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With some exceptions, the IRS has historically treated forgiven student debt as taxable income. That, however, is not the case with Biden’s one-time student loan relief plan, should it pass current court challenges. (The case is now with the Supreme Court; a decision is expected in June.)

The reason the one-time, Covid-19-related forgiveness (of up to $20,000) wouldn’t be federally taxed? Five words: the American Rescue Plan Act. Passed in March 2021, the law specifies that student loan debt discharged between 2021 and through 2025 and incurred for postsecondary education expenses will not be counted as income, and therefore would not incur a federal tax liability.

That said, some states have indicated that they will still count canceled student loans as taxable income. Read on for more information about which discharged student debt is taxable and by whom.

Different Student Loan Forgiveness Programs

In addition to the president’s one-time, Covid-related debt cancellation plan, whose fate is with the Supreme Court, federal student debt can be canceled via an income-driven repayment plan or forgiveness programs.

For example, the Department of Education (ED) recently amended the Public Service Loan Forgiveness Program (PSLF) and the “borrower defense to repayment” program, and as a result, it has erased $7.3 billion in student loans for nonprofit and government employees who have remaining debt after 10 years or 120 payments and $7.9 billion for 690,000 borrowers whose education provider deceived them “or engaged in other misconduct in violation of certain state laws,” according to the ED’s Federal Student Aid office.

Also, during the current administration, the ED has been forgiving the student debt of certain borrowers: $3.9 billion for 208,000 students who attended ITT Technical Institute, a now-closed for-profit school; $5.8 billion for all former students of Corinthian Colleges, another shuttered, for-profit school; and more than $8.5 billion for 400,000 borrowers with a total and permanent disability.

Recommended: Guide to Student Loan Forgiveness

Whose Student Loan Cancellation Is Not Federally Taxed?

As stated earlier, under the provisions of the American Rescue Plan Act, any student debt (private or federal) for post-secondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that the borrowers just listed above were not required to report their discharged loan amount as earned, and therefore taxable, income.

If Biden’s Covid-related student debt relief program survives the legal battle, recipients of that debt cancellation would also not be required to report their debt discharge as taxable income.

Outside of the special five-year window of tax exemption provided by the American Rescue Plan, participants of the PSLF program who receive forgiveness also don’t have to worry about paying taxes on the canceled amount. The program explicitly states that earned forgiveness through PSLF is not considered taxable income.

Whose Student Loan Cancellation Is Federally Taxed?

Typically, borrowers who receive loan cancellation after participating fully in an income-driven repayment plan can generally expect to pay taxes. Again, those whose debt was discharged in 2021 and 2022, or will be discharged in 2023, 2024, or 2025, will not need to pay federal taxes on their forgiven loans.

Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation.

💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money. (Please note that refinancing student loans means losing access to federal protections and repayment programs.)

Which States Have Said They Will Tax Forgiven Student Loans?

Typically, states follow the tax policy of the federal government. But according to the Tax Policy Center, these six states have either indicated that they will tax discharged education debt or have laws on the books that don’t exempt forgiven student debt from taxes: Indiana, Minnesota, Mississippi, North Carolina, Wisconsin, and California. Additionally, the Arkansas legislature has yet to decide whether it will tax forgiven student loans.

In case you are wondering, only one of the states that have legally challenged the Biden forgiveness plan overlaps with states that will or may tax forgiven student loans: Arkansas. The other state plaintiffs in a case currently with the Supreme Court conform with the current federal definitions of taxable income, again, according to the Tax Policy Center: Nebraska, Missouri, Iowa, Kansas, and South Carolina.

Preparing to Pay Discharged Student Loan Taxes

If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take today to get ready.

Step 1: Estimate Your Bill

The first step when bracing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This factor can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.

To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.

Step 2: Choose the Right Plan

Enrolling your federal student loans into an income-driven repayment (IDR) plan can help you keep your monthly payments to a manageable amount while you’re awaiting loan forgiveness. There are four IDR plans available: Pay As You Earn, Revised Pay As You Earn, Income-Contingent Repayment, and Income-Based Repayment.

All of these repayment plans calculate your monthly payment, based on your income and family size. Depending on your situation, you might be eligible for a $0 monthly payment.

Recommended: REPAYE vs PAYE: What’s the Difference?

Step 3: Prioritize Saving

If you’re expecting loan forgiveness after 2025, it might be advantageous to allocate extra cash flow toward a dedicated tax savings fund. Incrementally setting money aside over multiple years can ease the burden of a sudden lump sum tax bill down the line.

Paying Taxes on Canceled Student Loan

If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest will likely accrue.

💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

The Takeaway

Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due, depending on where the borrower lives.

Refi with SoFi today to get flexible terms and a competitive low rate before interest rates rise even higher!

FAQ

Is loan repayment considered taxable income?

If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the Cares Act, loan forgiveness payments — and employer assistance loan payments up to $5,250 — made each year from 2021 through 2025 are tax-free.

Will refinancing my student loans help me avoid taxes?

Student loan refinancing simply involves reworking one or more existing student loans into a new private loan with more favorable terms. It’s a repayment strategy that does not incur a tax liability.

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

SoFi Student Loan Refinance
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 beyond December 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. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

If you have federal student loans, you may have enjoyed a payment and interest pause for the past few years.

But after receiving several extensions, the pause may be drawing to a close. While it’s still unclear when exactly the student loan forbearance will end, payments and interest accrual could resume in late August. However, they may start back up sooner than that. The Supreme Court is reviewing two cases challenging the federal Student Loan Debt Relief program. The justices’ decision will determine the fate of the program, though it may be months before they hand down their ruling.

In the meantime, here’s what you need to know about the student loan forbearance extension, some steps to take before it ends, and alternate ways to extend or pause payment.

What Is a Student Loan Forbearance Extension?

The government forbearance — suspending loan payments and collections on defaulted loans and setting a 0% interest rate on almost all federally held student loans — started in March 2020 and was extended several times because of the Covid pandemic and its economic fallout. In November 2022, the Department of Education announced loan repayments could pick back up as late as 60 days after June 30, 2023.

Many private student loan lenders also offered a payment pause or loan modification.

Recommended: What is Student Loan Forbearance?

Will Student Loan Forbearance Be Extended?

It’s unclear right now when exactly the student loan forbearance will end. Much will depend on the Supreme Court’s decision and how the Biden administration decides to proceed if the court rules against its student debt relief plan.

If the Supreme Court allows the plan to go through, many borrowers could be relieved of up to $20,000 in federal student loan debt.

If the court strikes down the plan, payments would resume and interest would begin to accrue 60 days later.

If no ruling has been made by June 30 — and President Biden decides not to extend the payment pause again — payment and interest accrual would resume 60 days later, around the end of August.

Borrowers will be notified before payment restarts.

Recommended: Can the President Cancel Student Loan Debt?

Steps to Take Before the Student Loan Forbearance Ends

Before the student loan forbearance ends, take a look at a few steps you can take:

•   Watch for your billing statement, which should arrive at least 21 days before your first payment is due, or additional communication from your student loan servicer.

•   Update your contact information with the loan servicer and at StudentAid.gov . That way, you’ll learn about your new payment due date, payment amount, and even another pause.

•   Update your bank account information if necessary, particularly if your loan servicer has changed.

•   Consider signing up for automatic payments to avoid missing a payment.

•   Update your income information if you have an income-driven repayment plan, particularly if income has decreased.

•   Go over your budget and determine whether you can make your loan payments. If not, contact your loan servicer to ask about your options.

How to Extend or Pause Student Loan Payments in General

If you’re concerned about your ability to resume student loan payments, consider talking to your loan servicer about:

•   General student loan forbearance

•   General student loan deferment

•   An income-driven repayment plan

•   The Extended Repayment Plan

•   Public Service Loan Forgiveness program

•   Refinancing federal or private student loans with a private lender

Income-Driven Repayment

Based on your income and family size, an income-driven repayment (IDR) plan sets your student loan payments at an affordable repayment amount per month for you. There are four plans, which last for a certain number of years and forgive any remaining balance after that.

•   Revised Pay As You Earn Repayment Plan (REPAYE)

•   Pay As You Earn Repayment Plan

•   Income-Based Repayment Plan

•   Income-Contingent Repayment Plan

To discuss income-driven repayment plans, contact your loan servicer or apply on StudentAid.gov.

Note that if you were on an IDR plan when the moratorium started, each month that passes in this pause counts toward your IDR forgiveness. You’ll also remain on your same plan when the payment pause ends.

Proposed Updates to the REPAYE Plan

In January 2023, the Department of Education released several proposed changes to the REPAYE plan, which would lower monthly payments and lifetime payments for a significant portion of borrowers. Though the updated plan may not be finalized until later in 2023, it includes measures to help borrowers manage their federal student loan debt:

•   Individuals who make less than $30,500 a year, and families of four who make less than $62,400, would not be required to make monthly payments on their loans.

•   Borrowers with undergraduate federal loans would pay 5% of their discretionary income, instead of the 10% or 15% other plans require. Students who took out federal loans for graduate school would pay 10% of their discretionary income.

•   Borrowers who take out less than $12,000 would have their balance wiped out after 10 years of payment, instead of 20 to 25 years.

Refinancing

Refinancing higher-interest student loans with private lenders result in one new loan, ideally with a lower interest rate. If you refinance federal student loans, realize that they will no longer be eligible for federal programs like income-driven repayment plans and the payment pause.

Most lenders offer a fixed or variable interest rate and terms of up to 20 years. It might be a good idea to look for a lender that offers some kind of forbearance.

Alternative Student Loan Financing Options

As you’re thinking about college funding, keep this in mind: You can choose from a number of college financing options, including scholarships, grants, and private student loans.

•   Scholarships: Scholarships are awarded based on merit or need, and students do not need to repay them. Students can get scholarships through businesses, colleges, and other organizations. There are online scholarship search tools that can help you find opportunities you might be eligible for.

•   Direct PLUS Loans: Direct PLUS Loans can help graduate or professional students pay for college. They can also help parents of dependent undergraduate students pay for their child’s college education. You might want to consider a parent PLUS loan refi to a lower rate if you’re repaying a PLUS loan.

•   Grants: Students can get grants from states, the federal government, a public body, and/or other organizations to pay for college.

•   Private student loans: Private student loans are given by commercial lenders, not the Department of Education. Unlike most federal student loans, you will undergo a credit check and possibly have to get a cosigner to sign on the loan with you.

The Takeaway

When will the student loan forbearance end? It’s not clear yet. Payments could resume 60 days after the Supreme Court decides whether or not to strike down the student debt relief program. If the justices have not made a decision by June 30, 2023, payments would pick back up 60 days later, around the end of August.

If you anticipate a struggle resuming payments, now may be a good time to talk to your loan servicer about other ways to extend or pause student loan payments. Options may include forbearance, deferment, an income-driven repayment plan, a loan forgiveness program, or refinancing with a private lender.

When refinancing your student loans, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid. If you refinance federal student loans with a private lender, you give up federal benefits like income-driven repayment, loan forgiveness, and federal forbearance.

Refi with SoFi today to get flexible terms and a competitive low rate before interest rates rise even higher!

FAQ

How do I know when my student loan payments will resume?

Borrowers will be notified before payment picks back up. Be sure to update your contact information with your loan servicer and at StudentAid.gov.

What does student loan forbearance mean?

Forbearance means a borrower can temporarily suspend making loan payments during an approved period. There are two main types of forbearance for federal student loans: general and mandatory.

What are income-driven repayment plans?

An alternative to forbearance, income-driven repayment plans set your monthly loan payments at an affordable amount for you. There are four plans. Each lasts a certain number of years and forgives any remaining balance after that.

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Photo credit: iStock/Andrea Migliarini

SoFi Student Loan Refinance
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 beyond December 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. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi 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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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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If you’re tackling school debt and looking for ways to maximize your tax refund, one avenue to consider is the student loan interest deduction. This benefit allows you to take a tax deduction for the interest you paid on student loans that you took out for yourself, your spouse, or your dependents. The deduction can lower how much of your income is taxed, which could result in a lower overall tax bill.

However, there’s a limit to how much you can deduct each tax year, and you must meet certain criteria in order to get the deduction. Let’s look at how the student loan interest deduction works and how to qualify for it.

Are Student Loan Payments Deductible?

Typically, when you repay a student loan, your monthly payment goes toward the original amount you borrowed plus origination fees (the loan principal) and the amount a lender charges you to borrow it (interest). With the student loan interest deduction, you are only allowed to deduct the amount you paid in interest, not the full amount of the loan payment.

Is Student Loan Interest Deductible?

The student loan interest deductible allows you to subtract up to $2,500 or the total amount of interest paid on student loans — whichever is lower — from your taxable income. Private and federal loans may qualify for this benefit. The deduction is considered “above the line,” which means you don’t have to itemize your taxes to take advantage of it.

Note that there are income phaseouts based on your modified adjusted gross income (MAGI). The deduction is gradually reduced if your MAGI falls between $70,000 and $85,000 ($145,000 and $175,000 if you’re filing jointly). The deduction is eliminated for borrowers with a MAGI of $85,000 or more ($175,000 or more if you’re filing jointly).

Who Can Deduct Student Loan Interest?

Not everyone is able to claim the student loan interest deduction. In order to be eligible for it, you must meet certain criteria:

•   You paid interest on a qualified student loan for you, your spouse, or your dependents in the previous tax year. (A qualified student loan is a loan taken out to pay for qualified education expenses like tuition, housing, books, and supplies. The loan must be used within a “reasonable period” after it’s taken out.)

•   You’re legally required to pay interest on a qualified student loan.

•   Your MAGI in the 2022 tax year is less than $85,000 (or less than $175,000 if you’re filing jointly).

•   Your filing status is anything except married filing separately.

•   If you’re filing taxes jointly, neither you nor your spouse can be claimed as a dependent on someone else’s tax return.

Your eligibility may be impacted if your employer made payments on your student loans as part of a work benefit.

What to Know About the Student Loan Interest Deduction Form

If you pay $600 or more in interest on qualified student loans during a tax year, your loan servicer should send you IRS Form 1098-E. This student loan tax form is usually sent out around the end of January.

If you don’t receive a 1098-E form, you should be able to download it from your loan servicer’s website. To find out who your loan servicer is, log on to the Federal Student Aid website , and the information will be listed in your dashboard. You can also call the Federal Student Aid Information Center at 800-433-3243.

Keep in mind that if you didn’t make payments on your federal student loans because of the Covid-related payment pause — or if you didn’t pay $600 in interest during the tax year — you may not get a 1098-E form. However, you can contact your servicer to find out how much interest you paid during the year if you’re planning to report it on your taxes.

Recommended: How Student Loans Could Impact Your Taxes

Additional Education Tax Breaks

The student loan interest deduction isn’t the only benefit worth knowing about. You may also want to see if you qualify for certain education tax credits, which represent a dollar-for-dollar reduction in your overall tax burden. They can directly lower the tax amount you owe. Here are two to consider.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is a credit for tuition and other qualified educational expenses paid during the first four years of a student’s college education. The credit is worth up to $2,500 per eligible student. Once your tax bill hits zero, you could earn 40% of whatever remains (up to $1,000) as a tax refund.

You must meet certain requirements in order to qualify for the AOTC. You must:

•   Pursue a degree or other recognized education credential

•   Be enrolled at least half time for at least one academic period beginning in the tax year

•   Have no felony drug convictions at the end of the tax year

•   Haven’t claimed the AOTC for more than four tax years

As with the student loan interest deduction, your income matters. To claim the full credit, your MAGI must be $80,000 or less ($160,000 or less if you’re filing jointly) in the 2022 tax year. The credit amount begins to decrease if your MAGI falls between $80,000 and $90,000 (over $160,000 but less than $180,000 if you’re filing jointly). The credit is eliminated if your MAGI is over $90,000 ($180,000 if you’re filing jointly).

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) works a little differently. The credit is worth 20% of the first $10,000 of qualified educational expenses, or a maximum of $2,000 per year. Unlike the AOTC, which only applies to the first four years of a student’s college education, the LLC includes undergraduate, graduate, and professional schools, and courses needed to acquire job skills. There’s no limit to the number of years you can claim it.

However, the LLC has a lower income limit, which means it could be more difficult to qualify for. The credit amount gradually decreases if your MAGI falls between $80,000 and $90,000 ($160,000 and $180,000 if you’re filing jointly) in the 2022 tax year. The credit is eliminated if your MAGI is $90,000 or more ($108,000 or more if you’re filing jointly).

Strategies to Lower Monthly Student Loan Payments

Borrowers looking to save beyond tax time may want to explore ways to lower their monthly student loan payments.

One option to consider is a Direct Consolidation Loan. This loan is offered through the Department of Education and lets you combine different federal student federal loans into a single loan, resulting in one monthly payment. It can also lower your monthly payment amount, allow you to switch from a variable to a fixed interest rate, and help set up loans that are eligible for forgiveness.

Another strategy to think about is refinancing your student loans with a private lender, resulting in one new loan, hopefully with a lower interest rate. Just realize that if you refinance a federal student loan, you will lose access to federal protections and programs, such as the Covid-related payment pause, the Public Service Loan Forgiveness program, and income-driven repayment plans.

Recommended: 7 Tips to Lower Your Student Loan Payments

The Takeaway

The student loan interest deduction can lower how much of your income is taxed, which could result in a lower overall tax bill. Depending on your income, you can deduct up to $2,500 of the interest paid on your loans. If you earn more than $85,000 a year (or $175,000 if you’re filing jointly), you are not eligible. Education tax credits, like the American Opportunity Tax Credit and the Lifetime Learning Credit, could also help lower your tax bill. Like the student loan interest deduction, you must meet certain criteria to be eligible.

There are different strategies that may help you lower your monthly payments so you can save outside of tax time. A Direct Consolidation Loan, for example, lets you combine multiple federal loans into a single loan and switch from a variable to a fixed interest rate.

Another option is to refinance your student loans, which allows you to shorten or extend the loan term. A longer loan term typically results in lower monthly payments but more total interest paid. Shortening your loan term may result in higher monthly payments but significantly less total interest paid.

Refi with SoFi today to get flexible terms and a competitive low rate before interest rates rise even higher!

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SoFi Student Loan Refinance
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 beyond December 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. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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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When it comes to choosing a school, cost is top of mind for many students. In fact, nearly 81% of students and their families eliminated a prospective college based on its price tag, according to a 2022 Sallie Mae survey.

If the cost is a factor you’re considering, it could be worth looking into a college tuition payment plan. These plans allow students and their families to pay tuition and fees over an extended period of time. Qualifying for a plan is usually not difficult, though you may be required to pay an enrollment fee.

Here’s a look at how college tuition payment plans work.

What Is a College Tuition Payment Plan?

Instead of paying for college tuition at the beginning of each year, semester, or quarter, college tuition payment plans — also known as tuition installment plans or deferred payment plans — allow students and their families to spread out the cost of tuition over a period of time.

Depending on the school, the plan may allow payments to be made over the course of the semester or over the full year.

While you’ll generally have to start making payments right away, schools frequently offer the option to spread payments into monthly installments. Some also offer plans that break the payment into a few equal payments throughout the semester.

How Do Payment Plans Work?

Some colleges and schools run their own tuition payment plans. Others use an outside service to administer the plan.

Typically these payment plans only cover the direct costs charged by and paid to the college, such as tuition and fees. Sometimes the cost of housing and meal plans will also be included. The cost of things like textbooks and school supplies are not usually included in these plans.

Many tuition payment plans require an enrollment fee, which may run around $50 to $100, although it could be lower. These plans don’t usually charge interest, which can make them less expensive than taking out a student loan, as long as you are able to make the monthly payments. There generally isn’t a credit check.

What Types of Schools Offer Payment Plans?

Many schools offer some sort of tuition payment plan. Generally, qualifying for the plan isn’t very difficult. However, some schools do have specific enrollment periods. Check with your preferred school to determine when you need to enroll in a payment plan and what is required to do so.

Colleges and Universities

Tuition payment plans are offered at most, though not all, colleges and universities. Check your school’s website for details on available installment plans and see if there’s one that fits your needs and budget.

Graduate Schools

Many graduate programs offer payment plans. Enrollment dates can vary, so contact your program to find you when you’ll need to sign up.

Community Colleges

Community colleges typically offer payment plans for students and their families who are unable to pay costs upfront. Similar to plans at other types of schools, installment plans at community colleges may only cover certain costs, such as tuition and fees.

Trade Schools

On average, trade school tuition can range from $3,674 to nearly $16,000, according to data from the Department of Education. Some schools may offer a payment plan so students can pay the tuition and fees in installments.

What if My School Doesn’t Offer a Payment Plan?

If your preferred school doesn’t offer a payment plan, you can explore independent plans offered through private organizations. Your school’s financial aid office may be able to provide referrals.

Of course, even with a payment plan, the burden of tuition can still be too high for some students and their parents. Consider some of the following options when planning to pay for college tuition. While these ideas alone might not be enough to help you cover the full cost of tuition, a combination of a few could do the trick.

Federal Aid

Federal aid for college encompasses grants, scholarships, student loans, and work-study. To apply, students must complete the Free Application for Federal Student Aid (FAFSA) each year.

The schools you apply to will use this information to determine how much aid you receive. You’ll typically receive an award letter detailing what types of federal aid you’ve qualified for and the amounts.

Federal Student Loans

Federal student loans can be either subsidized or unsubsidized. Subsidized loans are awarded based on need. The Department of Education covers the interest that accrues on these loans while you are in school at least part-time, during the grace period after leaving school, and during periods of deferment or forbearance.

Unsubsidized federal loans are awarded independent of need. Borrowers are responsible for paying the interest that accrues on these loans while they are in school and during periods of deferment.

Payments are not required on either unsubsidized or subsidized loans while you are actively enrolled more than part-time in school.

There are also PLUS loans available to parents who are interested in borrowing a loan to help their child pay for college.

Work-Study

The federal work-study program provides jobs for undergraduate and graduate students who demonstrate financial need. The amount of work-study you receive will depend on factors like when you applied, your level of determined financial need, and the amount of funding available at your school.

The money earned for work-study won’t count against you when you fill out the FAFSA, so it shouldn’t jeopardize future financial aid awards. Each time you fill out the FAFSA, it’s worth indicating that you’re still interested in receiving work-study as part of your financial aid award (that is, if you are still interested).

And it’s important to remember that your financial aid award may change from year to year, depending on your and your family’s circumstances.

Scholarships and Grants

Scholarships and grants don’t typically have to be repaid, which makes them one of the best options for students trying to pay for school. Some scholarships and grants are awarded by schools based on the information you provided in the FAFSA, but there are scholarships and grants available that aren’t based on financial need.

Taking some time to comb through online scholarship search tools could prove helpful. Each scholarship will have different application requirements. Some might require an essay or additional supplementary materials, but the effort could be worth it if you’re able to fund a portion of your tuition costs.

Private Student Loans

Sometimes federal aid, scholarships, and your savings aren’t enough to cover the full cost of tuition. In those cases, private student loans could be an option. Unlike federal student loans, which are offered by the government, private student loans are offered by banks, credit unions, or other private lenders.

The private student loan application process will vary slightly based on lender policies, but will almost always require a credit check. Lenders will review your credit score and financial history as they determine how much money they are willing to lend to you.

In some cases, students might need the help of a cosigner to take out a private student loan. This could be the case if they have little to no credit history.

Some parents may also be interested in taking out a private loan to help their child pay for their education.

The Takeaway

Tuition payment plans, which extend the payment for college tuition over a fixed period of time, can be helpful for parents and students as they navigate how they’ll pay for the cost of education. Spreading tuition payments over the semester or year can help make them more manageable. Check if your preferred school offers a tuition payment plan. Many do.

Sometimes, the burden of tuition is still too high, even with a payment plan. Scholarships and grants, work-study, and federal aid can help you cover the cost of tuition. If you’ve exhausted all federal aid options, private student loans can fill gaps in need, up to the school’s cost of attendance, which includes tuition, books, housing, meals, transportation, and personal expenses.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Are college tuition payment plans the same thing as tuition installment plans?

Yes, college tuition payment plans are also called tuition installment plans.

Do college tuition payment plans cover all school-related costs?

Typically, payment plans only cover tuition and fees. This means you may be responsible for the cost of books, supplies, housing, food, and transportation. Check with your preferred school to find out what its plan covers.

Do college tuition payment plans charge interest?

These plans don’t typically charge interest. However, you may be required to pay a modest fee to enroll.

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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.
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.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Third-Party Brand Mentions: No brands, products, or companies 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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Student loans don’t just help you pay for your college education. They also allow you to build a credit history, which can be useful when it comes time to get a mortgage or take out a car loan. The key is to make regular on-time payments.

Here’s a look at how student loans can affect your credit score.

Do I Need a Good Credit Score to Take Out a Student Loan?

Your credit score may be a factor when you’re applying for a student loan. It all depends on the type of loan you’re planning to take out. Most federal loans don’t have a minimum credit requirement, which is why nearly every borrower gets the same interest rate regardless of their financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.

Credit scores are typically more of a factor with private student loans. Lenders often consider your score when determining student loan approval and interest rate. In general, the better your score, the better your rate will be.

Which Credit Scores Do Private Lenders Use?

When considering your student loan application, most private lenders look at your FICO® score. This score, which ranges from 300 to 850, helps lenders determine whether to extend credit and at what interest rate.

Because FICO is used widely throughout the lending industry, including by mortgage lenders and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

How Is My Credit Score Calculated?

FICO scores are calculated using five categories of data found in your credit reports: payment history, amounts owed, length of credit history, new credit, and credit mix. As the chart below shows, each category is weighted differently.

Category	Weight in Scoring
Payment History	35%
Amounts Owed	30%
Length of Credit History	15%
New Credit	10%
Credit Mix	10%

There are three key ways you can help maintain a good credit score: Pay bills on time, keep credit card balances low, and reduce the amount of debt you owe.

What Student Loan Factors Affect My Credit Score?

To determine your credit score, FICO considers your loans and payment patterns on those loans. A responsible debt owner who continually makes on-time payments may experience no credit changes or even see positive shifts.

But if you fail to repay a loan or continually make late payments, your credit score will likely see a dip. If you default on your student loan, your credit score could drop, the lender may send your account to a collections agency, and you may have a more difficult time securing credit in the future.

How Does a Late Student Loan Payment Affect My Credit Score?

Making payments on time is important, but what you might not realize is exactly how damaging late payments can be. Even if your credit history is pristine, it only takes one report of 30 days past due to change your score. Once a late payment is reported to the credit bureaus, it could remain on your credit report for up to seven years.

To help ensure your payments are on time, you might want to set up an automatic payment plan. Most lenders will even give you a small discount on your interest rate for doing so. If you know you can’t make a payment on time, talk to your lender or loan servicer right away. The U.S. Department of Education, which is the lender for four types of Direct Loans, and some private lenders offer loan deferment or forbearance. These options allow a borrower to temporarily suspend payments, which will minimize the impact on their credit score.

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

When you’re shopping around for the best interest rate possible on a private student loan, lenders may pull your credit file. This is called a hard inquiry, and each one could temporarily knock a few points off your credit score.

To help protect your FICO score, try to finish shopping for rates and finalizing your loan within 30 days. Researching lenders’ rate ranges and general eligibility criteria ahead of time can give you a good idea of whether you’ll qualify for a loan before you formally apply.

You may also want to ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual hard inquiry, but getting prequalified allows you to compare interest rates without impacting your credit score.

Will Refinancing Student Loans Help My Credit?

Refinancing student loans at a lower interest rate can have an indirect positive effect on your credit. For example, if refinancing lowers the amount you pay each month, you may be more likely to make payments on time.

If you refinance federal loans with a private lender — in effect, turning your federal loans into a private loan — rest assured that credit bureaus don’t view these two types of loans any differently. However, when you refinance your federal loans, you will lose certain federal protections, such as income-driven repayment plans, deferment or forbearance, and loan forgiveness programs.

Does It Hurt to Pay Off Student Loans Quickly?

Repaying student loans quickly will always improve your credit score, right? Not necessarily. In fact, you could even see a small, temporary dip in your credit score right after paying off a loan. There are several reasons for this. If student loans are your primary source of open credit, closing those accounts means you’re no longer building payment history. Prematurely paying off a loan can also change your credit mix or credit utilization.

But credit score is just one factor to consider when deciding how quickly to pay off a student loan. You may want to think about how much extra interest you’d pay by leaving the account open. Carrying a high loan balance could also make it harder to qualify for new loans, which is something to keep in mind when it comes time to buy a home or car.

Notorious Big Bad D’s: Delinquent and in Default

Student loans affect credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you’re even one day late with a payment, you’ll be considered delinquent and may be charged a penalty.

Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.

After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full along with any accrued interest, fines, and penalties.

The Takeaway

Student loans can help borrowers establish a solid credit history, which can ease the way for future borrowing opportunities and attractive interest rates. The key is to pay what you owe on time, every time.

Paying a loan off early or shopping around for rates could cause a small, temporary dip in credit scores. Being late with a payment — or stopping payment altogether — may lower your credit score and hurt your ability to qualify for another loan. Setting up automatic payments can help ensure you don’t miss a loan bill. Refinancing your student loans could reduce monthly payments and help you manage your loans more easily.

SoFi, for example, offers competitive rates to refinance student loans. If you now have a better financial profile than when you took out your loans, you may be able to save money over the life of the loan if you qualify for a lower interest rate.

Refi with SoFi today to get flexible terms and a competitive low rate before interest rates rise even higher!

FAQ

Do student loans help build credit?

Student loans are an opportunity for borrowers to build credit and establish a solid credit history, which can help when it’s time to get a mortgage or take out a car loan. The key is to make regular, on-time payments.

How can I improve my credit score if I have student loans?

Payment history is one factor of your overall credit score, so making regular, on-time payments on your student loans can help you build credit.

How is my credit score determined?

Your credit score is calculated using five different categories of data. These include payment history, amounts owed, length of credit history, new credit, and credit mix.

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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.
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.
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.
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
website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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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