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How Much House Can You Afford When Paying Off Student Loans?

If you’re like many Americans, you may have student loans, and you may also hope to own your home at some point. You may worry that carrying student debt and buying your own place are mutually exclusive, but that’s not necessarily the case.

Yes, it can be true those with higher student loan balances may be less likely to be homeowners than peers with lower amounts of debt. However, understanding your debt-to-income ratio and other aspects of your financial profile can be vital. This insight can both inform how much room there is in your budget for a home loan payment and highlight how to improve your odds of being approved for a mortgage.

With this guide, you’ll learn the ropes, such as:

•   Understanding how mortgage lenders evaluate your finances

•   How your student loans impact your profile

•   Steps you can take that may boost your chances of getting a home loan application approved when you have student debt.

Getting a Mortgage When You Have Student Loans

Student loans are a familiar financial burden. Currently, Americans hold in excess of $1.7 trillion in student loan debt. A significant 70% of undergraduates finish school with an average sum of $37,000 or more in student loans.

You may wonder how having student loans can impact your eligibility for a mortgage. Here’s what you should know: When a lender is considering offering you a home loan, they want to feel confident that you will pay them back on time. A key factor is whether they think you can afford the mortgage payment with everything else on your plate. To assess this, a lender will consider your debt-to-income (or DTI) ratio, or how high your total monthly debt payments are relative to your income.

For the debt component, the institution will look at all your liabilities. These can include:

•   Car loans

•   Credit card payments

•   Student loans.

In the case of student loans (other than those forgiven by Biden administration), banks know that you’re likely to be responsible for that debt. It usually can’t be discharged in a bankruptcy and it’s not secured to an asset that a lender can recover.

Many industry professionals say that your debt-to-income ratio should ideally be below 36%, with 43% the maximum. If you have a high student loan payment or a relatively low income, that can affect your debt-to-income ratio and your chances of qualifying for a mortgage.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Can You Get a Mortgage With Student Loan Debts?

Are you wondering, “How much house can I afford with student loans?” Here are some important facts. Having student loan debt doesn’t disqualify you from getting a mortgage, but it can make it harder. So here’s how student loans are calculated for a mortgage: That student loan debt will increase your DTI ratio, which can make it harder to qualify for funds from lenders.

For example, here’s a hypothetical situation: Say you earn an annual salary of $60,000, making your gross monthly income $5,000. Say you owe $650 per month on a car loan and have a credit card balance with a $500 monthly minimum payment.

And let’s say you have student loans with a minimum payment of $650 a month. All your debt payments add up to $1,800 a month. So your debt-to-income ratio is $1,800/$5,000 = 0.36, or 36%. That’s right at the limit that some conventional lenders allow. So you can see how having a high student loan payment can affect your ability to qualify for a mortgage.

Another way that student loans can affect your chances of buying a home is if you have a history of missed payments. If you don’t make your minimum student loan payments each month, that gets recorded in your credit history.

When you fail to make payments consistently, your loans can become delinquent or go into default. Skipping payments is a red flag to your potential mortgage lender: Since you haven’t met your obligations on other loans in the past, they may fear you’re at risk of failing to pay a new one as well.

That said, if you have an acceptable DTI ratio and a history of on-time payments on your student loans, you likely have a good shot at being approved for a mortgage. It’s not a matter of having to make a choice between paying off student loans or buying a house.

Estimate How Much House You Can Afford

Taking into account the debt-to-income ratio you just learned about, use this home affordability calculator to get a general idea of how much you can afford. This tool is one you can use to help estimate the cost of purchasing a home and the monthly payment.

How Student Loan Debt Affects Your DTI Ratio

As mentioned above, student loan debt can increase your DTI ratio. How much it will increase your DTI number will depend on how big your loan debt is. Currently, the average federal student loan debt is $37,338 per borrower. The figure for private student loan debt is $54,921.

Obviously, to get that average figure, many different amounts are factored in. Consider these two scenarios:

•   Person A earns $120,000 and has $80,000 in student loan debt, plus a car payment, plus $15,00 in credit card debt.

•   Person B earns $80,000, and has $10,000 in student loan debt, no car payment, and $3,000 in credit card debt.

It’s likely that Person B will have an easier time qualifying for a home loan than Person A. It boils down to one having a higher DTI ratio.

Recommended: Strategies to Pay Off Student Debt

Improving Your Chances of Qualifying for a Mortgage

Are you wondering how to buy a house with student debt? Your student loan debt is just one part of the picture when you go shopping for a home loan. Lenders look at many other aspects of your financial situation to assess your trustworthiness as a borrower. By focusing on improving these factors, you may be able to increase your chances of getting a mortgage.

•   Credit score: One of the most important things to address is your credit score, since this is a key measure lenders use to evaluate how risky it would be to lend to you. Your credit score is determined by many factors, including whether you’ve missed payments on bills in the past, how much debt you have relative to your credit limits, the length of your credit history, and whether you’ve declared bankruptcy.

If your credit score is below 650 or 700, you may want to work on building it. Starting by consistently making your payments on time, paying off debt, or responsibly opening a new credit line may help.

•   Automate your payments. If keeping up with payments has been challenging in the past, setting up automatic payments to your credit card. You might also establish automatic payments to, say, your utilities through your providers or your bank to help you stay on track without having to memorize due dates. In the case of a bankruptcy, you’ll typically have to wait 10 years for it to disappear from your record.

•   Strengthen your work history. Your employment matters to a lender because, if you’re at risk of losing your job, your ability to pay back the loan could change as well. Gaps in employment, frequent job changes, or lack of work experience can all be red flags for a financial institution.

If employment history is a weakness in your application, perhaps you can focus on finding a more stable role than you’ve had in the past as you are saving for a house. This could also be a matter of waiting until you’ve been in a new job for a couple of years before applying for a mortgage.

•   Save up for a bigger down payment. Another way to improve your prospects is to save more money for your down payment. If you have enough to put at least 20% down on a home, your student loans may become less of a factor for the lender.

You can save for a down payment by putting funds in an interest-bearing savings account or CD, asking wedding guests (if you’re getting hitched) to contribute to a “house fund,” earning more income, or even asking a family member for a gift or loan.

•   Focus on your DTI ratio. Another key area you could focus on is your debt-to-income ratio. Tackling some of your debts — whether student loans, credit card balances, or a car loan — could help lower that ratio. Another strategy is to increase your income, perhaps by asking for a raise, getting a new job, or taking on a side hustle. This can help you pay down debt and improve your DTI ratio.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


How Student Loan Refinancing May Help

If you’re buying a home with student loans, another way to potentially improve your debt-to-income ratio is to look into student loan refinancing. When you refinance your student loans with a private lender, you replace your existing loans — whether federal, private, or a mix of the two — with a new one that comes with fresh terms.

Refinancing can help borrowers obtain a lower interest rate than they previously had, which may translate to meaningful savings over the life of the loan. You may also be able to lower your monthly payments through refinancing, which can reduce your debt-to-income ratio.

Refinancing isn’t for everyone, since you can lose benefits associated with federal loans, such as access to deferment, forbearance, loan forgiveness, and income-based repayment plans.

But for many borrowers, especially those with a solid credit and employment history, it can be an effective way to reduce debt more quickly and improve the chances of getting a mortgage.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Don’t Let Student Loans Hold You Back

With many Americans holding student loan debt, it’s understandable that this financial burden could pose a hurdle for some would-be homeowners. But can you get a mortgage with student loans? Yes, student loans and a mortgage aren’t mutually exclusive. Paying for your education doesn’t have to cost you your dream of owning a home.

If you’ve been making payments on time and your debt is manageable relative to your income, your loans might not be an issue at all. If your student loans do become a factor, you can take steps to get them under control, potentially improving your chances of qualifying for a mortgage. One option could be refinancing those loans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


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

FAQ

Can I refinance student loans to improve my mortgage eligibility?

Refinancing student loans might improve your mortgage eligibility. If you obtain a lower rate, you could potentially pay down your student loans more quickly, which could lower your debt-to-income (DTI) ratio. However, refinancing federal loans can mean you are no longer eligible for loan forgiveness and other programs.

Can a cosigner help if I have student loans and want to buy a house?

Having a cosigner on your student loans could help with your mortgage qualification if you are “on the bubble” in terms of qualifying. A cosigner with a strong financial profile and credit history could help tip you into the approval zone.

Will a history of on-time student loan payments positively impact my mortgage application?

A history of on-time loan payments is an asset. It can help build your credit score, which is one of the factors lenders use to assess whether to approve your mortgage application.


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


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.

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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Discretionary Income and Student Loans: Why It Matters

Discretionary Income and Student Loans: Why It Matters

Knowing what your discretionary income is (and how to calculate it) can help you make decisions about how to best repay your federal student loans. The U.S. Department of Education calculates discretionary income as your adjusted gross income in excess of a protected amount.

The “protected amount” is typically a percentage of the federal poverty guideline appropriate to your family size. The Saving on a Valuable Education (SAVE) Plan, for example, defines discretionary income as any adjusted gross income you have above 225% of the federal poverty guideline appropriate to your family size.

When it comes to individuals who are considering repaying federal student loans with the SAVE Plan or any other income-driven repayment (IDR) plan, discretionary income can be a major factor in how much they’ll owe each month. That’s because the federal government typically uses a borrower’s discretionary income to determine their monthly payments.

Below we’ll discuss different IDR plans and the ins and outs of discretionary income, so you can figure out a repayment strategy that works for you and your budget.

What Is Discretionary Income?

As mentioned above, the Department of Education calculates discretionary income as your adjusted gross income in excess of a protected amount defined by a federal IDR plan.

Discretionary income under the SAVE Plan, for example, is any adjusted gross income you have above 225% of the federal poverty guideline appropriate to your family size. You’ll have a $0 monthly payment under the SAVE Plan if your annual income doesn’t exceed the protected amount of $32,805 for a single borrower and $67,500 for a family of four in 2023.

If you don’t qualify for a $0 monthly payment on the SAVE Plan, your monthly payment beginning in July 2024 will be set at 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average if you have both.

Discretionary income as defined by the Education Department is different from disposable income, which is the amount of money you have available to spend or save after your income taxes have been deducted.

How Is Discretionary Income Calculated?

Here’s how federal student loan servicers may calculate your discretionary income:

•   Discretionary income under the SAVE Plan is generally calculated by subtracting 225% of the federal poverty guideline from your adjusted gross income (AGI).

•   Discretionary income under the Income-Contingent Repayment (ICR) plan is generally calculated by subtracting 100% of the federal poverty guideline from your AGI.

•   Discretionary income under the Income-Based Repayment (IBR) and Pay As You Earn (PAYE) federal IDR plans is generally calculated by subtracting 150% of the federal poverty guideline from your AGI.

If you’re filing jointly or you have dependents, that will impact your discretionary income calculations. For married couples filing together, your combined AGI is used when calculating discretionary income. Under an income-driven plan, filing with a spouse can drive up your income-driven monthly payments because of your combined AGI.

So, let’s say you’re in a one-person household and have a 2023 AGI of $40,000. If you are considering the SAVE Plan, you would subtract 225% of the 2023 poverty guideline ($32,805), to get an official discretionary income of $7,195. Monthly, that is a discretionary income of about $600, and your monthly payment beginning in July 2024 will be set at 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average if you have both.

Borrowers are generally expected to make required loan payments when due. The 2023 debt ceiling bill officially ended the three-year Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1, 2023, and payments to resume in October 2023.


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

Take control of your student loans.
Ditch student loan debt for good.


What Income-Driven Repayment Plan are You Eligible For?

There are four federal IDR plans that have different eligibility criteria and terms. These income-driven repayment plans can reduce monthly payments for people with incomes below a certain threshold.

It should be noted that federal IDR plans don’t apply to private student loans. They’re only an option for federal student loans.

Income-Driven Repayment Plans for Federal Student Loans

The federal Department of Education offers the following four IDR options for eligible federal student loan borrowers:

•   Saving on a Valuable Education (SAVE) Plan

•   Pay As You Earn (PAYE) Plan

•   Income-Based Repayment (IBR) Plan

•   Income-Contingent Repayment (ICR) Plan

All IDR plans generally use discretionary income to determine monthly payments. So, if there is a change in a borrower’s income or family size, their monthly payment could increase or decrease, depending on the change. Borrowers enrolled in an income-driven repayment plan are typically required to recertify their income and family size each year.

The SAVE and ICR plans are open to anyone with eligible federal loans. Under these two repayment plans, the amount owed each month is always tied to a borrower’s discretionary income. This could mean that if an individual’s income increases over time, they may end up paying more each month than they would under the 10-year Standard Repayment Plan.

For the PAYE and IBR plans, eligibility is determined based on income and family size. As a general rule, to qualify, borrowers must not pay more under PAYE or IBR than they would under the 10-year Standard Repayment Plan. Under these plans, the amount owed each month will never exceed what a borrower would owe under the Standard Repayment Plan.

Pros and Cons of Income-Driven Repayment Plans

IDR plans come with trade-offs. While they can lower your monthly payment and help free up your cash flow now, they may extend the life of your loan. The standard student loan payoff plan is based on a 10-year repayment timeline. An income-driven repayment plan can extend your payment timeline to up to 25 years.

This means you’ll be paying off the loan longer and possibly paying more in interest over time. If you stay on an income-driven repayment plan, the government might forgive any remaining balance after 20 or 25 years of payments — or as little as 10 years for SAVE Plan enrollees with original principal balances of less than $12,000. But the amount that is forgiven may be taxed as income.

How Does Discretionary Income Affect Student Loan Payments?

Income-driven repayment plans generally use your discretionary income to dictate the amount you’re required to repay each month. In the case of borrowers enrolled in the SAVE Plan, any required payments beginning in July 2024 will be set at 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average if you have both.

Recommended: How Is Income Based Repayment Calculated?

How Else Can Borrowers Lower Their Student Loan Payment?

Another potential way for borrowers to reduce their student loan payment is by refinancing student loans. When you refinance your student loans, you take out a new loan with new terms from a private lender. The new loan is used to pay off your existing student loans.

Depending on your financial profile, refinancing could result in a lower interest rate or a lower monthly payment depending on which terms you choose. You may pay more interest over the life of the loan if you refinance with an extended term.

Refinancing federal student loans with a private lender also forfeits your access to federal IDR plans, Public Service Loan Forgiveness, and Teacher Loan Forgiveness.


💡 Quick Tip: When rates are low, refinancing student loans could make a lot of sense. How much could you save? Find out using our student loan refi calculator.

The Takeaway

The government uses discretionary income to calculate your federal student loan monthly payments under a qualifying IDR plan. The SAVE Plan may not provide the lowest monthly payment for eligible borrowers with high salaries.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


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


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


SoFi 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-criteria 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.


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

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

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

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How Is Income-Driven Repayment Calculated?

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

After graduation and your six-month federal student loan grace period, it’ll be time to start paying your dues. If you are on the Standard Repayment Plan, you’ll pay at least $50 a month for 10 years. But there are other ways to pay back your student loans: through income-driven repayment plans.

Not all of these plans have the same repayment strategy, and not all federal loans qualify for income-driven repayment. We’ll help you find the one that aligns with your financial situation before you commit.

How Does Income-Driven Repayment Work?

The U.S. Department of Education offers four income-driven repayment (IDR) plans for holders of federal student loans:

•   Income-Based Repayment (IBR)

•   Income-Contingent Repayment (ICR)

•   Pay As You Earn (PAYE) Plan

•   Saving on a Valuable Education (SAVE) Plan

For most IDR plans, your monthly payment is calculated as a portion of your discretionary income. The Department of Education defines discretionary income as your adjusted gross income in excess of a protected amount.

Discretionary income under the SAVE Plan, for example, is any adjusted gross income you have above 225% of the federal poverty guideline appropriate to your family size. You’ll have a $0 monthly payment under the SAVE Plan if your annual income doesn’t exceed the protected amount of $32,805 for a single borrower and $67,500 for a family of four in 2023.

If you don’t qualify for a $0 monthly payment on the SAVE Plan, your monthly payment beginning in July 2024 will be set at 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average if you have both.

On the IBR plan, your monthly payment is typically set at 10% to 15% of your discretionary income above 150% of the federal poverty guideline appropriate to your family size. But unlike the SAVE Plan, a borrower’s monthly payment on the IBR plan will never be more than what you would have paid through the Standard Repayment Plan.

IDR Loan Forgiveness

All federal IDR plans can end with your remaining loan balance being forgiven after 20 or 25 years, but some borrowers may receive forgiveness sooner under the SAVE Plan. Beginning in July 2024, federal student loan borrowers with original principal balances of less than $12,000 can have their remaining loan balance forgiven after 10 years of monthly qualifying payments on the SAVE Plan.

For more details on federal IDR debt relief benefits, check out our Guide to Student Loan Forgiveness.

Your personal circumstances and goals may dictate which student loan repayment plan is right for you. You can estimate how much your monthly payments will be through the federal Loan Simulator calculator.

Take control of your student loans.
Ditch student loan debt for good.


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

The Difference Between Income-Driven Repayment Plans

Deciding which IDR plan is right for you (and that you may qualify for) depends on your financial situation and your loan type(s). Here’s what they all mean:

•   IBR (Income-Based Repayment). This plan is based on your income and family size. The potential IBR payment must be less than what you would pay under the Standard Repayment Plan to qualify. Any remaining balance is forgiven after 20 or 25 years.

•   ICR (Income-Contingent Repayment). Under this plan, your monthly payment is adjusted based on your income (sometimes set at 20% of your discretionary income above 100% of the federal poverty guideline appropriate to your family size). It might not lower your payments as much as other plans, but it’s the only IDR plan that allows Parent PLUS Loans. Any remaining balance is forgiven after 25 years.

•   PAYE (Pay As You Earn). With this plan, you’ll never pay more than the fixed Standard Repayment Plan amount. Payments are typically set at 10% of your discretionary income above 150% of the federal poverty guideline appropriate to your family size. Any remaining balance after 20 years of payments is forgiven.

•   SAVE (Saving on a Valuable Education). This IDR plan replaced the former REPAYE Plan. Anyone with qualifying student loans can enroll into the SAVE Plan. However, you could end up paying more per month under this plan than the Standard Repayment Plan. You’ll have a $0 monthly payment under the SAVE Plan if your annual income falls below 225% of the federal poverty guideline appropriate to your family size.

Alternatives to Income-Driven Repayment Plans

The 2023 debt ceiling bill officially ended the three-year Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1, 2023, and payments to resume in October 2023.

Aside from the Standard Repayment Plan, there are a few options to consider instead of IDR:

Consolidation

If you have federal student loans, you can get a Direct Consolidation Loan. This will move all your eligible federal student loans into one monthly payment. Your new interest rate is the weighted average of all your loans, rounded up to the nearest eighth of a percent.

This can be helpful if you have many smaller loans that each have a minimum monthly payment. It typically won’t lower your monthly payment, however, but it can make it manageable and easier to keep track of. Only federal loans are eligible for a Direct Consolidation Loan.

Refinancing

Refinancing is similar to consolidation. You get one loan to replace all of your other loans, but it’s a new loan with a new interest rate from a private lender or bank. Your credit report and other personal financial factors are considered to see if you’re a responsible borrower. If you previously had a co-borrower, such as a parent, you can look into refinancing without a cosigner.

Many lenders allow you to refinance all of your student loans, not just federal student loans. So if you have a mix of private student loans and federal student loans, refinancing will create one new loan with one payment to replace them.

If you qualify for a lower interest rate and a shorter term, it could reduce the amount of money paid in interest over the life of the loan. You may pay more interest over the life of the loan if you refinance with an extended term. You can explore different scenarios with our Student Loan Refinance Calculator.

You may ask, “Should I refinance my federal student loans?” Refinancing federal student loans with a private lender forfeits your access to Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and federal IDR plans. You can weigh the pros and cons when determining whether student loan refinancing is right for you.


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

How Do You Calculate Income for an Income-Driven Plan?

The Department of Education considers three different components when calculating a borrower’s income. While this may seem needlessly complicated, it actually benefits borrowers:

Annual Income

Any income that’s taxable counts toward the Education Department’s calculation. That means regular wages, plus interest and dividends from savings and investments, unemployment benefits, etc. On the flip side, any income that isn’t taxed doesn’t count: gifts and inheritances, cash rebates from retailers, child support payments, and so on.

Spouse’s Income

If you and your spouse file a joint tax return, then their income must also be factored in. If you file separately, only your income counts.

Family Size

Your family size is the number of people who live with you and receive more than half their support from you. This includes children but also dependent adults, such as an older parent.

The Takeaway

There are four income-driven repayment plans for federal student loan holders, including IBR, ICR, PAYE, and SAVE. No new PAYE enrollments will occur after July 1, 2024, although current PAYE enrollees can remain on the plan after that date.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


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


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


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


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-criteria 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.


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

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

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

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Student Loan Forbearance Extension: Can You Get It Extended?

Student Loan Forbearance Extension: Can You Get One?

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

The 2023 debt ceiling bill officially ended the three-year Covid-19 forbearance of federal student loans. As a result, student loan interest accrual resumed on Sept. 1, 2023, and payments in October 2023.

Although the pandemic-related pause that began in March 2020 is no longer in effect, the Biden administration has implemented a temporary “on-ramp” protection. Any federal student loan borrower who received the Covid-19 forbearance relief will be eligible for the 12-month on-ramp protection automatically. This means you’ll be protected from having your federal student loans reported as delinquent if you fail to make any required loan payments from October 2023 through September 2024.

Below we highlight how the on-ramp protection works and how federal student loan borrowers may also benefit from the Saving on a Valuable Education (SAVE) Plan.

What Is a Student Loan Forbearance Extension?

Congress authorized the initial Covid-19 student loan forbearance in March 2020 when it passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act suspended federal student loan payments and federal student loan interest accrual through September 30, 2020.

Two presidential administrations — starting with the Trump administration — extended the Covid-19 forbearance through executive action. The Biden administration issued several extensions to the Covid-19 forbearance up until the 2023 debt ceiling bill ended the practice.

Federal student loan borrowers facing financial difficulties may request a general forbearance, and some borrowers may qualify for a mandatory forbearance. A general or mandatory forbearance can temporarily suspend making loan payments during an approved period.

Federal student loan forbearances typically have 12-month durations, but you can request an extension if you meet the requirements. The cumulative limit on a general forbearance is three years.

Recommended: What Is Student Loan Forbearance?

Will Student Loan Forbearance Be Extended?

The passage of the 2023 debt ceiling bill guarantees the Covid-19 forbearance will not be extended. Federal student loan interest accrual resumed Sept. 1, 2023, and borrowers are now expected to make required payments when due.

So the Covid-19 student loan forbearance will not be extended, and the Biden administration’s one-time student loan forgiveness plan under the HEROES Act will not take effect. The Supreme Court rejected Biden’s broad debt relief plan in June 2023, finding the HEROES Act did not authorize the program.

Although the Covid-19 forbearance will not be extended under the HEROES Act, the Biden administration has implemented temporary “on-ramp” protections.

If you’re covered by the on-ramp, you’re protected from having your federal student loans reported as delinquent or placed in default from October 2023 through September 2024. But federal student loan interest will still accrue during the on-ramp, so failing to pay may increase your student debt burden.


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

How to Extend or Pause Student Loan Payments in General

If you’re concerned about your ability to resume student loan payments beyond the temporary on-ramp protection, consider talking to your student loan servicer about:

•   General student loan forbearance

•   General student loan deferment

•   An income-driven repayment plan

•   Public Service Loan Forgiveness program

Income-Driven Repayment (IDR)

Based on your income and family size, an IDR plan can set your student loan payments at an affordable repayment amount per month for you. There are four plans, which last for a certain number of years and forgive any remaining balance after that:

•   Saving on a Valuable Education (SAVE) Plan

•   Pay As You Earn (PAYE) Plan

•   Income-Based Repayment Plan

•   Income-Contingent Repayment Plan

The SAVE Plan replaced the former REPAYE Plan in July 2023. If you were enrolled in the REPAYE Plan at that time, you’ve been automatically enrolled in the SAVE Plan.

The SAVE Plan can give you a $0 monthly payment if your income is within 225% of the federal poverty guideline (or less than $32,805 for a single borrower and $67,500 for a family of four in 2023).

Another benefit to the SAVE Plan is that your loan balance won’t grow over time if your monthly payment amount is less than the interest accruing.

Refinancing

It’s possible to consolidate both federal and private student loans into one new loan when you refinance your student loans with a private lender. If an applicant qualifies for a lower interest rate and a shorter term, it could reduce the amount of money paid in interest over the life of the loan. You may pay more interest over the life of the loan if you refinance with an extended term.


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

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Alternative Student Loan Financing Options

As you’re thinking about college funding, keep this in mind: You can choose from a number of college financing options, including scholarships, grants, and private student loans:

•   Scholarships. Scholarships are awarded based on merit or need, and students do not need to repay them. Students can get scholarships through businesses, colleges, and other organizations. There are online scholarship search tools that can help you find opportunities you might be eligible for.

•   Direct PLUS Loans. Direct PLUS Loans can help graduate or professional students pay for college. They can also help parents of dependent undergraduate students pay for their child’s college education. You might want to consider a parent PLUS loan refi to a lower rate if you’re repaying a PLUS loan.

•   Grants. Students can get grants from states, the federal government, a public body, and/or other organizations to pay for college.

•   Private student loans. Private student loans are given by commercial lenders, not the U.S. Department of Education. Unlike most federal student loans, you will undergo a credit check and possibly have to get a cosigner to sign on the loan with you.

The Takeaway

The Covid-19 forbearance is no longer in effect and won’t be extended under the HEROES Act. This means federal student loan borrowers are generally expected to make required loan payments when due. (A temporary on-ramp protection from October 2023 through September 2024 may protect you from typical delinquency impacts, but it won’t stop your interest from accruing.)

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


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

FAQ

How do I know when my student loan payments will resume?

Federal student loan payments resumed in October 2023. You may receive billing statements from your federal loan servicer going forward.

What does student loan forbearance mean?

Forbearance means a borrower can temporarily suspend making loan payments during an approved period. There are two main types of forbearance for federal student loans: general and mandatory. This does not include the former Covid-19 forbearance, which ended as required under the bipartisan Fiscal Responsibility Act of 2023.

What are income-driven repayment plans?

An alternative to forbearance, income-driven repayment plans can set your monthly loan payments at an affordable amount for you. There are four plans. Each lasts a certain number of years and forgives any remaining balance after that. Beginning in July 2024, borrowers with original principal balances of less than $12,000 can have their remaining loan balance forgiven after 10 years of monthly qualifying payments under the SAVE Plan.


Photo credit: iStock/Andrea Migliarini

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


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


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

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What Happens to Student Loans When You Die?

No one plans for their student loans to outlive them. We all expect to have paid off loans for college or graduate school long before middle age, let alone within our lifetimes. But it’s important to have a grasp of what happens to student loans when you die. Not knowing the policy can cause you a lot of anxiety. Will the loan be wiped away? Will the burden fall on your parents or spouse? The answers depend on what kinds of loans you have.

If you die before your student loan is paid off, your loan will be discharged – but only if it’s a federal loan. Your family will not be responsible for repaying a federal student loan. With a private loan, it will also most likely be discharged, but in certain cases there could be complications. And if you had a cosigner, it’s more likely there will be complications.

According to EducationData.org, 6.2% of federal borrowers are 62 years of age and older. The average 62-year-old federal borrower owes $41,780 in federal educational debt, including Parent PLUS loans. So if you’re one of these older borrowers, getting the facts now may help put your mind at rest. Here’s what can happen to your loans in a variety of scenarios.

What Happens to Federal Student Loans?

If you took out student loans from the federal government, the loans will be discharged when you die. When a loan is discharged, the balance becomes zero and the government won’t try to collect on the loan.

There is currently no tax burden once loans are discharged as a result of death. However, this is only true until 2025, at which point this tax code expires and policies could change.

Also, your parent’s PLUS loan will be discharged if your parent dies or if you (the student on whose behalf your parent obtained the loan) die.

You’ll likely want to make sure that your loved ones have the information they need now—at a minimum, the name of your loan servicer and, ideally, your loan ID numbers and your Social Security number.

Family or friends would need to provide your loan servicer with that documentation to confirm the death, usually an original or copy of your death certificate. They can call your loan servicer to ask about the specific requirements.

The bottom line: If you have any kind of federal student loan, you don’t need to worry about your relatives being burdened with the debt if you pass away.


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

What Happens to Private Student Loans?

More than 93% of all student loan debt is made up of federal student loans, according to Educationdata.org. What happens to private student loans when you die? The rules are different than those covering federal student loans. It is possible that with a private student loan, someone will be pursued for repayment after you die.

The Consumer Financial Protection Bureau says, “Unlike federal student loans, there are no legal requirements to cancel private student loans for borrowers who die or become disabled. In certain cases, private lenders have special provisions to discharge loans.”

So yes, some private lenders will cancel the loan upon the loan holder’s death, but it typically depends on the type of loan and the laws in your state.

Make sure to read your private loan agreement carefully now to see what protections your lender offers. If you have questions, it might be wise to consult a lawyer.

In the case that your lender doesn’t discharge your loans after death, the lender would first try to collect the money from your estate. If you don’t have an estate, they would turn to your student loan cosigner, if you have one.

If there isn’t one, then the lender would likely try to collect from your spouse. Whether your spouse would actually be liable depends on the state in which you live. If you live in a community property state–Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin–and took out the student loan while you were married, your spouse could be responsible.

What Happens If You Have a Cosigner?

Federal student loans almost never involve a cosigner, but private loans often do in order to improve a borrower’s financial profile. Enterval Analytics said that in 2022, 90.78% of undergraduate private loans were cosigned.

A cosigner has agreed to pay the debt if you default, which means they will be just as responsible for the loan as you are. If you die, a private lender could seek to collect payment from the cosigner. However, some lenders may waive the remaining debt if the primary borrower (student) dies. Again, you need to check the policy.

If you have a loan with a cosigner and want to take this burden off of them, you could consider trying to refinance the loan in only your name. This could be an option if your credit, income, and employment history have improved since you took out the loan, and you can now qualify on your own.

It’s worth asking what happens if the situation is reversed: What if your cosigner dies? In some cases, your loan would go into “student loan auto-default,” meaning the lender would immediately require you to pay the full amount of the remaining loan, even if you’ve been making payments regularly until then.

If you cannot pay the full amount as requested, the holder on the loan could put you into this immediate default. That would harm your credit rating for a number of years.

However, not all banks will invoke the “auto-default” if your cosigner dies. Also, this depends on the bank being aware that the cosigner is no longer alive.

If you are in the terrible situation of knowing that your cosigner will die soon, you might want to be proactive to avoid the auto-default possibility. You may want to ask your lender for a release of the cosigner. Be aware that it might not be easy to obtain a release if your credit profile isn’t strong.

Recommended: Applying for a Student Loan Cosigner Release

What Can You Do to Protect Loved Ones?

It is pragmatic to worry about what happens to student loans when you die. To ensure that your spouse or cosigner doesn’t end up with a large debt burden in the event of that happening, one course of action is to pay off your student loans faster.

You can do this by increasing the amount you pay every month, going above your minimum monthly payment, or possibly shortening the payment term through refinancing.

Another option is to build a savings cushion that can be put toward your debt if you die.

How Student Loan Refinancing Can Help

Do student loans die with you? Not always. But there are things you can do now, including releasing any cosigners to make it less likely they’ll be pursued for the debt after your death. Refinancing your student loans may also be a good way to speed up repayment, leaving less of a potential obligation behind in case you die.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


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


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


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


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

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

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

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

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