Are Student Loans Installment or Revolving?

Are Student Loans Installment or Revolving?

Is a student loan installment or revolving? Student loans are considered installment loans, or loans that are repaid through regularly scheduled payments or installments.

Unlike installment loans (like student loans or mortgages), which let borrowers pay back the money through scheduled payments over time, revolving credit options (like credit cards) let borrowers take out varying amounts of money each month, spend it when they want, repay it, and take out more money as they go.

Learn more about installment loans and revolving credit below.

What Is Revolving Credit?

Revolving credit is an agreement between a lender and an account holder that allows them to borrow money up to a set maximum amount. The account holder can choose to pay off the balance in full or make minimum monthly payments on the account.

As the account holder makes repayments, the amount available to borrow is renewed. Account-holders can continue to borrow up to the maximum amount through the term of the loan. Examples of revolving credit include credit cards and home equity lines of credit (HELOCs).

Recommended: The Different Types Of Home Equity Loans

What Is Installment Credit?

Installment credit is a type of credit that allows a borrower to make fixed payments on a loan over a set period of time. Before the borrower signs the installment loan agreement, the lender will decide on the interest rate, fees, and repayment terms, which will determine how much the borrower pays each month.

Common examples of installment loans include student loans, mortgages, auto loans, and personal loans.

Revolving Credit vs Installment Credit

Here’s a high level overview on the differences between revolving credit and installment credit.

Revolving Credit

Installment Credit

Account holders can use the borrowed money at any time, repay it, and borrow more as needed. Account holders borrow one lump sum, it’s the sole amount of money they have access to, and they repay it over a set time period.
May come with higher interest rates than installment credit. May have stricter lending requirements than some revolving credit options, such as credit cards.
Account holders only owe interest on the amount they spend. Account holders owe a fixed number of payments over a predetermined time frame.

Revolving Credit

Revolving credit is a more open-ended form of credit obligation. Let’s use the example of a credit card:

1.    The cardholder uses the card to make changes as they please, pays them off either in-full or partially each month, continues to make charges in the meantime, and carries on using the line of credit.

2.    The amount of money the cardholder spends (as long as it’s within their predetermined credit limit) is their decision, and the amount of money they repay each month isn’t set in advance by the lender.

3.    The cardholder can pay off the account balance in full each month, or they can opt to pay the minimum and “revolve” the balance over to the next month (though this will accrue interest on the account).

An important note: To avoid any late fees or potential dings to their credit score, people who are borrowing from revolving credit are advised to pay their monthly bill on time. Revolving credit can play a major role in calculating a person’s credit utilization rate, which is considered the second biggest factor in determining their credit score. For FICO® scores, it is generally suggested that borrowers use no more than 30% of their available credit.

Installment Credit

Installment credit is a little less open ended than revolving credit. Installment credit is a loan that offers a borrower a fixed amount of money over a predetermined period of time. When they sign the loan agreement, the borrower knows exactly what the monthly payments will be and everything is spelled out clearly.

Let’s use the example of a student loan:

1.    The student borrows a specific dollar amount, from there, the lender specifies the interest rate and repayment terms. In the case of federal student loans, interest rates and terms are set by federal law.

2.    The predetermined funds are released to the borrower. Typically, for an installment loan, the funds are released in a single lump sum payment.

3.    The borrower repays the loan based on the agreed upon terms. Terms will be set by the lender, for private student loans, or by law for federal student loans.

An important note: Having an installment loan on their credit report can help some borrowers diversify their credit mix, which is a factor in determining an individual’s credit score. The amount of the installment loan, however, won’t play a major role in the borrower’s credit utilization rate (versus with revolving credit).

Is a Student Loan an Installment Loan?

When wondering is student loan installment or revolving, student loans for undergraduate school are considered installment loans, which means they come with a starting balance, are disbursed to the qualifying borrower, and are repaid over a set amount of time through a fixed number of payments.

Pros and Cons of Installment Credit

There are both pros and cons to taking out an installment loan:

Pros of Installment Loans

Cons of Installment Loans

Can be used to finance a major purchase like a house, car, or college education. Can come with hefty fees or borrowing more than you actually need.
Is repaid with a set number of payments of the same amount, which can make it easier for budgeting purposes. Missed or payments may negatively impact the borrower’s credit score.
For some installment loans, it is possible to reduce interest charges by paying the loan off early. Depending on the type of installment loan and the lender, there may be penalties or fees for paying off the loan early.
Offers the perk of paying the loan off over a longer period of time. Comes with interest fees, which can stack up over time.

Pros of Installment Credit

Here’s a brief breakdown of a few installment credit pros:

Payments

Installment credit payments are made on a set schedule that’s determined by the lender. This makes them a predictable, long-term strategy for paying off debt, and also makes it easier to factor them into your budget, especially if the installment loan has fixed interest rates.

The monthly payment for an installment loan with a variable interest rate may change from month to month, depending on how the variable interest rate changes.

Borrowing Cost

In terms of the loan amount and length of the loan, installment loans can be tailored to the borrower’s specific financial circumstances. This means the cost of the installment loan is fairly flexible based on what the borrower needs. Additionally, interest rates are generally lower on installment loans than with revolving credit, so borrowers may find that borrowing an installment loan with a competitive interest rate is a more affordable option.

Cons of Installment Credit

And here’s more info on the cons of installment credit:

Expensive

If the borrower takes out an installment loan over a longer period of time, they may end up making payments at an interest rate that’s higher than the current market rate, unless they’re able to refinance the loan.

Either way, the borrower is locked into a long-term financial contract with an installment loan, and if they have a financial pitfall, they may be unable to make the scheduled payments or risk defaulting on the loan and damaging their credit.

Prepayment Penalty

Some loans impose prepayment penalties if a borrower pays their loan off early. This isn’t necessarily the case for all installment loans, but it’s important to read the fine print in the loan agreement to determine whether a prepayment fee will be triggered if the loan is paid off early.

Recommended: How to Avoid Paying a Prepayment Penalty

Ways to Pay for School

When looking for ways to pay for school, student loans for graduate school or undergraduate school are types of installment loans that are available. Additional costs could be covered by savings accounts, scholarships and grants, and more (below).

Recommended: How to Pay for College

Federal Student Loans

Federal student loans are installment loans available to students. To apply, students fill out the Free Application for Federal Student Aid (FAFSA®) each year. Federal student loans have fixed interest rates that are set annually by Congress, offer flexible repayment options, and have some borrower protections and benefits such as deferment options or the option to pursue Public Service Loan Forgiveness.

However, there are borrowing limits for federal student loans, so students may need to review other sources of financing when determining how they’ll pay for college.

Recommended: FAFSA 101: How to Complete the FAFSA

Private Student Loan

Private student loans are installment loans you can use to pay for a college education. Private student loans vs. federal student loans are not funded by the federal government. To apply for them, borrowers can browse the offerings of individual lenders like banks, credit unions, or online lenders and decide which private student loan works best for their finances. As a part of the application process, lenders will generally review the applicants credit history and credit score among other factors.

Private student loans can help fill the monetary gap between other payment alternatives like federal loans, grants, and scholarships, but they are generally considered only after all other options have been depleted. This is because private lenders are not required to offer the same borrower protections as federal student loans. If you think private student loans are an option for you, shop around to find competitive terms and interest rates, and be sure to read the terms and fine print closely.

Credit Card

Some (but not all) colleges allow students to pay using a credit card. One way to find out if this is an option is by asking the financial aid or bursar’s office. Be sure to inquire about associated fees.

In most cases, the interest rates on credit cards are higher than student loans, so it’s generally wise to only use them when you’ve exhausted other payment options.

Personal Savings

Using personal savings to pay for college means less debt and more flexibility. Not only that, but it costs significantly more to borrow money to pay for college than it does to use personal savings.

Still, this isn’t financially feasible for everyone, as evidenced by the fact that there are 43.4 million student loan borrowers in the U.S. as of the fourth quarter of 2021. Sometimes, going into debt is the only reasonable option.

Grants

Unlike student loans, which require repayment, or work-study programs, which allow students to work on campus in exchange for money, grants are a type of financial aid that doesn’t require repayment.

Grants may be awarded by the federal government, specific states, or colleges. The amount of aid a student receives depends on a number of factors, such as the student’s financial needs and the type of school or institution they’re attending.

Recommended: The Differences Between Grants, Scholarships, and Loans

Scholarships

A scholarship is a lump sum of funds that can be used to help someone pay for school. The key stipulations with scholarships are that a) they’re contingent on a particular qualification, i.e. a grade point average (GPA), act of service, or athletic performance and b) they never have to be repaid.

Scholarships are usually awarded by specific entities like colleges, universities, corporations or organizations.

The Takeaway

Student loans are installment loans, meaning borrowers receive a set amount of money from a lender and are required to repay the loan over a fixed period of time.

For those looking for ways to pay for college, there are other alternatives to installment student loans — such as scholarships, grants, personal savings, private student loans and, in rare cases, using a credit card.

If you’re in search of a loan for students from a private lender, consider SoFi. SoFi’s private student loans come with no fees and you can apply online in minutes, and easily add a cosigner.

FAQ

Is a student loan an installment loan?

Yes, a student loan is a type of installment loan, which means you pay it back in set amounts, over a fixed period of time, and it shows up on your credit report.

Is a student loan a revolving loan?

No, a student loan is not a revolving loan. It is considered an installment loan.

What are the benefits of an installment student loan?

A few of the benefits of installment student loans include being able to finance major purchases, easily factoring the loan into your monthly budget, the same payment terms for the life of the loan, and a longer period of time to pay off the loan.


Photo credit: iStock/SDI Productions

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
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Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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FAFSA Grants: Everything You Need to Know

FAFSA Grants & Other Types of Financial Aid

Spending a couple of hours filing the Free Application for Federal Student Aid, more commonly known as the FAFSA®, may not seem like your idea of fun. However, skipping the FAFSA could mean losing out on need-based grants. If you qualify, grants can be an incredibly helpful addition to your financial aid award for one main reason: You don’t have to repay them.

Let’s jump into some specific details about grants, including the connection between the FAFSA and grants, types of grants, and more information about this worthwhile addition to your financial aid award.

Does FAFSA Give Grants?

The FAFSA itself doesn’t give grants because the FAFSA is an application. When you file the FAFSA, the colleges and universities you have on your list will award you money based on your individual FAFSA data. Filing the FAFSA can qualify you for grants from the federal government. Many states and colleges use FAFSA data to award their own aid. Grants can come from a few locations:

•   The federal government

•   State governments

•   College or career schools

•   Private or nonprofit organizations

Recommended: SoFi FAFSA Guide

Does FAFSA Give Grants for Graduate School?

As a graduate or professional student, you may wonder, “Does FAFSA give grants for graduate school?” Certain grants, such as Pell Grants, go to undergraduate students only. However, graduate students can tap into a few federal programs, though these are usually need-based. Here are two examples:

•   TEACH Grants : Graduate students can get a TEACH Grant as long as they agree to teach in a high-need field in a school for low-income students. They must also agree to fulfill a few other requirements as well.

•   Fulbright Grants : Qualified graduate students can tap into Fulbright Grants for study/research projects or for English teaching assistant programs. Fulbright Grants are sponsored by the U.S. Department of State and can help students expand upon their international studies.

Some corporate grants and other organizations also offer grants for graduate students, though it’s important to note that the FAFSA isn’t necessarily needed to qualify. Take a close look at the qualifications for corporate grants and other organizations.

Recommended: Finding & Applying to Scholarships for Grad School

Is Pell Grant the Same as FAFSA?

No, the Pell Grant is not the same as the FAFSA, which is simply an application. The FAFSA is not the actual entity that gives you financial aid. Federal grants like the Pell Grant come from the federal government through the U.S. Department of Education.

Types of FAFSA Grants

Let’s walk through a few types of grants and their requirements that you may become eligible for when you file the FAFSA.

Pell Grants

The Pell Grant program is the largest federal grant program available to undergraduate students. In order to qualify for the Pell Grant, you must demonstrate financial need.

How much can you receive from the Pell Grant? Right now, the maximum Federal Pell Grant award is $6,495 for the 2021-2022 award year (July 1, 2021 to June 30, 2022). Check from year to year because the award amount might change slightly.

Recommended: What Is a Pell Grant?

What are the Pell Grant eligibility requirements? The exact amount you’ll get depends on your expected family contribution (EFC), the amount your family should pay for college, and the cost of attendance. The amount you can receive depends on your status as a full-time or part-time student and whether you plan to attend school as a full- or part-time student.

Federal Supplemental Educational Opportunity Grants (FSEOG)

The need-based Federal Supplemental Educational Opportunity Grant (FSEOG) gives each participating school a certain amount of FSEOG funds, and these schools give FSEOG Grants to students who have the most financial need.

You can receive between $100 and $4,000 a year, depending on factors beyond financial need, including:

•   Application timing

•   Amount of other aid you receive

•   Availability of funds at the institution you attend

Teacher Education Assistance for College and Higher Education (TEACH) Grants

The Teacher Education Assistance for College and Higher Education (TEACH) Grant Program gives you funds through a TEACH Grant-eligible program at a school that participates in the program. You must agree to teach:

•   Full time for at least four years

•   In a high-need field

•   At a low-income elementary school, secondary school, or educational service agency

You must also undergo TEACH Grant counseling and complete the TEACH Grant Agreement to Serve or Repay to qualify.

Iraq and Afghanistan Service Grants

If your parent or guardian died during or as a result of military service in Iraq or Afghanistan, students may be able to take advantage of Iraq and Afghanistan Service Grants .

You can receive the same amount of grant money for an Iraq and Afghanistan Service Grant as the maximum Federal Pell Grant for your award year. However, you cannot exceed your cost of attendance for that award year. The maximum Federal Pell Grant award is $6,495 from July 1, 2021 to June 30, 2022.

Take a look at the eligibility requirements:

•   You may not receive a Federal Pell Grant but must meet the remaining Federal Pell Grant eligibility requirements.

•   Your parent or guardian died as a result of military service in the armed forces in Iraq or Afghanistan after the events of 9/11.

•   You were under 24 years old or enrolled in college at least part-time at the time of your parent or guardian’s death.

To qualify, you must file the FAFSA form every year you remain in school.

Recommended: FAFSA 101: How to Complete the FAFSA

Do You Have to Pay Back FAFSA Grants?

Do you have to pay back FAFSA grants? (It’s a common question — and a good one!) Like scholarships, you generally do not need to repay FAFSA grants, unless you withdraw from school and owe a refund. Filing the FAFSA is the only way you can qualify for federal grants.

FAFSA Grant Repayment

While grants generally do not require repayment, there are a few circumstance in which the grant may need to be repaid. Briefly, here are some reasons you may have to repay a FAFSA grant:

•   You left or withdrew early from the program for which you received grants.

•   Your enrollment status changed so that impacts your eligibility for the grant.

•   You received outside scholarships or grants that reduced your need for grants.

It’s a good idea to look carefully at the requirements for each grant. You can ask a financial aid professional at your college or university for specific information about grant eligibility, award amounts, and other requirements.

Additional Funding Options for College

When you receive a financial aid award from a college, it will include financial aid such as, FAFSA grants and scholarships, work-study, and federal student loan. Some students may also consider borrowing private student loans. Let’s walk through the definition of each, and note that you can also get financial aid for a second bachelor’s.

Scholarships

A scholarship is a type of financial aid that you don’t have to repay. Scholarships can be need-based or merit-based (based on talents or interests, independent of your financial need).

Federal Work-Study

Undergraduate, graduate, and professional students with financial need may be eligible for work-study programs. You can tap into part-time jobs, usually on campus, during your enrollment in school. Full- or part-time students can qualify for work-study jobs.

You cannot go over your work-study award limit. In other words, let’s say you receive $1,500 in work-study. You can work as many hours as you can up to that limit. Many schools offer you payment in the form of a check or direct deposit into your bank account.

Your school must participate in the federal work-study program, so check with your school’s financial aid office for more information.

Federal Student Loans

Most financial aid awards contain federal student loans, which come from the federal government, through the U.S. Department of Education.

Take a look at three main types of federal student loans:

•   Direct Subsidized Loans: Direct Subsidized Loans are federal loans that have a low interest rate (currently 3.73% for undergraduate students and 5.28% for graduate or professional students). The U.S. Department of Education pays the interest on Direct Subsidized Loans while you are in college. The amount of loan money you can qualify for depends on your year in school and whether you are a dependent or independent student. For example, dependent undergraduates can qualify for $5,500 total in Direct Loans. However, you cannot receive more than $3,500 of this amount in subsidized loans. Take a look at the Direct Subsidized Loan website for more information or ask the financial aid office at your school.

•   Direct Unsubsidized Loans: The major difference between Direct Subsidized Loans and Direct Unsubsidized Loans is that the U.S. Department of Education does not pay the interest on Direct Unsubsidized Loans while you are in college. However, the interest rate is the same as with Direct Subsidized Loans (currently 3.73% for undergraduate students and 5.28% for graduate or professional students). Learn more about Direct Unsubsidized Loans from your college or university’s financial aid office or through the federal student loan website.

•   Direct PLUS Loans for parents and graduate/professional students: Parents and graduate or professional students can take out Direct PLUS Loans through the U.S. Department of Education. The borrower must pay the interest on the loan. You (or your parents) must undergo a credit check. You can receive up to the cost of attendance for a Direct PLUS loan, though your school will likely subtract any other financial aid received.

Federal student loans offer benefits such as fixed interest rates and income-driven repayment plans.

Private Student Loans

Private student loans differ from federal student loans because they don’t come from the federal government. Private student loans can come from a bank, credit union, state agency, or a school. Private student loan interest rates vary and can usually borrow up to the cost of attendance (the amount of money it costs to attend your school), including living expenses.

It’s a good idea to shop around among lenders for the best interest rates. Once you land on the right lender for you, go through the lender’s application process. It’s worth noting that private student loans lack the borrower protections afforded to federal student loan so they’re typically considered an option only after borrowers have reviewed all of their other choices.

You may also need a cosigner when you get a private student loan. A cosigner signs for the loan with you — they are just as responsible for the repayment of your loan as you are. Not everyone who takes out a private student loan needs a cosigner, but if you don’t have any credit (or if you have less than stellar credit), you may need to ask a trusted adult to cosign a loan with you.

Recommended: Do I Need a Student Loan Cosigner? – A Guide

The Takeaway

If you’re wondering whether you want a FAFSA grant on your financial aid award letter, the answer is yes! You do not have to repay grants, so they’re a lot like scholarships in that way. You must file the FAFSA in order to qualify for federal grants for college, so take the time to fill it out carefully and apply as soon as you can. The FAFSA opens on October 1 every year.

When federal aid isn’t enough to pay for college, students may consider private student loans. Ready to let SoFi help you find the best private student loans? SoFi offers competitive rates with flexible repayment options. Forget about origination fees, late fees, or insufficient fund fees — SoFi doesn’t charge them. It takes just minutes to check your rate.


Photo credit: iStock/syahrir maulana

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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

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.
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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Should I Go to Community College?

When considering higher education, you have options. Some might include applying to a four-year college or considering community college. Everyone’s path is different, just know that you can chart your own course.

If you’re wondering, “Should I go to community college?”, let’s take a look at some important factors to think about first.

What is Community College?

Community colleges typically offer two-year degrees known as an associate’s degree. Students often attend community colleges for two years before transferring to a four-year university to gain their bachelor’s degree.

Working with a counselor can help you solidify your academic goals and work towards them, from choosing a major to earning the right credits that can be transferred to your bachelor’s degree.

This can be an exciting time in your life but also an overwhelming one. Let’s break down some of the thoughts that might be going through your head as you decide what step to take next.

Pros and Cons of Community College

Attending community college can have some upsides, but like anything, it may not be the right option for everyone. Just remember — your own experience is going to be unique and what might be best for you might not be the same case for your classmates or friends. No need to feel pressured by what might be the “right” or “wrong” path.

Read on for more pros and cons of community college.

Pros of Going to Community College

Some benefits of attending a community college include affordability, increased flexibility in classes, and the opportunity to stay local.

Because community college can be more inexpensive than their four-year counterparts, attending a community college before a university could help you cut tuition costs significantly. According to the College Board’s 2021 Trends in College Pricing Report , the average cost of tuition at a two-year college was $3,800 as compared to $10,740 at a four-year public institution with in-state tuition.

Students attending community college may also be able to live at home, which can cut down on living expenses too. Living at home while taking community college classes can also offer you some transitionary time to get accustomed to a new schedule and new academic expectations before committing to a four-year university.

It’s also relatively easy to gain admission into community college. Some community colleges even have open admission policies , which generally means that there are limited academic requirements needed for admission, so most students who apply are accepted. Note that even if a community college has an open admission policy, certain more competitive programs, like a nursing program, might have more stringent academic requirements.

Another major benefit of community college is that students have the opportunity to explore a variety of academic interests before committing to a major at a four-year university.

In addition, community colleges can offer you the chance to experience smaller class sizes (instead of large lecture hall classes that can be common at universities).

Cons of Going to Community College

While community college can offer the opportunity to explore courses, the academic offerings may be more limited at a community college than at a four-year institution. Consider finding out which classes are available at each community college you are interested in so you can make sure they have exactly what you need. Not all community colleges might include the classes you are interested in taking.

Generally, community colleges are limited to associate degrees, so if you are interested in obtaining a Bachelor’s you’ll need to transfer to another institution. It can be helpful to talk to a counselor at the community college about what classes you might choose so that you don’t end up earning too many credits that can’t be transferred.

Research the minimum requirements for transferring to each university that you want to apply to (or for each system, such as the University of California system). You can also talk to your guidance counselor about the articulation agreements their community college might have with universities near you to get a better sense of what credits will transfer.

Another potential downside to attending community college is less academic, but students may miss out on some of the social benefits of attending a four-year college, including friendships, extracurriculars, and enjoying campus-life. While you can experience all of these things if you transfer, it can be challenging to make friends as a transfer student.

Choosing Which College to Go To

If you know for sure that you want to attend community college, now it’s time to see what options are available near you. According to The Princeton Review , 90% of the U.S. population is within commuting distance of a community college.

Due to one life situation or another, many students attend colleges as commuter students, trading a fully on-campus experience for greater flexibility. As a commuter student, you can choose to live somewhere more affordable and create a schedule that works with your work hours.

Commuter student life can also include a mix of on-campus classes and online work. Some community colleges offer a variety of online classes. Taking advantage of these resources can help if you find yourself with a complicated schedule, or if you just want more flexibility.

Resources like the American Association of Community Colleges search tool, Community College Finder , can help you research potential colleges near you. The tool also shows you the areas across the country with the highest and lowest densities of colleges. The Department of Education’s College Scorecard lets you search colleges based on programs, size, and location.

Other Factors to Consider When Choosing a College

Your academic goals will also inform which college you choose. As you evaluate colleges, take a look at which colleges offer the major you want to pursue. If you are in the process of choosing your major, see if you can find out more about the programs that the community college near you offers. You could talk to current students or professors and evaluate whether it seems like a good school for your interests.

If you are applying for a mix of community and private college or private universities, creating a list of all your potential applications can be helpful.

You can organize this list by “match,” “reach,” and “safety” schools in order to help you consider all your options.

Thinking About the Cost of Community College

You might also consider a combination of scholarships, grants, and loans to help offset the total costs of college. To start, students can fill out the Free Application for Federal Student Aid (FAFSA®) each year. This application is used to determine aid including work-study, federal student loans, and scholarships, and grants.

Once you start tackling the process of paying for community college, keep in mind that the financial aid offices can be a great resource if you have any questions about finding aid for college. You can find more information on whether or not the college offers its own scholarships and how to apply.

There may also be state-specific financial aid available, such as the Cal Grant , which can be applied towards community college tuition. Other sites like FastWeb can help you find more specific scholarship opportunities based on your background and interests.

If these resources aren’t enough, it is possible to borrow private student loans for community college. While private loans can be helpful, they’re generally considered after other options have been exhausted. That’s because they don’t have to offer the same benefits to borrowers as federal student loans do — things like income-driven repayment plans.

Financing Your Education

If you do decide to attend a four-year university, you may now be looking into ways to pay for your education. A few options may include scholarships, grants, and federal student loans.

If those options do not work for your situation, you can apply for private student loans. SoFi offers undergraduate student loans to help students pay for school. There are no fees, and SoFi offers flexible repayment options to help students find the loan that fits their budget.

Interested in learning more about private student loans? Learn more about SoFi today.

FAQ

Is going to community college worth it?

Going to community college can be a worthwhile experience, offering students an opportunity to take college-level coursework at an affordable price. Other benefits include increased flexibility in scheduling and the possibility to live at home while taking classes. Students also have the opportunity to transfer to a four-year college.

Does community college look bad on a resume?

Including your time at community college does not look bad on a resume. If you earned a professional certificate or other degree at the community college, feel free to include it.

Is it hard to get a job after community college?

The ease of finding employment after community college may be influenced by the field you studied. For example, students graduating with a certificate in a high-demand field such as nursing or dental hygiene may find it is relatively easy to secure employment.


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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 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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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How Do I Get My Student Loan Tax Form?

What Is a Student Loan Tax Form? How Do You Get One?

If you’re a borrower who paid interest on a qualified student loan, it’s possible to deduct some or all of that interest on your federal income tax return with a special tax form for student loans.

To do so, you’ll need to acquire a student loan tax form commonly known as IRS Form 1098-E. You can use this form to report how much you paid in student loan interest. One copy will go to the IRS, and you’ll keep the other.

To learn how to get your hands on your student loan tax form, when to deduct student loan interest and how to file a student tax form, keep reading.

What Are the Tax Forms for Student Loans?

The IRS Form 1098-E is a tax form for student loans that’s sent out by your loan servicer, or the company that collects your student loan payments. Sometimes, your lender services their own loans. Other times, they hire an outside service to collect their payments for them.

The loan servicer is required to send borrowers a 1098-E to complete their taxes if the borrower owes at least $600 in student loan interest. Typically, they’ll get them out by the end of January, since the interest forms for student loans and tax season coincide.

If you have more than one loan servicer, you’ll receive a 1098-E form from each.

The Purpose of a Student Tax Form

The student loan tax form is designed to give people with student loan debt the opportunity to deduct some or potentially all of the interest the debt accrues on their federal income tax return.

If you paid at least $600 in interest on a qualified student loan, the lender you paid that interest to should send you a 1098-E. Regardless of how many student loans you have, the $600 threshold still applies.

Recommended: What is the Average Student Loan Debt After College?

Uses of a Student Loan Tax Form

The student loan tax form is used to calculate your student tax interest deduction on your tax return.

As long as you meet certain conditions, you may be eligible to deduct up to $2,500 in student loan interest from your taxable income:

•   You are filing separately and/or not married

•   Your income is below the annual limit

•   You are legally obligated to pay the interest, not someone else

•   If you’re filing a joint return, neither you nor your spouse is being claimed as a dependent on another person’s tax return

The eligibility for the student loan interest deduction is determined based on a borrower’s modified adjusted gross income (MAGI), or their adjusted gross income (AGI) after factoring in any tax penalties incurred and allowable deductions. At a certain higher income bracket, the deduction is reduced or eliminated.

•   For taxpayers filing as single: The deduction is reduced once they have $70,000 of modified AGI and it’s eliminated at $85,000

•   For taxpayers filing jointly: The deduction is reduced at $140,000 of modified AGI and it’s eliminated at $170,000

Getting Your Student Tax Form

To obtain your college student tax form and ensure you aren’t missing any tax documents this season, there are a few steps you can take:

1.    Go directly to your loan servicer ’s website, where a downloadable 1098-E form will likely be available.

2.    Contact your loan servicer via telephone if you’re unable to visit their website.

3.    If you don’t know who your loan servicer is, visit StudentAid.gov or call the Federal Student Aid Information Center at 1-800-4-FED-AID, then complete steps 1 and 2.

Finally, note that student tuition tax form 1098-E is not available for download through the Federal Student Aid website .

There are plenty of useful tools on the site to get you where you need to go, but, ultimately, you can’t download your student loan tax form directly from the website.

If you have private student loans, contact your lender directly.

Recommended: What Is IRS Form 1098?

Filling Out a Student Loan Interest Tax Form

When it comes to filling out a college student loan tax form, the IRS provides detailed instructions for the 2022 tax season to help financial, educational, and governmental institutions and borrowers cover all their bases.

At the most basic level, according to the IRS , if a loan servicer receives student loan interest of $600 or more from an individual during the year in the course of their trade or business, they must:

•   File a 1098-E form and;

•   Provide a statement or acceptable substitute, on paper or electronically, to the borrower

There are two boxes on the 1098-E form:

•   Box 1 is the amount of student loan interest received by the lender. It’s important to note, this figure represents interest paid, not loan payments made.

•   Box 2, if checked, denotes the fact that the amount in Box 1 does not include loan origination fees and/or capitalized interest for loans made before September 1, 2004.

Once you receive the 1098-E form, it’s up to you to include it when you file your taxes.

When to Deduct Student Loan Interest?

Student loan interest tax deduction is a type of federal income tax deduction that lets student loan borrowers deduct up to $2,500 of the interest paid on qualified student loans from their taxable income. It’s one of many tax breaks available to students and their parents to help them pay for college.

To know when to deduct student loan interest, it’s important to know if you meet the necessary qualifications:

•   Your student loan was taken out for the taxpayer (you), your spouse, or your dependent(s).

•   Your student loan was taken out when you were enrolled at least half-time in an academic program that led to a degree, certificate, or recognized credential.

•   Your student loan was used for qualifying education expenses such as tuition, textbooks, supplies, fees, or equipment (not including room and board, insurance, or transportation).

•   Your student loan was used within a “reasonable period of time,” and its proceeds were disbursed 90 days before the beginning of the academic period in which they were used or 90 days after it ended.

•   The college or school where you were enrolled is considered an eligible institution that participates in student aid programs managed by the U.S. Department of Education.

Do International Students Have a Different Tax Form?

For international students, it’s possible to deduct student loan interest from a foreign country, as long as their student loan is qualified (meeting the requirements listed above) and they’re legally obligated to make student loan payments on that loan.

There’s no need for international students to acquire a special international student tax form, however. The year-end financial statement from their loan servicer is typically sufficient enough proof for them to claim the student loan interest.

The Takeaway

If you paid interest on a qualified student loan for yourself or a dependent, you can likely deduct that interest on this year’s tax return. Once you’ve determined when and whether you’re able to deduct student loan interest and how to file a student loan interest form, you can simply wait for your loan servicer to send along a copy of your 1098-E or visit their website.

When you work with a private student loan lender like SoFi, you can access your 1098-E online, making it even easier to file your taxes and deduct student loan interest without waiting by your mailbox.

Photo credit: iStock/FG Trade


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 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.

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.
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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Everything You Need to Know About Credit Risk

What Is Credit Risk and How Does It Affect Investors?

Credit risk measures the likelihood of incurring a loss if one party to a financial transaction fails to follow through on their obligations.

Credit risk often comes up when in relation lending and how likely an individual or business entity is to pay back money they’ve borrowed. Banks and lenders assume a certain amount of risk when making loans, based on the credit profile of the borrower. If you’ve ever taken out a loan or line of credit, your credit risk was likely one factor that influenced the interest rate that you paid.

Understanding how to interpret this concept is important for investors, as it can affect returns for certain types of fixed-income investments. Here’s a primer on credit risk and how it works.

Understanding Credit Risk

How you define credit risk depends on the circumstances in which it’s being measured.

For instance, when banks or lenders make loans there’s an assumption that the loan will be repaid. Credit risk accounts for the possibility that the borrower will fail to repay what’s owed, leaving the lender with interrupted cash flow, costs to recover the funds, and ultimately a financial loss.

This same principle operates when a vendor extends a line of credit to a business. They’re taking a gamble on the business paying them back on schedule for the services or products they’ve provided.

Credit risk is also linked to other types of risk. For example, counterparty risk represents the probability that one party in an investment, credit or trading transaction will not fulfill their part of the bargain. This is also called default risk, as it measures the odds that a party to a financial transaction will default or fail to make required payments as scheduled.

In terms of investing, another credit risk definition applies when discussing bonds. A bond represents a form of debt. When an investor purchases a bond, they’re effectively lending their capital to the bond issuer for a set time period. During this time period, the bond issuer makes interest payments to the investor. Once the bond matures, the bond issuer pays back the investor’s original principal.

The investment is made in good faith, as the investor assumes the bond issuer will make interest payments and return their principal. But the bond issuer could default on their end of the deal — this is credit risk. Credit ratings help investors determine when a bond investment has a higher or lower level of credit risk.

The Five C’s of Credit

When measuring credit risk, it’s common to turn to the five C’s of credit. These are five factors used to evaluate how likely an individual or business is to follow through on their end of a financial contract.

The five C’s of credit are more often used in business lending than personal lending. If you’re getting a personal loan, line of credit or credit card, for example, lenders are more likely to consider your FICO credit scores. The FICO credit score range runs from 300 to 850, with 850 being the highest score you can achieve.

Recommended: What’s Considered a Bad Credit Score?

With that in mind, here’s how the five C’s break down.

Character

Character is an assessment of a borrower’s background. This can include their level of education, experience operating a business and overall reputation. Lenders may also look at someone’s personal credit history to gauge their character and measure credit risk when granting business loans.

Cash Flow

Cash flow represents the movement of cash in and out of a business. In lending situations, cash flow is often synonymous with the ability to repay what you borrow. Lenders can use business revenues, expenses, and cash flow to determine credit risk.

Capital

Capital is a measure of how much skin you have in the game, so to speak, in terms of how much money you’ve personally invested in your business. The more money you have tied up in a business venture, the less likely you may be to default on a loan and jeopardize the business. That’s a positive in terms of assigning credit risk.

Conditions

Conditions refers to the business’ overall market. For example, lenders will look at how much demand there is for the products or services your business offers as well as your competitors. Your experience with operating this type of business can also come into play.

Collateral

Collateral is used to mitigate credit risk by requiring you to offer some type of security against a loan. For example, if you’re getting a loan to buy equipment the equipment itself could serve as collateral. If you default on the loan, the lender can repossess the equipment and sell it to try and recoup some of its losses.

Credit Risk and Interest Rates

Credit risk has a link to interest rates, both in terms of the rates you might pay to borrow and the rates you might earn from an investment. The relationship is inverse on both sides.

For example, in lending a higher credit score can translate to lower credit risk and therefore, lower interest rates. With investing, a lower credit score could result in a higher credit risk and higher interest rates.

Why This Matters to Borrowers

Credit risk matters to borrowers because it can directly affect what you pay for loans. The lower your credit score, the riskier you may appear in the eyes of lenders. To offset this risk, the lender may charge a higher interest rate.

When that interest is amortized, you typically end up paying more toward the interest versus the principal early on the life of the loan. This allows the lender to collect the bulk of the interest upfront to compensate for the risk that you default down the line.

In that sense, higher interest rates are an insurance policy of sorts for the lender when the perceived credit risk is higher. But what it ultimately means for you is that borrowing money is more expensive.

Why This Matters to Investors

Credit risk and interest rates also matter to investors when trading bonds. Bonds with better credit ratings are likely to have less credit risk, as there’s less potential for the bond issuer to default. But they may carry lower interest rates as a result. On the other hand, bond issuers with lower credit ratings may offer higher interest rates to incentivize investors to purchase them.

It’s also possible to create credit risk for yourself if you’re trading on margin. Margin trading involves borrowing money from a brokerage to invest. So here’s how margin accounts work:

•   You deposit a minimum margin amount ($2,000 under FINRA rules, though some brokerages may require more)

•   Your brokerage allows you to borrow up to 50% of the purchase price of margin securities (this is known as initial margin)

•   Your brokerage requires you to observe a maintenance margin level going forward

Credit risk exists because you’re using borrowed money to invest. If your investments don’t perform as expected, you could lose money, and you’d still be obligated to repay the brokerage. This can happen if your account balance drops below the maintenance margin level and you become subject to a margin call. If you’re subject to a margin call you generally won’t be able to make additional investments until you’ve deposited more funds into your account.

Recommended: What You Need to Know About Margin Balance

How to Assess Credit Risk

The method for assessing credit risk depends on the situation in which it’s being measured. As already mentioned with business lending, lenders rely on the five C’s of credit to gauge a borrower’s credit risk. These five factors, along with personal and business credit score and their overall financial position can help determine how likely a borrower is to keep up with their debt obligations.

In investment settings, particularly with bonds, investors can use official credit ratings as a guide. Moody’s , for example, is one of the best-known issuers of bond credit ratings. Altogether there are nine credit rating agencies registered as nationally recognized statistical ratings organizations (NRSROs) with the Securities and Exchange Commission (SEC).

It’s important to remember, however, that credit ratings alone are not a foolproof indicator of risk. You must also evaluate the specifics of the investment itself as well as your own personal risk tolerance to decide if a particular bond is a worthwhile investment. This is all part of performing due diligence, which is important for managing all types of risk, including credit risk.

How Credit Risk Applies to You

This depends on how you invest or borrow money. If you own bonds, for example, you’re assuming a certain amount of credit risk based on the quality of the bonds in your portfolio. A bond with a AAA credit rating, for example, is less of a credit risk compared to a bond with C rating.

Choosing to invest in junk bonds, which carry a higher degree of credit risk, could prove profitable if the bond issuers make good on interest payments. But in exchange, you’re shouldering a greater amount of risk since the bond has a lower credit rating. So understanding your personal risk tolerance is key when choosing investments.

Credit risk also plays a part in borrowing decisions. If you have a good credit score, then getting a loan or line of credit at a lower interest rate may be relatively easy. On the other hand, if you have fair or bad credit that could mean paying higher interest rates. Taking steps to improve your credit score could help you to qualify for more favorable interest rates.

Margin Trading With SoFi

If you’re looking to enhance your investment toolbox, and have the experience and risk tolerance to try out trading on margin for yourself, SoFi can help. With a SoFi margin account, you can increase your buying power, take advantage of more investment opportunities, and potentially increase your returns.

Get one of the most competitive margin loan rates with SoFi, 7.00%*


Photo credit: iStock/William_Potter

*Borrow at 7.00%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
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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