Jul
05
2023

Should You Refinance Your Student Loans?

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

If repayment of your student loans has started or interest is accruing, it might be high time to school yourself on managing your school debt. Refinancing is one option.

Sure, it’s not the most fun way to occupy a weekend, but taking a close look at your student loans and understanding the ways to repay them may save you money and angst.

When Might It Be a Good Idea to Refinance Student Loans?

There are many reasons it may be a good idea to refinance your student loans, including lowering your interest rate, lowering your payment, and combining multiple loans into one. You can refinance both federal and private student loans, but refinancing federal loans with a private lender will forfeit your eligibility for federal benefits and protections.

When It Would Save You Money

The main goal of refinancing with a private lender is to lower the interest rate on your student loans — federal and/or private — with one new loan with a new rate that pays off the existing loans.

When rates are low, refinancing student loans could make a lot of sense. How much could you save? This student loan refinancing calculator can be enlightening.

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

Or, perhaps you need to lower your monthly payment to help save money right now. One way to do this is to refinance your student loans with a longer loan term. This will reduce your payment, but you may end up paying more in interest over the life of the loan due to the extended term. You could also lower your payment by qualifying for a lower interest rate, if you can, and keeping the term the same.

You Qualify for Refinancing

Your eligibility to refinance student loans depends on your financial history, employment, and monthly income vs. expenses. If you’ve spent time building your credit and have a stable job, you could qualify for the best student loan refinancing rates.

You can also consider applying for a student loan refinance with a cosigner. If your cosigner has a stronger credit profile than you or better debt-to-income ratio, you may be able to land a better rate on your refinance.

You can usually refinance student loans right after graduating, and as often as you want after that. Most lenders charge no fees to refinance.

You Want to Remove a Cosigner

Some lenders allow a cosigner to be released from any repayment obligation when student loans are refinanced.

Principal borrowers applying for cosigner release typically have to demonstrate that they are able to handle the loan on their own by meeting certain minimum requirements.

You Want to Switch to Fixed Interest

If you have student loans with variable rates, you may want to consider refinancing to lock in a fixed rate before rates rise.

Then again, if you’re willing to take on a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider switching from a fixed rate to a variable rate. A variable-rate loan typically starts with a rate that’s 1-2% lower than a comparable fixed-rate loan.

But what if variable rates rise? Variable rates often will still save you money over the long term.

You Are Willing to Give Up Federal Benefits

If you have federal student loans, refinancing them into a private student loan will eliminate the ability to participate in income-driven repayment plans, Public Service Loan Forgiveness, and federal deferment and forbearance.

If you are using these benefits or plan to, it’s not recommended to refinance your student loans. Instead, you could consider a federal student loan consolidation. This combines multiple loans into one, with the interest rate being the weighted average of the loans you are consolidating rounded up to the nearest one-eighth of a percent.

Want to see if refinancing could be right for you? We’ve created a quick quiz that might help.


IMPORTANT: The projections or other information generated by this quiz regarding the likelihood of various outcomes are hypothetical in nature, do not reflect actual results, and are not guarantees of offers.

The Takeaway

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

When is it a good time to refinance student loans?

You can refinance your student loans at any time, but a good time to refinance is if you’re looking for a lower interest rate or lower monthly payment, and you’re not using or planning on using federal benefits. To qualify for the best rates, you’ll need a solid credit profile and a stable income. You can also consider refinancing your student loans with a cosigner.

Can refinancing student loans reduce the cost of your total debt?

Yes, refinancing your student loans can reduce the amount of interest you pay over the life of the loan. You can do this by lowering your interest rate (and keeping your loan term the same) and/or shortening your loan term.

What credit score do you need to refinance student loans?

The minimum credit score needed to refinance student loans varies from lender to lender, but FICO states that a “good” credit score is 670 or higher. To get the best student loan refinance rates, you’ll want to have a good credit score and low debt-to-income ratio. If you don’t meet those requirements, you may want to consider refinancing with a cosigner.

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


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

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

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

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

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

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Jun
26
2023
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Do You Have to Pay FAFSA Back?

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

If you’re wondering “do you have to pay back FAFSA®?”or “do you have to pay back financial aid?,” what you really want to know is whether you have to pay back the federal student loans you’re eligible for after filling out your Free Application for Federal Student Aid (FAFSA).

You will have to pay back those loans, but other types of student aid you get through FAFSA likely won’t need to be repaid. Aside from federal student loans, you can also use FAFSA to apply for grants and scholarships as well as work-study jobs, for which you’d get funds you usually don’t need to pay back.

If you have loans through FAFSA and need to pay them back, read on for information on the three general types of federal student loans and your repayment options for each.

Direct Subsidized Loans

With Direct Subsidized Loans, the government (more specifically, the U.S. Department of Education) pays the interest while you’re still in school at least half-time. That’s what makes them “subsidized.”

The maximum amount you can borrow depends on whether you are a dependent or an independent student, as well as what year of school you are in. However, it is ultimately up to your school how much you are eligible to receive each academic year.

Not everybody qualifies for a subsidized loan. You have to be an undergraduate (not a graduate student) demonstrating financial need and attending a school that participates in the Direct Loan Program. Additionally, the academic program in which you’re enrolled must lead to a degree or certificate.

You also should check how your school defines the term “half-time” because the meaning can vary from school to school. Contact your student aid office to make sure your definition and your school’s match. The status is usually based on the number of hours and/or credits in which you are enrolled.

Direct Unsubsidized Loans

As you’re thinking about “do I have to pay back FAFSA?,” it’s good to know that you will have to pay back all the interest that accrues with Direct Unsubsidized Loans while you’re in school, because these loans are “unsubsidized.” That means the government doesn’t cover your interest while you’re in school like they do with a subsidized loan.

You don’t have to prove a financial need in order to qualify for a Direct Unsubsidized Loan. Additionally, these loans are available to graduate students as well as undergraduate students. Again, you need to be enrolled at least half-time in a school that will award a degree or certificate.

Direct PLUS Loans

There are two types of Direct PLUS Loans:

•   Grad PLUS Loans: These are for graduate or professional degree students

•   Parent PLUS Loans: Parent PLUS Loans can be taken out by parents for as long as their qualifying child is a dependent or undergraduate student

Unlike most other federal loans, PLUS loans require a credit check, and you cannot have an adverse credit history. If you or your parents have bad credit, a cosigner on the loan application may be an option.

With Direct PLUS Loans, you can borrow as much as you need for the cost of school attendance, subtracting the other financial aid you’re getting. However, the interest rate for PLUS loans is generally higher than it is for the other types of federal student loans.

Do I Get a Grace Period on My Federal Student Loan Repayment?

Whether you get a grace period — time after you graduate (or drop below half-time enrollment) during which you do not have to make loan payments — depends on what type of federal student loan you have. Not all federal student loans offer a grace period. Direct Subsidized and Unsubsidized Loans offer a grace period of six months, whereas Direct PLUS loans don’t offer a grace period at all.

Grace periods are meant to give you time to find a job and organize your finances before you have to start making loan payments. They are usually one-time deals; in most cases, you often can’t get a second grace period ​once the initial one ends.

Additionally, not all grace periods are exactly alike. Different loans may offer different grace periods. Policies vary. Check with your loan servicer so that you know for sure when your grace period begins and ends.

Keep in mind that grace periods are usually not interest-free. Some loans accrue interest during grace periods. Many students subscribe to the strategy of making interest payments even during the grace period. Doing this to put money toward student loans can ultimately lower the amount you owe, and interest payments are generally more affordable to handle than principal payments.

Also remember that loan servicers are paid by the Department of Education to handle billing and other services for federal loans. This is one of the basics of student loans. The government gives you a loan servicer; you don’t get to choose one yourself. The loan servicer you get is the one you should contact if you have questions regarding your loan.

Federal Student Loan Standard Repayment Plan

Once you graduate, your repayment plan will depend on various factors, but most of the time the government will place you on its Standard Repayment Plan. The general rule here is that you’re expected to pay off your loan over the course of a decade, and your payments will remain the same for the duration.

Before you are placed on that Standard Repayment Plan, the government gives you a chance to choose a few other repayment options (which we’ll discuss below). If you don’t choose one of those, you’ll automatically be placed on the Standard Repayment Plan.

Additional Repayment Options

Here are a couple of your other repayment options beyond the Standard Repayment Plan:

•   The Extended Repayment Plan: The Extended Repayment Plan can extend your term from the standard 10 years to up to 25 years. To qualify, you must have at least $30,000 in outstanding Direct Loans. As a result, your monthly payments are reduced, but you could be paying way more interest.

•   The Graduated Repayment Plan: Another option, the Graduated Repayment Plan lets you pay off your loan within 10 years, but instead of a fixed payment, your payments start low and increase over time. This may be a good option if your income is currently low but you expect it to increase over time.

Keep in mind that although you can choose these repayment options, you cannot refinance a federal student loan with the government on your own (you can, however, consolidate them). That’s because those interest rates are set by federal law, and they can’t be changed or renegotiated.

Difference Between Refinancing & Consolidating Student Loans

While you can’t refinance your federal loans with the government, you can do so with a private loan company. Before you consider refinancing, be sure to know the difference between refinancing and consolidating student loans:

•   Refinancing means taking out a brand new loan so that you can pay off your existing loans. To refinance, you’ll choose the loan company you feel is best, with (hopefully) better interest rates and repayment terms. Refinancing student loans can be done via a private lender and can be used for both federal and private loans. Keep in mind that when you refinance federal loans with a private lender, you lose access to federal benefits and protections like loan forgiveness programs and repayment plans.

•   Consolidation means placing all of your current loans into one big loan. Doing this typically extends your loan term so that your monthly payment is lowered. The problem with consolidating student loans is that it could mean you wind up paying additional interest. This is because when you consolidate multiple federal student loans, you’re given a new, fixed interest rate that’s the weighted average of the rates from the loans being consolidated.

Refinancing (as opposed to consolidating) your school loans may be a good option if you have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. One of the advantages of refinancing student loans with a longer term can reduce your monthly payments. Note: You may pay more interest over the life of the loan if you refinance with an extended term. Alternatively, you may be able to lower your interest rate or shorten your term.

Before you apply for that refinancing plan, it’s a good idea to check your credit score, as it is an important factor that lenders consider. Many lenders require a score of 650 or higher. If yours falls below that, you may consider a cosigner on the loan.

Lenders typically offer fixed and variable interest rates, as well as a variety of repayment terms (which is often based on your credit score and many other personal financial factors). The loan you choose should ultimately help you save money over the life of the loan or make your monthly payments more manageable.

The Takeaway

To answer the question, do you have to pay back FAFSA?, if you only got grants, scholarships, or work-study funding through FAFSA, you don’t have to worry about paying FAFSA back, so to speak. But if you got federal student loans through filling out FAFSA, you will have to pay those loans back.

Luckily, you have a number of options to do so. If you have high-interest loans, consider looking into student loan refinancing to see if you can reduce your monthly payments. SoFi offers loans with low fixed or variable rates, flexible terms, and no fees.

Check your rate for student loan refinancing in just two minutes with SoFi.

FAQ

If you fail a class, do you have to pay back your FAFSA financial aid?

In general, failing a class doesn’t mean you’ll have to pay back your FAFSA financial aid. However, if you don’t make Satisfactory Academic Progress (SAP), you could lose your future eligibility for financial aid. Your risk for losing eligibility for future financial aid might be greater if the class you failed is an important component of your major.

If you have leftover credits after financial aid is applied, do you have to pay it back at the end of the semester?

You won’t lose any money that may be left over (called a credit balance) after financial aid is applied to your tuition and other school expenses. The credit balance must be refunded to you within 14 days. That is, unless you direct the school to keep the credit balance and apply it to charges for the next semester.


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


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.

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.

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

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Jun
23
2023
Are Student Loans Tax Deductible? What You Should Know About the Student Loan Interest Deduction

Are Student Loans Tax Deductible?

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

If you paid money on your student loans in the last tax year, you might qualify for the student loan tax deduction, which allows borrowers to deduct up to $2,500 in interest they paid out of their taxable income.

Here are some important things you should know about the student loan interest deduction and whether you qualify.

How the Student Loan Tax Deduction Works

With the student loan tax deduction, you claim the interest you paid on your student loans throughout the tax year when it’s time to do your taxes.

The interest applies to qualified student loans that were used for tuition and fees; room and board; coursework-related fees, books, supplies, and equipment; and other necessary expenses like transportation.

So how much student loan interest can you deduct? If you qualify for the full deduction, you can deduct student loan interest up to $2,500, as long as you actually paid that much in interest. (You don’t need to itemize in order to get the deduction.)

Not only do required interest payments count, but if you made any additional interest payments toward your student loans in the past tax year, those count too.

How to Qualify for the Student Loan Tax Deduction

To be eligible to deduct student loan interest, individuals must meet the following requirements:

•   You paid interest on a qualified student loan (a loan for you, your spouse, or a dependent) during the tax year.

•   Your modified adjusted gross income (gross income for the year minus certain deductions) is less than a specified amount that is set annually.

•   Your filing status isn’t married filing separately.

•   Neither you nor your spouse can be claimed as a dependent on someone else’s return.

The loans in question can be federal or private student loans.

Recommended: Private Student Loans Guide

What Are the Income Requirements for Student Loan Tax Deduction?

Your modified adjusted gross income (MAGI) is calculated on your federal tax return before any student loan interest deduction is made. The eligible ranges are recalculated annually.

For tax year 2022 (filing in 2023), the student loan interest deduction was worth as much as $2,500 for a single filer, head of household, or qualifying widow/widower with a MAGI of under $70,000.

For those who exceeded a MAGI of $70,000, the deduction began to phase out, meaning the most they could deduct was less than $2,500. Once their MAGI reached $85,000 or more, they were no longer able to claim the deduction.

For married couples filing jointly, the phaseout began after a MAGI of $145,000, and eligibility ended at $175,000.

Confused by all these requirements? If so, consider going to a tax professional to help with your return to make sure you can take advantage of the deduction.

When we say no fees we mean it.
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Other Tax Deductions for Students

In addition to the student loan interest rate deductions, there are other tax breaks that may be available to you if you’re a student, or you’re saving for or paying for certain education expenses for yourself, a spouse, or a dependent. Here’s a look:

529 Plans

A 529 college savings plan is a tax advantaged plan that allows you to save for qualified education expenses — like tuition, lab fees, and text books — for yourself or your children. You can contribute up to $15,000 per year without triggering gift taxes, and other family members can contribute to the fund, as well.

Savings can be invested and grow tax free inside the account. And while the federal government doesn’t offer any tax deductions, some states will provide tax benefits like deductions from state income tax. Withdrawals must be used to cover qualified expenses, otherwise you will face income taxes and a 10% penalty.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) helps offset $2,500 in qualified education expenses per student per year for the first four years of higher education. Unlike a tax deduction, tax credits reduce your tax bill on a dollar-for-dollar basis. And if the credit brings your taxes to zero, 40% of whatever remains of the credit amount can be refunded to you, up to $1,000.

To be eligible for the AOTC you must be getting a degree or another form of recognized education credential. And at the beginning of the tax year, you must be enrolled in school at least half time for one academic period, and you cannot have finished your first four years of higher education at the beginning of the tax year.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) helps pick up where the AOTC leaves off. While the AOTC only lasts for four years, the LLC helps offset the expense of graduate school and other continuing educational opportunities. The credit can help pay for undergraduate and graduate programs, as well as professional degree courses that help you improve your job skills. The credit is worth $2,000 per tax return, and there is no limit to the number of years you can claim it. Unlike the AOTC, it is not a refundable tax credit.

To be eligible, you, a dependent or someone else must pay qualified education expenses for higher education or pay for the expenses of an eligible student and an eligible educational institution. The eligible student must be yourself, your spouse or a dependent that you have listed on your tax return.

Recommended: Can You Deduct Your Child’s Tuition from Taxes?

Look for Form 1098-E

Unfortunately, you can’t deduct the entirety of your student loan payments from your taxes. As mentioned, you can only deduct your interest. How to get the student loan interest deduction? Your loan provider reports information on interest paid on Form 1098-E, which is a tax form financial institutions generally send to borrowers when the tax year ends.

The only reason you wouldn’t receive one from your lender is if you paid less than $600 in interest on their loan. But these forms don’t always report things like the interest you paid on certain origination fees or capitalized interest, which may also qualify for the student loan deduction.

How to Calculate the Student Loan Tax Deduction

To calculate the full value of the interest deduction, start with the amount of interest the form says you paid, and then add any interest you paid on qualified origination fees and capitalized interest. Just make sure these amounts don’t add up to more than the total you paid on your student loan principal.

Clear as mud, right? Hey, no one said the IRS makes things easy! Here are some examples of how to deduct these amounts.

Deducting the origination fee: As of Sept. 1, 2004, this fee — usually a one-time fee that lenders charge for creating a new loan — is included on your 1098-E. For loans issued before that date, you can use any reasonable method to allocate the loan origination fees over the term of the loan. One way to do this is to figure out how much the fees will cost you monthly over the life of the loan.

Example: If the origination fee you were charged on your loan was $1,000 and the term length was 10 years, or 120 months, that would mean your origination fee would be $8.33 per month, or $100 per year.

Deducting capitalized interest: If your Form 1098-E says your loan has capitalized interest, you can also claim that after you’ve claimed an origination fee deduction. Capitalized interest accrues and then is added to the loan principal if you don’t pay it. For example, Unsubsidized federal student loan accrue interest while the student is in school and during the loan’s grace period. It’s common for that interest to be capitalized (added to principal) at the end of the grace period.

Example: If you made $6,000 in student loan payments, of which $1,000 went to interest and $5,000 to principal, you can claim the $100 you paid toward your origination fee and the full $1,000 in capitalized interest. But if you only paid off $750 of your principal, you can claim $650 of the $1,000 of capitalized interest, because you’ll have to claim the $100 in origination fees first and you can’t exceed the amount you paid toward your principal.

Tips for Lowering Your Student Loan Payments

Tax credits and deductions are one way to help pay for the cost of school. Finding ways to lower your student loan payments is another cost-saving measure and can be good to know about when it comes to the basics of student loans. Here are a few ideas:

•   Put money toward student loans by making additional payments to pay down your principal. Doing this may help reduce the amount of interest you will owe less interest over the life of the loan, but beware of any prepayment penalties.

•   Make interest only payments while you’re still in school. This may prevent thousands of dollars from being added to your loan principal.

•   See whether your loan provider offers discounts if you set up automatic payment. Federal Direct Loan holders may be eligible for a 0.25% discount when they sign up for automatic payments.

•   Consider refinancing student loans, replacing your student loan with a new loan that ideally has a lower interest rate or more favorable terms.

While there are advantages of refinancing student loans, such as possibly lowering your monthly payments, there are disadvantages as well. One major caveat: If you refinance federal loans, they are no longer eligible for federal benefits or protections. Also, you may pay more interest over the life of the loan if you refinance with an extended term. Refinancing is not right for everyone.

The Takeaway

Who doesn’t love a tax deduction? Qualified filers can take a student loan interest deduction of up to $2,500 atop the standard deduction. Most private and federal student loans are fair game.

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. And lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

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

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


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

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

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

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.

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Jun
23
2023
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What Is a Delinquent Payment?

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

When a payment is past due, it becomes a delinquent payment. For instance, if your student loan payment is due by the 15th of each month, and the 16th arrives and you haven’t paid the amount you owe, you’re generally considered to be delinquent on that loan.

Once you’re late making a payment, a late fee may be assessed, and late payments may impact your credit report.

Read on to learn more about delinquent debt and the potential consequences, as well as ways to help prevent student loans from becoming delinquent.

Credit Score Calculations and Purposes

When you apply for a loan, like a personal loan, a car loan, or a credit card, the lending institution reviews your application to make sure you’re able to repay the loan. They look at things like your income to make sure you have the financial resources to make payments, as well your outstanding debts.

If you’re applying for a secured loan (which is a loan secured by collateral like a home, car, boat and so forth), they’ll make sure the asset being used as security for the loan has enough value.

And the lender will also check your credit score. Unlike when your income is checked, your credit score doesn’t summarize whether or not you can repay a loan. Instead, it provides a snapshot to a lending institution about how well you’ve upheld your financial commitments in the past. (it’s worth noting that most federal student loans do not require a credit check.)

If the lender sees that, to date, you’ve met your financial obligations, that can make you look like a responsible borrower. But if your credit history isn’t as clean as it could be, say you have delinquent credit, this shoots up a red flag; things like late payments can impact your credit for months or even years.

As a result, the lender may deny the loan, approve less than what you need, or offer you a higher interest rate than what’s being awarded to people with excellent credit scores.

Although there are multiple calculations that can be used to determine creditworthiness, FICO® scores are the most commonly used. This base score can range from 300 to 850; the higher the base score, the better your credit is considered to be.

Here is the general formula used to determine your base FICO score:

•  As much as 35%: payment history

•  About 30%: what you currently owe

•  Up to 15%: length of your credit history

•  Up to 10%: types of credit you have

•  Up to 10%: new credit applications you’ve made

There are three major credit reporting agencies. Besides Experian, there is TransUnion and Equifax. According to the federal Fair Credit Reporting Act (FCRA), you are allowed to obtain a free copy of your credit report each year.

As you read your credit report, if you find errors, it’s important to report and correct them with the credit bureaus.

More about Delinquent Payments

What is delinquent debt? If someone is late on a payment, there can be fees assessed. If payments continue to be late, additional fees may be added. Delinquent payments may also cause your loan to switch to a penalty APR, which can significantly increase the interest you owe and make it harder to pay down the balance.

Late payments of 30 days or more may end up on your credit report, which can be damaging, and may negatively impact your credit score. If the amount you owe is sent to collections, that fact could appear on your credit report for seven years. If you’ve missed a loan payment and are delinquent, you can contact the lender to discuss how you can get back on track.

Late Student Loan Payment

Just as you don’t want to make a delinquent payment on a loan for your house or car, you don’t want to be late on your student loan payments. Specific consequences vary by lender; you can check with your loan servicer for exact details.The consequences may be different for private student loans vs. federal student loans.

In addition to typically involving a late fee, a late student loan payment may appear on your credit report. If your federal student loan payment is 90 days late, it will then be reported to all three credit bureaus. However, private student loan late payments are often reported to a credit bureau when they are 30 to 45 days past due.

If your late federal student loan payment snowballs into multiple ones, and you missed making payments for 270 days (about nine months), your federal student loans go from delinquent to being in default. This means that your loans are now due in full, along with accrued interest, fees charged by collection agencies, and any other fees, fines, and penalties.

To collect this amount, the government can garnish up to 15% of your pay, and/or take your tax refund to put towards the debt. They can do the same to your loan co-signer, if you have one. And, your loan servicer can even sue you.

If you know you’re going to miss a payment, you can contact your student loan servicer. If you’re undergoing financial hardship, perhaps because of a job loss or medical emergency, you can apply for federal student loan deferment, which can postpone payments or reduce them.

If the situation is less serious, and you’ve missed a payment because of your hectic schedule, you might find it helpful to set up automatic loan payments to avoid delinquent debt.

Here’s a third scenario: Let’s say that you’re meeting your student loan payments, but the amount you’re paying every month is higher than you’d like. In that case, you could apply for student loan refinancing. If you qualify, you could have the option to select a more manageable monthly payment or get a lower interest rate.

A student loan refinance calculator can help you determine how much you might save.

Should you refinance your student loans? You may want to think twice if you have federal student loans. That’s because if you refinance your federal loans with a private lender, you will forfeit all of your federal benefits, including programs like income-driven repayment plans.

Recommended: Student Loan Refinancing Guide

Refinancing Student Loans with SoFi

When you refinance your student loans, you can consolidate multiple loans into one loan with one convenient payment. And you may be able to qualify for a lower interest rate, which could help you save money. SoFi offers loans with low fixed and variable rates, flexible loan terms, and no fees. And as a SoFi member, you also get free perks like career coaching and financial advice.

All it takes is two minutes to find out if you prequalify for student loan refinancing with SoFi.

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


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

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.

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.

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 .

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Jun
23
2023
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What to Do After You Graduate From Law School

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

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

The path you choose depends on the type of law you studied, your interests, and your past experiences. According to the Bureau of Labor Statistics (BLS), the median salary for lawyers in 2021 was $127,990 annually.

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

Finding Jobs After Law School

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

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

Landing at a Law Firm

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

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

Considering a Clerkship

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

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

Getting an Advanced Degree

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

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

Alternative Careers Outside Law

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

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

Tackling Law School Debt

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

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

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

Making Payments While Still in School

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

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

Sticking to Budget Basics

After your law degree, it can be wise to take stock of your budget and work to balance your goals for savings, emergency funds, credit card payments, and student loans. The average student loan debt from law school currently sits at $180,000, so you’ll want to prioritize making a plan to get these paid off as quickly and efficiently as possible.

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

Recommended: How Much Money Should Be in Your Emergency Fund?

Refinancing Law School Loans

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

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

The Takeaway

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

Law school may also mean taking on a significant amount of student loan debt. Refinancing could be an option that helps you spend less in interest over the life of the loan if you’re able to qualify for a more competitive interest rate or secure a shorter term. If you’re interested in student loan refinancing, consider SoFi. Refinancing with SoFi can be completed online and there are no application fees, origination fees, or prepayment penalties.

See if you prequalify for law school student loan refinancing with SoFi.

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


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

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

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

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