SoFi

Generally, student loan borrowers with a FICO® score of 670 or higher stand a better chance at meeting a refinancing lender’s eligibility requirement. But according to an August 2020 report by the Federal Reserve Bank of New York, the average credit score across all student loan borrowers was at 656 — just a few points shy of what’s considered “good” credit.

The minimum credit score permitted to refinance varies between lenders. Whether you already have strong credit or currently don’t meet the credit score needed to refinance, there are ways to move forward with your student debt.

Credit Score Range Required for Student Loan Refinancing

You typically need what FICO calls a good credit score, which is from 670 to 739, to get approved for a competitive refinancing rate and terms. Another commonly used credit scoring model is called the VanatageScore® which sets its “good” credit range at 661 to 780.

Some lenders have more flexible credit score requirements than others and set their minimum credit score requirement at 650 which is considered “fair.”

However, higher is usually better when it comes to credit scores, regardless of the scoring model that’s used. If your credit score exceeds these ranges, and is considered “very good” or “excellent”, you may be more likely to qualify for student loan refinancing.

Recommended: What Is a FICO Score?

Why Is There a Minimum Credit Score?

Your credit score gives lenders an at-a-glance synopsis of your borrowing habits. It’s based on information from your credit report — which is a highly detailed record of activity on all of your credit accounts — and a single score tells lenders how well you’ve managed your credit and repayment thus far.

Refinance lenders establish the lowest eligible credit score they’re willing to approve and lend to better their chances of getting paid back.

Benefits of a Higher Credit Score When Refinancing

Meeting the minimum credit score requirement of your preferred refinancing lender can help you get through the door in terms of approval. However, a higher credit score improves your access to a lower interest rate and favorable terms.

Your lender’s lowest advertised refinancing rate, for example, is reserved for borrowers who’ve demonstrated excellent credit. If you don’t have established credit, some lenders let applicants apply with a cosigner.

Typically, a cosigner is someone who’s close to you like a spouse, parent, or grandparent, and has a strong credit profile. By agreeing to cosign your loan, they’re accepting financial liability to repay your loan if you fail to make payments.

Refinancing without a cosigner means that only the primary borrower is responsible for repaying the loan. Having another person who’s legally responsible for the debt is another way that lenders protect themselves from potential default. As the primary borrower, not only can a cosigner improve your chances of approval, their good credit can help you qualify for a lower interest rate.

Recommended: Guide to Establishing Credit

Tips That Can Help Improve Your Credit

If your credit isn’t high enough to meet a lender’s minimum credit score requirement, there are a few tips on how to build credit over time.

Make Timely Payments

Making full, on-time payments on your existing credit accounts is the most impactful way to improve your credit. This factor accounts for 35% of your FICO credit score calculation and is at the forefront of what lenders look at when evaluating your eligibility.

Lower Your Credit Utilization Ratio

This is the ratio of how much outstanding debt you owe, compared to your available credit. Credit utilization ratio accounts for 30% of your FICO score. Keeping your credit utilization low can be an indicator that — although you have access to credit — you’re not overspending.

Maintain Your Credit History

A factor that’s moderately important when it comes to your FICO score calculation is the age of your active accounts. Keeping older accounts active and in good standing shows that you’re a steady borrower.

Keep a Balanced Credit Mix Without Too Many New Accounts

Having revolving accounts such as credit cards, and installment credit like student loans or a car loan shows you can handle different types of credit. This factor affects 10% of your credit score calculation which isn’t as huge as your payment history but a factor nonetheless.

Additionally, although a mix of credit can help your score, opening too many new accounts in a short period can adversely affect your credit score by 10%.

Other Eligibility Requirements for Student Loan Refinancing

Lenders want to ensure that their borrowers have the ability to repay the loan, based on the loan agreement. However, your credit score isn’t the only factor that determines your ability to make payments.

Other eligibility requirements that lenders consider might include your:

•   Age

•   Status in the country (e.g. US citizen, permanent resident, etc.)

•   Employment status

•   Income

•   School that you graduated from

•   Existing debt obligations

•   Loan amount

If your situation and credit score meets the lender’s requirements, you might be approved for a student loan refinance. Before refinancing your student loans, however, use a student loan refinance calculator to understand how much refinancing can save you.

Your Options if You Don’t Meet the Credit Requirements

If your credit isn’t eligible for student loan refinancing, you still have a few options to choose from.

•   Apply with a creditworthy cosigner. As mentioned above, securing a trusted cosigner who has strong credit can potentially help you with your refinancing goal. Keep in mind that any late payments on your loan may impact your credit and your cosigner’s.

•   Request an income-driven repayment plan. You can reduce your federal loan monthly payment by requesting to be put on an IDR plan. Depending on your plan, your term will be extended to 20 or 25 years, and your payment is calculated based on a percentage of your discretionary income and your family size. This option results in paying more interest overall.

•   Ask about forbearance. If you’re experiencing a short-term financial hardship, like a job loss or sudden financial expense that’s making it hard to manage your student loan payment, forbearance might help. It pauses your payments for a temporary period, during which time interest still accrues. Ask your servicer about how to request forbearance, or contact your private lender to see if it offers this option.

Applying for Student Loan Refinancing With SoFi

Your credit score is just one factor that lenders consider when applying for a student loan refinance, but it’s an important one. Increasing your credit score before refinancing, or finding a willing cosigner with strong credit, can help you reduce your interest rate and lower your total education-related costs.

Refinancing a private student loan is advantageous if you qualify for a lower interest rate. However, determining if you should refinance your federal student loans needs more consideration. Refinanced federal loans are converted into private loans rendering you ineligible for federal benefits and programs. For example, you’ll no longer have access to programs like Public Service Loan Forgiveness or income-driven repayment plan options that help reduce your monthly payment.

If you’re still convinced that refinancing is right for you, consider a SoFi student loan refinance. SoFi offers low-interest rates and significant savings for those who qualify. Checking your rate only takes only two minutes online.

Get started today.

---

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.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
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 .
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.
SOSL0622007

Read more

It’s possible to refinance your student loans with bad credit, but you may face challenges getting approved with a low credit score. Your credit score is a three-digit number that shows how well you currently and have paid back debt in the past.

“Having bad credit” simply means that your credit reports, which are records of how well you’ve paid off debt, reveal negative credit actions that you’ve had in the past.

When you refinance your student loans, a private lender will take a look at your credit score to evaluate how well you’ve paid off debt in the past. A higher credit score may improve your chances of approval and could help you secure a more competitive interest rate. But, your credit score isn’t the only factor lenders review. Lenders typically also take a look at factors including your income, current employment situation, and financial history.

Read on for strategies to refinance student loans with bad credit.

What Is Student Loan Refinancing?

Refinancing student loans means that you take some or all of your student loans and replace them with one new loan to achieve a repayment advantage. For example, you may refinance in order to get a lower interest rate and as a result, pay less over the life of your loan. You may also refinance to extend your loan term, which will lower your monthly payments (but doing so will also result in more loan payments over time).

You can refinance both private and federal student loans. As you are deciding when to refinance student loans it’s important to understand that if you refinance federal student loans, you lose certain benefits with your loan, such as deferment and public service-based loan forgiveness.

What Is Considered Bad Credit?

What is a bad credit score? The definition of “bad credit” varies slightly depending on the credit scoring model used. A credit scoring model is a statistical analysis used by credit bureaus to evaluate your creditworthiness.

According to FICO®, one of the most popular scoring models, a bad credit score is one below 670. Another popular scoring model, VantageScore, considers a bad credit score as one below 661. To put it in perspective, a credit score ranges from 300 to 850.

Some lenders may have a minimum credit score to refinance student loans. Requirements may vary by lender so check in with the lenders you are considering to understand their minimum requirements. And, keep in mind that lenders will evaluate factors beyond just your credit score when making lending decisions.

Strategies for Refinancing a Student Loan With Bad Credit

If you plan on refinancing student loans with bad credit, you may want to consider backtracking and checking your credit reports or purchase your credit scores directly from one of the credit bureaus. There may be a mistake on your credit reports which can hurt your credit score. For example, you may have already paid off a particular loan but your credit report may show that you haven’t yet paid off that particular loan.

You can obtain a free copy of your credit report at annualcreditreport.com from each of the three major credit bureaus — Equifax, Experian, and TransUnion — which track your credit.

There are other strategies you can consider as well, including refinancing with a cosigner, improving your credit score or debt-to-income (DTI) ratio, look into credit unions, consider non-profit debt consolidation, check into secured loans or look for lenders with lower credit requirements. Let’s take a look at each alternative option for student loan refinance for bad credit.

Refinancing With a Cosigner

If you have a relatively low credit score, applying with a cosigner may increase your chances of getting approved for a student loan refinance.

Refinancing student debt with a cosigner means that you ask someone else to agree to help you repay a loan along with you. Cosigners are equally obligated to repay a student loan and are liable if you fail to repay your loan. Any missed payments will affect both you and your cosigner’s credit history.

Improving Your Credit Score

Improving your credit score is another way to fix any credit issues. You can improve your credit score by making payments on time to your creditors, catching up on accounts for which you still owe money, and limiting credit applications. Let’s take a look at all of these student loan refinance need to know opportunities to improve your credit score:

•   Make on-time payments: Making all payments on time is one of the best ways to improve your credit score. You may want to consider setting up auto pay to avoid missing or making late payments.

•   Pay off delinquent or defaulted accounts: If you have accounts for which you still owe money, pay them off. Pulling all accounts up to “paid” status can help your credit score. If you think you need help organizing and prioritizing, you may want to reach out to a credit counselor for assistance. It’s also a good idea to get current on revolving credit balances (such as credit cards and other lines of credit) because paying late or skipping payments can hurt your credit as well.

•   Limit credit applications: Continually applying for credit can hurt your credit score because every time a lender does a hard credit check, it takes a hit on your credit. All of these credit checks can build and detract from your ability to improve your credit score.

Building credit by doing things like making on-time payments is one of the best ways to improve your credit score. Consider using a credit card diligently and paying off the balance each month, get a secured credit card, or become an authorized user on another individual’s credit card.

Improving Your Debt-to-Income Ratio

What is the debt-to-income (DTI) ratio? DTI refers to your monthly debt payments divided by your gross monthly income — the amount of money you have coming into your household.

The best way to reduce your DTI is to reduce your debt payments each month or add more income to your household each month. There are several ways to make this happen, such as paying off your debt (including credit cards, personal loans, auto loans, and/or other types of debt), adding a second or side job to your already-existing income or negotiating a raise at work, working overtime, or applying for a higher-paying job.

Recommended: Why Your Debt to Income Ratio Matters

Check Credit Union Requirements

In addition to banks, online lenders, and other types of lenders, credit unions also offer student loan refinancing opportunities. A credit union is a non-profit financial services cooperative that exists to serve its members. You must be a member of a credit union in order to borrow money from it.

If you already belong to a credit union, consider finding out the credit qualifications necessary for refinancing student loans with that credit union. Shop around among credit unions or other alternative banking solutions to learn more about interest rates, overall payoff amounts, repayment flexibility, and how well each institution treats its customers.

Non-Profit Debt Consolidation

Nonprofit debt consolidation can help you put all of your debts into one manageable payment. It offers a two-pronged advantage: You lower your monthly payment and eventually eliminate unsecured debt, which is debt that isn’t backed by collateral.

Credit card debt is a good example of a debt not backed by collateral. A mortgage, on the other hand, is backed by collateral — the collateral is the home that you borrowed money to purchase. A student loan is a type of unsecured debt because it is not backed by collateral.

Why tap into a nonprofit credit counseling agency for help? They must act in your best interest, though you will have to pay fees for the service. Trained debt counselors can help you come up with a debt payment plan, debt settlement plan, debt consolidation loan, or, if absolutely necessary, declare bankruptcy.

It’s important to note that only unsecured debt is eligible for consolidation.

Secured Loans

Secured loans are backed by collateral, such as a car (in the case of an auto loan) or a house (in the case of a mortgage). If you stop making your payments, the lender can take the collateral backing your loan (the auto or home) to satisfy the debt.

Generally, personal loans are unsecured and can be used for almost any expense. However, some personal loans may be secured by some form of collateral. When evaluating a secured vs. unsecured personal loan, look at things like the interest rate and the type of collateral required to back the loan. Keep in mind that collateral can be seized by the lender if there are issues with repayment.

However, you can use a secured loan to pay for a student loan refinance if you find better terms through a secured loan. For example, you could choose to get a second mortgage to pay for educational expenses.

Unsecured debt is usually considered riskier by lenders (because it isn’t backed by collateral) and may come with a higher interest rate, which is why secured debt may seem more appealing.

Looking for Lenders With Lower Credit Requirements

Think you’re ready to pursue a student loan refinance with lower credit requirements? Let’s take a look at the pros and cons of doing so.

Pros of Using a Lender with a Lower Credit Limit	Cons of Using a Lender with a Lower Credit Limit
Can help with debt management by consolidating all loans into one loan	May have trouble qualifying for a refinance due to bad credit
May save money by qualifying for a lower interest rate, which often reduces the amount of money you pay toward your loans over time	May pay more for your loan due to higher interest rates for those with bad credit
Can transfer Parent PLUS Loans (a federal loan that parents can take out to finance the cost of college) to the student instead of keeping it in the parents’ name	Will lose access to federal benefits if you refinance federal student loans

In order to get the best rates and terms, you may want to consider beefing up your credit score before you apply for a refinance. Consider taking a look at a calculator for student loan refinancing to help you learn about the costs.

Alternatives to Refinancing Student Loans

Refinancing your student loans isn’t your only option. Keep in mind that refinancing federal loans eliminates them from federal programs and protection like income-driven repayment plans. You may also want to consider a few alternatives, including consolidation, forgiveness, deferment, or forbearance options (for federal student loans), or talk to your lender about your options.

•   Consolidation: Consolidation allows you to combine all of your federal student loans into one monthly payment with one servicer. Consolidation won’t lower your interest rate — the new rate is the weighted average of your existing interest rates. You cannot consolidate private student loans — you may only refinance them.

•   Forgiveness: If you have federal student loans, you may want to consider looking into student loan forgiveness options, which means that you do not have to repay your loans in part or full if you meet specific requirements. For example, you may be able to tap into teacher loan forgiveness, Public Service Loan Forgiveness (PSLF), income-driven repayment plans, military service, AmeriCorps, or other options.

•   Deferment or forbearance: Deferment and forbearance allow you to temporarily postpone or reduce your payments. Borrowers with federal loans may qualify to defer repayment due to cancer treatment, economic hardship, graduate school, military service and post-active student duty, rehabilitation training, unemployment, and more. Private lenders may have their own programs for forbearance. Check-in with your private lender directly.

•   Talk to your lender or loan servicer: You can also talk through all your payment options with your loan servicer. If you’re having trouble making your payments, explain how and why (and be prepared to show proof).

The Takeaway

Borrowers with a low credit score (a bad credit score is defined as a FICO score below 670 or a VantageScore below 661), may find it challenging to get a student loan refinance with bad credit without a cosigner.

However, there are other avenues you can take for student loan refinancing with bad credit, including improving your credit score, improving your DTI, researching options with a credit union, non-profit debt consolidation, or getting a secured loan. You may also want to consider alternatives to refinancing private student loans with bad credit if you have federal student loans, through consolidation, forgiveness, deferment, or forbearance. You may also try talking to your lender or loan servicer for all your options, asking them about alternative options to refinance a student loan with bad credit.

When you refinance student loans with SoFi, the application is completed entirely online and there are zero fees. Qualifying borrowers can secure competitive interest rates.

Get prequalified in just a few minutes.

---

Photo credit: iStock/Vladimir Vladimirov

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.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
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 .
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.
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.
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.
SOSL0422004

Read more

Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

If you’re having trouble making your student loan payments or just want to know if you can make a change to your payments, it’s worth looking into the options, such as refinancing student loans or an income-driven repayment plan.

Student loan refinancing is available for both private and federal student loans, while income-driven repayment plans are only an option only for federal student loans. Proposed changes to income-driven repayment would lower monthly payments and curtail interest accrual, making the plans a better deal for borrowers. Here’s what to know about both options as well as the pros and cons of each.

What Is Student Loan Refinancing?

When you refinance a student loan, a private lender pays off your student loans and gives you a new loan with new terms. For example, the interest rate and/or the loan term may change. You can’t refinance loans through the federal government, however. You can only refinance federal student loans (or private student loans) through a private lender.

If you’re a graduate with high-interest Direct Unsubsidized Loans, Graduate PLUS loans, and/or private loans, a refinance can change how quickly you pay off your loans and/or the amount you pay each month.

Recommended: How Do Student Loans Work? Guide to Student Loans

Pros of Student Loan Refinancing

When considering refinancing your student loans, there are several benefits. You can:

•   Lower your monthly payments: Lowering your monthly payment means you can save money or spend more in other areas of your life instead of putting that cash toward paying student loans. (Depending on the length of the loan term, however, you may end up paying more in total interest.)

•   Get a lower interest rate than your federal student loan interest rates: This can result in paying less interest over the life of the loan (as long as you don’t extend your loan to a longer term). A student loan refinance calculator can show you the interest rate you qualify for.

•   Decrease your debt-to-income ratio (DTI): Your DTI compares your debt payments to your income. So if you lower your monthly payments, you could be lowering your DTI ratio — and a lower DTI can help when applying for a mortgage or other type of loan.

•   Remove a cosigner. Many borrowers who took out undergraduate loans did so with a parent or other cosigner. Refinancing without a cosigner allows you to regain some financial independence and privacy, provided you have a strong credit history.

Recommended: What’s the Average Student Loan Interest Rate?

Cons of Student Loan Refinancing

That said, refinancing federal loans can have some drawbacks as well. They include:

•   No longer being able to take advantage of federal forbearance: When you refinance your student loans through a private lender, you no longer qualify for federal student loan forbearance, such as the Covid-19-related payment holiday. However, it’s worth noting that some private lenders offer their own benefits and protections after you refinance.

•   No longer being able to tap into income-driven repayment plans, forgiveness programs, or other federal benefits: Refinancing federal student loans means replacing them with private loans — and forfeiting the protections and programs that come with them.

•   Possibly seeing your credit score get dinged: Your lender may do a hard credit history inquiry (or pull), which can affect your credit score.

For a deeper dive into the topic, check out our Student Loan Refinancing Guide.

What Are Income Driven Repayment Plans?

Put simply, income-driven repayment plans are plans that base your monthly payment amount on what you can afford to pay. Under the Standard Repayment Plan, you’ll pay fixed monthly payments of at least $50 per month for up to 10 years. On the other hand, an income-driven repayment plan considers your income and family size and allows you to pay accordingly based on those factors — for longer than 10 years and with smaller loan payments. Income-driven repayment plans are based on a percentage of your discretionary income.

You can only use an income-driven repayment plan for federal student loans. If you qualify, you could take advantage of four types of income-driven repayment plans:

•   Revised Pay As You Earn Repayment Plan (REPAYE Plan): You typically pay 10% of your discretionary income over the course of 20 years (for loans for undergraduate study) or 25 years (for loans for graduate or professional school).

•   Pay As You Earn Repayment Plan (PAYE Plan): You typically pay 10% of your discretionary income but not more than the 10-year Standard Repayment Plan amount over the course of 20 years.

•   Income-Based Repayment Plan (IBR Plan): As a new borrower, you typically pay 10% of your discretionary but never more than the 10-year Standard Repayment Plan amount over the course of 20 years. If you’re not a new borrower, you’ll pay 15% of your discretionary income but never more than the 10-year Standard Repayment Plan amount over the course of 25 years.

•   Income-Contingent Repayment Plan (ICR Plan): As a new borrower, you typically pay the lesser of the two: 20% of your discretionary income or a fixed payment over the course of 12 years, adjusted according to your income over the course of 25 years.

In August 2022, President Biden proposed changes to some income-driven repayment programs as part of his forgiveness plan. Payments for undergraduate borrowers would be reduced to 5% of discretionary income, and the loan term would be extended to 20 years (10 years for original loan balances less than $12,000). For more details, check out our Guide to Student Loan Forgiveness.

How do you know which option fits your needs? Your loan servicer can give you a rundown of the program that may fit your circumstances. You must apply for an income-driven repayment plan through a free application from the U.S. Department of Education.

Note: Every income-driven plan payment counts toward the Public Service Loan Forgiveness Program (PSLF). So if you qualify for this program, you may want to choose the plan that offers you the smallest payment.

Recommended: How Is Income-Based Repayment Calculated?

Pros of Income Driven Repayment Plans

The benefits of income-driven repayment plans include the following:

•   Affordable student loan payments: If you can’t make your loan payments under the Standard Repayment Plan, an income-driven repayment plan allows you to make a lower monthly loan payment.

•   Potential for forgiveness: Making payments through an income-driven repayment plan and working through loan forgiveness under the PSLF program means you may qualify for forgiveness of your remaining loan balance after you’ve made 10 years of qualifying payments instead of 20 or 25 years.

•   Won’t affect your credit score: This may be one question you’re wondering, whether income-based repayment affects your credit score? The answer is: no. Since you’re not changing your total loan balance or opening another credit account, lenders have no reason to check your credit score.

Cons of Income Driven Repayment Plans

Now, let’s take a look at the potential downsides to income-driven repayment plans:

•   Payment could change later: The Department of Education asks you to recertify your annual income and family size for payment, which is recalculated every 12 months. If your income changes, your payments would also change.

•   Balance may increase: If your monthly payment ends up being lower than the interest accrued, the remaining interest could be added to your overall loan balance. However, new regulations would suspend excess interest accrual when monthly payments do not cover all accruing interest.

•   There are many eligibility factors: Your eligibility could be affected by several things, including when your loans were disbursed, your marital status, year-to-year changing income, and more.

Refinancing vs Income Driven Repayment Plans

Here are the factors related to refinancing and income-driven repayment plans in a side-by-side comparison.

	Refinancing	Income-Driven Repayment Plan
Lowers your monthly payments	Possibly	Possibly
Changes your loan term	Possibly	Yes
Increases your balance	Possibly	Possibly
Is eventually forgiven if you still haven’t paid off your loan after the repayment term	No	Yes
Requires an application	Yes	Yes
Requires yearly repayment calculations	No	Yes

Choosing What Is Right for You

When you’re considering whether to refinance or choose an income-driven repayment plan, it’s important to take into account the interest you’ll be paying over time. It could be that you will pay more interest because you lengthened your loan term. If that’s the case, just make sure you are comfortable with this before making any changes. Many people who refinance their student loans do so because they want to decrease the amount of interest they pay over time — and many want to pay off their loans sooner.

That said, if you’re wondering whether you should refinance your federal student loans, you’ll also want to make sure you are comfortable forfeiting your access to federal student loan benefits and protections.

Refinancing Student Loans With SoFi

Refinancing your student loans with SoFi means getting a competitive interest rate. You can choose between a fixed or variable rate — and you won’t pay origination fees or prepayment penalties.

Find out if you pre-qualify to refinance your student loans with SoFi in just a few minutes.

FAQ

Is income-contingent repayment a good idea?

Right now, the federal government has put a hold on federal student loan repayment. However, once the payment pause expires, it might be a good idea for the right situation, particularly if you have a low income or are unemployed. Having trouble making your student loan payments and already “using up” options for unemployment deferment or economic hardship could make income-contingent repayment worth it.

You may defer payments if you receive public assistance, serve in the Peace Corps, make less than minimum wage or fit into the poverty guidelines. If you can’t find employment at all, you may defer payments for up to three years.

What are the disadvantages of income based repayment?

The biggest disadvantage of income-based repayment is that you stretch out your loan term from the standard repayment plan of 10 years to longer — up to 25 years. This means that more interest will accrue on your loans and you could end up paying more on your loan before your loan term ends.

Does income based repayment get forgiven?

Yes! Making payments through an income-driven repayment plan as well as working toward forgiveness through the Public Service Loan Forgiveness (PSLF) program means that after 10 years of qualifying payments, you could get any remaining loan balance forgiven, instead of after 20 or 25 years.

---

Photo credit: iStock/m-imagephotography

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.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
SOSL0922005

Read more

As you prepare for life after graduation, one important step is figuring out whether you’re required to make monthly student loan payments right away or you have what’s called a “grace period.” The same question applies to students taking a break from full-time education.

Don’t forget: The pause on federal student loan payments and interest, announced in March 2020, is scheduled to expire in 2023, as late as 60 days after June 30, 2023.

Below, we’ll explain what a grace period is, when it starts, and how you might extend yours. You’ll also find a simple financial to-do list to tackle before you start making student loan payments.

What Is a Grace Period for Student Loans?

A student loan grace period is a window of time after a student graduates and before they must begin making loan payments. The intent of a grace period is to give new graduates a chance to get a job, get settled, select a repayment plan, and start saving a bit before their loan repayment kicks in. Most federal student loans have a grace period, as well as some private student loans.

Grace periods also apply when a student leaves school or drops below half-time enrollment. Active members of the military who are deployed for more than 30 days during their grace period may receive the full grace period upon their return.

How Long Is the Grace Period for Student Loans?

The grace period for federal student loans is typically six months. Some Perkins loans can have a nine-month grace period. When private lenders offer a grace period on student loans, it’s usually six months, too.

Keep in mind that, as noted above, not all student loans have grace periods.

Does My Student Loan Have a Grace Period?

Whether you have a grace period depends on what kind of loans you have. Student loans fall into two main buckets: federal and private student loans.

Federal Student Loans

Most federal student loans have grace periods.

•   Direct Subsidized Loans and Direct Unsubsidized Loans have a six-month grace period.

•   Grad PLUS loans technically don’t have a grace period. But graduate or professional students get an automatic six-month deferment after they graduate, leave school, or drop below half-time enrollment.

•   Parent Plus loans also don’t have a grace period. However, parents can request a six-month deferment after their child graduates, leaves school, or drops below half-time.

Keep in mind: Borrowers who consolidate their federal loans lose their grace period. Once your Direct Consolidation Loan is disbursed, repayment begins approximately two months later. And if you refinance, the terms are up to your new private lender.

Private Student Loans

The terms of private student loans vary by lender. Some private loans require that you make payments while you’re still in school. When private lenders do offer a grace period, it’s usually six months for undergraduates and nine months for graduate and professional students.

Here at SoFi, qualified private student loan borrowers can take advantage of a six-month grace period before payments are due. SoFi also honors existing grace periods on refinanced student loans.

If you’re not sure whether your private student loan has a grace period, check your loan documents or call your student loan servicer.

Recommended: Student Loan Forgiveness for Current Students

Does Interest Accrue During the Grace Period?

During the student loan payment pause, from March 2020 to a to-be-announced date in 2023, interest is not accruing on federal student loans. However, that’s not the way it usually works.

For most federal student loans, interest is charged during the grace period — even though you aren’t making payments on the loan. This interest is then added to your total loan balance (a process called “capitalization”), effectively leaving you to pay interest on your interest.

However, there’s good news on the capitalization front: Beginning in July 2023, new federal regulations will eliminate the capitalization of interest when a borrower first enters repayment. This can save borrowers a considerable amount of money on interest.

How to Make the Most of Your Student Loan Grace Period

If you are in a financially tight spot after you graduate or during your break from school, a student loan grace period can offer much-needed breathing room. Here’s how you can put your grace period to good use:

Get Your Finances in Order

Take this time to create a new post-grad budget. Which approach you use is up to you: the 70-20-10 Rule, the Kakeibo method, zero-based budgeting. The important thing is to determine your monthly income and expenses, setting aside enough to pay down debts and save a little.

Set Up Autopay

Missed loan payments can incur penalties and hurt your credit score. Setting up autopay means one less thing you have to remember. Some student loan lenders will even discount your interest rate for setting up automatic payments (like SoFi!).

Consider Making Payments Ahead of Time

Just because you don’t have to make payments toward student loans during a grace period doesn’t mean you can’t. If you are in a financial position to make payments — even interest-only payments — during a grace period, you should. It can help keep your loan’s principal balance from growing. (Learn more in our take on making minimum student loans payments.)

Look into Alternative Repayment Plans

Once your grace period is over, you’ll be automatically enrolled in the Standard Repayment plan. However, if you’re concerned about making your payments, several income-driven repayment plans are available. These plans reduce your payment to a small percentage of your disposable income — sometimes as low as $0. And beginning in 2023, these plans will become an even better deal.

Consider Consolidating or Refinancing Your Student Loans

These two terms are often used interchangeably, but there are important differences between them. Both consolidation and refinancing combine and replace existing student loans with a single new loan.

A Direct Consolidation Loan allows you to combine several federal student loans into one new federal loan. The resulting interest rate is the weighted average of prior loan rates, rounded up to the nearest ⅛ of a percent. However, as noted above, borrowers who consolidate their federal loans lose their grace period.

Student loan refinancing is when you consolidate your student loans with a private lender and receive new rates and terms. Your interest rate — which is hopefully lower — is determined by your credit history.

Can You Extend Your Student Loan Grace Period?

If your loan doesn’t qualify for a grace period or you want to extend your grace period, you have options. You may still delay your federal student-loan repayment through deferment and forbearance.

What’s the difference? Both are similar to a grace period in that you won’t be responsible for student loan payments for a length of time. The difference is in the interest.

When a loan is in forbearance, loan payments are temporarily paused, but interest will accrue during the forbearance period. This can lead to substantial increases in what you’ll pay for your federal loans over time. You’ll want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans.

While grace periods are automatic, you’ll need to request a student loan deferment or forbearance and meet certain eligibility requirements. In some cases — during a medical residency or National Guard activation, for example — a lender is required to grant forbearance.

The Takeaway

Federal student loan grace periods are typically six months from your date of graduation, during which you don’t have to make payments. Most federal student loans have grace periods (though sometimes they’re dubbed “deferments” instead). Private student loan terms vary by lender. However, some lenders, like SoFi, match federal grace periods for undergrad loans. During your grace period, you may want to make payments anyway, even interest-only payments, to prevent your balance from growing. The grace period is a good time to create a new budget, choose a repayment plan, and set up autopay. Although student loan payments and interest have been paused since March 2020, they are set to start up again in 2023.

If you have trouble making your payments, you have options, from income-driven repayment to consolidation to refinancing. It’s important to point out that refinancing federal student loans with a private lender, including SoFi, renders them ineligible for certain protections and benefits, like loan forgiveness and deferment.

If you want to find out whether refinancing your student loans could help you lower your monthly payments or reduce interest, you can take a look at SoFi’s Student Loan Refinance Calculator, which lets you plug and play various scenarios to see how you might benefit. If you’re ready to take that next step, checking your rate won’t affect your credit.

Learn more about managing your student loans with SoFi.

---

SoFi Private Student Loans
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. 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. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
SLR18193

Read more

Disappointed by your financial aid package? Sometimes students don’t get as much aid as they hoped for. Occasionally, they’re denied any aid at all. Before you toss your entire Life Plan, know that the decision isn’t necessarily final.

A financial aid appeal letter allows you to plead your case and share any new information. However, it’s essential to know how to write a letter compelling enough to change minds.

Here we’ll offer proven tips for building a persuasive argument, and a sample template to get you started.

When To Write a Financial Aid Appeal Letter

At what point in time after you receive your financial aid offer should you send an appeal letter? As soon as possible. That’s because some financial aid is handed out on a first come, first served basis. The sooner you appeal the decision, the more funds there will be to draw on.

Why Write a Financial Aid Appeal Letter

There are two main reasons why students appeal their financial aid offer: not getting the amount of aid they need and getting denied outright.

The Financial Aid Offer Fell Short

A student’s financial aid offer is based on the school’s certified cost of attendance (COA) and the student’s expected family contribution (EFC). The latter is calculated based on information provided in the Free Application for Federal Student Aid (FAFSA®) form.

But just because your parents have a certain income and assets on paper doesn’t mean that money is available to you. Even if your family originally planned to help out, circumstances may have changed since you submitted your FAFSA application. Some common life changes that will affect your financial aid calculation include:

•   Parent’s job loss or switch to a lower-paying position.

•   Medical emergency or other financial commitment that ate up the cash your family had set aside to help you.

•   Parents’ divorce.

•   New member joined the family, through birth, adoption, or guardianship.

•   Death of a parent.

Recommended: Independent vs Dependent Student: Which One Are You?

Not Meeting Eligibility Requirements

In order to qualify for federal financial aid, students need to meet a handful of eligibility requirements. The criteria include being enrolled or accepted for enrollment in an eligible degree program, and maintaining “satisfactory academic progress,” including a 2.0 GPA. The full list of eligibility requirements is available on the Federal Student Aid website at StudentAid.gov.

If you don’t meet one of the requirements before the financial aid office makes its decision or you lose eligibility after receiving an offer, you may not get the help you need.

What To Say in a Financial Aid Appeal Letter

Before you begin writing your letter, verify if your school has an official appeals application or form. In addition, you can check your school’s financial aid office for details on the financial aid appeal process. Some schools offer appeal forms online or have walk-in hours to address appeal questions.

If your school doesn’t offer a form, here are some of the things you should specifically include in your appeals letter:

Address a Specific Person

Avoid generic greetings like “To Whom It May Concern.” Instead, you’ll want to identify a specific individual at the financial aid office. If you are unsure whom to address, reach out to the financial aid office to ask.

Highlight Examples

Provide details about your situation and why you are unable to pay for college. Consider writing a bulleted list so you can provide straightforward facts of your family’s financial situation. A bulleted list will also make it easier to connect details with support documentation.

Provide Documentation

If you have any relevant documents that can help support your case, you will want to include them with the letter. For example, a death certificate, doctor’s note, or unemployment benefits letter can give the financial aid office the evidence that it needs.

State a Dollar Amount

If you’re asking for a specific amount, consider including a budget breakdown of how you’d spend that money, including tuition, room and board, supplies, books, and transportation costs. (SoFi’s Ca$h Course: A Student’s Guide to Money may help with this.)

Add a “Thank You”

End your letter by thanking the person you’re sending it to. You may also want to express your excitement about attending this school.

Recommended: 11 Strategies for Paying for College

Sample Financial Aid Appeal Letter

Date

Financial Aid Appeal Committee
Name of School
Office of Financial Aid

Dear Name Here,

I am writing to appeal the financial aid offer I received. My proposed package included $00,000 in scholarships and grants, and $00,000 in federal student loans, for a total award of $00,000. However, the amount I will need to cover my cost of attendance and living expenses this year is $00,000. I am requesting an increase in student loans or gift aid to cover the remaining $00,000.

Since completing and submitting the FAFSA, my family has experienced a change in circumstances. My father was laid off from his job in February and is still looking for work. As a result, we won’t be able to cover the expected family contribution needed for me to attend Name of College.

My family and I would be grateful if you would approve an increased aid amount of $00,000 to help me afford the cost of school this year. I’m thrilled to have been accepted at my school of choice and am eagerly looking forward to starting in the fall.

I appreciate your taking the time to consider my appeal. Thank you very much.

Sincerely,
Your name

3 Tips for Writing a Financial Aid Appeal Letter

A good financial aid appeal letter can potentially shift your financial aid office’s decision in your favor. Here are some things to keep in mind while you’re writing it.

1. Be Polite

Not getting the financial aid you feel you need can be a frustrating experience. When it comes time to direct your request to someone specific, look for a contact in your school’s financial aid office and address the letter to them directly. If you’ve received some aid, you could thank them for the amount and perhaps explain how much you appreciate them considering your appeal.

It can be difficult to leave emotion out of the equation, but a respectful tone can have a positive influence.

2. Keep It Concise

Be clear with your request and how much aid you need. Then give a straightforward explanation of why it’s needed. If you were denied aid for an issue with eligibility, you might want to explain the reason why it happened. For example, maybe your grades dipped because you were diagnosed with a severe illness, lost an immediate family member, or became homeless.

Try to keep your letter to one page. This is not the time for a manifesto. The financial aid office will likely be reviewing multiple letters, and brief messages can be surprisingly powerful.

3. Proofread the Letter

After writing and thoroughly proofreading the letter yourself, consider having a trusted friend or family member give the letter another read. It’s not always easy to catch errors on your own, and the easier your letter is to read, the better the impression you’ll make.

What To Do If Your Appeal Is Unsuccessful

If your appeal is denied, you may still have other options for covering college costs.

For example, you may be able to qualify for scholarships through your school or a private organization. Check your school’s website for opportunities, as well as websites like Scholarships.com, Fastweb, and the College Board. SoFi also offers a helpful Scholarship Search Tool.

If your parents are willing to help, they can apply for a Parent PLUS Loan through the Department of Education. These loans are not needs-based, and the maximum amount they can borrow is your school’s cost of attendance minus any financial aid you’ve already received.

Finally, you may also be able to apply for a private student loan. These loans require a credit check, so if you’re still relatively new to credit, you may need a parent to cosign the loan. As you consider these options, take the time to research their costs and terms to make sure you get the best deal for you. You should exhaust all federal aid options first before applying for a private student loan.

If you do decide that a private student loan is the right fit for your educational needs, we’re happy to help. SoFi offers flexible payment options and terms, and there are no hidden fees.

Don’t miss our related story, I Didn’t Get Enough Financial Aid: Now What?

The Takeaway

Writing a financial aid appeal letter can help students qualify for additional financial aid. Appealing an aid offer won’t always result in an increased award, but writing an effective letter can potentially improve a student’s chances of getting more aid. A few suggestions to strengthen your letter include being concise, providing supporting documentation, being specific in how you’ll use the funds, and keeping the letter polite in tone.

If you have exhausted all other options for paying for college, you may consider borrowing a private student loan. SoFi offers private student loans for undergraduates, graduate students, and parents, and there are no fees. For details, check out our Guide to Private Student Loans.

Fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

---

SoFi Private Student Loans
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. 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. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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.
SOPS19016

Read more