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If you’re wondering whether it’s cheaper to buy or build a home, the numbers say that purchasing a house is typically cheaper — but that may vary with location and the kind of house you want to live in.

However, if you crave the process of creating a home from scratch and want total personalization, you might prefer to build. And it might actually wind up being a better financial move than buying an existing house in your area.

Here, take a close look at this topic so you can decide which option suits you best.

Is It Cheaper to Build a House or Buy a House?

If you let the numbers tell the story, it may be cheaper to buy a house than build one yourself. Then again, it may cost you less to build the house you want, especially if that house won’t be too large or elaborate.

In 2024, the third-quarter average cost to build a house from the ground up, according to a NAHB (National Association of Home Builders) survey, ranged from about $138,000 to $524,000 — not including the land cost, which could add $3,000 to $150,000 to the price, dependent on location and property size. The typical cost to buy a home was approximately $360,000. That’s a lot of numbers that can make a straight comparison difficult.

Prices can of course vary. If you are building a simple new home (perhaps it’s a one-level layout) in an area with a low cost of living, new construction might be quite affordable vs. buying. Much will depend on the particulars of your

Cost of Buying a House

As mentioned, sales figures suggest that it can be often cheaper to buy an already built house than to build a brand-new one. But, when it comes to buying an existing home, the price paid to the seller may only reflect a portion of the actual cost of home ownership.

Even if an individual can afford the home listing price, there are often additional expenses — like closing costs and any renovation or repair fees. Here’s a closer look.

Identifying Existing Wear and Tear

For pre-built homes, age is one factor. The older a house, the more likely it is to need some upkeep and extra care.

Before buying an existing house, a home inspection conducted by a certified professional can help future homeowners to stay informed about the current state of the house. You’ll want to be prepared for any major repairs or structural improvements that are needed.

Typically, the buyer is responsible for paying for a home inspection, which can add several hundred dollars to the purchasing costs. However, that can be an important look at the home’s condition and can let you know about and negotiate upcoming expenses. For instance, if the hot-water heater is nearing the end of its lifespan, the house needs rewiring, or the foundation definitely needs work, you could then try to get the seller to address some of all of the associated costs.

Evaluating Home Improvement Costs

When you buy a home, you will likely want to make some changes. Perhaps you want to install a heat pump, swap out the kitchen appliances, add a half-bathroom, strip off wallpaper, or simply buy new furniture to make the place yours.

These kinds of changes will add to the listed purchase price. For that reason, it’s often worth evaluating the cost of future alterations when estimating the cost of buying a house — whether such changes are large or small.

Ongoing Repairs, Maintenance, and Warranties

Even if repairs are not required right away, it can be useful to review the age of an existing home, along with that of its parts. When you build a home, everything is likely to be brand new. When you buy a home, you could have systems and appliances that are decades old and in rough shape.

Although buyers may not want to replace the roof at the time of purchase, mulling over the average lifespan of major home features (like roofing) can be beneficial. Some questions:

•   When were the house features last updated?

•   How well have these features been maintained? (The term “deferred maintenance” may signal you have some work to do.)

•   What will need repairs first in the near future?

Here’s one extra maintenance detail to think over: Older homes may not be as energy-efficient as newly built houses, meaning that — without upgrades to existing systems — it could cost a buyer more each month to heat and cool the house. Such ongoing and future expenditures may, over time, offset any savings received early on from buying instead of building a new home.

Cost of Constructing a New House

So, compared to buying an existing house, how can a buyer evaluate how much the cost of building a new home might be? The average single-family home cost about $162 per square foot, after subtracting the land investment and the cost of a contractor’s overhead and profit, to build at the end of 2024. However, that figure is just a mathematical average. The individual cost can still vary greatly, depending on a home’s location, the builders chosen, property lot size, materials used, and other variables.

Calculating Construction Costs

The NAHB estimates that construction costs amount to almost 64.4% of the average single-family new home build (finished lot costs comprise about 13.7% of the sales price). Included in the construction costs are things like:

•   Building permit fees

•   Land preparation

•   Excavation and foundation work

•   Frame construction and sheathing

•   Roofing pricing

•   Plumbing, electricity, and HVAC

•   Windows and doors

•   Appliances

•   Flooring

•   Clean-up

Put another way, if a new house costs $300,000 total, $193,200 of that would go toward construction, including materials and labor.

Recommended: The Cost of Living in California

Interior Finishes

On top of those costs, individuals interested in building a new home may also want to ponder the cost of interior finishes. According to the NAHB, interior finishes (such as walls, stairs, and doors) amount to about 24.1% of new home building costs.

While the actual amount will depend largely on a home buyer’s specific choices, based on this average, $72,300 of a $300,000 home would go toward interior costs, such as painting, trim, doors, plumbing fixtures, appliances, and lighting.

Pros and Cons of Building a House

While on paper it can sometimes appear cheaper to buy a house than to build a new one, it may also be helpful to look deeper than just the listing price of a finished house for sale. Here, some of the pros to building your own home:

•   A brand-new house could require less maintenance and upkeep for years into the future. In many newly built homes, items such as appliances, roofing, and HVAC may be covered initially by manufacturer and construction warranties. In that case, were something to break (if under warranty), the out-of-pocket expense could be covered (and not up to the buyer to pay for).

•   A customized home may appeal on another level as well. Having a home that is designed exactly as you like can be incredibly satisfying. It can reflect your personal taste and address every need.

On the con side, consider these points:

•   When it comes to how long it will take to build a home, it’s likely a lot longer than buying one. In 2022, the most recent year’s data available, it took an average of 10.1 months to complete a contractor-built new home, according to the U.S. Census Bureau. Not all buyers may want to wait around that long to move in.

•   As previously mentioned, building a home can be more expensive than buying one that is already built.

•   You will need to wrangle permits (or have someone do it for you) when going through the steps of building your own home.

•   With a built-from-scratch home, buyers could also run a higher risk of ballooning construction costs or extended delays, which might result in extra interim costs too. While construction on the new home is being finished up, for instance, a buyer may need to pay for another place to stay.

•   Also, there’s stress involved when delays and extra expenses crop up. You need to have time available to interact with your building team, too, which can be an issue for some people.

Pros and Cons of Buying a House

Next, let’s consider the benefits and drawbacks of buying a house. On the plus side:

•   As described above, buying a house often costs less than building one.

•   If you buy a house vs. build one, you will likely be able to move in more quickly. In fact, you might even be able to move in right away, without any renovations.

•   When you buy a house, what you see is what you get. There won’t be any surprises as construction gets underway, and with luck, no areas that don’t wind up looking the way you’d imagined they would.

Now, for the downsides of buying vs. building a house:

•   It may not be exactly the house you want, and you may not be able to remodel it to become your dream house.

•   You may have to deal with the stress of bidding wars and other nuances of house hunting, especially in a hot housing market.

•   The home you buy may have maintenance issues and may not be as energy-efficient as a new home.

Recommended: First-Time Homebuyers Guide

The Takeaway

It is typically faster and less expensive to buy an existing home vs. building one. However, whether it is cheaper to build or buy a house can come down to individual situations and variables like desired locations and home amenities or design features. For different people, the main motivating factor may vary, and the choice of buying or building will reflect a very personal preference.

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

Is it cheaper to build a home or buy?

It is typically cheaper to buy a home vs. building one. But right now, price surges in both construction and the market are challenging American homebuyers and home builders, and impeding housing and economic growth, according to NAHB data.

How can I save money to build a house?

If you want to save money to build a house, you can track and reduce your spending, grow your money in a high-yield savings account, pay down high-interest debt, and also try to earn more via a side hustle.

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

SOHL-Q225-024

Renters insurance protects your possessions if they’re stolen or damaged while you’re renting. In addition to burglaries and vandalism, renters insurance protects you against unfortunate events, such as electrical surges, floods, and fires.

While many tenants assume they have ample coverage under their landlord’s property insurance, this is actually not typically true. Without renters insurance, you could take a major financial hit in the event of a burglary or fire by having to pay out of pocket for everything you own that is lost or ruined.

Renters insurance also offers other financial protections, such as covering personal injuries to others and temporary accommodation if you ever need to move out due to home damage.

Whether you rent an apartment, condo, or house, here’s what you need to know about renters insurance.

What Is Renters Insurance?

Renters insurance provides a number of protections, which typically include:

Personal Possessions

Renters insurance protects against losses to your personal property (think furniture, clothing, luggage, jewelry, electronics), or items that aren’t built into the property unit.

Even if you don’t own much, it may add up to more than you realize. Losing all or many of your personal belongings could threaten your financial security.

Liability

In the event that someone other than you is injured on your rental property, renters insurance can cover expenses related to personal injuries, such as medical bills and legal expenses should that person sue you.

Most policies provide at least $100,000 of liability coverage. You can purchase higher coverage limits for a fee.

Temporary Living Expense

If your home becomes uninhabitable as a result of one of the covered perils, your renters insurance policy may reimburse you for the cost of temporary housing while you’re unable to reside in the rental property.

Your Belongings When You Travel

Personal belongings and stolen cash are not only covered when you’re at home, but also when you are away from home. Your possessions are typically covered from loss due to theft and other covered losses wherever you may travel.

What Catastrophes Does Renters Insurance Cover?

Renters policies protect against a long list of unfortunate events. While each policy’s level of coverage will vary, a standard rental policy may cover losses to property from perils including:

•   Fire

•   Smoke

•   Theft

•   Vandalism or malicious mischief

•   Lightning

•   Windstorms

•   Explosions

•   Water from internal sources (such as water leaks)

•   Windstorm or hail

•   Falling objects

Typically, renters insurance doesn’t cover damage caused by earthquakes or floods from external sources. You may need to purchase a separate policy or rider to get coverage for these events. A separate rider might also be necessary to cover wind damage in areas that are prone to hurricanes.

Recommended: What Does Flood Insurance Cover?

Rental policies also do not typically cover losses due to your own negligence or intentional acts.

Why Is Renters Insurance Important?

One of the main benefits of renting versus owning is that there is less responsibility involved. If there is a leak in the kitchen or a noisy neighbor causing problems, in theory, the landlord should handle those issues.

When renting, it’s easy to fall under the impression that your landlord will handle everything that goes wrong. Unfortunately, that isn’t always the case. Your landlord’s property insurance policy covers losses to the building itself, whether it’s an apartment, a house, or a duplex.

Renters insurance provides financial protection for many of the things that landlords aren’t insured for, or would likely be willing to cover out of their own pocket.

Is Renters Insurance Mandatory?

In some cases, yes. While renters insurance isn’t a requirement by law, landlords are legally allowed to require it in their rental agreements. Basically, if a landlord says a tenant needs it, they have to get it. If the landlord doesn’t require it in the lease agreement, the choice is up to the renter.

If a landlord requires renters insurance, it’s probably because they are looking after their own best interests. If a tenant has renters insurance, the landlord will be less likely to get hit with a lawsuit regarding injury or theft.

Even in cases where a landlord doesn’t require renters insurance, they may still favor applicants who have it over those who don’t. So if you’re looking to rent a home in a competitive area, having renters insurance may help you stand out amongst a sea of applicants.

Renters Insurance Policy Options

Exactly what renters insurance covers depends on the policy type. There are two main types of renters insurance policies that renters will likely come across:

•   Actual cash value: This type of policy pays to replace possessions minus an amount for depreciation up to the limit of the policy. In other words, they reduce the value of the possession based on its age and use.

•   Replacement cost: This policy pays for the actual cost of replacing the possessions, and doesn’t deduct for depreciation, up to the limit of the policy. Generally, a replacement cost policy costs around 10% to 20% more than an actual cash value coverage policy, but this higher cost may be worthwhile.

How Much Does Renters Insurance Cost?

The price will depend on what type of policy you choose, how much coverage you need, and what state you live in. The average cost of renters insurance in the U.S. is $148 per year, or roughly $12 per month.

To determine how much coverage is necessary, it helps to know the value of all your personal possessions.

Let’s say the worst happens and the rental property burns down to the ground. How much would all of the furniture, electronics, art, jewelry, clothing, appliances, and everyday items like towels cost to replace? Ideally, the policy will be enough to replace all possessions.

Creating a home inventory of all of your personal possessions and their estimated value can help determine this number. Keeping this inventory up-to-date can make it easier and faster to file an insurance claim down the road.

Recommended: Cheapest Renters Insurance: Find Affordable Coverage

How to Buy Renters Insurance

If you decide you want to purchase renters insurance, here are some ways to get started.

Comparison Shopping

Renters insurance policy prices can vary greatly depending on the provider, so it can be worthwhile to shop around. It’s a good idea to get at least three price quotes, but the more the merrier.

You can call the company directly or submit an online form if available to get a quote, and then compare the different offers to see which one provides the best coverage for the best price.

Recommended: How Much is Renters Insurance?

Varying the Search

You may want to get quotes from different types of insurance companies, including those that sell policies through their own agents, and those that sell directly to the consumer without using agents.

You can also consult independent agents who offer policies from multiple insurance companies.

Looking Past Price

While getting the best deal possible sounds great, price shouldn’t be a renter’s only concern. An insurance provider’s customer service, claim process, and customer reviews are all important factors to take into account.

Asking for Referrals

Alongside looking at customer reviews, you may also want to ask friends or relatives for their recommendations. This is especially helpful if they have dealt with processing a renters insurance claim before.

The Takeaway

Renters insurance can provide coverage for your personal belongings, whether they are in your home, your car, or with you on vacation. In addition, renters insurance can provide liability coverage in case someone is injured in your home or if you accidentally cause injury to someone.

To determine if buying renters insurance is worth it for you, you may want to consider whether it would be financially devastating for you to have to replace all, or even some, of your personal possessions if they were stolen or damaged. If the answer is yes, then a renters insurance policy may be a wise investment.

Keep in mind that even if you buy renters insurance, it’s important to have a back-up fund that can cover your deductible and any costs your policy doesn’t cover. In fact, financial advisors generally recommend keeping at least three to six months’ worth of living expenses in a separate savings account earmarked for emergencies (even if you have renters insurance). It’s a good idea to keep these funds in an account that pays a competitive rate but still allows easy access to your money, such as a high-yield savings account or money market account.

When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.

FAQ

What Is a Good Amount of Coverage for Renters Insurance?

A good amount of coverage for renters insurance will cover the value of all your personal belongings. Consider the cost to replace all your items, including electronics, furniture, and clothing. It’s also wise to include liability coverage, at least $100,000, to protect you from financial losses if someone gets hurt on your rental property and decides to take legal action.

What is the Rule of Thumb for Renters Insurance?

The rule of thumb for renters insurance is to cover the full replacement cost of your belongings. Estimate the value of your personal items at today’s prices and aim for a policy that covers at least that amount. Additionally, you’ll want to opt for liability coverage of at least $100,000 to protect against potential lawsuits should someone get injured in your rented space.

What Are the Three Major Parts of a Renters Insurance Policy?

The three major parts of a renters insurance policy are: 1) Personal property coverage, which reimburses you for lost or damaged belongings; 2) Liability coverage, which protects you from legal claims if someone is injured in your rental; and 3) Loss of use coverage, which provides financial support if you need to temporarily relocate due to a covered event.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

SOBNK-Q225-052

Coupons have been around for a while and for good reason: They can help you save significant cash on groceries, household items, clothing, and many other products. These days, you can find coupons in the newspaper, inside stores, online, and via retailer and coupon apps. Staying organized and regularly checking these sources can help ensure a steady supply of coupons, and enable consistent savings on purchases.

If you’re ready to save some dough, here are simple tips on finding, using, and maximizing your money with coupons.

Where to Find Coupons

A great way to begin couponing is to scan your kitchen pantry and bathroom cabinet and make a list of the products and brands that you purchase regularly. You can then start looking specifically for coupons for as many of those items as you can. Here are some key places to look.

Newspapers

Even in today’s digital world, it’s still worthwhile to go old-school and check out the Sunday newspaper coupon inserts.

What makes Sunday newspapers such a rich source of savings is the fact that they offer a wide variety of different types of coupons, including store coupons (which are issued by the store and can only be used at that particular retailer) and manufacturers’ coupons (which are issued by the company that makes the product, and can be used at any retailer that carries the product and accepts coupons).

If this week’s paper has a lot of good coupons, consider buying extra copies. Dollar stores often sell papers at a discount and can be a good place to stock up. But even if you have to pay full price, it could still be worth it.

Also keep in mind that some towns and cities publish free local newspapers that carry coupon inserts. Often, these publications get delivered or mailed right to your home.

Magazines

Magazines are still around, and can be a great source of coupons, particularly manufacturer coupons. You may want to flip through some of the magazines stocked at the checkout aisle next time you’re waiting in line at the supermarket.

Some women’s magazines even put together an index of all the coupons that each issue includes.

To up the odds of finding coupons for products you enjoy, consider browsing magazines that reflect your lifestyle.

Based on what you find, you might decide that getting a subscription (which is usually low cost, and a better deal than buying single issues) could be worthwhile.

Websites

If clipping isn’t your cup of tea, you can print coupons from websites that aggregate coupons, such as coupons.com , retailmenot , and valpak. These sites make it easy to search for and find deals.

Another online resource is P&G Everyday . This site offers printable coupons exclusively for Procter & Gamble brands (e.g., Crest, Pampers, Tide). You will need to create an account before you can print coupons.

You may also want to look at the list of items you typically stock in your home and head to the manufacturers’ websites.

Many companies have coupons you can print from their site. Some also reward you with coupons if you sign up for their e-newsletter.

Store sites are also worth checking out. Many grocery and drug store websites offer both manufacturer and store-specific coupons.

You may even be able to download these coupons directly to your store loyalty card, and redeem them simply by presenting your store card at checkout or possibly when ordering online.

Some department store sites also offer printable coupons and savings passes you can use that same day in store, and you may also be able to sign up to have coupons emailed to you directly.

Inside Stores

Many grocery stores, drug stores and supercenters provide coupons in circulars and flyers available inside the store. These can be a great place to find coupons that you’ll actually use.

You can also often find printable coupons in kiosks situated inside stores, often near the entrance. In some cases, after you’ve paid for your items, you may receive coupons (printed separately or at the bottom of your receipt) for items that you purchased that you can use for a future visit.

Recommended: Savings Calculator

Coupon Apps

Some stores, such as Target, have their own app that you can download to your phone and then show at checkout for discounts on items you are buying that day. These offers can often be combined with manufacturer and store coupons to create really good deals.

There are also cashback apps, such as Ibotta and Checkout51, which allow you to earn cash back on many of the products you buy. All you have to do is link your loyalty card to the app or snap a picture of your receipts. Once you earn a certain amount (such as $20), you can redeem your cash back.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

Keeping Coupons Organized

Coupons aren’t worth anything if you don’t have them on you or you can’t find them when you need them.

If you use paper coupons, a good first step is to find a way to contain the chaos, such as using zip-lock bags, a binder, a coupon wallet, a recipe box, or any other storage container. The idea is to have a single landing spot for all coupons. If possible, it’s wise to file them away as you get them, so you don’t have a big mess to deal with all at once.

You may also want to come up with a filing system, such as grouping coupons by grocery category (e..g, dairy, produce, frozen foods), aisle, or expiration date.

It’s also a good idea to go through and edit your collection periodically. Stores typically don’t take expired coupons, so it’s best not to let them eat up space in your filing system. Consider setting a certain day each week or month to go through and purge.

If you use coupons via an app or other electronic means, it’s wise to have the app downloaded and open when you are ready to shop to make the experience as smooth as possible.

Recommended: How to Make Money From Home

Maximizing Your Coupon Savings

Shaving off just a little here and a little there can be nice, but may not make a major change in your spending habits. The real savings that comes with couponing is when you combine coupons with other coupons, as well as other sales offers.

Here are some tricks:

Matching Coupons to Sales

In order to really save money with coupons, you ideally only want to use them on sale items that you typically buy won’t blow your budget.

You can hold onto a coupon until the item goes on sale, or if you see that a store is having a sale on something you buy regularly, you can then check the store circular, manufacturer’s websites, or your app to see if you can find a manufacturer’s coupon for it.


💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

Stacking Coupons

This means using more than one coupon for the same item. For example, you can significantly increase your savings by combining a manufacturer coupon with a store coupon for the same item. You might be able to then amp up savings even more by using a cashback app.

Keep in mind that not all stores allow coupon stacking. You may want to review each store’s coupon policy to see where you can employ this trick.

Using Competitor’s Coupons

Lots of stores accept competitor coupons. It’s a good idea to find out which ones in your area do, and then work those coupons and sales to your advantage. When in doubt, it never hurts to ask.

The Takeaway

Using coupons can be a great way to save money on the products you love, and help keep your everyday spending in line with your budget. You can often find useful coupons in Sunday newspaper circulars, coupon websites, retailer apps, as well as store and manufacturers’ websites. Coupon apps can also help you find coupons for your favorite products quickly.

To really rack up savings with couponing, it pays to go beyond just using a coupon here and there. Consider combining a manufacturer’s coupon with a store coupon, a sale, and a cashback or coupon app.

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

How Do Beginners Start Couponing?

It’s relatively easy to start couponing. The first step is to gather coupons from Sunday newspaper inserts, store flyers, and online sources like retail and couponing sites. It’s also a good idea to download store apps, where you can often find digital coupons.

Next, choose a few stores with good coupon policies and start small by matching coupons to sale items. As you get more comfortable, you can expand your sources and strategies. You might even consider joining a couponing community for more tips and support.

What Is the Trick to Extreme Couponing?

Extreme couponing involves maximizing savings through planning and resourcefulness. The key is to combine multiple coupons with sales, rebates, and store promotions — a practice known as “stacking” — to maximize discounts. Extreme couponers also tend to stockpile essentials when they are at their lowest prices. Being flexible and patient is crucial, as the best deals generally don’t come every week.

How Do Couponers Get So Many Coupons?

Couponers accumulate a large number of coupons through various sources. They often subscribe to Sunday newspapers for inserts, sign up for store loyalty programs, and follow brands on social media for exclusive offers. Many also join couponing websites and apps that provide printable and digital coupons. In addition, some couponers participate in coupon swaps and trade with others to diversify their collection. Consistency and dedication are key to building a substantial coupon stash.

About the author

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa, and her work has been featured by MoneyGeek, Slickdeals, TaxAct, and LegalZoom. Read full bio.

SOBNK-Q225-045

For most students, attending college is impossible without borrowing money. In fall 2024, more than 19 million students were enrolled in colleges and universities. By the time they graduate, about 70% of them will have taken out student loans, and nearly 93% of those loans are federal student loans.

Below, we’ll explain the different types of federal student loans, their requirements, and their benefits. We’ll also look at alternative options in case federal loans don’t cover the full cost of your education.

What Types of Federal Student Loans Are Available?

The two major categories of federal loans are subsidized student loans and unsubsidized student loans.

Subsidized Federal Student Loans

Subsidized loans are awarded on the basis of financial need. They are called “subsidized” because the government subsidizes, or absorbs the cost of, some interest payments on the loan. This makes subsidized loans a better deal for student borrowers.

For example, interest on subsidized loans is paid by the government while the student is enrolled (half-time or more). Student borrowers also don’t pay interest during the six-month grace period after graduation or during periods of deferment.

Unsubsidized Federal Student Loans

Unsubsidized loans aren’t given out based on need, and borrowers don’t get a break on interest. Some borrowers will make interest-only payments during school, even though they’re not required to, to “keep up” with the interest.

If a borrower chooses not to make interest payments, the interest that accrues can be capitalized. This means that the interest is added to the balance of the loan. This new value is then used to calculate the amount of interest you owe. In effect, borrowers are paying interest on their interest.

Currently, there is only one type of subsidized federal loan offered, and several types of unsubsidized loans. Next, we’ll discuss the different subcategories of federal loans and who typically qualifies for each.

Recommended: 11 Common Types of Scholarships for College

The Direct Loan Program

The Department of Education’s federal student loan program is called the Direct Loan Program. The DOE is the lender, but it works with a few different student loan servicers who manage the loan.

Direct Subsidized Loan

Direct Subsidized Loans are for undergraduate students who have financial need. The maximum amount offered per year is between $3,500 and $5,500 for dependent students, based on your academic year. Because of these limits, some students may not be able to cover their entire tuition with Direct Subsidized Loans.

There is also a loan fee of just over 1% for all Direct Subsidized Loans that is deducted from each loan sum the borrower receives.

Direct Unsubsidized Loan

Direct Unsubsidized Loans are offered to undergraduate, graduate, and professional degree students, and financial need is not required. These are the most common types of federal student loans.

Undergraduate dependent students can take out between $5,500 and $7,500 per year in unsubsidized and subsidized loans combined. That means if a freshman student receives the maximum $3,500 in subsidized loans, they may accept no more than $2,000 in unsubsidized loans.

The interest rate for Direct Subsidized and Unsubsidized Loans for the 2024-25 academic year is 6.53%, up from 5.50% for the 2023-24 academic year.

The interest rate is higher for loans made to graduates and professional degree students, and the maximum amount offered is higher, too. Grad students can take up to $20,500 in unsubsidized federal student loans each school year.

The interest rates for the 2024-25 school year for unsubsidized loans offered to graduate or professional students is 8.08%, up from 7.05% during the 2023-24 school year.

Direct PLUS Loan

Direct PLUS Loans are offered to parents paying for their dependent child’s undergraduate education and to graduate or professional degree students. Financial need is not a requirement to receive a Direct PLUS Loan.

The maximum amount that the government awards in each school year is the total cost of attendance (which is determined by the school) minus all other financial aid that the student receives. The interest rates on PLUS Loans offered to parents and graduate/professional students is 9.08% for the 2024-25 school year, up from 8.05% for the 2023-24. Plus, there is a fee for all Direct PLUS Loans of 4.228% that is deducted from each loan sum the borrower receives.

As you can see, the federal loans that a parent can take out on behalf of a student have worse terms than a loan made directly to the student through the Direct Subsidized or Direct Unsubsidized Loan programs.

Depending on your family’s financial situation, you’ll likely want to take this into consideration when choosing loans.

Direct Consolidation Loan

A Direct Consolidation Loan is different from the previously mentioned loans. It allows the borrower to combine multiple federal loans into one loan, enabling you to make one payment toward one loan for easier management.

With a Direct Consolidation Loan, the weighted average of each individual loan is calculated to determine the new interest rate, rounded up to the nearest one-eighth of a percent.

There is never any cost to apply for a Direct Consolidation Loan. If you are contacted by a company offering to help you consolidate for a fee, beware. The service is offered for free by the DOE.

A Direct Consolidation Loan can only be used to consolidate federal student loans. Borrowers aren’t able to consolidate private loans, which are issued by private lenders rather than the government. (Refinancing is a different process that is able to consolidate both federal and private loans.)

Recommended: How and When to Combine Federal Student Loans & Private Loans

What Federal Loans May I Qualify For?

Not all students may qualify for all types of federal loans. First, it’s helpful to understand that loans are considered either need-based or non-need-based. Here’s how these calculations are made:

Need-Based Loans

Direct Subsidized Loans are need-based federal student loans. To determine who qualifies, the DOE first determines a family’s Student Aid Index (SAI). The SAI takes into consideration a family’s assets and income, and spits out a number. That number is used to determine need-based aid.

To calculate financial need, a college will subtract the SAI from the cost of attendance (COA), which the school determines. COA – SAI = A student’s “financial need.”

For example, if the COA is $30,000 and the SAI is $25,000, then the student is eligible for no more than $5,000 in need-based aid, including Direct Subsidized Loans. (Need-based aid may also include federal grants and work-study programs, which is money that does not need to be repaid.)

If you do not qualify for need-based financial aid, or if need-based loans will not cover the full cost of attending college, you can access the next “tier” of student loan borrowing: non-need-based loans.

Non-Need-Based Loans

Direct Unsubsidized Loans and Federal PLUS Loans are non-need-based loans. To determine how much non-need-based loans a student qualifies for, their school has a separate formula. Take the cost of attendance and subtract the total financial aid awarded to the student so far, including scholarships and grants from the state or school.

For example, if the COA is $30,000 and a student has $20,000 in financial aid from other sources, then they are eligible for $10,000 in non-need-based financial aid, including Direct Unsubsidized and PLUS Loans.

Because there are annual limits to the amount of need-based and non-need-based federal loans for which a student qualifies, some students may not be able to cover the cost of their education via federal loans alone. What are students who find themselves without enough federal aid supposed to do?

Other Funding Options

The first alternative you’ll want to consider is “free money” available through additional scholarships and grants. Although the Free Application for Federal Student Aid (FAFSA) connects students with some free money, there are many other awards available through charities, private foundations, businesses, and even individuals. Online tools, like SoFi’s Scholarship Search, can connect you to scholarships you might qualify for.

Next, students can consider private student loans, which are loans offered through banks, credit unions, and online lenders. Generally, private student loans offer higher interest rates and less flexible repayment terms than federal student loans. (For example, they don’t necessarily offer things like income-driven repayment plans, and they aren’t eligible for federal forgiveness programs.)

The interest rates on private loans are generally tied to the borrower’s credit score and income, whether the borrower is the student, parent, or another family member.

If you think you may need to use private loans, make sure to shop around. Lender terms can vary widely, so get multiple quotes and ask the following questions:

•   What is the interest rate?

•   Is the interest rate fixed or variable?

•   What are the repayment terms?

•   What happens if you cannot make a payment?

Also, keep in mind that you may be eligible to refinance student loans — both federal and private — once you’ve graduated and have an established income and improved credit score. Refinancing is the process of paying off one loan with another loan with new terms and a new — and hopefully lower — interest rate.

Refinancing might not be the right option for those planning on using their federal loans’ unique benefits, such as forgiveness for work in public-service professions or an income-driven repayment plan. Access to federal benefits is forfeited when federal loans are refinanced.

Recommended: FAFSA 101: How to Complete the FAFSA

The Takeaway

Federal loans can be either subsidized or unsubsidized. Subsidized student loans are based on financial need and do not accrue interest while the borrower is enrolled in school (half time or more). Unsubsidized loans do accrue interest while student borrowers are enrolled in school. Only undergraduate students are eligible for subsidized student loans. Unsubsidized options are available to undergraduate, graduate/professional students, and parents.

Families tend to prioritize financial aid this way: scholarships, grants, and subsidized federal loans first; unsubsidized federal loans second; and private student loans last.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

How do Direct Subsidized Loans and Direct Unsubsidized Loans differ?

Direct Subsidized Loans are offered to undergraduates with demonstrated financial need. The government covers interest payments while you’re in school at least half-time, during the six-month grace period, and during deferment.​ Direct Unsubsidized Loans are available to both undergraduates and graduate students, regardless of financial need. Interest accrues during all periods, including while you’re in school and during grace and deferment periods.​

What is a Direct Consolidation Loan, and when may it be beneficial?

A Direct Consolidation Loan allows borrowers to combine multiple federal student loans into a single loan with a fixed interest rate, which is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth percent. Benefits include simplified repayment, access to alternative repayment plans, and eligibility for loan forgiveness programs.

How does financial need affect eligibility for federal student loans?

Financial need is a determining factor for certain federal loans. Direct Subsidized Loans require demonstration of financial need, calculated by subtracting the Student Aid Index (SAI) from the school’s cost of attendance (COA). Direct Unsubsidized and PLUS Loans do not require proof of financial need, as eligibility is not based on income or financial status.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi 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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