How to Save for College

College is expensive. Now that we’ve gotten that shocking fact out of the way, let’s roll up our sleeves and get to work so that we can make college happen for our kids.

We are going to tackle this by taking a high-level look at breaking down the cost of college and then covering net price versus sticker price. We’ll discuss many of the options you may have when it comes to saving for your child’s college years.

Before we jump in, though, we want to point out that everyone’s life and financial situations are unique. That means that while some of these tips might apply, some may not.

We always suggest you speak with a qualified financial advisor before making any major decisions related to your finances. Only you (and they) will know what’s going to be the best plan for you.
Let’s get started!

Determining the Cost of College for Your Children

Keep in mind that there is no one solution to saving for your kid’s college. Tuition costs tend to fluctuate based on the type of school your child wants to attend, the type of degree they’ll earn (bachelor’s or associate), and even geographic location.

According to the College Board, here’s what we’re dealing with when it comes to average annual tuition costs and school types:

•   $10,440: four-year public institutions (in-state)
•   $36,880: four-year private institutions
•   $3,739: two-year public institutions

The College Board also studied the annual rate of increase for the average cost of college over the last decade:

•   2.2%: four-year public universities
•   2.0%: two-year public universities
•   1.9%: four-year private (nonprofit) universities

It is worth noting that the average annual increase has actually decreased compared to the prior decade, so this is just a snapshot in time rather than projection of future rate increases.

Despite the average tuition costs, don’t assume that a public school will always be a better deal than a private school. “A student can sometimes get a better financial deal to attend a private school than if they were to attend a public school,” Andy Stiles, director of admissions at Ottawa University, a private liberal arts college in Kansas, told U.S. News & World Report .

“A big factor in this is the institutional scholarship. The scholarship at a private school may be larger than a public school to make their overall cost, out of pocket, more competitive to a public school.”

Net Price vs. Sticker Price

When you’re kicking the tires of a new car in the showroom, you’ll notice that the sticker price on the car window is actually the manufacturer’s suggested price. That price includes all the bells and whistles that you may or may not want in your new car.

After that, comes discounts, the exclusion of certain options, and even some negotiating to get a better price. The result will be your net price. It works somewhat similarly when it comes to college tuition.

The net price of college tuition is typically lower than the “published,” or “sticker” price. The net price is what you would actually pay, after you factor in financial aid and any tax credits.

Consider this: Take the average published tuition price for a private institution—$36,880 per year. However, in actuality, the average family in this hypothetical might pay only half that. How do you get this net price? By subtracting need-based aid, merit-based aid, work-study funds, etc.

Private institutions may offer some combination of grants, scholarships, and fellowships to offset the sticker price.

This practice is known as “tuition discounting.” According to the National Association of College and University Business Officers , private institutions discounted their freshman tuition at a record high in 2017–18 (the most recent stats available). The final tally was an average discount of nearly 50%.

That’s nothing to sneeze at. What this means is that you shouldn’t necessarily let an institution’s sticker price scare you away.

Using a Net Price Calculator

You don’t have to be a math whiz or a professional economist to figure out how much you’re going to need to stash away for your child’s higher education. The Department of Education offers a net price calculator right on their website.

This tool may help you get a better idea of the cost of college, after you subtract scholarships, grants, and other financial aid.

Keep in mind, though, that a net price calculator is going to require specific details about your income and assets, so the more transparent you are regarding your personal finances, the more precise your calculation is likely to be.

When is a Good Time to Start Saving for Your Child’s Education?

You probably already know the answer to this, but let’s make it official: now. It’s never too early to start an education fund for your child—perhaps even before they are born. It’s all about giving yourself and your child a head start.

It also means you’ll likely have more time to change your savings direction along the way, if need be. Later on, if your child develops an aptitude for sports, art, theater, or writing, or any other specific field, you can look into financial aid and scholarships that may support that talent.

That said, it’s a good idea to first set yourself as free as possible: you can try to pay off credit card balances and other high-interest debt, and work toward making your own student loans a faint memory of the distant past.

In addition, you could consider an emergency fund that covers three to six months of living expenses, and check that your retirement plan is on track.

It is absolutely critical that your own financial plan is in good shape before saving or paying for a child’s education. At the end of the day, your child can take out student loans for an education but you cannot take out loans to fund your retirement.

Some Options for Saving

529 Plan

A 529 plan allows you to save for future education costs while you benefit from certain tax breaks. Why the odd name? The plan is made legal by Section 529 of the Internal Revenue Code.

Prepaid tuition plans – This is a type of 529 plan that allows you to purchase “units” (credits) at participating colleges and universities.

Education savings plans – These 529 plans let you open an account to help you save for qualified educational expenses, which is broader than simply tuition and fees.

In a nutshell, with a 529 savings plan you can invest your after-tax money based on your comfort with risk and options available in the plan you select. When you are ready to withdraw, you can do it tax free (as long as it is for qualified expenses).

Additionally, many residents can receive a state income tax deduction or credit for contributing to a 529 savings plan. This varies state-by-state, so it is important to understand the rules that apply to your unique situation.

Additionally, many 529 savings plans offer an age-based investment option to automatically adjust the risk of the investment strategy as the beneficiary gets older. This type of investment approach might be similar to how a target date fund works in your retirement plan.

Regular Savings Accounts

For these accounts it’s a good idea to compare and contrast interest rates. For the most part, current bank rates on regular savings accounts are relatively low.

It may be difficult to reach your education financing goals through a savings account alone since the interest rate might not keep pace with the inflation of college expenses.

Roth IRAs

These are individual retirement accounts that let you save and invest after-tax money. Currently, you can request a distribution after age 59 ½ without penalty or taxes.

If you decide to take a distribution Roth IRA funds before 59 ½ to pay for college expenses for your children, it gets more complicated. If you are withdrawing contributions, there would not be taxes or penalties.

If you are withdrawing any earnings then you may be able to avoid penalties if the distribution is used for qualified education expenses. Additionally, you might be able to avoid taxes on earnings if the Roth IRA has been open for more than five years.

It is important to keep in mind that a Roth IRA is designed for retirement savings and you should consult a tax professional before making any decision.

Private Scholarships

Usually, private scholarships are offered by associations, unions, religious organizations, nonprofits, and other types of groups. And… (drumroll, please) you generally don’t have to pay them back. They sometimes cover all four years of education.

Often scholarships are offered on merit and ability alone (for example, sports, music, or science scholarships); however, some are awarded on the basis of nationality, ethnicity, or economic need. A couple of places to look for scholarships are scholarships.com/ and collegeboard.org .

Private Student Loans With SoFi

If you still need help funding your child’s education and they’ve exhausted their federal aid, you could take a look at private student loans. SoFi, for example, offers private student loans and parent student loans to help pay for school.

SoFi’s private student loans are no fee and low-rate, plus there are flexible repayment options.

Learn more about private student loans with SoFi today.


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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.

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A Guide to Transferring Colleges

Transferring colleges can be a big change, but it may be advantageous or even necessary for some students.

Whether you’re moving from a community college to a four-year university, trying to find the right fit, or looking to lower your tuition bill, transferring schools could help you achieve a better college experience.

The transfer process can take time, however, so the sooner you decide where you want to go and gather the necessary paperwork, the better experience you should have. Here are some tips to help you figure out how to transfer colleges smoothly.

Deciding Where to Transfer

Whether you’re looking for a better college experience or want to save money, picking the right school is essential. Here are some things to consider as you narrow down your selection.

Figuring Out Why You Want to Transfer

Understanding your reasons for wanting to transfer will give you an idea of what to look for in a new school. For example, if your current college is too expensive, it may help to focus on tuition rates when you’re comparing alternatives.

Or if you don’t like the general environment of your school, you can focus your search on the aspects you want in a college. If you’ve spent time at a community college and want to transfer to a four-year school, look for a university that offers a good program in your area of study and provides the environment you’re looking for.

Speaking with an Advisor

Your college may have student advisors who can give you some information and personalized advice based on your needs. It’s likely they’ve gone through the same process with other students and may be able to provide some perspective to help you make the right decision.

Visiting Multiple Colleges

Unless you’re certain about where you want to transfer, it may make sense to take the time to visit different campuses to get a feel of the environment and programs they offer.

While you’re there, consider setting up an appointment with an academic advisor and financial aid officer to get more information about the transfer process and how you can get the aid you need to afford tuition.

Before You Start the Transfer Process

From deadlines to documents, the transfer process is usually a little different from the regular admissions process for new students. So it’s important to start preparing as soon as you think you might transfer. Here’s some info that may help as you start figuring out how to transfer schools.

Transferring Schools is Common

The decision to change colleges is a big one, but you’re not alone in the process. Nearly one out of every three college students is a transfer student. More and more colleges and universities are accepting, and even seeking out transfer students.

According to the National Student Clearinghouse Research Center , nearly a third of students who enroll at a community college end up transferring to a four-year university after receiving an associate degree or a certificate.

Being Aware of Deadlines

The deadline for your transfer application can vary from college to college, so make sure to check the school’s website and write it down, so you don’t forget.

Also, keep in mind that some universities may have different deadlines for the transfer application, financial aid application, and testing.

Which Credits will Transfer?

You’ll typically need a minimum number of credits to transfer from one school to another, though policies can vary by university.

More importantly, you may not be able to transfer some of your credits. This can happen if the new college doesn’t offer the same course, you took a class too long ago, or you received a poor grade.

If you’re still a relatively new student and have only taken general education classes, you’ll likely have less trouble getting your credits to transfer. Speak with an academic advisor at the new school to find out which credits will transfer and how they’ll be treated.

Understanding the Required Documents

Transferring colleges typically requires that you provide some documentation about your time at your current school and your overall academic progress.

For example, you’ll usually need to provide a copy of your college transcript, which your current school’s registrar’s office can send electronically or by mail. Depending on how long you’ve been a college student, the new school may also want to see your SAT or ACT scores.

Other possible required documents include letters of recommendation, a resume, your high school transcript, and essays. Contact the school’s admissions office long before its transfer application deadline to make sure you know what’s required and can prepare.

Submitting the Application

Being aware of the application deadline is important, but if you can, try to avoid waiting until the last minute to submit yours.

If something goes wrong and you miss the deadline, you may not get another chance until the next semester.

Depending on the college, you may or may not have to pay an application fee.

If you can’t afford the fee, however, you may be able to qualify for a waiver . After you submit your application, consider calling the admissions office to get an idea of when and how you’ll receive updates.

Figuring Out Your Financing

Before you submit your application or while you’re waiting for a response, you can apply for federal financial aid with the Free Application for Federal Student Aid (FAFSA®) form—keeping in mind that each state has different FAFSA deadlines. This will determine whether you’re eligible for federal student loans and other forms of federal financial aid.

Also, you can start looking for scholarships through the school you’re transferring to and through private organizations that can help you cover the cost of your education. Websites like Scholarships.com and Fastweb list a variety of scholarship opportunities.

If you’re planning to borrow money for school, federal student loans are typically one of the first options students turn to because they generally provide low interest rates for undergraduate students, as well as income-driven repayment plans, and loan forgiveness programs.

If you’ve maxed out your federal loan allowance, however, a private student loan through SoFi can help you bridge the gap. Just keep in mind that private student loans typically require a credit check, so you may need to have someone like a trusted relative or parent co-sign your application to possibly improve chances of approval.

Planning for Success

Transferring colleges can be a stressful experience, but the process can go a lot more smoothly if you know what you want and start preparing long before the application deadline.

Take the time to understand how the process works for the school of your choice and start thinking about financing options sooner than later.

As you do so, you’ll be in a better position to hit the ground running with your new school and have a better overall college experience.

Learn more about private student loans with SoFi.


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

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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.

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Do I Need a Student Loan Cosigner? – A Guide

Imagine someone randomly asking you on the street to borrow $500. Do you think you’d oblige? Would it help if someone they knew could vouch for them? If they could guarantee that you’d get back that money this random person wanted to borrow?

When applying for private student loans (and some federal student loans), a lender might feel this way about a potential borrower. But, if that hopeful borrower can have someone vouch for them, in this case a cosigner, that might bolster their loan application.

Having a cosigner on a student loan is a little like a letter of recommendation to get into college. A cosigner can reassure the bank or lender that the applicant is capable of repaying the loan. Their financial history serves as an endorsement for the primary applicant’s financial inexperience.

But a cosigner is not always required for student loans, such as with most federal student loans. Depending on a student’s financial history, employment, and what type of loans they’re applying for, the likelihood of requiring a cosigner will vary.

Before we dive in, we want to point out that—as with any finance-, bankruptcy-, tax- or credit-related tips—your mileage may vary. The views in this article are very general in nature, and it’s likely each person’s situation will have all sorts of variables we can’t account for. Never rely on a blog post like this one for financial, legal, or tax decisions.

What Is a Student Loan Cosigner?

A cosigner is a person who agrees to repay the loan if a borrower defaults or is otherwise unable to pay their debt. A cosigner on a student loan could mean the opportunity to borrow at a lower interest rate, depending on the cosigner’s financial and credit history.

When a cosigner takes on a student loan with the borrower, they’re assuming equal responsibility to repay the loan.

Any negative actions on the loan, such as a late payment or defaulting, could harm the borrower’s credit, and if the cosigner becomes the primary after a default and then also defaults, it could harm their credit as well.

Read on and answer the questions below to see what factors can determine whether a student might need a cosigner on their private student loan.

Where to Begin?

Before deciding whether a student might need a cosigner on a loan, the first step is to fill out the Free Application Federal Student Aid (FAFSA®) to determine the amount that might not be covered by federal aid (including grants and scholarships).

Then, once all other options are exhausted, students could possibly look into private student loans and consider a cosigner.

What Type of Student Loans Are Being Considered?

The type of loans a person is applying for may affect their need for a cosigner.

Federal Student Loans

Most, but not all, federal loans don’t require a cosigner. Further, borrowers don’t need a credit check to be considered for most federal loans. If a student is applying for any of the following, they won’t need a cosigner:

•   Direct Subsidized Loans
•   Direct Unsubsidized Loans
•   Direct Consolidation Loans

However, if a student is applying for a Direct PLUS Loan, they may need an endorser for the same reasons they may need a cosigner for a private student loan: if their credit history and other financial factors are lacking.

A Direct PLUS Loan can help graduate students and parents of undergraduate students pay for the entire cost of school attendance, minus any other financial aid. Direct PLUS Loans are the only federal student loans that look at an applicant’s credit history, thus the potential need for an endorser.

An endorser is the equivalent of a cosigner—they agree to repay the Direct PLUS Loan if the borrower defaults or is delinquent on payments.

Private Student Loans

If an applicant doesn’t meet the lending requirements on their own, they might need a cosigner to obtain any private student loan. To qualify for a private student loan, applicants typically have to check more boxes regarding financial history than they would for a federal student loan.

According to a report by MeasureOne, 91% of private undergraduate student loans and 63% of private graduate student loans originated in 2019 had a cosigner.

Based on those numbers, when applying for a private student loan, a private student loan borrower is more likely to require a cosigner than not.

Both Federal and Private Student Loans

Once a student has the results from the FAFSA application, they can determine if federal student loans will cover the cost of their education or if they need to supplement the amount with a private student loan.

While the borrower might not need a cosigner for federal loans, they might require one for private student loans they might take out.

Is the Student an Undergraduate or Graduate Student?

The necessity of a cosigner may vary depending on whether a person is applying for graduate or undergraduate private student loans.

Undergraduate Student

Undergraduates are generally more likely to need a cosigner on their private student loans. That’s because undergraduates typically haven’t established a lengthy credit history.

For example, if a student applicant hasn’t had accounts open for long, lenders might perceive them to be someone with inadequate credit history.

That’s because they don’t have a track record, good or bad, of repaying loans or other debts on time. In addition, undergrads might not have a steady income, which can also affect whether they are approved for a loan without a cosigner.

Graduate Student

The type of schooling a person is pursuing won’t have an impact on the need for a cosigner. However, a person’s credit history and income will still factor into the decision.

What About Credit Score?

Most private lenders will look at an applicant’s credit score (among other factors) to determine eligibility. Having a lower credit score may make it harder to get a loan without a cosigner.

FICO® Scores (the most common credit scores used by lenders and financial institutions) range between 300 and 850.

If a person wants to simply check their score, many websites offer free credit scores or credit score monitoring (just be sure to read terms and conditions carefully).

If a person wants to see their full credit report, they can get a free credit report annually from AnnualCreditReport.com. It is important to note that this is not the only site where someone can request a free credit report. For example, they can get their credit report directly through the credit bureaus or on other online sites.

With a number in hand, it might be easier for an applicant to anticipate if they need a cosigner on their private student loan.

If a student is just finishing up high school, for example, they probably don’t have much of a credit history. Heck, they likely don’t even have a credit card, since that requires being 18 and having a steady income. But a lack of credit history might mean the student will need a cosigner when applying for a private student loan.

If the potential borrower is a graduate student with a less-than-stellar credit history, that might also mean they might need a cosigner. However, if a graduate student has spent their undergrad years building a positive credit history, they might have a score that would be favorable for a private student loan with no cosigner.

Ultimately, it’s up to each individual lender to consider the credit score and other financial factors before approving a loan, and every lender has different criteria.

What Is the Student’s Employment Status?

Consistent income is also considered when applying for a private student loan. The more income a person has, the rule of thumb goes, the more money they have to pay back debts, making them less likely to need a cosigner.

Employed Full Time

Generally, if a person is employed full time at a salaried job, it shows lenders they have the capability to repay the loan they’re borrowing. A person employed full-time with a salary will likely not need a cosigner . However, requirements at each lender varies.

Employed Part-Time

It’s more likely than not that a person working part-time may still require a cosigner on a private student loan. However, the applicant’s debt-to-income ratio will still come into play—that is, how much debt a person owes (credit cards, rent, other bills) divided by the income they earn before taxes and other deductions.

Of course, all lender requirements vary, but significant, consistent income can factor into whether the applicant will still need a cosigner.

Only a Student (Not Employed)

If an applicant has no employment or income to speak of, lenders have no way to ensure that they can repay the loan.

That’s one reason a cosigner may be required. Even if students intend to have a job after college, lenders might not be willing to take that risk. Many private student loans require borrowers to make payments while they are still enrolled in school.

With a cosigner, applicants can show there’s an income stream to pay back these loans.

Has the Student Declared Bankruptcy?

Lenders can and do consider all aspects of a person’s financial history before granting a loan, bankruptcy included. Declaring bankruptcy does have an effect on a person’s credit history, thus it typically plays a part in private student loan eligibility.

No

If a person hasn’t declared bankruptcy, they won’t have the mark on their credit report, and it won’t factor into whether they need a cosigner.

Yes

Declaring bankruptcy negatively affects a person’s credit score, which private lenders pay close attention to with a loan application. A bankruptcy filing can stay on a person’s credit history for a decade.

Bankruptcy filings can affect a credit score in a number of ways, and depending on how long ago it took place, the effects on a person’s score will vary.

However, with a low enough score, the applicant may need a cosigner to qualify for a private student loan for rates and terms they’d prefer.

How Long Is the Student’s Credit History?

How long a person’s had a credit card or various forms of debt gives lenders a better sense of their ability to pay on time, or ability to pay off debt in full. The length of a person’s credit history makes up about 15% of their FICO® Score.

Length of credit history is determined by Average Age of Accounts (AAoA). Lenders take the lifespan of a person’s accounts and divide by the number of accounts that person holds. A potential borrower can determine this number by figuring out how long they’ve had each account in their credit history, then dividing by the number of accounts.

If, say, a student has had a car loan for two years, a credit card for four years, and a second credit card for three years, the math to determine their AAoA is: (2+4+3) ፥ 3 = 3.

The real sweet spot for credit history comes at the seven-year mark. From that point, early negative marks on account might’ve faded away. It shows lenders that a borrower can pay loans and maintain accounts over time.

So the hypothetical borrower with an AAoA of three might need a cosigner, or they might not. Ultimately, other factors would come into play and it would be up to the lender.

Has the Student Defaulted on a Loan?

Defaulting on a loan translates into repeatedly missing monthly payments. Terms of every loan are different, but after a period of nonpayment, the loan enters default.

Defaulting on a loan stays with a person’s credit history for at least seven years and typically negatively affects their credit score.

If a person has defaulted on a previous loan, they’ll likely need a cosigner on their student loan to potentially bolster their lendability.

If a person hasn’t defaulted on a loan, then it won’t factor into a decision on whether a private lender will require a cosigner.

Has the Student Ever Missed a Payment?

Similar to defaulting on a loan, on-time payments each month shows lenders that a person is a responsible borrower.

Missing a payment or two negatively impacts a person’s eligibility for a loan consistently missing monthly payments and racking up late fees can tank a person’s FICO® Score and financial history.

As we mentioned above, payment history is the most heavily weighted item when calculating a FICO® Score, and a person can pay dearly for it.

Consistently missing payments that have affected a person’s FICO® Score might cause a potential lender to require a cosigner. It could also cause concern for a potential cosigner, so students might want to keep that in mind.

A solid history of on-time payments shows a lender that a person is a responsible candidate for a loan and might not need a cosigner.

Choosing a Cosigner

As stated near the beginning of this post, the majority of private student loan borrowers have a cosigner. But not all cosigners are built the same, and choosing the right person to cosign a loan could be as important as the terms of the loan itself.

A cosigner should not only have a strong financial history, but also a strong relationship with the applicant. A cosigner might be a parent or blood relation, but Sallie Mae reports that nearly 27% of cosigners on student loans are someone other than a parent.

A cosigner ideally has a stable financial history and a relationship to the applicant where they feel comfortable discussing money. After all, the cosigner will become obligated to pay the loan should the applicant default.

Asking Someone to Be a Cosigner

There’s a common misconception that cosigning on a loan is as easy as signing a contract, but it actually means more than that. When a person asks someone to be their cosigner, they shouldn’t shy away from discussing the challenging topic.

It may make sense to talk about worst-case scenarios with a cosigner, let them know it would be their responsibility to take on the payments if the borrower defaults. Discuss how the borrower could repay the cosigner in the event that the borrower can’t make payments.

Risks of Cosigning

Beyond the worst-case-scenario discussion, cosigners should know the additional risks they take on when cosigning a student loan:

•   Credit score. Cosigning a loan will affect a person’s credit score, since they’re taking on the debt as well. Even if the borrower makes on-time payments and doesn’t default, the cosigner will see a change in their credit score by taking on the additional debt, and it could even benefit their score.

•   Liability. If the borrower defaults on the loan, it becomes the cosigner’s responsibility to pay for it. A lender can come to collect from the cosigner, seizing assets and garnishing paychecks to cover missed payments.

However, the cosigner doesn’t need to stay tied to the loan forever. Many private student loans have a cosigner release policy in place. After a duration of on-time payments and additional paperwork, a lender may release the cosigner from the loan, leaving the borrower on their own.

It might sound easy, but a cosigner release isn’t a guarantee. Nearly 90% of cosigner release applications are rejected by the lender.

Private Student Loan Requirements Vary

Like every college application, each loan application is a little different. Certain aspects of a person’s credit history or employment might make them more compelling to a lender.

Other elements, like late payments or a limited credit history, might make a person less compelling to lend to.

Adding a cosigner to a private student loan is fairly common and can improve a person’s chance of approval, sometimes even with a lower interest rate than if they applied on their own. With a reliable cosigner in place, the student loan approval process might ease a student’s worry.

If a student has exhausted all of their federal student loan options, private student loans could be a good option to look into.

SoFi offers private student loans with no origination fees, no late fees, and no insufficient fund fees. Plus, SoFi offers flexible repayment options to help students find the loan that fits their budget.

Learn more about private student loans with SoFi.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
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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.
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.
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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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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.

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Private vs Federal Student Loans

Getting accepted to college may seem exciting on the surface, but in reality, it’s only half the battle. After you’ve filled out your applications and decided on a school, you’ll then need to fund your college education (which can quickly dampen the excitement of getting accepted).

There are a few different options when it comes to financing a college education, and it’s important to understand the pros and cons of each. Then, you’ll likely be better able to develop a funding strategy that fits your unique situation.

Depending on your academic qualifications, you may have been awarded scholarships or grants, which is funding that won’t (typically) need to be repaid. Any expenses not covered by a scholarship will need to be financed, often through a combination of work-study, personal funds, or student loans.

It is fairly common for college students to take out student loans to finance their education. There are two main types of student loans—private student loans and federal ones. We’ll compare and contrast some of the more popular features of both private and federal student loans and explore some features that can help you determine what makes the most sense for your financial situation.

Federal Student Loans

Federal student loans are funded by the federal government and, in order to qualify, you must fill out the Free Application for Federal Student Aid (FAFSA®) every year that you want to receive federal student loans. We’ll delve more into FAFSA soon—but first, here are some important distinct
ions to consider.

Subsidized vs Unsubsidized Loans

Federal loans can be subsidized or unsubsidized. If you’re an undergraduate student and you have a certain level of financial need, you may qualify for a subsidized loan. The amount of money you qualify for will be determined by your school . They’ll also determine how much money you should receive in subsidized loans, if any.

If you are granted a subsidized loan, the U.S. government will cover, or subsidize, the cost of accrued interest on the loan while you are a full- or half-time student. Your interest payments are also covered with subsidized loans during the six-month grace period after graduation as well as during any periods of loan deferment.

If you receive unsubsidized federal loans, you will not need to demonstrate financial need when applying and, as with subsidized loans, your school will determine the amount you can receive, based on what it will cost you to attend. But with unsubsidized loans, you are responsible for the principal amount of the loan as well as any interest that accrues throughout the life of the loan.

Direct PLUS Loans for Parents and Graduate Students

Direct PLUS Loans are another source of federal student loan funding. To qualify for graduate PLUS Loans, you need to be a graduate-level or professional student in a program that offers graduate or professional degrees or certifications and be attending college at least half-time.

Related: The Differences in Direct vs. Indirect Student Loans

Or, parents can also apply for a parent PLUS loan if they’re the parent of a dependent undergraduate student attending an eligible school at least half-time. “Parent” can be defined as biological or adoptive—or, under certain circumstances, you can be a step-parent.

To obtain a Direct PLUS loan, you cannot have an adverse credit history (you can learn more about that here ). Plus, you (and, if applicable, your dependent child) must meet the general eligibility requirements for federal student aid.

More About the FAFSA

If you plan to apply for any of these types of federal loans, you’ll need to fill out the FAFSA form . Be aware of your state’s deadline —FAFSA funding is determined on a rolling basis, so the sooner you can apply, the sooner you may qualify.

Benefits of Federal Student Loans

First off, you won’t be responsible for making student loan payments while you are actively enrolled in school. Your repayment will typically begin after you graduate, leave school, or are enrolled less than half-time. Interest rates on federal student loans made after July 1, 2006 are fixed and are typically lower than interest rates on private student loans.

And depending on the type of federal loans you have, the interest you pay could be tax deductible . Aside from Direct PLUS Loans,credit history doesn’t factor into a federal loan application. When it comes to federal student loan repayment, there are several options to choose from, including several income-driven repayment plans.

And if you run into difficulty repaying your federal student loans after graduation or when you drop below half-time enrollment, there are deferment and forbearance options available. These programs allow qualifying borrowers to temporarily pause payments on their loans should they run into financial issues—but interest may still accrue. The loan type will inform whether a borrower qualifies for deferment or forbearance.

Borrowers can contact their student loan servicer for more information on these programs.

Qualifying borrowers can also enroll in certain forgiveness programs, such as Public Service Loan Forgiveness (PSLF). These programs have strict requirements, so borrowers who are pursuing forgiveness should review program details closely.

The CARES Act and Federal Student Loans

The CARES Act , passed in March 2020 in response to COVID-19, includes provisions to help borrowers with federal student loan repayment. The bill temporarily pauses payments on most federal student loans, without interest, through the end of September 2020.

Additionally, the CARES Act suspends involuntary collections and negative credit reporting during the same time period.

While required payments are paused, borrowers are still able to make payments on their loans if they so choose. 100% of payments made during this time will be applied to the principal balance of the loan.

Borrowers enrolled in forgiveness programs will not be impacted by the nonpayment of their loans during this time. The Education Department will consider this time period as if the borrower had continued making payments.

Private Student Loans

Private student loans are not funded by the government. To apply for them, you can check with individual lenders (banks, credit unions, and the like), with the college or university you’ll be attending, or state loan agencies.

Because these loans are available from multiple sources, and each will come with its own terms and conditions. So, when applying for private student loans, it’s important to clearly understand annual percentage rates (APRs) and repayment terms before signing as well as the differences between private vs federal student loans.

Since private student loans are not associated with the federal government, their repayment terms and benefits vary from lender to lender. Some private loans require payments while you’re still attending college. Unlike federal loans, interest rates could be fixed or variable. If you are applying for a variable-rate loan, it’s a good idea to check to see how often the interest rate can change, plus how much it can change each time, and what the maximum interest rate can be.

When applying for a private loan, the lender typically reviews your financial history and credit score, which means it may be beneficial to have a cosigner.

Again, be sure to ask your lender about repayment options in addition to any deferment or forbearance options.

These will all vary by lender, so it’s important to understand the terms of the particular loan you are applying for.

Private loans can help fill the monetary gap between what you’re able to cover with grants, scholarships, federal loans, and the like, and what you owe to attend college. It’s never a bad idea to take the time to do your research, shop around, and find the best loan options for your personal financial situation.

Determining Whether a Student Loan is Federal or Private

To find out if the student loan you have is a federal student loan, one option is to check the National Student Loan Data System (NSLDS). This database, run by the Department of Education, is a collection of information on student loans, aggregating data from information about student loans, aggregating data from universities, federal loan programs, and more.

Borrowers with federal student loans can also log into My Federal Student Aid to find information about their student loan including the federal loan servicer.

Private student loans are administered by private companies. To confirm information on a private student loan, one option is to look at your loan statements and contact your loan servicer.

Options for After Graduation: Consolidation vs Refinancing

After graduation, depending on one’s student loan situation, borrowers may wish to consider consolidation or refinancing options to combine their various loans into a single loan.

What is Student Loan Consolidation?

The federal government offers the Direct Consolidation Loan program that allows borrowers to combine all of their federal loans into one consolidated loan.

Loans consolidated in this program receive a new interest rate that is the weighted average of the interest rates of all loans being consolidated—rounded up to the nearest one-eighth of a percent. This means that the actual interest rate isn’t necessarily reduced when consolidated. If monthly payments are reduced, it is most likely because the repayment term has been lengthened. Additionally, only federal student loans are eligible for consolidation in the Direct Consolidation Loan program.

What is Student Loan Refinancing?

Borrowers with private student loans might consider refinancing their loans. Essentially, refinancing is taking out a new loan. Depending upon individual financial situations, applicants could qualify for a lower interest rate through refinancing.

When an individual applies to refinance with a private lender, there is typically a credit check of some kind. Each lender reviews specific borrower criteria, which varies from lender to lender, which influences the rate and terms an applicant may qualify for.

But what if you have both federal and private loans? If you combine your federal loans through the Direct Consolidation Loan program and refinanced your private loans, you’d still have two payments. SoFi, though, can refinance federal and private student loans together to give you one convenient payment. It’s important to note, however, that the benefits and protections offered with federal student loans don’t transfer when loans are refinanced by private lenders, so keep that in mind.

Refinancing Student Loans at SoFi

Refinancing won’t be the right choice for everyone. Again, refinancing federal loans eliminates them from the federal benefits and borrower protections—including the current CARES Act protections. Consulting with a financial professional could be helpful as you determine which repayment strategy fits best with your financial goals.

Those who are still interested in refinancing, could consider SoFi, where there are no origination fees and no prepayment penalties. You can choose between a fixed or variable rate loan. And borrowers who unexpectedly lose their job could qualify for SoFi’s unemployment protection program, which allows the suspension of monthly payments for up to 12 months.

To see what refinancing your student loans could do for you, take a look at SoFi’s student loan refinance calculator.

Learn more about whether student loan refinancing or a private student loan with SoFi could be the right financial solution for you.


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

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
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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7 Tips to Avoid Student Loan Scams

As college costs soar, U.S. student loan debt is increasing with it. American undergraduates in 2018 borrowed 40% more than students did a decade ago. With over 45 million Americans in the thick of the student debt crisis, some estimate that the class of 2018 won’t be able to retire until they’re 72 . And as the student debt bubble grows, so does the number of predatory companies running student debt scams.

Researchers have identified over 130 companies that operate in this manner. They run the gamut—from offering student loan forgiveness scams to straight up stealing your hard-earned dollars. Some can even lead to your debt increasing, which is a hard no.

There are plenty of authentic refinancing and consolidation options, such as income-driven repayment plans , that might help you in the long run. But unfortunately, there are also a slew of bad actors. Luckily for you, we’ve laid out some typical student loan scams as well as seven red flags that can help you suss out if a company is legitimate or not.

The Typical Student Loan Scams

As they say, there are a few ways to shear a sheep, and for fraudulent companies, there are a few ways to trick you out of your moolah. Those under stress from student loans can feel compelled to go to extreme measures to get rid of their debt, which can make them more susceptible to predatory tactics. So buckle in.

One typical scam is a student loan assistance company that advertises loan forgiveness or lower payments in exchange for an upfront fee, followed by a few more payments.

Unsuspecting people pay and then six months later, the firm will shut down. This one isn’t as insidious as some other common scams, but you could still be out some money. And if you’re part of the college debt crisis and thousands of dollars in debt, that isn’t where you want to be.

Another common tactic is to offer federal student loan consolidation for a fee. Student loan consolidation is always available for free from the Department of Education. Or you could refinance your federal student loans with a reputable lender. But it is important to remember that if you refinance your student loans with a private lender, you will lose access to federal benefits such as student loan forgiveness, income-driven repayment plans, and deferment.

If you’re going to refinance your student loans, however, it’s a smart idea to do your due diligence before signing on with a lender (of course, keeping in mind that refinancing to private loans, even with reputable lenders, can strip you of certain federal benefits).

7 Red Flags for Student Loan Scams

In the midst of the current student loan debt crisis, there’s tons of confusing information on the internet. How can you suss out a student loan debt scam? Here are a few tips to help you spot potential scammers:

1. You get requests for sensitive information over the phone.

A legitimate private lender will need your Social Security number and other info to process your refinance application, but they are unlikely to cold call you. If you’re working with an online lender, do a little homework by researching the company and reading consumer reviews.

And if you’re really unsure, you can contact your state attorney general’s office to see if complaints have been lodged against the company. The rule of thumb here? Never share any personal information until you are 100% certain you are dealing with a legitimate lender.

2. The company requires direct payment immediately.

A major indication that you’re dealing with a student loan scam is the requirement of an upfront fee. Once they get the fee, many scam companies simply take your money and disappear, leaving your loans in forbearance (or worse, default), and you none the wiser. Debt counseling firms are not allowed to charge you any fees until after they renegotiate, settle, or reduce at least one debt for you. Yes, a reputable lender will charge interest on your loan, but they will not ask you for cash upfront.

3. You are promised immediate loan forgiveness.

This is a classic case of too good to be true. Student loans are notoriously difficult to shake, even if you file for bankruptcy. There are a few situations that can qualify you for federal student loan forgiveness—for example, if under the Public Service Loan Forgiveness Program (PSLF), you’ve worked for an eligible employer, are on an income-driven repayment plan, and have made 10 years of qualifying payments.

So immediate loan forgiveness is likely a ruse. While it would be nice for all your student loans to be forgiven in an instant, this is unfortunately a pie-in-the-sky dream.

But if you do qualify for a federal loan forgiveness program, there’s no need to have a third party negotiate for you. Simply call your loan servicer for instructions on the process—free of charge. Just keep in mind that only 1% of those who have applied for PSLF have been approved.

4. You are encouraged to pay off your student loans to a third party directly.

This is just shady. Why would you want someone else making payments on your behalf? It begs the question: What are they hiding?

5. The company claims to be working with the U.S. Department of Education.

Some private lenders misrepresent themselves by using names, seals, and logos that give the impression they’re affiliated with the federal government’s student loan programs (hello, Obama Forgiveness Plan). However, the Department of Education does not solicit people to borrow money; so if it sounds like a sales pitch, it’s not coming from the government.

The Department of Education doesn’t work with private loan consolidation companies, but it does work with private loan servicer companies. A servicer collects payments and handles other services on the loan you already have, but it doesn’t offer private loan consolidation. The government offers its own Direct Consolidation Loan program (by application) for free, so if anyone tries to sell you this option, they are pulling one over you.

6. Someone is pressuring you to sign up under time constraints.

No legitimate loan program is only available for a short period of time. If they are overly insistent, and don’t go for an offer to call them back directly, this could be a red flag.

7. The company is charging a consolidation fee.

This is where things can get a little murky. As noted above, there are legitimate private companies that can help you consolidate and refinance student loans for a fee. As long as they don’t charge you any fees until refinancing has occurred, they’re most likely operating legitimately.

But be cautious. Again, if you want to apply to consolidate federal student loans through the Direct Consolidation program it’s a free process—so you don’t need a company to do it for you.

If you want to consolidate and refinance your private student loans on the other hand, know that the private company is probably refinancing your current loans into one new private loan. In that case, be sure to check the interest rate, any fees, and read the fine print to see if the new deal is actually better than your old one.

Is Consolidating Your Student Loans the Right Decision for You?

Spotting a student loan scam isn’t always easy, especially when companies go out of their way to convince you they’re legit. If your gut tells you a deal is too good to be true, then it probably is.

When choosing between a Direct Consolidation Loan (for federal student loans) and student loan refinancing (for federal and/or private loans), it’s worth taking some time to learn about all your options, as the terms and potential outcomes (savings vs. interest spend) can be very different. Check out our quick guide to student loan consolidation vs. refinancing for more details.

Refinancing student loans can be a great way to make payments more manageable, depending on what kind of student debt you have. However, not all refinance options are created equal. It’s important to do your homework before deciding to consolidate and/or refinance your student loans, because your individual circumstances will dictate whether consolidation or refinancing is right for you:

Direct Consolidation Loans from the federal government can only be used to consolidate federal loans. It’s essentially a way to package multiple loans into one, giving you a new, fixed interest rate that’s a weighted average of all your federal loans (rounded to the nearest eighth of a percent) and, sometimes, a longer term. This means your monthly payment amount doesn’t necessarily go down, nor does your interest rate—it just makes things more straightforward.

Refinancing means consolidating all your student loans—regardless of whether they’re federal or private. You refinance with a private lender, and typically do so if you think you might qualify for a lower interest rate. Refinancing may allow you to pay all your student loans off at a more competitive interest rate, which can save you over the life of your loan.

You can also typically change the term length on your refinanced loan—a longer term length could lower your monthly payments, while a shorter term length could help you pay off your student loans much faster.

In order to know how much you could gain from refinancing, you can start by verifying how much you owe and what your interest rates are across both private and federal loans. Once you know that information, you can use this student loan refinancing calculator to see your estimated savings.

And, again, it is important to remember that if you choose to refinance your student loans with a private lender you will lose access to federal benefits such as student loan forgiveness, Direct Consolidation Loans, and income-driven repayment plans.

SoFi is a leader in the student loan space—offering both private student loans to help pay your way through school or refinancing options to help you pay off your loans faster. See your interest rate in just a few minutes. No strings attached.

Check out what kind of rates and terms you can get in just a few minutes.


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

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 SEPTEMBER 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.

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