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In many parts of the country, a $100,000 salary is considered good; maybe even very, very good. It can be more than enough for an individual or even a small family to live comfortably. With $100,000 a year, a person could cover typical expenses, pay down debt, build their savings, contribute toward retirement, invest, and still have enough money for entertainment, hobbies, and vacations. But in large (pricey) cities and for larger families, it could be hard to stretch that income to cover all expenses and financial goals.

Factors to Determine if a $100,000 Salary Is Good

In most cases, a $100,000 salary is considered good. It is well above the poverty line as well as the American median income for individuals. Even in the face of rising inflation, a $100,000 annual income can typically afford a comfortable lifestyle and financial stability.

Here are some factors to determine if $100,000 is a good salary:

•   Location: While $100K can cover expenses in most places across the U.S., it won’t stretch as far in places with a higher cost of living. In some of the most expensive cities in the U.S., a $100K salary might mean spending a significantly higher percentage of your income on housing. For instance, in the summer of 2025, the average rent in Manhattan hit $5,539 a month.

•   Taxes: As an individual, $100K a year puts you in the 22% federal income tax bracket as of 2025 for both single and joint filers. That means that you’d only bring home $78,000 after federal taxes — even less depending on state, city, and school district taxes.

•   Family size: A $100K a year salary can yield comfortable living for most individuals, but the larger a family becomes, the harder it is to make that money stretch. Additional children or other dependents may result in higher grocery bills, utility usage, school costs, and doctor visits.

How Does a $100,000 Salary Compare to the American Median Income?

The American median household income is roughly $78,538, per the latest published U.S. Census results. A $100,000 salary is considerably higher than the American median income.

However, according to the most recent data, the median individual income is $43,289, meaning a $100K salary is more than twice that figure. If you live in what’s known as a DINK household (dual income, no kids) and your domestic partner also brings home a sizable paycheck, you may have even more spending power and more cash in your bank account.

What Percentage of Americans Make Over $100,000 Annually?

According to the U.S. Census Bureau, 41% of American households pull in more than $100,000 annually. A “household” might consist of two or more salaries totaling $100,000.

$100,000 Salary Breakdown

So is making $100K a year good? It’s almost surely easier than living on $20K a year. Let’s look at how it breaks down into monthly, weekly, and even daily pay:

•   Monthly income: $8,333.33

•   Biweekly paycheck: $3,846.15

•   Weekly income: $1,923.08

•   Daily income: $384.62 based on 260 working days per year.

Keep in mind that this salary breakdown uses pretax income. Actual paychecks will likely be lower after taxes and any health insurance premiums and retirement contributions are deducted.

Can You Live Individually on a $100,000 Income?

It is indeed possible to live individually on a $100,000 income. At that salary, many individuals will be able to cover not only basic living expenses but also discretionary expenses, like dining out and traveling.

Individuals making $100K annually often have enough disposable income to pay down debt, contribute to retirement, work toward multiple savings goals (like home ownership and vacations), and even invest.

How Much Rent Can You Afford Living on a $100,000 Income?

The conventional advice on how much of your income to spend on housing is no more than 30%. While economists may need to reevaluate that number given current inflation and soaring housing prices, that would mean an individual could afford $30,000 in rent costs each year, or roughly $2,500 a month, on $100K a year.

However, at $100,000 a year, an individual could consider buying a home instead. Depending on where one lives and their other expenses, a $100K salary could make it easier to save for a down payment and keep up with maintenance expenses, property taxes, and homeowners insurance.

Best Places to Live on a $100,000 Salary

At $100,000 a year, an individual or small family can likely live in most locations. If you want to make your dollars stretch as far as possible, consider what U.S. News has deemed the five cheapest cities to live in 2025-26:

•   Decatur, Illinois

•   Enid, Oklahoma

•   Weirton, West Virginia

•   Springfield, Illinois

•   Mission, Texas

Recommended: Cost of Living by State

Worst Places to Live on a $100,000 Salary

A $100,000 salary can typically afford at least basic living expenses even in America’s most expensive cities. However, living in such places can make it harder to build your savings and invest toward your future.

If you want to live comfortably on $100,000 a year, it may be wise to avoid what have been deemed America’s most expensive cities in 2025-26:

•   Newport Beach, California

•   Westminster, California

•   Daly City, California

•   Spring Valley, New York

•   Huntington Park, California

Is a $100,000 Salary Considered Rich?

Many people may consider a $100,000 salary to be rich. However, “rich” is a relative term with a vague definition, meaning an abundance of wealth and assets. Much of it depends on where you live and how you use the income (spending vs. saving vs. investing).

Also, consider how personal circumstances can differ. If you earn $100K a year and your spouse doesn’t work outside the home and you are supporting three children as well as a relative with medical needs, that high salary may not stretch as far. Add some student loans, a jumbo mortgage, and car payments to the picture, and you realize a person earning $100,000 a year might not qualify as rich in most people’s estimation. They may be barely making ends meet.

Tips for Living off a $100,000 Budget

How can you make the most of a $100,000 salary? Here are a few tips for living off a $100,000 budget:

Getting on a Budget

No matter your salary, it’s a good idea to design a monthly budget. At a minimum, keep track of your monthly expenses vs. your monthly income. After you have accounted for all your mandatory expenses, like your mortgage and your groceries, you can calculate what you have left for discretionary expenses (the “wants” in life), savings, debt repayment, and investments.

Recommended: 50/30/20 Budget Calculator

Saving Your Money

It’s a good idea to have emergency savings at the very least; being able to cover three to six months’ of expenses without any income flowing in is ideal.

Beyond an emergency savings, you may want to allocate money in your budget each month to other savings goals, including a house or car down payment, wedding, vacation, or home renovations. Having a high-interest savings account with automatic savings features can help you get to your goal faster.

Recommended: How to Save Money From Your Salary

Getting Out of Debt

Paying down debt can be a good use of funds when you have room in your budget, especially if you have particularly high-interest credit card debt. You can weigh options like the debt avalanche vs. debt snowball method when you have multiple sources of debt or even consider a credit card debt consolidation loan.

Creating a Retirement Plan

If you’re wondering when you should start saving for retirement, many financial experts would likely say the answer is “yesterday.” The sooner you start saving, the sooner your money can grow via compound interest.

If your employer offers a 401(k) match and you can afford to funnel a percentage of your paycheck into a retirement account, it’s often a wise idea to opt in. But employer-sponsored 401(k) accounts aren’t your only retirement option. Depending on your situation, it may be a good idea to take advantage of a rollover or traditional IRA and other retirement strategies.

Investing Your Money

Investing isn’t only for retirement. If you are earning $100K a year and have extra money after having built up emergency savings and wiped out your debt, you might benefit from investing in the stock market or even real estate.

Learning how to invest can be intimidating; if you’re not sure where to start, it can be a good idea to work with a trusted investment broker.

The Takeaway

For most individuals and small families, $100,000 is a good salary and well above both the median individual and household income. Cost of living and family size can affect how far $100,000 will go, but generally speaking, you can live comfortably on $100,000 a year.

If you are hoping to make the most of your salary, finding the right banking partner can be important.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What jobs pay over $100,000?

Many jobs pay over $100,000 a year in various fields. These jobs include doctors, lawyers, software engineers, business leaders, pharmacists, psychologists, IT managers, finance managers, and many others. Those in creative fields, from writers to hair stylists, can earn that salary, too.

Is making $100,000 a year common?

Making $100,000 a year is not uncommon in the U.S. According to the U.S. Census Bureau, more than 40% of American households make more than $100,000.

Can you live comfortably on $100K a year?

Most people can live comfortably on $100K a year. If you live in an area with a high cost of living and/or have a large family or very high expenses and/or debt, it may be more difficult to live comfortably on $100K a year. In either case, it is usually not challenging to afford basic living expenses.

What is considered wealthy in the U.S.?

Americans said in one survey that they believe it takes a net worth of $2.3 million to be considered “wealthy.” When calculating net worth, you’ll factor in more than just income; it also includes assets (like a house and retirement account), less any debts and liabilities.

Photo credit: iStock/Inside Creative House

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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SOBNK-Q325-073

The term “first-time homebuyer” may sound really specific, but it isn’t nearly as limiting as you might think. Even if you’ve purchased a home before, you may still be eligible for many first-time homebuyer assistance programs.

That’s good news if you’re hoping to take advantage of benefits like down payment and closing cost help, which could make a real difference in the type of home you can afford — or whether you can afford a home at all.

Read on to find out how you can be a first-time homebuyer twice and how to make the most of any benefits that might be available to you.

First-Time Homebuyer Qualifying Factors

If you’ve never owned a home before, you’re obviously a first-time homebuyer. But other criteria can also factor into whether you qualify for first-time homebuyer status and can benefit from assistance programs.

When are you considered a first-time homebuyer again? The U.S. Department of Housing and Urban Development (HUD) says a former homeowner may still qualify if you meet one of these criteria:

You Haven’t Owned a Principal Residence for Three Years

Even if only one spouse qualifies under this scenario, both spouses would be considered first-time homebuyers.

It’s Your First Home as a Single Parent

If you’re a single parent who has only previously purchased a home with a former spouse while still married, you qualify as a first-timer.

You’re a Displaced Homemaker

If you are a displaced homemaker who doesn’t or didn’t earn wages from outside employment and has only ever owned a home with a spouse, you would be considered a first-time homebuyer.

Your Last Home Wasn’t Affixed to a Foundation

If you’ve owned a primary residence that wasn’t permanently attached to a foundation according to applicable building regulations (such as a mobile home when the wheels are in place), you qualify.

Your Home Was Out of Compliance

If you have only owned a home that didn’t comply with state, local, or model building codes, and could not be brought into compliance for less than the cost of constructing a permanent structure, you can claim first-timer status.

State, local, and private first-time homebuyer programs may have their own qualifying criteria, so it can be a good idea to check out all the rules before starting the application process.

Recommended: First-Time Homebuyer Guide

Is It Smart to Be a First-Time Homebuyer Twice?

Finding a home — and figuring out how to afford a down payment on your first home — can be especially challenging in today’s market, while prices are still high and mortgage rates are rising. But if you’re eligible for one of the many assistance programs created to help first-time buyers, you may be able to improve your chances of (literally) getting your foot in the door.

Many states, cities, and community organizations provide assistance in the form of grants or forgivable second loans that can help with the down payment on your home and/or closing costs. Some of these down payment assistance programs only offer support to those who fall under an income cap. But, according to a report from the Urban Institute, 43.6% of homebuyers in the 10 largest U.S. metropolitan areas in 2022 would qualify for some form of home down payment assistance. Some private lenders also offer lower low-interest mortgage loans on conventional loans and other benefits to qualifying first-time homebuyers. And, of course, there are several longstanding federal programs that may offer more lenient income and credit score requirements, smaller down payments, and lower mortgage rates. So it can be a good idea to investigate all the opportunities available to you — and to your spouse if you’re married.

Note: At SoFi, a member cannot be claimed as a first-time homebuyer twice.

Benefits of Using an FHA Loan

Whether this is the first time you’ve considered purchasing a home, or you’re a returning first-time homebuyer, you may want to look into the benefits provided through the Federal Housing Authority (FHA) loan program.

The FHA isn’t a lender, so it doesn’t make loans directly to borrowers. Instead, it insures loans made by HUD-approved private lenders. If a property owner defaults on the mortgage, the FHA will pay the lender’s claim for the unpaid principal balance.

Because lenders are taking on less risk with an FHA-insured loan, they can offer more flexible eligibility requirements, lower down payment amounts, and lower closing costs than a buyer might get with a conventional loan. For example, if you have a FICO® credit score of 580 or higher, you may qualify for an FHA loan with just 3.5% down. And even with a score between 500 and 579, you still could be able to get a loan with 10% down.

FHA loans also may offer lower interest rates than comparable conventional mortgages.

Are There Drawbacks to an FHA Loan for First-Time Homebuyers?

FHA loans can be appealing to first-time buyers who are struggling to come up with a down payment, or who have a low debt-to-income ratio or other problems qualifying for a mortgage. But, a potential downside is that the mortgage insurance premiums (MIP) borrowers typically must pay to get and keep an FHA loan may end up being more expensive than the private mortgage insurance (PMI) required for a conventional home loan. Here’s what those costs can look like when you compare MIP versus PMI:

•   Homebuyers with a conventional mortgage can expect to pay an annual premium for private mortgage insurance (PMI) until they have at least 20% equity in their home, when they can request cancellation, or 22%, when cancellation should be automatic. (If you make a down payment of 20% or more, PMI isn’t required.) PMI costs can vary based on the type of mortgage you get, your loan-to-value ratio (LTV), your credit score, and other factors, but generally, the annual premium is 0.5% to 1% of the total loan amount.

•   FHA borrowers, on the other hand, are required to pay two separate mortgage insurance premiums (MIP). One premium is paid upfront at closing and is 1.75% of the loan amount. The other premium is based on the amount, length, and loan-to-value (LTV) ratio of the mortgage and is usually paid annually for as long as you have the FHA loan. If you put down at least 10%, you may have the FHA MIP removed after 11 years of payments — but unlike PMI on a conventional loan, there is no equity cutoff for MIP.

As you research different lenders and types of loans, you may want to keep these costs in mind. Remember: Mortgage insurance, whether MIP or PMI, protects your lender, not you, if you default on your payments. You still could ruin your credit or lose your home to foreclosure if you fall behind, so it’s important to keep your payments as manageable as possible.

Other First-Time Buyer Options

FHA loans are a popular borrowing option, but there are many other first-time homebuyer programs that could help you manage your costs, including programs offered by your state or city, or through local charitable organizations. Your real estate agent or lender may be able to help you find a program that’s appropriate for your situation. You also can find information through your state housing finance agency or HUD.

Other federal programs that you may want to consider include:

Freddie Mac Home Possible Mortgages

The Federal Home Loan Mortgage Corporation, known as Freddie Mac, offers the Home Possible mortgage program to help low-income borrowers who hope to purchase their own home. Because the program is backed by Freddie Mac, approved lenders can accept a smaller down payment from qualifying buyers, and some qualifications and terms may be more flexible than with a conventional mortgage.

Fannie Mae HomeReady Mortgages

The Fannie Mae HomeReady Mortgage is another path to homeownership for low-income borrowers. Creditworthy buyers may find lenders are more flexible with their terms and qualifications because these loans are backed by Fannie Mae.

Department of Veterans Affairs (VA) Loans

With a VA-backed home loan, the Department of Veterans Affairs guarantees a portion of the loan you obtain from a private lender. And because there’s less risk for the lender, you may receive better terms. Service members, veterans, National Guard members, Reserve members, and eligible surviving spouses may be eligible for this assistance.

US Department of Agriculture (USDA) Loans

The USDA offers both direct and backed loans to assist very low-, low- and moderate-income buyers who want to buy a home in an eligible rural area. Usually, no down payment is required. And more areas of the country are eligible for USDA-loan status than you might imagine.

HUD Good Neighbor Next Door Program

Eligible law enforcement officers, teachers, firefighters, and emergency medical technicians may find housing help through HUD’s Good Neighbor Next Door program. Through this program, certain single-family HUD properties in designated revitalization areas are available for sale to public service workers at 50% off the list price.

Recommended: How Much House Can I Afford?

The Takeaway

If you can qualify for one of the many assistance programs available to first-time homebuyers (even if you’ve owned before), you may be able to significantly reduce the daunting down payment and closing costs that can come with purchasing a home. Or you may qualify for a loan with a lower interest rate.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Can I be a first-time homebuyer again?

Yes, under certain circumstances, you may qualify as a first-time homebuyer even if you’ve owned a home before. You may be eligible for many first-time buyer programs, for example, if you haven’t owned a home in three years.

Can I get an FHA loan twice?

Yes, you can apply for an FHA loan even if you’ve had one before. But you usually can’t have more than one FHA loan at a time.

As a first-time homebuyer, am I required to make a 20% down payment?

No. A first-time homebuyer may be able to qualify for a mortgage with as little as 3% down.

Photo credit: iStock/FG Trade Latin

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

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

Townhouses offer convenience and amenities that appeal to a range of homebuyers. They’re also growing in popularity, with new townhouse construction up 23% in the 12-month period from mid-2023 to mid-2024, compared with the previous 12 months. Construction costs also increased during the same time period.

Whether you’re building an investment property or your own new home, determining the project cost is essential before breaking ground. The cost to build townhouses depends on the size, location, number of units, onsite amenities, and the style of the building.

What Is a Townhouse?

A townhouse, also called a townhome, is a type of single-family home that has two or more floors and a shared wall with at least one other home. Compared to different home types, like duplexes and triplexes, each townhouse is individually owned and has its own entrance. Given the high-density design, townhouses tend to be more common in urban and suburban communities.

Townhouses often have their own yard or garage, but may share other communal amenities, such as a pool or tennis court, with neighboring townhouses. These shared facilities are typically governed by a homeowner’s association (HOA), which townhouse owners pay fees to for managing amenities and providing services like landscaping and snow removal.

If choosing between a condo or townhouse, another distinction is that townhomes usually have more autonomy in customizing the exterior of their home and outdoor living space, and more responsibility for that space as well.

Recommended: What is a Townhouse?

What Determines the Cost of Building a Townhouse?

The cost to build townhomes depends on a variety of factors. The type of townhouse, size, number of units, location, and additions like garages and basements all contribute to the total construction cost.

Here’s what to consider when estimating how much it costs to build a townhouse.

Type of Townhouse

There are different types of townhouse layouts and configurations, including traditional, stacked, and urban.

•   Traditional: Generally organized in a row with two floors of living space, a basement, and garage.

•   Stacked: Refers to townhouse units stacked in a multi-floor building, which typically have their own entrances.

•   Urban: Similar to traditional townhomes, but often have more modern and spacious floor plans and higher prices.

Another key decision when purchasing a new construction home or townhome is whether to go with a modular or stick-built design. The components of a modular townhome are manufactured off-site, saving time and labor.

Stick-built townhouses are constructed on-site using a wooden frame and finished with a brick or vinyl exterior. This type of construction allows for greater customization, but generally comes at a higher cost than modular townhomes.

Recommended: Pros and Cons of Building a Townhouse

Square Footage

The cost to build a townhouse is impacted by the size, which is measured in square feet.

Townhomes cost between $80 to $200 per square foot on average. Because townhouses share walls and occupy smaller lots, they’re often more affordable than detached single-family new construction, which breaks down to an average of $162 per square foot.

Using the square footage to estimate total townhome cost is a fairly straightforward calculation. For instance, builders can expect to pay between $160,000 and $400,000 to erect a 2,000-square-foot townhouse based on the average range. Bear in mind that does not include the cost of the building site.

With these estimates, you can compare mortgage rates and determine what financing you qualify for.

Number of Rooms

The interior layout, including the number and types of rooms, is a key determining cost factor.

Not all rooms are created equal though, with kitchens and bathrooms being the most expensive due to appliances, tiling, plumbing, and more complex electrical work. The living spaces and bedrooms are generally simpler and cheaper to build.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Number of Units

By definition, townhouses are built in groups. Leveraging economies of scale to build multiple units or a complex could reduce the cost per unit. Keeping the design and floor plan consistent across units can also lower the price.

So, how much does it cost to build a townhouse complex? That depends on the extent of amenities included, as well as the number of units.

Location

Location, location, location. Where you choose to build a townhouse will impact the cost of construction and its value once completed.

The cost of labor varies significantly between regions. Paying builders and contractors typically accounts for up to 40% of new home construction expenditures. The location of the townhouse also matters in terms of costs related to accessing the site and sourcing materials.

Additions

Wondering how much to build townhomes with attractive amenities? Here’s what you can expect to pay for common townhome add-ons.

•   Basement: Building a basement foundation can cost anywhere between $24,000 and $50,000 or more on average.

•   Driveway: The materials and installation costs for a new driveway range from $7 to $22 per square foot depending on the material used.

•   Fencing: More affordable fence materials like wood, vinyl, and composite range from $10 to $45 per linear foot.

•   Garage: Cost varies by size, with one-car garages ranging from $10,500 to $27,000 and double garages costing between $15,000 and $40,000.

•   Pool: Expect to pay between $44,499 and $87,349 for an in-ground pool, with vinyl and fiber-glass lining typically costing less than concrete.

•   Shed: Adding a storage shed normally ranges from $800 to $18,000, with pre-fabricated options usually costing less than custom builds.

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Construction Cost for Building a Townhouse

Construction costs are often the deciding factor when you’re thinking of buying or building a house. Townhouses are generally less expensive to build per unit than a detached single-family home.

In addition to the factors discussed above, townhouse construction involves a range of pre-construction costs, like purchasing land, building permits, and architectural or design fees. The materials and labor usually account for the majority of the expenses to build a townhouse.

Townhouses can be designed as starter homes or luxury properties, and project budgets can be structured according to the target market and expected return on investment. Still wading into the waters of homebuying? Consult our Home Loan Help Center for useful tips and guides to master the basics.

Recommended: Construction Loans for Building a House

The Takeaway

How much does it cost to build a townhouse? In short, it depends on the type of townhouse, size, number of units, location, and added amenities. But you can estimate roughly $80 to $200 per square foot or between $160,000 and $400,000 for a 2,000 square-foot abode, not including land cost.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How many townhouses can fit on an acre?

The number of townhomes that can fit on an acre will depend on what’s permitted by local zoning, as well as space allocated for landscaping, parking, and other amenities. However, an acre can accommodate around 12-18 two- or three-story townhomes.

How much are utilities in a townhouse?

Utility costs vary by location, unit size, personal energy use, and equipment used for heating and cooling. Due to their smaller footprint, townhomes typically have lower utility bills than single-family homes.

Should I buy a townhouse or single-family home?

There are pros and cons with either type of home. Townhomes may require less maintenance and include extra amenities, while single-family homes can offer more space and discretion in how you design and decorate your home’s exterior.

What are the disadvantages of living in a townhouse?

Living in a townhouse can mean less privacy from your neighbors and more noise from shared walls.

Photo credit: iStock/vkyryl

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

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

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

When a borrower stops making payments on student loans for a period of time, they could end up in default. And in some cases, lenders may send defaulted loans onto collections.

If your student loans end up in collections, it can have serious financial consequences. Your credit score may be damaged, and sometimes your wages may be garnished. While it can be very stressful, there are steps you can take to fix the problem.

How Student Loans End Up in Collections

Student loans don’t go away until you’ve paid them off. If you haven’t been paying off your student loans, your debt can go into default because you are failing to fulfill your contractual obligation to repay your loan.

Americans owe $1.77 trillion in student loan debt as of 2025. When you consider that the average federal student loan debt is more than $37,000 per borrower, it’s no surprise that some have trouble keeping up with it. In fact, an average of 6.24% of student loans are in default at any given time.

Delinquent Federal Student Loans

The first day after missing a payment on a federal student loan, the loan becomes delinquent. The loan will remain delinquent until the overdue balance is paid or the borrower makes alternate arrangements, such as applying for deferment or forbearance or switching their payment plan.

After 90 days of missing payments for federal student loans, the loan servicer will report the late payments to credit bureaus, which could negatively impact the borrower’s credit score.

Federal Student Loans in Default

For federal student loans, you typically go into default after you haven’t paid your loan bill for nine months or 270 days. When in default, the entire balance of the loan comes due. But just because a loan is in default, doesn’t mean it automatically goes to a collections agency.

At this point, you may have the opportunity to make arrangements with your loan servicer. For example, your lender may help you tailor solutions that lower your monthly bill to make payments more manageable for you.

However, if you don’t come to an agreement, your lender can send your debt to a collections agency that will collect it for them.

Recommended: Defaulting on Student Loans: What You Should Know

Private Student Loans in Default

The timeframe may vary for private loans depending on the terms and conditions of the loan. Generally speaking, private student loans may go into default after 90 days ​of missed payments. You should read your loan agreement for more information on when your loan provider will send your defaulted loans to collections.

What Does It Mean to Have a Loan Sent to Collections?

Once your debt is sent to a collections agency, that agency will do everything they can to get you to pay. Unfortunately, on top of collecting the debt, collections agencies typically charge fees.

Once your debt is in collections, the collections agency might try to work out a repayment plan with you as a first step. If you continue to not pay, the agency can then take actions to recoup the money, such as trying to garnish your wages.

Garnishment means the agency can take a certain amount from each paycheck and apply it toward your debt — in the case of federal student loans, it cannot be more than 15%. For federal student loans, lenders are not required to take the borrower to court before garnishing wages.

Private student loans function differently. They are not subject to the same special regulation as federal student loans. Private lenders interested in garnishing wages must follow garnishment rules laid out for private debt. In this case, the lender is required to take the borrower to court and obtain a judgment in their favor before any wages can be garnished.

Recommended: What Happens If You Just Stop Paying Your Student Loans

What Happens When Your Loans Go into Default and Collections?

Some other not-so-great things can happen when your loans go into default and collections.

First, if you have defaulted on federal student loans, you may lose access to various federal loan repayment plans and forbearance or deferment on federal loans. These programs are important tools designed to make it easier for you to pay off your loans. Loan forgiveness is offered to those who have jobs in certain government, healthcare, and nonprofit sectors. Forbearance allows you to temporarily stop making student loan payments or reduce the amount you pay each month.

Your credit score may take a hit, as well. With both private and federal student loans, the lender or the collections agency will report the late payments to the three major credit bureaus, and that might then lower your credit score.

A low credit score might cost you down the line, making it difficult to secure future loans at reasonable interest rates. It may even mean you won’t qualify for a loan at all.

How to Get Your Loans Out of Default

The best thing you can do to avoid your student loans going into default and being sent collections is to pay your bills on time. If you think you’re going to miss a payment, reach out to your loan provider to see if they’ll offer support.

But if you’ve defaulted, there may still be options for you to recover.

Options for Federal Student Loans

If you have federal student loans, you can try to rehabilitate your student loan in collections. Here’s how the program works: After you’ve made three consecutive on-time, voluntary, full payments on a defaulted federal loan, you can consolidate your federal loans.

The new direct loan pays off the old loans in full and consolidates them. Once you have made nine out of 10 consecutive, voluntary, on-time payments to this new loan, the loan may be rehabilitated and the default may be removed from your record.

With a Direct Consolidation Loan, your eligible federal loans will be combined into one loan with a fixed interest rate — and the new rate will be the weighted average of the rates on the loans being consolidated (rounded up to the nearest one-eighth of 1%).

Options for Private Student Loans

When it comes to private student loans, private lenders may or may not offer borrowers the opportunity to rehabilitate their loans. You should contact your lender and ask what you can do to get your loan out of default. Sometimes borrowers who have rehabilitated a private student loan may ask to have the default removed from their credit report, but there is no guarantee that it will be removed.

Additionally, it’s important to note that some lenders may charge off private student loans that are delinquent for 120 days, or a set period of time, which may vary from lender to lender. When a lender charges off a loan, it means they have written off the loan as a loss and close the account. They typically sell your loan to a debt buyer or collections agency, but you are still legally obligated to pay off the loan. If the debt is charged off, the lender may not be willing to work with the borrower.

What to Do If Your Student Loan Goes to Collections

If you do find yourself in the unfortunate situation of having debt in collections, there might be steps you can take.

First, you could talk to your collections agency. Remember: Collections agencies want you to pay. It’s in their best interest for you to ultimately pay back your loan. In many ways, this is a situation in which the ball is in your court.

When you talk to them, the collections agency might offer payment options tailored to your individual circumstances, depending on if you’re employed and how much money you earn.

They might offer solutions such as allowing you to pay a discounted lump sum, or they might set up a manageable monthly payment plan if you don’t have much income.

Having your loans in default or collections might have serious effects on your credit and your financial stability. If you’re afraid of defaulting on your loans, or if you already have, consider taking action as fast as you can. Taking control of the situation could help keep it from getting worse.

Preventing Default: Refinance Student Loans

Refinancing student loans can be a strategic move to prevent default by lowering monthly payments and interest rates. When you refinance, you replace your existing loans with a new one that often has more favorable terms, making it easier to manage your debt. This can provide much-needed relief, especially if you’re struggling with high interest or a tight budget.

Keep in mind, though, that when you refinance federal student loans with a private lender, you lose access to federal benefits, such as student loan forgiveness and income-driven repayment plans.

The Takeaway

In an ideal world, the best way to avoid going into student loan default is to make payments on time and in full. If you have competing financial priorities, however, it may be difficult for you to pay your loans on time.

If your student loans end up in collections, it may damage your credit score, and with federal loans, your wages may be garnished. There are steps you can take to rehabilitate your defaulted loans, depending on whether you have private or federal loans.

To avoid default, it’s best to make your payments on time. If you’re struggling to make your payments, consider student loan refinancing.

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

FAQ

What happens when student loans are sent to collections?

When student loans are sent to collections, your credit score drops, and you face increased interest rates and fees. Collection agencies may contact you frequently, and you could experience wage garnishment, tax refund offsets, and legal action.

What happens if you never pay off student loans?

If you never pay off student loans, consequences include damaged credit, wage garnishment, tax refund offsets, and potential legal action. Federal loans can also lead to loss of eligibility for federal benefits and increased interest. Private loans may result in more aggressive collection tactics.

How long can student loans stay in collections?

Student loans can remain in collections indefinitely, but the impact on your credit score typically diminishes over time. However, collectors can continue to pursue repayment, and the debt may be sold to other collection agencies, leading to ongoing financial and legal issues.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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