Typically, when you apply for a loan, the lender wants proof of income to show that you can repay the loan. For graduate students, this can pose a catch-22 since they are going to school in order to become gainfully employed. The customary workaround: having a cosigner on the private graduate student loan.
But some graduate students, perhaps MBA, law school, or computer science students about to start their final years, may have offer letters of employment for when they graduate. Wouldn’t it be great if they could submit those offer letters as proof of income — a practice used in mortgage lending?
Keep reading to learn how and when you can use an offer letter as income verification can give you an edge in the application process.
Key Points
• Graduate students can sometimes use signed job offer letters as proof of income when applying for private student loans, potentially eliminating the need for a cosigner.
• Submitting a job offer letter can strengthen a loan application by demonstrating future earning potential, which may increase the likelihood of loan approval.
• Providing an offer letter as income verification may help applicants qualify for more favorable interest rates, leading to potential savings over the life of the loan.
• To be accepted, the offer letter must typically include a start date within 90 days for graduate students.
• By leveraging a job offer letter, graduate students may access private student loans with greater ease and potentially more favorable terms.
How Common Is the Practice of Using an Offer Letter as Proof of Income?
Certainly, accepting offer letters as part of graduate students’ applications is not standard. Luckily, for graduate private student loans, many lenders now accept an offer letter as a form of income for eligible borrowers.
Offer letters can help recent graduates or students entering the workforce qualify for better loan terms, such as lower interest rates or the ability to apply without a cosigner. Read on for more ways an offer letter may strengthen the loan application and empower the funding process for the student.
Using an Offer Letter as Proof of Income
Given how much a student likely already has on their plate, chances are they want the student loan application process to be as straightforward as possible. Needing to supply an additional document might sound like an extra hassle, but there can be plenty of benefits to using a job offer letter as proof of income on a student loan application.
Qualifying Without a Cosigner
A student loan cosigner is a second person who signs a loan along with the borrower and who is therefore also responsible for the debt should the borrower fail to repay. In the case of student loans, cosigners are often parents or guardians, though other relatives and even friends can be cosigners, as well.
In many cases, it can be hard for graduate students to qualify for additional student loans without a cosigner, particularly if they’re young and newly graduated from college — which probably means their credit histories are short and their income is limited.
Because a job offer letter demonstrates the applicant’s individual earning potential, using one in a student loan application may empower students to be able to qualify without a cosigner (if the loan company doesn’t expressly require one).
Increasing Approval Chances
Even if a graduate school student loan applicant does still elect to have a cosigner, using an offer letter as proof of income may help increase the chances of approval. When it comes to borrowing large amounts of educational funding, every little bit of qualification can help.
Potentially Qualifying for a More Favorable Rate
With or without a cosigner, additional income validation in the form of a job offer letter may be able to qualify you for a more favorable interest rate, which may potentially mean savings over time. It is important to remember that this is just one of the many factors that lenders take into account when determining what rate you qualify for.
What’s the Process of Using a Job Offer Letter?
To use a job offer letter as part of your student loan application package, the applicant will need to include the letter in their application materials.
Depending on the loan company’s process, the letter may be uploaded directly online or a copy included in a mailed-in application. Offer letters typically include a start date and pre-tax pay rate so the lender can accurately assess how the offer augments the application.
The Takeaway
Graduate, law, and MBA students may be able to use a job offer letter as proof of income in addition to, or instead of, adding a cosigner to their application.
While students should exhaust all their federal student aid options before considering a private student loan, sometimes additional assistance is necessary to handle the expense of graduate or professional graduate programs.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
How does submitting a job offer letter affect my chances of loan approval?
Providing a job offer letter can strengthen your loan application by demonstrating future earning potential, which may increase the likelihood of approval and potentially qualify you for more favorable interest rates.
What information should be included in the job offer letter?
The offer letter should include the employer’s name, your job title, the start date, and the annual salary or compensation details.
What are the eligibility requirements for using an offer letter as income proof?
To be eligible through SoFi, the offer letter must be signed and include a start date within 90 days of the application date for graduate students, or within 12 months for MBA and law students. SoFi also requires verification of the offer through written or verbal confirmation from the employer.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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.
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.
Paying for college is a significant financial investment, and many families want to ensure they’re protected in case something unexpected disrupts a student’s education. That’s where tuition insurance comes in.
Tuition insurance is a type of coverage that can help reimburse tuition costs if a student has to withdraw from school due to serious illness, injury, or other covered circumstances. But is it really necessary? This article explores what tuition insurance is, what it covers, how much it costs, and whether it’s worth considering for your family’s situation.
Key Points
• Tuition insurance reimburses tuition costs if a student withdraws from school due to serious illness, injury, or mental health issues — but not for academic or disciplinary reasons.
• Coverage typically excludes pre-existing conditions, risky activities, and pandemics, unless specific conditions are met and detailed in the policy’s fine print.
• Plans usually cost around 1% of tuition, with some covering room and board; policies are available through providers like GradGuard or A.W.G. Dewar.
• Filing a claim requires official documentation, including proof of withdrawal and a medical professional’s statement; mental health claims may require hospitalization.
• Before buying, check with your school for existing refund policies and insurer partnerships, as some schools offer limited tuition refunds during early withdrawal periods.
What Is Tuition Insurance?
Just as you have health insurance to cover costs associated with unexpected health issues, you can get tuition insurance to cover college tuition costs in the event of unexpected health issues that prevent your student from attending.
Also called tuition refund insurance, it can recoup some or all of what you’ve paid in tuition if your student experiences a serious injury or illness that prevents college attendance.
What Does Tuition Insurance Cover?
Generally, tuition insurance covers:
• Serious sickness
• Injury
• Mental health conditions, including anxiety and depression
• Death of the student or person paying tuition
You’ll need to read the fine print to find out what qualifying medical events are, as some policies will list specific illnesses, such as mononucleosis.
Imagine a pandemic sweeping the land (wild thought, huh?). Tuition insurance will not cover tuition if a college or university has to close or if your student simply isn’t comfortable attending class in person. However, if your student contracts the disease and is unable to attend classes as a result, you may be eligible for a partial refund of tuition for that semester.
To file a claim, the student must withdraw from school and a medical professional must document that withdrawal was necessary. The process can vary by policy, though.
What Does Tuition Insurance Not Cover?
It’s important to know what tuition insurance does not cover, as well. If your student leaves college for academic reasons or is on disciplinary probation, you will not be reimbursed for tuition.
Some pre-existing conditions may not be covered, so if your student has a medical condition, make sure it is covered before buying the policy.
Tuition insurance may also not cover participating in professional sports or extreme sports (like bungee jumping), participating in a riot, drug abuse, suicide, or self-inflicted injury.
Who Should Consider Tuition Insurance?
Some students or parents paying for tuition might be better candidates for college tuition insurance than others.
For students with pre-existing conditions that can be covered by a policy, it can be a good idea to purchase coverage, especially if it’s a condition that is known to keep the student bedridden or otherwise unable to function for weeks or months at a time. The reimbursed tuition money could be put toward medical bills or a future semester in college.
If you have more than one child in college, a tuition insurance policy could help you recoup costs for a student experiencing an issue that you could then put toward other college expenses.
And if the school your student is attending is very expensive, an insurance policy may allow you to relax a bit more in the event that something happens.
Part of determining whether college tuition insurance is worthwhile is understanding the policy cost vs. possible reimbursement, as well as tuition costs.
While a select few schools offer free tuition, most have significant price tags. As of 2025, the average costs of tuition for:
• In-state tuition for a four-year public university: $9,750
• Out-of-state tuition for four-year public university: $28,386
These numbers add up over four (or more!) years, so it’s understandable that paying for an insurance policy might make sense. But, how much is tuition insurance?
Plans vary in pricing and features, but generally, you can expect to pay about 1% of the cost of tuition. Some cover other expenses like room and board, while others do not.
Buying a Tuition Insurance Policy
Currently, there are two primary providers of tuition insurance: GradGuard and A.W.G. Dewar. Some schools may work with a private insurance company, so start by asking the registrar’s office if the college has a partner for tuition insurance.
Of course, the most affordable and comprehensive coverage can be obtained by going directly through the school, if your school offers it. Make sure to ask your school about tuition insurance prior to seeking an outside provider.
To enroll in a policy, you’ll be asked about your student’s school and costs for a semester of tuition. You’ll then be given a quote, and if you want the coverage, you can purchase from there by adding a few more personal details and inputting your payment information. You’ll pay your monthly premium, just as you do with auto or health insurance.
Reading the Fine Print
Before purchasing the policy, it’s best to read the fine print. The last thing you want is to purchase a policy and file a claim, expecting to be fully reimbursed, only to find out the condition you’re filing for isn’t covered.
For example, GradGuard’s fine print discusses a pre-existing medical condition exclusion waiver. It states that pre-existing medical conditions are covered when the insured student does not have symptoms of the condition on the policy purchase date and was medically able to attend school, or if the student was covered by a similar policy by the same company within four months of the effective date of the current policy.
Other fine print items to note are whether a doctor or licensed mental health professional needs to diagnose the student with the medical condition to qualify for reimbursement, the effective date of the policy, and how to prove your loss. Not all policies will fully reimburse your tuition or other costs, so find out how much you may be eligible to be refunded before purchasing a policy.
How to File a Claim
Each insurance company has its own process for filing a claim. Be sure to read through the process, as one incorrect step could cause your claim to be denied.
You’ll need documentation for the expenses you want to claim from the college or university. You may need the registrar’s office to verify on paper that your student has withdrawn for the semester, as well as documents showing what you have paid in tuition and expenses.
You may also need a written order from your student’s doctor or mental health professional stating that your child is unable to attend school due to medical reasons. For mental health issues, hospitalization of 24 to 48 hours may be required.
Alternatives to Tuition Insurance
While tuition insurance can come in handy if medical conditions or injury force a student to withdraw, the college might offer full or partial reimbursement without insurance.
Policies vary from one school to another, so inquire with the college or university before assuming you can get expenses refunded.
Some schools will refund tuition, but only during the first five weeks of a semester. Others won’t reimburse tuition but will refund some or all of room and board expenses if students withdraw.
Prior to making a decision on whether or not tuition insurance is right for you, speak with your child’s college directly so review your options.
Is Tuition Insurance Right for You?
The bottom line: If you don’t like taking risks with your money and are concerned that your student might have a situation that results in withdrawal from school for one or more semesters, tuition insurance could be a worthwhile investment. It’s a low expense compared to tuition, so it could be well worth it should you end up filing a claim.
If your student has a pre-existing condition that would be covered, insurance could mitigate your risk of losing money should that medical condition cause a need to leave school. On the other hand, not much is covered in terms of pre-existing conditions or activities your child might be involved in, such as professional sports. In these cases, the policy would be moot if the condition isn’t covered when you file a claim.
If a student withdraws and not all costs are covered or if no policy is in place, a private student loan could be a solution to fill the financial gap. Private student loans can typically be used for tuition, books, room and board, transportation, and other college-related expenses.
The Takeaway
Tuition insurance can serve as a valuable safety net for families concerned about the financial risks associated with unexpected student withdrawals due to serious health issues. While it may not be necessary for everyone, it offers peace of mind for those with higher tuition costs, limited school refund policies, or students with pre-existing medical conditions.
If you’re wondering how to pay for college, you can rely on cash savings, scholarships, grants, federal student loans, and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
What is tuition insurance and how does it work?
Tuition insurance, also known as tuition refund insurance, is a policy that can reimburse some or all of your college tuition if a student must withdraw due to serious illness, injury, or mental health conditions. It acts as a financial safeguard against unexpected health issues that prevent attendance.
What does tuition insurance typically cover?
Generally, tuition insurance covers withdrawals due to serious sickness, injury, mental health conditions like anxiety and depression, or the death of the student or tuition payer. However, coverage specifics can vary, so it’s essential to review the policy details.
What situations are not covered by tuition insurance?
Tuition insurance usually does not cover withdrawals for academic reasons, disciplinary actions, or pre-existing conditions unless specified. It also excludes situations like participating in extreme sports, drug abuse, suicide, or self-inflicted injuries.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
With the rising price of tuition, fees, and room and board at four-year public colleges and private nonprofit institutions, more students in all income brackets have been taking out student loans.
If you’re wondering where to get a student loan for college, you have two options. The first is getting a federal student loan through the government. Federal student loans account for more than 93% of all student loan debt. The second option is a private student loan, which is given by a bank, credit union, or online lender. Private student loans are not based on need, but rather your college’s cost of attendance, your credit profile, and your income (or your cosigner’s income).
Keep reading for more on where to get a student loan, including both federal student loans and private student loans.
Key Points
• Students can get federal student loans through the government and private student loans through banks, credit unions, and online lenders.
• To get a federal student loan, students must complete the Free Application for Federal Student Aid (FAFSA®), which determines eligibility for various federal aid programs.
• Private student loans are based on creditworthiness and income, often requiring a cosigner, and may have varying interest rates and terms.
• Private student loans should be prioritized after all federal aid has been exhausted, as private loans don’t offer the same borrower protections as federal loans.
• It’s crucial to understand the terms of any loan, including interest rates (fixed vs. variable), repayment schedules, and potential fees. Comparing different loan options ensures that borrowers choose the most suitable and affordable financing for their education.
Prioritizing a Plan
When creating a plan to fund college education, it’s wise to first explore any avenues for free money in the form of grants and scholarships.
By taking a look at the remaining balance after any free money has been found, exploring federal loans can be a smart next step. They come with income-based repayment options and the ability to request loan forgiveness under some circumstances. There are also work-study programs that can help students earn money while attending college.
If all needs are not covered, then there are private student loans to consider, along with Direct PLUS Loans that parents can apply for to get funds for their children.
After that, some people may seek out personal loans to cover living expenses while in school and/or emergency loans from the college.
After filling out this form, a student will have insights into what federal funding is available for them, along with work-study options. More specifically, each school that a student applies to can send a financial aid offer letter, which includes information about how to apply for student loans that they qualify for.
Two broad types of federal loans are:
• Direct subsidized loans: Direct Subsidized Loans are for undergraduates that demonstrate financial need. With this loan, the U.S. Department of Education pays the interest while the student is enrolled at least half-time, during the grace period after leaving school, and during any deferment periods.
• Direct unsubsidized loans: Direct Unsubsidized Loans are available for undergraduate students, as well as graduate and professional ones, that do not demonstrate financial need. Interest begins accruing right away.
Where to Get a Private Student Loan
A variety of financial institutions offer private student loans and have their own criteria for qualification. Some allow students to apply online and can give quick responses, while others go a more traditional route with in-person applications.
Private lenders will typically review a student’s income, plus that of any cosigner, along with credit histories and more to make lending decisions. A lender might grant a private student loan to someone whose credit isn’t stellar, but charge a higher interest rate.
When applying for a private student loan, it’s important to understand the loan terms before signing the note. This includes the interest rate and whether the rate is fixed (staying the same over the life of the loan, with the principal and interest payments also staying the same) or variable.
Pros of Private Student Loans
Benefits of private student loans can include the following:
• They can bridge the gap between what is owed after federal student loans are applied to the balance and what is needed to attend college.
• Students can apply for them any time of the year, without the strict deadlines associated with federal loans.
• Borrowers may have more choices in interest rates and terms.
• The loans may not include origination fees or prepayment fees, although that isn’t universally true.
Cons of Private Student Loans
Potential cons can include these:
• It isn’t unusual for a private lender to require a cosigner because college students often don’t have enough income to qualify or have established a good enough credit profile to get the loan on their own.
• Students who are considered a higher credit risk may pay more in interest.
• Private student loans don’t come with many of the benefits associated with federal loans, such as forgiveness programs and income-based repayment plans.
• Students may borrow more than they can ultimately afford, and these loans are typically not dischargeable in bankruptcy proceedings.
In addition to federal and private student loans, students and their families may consider other borrowing options to cover educational expenses.
Parent PLUS Loans
Students and parents can consider the Parent PLUS Loan, in which parents can apply for federal funding to help their children attend college.
Eligibility for a Parent PLUS Loan isn’t based on financial need, but credit is checked. If applicants have a credit history that’s considered “adverse,” they “must meet additional requirements to qualify.”
According to the Federal Student Aid office, adverse credit can include:
• Having accounts that, in total, have an outstanding balance of more than $2,085 and are at least 90 days delinquent.
• A default or a bankruptcy discharge during the previous five years.
• Involvement in a foreclosure, repossession, or tax lien situation in the previous five years.
• Write-off of federal student loan debt or wage garnishment during the past five years.
Qualifying parents of a dependent undergraduate student can receive funding through this loan program to cover education-related costs that are not covered by other financial aid.
Personal Loans
It’s also possible to apply for personal loans from financial institutions to cover living expenses during college or to address an emergency. There are downsides to this, though, including:
• Interest rates will likely be higher than student loans, along with shorter payoff periods (which means principal and interest payments can be higher).
• There isn’t typically a grace period, which means repayment starts right away.
• These loans don’t come with deferments or forbearance, as can be available through federal student loans.
Emergency Loans
In an emergency, a student might want to reach out to the college financial aid center to see if the school offers emergency loans for those in need. These loans would not typically be large, perhaps $1,000 to $1,500, but might be enough to address a dire situation.
Each college has its own guidelines, so check them out carefully. Some charge interest; others may not. Some may charge a service fee; others may not. As with personal loans, repayment may start immediately, so factor that into budget planning.
The Takeaway
When exploring options to finance a college education, it’s essential to understand the various student loan avenues available and where to get them. Federal student loans, accessible through the Free Application for Federal Student Aid (FAFSA), often offer lower interest rates and flexible repayment plans. Private student loans, provided by banks, credit unions, or online lenders, can help bridge funding gaps but may come with higher interest rates and less lenient repayment terms.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
What are the main sources for obtaining a student loan?
The two primary sources for student loans are federal student loans provided by the government and private student loans offered by banks, credit unions, and online lenders. Federal loans account for over 93% of student loan debt and are typically based on financial need, while private loans depend on creditworthiness and income.
How do I apply for a federal student loan?
To apply for a federal student loan, you must complete the Free Application for Federal Student Aid (FAFSA). After submission, you’ll receive information on the types and amounts of federal aid you qualify for, including work-study options. Each school you apply to will send a financial aid offer letter detailing your eligible loans.
When should I consider private student loans?
Private student loans can be considered after exhausting federal aid options. They can bridge the gap between the remaining cost of attendance and the amount covered by federal loans. Private loans are based on creditworthiness and may require a cosigner. They often lack the benefits of federal loans, such as income-driven repayment plans and loan forgiveness programs.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Using retirement funds to pay for college may seem like a convenient solution when faced with the high cost of higher education, especially for parents looking to support their children. However, tapping into these savings can have significant financial consequences.
While certain retirement accounts, like IRAs, allow penalty-free withdrawals for qualified education expenses, the funds are often still subject to income tax and may reduce long-term retirement security.
Understanding the pros and cons can help families make informed decisions about whether to use retirement savings for college costs.
Key Points
• Using retirement funds to pay for college can help avoid student loans, but it may incur tax liabilities and penalties depending on the account type.
• Early withdrawals from an IRA for educational purposes can bypass the 10% penalty, but the amount withdrawn will still be taxable as income.
• Loans from a 401(k) allow borrowing without immediate tax consequences, but leaving a job may trigger immediate repayment obligations, turning the loan into a taxable withdrawal.
• Alternatives to using retirement funds include scholarships, federal student loans, Parent PLUS Loans, and private student loans, which may be less risky for retirement savings.
• Balancing financial security with supporting a child’s education is essential; exploring various funding options can help maintain future financial stability.
Pros of Using Retirement Funds to Pay for College
If you already have the money saved up, there can be some upsides to taking money out of your retirement funds so that your child won’t need to take out student loans.
May Avoid an Early Withdrawal Penalty
If you have an individual retirement account (IRA), taking an early withdrawal typically results in income taxes on the withdrawal amount plus a 10% penalty. However, if you withdraw funds for qualified higher education expenses, the 10% penalty is waived.
That said, the withdrawn funds will still be considered taxable as income. Also, this tax break does not apply to 401(k) accounts. But if you roll over your 401(k) into an IRA, then you would be able to withdraw the funds from the IRA and avoid the penalty.
May Avoid Taxes Altogether
If you have a Roth IRA, you can withdraw up to the amount you’ve contributed to the account over the years without any tax consequences at all.
Paying Interest to Yourself With a 401(k) Loan
In addition to allowing you to take early withdrawals, some 401(k) plans also let you borrow from the amount you’ve already saved and earned over the years.
If you borrow from a 401(k) account, that money won’t be subject to taxes the way an early withdrawal would. Also, when you’re paying that loan back, the money you pay in interest goes back into your 401(k) account rather than to a lender.
Drawbacks of Using Retirement Funds to Pay for College
Before you raid your retirement to pay for your child’s college tuition, here are some potentially negative aspects to consider.
May Be Negative Tax Consequences
Even if you manage to avoid being charged a 10% early withdrawal penalty on your retirement account, some or all of the money you withdraw from a retirement account may be considered taxable income. Depending on how much it is, you could face a larger-than-usual tax bill when you file your tax return for the year.
401(k) Loan Repayment Can Be Affected by Your Job Status
If you take out a large loan from your 401(k), then leave your job, you may be required to pay the loan in full right then, regardless of your original repayment term. If you can’t repay it, it’ll likely be considered an early withdrawal and be subject to income tax and the 10% penalty.
You May Have to Work Longer
Taking money out of a retirement account not only lowers your balance, but it also means that the money you’ve withdrawn is no longer working for you.
Due to compounding interest, the longer you have money invested, the more time it has to grow. But even if you replace the money you’ve taken out over time, the total growth may not be as much as if you’d left the money where it was all along.
Alternatives to Using Retirement Funds to Pay for College
While you can use retirement funds to pay for college, there are other options to consider, too.
Scholarships and Grants
One of the best ways to pay for a college education is with scholarships and grants, since you typically don’t have to pay them back.
Check first with the school that your child is planning to attend (or is already attending) to see what types of scholarships and grants are available.
Then, make sure your child fills out the Free Application for Federal Student Aid (FAFSA®). The information provided in the FAFSA will help determine his or her federal aid package, which typically includes grants, federal student loans, and/or work-study.
Finally, you and your child can search millions of scholarships from online scholarship databases. While your child may not qualify for all of them, there may be enough relevant options to help reduce that tuition bill.
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Federal Student Loans
As mentioned above, filling out the FAFSA will give your child an opportunity to qualify for federal student loans from the U.S. Department of Education.
These loans have low fixed interest rates, plus access to federal benefits, including loan forgiveness programs and income-driven repayment plans.
With most federal student loans, there’s no credit check requirement, so you don’t have to worry about needing to cosign a loan with your child.
Parent PLUS Loans
If you’re concerned about the effect of student loan debt on your child, you can opt to apply for a federal Parent PLUS Loan to help cover the costs of college.
Keep in mind that the terms aren’t usually as favorable for Parent PLUS Loans as they are for federal loans for undergraduate students. The interest rates are currently higher, and you may be denied if you have certain negative items on your credit history.
Private Student Loans
If your child can’t get federal student loans, is maxed out on loans, or has pursued all other options to no avail, private student loans may be worth considering to make up the difference.
To qualify for private student loans, however, you and/or your child may need to undergo a credit check. If your child is new to credit, you may need to cosign to help them get approved by being a cosigner — or you can apply on your own.
Private student loans don’t typically offer income-driven repayment plans or loan forgiveness programs, but if your credit and finances are strong, it may be possible to get a competitive interest rate.
Using retirement funds to pay for college is one way to help your child, but you may not want to risk your future financial security. Take the time to help your child consider all of the options to get the money to pay for school.
Options to pay for college include cash savings, working a part-time job, scholarships, grants, federal student loans, and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Can I use retirement funds to pay for my child’s college education?
Yes, it’s possible to use retirement funds, such as those from an IRA or 401(k), to pay for college expenses. However, this decision carries potential tax implications and penalties, depending on the type of account and how the funds are withdrawn.
What are the tax implications of withdrawing from an IRA for college expenses?
Withdrawals from an IRA for qualified higher education expenses can avoid the 10% early withdrawal penalty. However, the amount withdrawn is still considered taxable income, which could impact your tax bracket and financial aid eligibility.
What are the alternatives to using retirement funds for paying college tuition?
Alternatives include applying for scholarships, federal student loans, Parent PLUS Loans, and private student loans. These options can help cover college costs without compromising your retirement savings.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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.
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.
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.
Whether you’ve been turned down for a private student loan or you’re applying for the first time, it’s important to understand how a cosigner can impact your loan application.
Having a cosigner on a student loan is a bit like a letter of recommendation to get into college. A cosigner can reassure the bank or lender that you are capable of repaying the loan. A cosigner is not always required for student loans, such as with most federal student loans. Depending on a student’s financial history, employment, and what type of loans they’re applying for, the likelihood of requiring a cosigner will vary.
Read on to learn more about what a cosigner is and when it may make sense to add one to your student loan application. This article will also discuss some of the risks involved with being a cosigner, and some tips on how to ask someone to be a cosigner on a student loan.
Key Points
• A student loan cosigner is someone — often a parent or guardian — who agrees to take equal responsibility for repaying the loan if the student borrower is unable to do so.
• Most federal student loans, such as Direct Subsidized and Unsubsidized Loans, do not require a credit check or a cosigner.
• Direct PLUS Loans, available to graduate students and parents, do require a credit check and may necessitate an endorser (similar to a cosigner) if the applicant has adverse credit history.
• Private lenders usually assess creditworthiness, and students with limited credit history or income may need a cosigner to qualify.
• Some lenders offer cosigner release options after the primary borrower meets certain criteria, such as making a series of on-time payments and demonstrating financial stability.
What Is a Student Loan Cosigner?
A cosigner is a person who agrees to repay the loan if a borrower defaults or is otherwise unable to pay their debt. Adding a cosigner to a student loan application could help the primary borrower secure a lower interest rate, depending on the cosigner’s financial and credit history.
When a cosigner takes on a student loan with the borrower, they’re assuming equal responsibility to repay the loan. Any negative actions on the loan, such as a late payment or defaulting, could harm the cosigner’s credit.
How to Decide If You Need a Cosigner on a Private Student Loan
Before deciding whether you need a cosigner on a private student loan, you’ll want to fill out the Free Application for Federal Student Aid (FAFSA®). This will determine how much aid you’ll receive, and help you and your family determine how much of a gap you’ll need to fill with other sources of funding.
Once all other options are exhausted, students could look into private student loans and consider a cosigner. When considering a cosigner, there are several factors to evaluate, including the type of loan you’ll be applying for, your credit history, credit score, income, and any history of missed payments. Continue reading for a more in-depth discussion of these factors.
1. What Type of Student Loans Are Being Considered?
The type of loans you’re applying for may affect your need for a cosigner.
Federal Student Loans
For the most part, federal loans do not require a credit check or a cosigner. The federal loan types that do not require a cosigner include:
• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct Consolidation Loans
The exception is a Direct PLUS Loan, which does require a credit check. Borrowers interested in a Direct PLUS Loan may need an “endorser” for the same reasons they may need a cosigner for a private student loan: if their credit history and other financial factors are lacking.
A Direct PLUS Loan can help graduate students and parents of undergraduate students pay for the entire cost of school attendance, minus any other financial aid. Direct PLUS Loans are the only federal student loans that look at an applicant’s credit history, thus the potential need for an endorser.
An endorser is the equivalent of a cosigner — they agree to repay the Direct PLUS Loan if the borrower defaults or is delinquent on payments.
Private Student Loans
IIf an applicant doesn’t meet the lending requirements on their own, they might need a cosigner to obtain any private student loan. To qualify for a private student loan, you typically have to check more boxes regarding financial history than you would for a federal student loan.
Having a cosigner on a private student loan is incredibly common. More than 90% of private student loans for undergraduates require a cosigner, and more than 75% of graduate and professional students need a cosigner for their student loans.
Once a student has a full understanding of the financial aid they qualify for after submitting their FAFSA, they can determine if federal student loans and other federal aid like scholarships and grants will cover the cost of their education or if they need to supplement the amount with a private student loan. While the borrower might not need a cosigner for federal loans, they might require one for private student loans they might take out.
2. Are You an Undergraduate or Graduate Student?
The necessity of a cosigner may vary depending on whether a person is applying for graduate or undergraduate private student loans.
Undergraduate Student
Undergraduates are generally more likely to need a cosigner on their private student loans because they typically haven’t established a lengthy credit history. Without an established credit history, there is no track record for lenders to evaluate. In addition, undergrads might not have a steady income, which can also affect whether they are approved for a loan without a cosigner.
Graduate Student
The type of schooling a person is pursuing won’t have an impact on the need for a cosigner. However, a person’s credit history and income will still factor into the decision.
3. How Does Your Credit Score Factor into the Decision?
Most private lenders will look at an applicant’s credit score (among other factors) to determine eligibility. Having a lower credit score may make it more challenging to get a loan without a cosigner.
FICO® Scores (the most common credit scores used by lenders and financial institutions) range between 300 and 850. If a person wants to check their score, many websites offer free credit scores or credit score monitoring (just be sure to read terms and conditions carefully).
Ultimately, it’s up to each individual lender to consider the credit score and other financial factors before approving a loan, and every lender has different criteria.
4. How Long Is Your Credit History?
A person’s credit history gives lenders a sense of their ability to pay on time, or ability to pay off debt in full. The length of a person’s credit history makes up about 15% of their FICO Score.
Length of credit history is determined by average age of accounts (AAoA). Lenders take the lifespan of a person’s accounts and divide by the number of accounts that person holds. A potential borrower can determine this number by figuring out how long they’ve had each account in their credit history, then dividing by the number of accounts.
The real sweet spot for credit history comes at the seven-year mark. From that point, early negative marks on accounts might have faded away. It shows lenders that a borrower can pay loans and maintain accounts over time.
There are a number of factors at play in lending decisions, but a short credit history could mean that adding a cosigner is beneficial.
5. What Is Your Employment Status?
Lenders want to be sure that you can repay your debts, so they’ll generally also evaluate an applicant’s income.
Employed Full-Time
Generally, if a person is employed full time at a salaried job, it shows lenders they have the capability to repay the loan they’re borrowing. Lending requirements vary based on the lender, but having an established income history may help an applicant avoid needing a cosigner.
Employed Part-Time
While part-time employment can still be beneficial for a loan application, it’s possible that a cosigner might help boost the application. The applicant’s debt-to-income ratio will come into play — that is, how much debt a person owes (credit cards, rent, other bills) divided by the income they earn before taxes and other deductions.
Of course, all lender requirements vary, but significant, consistent income can factor into whether the applicant will still need a cosigner.
Only a Student (Not Employed)
If an applicant is not employed, lenders may be more inclined to approve a loan if there’s a cosigner who is able to show stable income.
6. Have You Ever Declared Bankruptcy?
Lenders can and do consider all aspects of a person’s financial history before granting a loan, bankruptcy included. Declaring bankruptcy negatively affects a person’s credit score, which private lenders pay close attention to with a loan application. A bankruptcy filing can stay on a person’s credit history for a decade.
Bankruptcy filings can affect a credit score in a number of ways, and depending on how long ago it took place, the effects on a person’s score will vary.
7. Have You Defaulted on a Loan?
The terms of each loan are different, but after a period of nonpayment, the loan enters default. Defaulting on a loan stays with a person’s credit history for at least seven years and typically negatively affects their credit score.
If a person has defaulted on a previous loan, they’ll likely need a cosigner on their student loan to potentially improve their chances of approval.
On-time payments each month can help show lenders that a person is a responsible borrower. Missing payments or consistently making late payments can have a negative impact on a person’s credit score. Payment history accounts for approximately 35% of an individual’s FICO Score.
Consistently missing payments that have affected a person’s FICO Score might cause a potential lender to require a cosigner. It could also cause concern for a potential cosigner, so students might want to keep that in mind.
A solid history of on-time payments shows a lender that a person is a responsible candidate for a loan and might not need a cosigner.
Choosing a Cosigner
As stated above, the majority of private student loan borrowers have a cosigner. But not all cosigners are built the same, and choosing the right person to cosign a loan could be as important as the terms of the loan itself.
A cosigner should not only have a strong financial history, but also a strong relationship with the applicant. A cosigner might be a parent or blood relation, but they don’t have to be. A cosigner ideally has a stable financial history and a relationship to the applicant where they feel comfortable discussing money.
Asking Someone to Be a Cosigner
There’s a common misconception that cosigning on a loan is as easy as signing a contract, but it actually means more than that. When a person asks someone to be their cosigner, they shouldn’t shy away from discussing the challenging topic.
It may make sense to talk about worst-case scenarios with a cosigner, and make it clear it would be their responsibility to take on the payments if you default. Discuss how you could repay the cosigner in the event that you can’t make payments.
Risks of Cosigning
Beyond the worst-case-scenario discussion, cosigners should know the additional risks they take on when cosigning a student loan:
• Credit score. Cosigning a loan will affect a person’s credit score, since they’re taking on the debt as well. Even if the borrower makes on-time payments and doesn’t default, the cosigner will see a change in their credit score by taking on the additional debt. On the upside, though, it could potentially benefit their score.
• Liability. If the borrower defaults on the loan, it becomes the cosigner’s responsibility to pay for it. A lender can come to collect from the cosigner, seizing assets and garnishing paychecks to cover missed payments.
However, the cosigner doesn’t need to stay tied to the loan forever. Private student loans may have a cosigner release policy in place. After a duration of on-time payments and additional paperwork, a lender may release the cosigner from the loan, leaving the borrower on their own.
It might sound easy, but a cosigner release isn’t a guarantee and not all private loans will offer this option. Read the terms of your loan carefully to understand the requirements for cosigner release.
The Takeaway
Like every college application, each loan application is a little different. Certain aspects of a person’s credit history or employment might make them more compelling to a lender. Other elements, like late payments or a limited credit history, might make a person less compelling to lend to.
Adding a cosigner to a private student loan is common and can improve your chance of approval, sometimes even with a lower interest rate than if you applied on your own.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
What is a student loan cosigner, and when might I need one?
A student loan cosigner is someone, typically a parent or close relative, who agrees to share legal responsibility for repaying your loan. You might need a cosigner if you’re applying for a private student loan and have limited credit history or income, as their strong financial background can improve your chances of approval and potentially secure a lower interest rate.
Do federal student loans require a cosigner?
Most federal student loans, such as Direct Subsidized and Unsubsidized Loans, do not require a cosigner or a credit check. However, Direct PLUS Loans, available to graduate students and parents, do require a credit check and may necessitate an endorser (similar to a cosigner) if the applicant has adverse credit history.
What are the benefits and risks of having a cosigner on a private student loan?
Having a cosigner can increase your chances of loan approval and help you secure a more competitive interest rate. However, it’s important to note that the cosigner is equally responsible for repaying the loan. If you miss payments or default, it can negatively impact both your and your cosigner’s credit scores, and the cosigner may be required to repay the loan.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
