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Why Your Student Loan Balance Never Seems to Decrease

Does it seem like your student loan balance never gets any smaller? You’re not the only one—37% of American adults under 30 are paying off student loans . But why exactly does your balance appear to remain steadfast, even after months of dutiful payments? Well, the short answer is that your student loan balance increases as interest accrues.

And your loan is amortized, which means that your payments might be only covering those interest costs while the underlying loan continues to rack up new interest charges every day. Understanding how your student loans accrue interest can help you make smart choices about paying off your debt faster.

What Does A Balance Mean on a Student Loan Account?

Your student loan balance is the amount of money owed to your student loan providers, including both the principal and the interest accrued. When you first take out student loans, your balance is just the amount you’re borrowing and any origination fees. As time goes on, however, many students’ loan balances actually begin to grow.

Some loans accrue interest while you’re in school, during the six-month grace period after graduation, or in periods of deferment or forbearance. The longer you have student loan debt to your name, the more time interest has to accrue. Once your grace period is over, you might notice that your student loan balance is larger than the amount you initially borrowed.

How Do I Find My Student Loan Balance?

The first step in tackling your student loan balance is knowing exactly what you’re up against. The quickest way to determine your total federal student loan balance is to visit the National Student Loan Data System (NSLDS), which is the central database of student aid for the U.S. Department of Education. This database is the main repository of all federal student loan information, including what loans you owe.

The National Student Loan Data system uses information gathered from government loan agencies and loan servicers to keep their data up to date and is a reliable source if you’re looking for a detailed overview of your federal student loans. Their info typically includes the dates your loans were disbursed, any grace periods, and even the date you paid off any old loans.

NSLDS does not, however, aggregate data about private student loans. This means that if you took out any loans to finance your education that didn’t come from the federal government, you may need to use other means to track down your total student loan balance. For your private loan information, reach out directly to your lender. You can also review your credit report find information on all your debts, including student loans.

How Does Interest Affect My Student Loan Balance?

Most people pay a fixed monthly payment to their student loan service provider. That payment includes the principal and the interest.

The confusing part is that although your monthly payments remain the same each month, the percentage of your payment that goes to the principal amount on your loan changes over time. This means that, in many cases, when you first begin paying off your student loans, most of your monthly payments will go toward interest.

That interest adds up fast. For example, imagine you have a $100,000 student loan with a 5% interest rate. To find out how much interest you are charged every day you calculate your balance times the interest rate divided by 365.

For our example, it looks like this:

$100,000 (student loan balance) x .05 (interest rate) = $5,000

$5,000 ÷ 365 = $13.70

In that scenario, you are being charged nearly $14.00 in interest alone, every single day. Multiply that by 30 days and your student loans are accruing around $410 per month in interest. This means that if you pay $500 on your student loan every month, $410 of that payment is going toward interest, which means only $90 goes to your principal balance.

If you’re making payments under an income-driven repayment plan, things are a little different. Your payments vary according to your income, which means that your payments should never exceed a certain percentage of your salary.

The interest you are charged, however, does not change according to your income. This means that there may be situations in which your monthly payment doesn’t even fully cover the interest charges for that month, much less contribute toward your underlying principal balance. This means that in addition to not getting smaller, your student loan balance will actually grow over time, despite the payments you make.

Let’s look at the example above again. If you have a $100,000 student loan with a 5.00% interest rate, your monthly interest accrual is around $410. If, however, you’re only paying $350 because you’re on an income-based repayment plan, you wouldn’t even be covering the monthly interest costs on your loan.

That means that despite your monthly payments, your student loan balance would actually increase by $60 every month because that is the difference between the interest accruing each month and the amount you’re paying off.

Making a Dent in Your Student Loans

Once you’ve got a handle on your student loan balance and how interest impacts the balance, make an action plan for tackling your loans. When it comes to student loan repayment, it’s important to understand your options so you can make the best decisions for your financial future.

One debt payoff strategy is to focus on the highest interest loan first—also known as the debt avalanche method. Take a look at your loans and figure out which one has the highest interest rate.

This is where you would focus your payoff efforts, after you make the minimum monthly payments on your other loans every month. By focusing on the loan with the highest interest rate first, borrowers may be able to reduce the amount of money they spend on interest.

Another payoff option to consider is refinancing your student loans. If your financial situation has improved since you initially took out your loans, refinancing may be a way to obtain a lower interest rate.

Refinancing is an option for those with federal loans, private loans, or both. However, refinancing can impact your eligibility for programs like Public Service Loan Forgiveness, so be sure to consider all of your options when deciding whether to refinance.

Thinking about refinancing your student loans? Learn more about how SoFi can help you take charge of your loans.


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

Student loan debt is fairly common these days. As of 2018, more than 44 million Americans were dealing with student loans – so don’t feel alone.

And while paying off your loans may be an added stress during these already complicated years of young adulthood, it’s good for you to know that having a student loan may actually help your credit score and even allow you to build a credit history that could enable you to get a mortgage and take out a car loan in the future.

Keep in mind that not all credit is created equal. For instance, student loans are considered installment loans similar to mortgages and auto loans because they’re repaid over time with a fixed number of payments, resulting in eventual full repayment.

In comparison, credit card debt is considered revolving debt because the balance goes up and down, it’s open-ended, and is dependent on when you make a purchase and how much you spend.

Having $50,000 in student loan debt is not the same as having $50,000 in credit card debt. According to FICO® , 7% of consumers with more than $50,000 in student loan debt had credit scores of more than 800 points. (FICO scores range from 300 to 850.) Not too shabby.

But much of your credit score can depend on how you manage your student loans: Do you make your payments on time? Do you pay extra each month? Have you missed any payments?

Here’s a look at how those issues, and student loans in general, can factor into your credit.

Do I Need a Good Credit Score to Take Out a Student Loan?

The answer depends on whether you’re talking about federal or private student loans.

Federal loans don’t take credit scores into account, which is why most every borrower gets the same interest rate regardless of financial profile. However, federal PLUS loans do require that borrowers not have an adverse credit history, which is defined by FinAid as “being more than 90 days late on any debt, or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off.”

Related: Can You Get a Student Loan With No Credit History?

For private lenders, your credit score is usually a key factor in determining not only student loan approval, but also the attached interest rate.

In other words, the better your score, the better your rate. But SoFi does things a bit differently—our non-traditional underwriting process looks beyond your credit score to take into account factors such as education and career. This allows us to provide competitive interest rates on student loan refinancing.

Which Credit Scores do Private Lenders Use?

Most private student loan lenders use FICO credit scores to determine whether to extend credit and at what interest rate. Since FICO is used widely throughout the lending industry, including by mortgage, auto loan, and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

How is My Credit Score Calculated?

Unfortunately, how FICO calculates your credit score is kind of a black box. While the various factors and weightings used in the calculation are publicly available on FICO’s website, its algorithm is proprietary, which means that no one can predict exactly how a specific financial event will affect your score. For example, a late payment will likely reduce your score, but by how many points is anyone’s guess.

That said, there are generally three key ways to improve your credit score: pay bills on time, keep credit card balances low, and reduce the amount of debt you owe.

Has your student loan debt affected your
credit? Monitor your credit score in the SoFi app.


How Does a Late Student Loan Payment Affect My Credit Score?

Making payments on time is obviously important, but what you might not realize is exactly how damaging it is to not pay on time. Even if your credit history is pristine, it only takes one 30-days past due report to cause a material change in your score. Whether you were short on cash or just simply forgot, the FICO algorithm doesn’t distinguish—and the result is the same.

So, if you have trouble remembering to make your payments, set up an automatic payment plan; most lenders will give you a small discount on your interest rate for doing so. When you know you can’t make a payment on time, talk to your lender or loan servicer right away.

Most federal loan lenders and some private lenders offer loan deferment and/or forbearance, allowing you to temporarily suspend payments, which will minimize the impact on your credit score. But remember, there’s absolutely nothing your lender can do to help if you don’t return their calls.

One of the purposes of a credit score is to alert lenders of how likely you are to repay your debts. Something that will likely have a positive affect on your credit score is making your student loan payments on time and in full each month.

Your credit payment history accounts for 35% of your FICO score and just one late payment could negatively impact your credit score.

Once a late payment is reported to the credit bureau, it could remain on your credit report for up to seven years. Making your payments on time and in could positively impact your credit score, meaning you may qualify for better credit terms when it comes time to take out a car loan or mortgage.

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

We hear this question a lot from grad school borrowers and those refinancing student loans to get the best interest rate possible on a private loan.

One factor that can be a red flag for FICO is the number of inquiries it receives from lenders wanting to see your credit report. In other words, if it looks like you apply for more credit often, it could negatively impact your score. But the good news is that FICO attempts to distinguish between a request for a single loan and a request for many new credit lines. As long as you rate-shop in a concentrated period of time, you should be okay.

If you really want to avoid inquiry overload, do your homework before applying for a loan. Private lenders typically list online the range of rates they offer, as well as general eligibility criteria. Researching that info will give you a good idea of whether you’ll qualify before you formally apply.

Also, be sure to ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual inquiry, but this service allows you to compare interest rates worry-free before applying for a loan.

Will Refinancing Student Loans Help My Credit?

Refinancing student loans at a lower interest rate can have an indirect positive impact on your credit. For example, refinancing may lower your monthly payments, making it less likely you’ll miss or be late with a payment.

And if you refinance federal loans with a private lender (in effect, turn your federal loans into a private loan), rest assured that credit bureaus don’t view these two types of loans any differently.

Are There Issues With Paying Off Student Loans Too Quickly?

Some people reason that because education debt is “good debt,” FICO must view it more favorably than other types of debt. And because credit scores can be improved by having open accounts that are paid on time, they think that paying off a student loan early might actually work against their score.

But, while there’s no definitive answer to this question (remember: black box), there are a few things to keep in mind before buying into this belief.

First, FICO doesn’t see your student loan debt as being good or bad. In fact, the agency doesn’t distinguish it from any other type of installment debt, such as mortgage or auto loan debt. Incidentally, while installment debt is different from revolving debt (like credit card debt), it’s generally better to have positive track records with both types of loans .

Second, it’s true that FICO likes to see how you manage your debt. So, if you have an open account in good standing, that could help your score—but the impact would likely be small. And closing any account satisfactorily is generally a positive thing for your credit, so that could help your score, too.

Bottom line: Instead of worrying about how prematurely paying off your student loan will impact your credit score, consider the potential trade-offs. For example, how much extra interest are you paying by leaving the account open? Also, a high loan balance may make it harder to qualify for new loans—something to think about when it comes time to buy a home.

Main Point – Don’t Default on Your Loan

The worst thing you can do is ignore your monthly loan payment. If you are even one day late with your payment, you’ll be considered delinquent and you’ll be charged a penalty for missing that payment. Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus.

This could lower your credit score and negatively affect your ability to get a new credit card or qualify for a car loan or mortgage. After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full with any accrued interest, fines, and penalties.

Consider Refinancing Your Loans

There are several options for repaying your student loan and keeping negative information from impacting your credit score. One possible way you could lower your monthly payment is to refinance your student loans.

Additionally, if you now have a better financial profile than when you took out your original loans, you may be able to lower your interest rate and save money over the life of the loan.

Credit is a powerful tool that can allow you to do a lot of great things, but if you’re not careful, it can hold you back. For many people, student loans represent their first experience carrying a large debt load, which means mistakes are almost inevitable.

The most important thing you can do is learn how to take good care of your credit score—and eventually, it will take care of you, too.

Student loans can get complicated—SoFi is here to help. From helping you finance your education to helping you get out of your college debt, we’ve got you covered.

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


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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
The information 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.
SoFi private student loans are subject to program terms and restrictions and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. View payment examples. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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Student Loan Deferment in Grad School

You’re thinking about going back to graduate school or have already committed to a graduate school program. First, congratulations on your decision to advance your education; many graduate school programs give potential students the specialization necessary to get ahead in their careers.

Still, no matter how good a graduate school’s potential return on investment, it requires careful financial consideration to make sure you don’t end up with more student debt than you planned for. And that means not only having a plan for graduate school loans but knowing what to do with any existing undergraduate student loans.

How are you going to afford the loans you already have while pursuing a graduate school degree? You’ve likely heard the term “deferment” before. You know that it’s a feature of some student loans that many grad students use but maybe aren’t sure what that means for your monthly payments, the interest that accrues on your loans, and how it much it could cost you over the life of your loan.

For the most part, this depends on what type of loan(s) you have (federal versus private) and whether you’re in forbearance or deferment. Below, we’ll discuss how to defer student loans when going back to school, answer the question, “does interest occur during deferment?” and offer some tips and alternatives when it comes to student loan deferment.

Forbearance vs Deferment

First, let’s get the terminology straight: A grace period is the time between graduating from school (undergrad or graduate school) and when you must begin making payments on student loans—typically six months for most federal student loans.

There are many ways to qualify for deferment , including being enrolled in school at least half-time or serving in the military or Peace Corps. Forbearance is typically used by people who are facing temporary financial hardship but who don’t qualify for deferment. (For example, if you’re going back to grad school, you’d typically qualify for deferment, but if you need to pause your loan payments while dealing with medical expenses, you’d ask for forbearance.)

Forbearance and deferment allow you to postpone student loan payments during times when you aren’t able to afford them. Through student loan forbearance and deferment, you don’t risk missing a payment due to an inability to pay, which can negatively impact your credit score. The rules of use regarding these features will vary, but as a baseline minimum deferment and forbearance exist to help prevent your loans from going into default.

Can You Defer Student Loans When Going Back to School?

A first step is to identify whether your existing undergraduate student loans are federal loans, private loans, or some combination of the two. Whether you can defer and the treatment of the interest during the deferment period will depend on who issued the loan, and in some cases, when the loan was issued.

Next, you’ll want to do some research as to whether your loans qualify for deferment and how interest will be handled during deferment. In certain circumstances, federal loans allow for deferment for students in qualifying grad school programs enrolled at least half-time.

For more information on whether you qualify for deferment, check out the government student aid office website . With private loans, check directly with the lender.

Does Interest Accrue During Deferment?

The majority of loan types accrue interest during periods of deferment. Though you’ll want to check directly with your loan servicer(s), subsidized federal student loans generally don’t accrue interest during deferment periods, and all other loan types—both unsubsidized federal and most private loans—do.

During deferment, you are generally not responsible for paying interest on:

•  Direct Subsidized Loans

•  Subsidized Federal Stafford Loans

•  Federal Perkins Loans

•  The subsidized portion of Direct Consolidation Loans

•  The subsidized portion of FFEL Consolidation Loans

During deferment, you are generally responsible for paying interest on:

•  Direct Unsubsidized Loans

•  Unsubsidized Federal Loans Stafford Loans

•  Direct PLUS Loans

•  Federal Family Education Loans (FFEL) Plus Loans

•  The unsubsidized portion of Direct Consolidation Loans

•  The unsubsidized portion of FFEL Consolidation Loans

•  Private loans (but check with the loan provider for more details)

The reality that most loans accrue interest during deferment is something for a potential graduate student to take quite seriously, as it can add a significant amount of money onto the principal balance of the loan. Accrued interest is essentially added to the principal loan balance at the end of the deferment period, which is called capitalization.

If you pursue deferment on unsubsidized loans as a way to manage costs while enrolled in grad school, it’s a good idea to at least consider making interest-only payments. While this can be difficult for students to do, it could save you from ballooning the amount of total interest that they owe on their undergraduate loans—especially considering you likely taking out graduate school loans as well.

How to Defer Student Loans While in Grad School

With federal student loans, you would request an in-school deferment through your loan servicer. They will likely require you to fill out a form and provide some documentation to support your request. While you wait for approval, you’re going to want to continue to pay your student loans.

For private loans, you’ll need to check directly with the bank or lender to inquire about their own rules around student loan deferment. Because each lender makes the terms of their loans, there’s no universal way to know whether your loans qualify for deferment. Historically, private loans have not offered the option for deferment, but this is changing as financial services firms compete for business.

Non-Deferment Options for Lowering Monthly Payments

Some graduate students might want to consider switching, even temporarily, to an income-driven repayment plan while in school.

(This is only an option for federal student loans.) Because your monthly payment is tied to income, which may be low for a graduate student enrolled full-time, it can be an effective way to lower the amount of interest accrued during deferment.

This way, you’ll be making small payments toward your loans and avoid interest capitalization. Income-driven repayment plans stretch a borrower’s payments over 20 or 25 years, at which point the loans are forgiven. After you graduate, you can always switch the student loan repayment plan back to the standard, 10-year repayment plan.

While borrowers can pay less each month using one of these plans, they’ll generally pay significantly more in total interest over the duration of the longer loan. Another word of caution: the balance of the loans that are forgiven are generally taxed as ordinary income.

(If you are planning to have your loans forgiven through Public Service Loan Forgiveness (PSLF), you would use an income-driven repayment plan anyway. Through PSLF, you do not have to pay taxes on the forgiven amount.)

Another way to potentially lower your monthly payments without deferring your loans (and accruing interest during that deferment period) is by refinancing your student loans. Through the process of refinancing, a new lender pays off your loans (both federal and private) with a new loan, ideally at a lower interest rate.

A decrease in an interest rate while maintaining the loan’s duration is a compelling way to both save money each month and over the life of the loan. To understand how a change of even 1% can affect how much interest you’ll pay on a loan over time, play around with SoFi’s student loan calculator.

When you refinance your loans, it is important to understand that you will lose access to federal loan programs such as Public Service Loan Forgiveness and deferment or forbearance. (Although some refinancing companies might offer some options for deferment/forbearance, so be sure to ask.)

If you are thinking about refinancing your loans, it is a good idea to start thinking about it before you enter graduate school, so you can have a clear picture of what your debt might look like. Companies that offer student loan refinancing typically require that you meet their eligibility criteria, which could include that you are in good financial standing by having good credit, a strong history of making debt payments on time, and a steady income—among other factors.

Ready to see if refinancing could lower your monthly payment or interest rate? With SoFi, it only takes a few minutes to see what interest rate you may qualify for.


Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice about bankruptcy.
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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Do You Have to Pay FAFSA® Back?

Right off the top, let’s get something straight: When you’re wondering “do you have to pay back FAFSA loans?” what you’re really wondering is whether you have to pay back your federal student loans that you may be eligible for after filling out your FAFSA.

Completing the Free Application for Federal Student Aid (FAFSA®) allows you to apply for three types of student aid, and only one of them is an actual loan:

•  Grants and scholarships (this is money you don’t have to repay)

•  Work-study jobs (usually part-time and usually right on campus; it’s also money you don’t have to repay)

•  Loans (money you will need to pay back after you graduate)

Drilling down further, there are three general types of federal student loans:

Direct Subsidized Loans

The government (more specifically, the U.S. Department of Education) pays the interest on these while you are still in school at least half-time . That’s what makes them “subsidized.”

You can borrow up to $5,500 every year, at 5.05% interest (through July 1, 2019—interest rates can and do change).

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

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

Direct Unsubsidized Loans

You will have to pay back all the interest that accrues here, 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.

However, Direct Unsubsidized Loans are usually lower interest and relatively affordable. For undergraduates: 5.05%; graduate and professional degrees: 6.6% (again, these interest rates are good through July 1, 2019). The other potential plus: You do not have to prove a financial need in order to qualify for a Direct Unsubsidized Loan.

Direct PLUS Loans. There are two types of these loans:

•  PLUS Loans for graduate or professional degree students

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

Unlike most other loans, PLUS loans require a credit check and you cannot have an adverse credit history . This may not be an option if you or your parents have bad credit. In this case, a cosigner on the loan application is an option.

The good news: you can borrow as much as you need (subtracting the other financial aid you’re getting). The bad news: the interest rate is currently 7.6% . That’s higher than the other types of federal student loans.

Note: Federal Student Loan Rates change on July 1 of every year (and in 2018, they increased).

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

It depends. Not all federal student loans offer one. A grace period is the time you get after you graduate (or drop below half-time enrollment) to not have to make loan payments. If your loan does offer a grace period, during this time, you are expected to reconfigure your life, career, and finances before your repayment plan kicks in (no sweat, right?).

In many cases, a grace period on a federal student loan could be six months, which is true for Direct Subsidized and Unsubsidized Loans. Direct PLUS loans don’t offer a grace period at all. Keep in mind that grace periods are usually not interest-free.

A word about grace periods: they are not the free ride that many people think they are. As we said, 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. 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.

Some loans accrue interest during grace periods. That means that the interest will “capitalize:” the interest is added to the principal when the grace period ends. Many students subscribe to the strategy of making interest payments even during the grace period. Doing this can ultimately lower the amount of what you owe, and interest payments are generally more affordable to handle than principal payments.

Also keep in mind that loan servicers are paid by the government (again, the Department of Education) to handle billing and other services for federal 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 their 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 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. If you don’t choose one, you’ll automatically be placed on the Standard Repayment Plan.

Additional Repayment Options

One of these alternatives is the Extended Repayment Plan , which can extend your term from the standard 10 years to as long as 20 or 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.

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. You’ll also be paying more interest, just like if you had the Extended Repayment Plan, but you’ll still be paying off your loans in just ten years, as opposed to 25 or longer.

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. However, you can refinance your federal student loans with a private loan company.

Difference Between Refinancing & Consolidating Student Loans

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. In order to refinance, you’ll choose the loan company you feel is best, with (hopefully) better interest rates and repayment terms. Refinancing can be done via a private lender and can be used for both federal and private loans.

Consolidation, on the other hand, 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. Sounds good in theory (who doesn’t like the idea of one payment per month as opposed to multiple payments?).

The problem with consolidating student loans is that it could mean you wind up paying additional interest. How? 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.

A great reason to refinance (as opposed to consolidating) your school loans: if you have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. Refinancing your existing loans with a longer term can reduce your monthly payments. Alternately, 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 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.

Whether you are looking to borrow for school or refinance your student loans, SoFi can help. See your interest rate in just a few minutes—with no pressure to sign up.


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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
The 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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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Student Loan Consolidation Rates: What to Expect

Do you have multiple student loans with several different lenders or loan servicers? Are you having trouble keeping track of when your payments are due? Here’s some good news: You don’t need to pay multiple student loans every month. Instead, you can consolidate or refinance your loans into one monthly payment.

Consolidation means combining multiple student loans into one, giving you a new interest rate that’s a weighted average of your prior rates (if you use federal loan consolidation) or a new interest rate based on your financial history (if you go with private loan consolidation).

Refinancing, which only private lenders offer, refers to taking out a single new loan to pay off multiple federal or private loans (or a mix of the two). Depending on how your financial situation and credit profile has changed since you first took out your student loans, refinancing could be another option, as your new rate and term might be a better fit for your new financial situation.

Student loan consolidation or refinancing can change the interest rate you pay on your student debt. Some people who take this step are hoping for a lower rate, but the interest rate you get could vary widely, depending on whether you go with a federal consolidation or private refinancing program, the lender, and the terms you opt for.

In the case of student loan refinancing, it also depends on your financial situation and credit profile, including factors such as your credit score, income, and whether you have a co-signer.

And it depends on whether you get a fixed rate (which stays the same for the length of the loan term) or a variable rate (which may start out lower, but can jump significantly over time). A variable rate loan mirrors market fluctuations, so when interest rates are generally low, a variable rate loan may have a favorable interest rate—but when rates rise, your variable loan rate may rise, too.

Understanding the differences between consolidation versus refinancing is critical before deciding to take the plunge—especially since private refinancing means you lose your federal student loan benefits.

Federal Student Loan Consolidation

You can combine your federal student loans into one by taking out a Direct Consolidation Loan from the government.

Doing so may simplify your repayment process if you have multiple loan servicers, or make you eligible for more income-based repayment plans. In order to use a Direct Consolidation Loan , you must have at least one Direct Loan or one FFEL.

The interest rate on a Direct Consolidation Loan is fixed and is the weighted average of the rates on your existing loans. What you end up with really depends on what rates were when you took out your loans (some Direct Consolidation Loan payment plans also factor in your total education debt , including private student loans).

Using current interest rates, say you took out a Direct Subsidized Loan of $25,000 for undergrad (4.45% interest rate), a Direct Unsubsidized Loan of $50,000 for grad school (6% interest rate), and another Direct PLUS Loan of $10,000 for grad school (7% interest rate).

If you consolidated, your weighted average rate would be 5.66%. You can also use our debt navigator tool to explore your student loan refinancing options and get a sense of what might be best for your unique situation.

Private Student Loan Refinancing Rates

Refinancing your loans with a private lender could get you a lower interest rate than federal consolidation. You can refinance federal loans, private loans, or a combination of the two.

Student loan refinancing rates vary widely. Generally, current fixed rates for student loan refinancing start at around 2.47% and go up to 8.32%, while variable rates are as low as 2.56% and as high as 8.46%. The rate you get typically depends on your total financial picture and credit history, including your credit score, income, and employment history.

If you are interested in refinancing but your credit history isn’t where you want it to be, you may consider bringing a cosigner on board to potentially qualify for a better rate. You may also get a lower rate if you sign up for a shorter student loan repayment period, too.

Why Interest Rates Aren’t the Only Thing to Consider

Interest rates aren’t the only thing to consider when deciding whether to consolidate or refinance. If you go with a Direct Consolidation Loan, keep in mind that you might pay more overall for your loans, since this usually lengthens your repayment term. You will also lose credit toward loan forgiveness for any payments made on an income-based repayment plan or the Public Service Loan Forgiveness program.

If you refinance with a private lender, you also won’t be eligible for student loan forgiveness, because you lose federal loan protections, including deferment or forbearance when you refinancing with a private lender. But some private lenders, like SoFi, offer their own benefits, like a temporary pause on payments if you lose your job through no fault of your own.

That’s why it’s important to think carefully before consolidating or refinancing your student loans. Consider things like whether a prospective private lender offers any options for relief if you hit a rough patch.

Even if you get a lower interest rate, make sure you can afford the new monthly payments before committing. And remember that this information is just a starting point for your decision. Don’t be afraid of doing more research and trusting you’ll make the right decision for you.

Check out whether you qualify for student loan refinancing with SoFi in just two minutes.


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