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Prepaying student loans can help you save on interest and become debt-free faster. Many loans, including federal and private student loans, allow prepayment without penalties, but it’s essential to understand how to make extra payments effectively.

Whether you want to pay down principal directly, make biweekly payments, or prioritize high-interest loans, prepayment strategies can significantly impact your financial future. This guide explores the benefits of prepaying student loans and ways to ensure your extra payments are applied correctly.

What Is a Prepayment Penalty?

A prepayment is any extra amount you pay in addition to your regular required monthly payment. A prepayment penalty refers to fees you pay to your lender if you choose to make extra payments.

Generally, if you have private, federal, or federal parent loans, you will not pay penalties if you pay off your student loans early. In fact, lenders are banned from charging additional fees when you make extra payments. Check with your loan servicer about the details and to get a payoff quote. A payoff quote is an estimate of how much you’ll need to pay in order to pay off your loan in full.

Recommended: How to Avoid Paying a Prepayment Penalty

Student Loan Prepayment Penalties

Is there a prepayment penalty on student loans?

No, lenders cannot charge prepayment penalties on federal or private student loans. The Higher Education Act of 1965 banned prepayment penalties for federal student loans. The Higher Education Opportunity Act (HEOA) amended the Truth in Lending Act (TILA) in 2008, banning prepayment penalties for private student loans.

Prepaying Federal Student Loans

Federal student loans are loans lent by the federal government; specifically, the Department of Education. They include the following:

•   Direct Subsidized Loans: These loans are for eligible undergraduate students with financial need. Dependent students can receive up to $23,000 total in Direct Subsidized Loans, with the amount per year varying depending on your grade level.

•  Direct Unsubsidized Loans: These loans are for eligible undergraduate, graduate, and professional students. Independent undergraduate students have a lifetime aggregate limit of $57,500, and graduate or professional independent students have a lifetime aggregate limit of $138,500.

•  Direct PLUS Loans: These loans are for parents who want to borrow money for their dependent undergraduate students (Parent PLUS Loan) and for eligible graduate or professional students (Grad PLUS Loan). You can borrow up to the cost of attendance minus any other financial aid the student receives.

•  Direct Consolidation Loans: Anyone with eligible federal student loans who wants to combine them into a single loan with one interest rate can do so through a Direct Consolidation Loan.

Now, let’s discuss when you actually need to begin repaying your student loans. Your federal student loans go into repayment when you:

•   Graduate

•   Drop below half-time enrollment or

•   Leave school

You’ll get a six-month grace period (which means you won’t have to begin repaying your loans) before you must make regular payments if you have Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loans (FFEL). PLUS Loans require repayment upon disbursement (when they’re paid out) unless you’re a graduate or professional student, in which case you’ll be placed on an automatic deferment while in school and for six months after graduating, leaving school, or dropping below half-time enrollment.

Once you graduate, you can choose from repayment plans that base your monthly payment on:

•   Your income or

•   A fixed monthly payment over a set repayment period

You can make extra payments beyond your monthly payment as you have extra cash available. You can do that however often you like, whether you do so once a year, once a month, or biweekly. You can even prepay on your federal student loans while you’re in school or during your grace period, but note that these prepayments will not count as qualifying payments through federal loan forgiveness programs.

How to Make Sure Prepayments Are Applied Correctly

Let’s take a look at how your loan servicer applies prepayments. It’s important to understand this because if your lender doesn’t apply your payments the way you prefer, you might not get ahead on your payments as quickly as you’d like.

Student loan servicers usually apply your payments in this order:

1.    Toward late fees you incur.

2.    Toward any outstanding interest (the amount your lender charges for borrowing).

3.    Toward your outstanding principal balance (the sum you originally borrowed).

Contact your servicer to tell them where your money should go. For example, you may want to pay off the loan with the highest interest rate first. Or you may want to pay toward the smallest loan balance to give you the psychological boost of paying off a loan in full quickly.

Consider making an extra payment right after you make your regular monthly payment, because your lender will apply all of it toward principal, which will shrink the overall amount you owe in interest. Ensure that paying this extra money doesn’t give you a “payment holiday” (where you won’t have to pay for a while), because you could end up with more interest charges.

Recommended: 6 Strategies to Pay Off Student Debt Loans Quickly

Prepaying Private Student Loans

Do you have a mix of federal and private student loans? If so, the prepayment advice is the same for private loans as it is for federal loans: Don’t allow your servicer to allocate your payments on their own because they may apply extra payments as they see fit. This could result in your servicer spreading your money across all the loans on your account, applying the money to future interest charges, or applying it to your next monthly payment.

It’s best to give your private student loan servicer instructions on how to allocate your extra money, which might look like this in email or letter form:

1.   After applying the minimum amount due for each loan, please apply any additional amount toward the loan with the highest interest rate.

2.   If any of my loans have the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.

3.   Please apply any remaining part of my payment to the loan with the next-highest interest rate if any additional amount above the minimum due pays off one of the individual loans.

Sending a communication to your loan servicing company will help clarify how you want your extra payments handled, including what to do when you do end up paying off one of your loans. Keep a close eye on your statements so you know what’s going on with your student loans.

You may also want to consider student loan refinancing to reduce the interest rate, loan term, or both on your student loans. You can refinance one loan, multiple loans, private loans, or a combination of federal and private loans. Just keep in mind that by refinancing federal loans with a private lender, you lose access to federal protections and benefits.

Recommended: Does Refinancing Student Loans Save Money?

The Takeaway

Luckily, you will not have to pay extra fees for paying off your student loans in advance. This means you can pay off your loans as fast as you want, ultimately saving money on interest and getting out of the debt hanging over your head.

However, it’s important to ensure that your loan servicer pays off your student loans the way you want them to. Otherwise, you could end up dragging out your loans longer than you anticipated.

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

FAQ

Should you prepay student loans?

If you can do it, student loan prepayment can help you pay off your student loan debt sooner, possibly putting you in a much better financial position than when you graduated. Without looming student loan debt, experts say you may more easily buy a home, take entrepreneurial risks, and save for retirement.

What about interest charges when you prepay student loans?

When you prepay student loans, the extra payments typically go toward the loan principal, reducing the amount on which future interest is calculated. This can save you money over time by lowering total interest charges. Ensure your loan servicer applies the extra payment to the principal to maximize savings.

Photo credit: iStock/BartekSzewczyk
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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., 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 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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SOSLR-Q424-019

A nurse residency program can offer nurses additional training and specialized skill enhancement that can benefit their career.

If you’re a recent nursing program graduate and you’d like to go into a specific nursing specialty, you may want to consider joining a nursing residency program. These programs allow nurses to transition more easily into the job, provide professional development, and help prepare them for the demands of nursing.

Here’s a deeper look at how nurse residency programs work, the pros and cons of these programs, and what to look for in a residency program if you decide it’s the right move for you.

What Is a Nurse Residency Program?

A nurse residency program helps nursing graduates transition into the workforce. It typically lasts up to a year and provides nurses with classes and instruction as well as specialized clinical experience. Nurses in nursing residency programs typically get paid, which is important for recent graduates living with student loan debt.

These programs aim to:

•   Improve clinical judgment and patient outcomes

•   Teach specialized skills

•   Reduce errors

•   Improve nurses’ job satisfaction and communication

•   Reduce stress and job turnover

A nurse residency has two phases: the transition phase and integration phase.

Transition Phase

In the transition phase, which usually lasts one to three months, nurses do online learning. They listen to lectures and read case studies about their nursing specialty. They are also introduced to hospital policies, and learn nursing ethics. During this time, they can attend discussion groups with other nurses and go to instructor-led training sessions.

Integration Phase

After the transition phase is complete, nurses begin the integration phase, where they work regular shifts ranging from eight to 12 hours during the day, night, or a mix of days and nights. This phase can last for several weeks or months, depending on the program. Nurses care for patients, communicate with families, and work with the larger health care team. During the transition phase, nurses work under the supervision of an instructor and program director who provide feedback about their performance.

How Do Nurse Residency Programs Work?

Nursing residency programs are available in 47 states (Hawaii, Wyoming, and Utah do not have these programs), and hundreds of hospitals and health care systems participate.

The programs tend to vary in length, though most programs last six months to one year. They provide specialized training at hospitals or other medical settings. Nurses work in clinical settings with a mentor and other residents, and they also take nursing classes focused on leadership and professional development.

As mentioned, nurses are typically paid while participating in a residency program, which can help them repay their nursing student loans. Nurses are also often contractually required to work at the facility for a specific amount of time after completing residency training.

Pros and Cons of Nurse Residency Programs

Nurse residency programs give recent graduates some distinct advantages, but there are drawbacks as well. Here’s what to know about these programs.

Pros

Nursing residency programs offer several benefits:

•   Better patient outcomes: Nurses gain deeper knowledge, confidence, and critical competencies through these programs, which can help them treat patients.

•   Job satisfaction: Nurses who participate in these programs report less stress than other nurses, and they are more likely to stay in the nursing field.

•   Support system: Specialized training from a team of experienced nurses and instructors can strengthen a nurse’s skillset, especially those going into nursing specialties.

•   Financial benefits: Nurses who participate in nurse residency programs are paid. That can be very helpful when you’re budgeting as a new nurse. However, nurse residents typically earn less than nurses who go directly into a nursing job after graduation.

Cons

Nurse residency programs require a significant time commitment. In addition, there are the following downsides to consider:

•   Competitive with limited availability: Many programs admit only a small number of nurses, and it can be difficult to secure a spot.

•   Constant supervision: Nurses are always under supervision during a nursing residency — more so than if they go straight into a job after graduation.

•   Less control: In a nurse residency program, the hospital or program director picks a nurse’s unit, the types of shifts worked, and the length of the shifts. Nurses must attend mandatory training sessions.

•   Required service: After completion of the program, nurses must commit to a year or more of service at the health care facility. If they break the contract, they may need to pay back the hospital for the training and education they received.

Recommended: Student Loan Refinancing Guide

What to Expect in a Nurse Residency Program

During the first two weeks of a nurse residency program, nurses undergo orientation and learn about the health care facility’s mission, values, and rules.

They also learn about the equipment they’ll be using and the practices of the hospital or unit they are working in.

By the end of the first month of a nurse residency program, nurses typically begin working shifts of 8 to 12 hours. During this time, under the supervision of instructors, they start taking on patients. Over the next six months, they continue working with patients, develop their patient care strategy, and attend classes to develop their professional skills.

During the final six months of the program, nurses typically receive more autonomy in patient care, finish up their formal coursework, and take a final evaluation and competency test.

What to Look for in a Nurse Residency Program

If you’re interested in a nurse residency program, you’ll want to find one that’s the best fit for you. First, look for an accredited program, which means an accrediting body has deemed that the program meets industry and educational standards. For example, the Commission on Collegiate Nursing Education (CCNE) and American Association of Critical-Care Nurses (AACN) require accredited programs to last at least six months to a year.

In nurse residency programs, the hospital or health care system you work for will control the department you’re in, the work you do, and your specific duties. So be sure to find out about the program’s curriculum; how long it lasts; what areas you might be able to specialize in; information on the instructors, program director and other leadership; and what the culture of the program is like.

Also, consider how a residency program might affect your lifestyle. As a new nurse, you are likely dealing with a number of financial obligations, including student loans you took out to help afford the cost of nursing school. Find out about the pay and benefits of the nurse residency program to make sure you can pay your debts.

Nurses looking to lower their federal monthly student loan payments may want to explore income-driven repayment (IDR) plans. These plans base your payments on your discretionary income and family size.

Under an IDR plan, you may also be able to work toward federal student loan forgiveness, such as the Public Service Forgiveness (PSLF) program for those working in public service jobs for a qualified employer like a government organization or nonprofit.

You might also want to consider the option of student loan refinancing to help manage your student loans. With refinancing, you replace your current loan with a new loan from a private lender. Ideally, the new loan has a lower interest rate and more favorable terms, which you could make your payments easier to meet.

Our student loan refinancing calculator can help you determine if refinancing makes sense for you.

Just be aware that refinancing federal student loans into private loans makes them ineligible for federal benefits like IDR plans and federal forgiveness programs.

Recommended: Refinancing Student Loans to Save Money

Is a Nurse Residency Program Right for Me?

If you are hoping to go into a specific nursing specialty after graduation from nursing school, you may want to apply for a nurse residency program. These programs offer a number of perks, including additional training and learning opportunities, mentorship, and deeper knowledge and hands-on experience. A nurse residency program can also help give you the clinical training you’ll need for your specialty.

However, nurse residency programs can be competitive and difficult to get into. Weigh the pros and cons carefully to make an informed decision.

The Takeaway

For many nursing graduates, a nurse residency program can be beneficial, offering a chance to learn, get on-the-job training, and work with experienced instructors — while getting paid. Nurses who participate in the programs tend to report less stress, and there is less job turnover. Patient outcomes also tend to be improved, and nurses can learn specialized training which can help them go into a specialty field.

But these programs typically accept only a small number of nurses each year, and they generally require at least a year of service afterward. Plus, nurses in these programs tend to earn less than nurses who go directly into a job, which can be an issue for those worried about repaying their nursing school student loans.

Remember, though, that you have options to potentially lower your payments — including income-driven repayment plans and student loan refinancing — which could help make it possible to participate in a residency program that will teach you special skills and help you achieve your career goals.

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

FAQs

Do nurse residency programs lead to a full-time job?

Nurse residency programs do usually lead to a full-time job. Nurses are typically contractually required to work for at least a year at the hospital or health care system after completing their residency.

Are nurse residency programs hard to get into?

Nursing residency programs are competitive, and it can be very challenging to get into them. Many programs accept only a small number of nurse residents per year. Having some clinical experience, such as doing clinical rotations in the specialty you’re interested in while you’re still in nursing school, may help you stand out from the crowd.

Photo credit: iStock/FatCamera

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSLR-Q424-013

Students who attended the now-defunct ITT Tech are entitled to federal student loan forgiveness. If you attended an ITT Tech institution between 2005 and 2016, you should be able to get your federal student loan debt discharged.

Learn the details about what happened at ITT Technical Institute, how it affected more than 200,000 students, and what you need to know about ITT Tech student loan forgiveness if you attended the school during the specified time period.

What Is ITT Tech?

ITT Technical Institute, also known as ITT Tech, was a private, for-profit technical school that had approximately 130 campuses in 38 states. Owned by ITT Educational Services, ITT Tech schools had associate and bachelor’s degree programs in various areas of technology, including software, electrical engineering, and cybersecurity, as well as criminal justice and business management.

The institution, which was founded in 1969, offered students a chance to get their undergraduate degree without going the traditional college route.

Recommended: Why College Is Not for Everyone

What Happened to ITT Tech?

On September 6, 2016, ITT Tech ceased operations, closing all of its campuses. After years of investigations and lawsuits from federal agencies and some state attorneys general, the U.S. Department of Education (DOE) cut off ITT’s federal aid.

According to a report from the Project of Predatory School Lending at Harvard Law School, ITT made false promises to prospective students, such as offering a valuable education, flexible schedule, the ability to easily transfer credits to other schools, and a high likelihood of job placement after graduation. ITT also engaged in unethical, predatory practices, the report found, which included recruiting and taking advantage of low-income students.

Without the billions of dollars ITT Tech had received from federal student loan aid, it could no longer remain open. ITT filed for bankruptcy 10 days after closing its doors.

ITT Tech’s closing left more than 35,000 students in limbo, without a viable path to obtain their degree. And hundreds of thousands of students were on the hook for the federal student loans they had taken out to attend ITT.

Who Will Get Their ITT Tech Loans Forgiven?

On August 16, 2022, the DOE announced the cancellation of all remaining federal student loan debt to students who attended ITT Tech from January 1, 2005 through its September 2016 closure.

According to the latest information, a grand total of $3.9 billion of federal student loan discharges have been given to 208,000 borrowers who attended an ITT Tech school during the time period.

The DOE’s ITT Tech student loan forgiveness only applies to federal loans, not private student loans. However, the Consumer Financial Protection Bureau (CFPB), which investigated ITT and brought a lawsuit against the institution, eventually reached settlements with ITT that forgave hundreds of millions of dollars in private student loan debt.

Students who borrowed private loans to attend the institution and didn’t receive ITT Tech loan forgiveness may want to consider options to make repaying their student loans easier, such as checking whether their state has a program to help students after a college closure, or exploring student loan refinancing. When you refinance student loans, you replace your current loans with a new private loan.

Ideally, the new loan will have a lower interest rate, if you’re eligible, or more favorable terms, in which case refinancing could save you money.

Use SoFi’s student loan refinancing calculator to see if refinancing makes sense for you.

What ITT Tech Student Loan Debt Relief Is Available?

With the federal government’s ITT student loan forgiveness decision, anyone who took out a federal student loan should be eligible to have their debt erased. What’s more, the DOE made ITT Tech loan forgiveness easy by not requiring former students to apply for a borrower defense to repayment discharge. Instead, students who attended ITT Tech automatically had their loans discharged without having to take any action.

In addition, hundreds of thousands of dollars in private student loans were forgiven through the efforts of the CFPB.

If you were a student at an ITT Tech school during the specified time period, and you haven’t had your federal student loan amount waived, the DOE advises you to contact your loan servicer. If you’re not sure who your servicer is, you can find out by logging into your account on StudentAid.gov.

Recommended: Student Loan Refinancing Guide

The Takeaway

The 2016 closure of ITT Tech campuses nationwide left tens of thousands of students with no opportunity to finish earning their degree. It also resulted in hundreds of thousands of students being left with private and federal student loan debt.

The Department of Education has canceled federal loans borrowed by students who attended ITT Tech between 2005 and 2016. And separately, hundreds of millions of dollars in private student loans were forgiven through the efforts of the Consumer Financial Protection Bureau.

If you attended ITT and your federal loans haven’t been forgiven, contact your loan servicer. Those individuals still dealing with private loan debt may want to consider other methods to help manage it. For example, they could speak with their lender about any repayment options the lender might offer given the circumstances, check to see if their state has any programs to help students after a college closure, or explore student loan refinancing to see if they qualify for more favorable rates and terms.

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

Photo credit: iStock/T-studios2

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSLR-Q424-018

If you’re going to college or graduate school, there are multiple forms of financial aid you can apply for, including scholarships, grants, and student loans. As you research your options, you might come across the “Title IV” financial aid.

What is Title IV financial aid, and what does it mean for students? Title IV financial aid refers to several federal financial aid programs authorized by the Higher Education Act of 1965.

Here’s what students need to know about Title IV aid, including which financial aid qualifies and the limits on how much you can receive.

What Is Title IV Aid?

Title IV financial aid refers to several federal student financial assistance programs available to students attending a higher education institution that has Title IV status. Title IV status is granted by the U.S. Department of Education to a range of institutions, including public and private colleges, as well as trade and technical schools.

Title IV aid is intended to help cover the cost of college for students who can’t afford to pay out of pocket. For that reason, most Title IV aid requires that students demonstrate financial need to qualify.

Which Types of Financial Aid Are Considered Title IV Aid?

Wondering what is Title IV financial aid vs. other forms of financial aid? All Title IV aid involves federal programs that are administered by the Department of Education.

To apply for federal Title IV financial aid, students need to submit the Free Application for Federal Student Aid, better known as the FAFSA.

Here’s a list of the types of federal financial aid that are considered Title IV.

Direct Subsidized and Unsubsidized Loans

Nearly 29% of undergraduate students received federal student loans for the 2022-2023 academic year, according to the latest data from the National Center for Education Statistics.

Direct Subsidized Loans and Direct Unsubsidized Loans are two federal student loans offered by the Department of Education to help students pay for higher education, including four-year college, community college, and trade and technical schools.

The amount of financial aid you can get is determined by your school. The amount you can borrow in federal loans is the cost of attendance minus any other financial aid you receive. Like all student loans, these Title IV loans need to be repaid, but there are some key differences between the two loan options.

With a Direct Subsidized Loan, borrowers aren’t responsible for paying interest on the loan while they’re in school, for the six-month grace period after leaving school, and during student loan deferment. These loans are awarded based on a student’s financial need.

In comparison, Direct Unsubsidized Loans are not based on financial need — they are available to all undergraduate and graduate students. However, interest on these loans accrues while students are in school and during the grace period afterward, and that interest is added to the total principal amount of the loan.

Direct PLUS Loans

The Department of Education offers Direct PLUS loans to grad or professional students (referred to as a Grad Plus loan) and parents of dependent undergraduate students (these are known as Parent PLUS loans). A Direct PLUS loan is an unsubsidized loan with a fixed interest rate that can help borrowers cover the full cost of attendance, minus other financial aid, such as grants and scholarships.

Direct PLUS loans have higher interest rates than other types of federal student loans, so it’s generally recommended that students exhaust all their other Direct Loan options before considering this type of Title IV aid.

Federal Supplemental Educational Opportunity Grants

The Federal Supplemental Educational Opportunity Grant (FSEOG) program is a type of Title IV aid for students with exceptional financial need. Unlike student loans, grants for college don’t need to be repaid.

Students can be awarded between $100 and $4,000 a year in FSEOG grants. The exact amount depends on the other forms of financial aid received and a school’s availability of funds. Applying early can help increase your chance of accessing funds, but keep in mind that participation in the FSEOG program varies by school.

Federal Work-Study

The federal work-study program is a type of Title IV aid that’s available to students based on their financial need. It allows students to earn money through part-time employment, often related to community service or a student’s field of study.

Work-study jobs may be on or off campus, and schools may help find positions or require that students find, apply, and interview for positions on their own. Students are paid at least the minimum wage in their state, and the amount you earn can’t exceed the federal work-study award.

Pell Grants

As mentioned, grants are a type of financial aid that don’t need to be repaid, making them a desirable form of Title IV federal financial aid.

Pell Grants are awarded based on financial need to students who have not yet earned a bachelor’s degree. Aside from demonstrated financial need, students need to maintain satisfactory academic progress toward their degree to keep Pell Grants.

For those eligible for Pell Grants, the maximum award is $7,395 for the 2024-2025 academic year. The amount is subject to change each year.

Are Scholarships Considered Title IV Aid?

Scholarships can come from a range of sources, and like grants, do not need to be repaid. Scholarships are not considered Title IV Aid. However, both merit- and need-based scholarships often require that students complete the FAFSA to be eligible to apply.

Recommended: Student Loan Refinancing Guide

How Do I Find Out If I Qualify for Title IV Aid?

To recap, Title IV aid is awarded based on financial need, with the exception of Direct Unsubsidized Loans. Students also must meet other eligibility criteria to qualify, including citizenship requirements and being enrolled in or accepted at an accredited higher education institution with Title IV status.

Students need to fill out and submit the FAFSA to determine what Title IV financial aid they qualify for. Pell Grants and FSEOG awards are issued on a first-come, first-served basis, so applying early is recommended. Note that students can list multiple institutions on their FAFSA application if they’re still undecided about what school to attend.

Are There Limits to the Title IV Aid I Can Receive?

Some types of Title IV aid, such as Pell Grants and FSEOG awards, have set limits of $7,395 and $4,000 per year, respectively, for all students.

For federal student loans, the total amount you can borrow depends on your academic year, the type of loan, and your dependency status. If you are a dependent student, you can borrow up to $31,000 in federal loans for your undergraduate studies, with a cap of $23,000 for Direct Subsidized Loans.

The amount of Title IV aid you can receive is also limited by the cost of attendance at your school.

If you don’t receive enough financial aid to pay for school, you may want to consider private student loans to help cover the gap. With private loans, you receive a loan from a private lender, such as a bank, credit union, or online lender. The interest rate and terms you get are based on your credit, and borrowers must pass a credit check to qualify. For college students who typically don’t have enough of a credit history, a cosigner on the loan may be required.

Keep in mind that you could always choose to refinance student loans later on when you have a stronger credit history. Ideally, you may be able to get a lower interest rate or more favorable terms. (Just be aware that if you opt to refinance federal loans, that makes them ineligible for federal benefits such as income-driven repayment plans and student loan forgiveness.)

If you can qualify for better rates and terms, refinancing student loans to save money may make sense for you.

Using a student loan refinancing calculator can help you see what your payments might be.

The Takeaway

Title IV aid refers to several federal assistance programs that are intended to help make higher education more affordable. Many of these programs are based on financial need, and students need to complete the FAFSA to find out what federal financial aid they qualify for.

There are limits to how much students can receive in financial aid, however, and students may consider taking out private student loans to fill any funding gaps. Later on, they might consider student loan refinancing to reduce their payments.

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

Photo credit: iStock/fizkes

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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If you’re employed in the public sector or working for a nonprofit, and you have federal student loans to repay, you may be wondering if you can successfully navigate the Public Service Loan Forgiveness (PSLF) program.

Whether you’re just starting out on the PSLF path, or you’ve been working toward it for a few years and you’re getting closer to qualifying for forgiveness, it’s important to get the different stages of the process right.

Read on for information on how PSLF works, how to check PSLF progress, and ways to manage your progress moving forward.

Understanding PSLF Basics

The Public Service Loan Forgiveness (PSLF) program was created by the Department of Education (DOE) in 2007 to encourage college graduates to consider public service careers.

As an incentive, the program allows individuals who choose to work for the government, nonprofits, and qualifying religious organizations to apply for public service loan forgiveness. That means that after making 120 qualifying monthly loan payments, their remaining federal loan balance may be erased. Those working toward PSLF can use an income-driven repayment (IDR) plan to help lower the amount they owe on their student loans each month.

Another perk of PSLF: The leftover loan balance that’s forgiven isn’t subject to federal income taxes. So if you work in public service and you’re struggling with how to get out of student loan debt, the PSLF program may well be worth considering.

Eligibility Requirements for PSLF

PSLF applicants must meet several requirements to be eligible for forgiveness, including having the right types of loans and being on the right repayment plan.

Qualifying Loan Types

Only loans that are part of the federal Direct loan program, such as federal Direct Subsidized loans and federal Direct Unsubsidized loans are eligible for PSLF. Federal loans that are not Direct loans (such as Federal Family Education Loans (FFEL), Parent Plus loans, and Perkins loans) must be consolidated into a Direct Consolidation Loan to become eligible.

When it comes to undergraduate vs graduate student loans, only graduate loans that are part of the federal Direct program, such as Direct PLUS loans for graduate students, are eligible for PSLF.

Private student loans don’t qualify for federal forgiveness.

If you’re not sure what type of loans you have, log onto the Federal Student Aid (FSA) website StudentAid.gov. Click on the “My Loan Servicers Section” on your dashboard, and view the federal student loans in your name.

If your loans don’t qualify for PSLF, student loan refinancing is another option you may want to consider. When you refinance student loans, you replace your current loans with a new loan from a private lender. Ideally, the new loan will have a lower interest rate or more favorable terms, which could help make your payments more manageable. However, it’s important to be aware that refinancing federal loans makes them ineligible for federal benefits such as income-driven repayment and federal forgiveness plans.

Eligible Repayment Plans

To qualify for PSLF, you must make your monthly loan payments under an eligible income-driven repayment (IDR) plan or the standard 10-year-repayment plan. FSA advises using an IDR plan to repay your loans if you are working toward PSLF. Under these plans, your payments are based on your discretionary income and your family size, which can lower your payments.

Currently, the income-driven repayment options for federal Direct loans are the Income Based Repayment (IBR) plan, the Pay As You Earn (PAYE) plan, and the Income Contingent Repayment (ICR) plan. The Saving on a Valuable Education (SAVE) plan has been blocked in court and is on hold.

If you aren’t sure what loan repayment plan you’re on currently, you can check your FSA dashboard.

Qualifying Employment for PSLF

Another requirement for PSLF is that you work full-time — meaning at least 30 hours a week — for a qualifying employer. However, if you work part-time for two qualifying employers and your time averages out to at least 30 hours weekly, you may also be eligible.

Qualifying employers include:

•   Government organizations

•   501c3 nonprofit organizations

•   Nonprofit organizations that don’t have 501c3 status but whose primary purpose is to provide a qualifying public service

•   AmeriCorps or the Peace Corps

•   Religious organizations

You can use the Employer Search tool on the StudentAid.gov site to see if your employer qualifies. But you must submit a PSLF employment certification form — online or using a paper form — to confirm an employer’s eligibility status.

Make sure to submit a new employment certification form every time you change jobs to make sure your new employer qualifies. You may even want to do it annually. That way, your own records will remain up to date. And if you’re wondering where to find qualifying payments on your student loans, the number of qualifying PSLF payments you’ve made will be updated every time you file a new form, which can help you stay on top of your progress.

It’s important to note that the 120 monthly PSLF qualifying payments don’t have to be consecutive. For example, if you have a period of employment with a nonqualifying employer, you won’t lose the counts for prior qualifying payments. But you must be employed full-time by a qualifying employer when you apply for forgiveness.

Tracking Your Progress Toward Forgiveness

Managing your PSLF status has gotten a little easier in recent years, thanks to the PSLF Help Tool and other updates to the program.

The PSLF Help Tool helps make the StudentAid.gov site a one-stop shop for just about anything you might need to do while you’re working toward forgiveness, including checking your PSLF progress. You can use the site to:

•  Verify your employer’s PSLF eligibility status. As noted, you can do this by using the Employer Search tool. You’ll need your employer’s EIN (employer identification number) to search the database.

•  Submit a PSLF form to confirm your employer’s eligibility. You and your employer can use the PSLF Help Tool to digitally sign and submit the form.

•  Confirm your PSLF signatures using the Status Tracker. That way you can get credit for qualified PSLF payments. You can also use the site to email your employer a reminder to sign the form. If your employer is unable to digitally sign the form, you can manually upload the signed PDF.

•  Check the status of forms you’ve submitted. You can find out if there are any actions you must take to move the process along.

•  Review your qualified payment count. Make sure it’s been updated and that all your qualifying payments have been included.

Submitting the PSLF Application

Once you’ve made 120 payments and all other PSLF requirements have been met, you can request forgiveness of your remaining loan balance using the PSLF certification and application form.

You can use the PSLF Help Tool to digitally complete, sign, and submit your form. Or you can download a PDF of the form and manually sign and submit it.

After reviewing your application, the Department of Education will let you know if your request has been approved or denied. In the meantime, the FSA advises that you continue making payments on your loans, just in case there are any problems with your application. (Payments you make after your 120th qualifying payment will be refunded or applied to any other outstanding federal student loan debt you may have.)

Common PSLF Pitfalls and How to Avoid Them

The PSLF process takes years — think of it as a marathon, not a sprint. Here’s how to avoid some common mistakes along the way:

•  Don’t assume anything about the program will happen automatically. It’s up to you to make sure that you meet all the PSLF requirements and your paperwork is filed accurately and on time. If you have any questions, you can check the StudentAid.gov site and use the PSLF Help Tool to get the information you need. It may also be useful to set up news alerts for student loan forgiveness news updates so you’re always in the know about changes to the program.

•  Make sure your student loans are eligible for forgiveness and that you have the right repayment plan. Only federal Direct loans are eligible for PSLF. FFEL program loans and Federal Perkins loans don’t qualify unless they’ve been consolidated into a Direct Consolidation loan.

•  Certify your employment regularly. The employment certification form confirms that your employment is eligible for the PSLF program. It can also help you track how many qualifying payments you’ve made as you work toward the 120-payment threshold. That way, you can avoid any surprises when you apply for forgiveness.

•  Don’t make payments if your loan is in deferment or forbearance. You can only make a qualifying monthly loan payment during periods when you have a payment due. If you’re in loan deferment or forbearance (except under specific circumstances), payments are not due. But if you want to make qualifying payments, you can contact your federal student loan servicer to waive the deferment or forbearance.

•  Check out your other options. PSLF only makes sense if you have a remaining loan balance to erase after you’ve made 120 qualifying payments. If you aren’t sure whether that timeline makes sense for you, you can use the loan simulator at StudentAid.gov to get a personalized PSLF projection and compare it to other loan payment strategies.

Recommended: Removing Student Loans from Your Credit Report

Strategies to Maximize PSLF Benefits

Because student loan forgiveness is evolving and the rules can be complex, it can be challenging to make the most of all the benefits available. Here are two strategies that may help maximize PSLF.

•  Lowering income-driven loan payments by saving more for retirement. When you’re on an IDR plan, your monthly payments are based on your discretionary income each year. Contributing more to your employer’s retirement savings plan like a 401(k) could help reduce your taxable income and lower your payment. (You may want to discuss this strategy with a financial or tax professional to be sure it makes sense for you.)

•  Using other programs to boost your benefits. You don’t necessarily have to put all your eggs in the PSLF basket. There may be multiple student loan forgiveness programs you can use to help pay off your loans, based on the type of work you do and other factors. You might even be able to combine some of these benefits with PSLF.

The Takeaway

Working toward Public Service Loan Forgiveness can be a slow process, and at times, it may seem like more effort than it’s worth. But the program’s processes have improved over time, and if you qualify and you stick with it, PSLF can provide significant savings on your student debt.
If you don’t qualify for PSLF or you’re looking for other options to help manage your payments, you can explore IDR plans to see if one of them is right for you. You may also want to consider student loan refinancing if it could help you lower your monthly loan payments. Explore the different avenues available to see what works best for your situation.

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

FAQ

What types of loans are eligible for PSLF?

Only loans that are part of the federal Direct loan program are eligible for PSLF. Private student loans don’t qualify for federal forgiveness. And federal loans that are not Direct loans, such as Federal Family Education Loan Program loans, Parent Plus loans, Perkins loans, must be consolidated to a Direct Consolidation Loan to become eligible.

How many payments do I need to make before qualifying for forgiveness?

You must make 120 qualifying payments (meaning using an eligible repayment plan such as an income-driven repayment plan and working for a qualifying employer) to successfully apply for Public Service Loan Forgiveness (PSLF).

Can I make lump-sum payments to reach forgiveness faster?

No. Waivers that temporarily allowed borrowers to make a lump-sum payment to reach forgiveness faster have expired.

What happens if I change jobs during the 10-year period?

It’s important to submit a PSLF employment certification form any time you change jobs. That way you can make sure your new employer is eligible.

Are there any tax implications when my loans are forgiven under PSLF?

The amount that’s eventually forgiven under the PSLF program is not subject to federal income taxes. However, you may have to pay state taxes. Check the tax rules in your state or consult a tax professional.

Photo credit: iStock/:Frazao Studio Latino

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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