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Normally there is no simple way to cancel interest on student loans. There are programs under which different kinds of federal student loans could be forgiven or discharged, but they are not easy to qualify for.

Then there’s non-COVID-related forbearance, during which interest does accrue.

During the 2020-21 coronavirus-related “administrative forbearance,” interest rates were set to 0% on federal student loans held by the Department of Education through at least September 2021—and the interest did not accrue. So that’s a reprieve from interest but not a cancellation.

A case of major loan and interest cancellation did arrive in March 2021, when the Biden administration canceled $1 billion in federal student loans for borrowers who attended a school that had engaged in deceptive or illegal practices or closed suddenly.

How Does Student Loan Interest Work?

When borrowers take out a student loan, they should remember that they’ll end up paying more than the amount they initially took out, when all is said and done. That’s because loans come with interest or the amount a lender charges a person to borrow money, which will vary based on the type of loan.

Borrowers accrue interest on their student loans every day. Yep, every day. On top of that, the interest compounds, which means interest owed on a loan rolls into the loan’s total. Simply put, a borrower will pay interest on the interest.

The student loan interest rate does not change on income-driven repayment plans, but the plans can increase the total amount of interest you pay because repayment terms are expanded.

With a typical deferment or forbearance—postponement of student loan payments when you can’t afford them—interest usually accrues during the period (though the government picks up the interest tab during some deferments).

Reports have emerged of borrowers being asked to pay fees to suspend their payments s. That’s a scam. Anyone who encounters that kind of request can report it to the Federal Trade Commission’s Complaint Assistant .

Recommended: How To Calculate Student Loan Interest

Administrative Forbearance: Which Loans?

The government’s suspension of payments and interest did not apply to private loans.

It did apply to the following defaulted and nondefaulted federal student loans owned by the Department of Education:

•   Direct Loans, including subsidized, unsubsidized, Direct PLUS Loans, and Direct Consolidation Loans
•   Federal Family Education Loan (FFEL) Program loans
•   Federal Perkins Loans

If a borrower had a FFEL or Perkins loan not held by the Department of Education, they were beholden to the policy adopted by their lender or school. If their lender or school chose not to adopt the payment and interest waiver, then they were to keep making payments with interest.

Borrowers could choose to consolidate their loans with a federal Direct Consolidation Loan. But doing so after the 0% interest period could result in a higher interest rate than before.

This is true any time: Borrowers unsure of their federal loans’ status may want to contact their servicer for information. Policies are in flux, so loan servicers will know the latest.

How Forbearance and Deferment Normally Work

If you face short-term financial hardship, you may qualify for forbearance or deferment on federal student loans, providing a temporary suspension of payments.

During a normal forbearance, if you qualify, you can temporarily postpone or reduce your federal student loan payments, but interest will accrue on your loans.

During a normal deferment period, the government, not the borrower, pays the interest on some student loans, such as Direct Subsidized Loans, but interest will accrue on others, like Direct Unsubsidized Loans and Direct PLUS Loans.

During forbearance, you probably won’t be making any progress toward forgiveness or paying back your loan, the Federal Student Aid office notes, and gives this example:

If you have a loan balance of $30,000 and an interest rate of 6% and are in forbearance for a year right after you enter repayment, $1,800 in interest will accrue on your loans. If you do not pay that interest, it will capitalize (be added to your principal balance).

Because interest accrues on your principal balance, capitalization will cause more interest to accrue over time than if you had paid the interest. It will also increase your monthly payment under most repayment plans.

Forgiveness, Cancellation, and Discharge

There are several types of forgiveness, cancellation, and discharge for different kinds of federal student loans. Here are a few.

Public Service Loan Forgiveness

If you are employed by a government or nonprofit organization, you may be able to have your Direct Loans balance forgiven after 120 qualifying monthly payments.

Teacher Loan Forgiveness

If you teach full-time for five consecutive academic years at a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct or FFEL Program loans.

Total and Permanent Disability Discharge

If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or Teacher Education Assistance for College and Higher Education Grant service obligation.

Discharge in Bankruptcy

Available for Direct Loans, FFEL Program loans, and Perkins Loans, but bankruptcy rarely results in discharge of all debt..

Recommended: Is Paying Off Student Loans Early Always Smart?

What’s Known …

Any payment made during the administrative forbearance was to be applied to the principal of the loan, unless a borrower had accrued unpaid interest, which would have to be paid off first, according to the Consumer Financial Protection Bureau.

Nonpayments by borrowers working full time for qualifying employers were to count toward the 120 payments required by the PSLF program and as payments required to receive forgiveness under an income-driven repayment plan.

Collections on defaulted federally held loans were halted, as were garnishments.

… and Could Be Around the Bend

A lot can happen in a short amount of time. As of now, there’s lots of talk of forgiveness of federal student loans.

But if that does not happen, or happen in the amount some hope for, federal student loan borrowers must eventually resume payments at their loans’ original interest rate.

Those who anticipate a struggle to make payments may consider a number of repayment options, including income-driven repayment plans and federal student loan consolidation.

And those with private student loans might want to consider refinancing, especially if they have good credit and a stable income, during a time of low rates.

The Takeaway

Cancellation of student loan interest is rare. In a normal forbearance, interest accrues on student loans. And other than student loan cancellation from on high, en masse, it’s pretty darned hard to have loans forgiven.

While rates are low, it could be time to look at the rate of your private student loans and consider refinancing them. Student Loan Refinancing with SoFi can mean a lower interest rate and a different loan term.

Borrowers can consolidate both private and federal student loans into one new loan with one monthly payment.

†Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE 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.
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.


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

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It’s hard to find anything close to the pride and joy having kids can bring you. And one of the best gifts we can give them is a solid education. That means reading to them when they’re toddlers, helping them with homework, and paving the way to college.

It’s a good idea to begin putting a college plan in place as soon as you can.

As the end of high school nears, not only are grades and school involvement important, but here comes the potential expense of entry into college. Waiting until then to look at the cost of attendance could be jaw-dropping.

Whether you plan to foot the whole bill or cover just a portion, you may want to start thinking about how much you can save monthly to hit your target.

Considering the Future Costs

As you think about saving for college, consider the potential cost of when your child will actually attend rather than focus on what it costs now.

There’s the matter of tuition and fees, usually reported as one figure. The averages for the 2020-2021 academic year, according to CollegeData:

•  $10,560 at public colleges (for in-state residents)
•  $27,020 at public colleges (for out-of-state residents)
•  $37,650 at private colleges

“Cost of attendance” for a year includes that figure and, usually, room and board, books, supplies, transportation, and personal expenses. For the 2020-2021 academic year, CollegeData put the average cost of room and board alone at:

•  $11,620 at public colleges
•  $13,120 at private colleges

Living and eating at Mom and Dad’s obviously will reduce those costs.

The average price of books and supplies for students at both public and private colleges came to $1,240.

Now let’s say you want to estimate what college costs might be years later, when your child sets off for college. Assuming 15 years until your child starts as a freshman and a 5% increase in costs per year, here’s the estimate per year 15 years down the road for tuition, fees, room, and board.

•  Cost today at a four-year public college, in-state rate: $22,180
•  In 15 years: $46,111

•  Cost today at a four-year public college, out-of-state rate: $38,640
•  In 15 years: $80,330

•  Cost today at a private four-year school (average): $50,770
•  In 15 years: $105,547

Keep in mind that most college students take more than four years to get a bachelor’s degree. In fact, most take five or six years, according to the National Center for Education Statistics.

Those are big numbers, but every student who meets eligibility requirements can get some type of federal student aid, says the Federal Student Aid office. And then there’s merit aid, or merit scholarships, which are based on academic achievement or other talents or skills. Merit-based aid does not have to be paid back.

College Savings Vehicles to Consider

There are several options and accounts to help you with saving for your child’s college education. Some have tax benefits and others offer flexibility, should your child decide to forgo college, so you should explore the plan that best fits your specific needs.

Ways to save for college include:

•  A 529 plan, which breaks down into two categories: educational savings plans and prepaid tuition plans.
•  Coverdell Education Savings Account
•  UGMA/UTMA accounts

The difficult part in deciding when to start saving for college isn’t always as simple as picking out a savings plan. It might be less about “when” and more about “how”—finding room in your budget to meet education expenses and all your other financial goals.

Balancing College Savings With Retirement Savings

If you’re like many young parents, you may be wondering how to juggle college savings with all of your other expenses, including debts and retirement contributions. Drawing up a savings plan that doesn’t jeopardize your retirement planning or send your household finances into a nosedive is a great place to start.

Scholarships and student loans may be accessible to help pay for your child’s education, but the same cannot be said for your retirement nest egg. You would do well to consider how long you’ll need money in retirement and how that compares with four to six years toward a bachelor’s degree.

To get a better handle on how much money you will need to retire, the AARP advises asking four key questions : How much will you spend? How much will you earn on your savings? How long will you live? How much can you withdraw from savings each year?

One study found that the combined income and savings of parents and students makes up for nearly half (47%) of the funding families use to cover the entire cost of school. It also found that parents pay 10% of the total amount due by borrowing, and that students cover 14% with student loans and other debt-forming sources.

Parents deciding when to start saving for college might not want to think of it as an I-must-pay-for-it-all prospect. If you’re still stumped on how to balance both goals, it’s OK. At the end of 2019, before the financial repercussions of COVID-19, many non-retirees were struggling to save, the Federal Reserve found.

These eight tips for finding “hidden” money could help you get started thinking about funding retirement and college at the same time.

As college enrollment time gets closer, you could have a family discussion on how much student loan debt you and your child are willing to take on, if necessary.

💡 Recommended: Understanding the Different Retirement Plans

What If I Still Have Student Loan Debt?

Many parents who wonder when to start saving for their child’s college may also be asking how they can reduce their own college debt. U.S. student loan debt has ballooned to $1.71 trillion, the Fed reported. That’s an average of $37,700 in loans each for 45 million Americans.

If you find yourself with student loan debt while also saving for your child’s college education, there are at least four options that might help you to free up more money:

•  Federal student loan consolidation
•  Federal student loan forgiveness
•  Federal income-driven repayment plans
•  Refinancing private and/or federal student loans through a private lender

With student loan refinancing, depending on your credit history and income, you could qualify for a lower rate than the one you currently have on your student loans.

This could mean savings over the life of the loan, depending on the repayment term you select. But know that if you refinance federal student loans, you’ll lose out on any repayment plans or protections offered by the federal government, like Public Service Loan Forgiveness and income-driven repayment plans.

The Takeaway

When to start saving for a child’s college education? The sooner, the better. First, though, it’s best to make sure you are on steady financial footing, and then, if possible, find money here and there to save for your children’s college.

If you happen to still have student loans of your own, you may want to look at the flexible terms and fixed or variable rates SoFi offers to refinance student loans into one new loan with one monthly payment. There are no application or origination fees, and checking your rate takes two minutes.

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

There’s no question that student loan debt is at an all-time high. The latest statistics show that nearly 45 million U.S. borrowers owe more than $1.7 trillion in student loans.

Many graduates want to pay off their student loans as soon as possible. But is paying off the loans early always the best move?

That depends on a variety of factors, including whether you are carrying additional debt, if you have a savings account, and how you define your financial goals—among others.

For instance, if you’re carrying a large amount of credit card debt and are paying, say, 16% interest on it, but your student loans have a 5% interest rate, it may make more sense to pay off your credit card before you pay off your student loans.

Here’s a look at the pros and cons of paying off student loans early.

Pro: No Need to Worry about Prepayment Penalties

Whether you have federal or private student loans, lenders cannot charge prepayment penalties.

That means you can reduce the balance of a student loan by making extra payments and even pay off the entire balance before it’s due without being charged an extra fee.

Keep in mind that when you make an extra payment on your loan, the payment is applied first to any late charges and collection costs, then to outstanding interest, and then to outstanding principal, according to FinAid. Any amount beyond this total is considered a prepayment on the principal of your student loan.

Con: You Risk Missing Payments

Sometimes borrowers get so excited about making extra payments on their student loans that they forget to make consistent payments. Keep in mind that if you make an extra payment each month, but then miss a minimum payment deadline the next month, you will be charged a late fee for the payment you failed to make.

Doubling up on payments doesn’t give you the luxury of missing a monthly payment. Always make sure you are able to meet your monthly minimum payment deadlines. And if you have more than one student loan, consider making extra payments on the loan with the highest interest rate so that you pay less interest on the loan over time.

Pro/Con: Your Credit Score Might Change

While you might think paying off your student loans early will improve your credit, that isn’t always the case, according to the National Foundation for Credit Counseling. Most lenders like to see a history of money being borrowed and paid back on time before they give you credit.

If student loans are your primary source of open credit, once you close your student loan accounts, you could lose a significant factor driving your credit history. And don’t forget that “a shorter history typically means a lower credit score,” according to the foundation.

💡 Recommended: Student Loan Payoff Calculator

Con: You Could Miss Out on Other Financial Goals

Repaying your student loans shouldn’t be your only financial goal (and it probably isn’t). You might also be thinking about saving for a car or a house, or investing for retirement. If you focus solely on repaying your student loans, you might miss opportunities to save for retirement, children, or a down payment on a house.

It’s also important to have an emergency fund—typically at least three to six months’ worth of living expenses saved up—in case you lose your job or get hit with an unexpected big bill.

Rather than using a tax refund or bonus to make an early payment on your student loans, you might want to put that money toward an emergency fund first.

FYI: Most Student Loans Survive Bankruptcy

Let’s say you’re making headway on student loan payments but face a crisis and consider filing for bankruptcy, thinking that’s one way to get your loans off your back. But student loans aren’t typically discharged if you file for bankruptcy.

In fact, to attempt to have a student loan discharged in bankruptcy, the borrower must file for an “adversary proceeding,” requesting that a bankruptcy court find that repayment would impose an undue hardship.

Bankruptcy courts do not use a single test to determine “undue hardship.” According to the U.S. Department of Education’s Financial Student Aid office, bankruptcy courts typically look at three factors (part of the “Brunner Test”) to determine if requiring you to repay your loans would cause an undue hardship:

•  If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
•  There is evidence that this hardship will continue for a significant portion of the loan repayment period.
•  You made good-faith efforts to repay the loan before filing bankruptcy.

In an adversary proceeding, borrowers must present evidence showing that they meet the undue hardship standards while lenders present opposing evidence. The proceeding can be invasive and expensive for borrowers and rarely results in discharge of all debt.

Bankruptcy judges have a lot of discretion in determining eligibility. In many cases, borrowers will be required to repay their loans but with different terms, such as a lower interest rate.

The Takeaway

Is paying off student loans early always the best move? Not necessarily, if it gets in the way of paying down high-interest debt, creating an emergency fund, or saving for a down payment or retirement.

Instead of paying off student loans early or looking for an escape route altogether, it might make more sense to refinance with a private lender like SoFi. If you qualify, refinancing your private and/or federal student loans can change the terms and the interest rate.

Refinancing could potentially get you a lower monthly payment and a more flexible student loan repayment plan. (Know that if you refinance a federal loan to a private loan, you’ll forfeit your right to federal loan benefits like income-based repayment. You may pay more interest over the life of the loan if you refinance with an extended term.)

Refinancing results in one loan with a single interest rate and one monthly payment.

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

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE 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.
This article provides general background information only and is not intended to serve as legal or bankruptcy 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 bankruptcy 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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