SoFi

If your parents are high earners, you might assume you won’t get any financial aid to help pay for college. But that’s not necessarily the case. The Department of Education doesn’t have an official income cutoff to qualify for federal financial aid. So, even if you think your parents’ income is too high, it’s still worth applying (it’s also free to do so).

Read on to learn how to get financial aid for college when you think your parents make too much money, as well as how to pay for college costs if you don’t qualify for financial aid.

It All Starts With the FAFSA®

The first step to knowing whether or not you qualify for any financial aid is to fill out the Free Application for Federal Student Aid (FAFSA). Even if you think your parents make too much to qualify for financial aid, it’s a smart idea to fill out and submit this form.

For one reason, there’s no income cutoff for federal student aid, so you may be surprised by what you are able to qualify for. For another, the FAFSA gives you access to non-need-based aid, such as Direct Unsubsidized Loans and institutional merit aid.


💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

Who Determines Aid Amount and Type?

The financial aid office at your chosen college or career school will determine how much financial aid you are eligible to receive. Here’s a look at what goes into the decision.

1. The first factor considered is the cost of attendance (COA), or what it costs a typical student to attend a particular college or university for one academic year. Cost of attendance includes tuition and fees, as well as books, lodging, food, transportation, loan fees, and eligible study-abroad programs.

2. Then the school considers your Student Aid Index, or SAI (formerly called Expected Family Contribution, or EFC). Your SAI is an eligibility index number that results from the information that you provide in your FAFSA.

3.   To determine how much need-based aid you can get, the school will subtract your SAI from the COA. Need-based aid includes Pell Grants, Direct Subsidized Loans, and federal work-study.

4. To determine how much non-need-based aid you qualify for, the school takes the COA and subtracts any financial aid you’ve already been awarded. Federal non-need-based aid includes Direct Unsubsidized Loans, Direct PLUS Loans, and TEACH Grants.

One big difference between subsidized and unsubsidized loans is when interest accrual starts. Because subsidized loans are need-based, the government covers any interest that accrues until loan repayment starts (typically six months after graduation). With unsubsidized loans, the interest starts to accrue from day one (though you don’t need to start making loan payments until six months after graduation).

You can estimate your eligibility for federal student aid by using either the Federal Student Aid Estimator or your school’s net price calculator (which you can find using the Department of Education’s search tool).

What Are Rules on Dependency, Divorce?

A student’s dependency status can make a big difference on their SAI. Not living with parents or being claimed on their taxes, however, does make you an independent student. To be considered independent for federal financial aid, a student must be at least 24 years of age, married, on active duty in the U.S. Armed Forces, financially supporting dependent children, an orphan (both parents deceased), a ward of the court, or an emancipated minor.

The rules regarding financial aid and divorce are changing for the 2024 – 2025 school year. The new FAFSA rules require the parent who provided the most financial support in the “prior-prior” tax year to complete the FAFSA application instead of the custodial parent. Prior-prior refers to the tax year two years ago from the beginning of the college semester. For the 2024 – 2025 award year, FAFSA would be looking at the 2022 tax year for this determination.

Other Routes to Meeting All Needs

The government isn’t the only path to money for school. Here are several other options you may want to consider.

Scholarships

The best thing about scholarships? You don’t need to pay them back. The second best thing is that they’re most often based on merit, not need.

So even if your parents make a good living, you may still be eligible. While many are awarded solely on academics, others are given for athletic talent, specific interests, or being a member of a specific group.

There are numerous college scholarships out there, offered by schools, employers, individuals, private companies, nonprofits, communities, religious groups, and professional and social organizations. To suss out scholarship opportunities you might be eligible for, talk to your high school guidance counselor, your college’s financial aid office, and/or check out one of the many online scholarships search tools.

An Appeal of Your SAI

If your financial aid offer is less than you need to be able to afford college, you are within your rights to appeal to the school’s financial aid director.

You might want to be prepared to back up your request with detailed information such as your SAI, the amount you’ll need to successfully attend school, or a change in circumstances that will affect your family’s actual ability to pay, such as a parent’s job loss.

Recommended: How To Write a Financial Aid Appeal Letter

Parent Loans

Parents can apply for a Parent Plus Loan through the Department of Education. These loans are available to parents regardless of income, provided they do not have an adverse credit history. For loans disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate is 8.05%. This is a fixed interest rate for the life of the loan. There is also an origination fee of 4.228%, which is deducted from each loan disbursement.

Some private lenders also offer parent student loans. You can apply for a private parent student loan directly with the lender. Before signing up for a private parent loan, it’s a good idea to shop around to find the lowest student loan interest rate you qualify for. Some lenders have a pre-qualification process that allows you to see a personalized rate before the lender does a hard credit pull.

Both federal and private parent loans can be used to cover any gaps left over after scholarships, grants, and other financial aid have been applied, up to the full cost of attendance.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

Private Student Loans

Private student loans are also available to students to help them cover the costs of higher education, and they could be a good Plan B if there’s a gap between the aid you received (including federal student loans) and the cost of attendance.

Private student loans don’t have federal benefits like income-driven repayment plans and forgiveness programs, and interest rates are typically higher than undergraduate federal student loans. However, unlike federal student loans, you can apply for them at any time of the year. Plus, you can typically borrow up the full cost of attendance, which gives you more borrowing power than you get with federal student loans.

Private student loans can have either a fixed or variable interest rate; rates are determined by the lender. Qualifying for a private student loan is based on the borrower’s creditworthiness rather than need.

The Takeaway

What happens if your parents make too much money to qualify for financial aid? You may have to shift course a little bit, but there are other ways to get help paying for all of the expenses of college, including merit-based scholarships, non-need-based federal student loans, and private student loans.

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

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

---

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-criteria 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.

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.

SOIS1123015

Read more

If you have student debt and want to one day buy a home, you may wonder what to focus on first — paying off student loans or buying a house? If you wait until your student loans are paid off to buy a home, you may be renting for a very long time. If, on the other hand, you buy a house before you pay off your student loans, you may be stretching your finances too thin. Which goal should you focus on first?

There’s no one right answer for everyone. Whether you should pay off your student loans or buy a house first will depend on your priorities, time frame, and financial situation. Ideally, you want to work towards both goals at the same time, making progress on your debt while also saving up for a down payment on a home.

Here are some things to consider when deciding whether it’s better to pay off student loans or buy a house.

Reasons to Pay off Your Student Loans Before Buying a House

Depending on your financial situation, it may make sense to pay off your student loans before you buy a house. Here’s a look at some reasons why you might want to prioritize student loan repayment over saving for a down payment.

The Longer You Wait to Pay off Student Debt, the More Interest You’ll Pay

If you want to save money on interest, it’s a good idea to prioritize student loan repayment over buying a home. By paying more than the minimum payment each month, you can reduce the principal balance. This, in turn, will shorten the duration of the loan period — and the interest accrued. Just make sure that your lender puts any extra payments you make towards your principal (and not future payments).

Another way to speed up repayment is to refinance your student loans. Refinancing can fast forward repayment by helping you obtain a lower interest rate, a shorter repayment period, or both. You can refinance private or federal student loans. Just keep in mind that when you refinance federal student loans with a private lender, you forfeit certain federal benefits, such as forbearance and forgiveness programs.


💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

Your Debt-to-Income Ratio Is High

When you apply for a mortgage, lenders will look at your debt-to-income (DTI) ratio, which shows how much of your monthly income goes toward debt repayment each month. The ratio is expressed as a percentage, and mortgage lenders use it to determine how well you manage monthly debts — and if you can afford to repay a loan.

To calculate your current DTI, simply add up all of your monthly debt payments, then divide that number by your monthly gross income (before taxes and deductions). Take that number and multiply by 100. This is your DTI.

Ideally, mortgage lenders like to see a debt-to-income ratio lower than 36%, with no more than 28% of that debt going towards a mortgage or rent payment. While some lenders will allow you to go up to 43% (and sometimes higher), this may not be wise, since it can stress your finances and make you “house poor.”

You Don’t Have Enough Saved for a Substantial Down Payment

A standard rule of thumb is to put at least 20% down on a home’s purchase price. While you may be able to get a conventional mortgage for as little as 3% down, making a smaller down payment on a home purchase generally means paying a higher interest rate on your mortgage. On top of that, you’ll likely need to buy private mortgage insurance (PMI).

Also consider that the more you put down on a home, the more equity you’ll have in your home right away — and the lower your monthly mortgage payment will be.

You Might Move Within the Next Five Years

Renting provides more flexibility than home ownership, as you aren’t necessarily tied down to your property. If you think you may want to relocate in the next five or so years, it may make sense to pay off student loans before buying a house.

A common rule of thumb is that it takes around five to seven years to break even on a house, meaning you have enough equity to recoup that amount of money you put in the house (including closing costs, mortgage payments, and maintenance expenses). That’s why experts typically caution against buying unless you plan to live in the home at least that long.

Reasons to Buy a House Before Paying off Student Loans

In some cases, it makes more sense to buy a home before you pay off student loans. Here are some arguments for putting any extra funds you have towards a down payment on a home over paying down your student debt.

Student Loan Debt Is Not as Bad as Other Types of Debt

Not all debt is created equal. Student loans generally have longer repayment terms and typically feature lower interest rates than many other types of debt, such as credit cards and auto loans. Since your down payment will lower the overall cost of your mortgage, it may be smarter to save up money for a home than to pay off a low-interest student loan.

If you have $12,000 in credit card debt, you would want to make paying that off as quickly as possible your priority, thanks to double-digit interest rates. If you have $12,000 in student loans with a low interest rate, it’s a different story. Paying only the minimum to free up funds to buy a home can be a sensible idea.

Also keep in mind that your student loans may entitle you to a valuable tax deduction — with the student loan interest tax deduction, you may be able to deduct $2,500 or the amount of interest you paid toward your loans, whichever is less.

Recommended: Which Debt to Pay Off First: Student Loan or Credit Card

You Have a Low DTI

If your DTI is 35% or less (meaning a max of 35% of your gross monthly income will go toward your overall monthly debts, including the new mortgage payment), it’s a sign that you can manage home ownership and student loan debt repayment at the same time. With a low DTI, you may be able to comfortably afford your mortgage, monthly student debt payments, and likely still have money available to put into savings and retirement each month.

You Have a Lot in Savings

You’ll need to have access to a sizable amount of cash to purchase a home. In addition to making a down payment, you’ll also need to have funds to cover closing costs and moving expenses. Also keep in mind that when you own a home, you’ll be responsible for all of the home’s maintenance and repair expenses. A general rule is to have1% to 4% of the home’s value set aside for upkeep and repairs.

If you have enough money saved in the bank to cover those costs, you’re in good shape and can likely afford to buy a house before you pay off your student loans.

Buying a Home Is a Top Priority

When deciding whether to buy a house before you pay off student loans, you’ll also want to consider your priorities and personal goals. For example, if you want to have children (or expand your family) in the near future, you may need a larger space. Or, if you’re working at home (or plan to transition to remote work), you might require a home that allows you to set up a dedicated office. Perhaps you want to get a pet, but your rental doesn’t allow them. In some cases, prioritizing a home purchase over paying off student debt may be important in terms of your quality of life.

Options to Consider for Those Trying to Manage Student Debt and Buy Property

If you’ve decided that you can manage paying down student loans while also saving for a home, here are some tips that can help you focus on both goals at the same time.

•   Take an inventory of your debts: A good first step is to write down all of your current debts, including student loans, car loans, credit cards, and any other debt you hold. Make note of the interest rate, remaining balance, and minimum payment for each.

•   Knock down high-interest loans: Next, you may want to funnel any extra money you have towards the debt with the highest interest rate, while continuing to pay the minimum on the rest. Once that debt is paid off, focus on the debt with the next-highest interest rate debt, and so on. Eliminating expensive debt frees up funds that go towards a mortgage payment. It can help improve your DTI, which is helpful when qualifying for a mortgage.

•   Open a dedicated savings account: Consider opening a high-yield savings account specifically for your down payment and home-buying expenses. This will help you track your progress and ensure you won’t spend the money on other things.

Recommended: Student Loan Debt Guide

Saving Strategies

The more you can put down on a home, the less you will need to borrow. A solid down payment can also help you qualify for a lower interest rate on a mortgage and lead to lower monthly payments. These tips can help you reach your down payment savings goals faster.

•   Pay yourself first: Consider setting up an automatic transfer from checking to savings each month to take place right after you get paid. This can help you get used to managing living expenses with what looks like a smaller paycheck, when actually you’re building up your own savings.

•   Take advantage of windfalls: If you receive a lump sum of money, such as a work bonus, gift check, or tax refund, consider funneling it right into your down payment savings account. This will help you meet your down payment goal faster.

•   Reduce expenses: Take a look at where your money is going each month and see if there are any places to cut back. You might decide to cook a few more times a week and spend less on take-out, get rid of a streaming service you rarely watch, or finally cut the cable cord. Anything money you free up can now go into savings.

•   Pick up a side gig: Income from a part-time job or freelance work can be dedicated to savings, helping you reach your goal quicker. You might also consider asking for a raise at your current job or volunteering to work overtime.

💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.

How Refinancing Could Potentially Help Prospective Homebuyers

Buying a home and paying off your student loans may seem like competing goals, but that’s not necessarily the case. You can pay down your debt and save for a down payment at the same time by putting more money into savings each month and looking for ways to lower your student loan 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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

---

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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.

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.

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.

SOSL1123021

Read more