there aren’t any fees.

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 refinance costs are tax deductible?

When it comes to refinancing and taxes, lenders usually don’t charge any upfront fees to refinance your student loans, which means that there aren’t any refinance costs to deduct.

When you make payments on a qualified student loan — including refinanced student loans — you may be eligible for the student loan interest deduction.

Is it worth it to claim student loan interest?

Yes, when it comes to student loans and tax returns, you may be able to deduct up to $2,500 from your taxable income if you’re eligible.

To be able to claim the deduction, your modified adjusted gross income (MAGI) must be less than $80,000 ($160,000 if filing a joint return). You’ll also experience a phased-out deduction if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). It disappears entirely at MAGIs above $90,000 and $180,000 for joint filers.

Are student loan payments tax deductible?

Only the interest you pay on your student loans is tax deductible. Whole student loan payments (which include principal) are not tax deductible.

About the author

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.

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

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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.

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

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.

Photo credit: iStock/Drazen Zigic
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Apr

2025

Why People Refinance Student Loans

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

Refinancing student loans involves taking out a new student loan (ideally with better rates and terms) and using it to pay off your existing loans. Generally, the reason why people refinance student loans is to save money, although there are some additional benefits that come along with refinancing.

Refinancing private student loans can be an easy decision if your income and credit score can qualify for a lower rate than you got originally. You can also refinance federal student loans with a private lender, potentially at a lower rate. But doing so means giving up federal benefits and protections, so it’s important to weigh the benefits against the risks.

Here’s what you need to know about refinancing student loans so you can decide if this option is right for you.

Benefits of Refinancing Private Student Loans

Refinancing private student loans comes with a number of potential perks. Here are some reasons why you might consider a student loan refinance.

A Lower Interest Rate

One of the main reasons people refinance their existing student loans is because they can find a lower interest rate through a new lender. This can help you save money, potentially thousands over the life of your loan. It can also help you pay off your loan faster, or lower the amount you pay each month.

While student loan interest rates have been on the rise in the last couple of years, you may still be able to do better if your financial situation has considerably improved since you originally took out your student loans.

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

Reduced Monthly Payments

Another reason why people refinance their private student loans is to lower their monthly payments. You can do this by qualifying for a lower interest rate. Or, you can do this by extending your repayment term. Generally, the longer the loan term, the less you pay each month. Just keep in mind that extending your loan term could cause you to pay more in interest over the life of your loan.

Consolidation of Multiple Loans

If your student loan debt is a messy mix of loans, it can be difficult to stay on top of your payments and track your repayment progress. In this scenario, refinancing can double as a form of debt consolidation and allow you to combine those different loans. Once you refinance, you’ll only have to deal with one loan (and one payment and one due date) each month.

💡 Recommended: Refinancing Private Student Loan

Releasing a Cosigner

When students take out private student loans, they generally need a cosigner. These are usually family members or friends of the student, and they share legal liability for the loan.

If you originally needed a cosigner but are now in a financial position to handle your debt on your own, you might consider refinancing your private student loans. This will give you a new loan and, in the process, release your cosigner from liability for your debt. If you currently have a higher income or credit score than your cosigner, you might even qualify for a better rate.

💡 Recommended: Private Student Loan Refinance

Factors to Consider Before Refinancing

To determine if refinancing is the right move for you, here are some factors to consider.

Credit Score Requirements

Not every borrower is eligible for refinancing. To get approved, you typically need a credit score of at least 650. A score in the 700s, however, gives you a much better chance of qualifying.

Your credit score also helps determine your new interest rate. Generally, the better your credit score is, the more competitive your interest rate will be. If you can’t qualify for an attractive refinance on your own, you might want to recruit a cosigner who has excellent credit.

Financial Stability

A good credit score is one qualifier for a favorable refinance rate, but that’s not the full story. Lenders will generally look at a wide range of financial factors when determining your interest rate, including your annual income and your debt-to-income ratio (how much of your monthly income you currently spend on debts).

If all three of those financial factors have improved since you’ve taken out your private student loans, it can be worth shopping around for better terms. If, on the other hand, you don’t have consistent earnings and/or have a lot of credit card debt, you’ll likely want to wait until your situation stabilizes before looking into a refinance.

Length of Repayment Term

Refinancing allows you to alter your payment plan. Once you qualify, you can typically choose the new term of your loan, whether it’s five, 10, or 20 years. By setting a new repayment term, you can decide how quickly you want to pay off your loans.

You might choose a shorter repayment term to pay off your loan faster and potentially save on interest. Or, you might opt to go with a longer repayment term to lower your monthly payments. Keep in mind, though, that extending your term may mean paying more in interest over the life of the loan. It will also take you longer to fully pay off your loans.

💡 Quick Tip: Refinancing comes with a lot of specific terms. If you want a quick refresher, the Student Loan Refinancing Glossary can help you understand the essentials.

When Refinancing Might Not Be the Best Option

Refinancing isn’t the right move for every borrower. Here are some scenarios where it may not make sense to refinance your student loans.

You Can’t Get a Lower Interest Rate

Before choosing to refinance, you may want to shop around and see what rates you can potentially qualify for.

Many lenders offer online prequalification where you can enter some information to receive a rate quote without having to submit an actual loan application (which results in a hard credit inquiry). Prequalifying lets you shop around for the personalized rates and terms so you have a better idea of what to expect if you were to refinance, without hurting your credit.

If you can’t get a better rate than you currently have, refinancing might not make sense, at least right now.

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

You Have Federal Loans and Could See a Decline in Income

If you have federal student loans and think your income could drop, or you might lose your job, it’s generally not a good idea to refinance those loans. Doing so means giving up federal student loan relief options, such as deferment and forbearance, as well as government programs like income-driven repayment. These protections could come in handy should you run into any financial hiccups.

Some private lenders offer relief programs but they may not be as generous as what you can get with the federal government.

You Are on an Income-Driven Repayment Plan

Income-driven repayment (IDR) plans are one of the many benefits available to federal student loan borrowers. When you choose one of these plans, the amount you pay each month is tied to the amount of money you make, so you never need to pay more than you can reasonably afford. Generally, your payment amount under an IDR plan is a percentage of your discretionary income (typically 10% to 20%).

Under all IDR plans, any remaining loan balance is forgiven if your federal student loans aren’t fully repaid at the end of the repayment period (either 20 or 25 years).

If you are currently on one of these federal repayment plans and you refinance, your loan becomes a private loan and you lose access to IDR plans.

You’re Working Toward Student Loan Forgiveness

In addition to the loan forgiveness associated with IDR plans, the federal government offers other types of loan forgiveness programs, including Public Service Loan Forgiveness, which is for public-sector workers, as well as a separate program just for teachers. If you think you may benefit from any of these federal relief programs, it’s probably not a good ideal to refinance your federal student loans. Doing so will bar you from getting your federal loans forgiven.

The Takeaway

So should you refinance your student loans? The answer depends on your financial situation and repayment goals. Generally, refinancing your student loans makes sense only if you can qualify for a lower rate than you have now.

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

FAQ

Why do people refinance their student loans?

Often, people will refinance their student loans to get a lower interest rate, a lower monthly payment, or both. Refinancing can also simplify student loan repayment by replacing multiple loans with a single loan and just one monthly payment.

Why should you avoid refinancing student loans?

Refinancing generally doesn’t make sense if you can’t qualify for a lower rate. You’ll also want to avoid refinancing if you have federal loans and are using (or plan to use) federal benefits like income-driven repayment or student loan forgiveness. Once you refinance a federal student loan, you’ll no longer have access to these federal programs.

Why should private student loan borrowers refinance right now?

You might consider refinancing your student loans now if you are able qualify for a lower rate than you originally got. Refinancing also gives you the opportunity to change the terms of your existing loan, remove a cosigner, and simplify your repayment process by replacing multiple loans with a single loan.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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Apr

2025

Should You Pay Off Your Student Loans Before You Buy a House?

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

If you have student debt and want to one day buy a home, you may wonder what to focus on first — paying off student loans or buying a house? If you wait until your student loans are paid off to buy a home, you may be renting for a very long time. If, on the other hand, you buy a house before you pay off your student loans, you may be stretching your finances too thin. Which goal should you focus on first?

There’s no one right answer for everyone. Whether you should pay off your student loans or buy a house first will depend on your priorities, time frame, and financial situation. Ideally, you want to work towards both goals at the same time, making progress on your debt while also saving up for a down payment on a home.

Here are some things to consider when deciding whether it’s better to pay off student loans or buy a house.

Reasons to Pay off Your Student Loans Before Buying a House

Depending on your financial situation, it may make sense to pay off your student loans before you buy a house. Here’s a look at some reasons why you might want to prioritize student loan repayment over saving for a down payment.

The Longer You Wait to Pay off Student Debt, the More Interest You’ll Pay

If you want to save money on interest, it’s a good idea to prioritize student loan repayment over buying a home. By paying more than the minimum payment each month, you can reduce the principal balance. This, in turn, will shorten the duration of the loan period — and the interest accrued. Just make sure that your lender puts any extra payments you make towards your principal (and not future payments).

Another way to speed up repayment is to refinance your student loans. Refinancing can fast forward repayment by helping you obtain a lower interest rate, a shorter repayment period, or both. You can refinance private or federal student loans. Just keep in mind that when you refinance federal student loans with a private lender, you forfeit certain federal benefits, such as forbearance and forgiveness programs.

💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

Your Debt-to-Income Ratio Is High

When you apply for a mortgage, lenders will look at your debt-to-income (DTI) ratio, which shows how much of your monthly income goes toward debt repayment each month. The ratio is expressed as a percentage, and mortgage lenders use it to determine how well you manage monthly debts — and if you can afford to repay a loan.

To calculate your current DTI, simply add up all of your monthly debt payments, then divide that number by your monthly gross income (before taxes and deductions). Take that number and multiply by 100. This is your DTI.

Ideally, mortgage lenders like to see a debt-to-income ratio lower than 36%, with no more than 28% of that debt going towards a mortgage or rent payment. While some lenders will allow you to go up to 43% (and sometimes higher), this may not be wise, since it can stress your finances and make you “house poor.”

You Don’t Have Enough Saved for a Substantial Down Payment

A standard rule of thumb is to put at least 20% down on a home’s purchase price. While you may be able to get a conventional mortgage for as little as 3% down, making a smaller down payment on a home purchase generally means paying a higher interest rate on your mortgage. On top of that, you’ll likely need to buy private mortgage insurance (PMI).

Also consider that the more you put down on a home, the more equity you’ll have in your home right away — and the lower your monthly mortgage payment will be.

You Might Move Within the Next Five Years

Renting provides more flexibility than home ownership, as you aren’t necessarily tied down to your property. If you think you may want to relocate in the next five or so years, it may make sense to pay off student loans before buying a house.

A common rule of thumb is that it takes around five to seven years to break even on a house, meaning you have enough equity to recoup that amount of money you put in the house (including closing costs, mortgage payments, and maintenance expenses). That’s why experts typically caution against buying unless you plan to live in the home at least that long.

Reasons to Buy a House Before Paying off Student Loans

In some cases, it makes more sense to buy a home before you pay off student loans. Here are some arguments for putting any extra funds you have towards a down payment on a home over paying down your student debt.

Student Loan Debt Is Not as Bad as Other Types of Debt

Not all debt is created equal. Student loans generally have longer repayment terms and typically feature lower interest rates than many other types of debt, such as credit cards and auto loans. Since your down payment will lower the overall cost of your mortgage, it may be smarter to save up money for a home than to pay off a low-interest student loan.

If you have $12,000 in credit card debt, you would want to make paying that off as quickly as possible your priority, thanks to double-digit interest rates. If you have $12,000 in student loans with a low interest rate, it’s a different story. Paying only the minimum to free up funds to buy a home can be a sensible idea.

Also keep in mind that your student loans may entitle you to a valuable tax deduction — with the student loan interest tax deduction, you may be able to deduct $2,500 or the amount of interest you paid toward your loans, whichever is less.

You Have a Low DTI

If your DTI is 35% or less (meaning a max of 35% of your gross monthly income will go toward your overall monthly debts, including the new mortgage payment), it’s a sign that you can manage home ownership and student loan debt repayment at the same time. With a low DTI, you may be able to comfortably afford your mortgage, monthly student debt payments, and likely still have money available to put into savings and retirement each month.

You Have a Lot in Savings

You’ll need to have access to a sizable amount of cash to purchase a home. In addition to making a down payment, you’ll also need to have funds to cover closing costs and moving expenses. Also keep in mind that when you own a home, you’ll be responsible for all of the home’s maintenance and repair expenses. A general rule is to have1% to 4% of the home’s value set aside for upkeep and repairs.

If you have enough money saved in the bank to cover those costs, you’re in good shape and can likely afford to buy a house before you pay off your student loans.

Buying a Home Is a Top Priority

When deciding whether to buy a house before you pay off student loans, you’ll also want to consider your priorities and personal goals. For example, if you want to have children (or expand your family) in the near future, you may need a larger space. Or, if you’re working at home (or plan to transition to remote work), you might require a home that allows you to set up a dedicated office. Perhaps you want to get a pet, but your rental doesn’t allow them. In some cases, prioritizing a home purchase over paying off student debt may be important in terms of your quality of life.

Options to Consider for Those Trying to Manage Student Debt and Buy Property

If you’ve decided that you can manage paying down student loans while also saving for a home, here are some tips that can help you focus on both goals at the same time.

• Take an inventory of your debts: A good first step is to write down all of your current debts, including student loans, car loans, credit cards, and any other debt you hold. Make note of the interest rate, remaining balance, and minimum payment for each.

• Knock down high-interest loans: Next, you may want to funnel any extra money you have towards the debt with the highest interest rate, while continuing to pay the minimum on the rest. Once that debt is paid off, focus on the debt with the next-highest interest rate debt, and so on. Eliminating expensive debt frees up funds that go towards a mortgage payment. It can help improve your DTI, which is helpful when qualifying for a mortgage.

• Open a dedicated savings account: Consider opening a high-yield savings account specifically for your down payment and home-buying expenses. This will help you track your progress and ensure you won’t spend the money on other things.

Recommended: Student Loan Debt Guide

Saving Strategies

The more you can put down on a home, the less you will need to borrow. A solid down payment can also help you qualify for a lower interest rate on a mortgage and lead to lower monthly payments. These tips can help you reach your down payment savings goals faster.

• Pay yourself first: Consider setting up an automatic transfer from checking to savings each month to take place right after you get paid. This can help you get used to managing living expenses with what looks like a smaller paycheck, when actually you’re building up your own savings.

• Take advantage of windfalls: If you receive a lump sum of money, such as a work bonus, gift check, or tax refund, consider funneling it right into your down payment savings account. This will help you meet your down payment goal faster.

• Reduce expenses: Take a look at where your money is going each month and see if there are any places to cut back. You might decide to cook a few more times a week and spend less on take-out, get rid of a streaming service you rarely watch, or finally cut the cable cord. Anything money you free up can now go into savings.

• Pick up a side gig: Income from a part-time job or freelance work can be dedicated to savings, helping you reach your goal quicker. You might also consider asking for a raise at your current job or volunteering to work overtime.

💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.

How Refinancing Could Potentially Help Prospective Homebuyers

Buying a home and paying off your student loans may seem like competing goals, but that’s not necessarily the case. You can pay down your debt and save for a down payment at the same time by putting more money into savings each month and looking for ways to lower your student loan payments.

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

About the author

Julia Califano

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

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

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

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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Apr

2025

5 Alternatives to Emergency Student Loans

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

You thought you had your college costs covered. Then something unexpected happened — a sudden job loss, unplanned expense, family emergency — and now you’re short on funds and wondering how you’ll make ends meet.

Fortunately, some schools offer emergency student loans to help students rebound from a financial set-back and manage the unexpected. While these tend to be smaller amounts, an emergency loan can help you get through a rough financial patch, allowing you to stay in school and complete your degree.

However, not every college and university offers emergency student loans, and those that do may have limited funds for emergency student loans and varying eligibility requirements.

Here are key things to know about emergency or fast student loans, plus other ways to access quick funds when you hit a set-back or unexpected college expense.

Key Points

• Emergency student loans are short-term loans (typically $500–$1,500, repaid in 30–90 days) that schools may offer for urgent expenses like food, housing, or medical costs.

• Not all schools provide them, and strict eligibility plus fast repayment can make them difficult for some students to manage.

• Alternatives include unused federal student loans, emergency university grants or scholarships, and private student loans for larger or longer-term needs.

• Other options include tuition payment extensions or plans, and free resources like campus or community food pantries.

• Alumni-funded programs and nonprofit emergency grants can also provide short-term financial relief without adding new debt.

The Basics of Emergency Student Loans

The term emergency student loan generally refers to a loan offered to actively enrolled students in dire financial situations, typically by colleges and universities. If you have experienced an unexpected financial hardship, whether due to a job loss, a death in the family, or any life circumstance that results in immediate financial need, you may be eligible to apply.

Emergency loans are generally disbursed and repaid on rapid schedules. Repayment terms may be as short as 30 to 90 days. The amount you can borrow varies by school but the cap is typically between $500 to $1,500. Some emergency student loans are interest-free, while others charge a low interest rate.

Typically, you cannot use an emergency student loan to cover your tuition for the semester. However, you can use it to cover other expenses, like food, housing, childcare, and medical expenses.

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

How to Get Emergency Student Loans

If you need an emergency or instant student loan, a good first step is to contact your school’s financial aid office. If your school offers emergency loans, you will likely need to:

• Find out if you are eligible. You’ll want to check your school’s eligibility requirements to make sure you qualify before you go through the application process.

• Fill out the emergency student loan application. You may be able to do this online or you might need to do it in person at the financial aid office. You’ll likely need to have your student ID and enrollment information. Your school may also ask for documentation of your financial emergency before it will approve the loan.

• Make a plan to repay your loan on time. You may need to repay the loan within just a few months, so you’ll want to determine how you will make those payments. If you miss a payment, the school might charge fees and/or hold your academic records.

Are Emergency Student Loans a Good Idea?

While emergency student loans can be helpful, they may not be the right solution for everyone. For one, the loan might not offer enough money to help you out. For another, schools typically have strict qualification criteria for emergency student loans. For example, you typically need to have experienced an unexpected event that triggered a dire and sudden financial need, such as:

• Loss of a parent

• Dismissal from a job or unexpected reduction in income

• Natural disaster

• Significant crime or theft

Also keep in mind that an emergency loan is still a loan, so you’ll want to make sure you can handle more debt before you tap a fast student loan. Also be sure you can manage the short repayment period. Having a loan go into default may jeopardize your education and your eligibility for future financial aid. In other words, it’s a good idea to establish a plan before you borrow money.

Emergency Student Loan Alternatives

Emergency student loans can be a great resource for some students. However, they aren’t right for everyone. You may not qualify for your school’s emergency student loan program. Or, you might need a larger sum of money or a longer repayment timeline. Also, not all schools offer emergency loans. Luckily, there are other options on the table to help you through a cash crunch during college. Here are five you may want to explore.

1. Unused Federal Student Loans

If you’ve already submitted your Free Application for Federal Student Aid (FAFSA) but turned down some or all of the federal student loans you were offered, there is good news: It’s possible to change your mind. Once you have filed a FAFSA, you are allowed to accept the funds at any time during the academic year.

For example, you might have been offered $5,000 in federal loans but only claimed $2,000 of that money. If you find yourself in financial hardship later in the academic year, you could still claim the unused portion of federal student aid. You can use federal student loans to cover tuition as well as living expenses. Your financial aid office can help you figure out if this is an option for you.

Since you’ve already been approved for the loan, funding time will likely be much faster compared to the regular waiting time for federal aid. It shouldn’t take more than 14 days to receive the funds.

If you’ve had a major change in your financial situation, such as a job loss or the passing of a parent, you may want to resubmit your FAFSA to reflect your new situation. Depending on the changes, you might qualify for more aid.

2. University Grants and Scholarships

Some colleges and universities offer emergency aid in other forms besides loans. Emergency grants and scholarships work in a similar way to emergency student loans in that they’re meant to help cover unexpected financial hardships. However, unlike loans, grants don’t have to be repaid.

For example, some schools offer completion scholarships or grants, which can forgive a portion or all of the outstanding balance that might otherwise keep a student from advancing or graduating. Other schools have voucher programs to help with specific on-campus costs like books and dining hall meals.

You’ll need to get in touch with your financial aid office to see if you qualify for any emergency assistance grants, scholarships, or vouchers under your circumstances. The school may require proof of hardship or emergency.

Recommended: Finding Free Money for College

3. Private Student Loans

If you’ve tapped all of your federal aid options, you might turn to private student loans to help cover emergency expenses. These are loans offered by banks, credit unions, and online lenders.

Private student loans typically come with higher interest rates than federal student loans and don’t offer the same borrower protections (like forbearance and forgiveness programs). However, you can often borrow up to your school’s cost of attendance with a private student loan, giving you more borrowing power than you can get with the federal government. Depending on the lender, you may be able to take advantage of quick student loan approval and disbursement and use the money to pay for your emergency expenses.

Some lenders send the money straight to the school and, once tuition is covered, the school will typically give you the remainder of the loan to cover living expenses. In other cases, lenders will send the funds to you to make the appropriate payments.

4. Tuition Payment Extension

If you’re not sure you can pay your tuition on time due to a sudden emergency, it’s worth asking your financial aid office if they provide temporary payment extensions or payment plans.

Some colleges may be willing to grant you an extension on paying your tuition. For example, they might offer an emergency deferment plan which allows enrolled students to postpone payments through a specific date, such as the 90th day of the term. This might give you a bit of extra breathing room in your budget.

You might also explore tuition payment plans. Many schools allow you to spread out your tuition into affordable monthly or bi-monthly payments. Typically, schools don’t charge interest on thes plans. However, when exploring this alternative, it’s a good idea to ask about any fees or interest charges that might apply.

5. Food Pantries

The cost of food is high these days, and this may be particularly burdensome during an emergency. Your school may have an on-campus food pantry that can help reduce your expenses until you’re back on your feet. Also keep in mind that local churches and other charitable organizations in your area may also offer food at no cost to those in need. Feeding America is a helpful resource to find food banks near you.These food pantries can provide basics like canned foods, pastas, dried breakfast items and more.

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

Where Can You Look for Other Forms of Emergency Student Aid and Assistance?

Outside of emergency student loans and grants, colleges and universities often offer additional resources that can help with unplanned costs during an emergency. You might find on-campus support in the form of housing opportunities, bus passes, or food pantries. Even if your school doesn’t offer emergency assistance directly, a financial aid administrator may know of off-campus organizations that will offer support.

You might also explore assistance from alumni-funded foundations or other nonprofit scholarships or grants that can provide emergency assistance. For example, the UNCF offers a “Just-in-time” emergency grant of up to $1,000 for students at risk of dropping out of college due to a financial hardship (like medical bills, a car repair, or a trip home to help a sick parent). Students must complete an online application form and show proof of financial hardship.

After You Graduate

If you took out federal or private student loans during college to cover expenses (both planned and unplanned) and you’re now in the repayment stage, you might want to look into refinancing. When you refinance your student loans, a lender pays off your existing loans with a new one, ideally at a lower interest rate. That can potentially save you money in the long run — and from the first payment you make.

Just keep in mind that if you refinance federal student loans with a private lender you forfeit federal protections, such as income-driven repayment plans and forgiveness programs.

Check out what kind of rates and terms you can get in just a few minutes.

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About the author

Julia Califano

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

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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).

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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SOSL1123020

Apr

2025

TEACH Grant: Defined, Explained, and Pros and Cons

By Jacqueline DeMarco | Debt Payoff, Fresh Out of School, Going to College, Student Loans, student_loan | Comments Off

If a student has goals of pursuing a career as a teacher, they may find that the Teacher Education Assistance for College and Higher Education (TEACH) Grant can help them meet their goals and reduce their educational expenses. The TEACH Grant is a form of federal financial aid that is focused on helping those pursuing a career in teaching pay for their college expenses.

As part of the TEACH Grant, recipients are required to complete a teaching service obligation in order to get the grant. If this obligation isn’t completed, the grant will be transitioned into a loan that will need to be repaid with interest.

Keep reading for more information on the TEACH Grant, including how it works, pros and cons of the TEACH Grant, and how to apply.

What Is a TEACH Grant?

The TEACH Grant is a federal financial aid program designed to help students pursuing teaching careers pay for college expenses. In order to receive a TEACH Grant, applicants have to agree to teach a subject that is considered “highly needed” in a low-income area with a shortage of specific subject teachers. These schools can be elementary and secondary schools.

Grant awards are up to $4,000 a year when the recipient is in school. Once they start working, they will be paid their normal salary without the addition of any grant funds.

TEACH Grants are eligible for multiple subject areas, including:

• Bilingual education and English language acquisition

• Foreign language

• Mathematics

• Reading specialist

• Science

• Special education

• Any other field that has been identified as high-need by select governing agencies

After graduating, recipients have to teach at a low-income school or educational agency for a minimum of four years. This four-year teaching requirement must be completed within eight years of the recipient’s graduation.

TEACH Grant Eligibility

The TEACH Grant comes with certain eligibility requirements, including:

• Student must be eligible for federal student aid programs

• Student has to be an undergrad or graduate student

• The recipient’s school has to participate in a TEACH Grant-eligible program of study

• Student has to be enrolled in one of these eligible programs

• Recipient must score above the 75th percentile on one or more portions of a college admissions test or has to maintain a cumulative grade point average of 3.25 or higher

How the TEACH Grant Works

Students who qualify for the TEACH Grant program may receive up to $4,000 a year in funding if they are in the process of completing — or one day plan to complete — the coursework required to start a teaching career.

In order to qualify for a TEACH Grant, the student has to sign a TEACH Grant agreement to work full-time as a teacher for four years at an elementary or secondary school or educational service agency that serves low-income students. They also need to teach in a high-need field and have to finish their teaching obligations within eight years after they graduate from or stop being enrolled at the institution of higher education where they received a TEACH Grant.

Do You Have to Pay It Back?

If the recipient fulfills all service obligations of the grant, they won’t have to repay their TEACH Grant. However, if they don’t fulfill the TEACH Grant requirements, then all TEACH Grants they received will be converted to Direct Unsubsidized Loans that they must repay in full. They will be charged interest starting from the day of their TEACH Grant disbursement.

Can It Be Used for Living Expenses?

The TEACH Grant is intended to fund coursework (up to $4,000 annually) for students who are in the process of or will one day complete the coursework required to begin a teaching career. Consider consulting with the financial aid department of the school the student is attending to see if these funds can also be used for living expenses.

Pros and Cons of a TEACH Grant

Like any program, the TEACH Grant has some unique advantages and disadvantages associated with it.

Pros	Cons
Up to $4,000 in funding each year to pursue the coursework required to become a teacher	Must work full-time as a teacher for four years at an elementary or secondary school or educational service agency that serves low-income students
If service obligation is fulfilled, the grant doesn’t need to be repaid	If the service obligation is not completed within eight years, the grant will need to be repaid in the form of a Direct Unsubsidized Loan

Applying for a TEACH Grant

The TEACH Grant application is a part of the Free Application for Federal Student Aid (FAFSA®). Students can apply for the TEACH Grant when they submit their FAFSA. Some grants may have limited funding, so it’s generally recommended that students submit the FAFSA earlier rather than later. When the student receives their financial aid offer, they’ll find out if they received a TEACH Grant.

Students must continue to apply for the TEACH Grant each year by submitting the FAFSA annually. They will also be required to complete TEACH Grant counseling and sign a new Agreement to Serve every year.

Not all schools participate in the TEACH Grant, so it’s helpful to contact the school’s financial aid office to find out if they participate in the program and to learn what specific areas of study are eligible for the program.

Alternative Forms of Funding

If a student doesn’t qualify for the TEACH Grant, finds it is not a good fit for their needs, or knows that they don’t want to complete the service obligations, these are some other options they may have for pursuing funding to help pay for college.

Scholarships

When a student receives a scholarship, they don’t have to repay those funds. It’s worth applying for multiple smaller scholarships, not just big ones. Those smaller scholarships can really add up.

Other Grants

Like scholarships, generally students don’t have to repay grants for college (unless the grant has obligations like the TEACH Grant). A student’s financial aid office can help point them in the direction of available grants and filling out the FAFSA annually can help them qualify for other federal grants, such as the Pell Grant.

Recommended: FAFSA Guide

Federal Student Loans

Federal student loans are funded by the U.S. Department of Education and there are a handful of different types of federal loans available to both undergraduate and graduate students. To qualify for federal student loans, students have to fill out the FAFSA each year. Federal student loans generally have better interest rates and terms than private student loans and they come with unique federal protections.

Private Student Loans

Students can borrow private student loans to help fill the gaps that scholarships, grants, and federal student loans leave behind. As mentioned, private student loans may not offer the same benefits as federal student loans, and for this reason, they are generally considered an option only after other funding resources have been exhausted.

Recommended: Guide To Private Student Loans

Part-Time Work

If students are looking to avoid taking on student loan debt or want to lighten their student loan load, they could work part-time to help cover higher education costs and living expenses. There are often on-campus jobs designed to help college students balance their school work and their need to earn an income.

The Takeaway

Paying for college is expensive and a TEACH Grant can help soon-to-be teachers pay for the cost. That being said, the service obligations of this grant won’t appeal to all students and they may find they need to pursue alternative funding, including federal and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Is the TEACH Grant worth it?

Each individual needs to consider carefully if the service obligation attached to the TEACH Grant makes the $4,000 in financial assistance worth it to them. If they don’t want to live or teach in an area that services low-income students, they may find this program isn’t a good fit.

Do you have to pay back a TEACH Grant?

Recipients may have to pay back their TEACH Grant if they don’t meet the full requirements of their service obligation. If a recipient failed to meet these obligations, the grant funds they received through this program would be converted to Direct Unsubsidized Loans that have to be repaid in full with interest charges.

What does TEACH Grant stand for?

The acronym TEACH of TEACH Grant stands for Teacher Education Assistance for College and Higher Education (TEACH).

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

Photo credit: iStock/Marcus Chung

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.

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.

SOISL-Q324-049

Are Refinanced Student Loans Tax Deductible?

What Is a Tax Deduction?

The Difference Between a Tax Deduction and a Tax Credit

How Does Paying Student Loans Affect Taxes?

Who Is Eligible for the Student Loan Interest Deduction?

Are Refinanced Student Loans Tax Deductible?

Refinance Qualifications

Refinancing Your Student Loans With SoFi

FAQ

What refinance costs are tax deductible?

Is it worth it to claim student loan interest?

Are student loan payments tax deductible?

Why People Refinance Student Loans

Benefits of Refinancing Private Student Loans

A Lower Interest Rate

Reduced Monthly Payments

Consolidation of Multiple Loans

Releasing a Cosigner

Factors to Consider Before Refinancing

Credit Score Requirements

Financial Stability

Length of Repayment Term

When Refinancing Might Not Be the Best Option

You Can’t Get a Lower Interest Rate

You Have Federal Loans and Could See a Decline in Income

You Are on an Income-Driven Repayment Plan

You’re Working Toward Student Loan Forgiveness

The Takeaway

FAQ

Why do people refinance their student loans?

Why should you avoid refinancing student loans?

Why should private student loan borrowers refinance right now?

Should You Pay Off Your Student Loans Before You Buy a House?

Reasons to Pay off Your Student Loans Before Buying a House

The Longer You Wait to Pay off Student Debt, the More Interest You’ll Pay

Your Debt-to-Income Ratio Is High

You Don’t Have Enough Saved for a Substantial Down Payment

You Might Move Within the Next Five Years

Reasons to Buy a House Before Paying off Student Loans

Student Loan Debt Is Not as Bad as Other Types of Debt

You Have a Low DTI

You Have a Lot in Savings

Buying a Home Is a Top Priority

Options to Consider for Those Trying to Manage Student Debt and Buy Property

Saving Strategies

How Refinancing Could Potentially Help Prospective Homebuyers

5 Alternatives to Emergency Student Loans

The Basics of Emergency Student Loans

How to Get Emergency Student Loans

Are Emergency Student Loans a Good Idea?

Emergency Student Loan Alternatives

1. Unused Federal Student Loans

2. University Grants and Scholarships

3. Private Student Loans

4. Tuition Payment Extension

5. Food Pantries

Where Can You Look for Other Forms of Emergency Student Aid and Assistance?

After You Graduate

We’ve Got You Covered

Need to payfor school?

Already have student loans?

TEACH Grant: Defined, Explained, and Pros and Cons

What Is a TEACH Grant?

TEACH Grant Eligibility

How the TEACH Grant Works

Do You Have to Pay It Back?

Can It Be Used for Living Expenses?

Pros and Cons of a TEACH Grant

Applying for a TEACH Grant

Alternative Forms of Funding

Scholarships

Other Grants

Federal Student Loans

Private Student Loans

Part-Time Work

The Takeaway

FAQ

Is the TEACH Grant worth it?

Do you have to pay back a TEACH Grant?

What does TEACH Grant stand for?

Need to pay
for school?

Already have
student loans?

Student Loan
Refinancing

Personal
Loans

Online
Investments