How Much Debt Does the U.S. Have and Who Owns It?

How Much Debt Does the United States Have and Who Owns It?

When consumers spend more than they make, they often find themselves in debt. The same is true for countries, and the United States is no exception. When the United States spends more than it earned through taxes and other revenue sources, it creates a deficit.

The United States borrows money, typically by issuing Treasury securities, such as treasury bills (T-Bills), notes (T-Notes) and bonds (T-Bonds), to cover that difference. Every year the United States cannot pay the deficit between revenue and expenses, the national debt grows.

Here’s everything you need to know about the national debt, how it impacts the American economy, and who owns US debt.

How Much Debt Does the US Have?

As of June 2021, the United States is $28.3 trillion in debt and continues to climb. Some economists prefer to look at national debt as a percentage of gross domestic product (GDP). At 127%, the current US debt level is higher than the country’s GDP.

Who Is the US in Debt to?

There are generally two categories of debt: intragovernmental holdings and debt from the public. The debt that the government owes itself is known as intragovernmental debt. In general, this debt is owed to other government agencies such as the Social Security Trust Fund.

Because the Social Security Trust Fund doesn’t use all its generated capital, it invests the excess funds into U.S. Treasuries. If the Social Security Trust Fund needs money, it can redeem the Treasurys. As of June 2021, intergovernmental debt hovers around $6 trillion, making the US government the largest single owner of US debt.

The public debt consists of debt owned by individuals, businesses, governments, and foreign countries. Foreign countries own roughly one-third of U.S. public debt, with Japan owning the largest chunk of American debt hovering around $1.26 trillion. US debt to China ranks second, with that country owning roughly $1.07 trillion of American debt.

What is The History of the National Debt?

Since the founding of the United States and the American revolution, debt has been a grim reality in America. When America needed funding for the Revolutionary War in 1776, it appointed a committee, which would later become the Treasury, to borrow capital from other countries such as France and the Netherlands. Thus, after the Revolutionary War in 1783, the United States had already accumulated roughly $43 million in debt.

To cover some of this debt obligation Alexander Hamilton, the first Secretary of the Treasury, rolled out federal bonds. The bonds were seemingly profitable and helped the government create credit. This bond system established an efficient way to make interest payments when the bonds matured and secure the government’s good faith state-side and internationally.

The debt load steadily grew for the next 45 years until President Andrew Jackson took office. He paid off the country’s entire $58 million debt in 1835. After his reign, however, debt began to accumulate again into the millions once again.

Flash forward to the American Civil war, which ended up costing about $5.2 billion. Because the war dragged on, the U.S. was strained to revamp the financial systems in place. To manage some of the debt at hand, the government instituted the Legal Tender Act of 1862 and the National Bank Act of 1863. Both initiatives helped lower the debt to $2.1 billion.

The government borrowed money again to fuel World War I, and then substantially more money to pay for public works projects and attempt to stem deflation during the Great Depression, and even more to pay for World War II, reaching $258 billion in 1945.

Since 1939, the United States has had a “debt ceiling,” which limits the total amount of debt that the federal government can accumulate.The Treasury can continue to borrow money to fund government operations, but the total debt cannot exceed the prescribed limit. However, Congress regularly raises the ceiling. The latest change came in 2019 when former President Trump signed a bill that suspended the limit for two years.

After that, American debt’s growth continued growing, with the pace accelerating in the 1980s. US debt tripled between 1980 and 1990. In 2008, quantitative easing during the Great Recession more than doubled the national debt from $2.1 trillion to $4.4 trillion.

Recommended: US Recession History: Reviewing Past Market Contractions

More recently, the national debt has increased substantially, with Covid-related stimulus and relief programs adding nearly $2 trillion to the national debt over the next decade.

Why The National Debt Matters to Americans

Over the past 12 years, U.S. debt has grown over 400%, while the U.S. income has only grown 30%, according to the Federal Reserve Bank of St. Louis.

As the national debt continues to skyrocket, some policymakers worry about the sustainability of rising debt, and how it will impact the future of the nation. That’s because the higher the US debt, the more of the country’s overall budget must go toward debt payments, rather than on other expenses, such as infrastructure or social services.

Those worried about the increase in debt also believe that it could lead to lower private investments, since private borrowers may compete with the federal government to borrow funds, leading to potentially higher interest rates and lower confidence.

In addition, research shows that countries confronted with crises while in great debt have fewer options available to them to respond. Thus, the country takes more time to recover. The increased debt could put the United States in a difficult position to handle unexpected problems, such as a recession, and could change the amount of time it moves through business cycles.

Additionally, some worry that continued borrowing by the country could eventually cause lenders to begin to question the country’s credit standing. If investors could lose confidence in the US government’s ability to pay back its debt, interest rates could rise, causing inflation or other investment risks. While such a shift may not take place in the immediate future, it could impact future generations.

The Takeaway

The national debt is the amount of money that the US government owes to creditors. It’s a number that’s been steadily increasing, which some investors and policymakers worry could have a negative impact on the country’s economic standing going forward.

Some economists believe that the growing national debt could eventually lead to higher interest rates and lower stock returns, so it’s a trend that investors may want to factor into their portfolio-building strategy, especially over the long-term.

Ready to get started, the SoFi Invest® brokerage platform is a great way to get started. You can choose either an Active Investing account in which you select your own investments, or automated options, which picks investments, monitors, and rebalances a portfolio on your behalf.

Photo credit: iStock/Dan Comaniciu


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Examining How Student Loan Deferment Works

Examining How Student Loan Deferment Works

If you’re struggling under a mountain of student debt, you’re not alone. After all, the average debt load for a recent undergrad is around $30,000.

The worst thing to do when experiencing difficulty repaying student loans is to just stop making payments. If more than 270 days pass on a federal student loan payment, or three months pass on a private student loan payment, they could become one of the millions of student loans in default.

Consequences of Defaulting on Federal Student Loans

And unlike other debt, student loan balances are generally not eligible to be discharged in bankruptcy. Defaulting on your federal student loans can lead to:

•  Immediately owing the entire balance the loan

•  Losing eligibility for forbearance, deferment, or federal repayment plans

•  Losing eligibility for federal student aid

•  Damaging the borrower’s credit score, inhibiting the ability to qualify to purchase a car or a house or qualify for credit cards in the future

•  Withholding of federal benefits and tax refunds

•  Garnishing of wages

•  The loan holder taking the borrower to court

•  Inability to sell or purchase assets such as real estate

•  Withholding of the borrower’s academic transcript until loans are repaid

Consequences of Defaulting on Private Student Loans

The consequences for defaulting on private student loans may vary by lender but could include repercussions similar to federal student loans, and more, including:

•  Seeking repayment from the cosigners of the loan (if there are any cosigners)

•  Calls, letters, and notifications from debt collectors

•  Additional collection charges on the balance of the loan

•  Legal action from the lender, suing the borrower or their cosigner

To avoid these negative consequences, one option for borrowers struggling to pay federal student loans is deferment.

Student loan deferment allows eligible borrowers to temporarily reduce loan payments or pause them. It’s a popular choice: As of the second quarter of 2021, 3.3 million borrowers owing a combined $120 billion had their loans in deferment.

Borrowers who are struggling to afford their monthly student loan payments, may consider looking into student loan deferment. But while it could be a good option for temporary relief, other solutions for reducing payments in the long term may be required.

Who Is Eligible for Student Loan Deferment?

To be granted a deferment on federal loans, borrowers need to meet certain criteria.

You may be eligible if you’re:

•  Enrolled at least part-time in college, graduate school, or a professional school

•  Unable to find a full-time job or are experiencing economic hardship

•  On active military duty serving in relation to war, military operation, or response to a national emergency

•  In the 13-month period following active duty

•  Enrolled in the Peace Corps

•  Taking part in a graduate fellowship program

•  Experiencing a medical hardship

•  Enrolled in an approved rehabilitation program for the disabled

Borrowers who re-enroll in college or career school part-time may find that their federal student loans automatically go into in-school deferment with a notification from their student loan provider.

Loans may also keep accruing interest during deferment—depending on what kind of federal student loans the borrower holds. Borrowers are still responsible for paying interest if they have a:

•  Direct Unsubsidized (Stafford) Loan

•  Direct PLUS Loan

If you don’t pay the interest during the deferment period, the accrued amount is added to your loan principal, which increases what you owe in the end.

Related: Student Loan Deferment in Grad School

To request a deferment, borrowers will need to submit a form to their loan servicer. As a part of the process, it’s likely that they;ll be asked to provide documents to prove eligibility.

What If You Have Private Student Loans?

Private lenders aren’t required to offer deferment options, but some do. For example, some might allow you to temporarily stop making payments if you:

•  Lose your job

•  Experience financial hardship

•  Go back to school

•  Have been accepted into an internship, clerkship, fellowship, or residency program

•  Face high medical expenses

Typically, even while a private student loan is in deferment, the balance will still accrue interest, meaning in the long-term the borrower will pay a larger balancer overall, even after the respite of deferment.

In most cases, even with accrual of interest and limited options, deferment is preferable to defaulting. Borrowers with private loans could contact the lender to ask what options are available.

The Limits of Student Loan Deferment

Keep in mind that deferment is not a panacea. By definition, it’s temporary. Federal student loan borrowers will ultimately need to go back to making payments once they are no longer deferment-eligible. For example, a borrower’s deferral might end if they leave school, even if their ability to pay has not improved.

Federal loans can only be deferred due to unemployment or financial hardship for up to three years. With private loans, there may not be an option to defer at all, and if it is an option, the limit may be no more than a year.

Other Options for Reducing Federal Student Loan Payments

Besides student loan deferment, you have other choices if you can’t afford the total cost of your monthly payments. With federal loans, you can request a forbearance.

Requesting Forbearance for Federal Student Loans

There are two types of forbearance for federal student loan holders: general and mandatory.

General student loan forbearance is sometimes called discretionary forbearance. That means the servicer decides whether or not to grant your request. People can apply for general forbearance if they’re experiencing:

•  Financial problems

•  Medical expenses

•  Employment changes

General forbearance is only available for certain student loan programs, and is only granted for up to 12 months at a time. At that point, you are able to reapply for forbearance if you’re still experiencing difficulty. General forbearance is available for:

•  Direct Loans

•  Federal Family Education Loan (FFEL) Program loans

•  Perkins Loans

Mandatory forbearance means your servicer is required to grant it under certain circumstances. Reasons for mandatory forbearance include:

•  Serving in a medical residency or dental internship

•  The total you owe each month on your student loan is 20% or more of your gross income

•  You’re working in a position for AmeriCorps

•  You’re a teacher that qualifies for teacher student loan forgiveness

•  You’re a National Guard member but don’t qualify for deferment

Similar to general forbearance, mandatory forbearance is granted for up to 12 month periods, and you can reapply after that time. You still have to pay interest on all types of your federal loans while they’re in forbearance.

Income-Driven Repayment Plans

A longer-term solution could be signing up for an income-driven repayment plan.

Borrowers who qualify, may be able to reduce their monthly payment based on their income. Enrolling in an income-driven repayment plan won’t have a negative impact on your credit score or history. However, income-driven plans aren’t always the lowest monthly payment option, so you might want to look at all options before applying to one. On certain income-driven repayment plans, student loan balances can be forgiven after 20 or 25 years, depending on the payment plan that the borrower is eligible for.

Remember, with an income-driven repayment plan, monthly payment is based on the borrower’s total discretionary income. That means if someone changes jobs, or sees a significant increase in their paycheck, they’ll be expected to pay a higher monthly bill on the student loan payment.

Another Option to Consider: Refinancing

Another long-term solution, depending on personal financial circumstances, could be student loan refinancing. Some private lenders can consolidate a borrower’s loans, whether federal or private. Qualifying borrowers may be able to secure a lower interest rate or options to lengthen the term to reduce monthly payments. Note that lengthening the repayment period may lower monthly payments but will generally result in paying more interest over the life of the loan.

Refinancing could be a good option for borrowers with strong credit and a solid income, among other factors. Unlike an income-driven repayment plan, a borrower’s monthly payment wouldn’t change strictly based on their income.

Some may find that they are not able to qualify for student loan refinancing on their own. In that case, some lenders may offer the option to apply for refinancing with a cosigner. A very important note: Refinancing federal student loans eliminates them from any federal borrower protections or payment plans. So, borrowers who are taking advantage of things like income-driven payment plans or deferment generally won’t want to refinance. But for other borrowers, student loan refinancing might be a good long-term solution.

Refinancing your federal and private loans can roll many loans into one new loan with one new rate and new monthly payment. So in addition to potentially saving you money on interest, refinancing could also simplify your repayment process.

If you find a lower rate for student loan refinancing –
SoFi will match it AND give you $100.*


The Takeaway

Deferment allows borrowers with federal student loans to temporarily pause their monthly payments under certain circumstances, such as enrollment in a graduate program. Depending on the type of loan, borrowers may be able to qualify for forbearance, which is another option that allows borrowers to temporarily pause payments on federal student loans, to help those who may be experiencing temporary financial difficulty.

Income-driven repayment plans may be another option for federal student loan borrowers who are experiencing longer-term issues making monthly payments on their student loans. Borrowers who aren’t taking advantage of these federal student loan programs may consider refinancing with a private lender as an option to either potentially secure a lower interest rate or adjust the repayment terms on their loan.

Student loan debt getting you down? Learn more about refinancing student loans with SoFi.


*Guaranteed Rate Match Offer: Your pre-qualified rate, and the rate match program itself, are conditional upon our verification of your application information, including verification of sufficient income to support an ability to repay. Eligible documentation of a competitor’s rate offer, issued within 30 days of your SoFi pre-qualified rate, will be determined at SoFi’s sole discretion and must be for the same loan amount and term. SoFi will only match rate offers for private student loan refinance products. The match will be on the rate, exclusive of all discounts. The $100 Rate Match Bonus is not available to residents of Ohio. To receive the $100 Rate Match Bonus, you must: (1) register and/or apply for a student loan refinance (2) provide documentation of an eligible competitive rate offer; (3) call at (855) 456-SOFI (7634) or chat on SoFi.com and follow the instructions to send in your proof of lower rate; (4) have and provide a valid US bank account to receive bonus; (5) complete Form W-9; (6) and meet SoFi’s underwriting criteria and book a student loan refinance with SoFi. Once conditions are met and the loan has been disbursed, you will receive your Rate Match bonus via automated clearing house (ACH) into your checking account within 30 calendar days. Bonuses that are not redeemed within 180 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. Additional terms and conditions may apply. SoFi may discontinue this program at any time.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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.
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.

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Discretionary Income and Student Loans: Why It Matters

Discretionary Income and Student Loans: Why It Matters

Knowing what your discretionary income is (and how to calculate it) can help you make decisions about how to best repay your loans. Essentially discretionary income is money left after all essential expenses have been taken care of.

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

In this article, we’ll discuss the different income-driven repayment plans and the ins and outs of discretionary spending, so you can figure out a repayment strategy that works for you and your budget.

What Is Discretionary Income?

Discretionary income can be defined as money left after necessary expenses, like housing and food, are paid. Think of this as the money that can be put into a savings account and to pay for wants (versus needs). This is different from disposable income, which is what’s left after taxes, not including any essential spending.

When it comes to federal student loans, the government has an actual formula that’s used to calculate discretionary income. Here’s more about the why and the how.

How Is Discretionary Income Calculated?

What’s considered essential to one person may not be considered essential to another (or to the government). In order to determine eligibility and benefits for certain income-driven public programs, like income-driven repayment plans, the government has a way of standardizing discretionary income.

The way that student loan servicers typically calculate discretionary income depends on the type of income-driven repayment plan you are considering. For example, an income-contingent repayment (ICR) plan, you subtract 100% of the federal poverty guideline from your adjusted gross income (AGI). For all other income-driven repayment plans, you subtract 150% of the poverty guideline from your AGI.

So, let’s say you’re in a one-person household and have a starting salary of $45,000. If you are considering an ICR plan, you would subtract 100% of the poverty guideline ($12,880), to get an official discretionary income of $32,120. Monthly, that is a discretionary income of a little under $2,700.This would be the number that loan servicers use to determine your monthly payment on an ICR plan.

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

What Income-Driven Repayment Plan are You Eligible For?

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

Related: Understanding How Income Based Repayment Works

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

Income-Driven Repayment Plans for Federal Student Loans

The four options available for federal student loan borrowers are:

•  Revised Pay As You Earn Repayment Plan (REPAYE Plan).

•  Pay As You Earn Repayment Plan (PAYE Plan).

•  Income-Based Repayment Plan (IBR Plan)

•  Income-Contingent Repayment Plan (ICR Plan).

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

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

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

For guidance in how this might work for you, the federal government offers its version of a discretionary income calculator: its loan simulator feature .

Pros and Cons of Income-Driven Repayment Plans

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

This means you’ll be paying off the loan longer and possibly paying more in interest over time. If you stay on an income-driven repayment plan, the government might forgive any remaining balance after 20 or 25 years of payments. But the amount that is forgiven may be taxed as income.

How Does Discretionary Income Affect Student Loan Payments?

Income-driven repayment plans use your discretionary income to set a cap on the amount you’re required to repay each month. In the case of ICR plans, it’s whichever is lower, a 20% cap or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.

Related: How is Income Based Repayment Calculated?

Using the example above with a 20% cap of your discretionary income, an ICR plan would cap your monthly payment at a little below $540—and it might be less, depending on your student loan balance. (And don’t worry, they’ll calculate it for you. But understanding the math can help you estimate what your payment might be. Also, it never hurts to check the government’s math.) If you have a high student loan balance but don’t make a lot of money yet, an income-contingent repayment plan may get you a significantly more manageable monthly payment.

How Else Can Borrowers Lower Their Student Loan Payment?

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

Depending on your financial profile, refinancing could result in a lower interest rate or a lower monthly payment depending on which terms you choose. Securing a lower monthly payment is generally the result of extending the loan’s term, which in the long-term, could increase the cost of borrowing the loan. To see what refinancing could look like for you, take advantage of the student loan calculators available online.

However, when a borrower refinances federal student loans, they’ll no longer be able to take advantage of the protections that come with federal loans, including income-driven repayment plans, forbearance and deferment.

But for borrowers with a steady job and strong credit, refinancing with a private lender may have its own benefits. Ultimately, refinancing is another option to consider that may help borrowers manage their student loans.

The Takeaway

Discretionary income, what’s left over after someone takes care of all of their necessary expenses, is an important factor for borrowers enrolled in an income-driven repayment plan. The government uses discretionary income to calculate how much a borrower owes each month on their student loans. As a borrower’s discretionary income chances, so may the amount they owe on an income-driven repayment plan.

Some student loan borrowers may also consider student loan refinancing when looking to lower their monthly payments on student loans. As mentioned, it’s also important to understand that refinancing federal student loans will result in the loss of federal benefits, including income-driven repayment plans.

Borrowers interested in refinancing their student loans with SoFi can see what they pre-qualify for in just a few minutes.


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SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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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Making Sense of the Rising Cost of Medical School

Making Sense of the Rising Cost of Medical School

The costs of medical school are rising at an alarming rate. According to US News, in the past decade, the cost of attending medical school has risen 3% to 4% annually.

Thirty-five years ago, medical students graduated with an average of $32,000 in student loan debt . In 2019, the median medical school debt for graduates was $200,000 , according to the Association of American Medical Colleges (AAMC) with 73% of students graduating with debt.

The rising cost of medical school, plus the daunting number of years of education and training is making some prospective medical students ask: Is an MD really worth it? That’s ultimately up to you.

But it’s worth noting that while medical school has traditionally been a path to a lucrative career, the steep up-front costs might be starting to make the endgame look less appealing.

This can be particularly true for would-be doctors interested in working in relatively low-paying fields like general practice (as compared to say an anesthesiology).

While it might be relatively easy to pay down student loan debt for those entering a higher-paying specialties like orthopedics or anesthesiology, a doctor going into general practice might take years (even decades!) to pay off their student loans.

To gain a better understanding of how much medical school actually costs, we’ll take a look at the costs of an MD, and some ways young doctors can get out of medical school debt faster after graduation.

Recommended: 6 Strategies to Pay off Student Loans Quickly

How Much Does Medical School Cost?

The average medical school tuition varies depending on factors like on whether the student is attending a public or private university.

The average annual cost of in-state tuition, fees, and health insurance for the first year of medical school for a student at a public university was about $41,438 in the 2020 to 2021 academic year. At a private school, the average annual cost was about $61,490.

But that’s only the cost of tuition, fees, and insurance—there’s also living costs to consider which is why it’s also useful to consider the entire cost of attendance (COA).

Each school publishes the estimated costs of attendance for their program, which typically not only include tuition and fees, but also costs like room and board, textbooks and supplies, and travel.

The AAMC calculated that the median cost of attendance for four years of medical school amounted to around $250,222 for public medical schools and $330,180 for private medical schools. But these costs can vary a lot depending on whether you’re attending school in Kansas City or San Francisco.

Why Is Medical School More Expensive Than Ever?

The rising cost of medical school tuition is part of a larger trend. It is estimated that the cost of college tuition and fees at private nonprofit four-year institutions in America grew at a rate of just over 2% from the 2019-2020 to 2020-2021 school years.

So what is driving the price increase? In general, college tuition has increased dramatically in the past 30 years or so, while wages have grown at a much slower rate. But what’s behind the dramatic uptick in college prices? The potential answer is two-fold. One factor is the demand for a college education has also dramatically risen over the last three decades.

Another factor more pertinent to public universities: a decline in state funding. It’s been observed in multiple states that as the education budget gets stripped, tuition costs paid by students also rises. And while lawmakers likely understand such a correlation exists, as long as federal financial aid is so freely available for students, there is likely little incentive to digress from such cuts.

How Long Does Paying for Med School Take?

So why do med students often go into so much debt?

It’s partly because the grueling requirements of their programs don’t often allow for part-time work. As a result, many students apply for financial aid to cover their college price tag, which means they graduate with significant amounts of student loan debt.

So how long does it take to pay back the debt? A lot of this depends on the student and the career path they take and the payments they make. However, the relatively low salaries young doctors earn during their residencies don’t typically allow for much opportunity to pay back loans until their first position after residency.

Related: Smart Medical School Loan Repayment Strategies

Let’s say, hypothetically, a borrower has federal Direct Loans, such as Stafford, PLUS, or a Direct Consolidation Loan. And let’s also say you can prove you have partial financial hardship (PFH), and qualify for an income-driven repayment plan.

In that situation, the monthly repayment would be capped at 10% to 15% of the borrower’s monthly discretionary income, for a period of up to 25 years. And, after 25 years, whatever hasn’t been repaid is forgiven (although that amount may be taxable).

However, if after residency, the borrower in question gets a position with an income that removes them from the PFH tier, they could switch to the Standard Repayment Plan for federal student loans, and potentially pay off the loan more quickly.

Is It Possible to Shorten the Medical Debt Payment Timeline?

Here are some tips for those interested and able to shorten their repayment timeline, which can lower the amount of student loan interest paid over the life of the loan.

Repaying Loans During Residency

It is possible to start paying down medical school debt in residency. While some students may be tempted to put their loans in student loan forbearance in their residency years, doing so can add quite a bit in compounding interest to the bill.

Instead, consider an income-driven repayment plan to start paying back federal loans with an affordable payment. Another option is to look into SoFi’s medical residency refinance options to compare.

Making Extra Payments

Another tactic to help pay off student loans faster is via simple budgeting. After getting your first position post-residency, consider committing to living on a relatively tight budget for just a few more years. Putting as much salary toward extra student loan payments as possible, could potentially help cut time—and interest payments—off the repayment timeline.

If you find a lower rate for student loan refinancing –
SoFi will match it AND give you $100.*


Speeding Up Med School Debt Repayment With Refinancing Student Loans

Depending on a borrower’s personal financial profile and credit score, among other factors, it may be possible to secure a lower interest rate or a lower required monthly payment, depending on the terms you choose if you refinance.

A lower monthly payment could help improve cash flow in the present or a lower interest could help reduce how much money is paid over the life of the loan. Keep in mind that lowering a monthly payment through refinancing generally is the result of extending the loan term, which can make the loan more expensive in the long run.

While refinancing could help borrowers save money over the life of the loan, it does mean giving up the benefits that come with federal student loans like income-driven repayment, deferment, forbearance, and student loan forgiveness specific to physicians.

But for borrowers who don’t foresee needing these services, refinancing might be a viable option.

Recommended: Guide to Refinancing Medical School Loans

The Takeaway

The cost of medical school has risen in the past 30 years, and so has the amount of debt med students take on to pursue a career as an MD. But a career in the medical field can potentially be both lucrative and rewarding, so for some, medical school can be worth the time, effort, and cost.

Borrowers who are repaying student loans from medical school may consider strategies like income-driven repayment plans, making overpayments, or student loan refinancing to help them tackle their student loan debt.

Wondering how much you could lower your monthly payments by refinancing your student loans? Check out SoFi and see your rate in minutes.



*Guaranteed Rate Match Offer: Your pre-qualified rate, and the rate match program itself, are conditional upon our verification of your application information, including verification of sufficient income to support an ability to repay. Eligible documentation of a competitor’s rate offer, issued within 30 days of your SoFi pre-qualified rate, will be determined at SoFi’s sole discretion and must be for the same loan amount and term. SoFi will only match rate offers for private student loan refinance products. The match will be on the rate, exclusive of all discounts. The $100 Rate Match Bonus is not available to residents of Ohio. To receive the $100 Rate Match Bonus, you must: (1) register and/or apply for a student loan refinance (2) provide documentation of an eligible competitive rate offer; (3) call at (855) 456-SOFI (7634) or chat on SoFi.com and follow the instructions to send in your proof of lower rate; (4) have and provide a valid US bank account to receive bonus; (5) complete Form W-9; (6) and meet SoFi’s underwriting criteria and book a student loan refinance with SoFi. Once conditions are met and the loan has been disbursed, you will receive your Rate Match bonus via automated clearing house (ACH) into your checking account within 30 calendar days. Bonuses that are not redeemed within 180 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. Additional terms and conditions may apply. SoFi may discontinue this program at any time.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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 or products 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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Understanding How Direct Stafford Loans Can Help Fund Your Education

Direct Stafford Loans (or simply Stafford Loans or Direct Loans) are the most common federal student loans available for students seeking financial aid for college. While there are Stafford Loan limits, most students who fill out the Free Application for Student Aid (FAFSA®) can receive some amount of financial aid, whether those Stafford Loans are subsidized or unsubsidized.

Students interested in getting federal aid—including grants, federal student loans, and federal work-study—must submit the FAFSA annually. Here are some other important facts, deadlines, and tips to get you ready to apply for federal financial aid.

What Is a Direct Stafford Loan?

A Stafford Loan is a common name for the federal student loans available to eligible students directly from the US Department of Education. These subsidized or unsubsidized federal loans are often referred to as Stafford Loans or Direct Stafford Loans, which are offered under the William D. Ford Federal Direct Loan (Direct Loan) Program.

In 1988, Congress changed the name of the Federal Guaranteed Student Loan program to the Robert T. Stafford Student Loan program in honor of higher education champion, Senator Robert Stafford. This is one reason why Stafford Loans are sometimes referred to by different names.

Direct Stafford Loans are taken out in the student’s (not a parent’s) name. Before one accepts any loans as part of a financial aid package, it’s important to understand the fundamental differences between the two types of Stafford Loans you can apply for: subsidized or unsubsidized.

Subsidized vs Unsubsidized Loans

There are two different types of Direct Stafford Loans: subsidized and unsubsidized. With a subsidized Stafford Loan, the government will pay the interest that adds up while the borrower is in school at least half-time, during the loan’s grace period (the first six months after graduating or dropping below half-time enrollment), and during a deferment—an official postponement of payments. In contrast, borrowers with unsubsidized student loans are responsible for all of the interest that accrues on the loan at all times.

To be eligible for a subsidized loan, borrowers must meet the income requirements for need-based aid. The school determines the amount a student is able to borrow. As of 2012, subsidized Stafford Loans were no longer available for graduate or professional students.

Related: Explaining Federal Direct Unsubsidized Loans

Unsubsidized Stafford Loans start to accrue interest as soon as the loan is disbursed. These loans are available to undergraduate, graduate, and professional students, and there is no requirement to demonstrate financial need.

Students are not required to start paying back unsubsidized Direct Stafford loans while they are in school, but they are responsible for the interest at all times—including before graduation and during the loan’s grace period.

Students can estimate their federal student aid eligibility before filling out the FAFSA. If students have the flexibility to only accept some of the financial aid package, it may be worth accepting subsidized loans before unsubsidized (if eligible) in order to take advantage of the potential interest savings.

Stafford Loan Limits and Rates

It is up to a student’s school to determine which loan type and loan amounts they receive every year. There are Direct Stafford Loan limits, which are determined by a student’s year in school and whether they are considered a dependent or independent student.

What Is the Direct Stafford Loan Interest Rate?

Interest rates for federal student loans are fixed for the life of the loan and are set annually. For subsidized and unsubsidized Direct Stafford Loans disbursed between July 1, 2021, and June 30, 2022, the interest rates for undergraduates is 3.73%.

What Are Direct Stafford Loan Limits For Undergraduates?

First-year undergraduate dependent students are eligible for Direct loans of up to $5,500, but only $3,500 of that amount can be subsidized. (Note: this excludes students whose parents are ineligible for Direct PLUS Loans.)

This amount can increase with each year you’re in school at least half-time, with even higher limits for eligible graduate students.

For undergraduate dependent students, the current annual loan limits are as follows :

•  First Year: $5,500 maximum, no more than $3,500 subsidized

•  Second Year: $6,500 maximum, no more than $4,500 subsidized

•  Third Year and Beyond: $7,500 maximum, no more than $5,500 subsidized

•  Total Direct Stafford Loan Limits: $31,000 max, $23,000 subsidized

The loan limit amounts vary based on a student’s year in school. Additionally, loan limits differ for dependent and independent students. Independent students are generally considered to be financially independent by meeting certain eligibility requirements. Graduate or professional students can take out a maximum of $20,500 annually, but only in unsubsidized loans.

Dependent students whose parents are not eligible for a Direct Parent PLUS Loan, might be able to take out additional Direct Unsubsidized Loans.

Additionally, students can’t receive Direct Subsidized Loans for more than 150% of the published length of their degree program. For instance, if you are in a four-year bachelor’s degree program, the maximum amount of time you can receive Direct Subsidized Loans is six years.

Applying for a Direct Stafford Loan

In order to qualify for Direct Loans, students must be a US citizen, permanent resident, or eligible non-citizen; enrolled at least part-time in an accredited college; and not in default on any other education loan.

Students can apply for all federal financial aid online via the FAFSA website. According to the Department of Education, almost every FAFSA applicant is eligible for some kind of student aid package that may include federal student loans. Unlike most private student loans, however, most federal student loans do not require a credit check or a cosigner.

Typically, a student’s school will apply their student loan funds to pay for tuition, fees, room and board, and other school charges. (They also factor in any scholarships, federal grants and work-study.) If any additional funds remain, the money will be returned to you, which is why it’s important to carefully consider the amount of loan funding you need.

While a loan refund may be nice in the moment, that money will still need to be repaid (with interest)—though some students might find the funds useful for other school-related items like books and technology. (All Direct Stafford Loan funds must be used for education expenses.)

When Do You Have to Pay Back Your Direct Stafford Loan?

The simple answer is: after the grace period. The grace period for Direct Stafford Loan repayment begins the day the borrower officially leaves school, and lasts for six months. Also, if you change your student status to less than half-time enrollment, that starts the clock on the grace period, too.

Take note: educational institutions define “half-time enrollment” in different ways. The status is usually, but not always, based on the number of hours and credits in which a student is enrolled. When in doubt, check with the school’s student aid office to confirm their official definition.

The total timeframe of the Direct Stafford Loan repayment grace period: six months, and not a day more (with a handful of exceptions ). Another thing to keep in mind about that grace period: students may want to start making payments on the loan during the grace period.

Even though grace periods are meant to give borrowers time to adjust to their post-school life, the interest on an unsubsidized loan is still accruing during the grace period. At the end of the grace period, the accrued interest is capitalized, or added to the principal amount of the loan.

One quick tip while on the subject of grace periods: Find out who the student loan servicer is so you know who to contact with any questions. Borrowers don’t get to choose their own federal student loan servicer. They’re assigned by the Department of Education to handle billing and other services.

If you find a lower rate for student loan refinancing –
SoFi will match it AND give you $100.*


Repaying Direct Stafford Loans

The default payment plan is the Standard Repayment Plan, which sets the monthly payment to the amount that will pay off the loan in 120 payments, or 10 years. However, there are alternative federal repayment plans to consider that can help lower monthly payments. (Note that lowering the monthly payments is generally the result of extending the repayment term, which will usually make the loan more expensive in the long run).

Direct Consolidation Loans

There are also Direct Consolidation Loans that allow borrowers to consolidate their federal student loans into one new loan, at an interest rate that’s the weighted average of all the existing interest rates (rounded up to the nearest eighth of a percent). That typically doesn’t help save money on interest, but does streamline repayment (one loan, one lender, one payment to make each month).

Student Loan Refinancing

Another option is to refinance student loans with a private lender, which may be appealing to borrowers who are in a financially stable place and have federal and/or private student loans.

Refinancing lets you pay off the loans you already have with a brand-new loan from a private lender. This can be done with both federal and private loans. The new loan from a private lender may allow borrowers to breathe easier with interest rates and repayment terms that work better for them.

But refinancing isn’t without its downsides. Federal student loans that are refinanced with a private lender, will lose all the federal benefits and protections—like income-driven repayment options and loan forgiveness for public service work. Borrowers who want to keep their federal student loans as federal student loans, could consider consolidation instead.

The Takeaway

Direct Stafford Loans are federal student loans offered to students to help them pay for college. There are two major types of direct loans, subsidized and unsubsidized. Students with subsidized student loans are not responsible for any accrued interest while they are enrolled at least half-time and during the loan’s grace period. Unsubsidized student loans begin accruing interest as soon as they are disbursed, and borrowers are responsible for repaying all of the accrued interest at all times.

The size of a Stafford Loan depends on such factors as education costs and financial-aid eligibility. If your costs are higher than your awarded federal student loans and other financial aid, one way to cover the gap is with a private student loan.

SoFi offers in-school loans at competitive rates and with no origination fees.


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*Guaranteed Rate Match Offer: Your pre-qualified rate, and the rate match program itself, are conditional upon our verification of your application information, including verification of sufficient income to support an ability to repay. Eligible documentation of a competitor’s rate offer, issued within 30 days of your SoFi pre-qualified rate, will be determined at SoFi’s sole discretion and must be for the same loan amount and term. SoFi will only match rate offers for private student loan refinance products. The match will be on the rate, exclusive of all discounts. The $100 Rate Match Bonus is not available to residents of Ohio. To receive the $100 Rate Match Bonus, you must: (1) register and/or apply for a student loan refinance (2) provide documentation of an eligible competitive rate offer; (3) call at (855) 456-SOFI (7634) or chat on SoFi.com and follow the instructions to send in your proof of lower rate; (4) have and provide a valid US bank account to receive bonus; (5) complete Form W-9; (6) and meet SoFi’s underwriting criteria and book a student loan refinance with SoFi. Once conditions are met and the loan has been disbursed, you will receive your Rate Match bonus via automated clearing house (ACH) into your checking account within 30 calendar days. Bonuses that are not redeemed within 180 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. Additional terms and conditions may apply. SoFi may discontinue this program at any time.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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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