Can You Use Scholarship Money for Anything?

There are many different college costs to cover — tuition and fees, books and supplies, living expenses and transportation, to name just a few. If you received a scholarship to help pay for school, you might be wondering, can I use scholarship money for anything? In short, it depends on the scholarship terms.

If you were awarded a scholarship, congratulations! But before earmarking those funds for any specific purpose, it’s important to understand the way scholarships work and how to use scholarship money.

Key Points

•   Scholarship funds don’t need to be repaid, but they typically do come with spending restrictions.

•   Scholarships are primarily designated for tuition and fees and often also cover room and board.

•   Scholarship money may cover textbooks and other educational materials.

•   Noncompliance with scholarship spending terms can lead to having to repay the money and possibly owing taxes on it.

•   The organization that awarded the scholarship can offer guidance on spending restrictions and eligible expenses.

How Scholarships Work

Scholarships are a type of financial aid that students can use to pay for tuition and other school-related expenses. A key difference between scholarships vs. loans is that scholarships usually don’t need to be paid back, but student loans need to be repaid with interest.

Depending on the type of scholarship, these awards can be based on academics, financial need, participation in extracurricular activities, or a student’s chosen major, among other things.

There are different application requirements and selection criteria for each scholarship. But in general, students need to submit an essay, letters of recommendation, transcripts, and financial information to apply.

Scholarships often require students to complete the Free Application for Federal Student Aid (FAFSA). It’s a good idea to do that as soon as possible since scholarship deadlines vary.

Scholarships are available from a range of sources, including schools, nonprofit organizations, local government, and private companies. Using a
scholarship database can help narrow your search to find awards that align with your background, studies, and interests.

Recommended: Grants vs Scholarships

Does It Matter What Kind of Scholarship You Have?

The type of scholarship you have may be the key factor in how to use scholarship money.

Many scholarships stipulate the types of costs they cover. A scholarship may be limited to qualified education expenses, such as tuition, books, and supplies required for academic coursework, or it may extend to a broader set of education-related costs, including room and board and living expenses.

Typically, scholarships are paid directly to the school to ensure that financial aid goes toward a student’s education costs. Review a scholarship’s details to verify how the funds will be disbursed and any requirements on how it is spent.

What Can Scholarship Money Be Used For?

Can you use scholarship money for anything? Typically, scholarship money must be used for a student’s education and related expenses, but it depends on the specific scholarship requirements.

Here are some costs that could be covered by scholarship money.

Tuition and Fees

Scholarship funds are usually intended to be used to pay for tuition and fees at a college, graduate school, or trade school. Tuition is often the greatest expense when calculating the cost of attendance for college.

For the 2024-2025 academic year, the average sticker price for tuition and fees was $11,610 for students at public four-year institutions with in-state tuition, according to the College Board. For students at private nonprofit four-year colleges, the average tuition costs is $43,350.

If scholarships plus other federal financial aid you’ve been given don’t cover the total cost of your tuition and fees, private student loans could help cover the gap. These loans are offered by banks, credit unions, and online lenders.

How private student loans work is that their interest rate may be fixed or variable. The rate you get is based on your credit history and other financial factors. Interest on student loans accrues while you’re in school, and you may need to start repaying private loans while you’re in school or within a certain amount of time after graduation.

Keep in mind that it’s possible to refinance private student loans at a later date should you choose to. With student loan refinancing, you replace your current loans with a new loan, ideally one with a lower rate and more favorable terms, which could help lower student loan payments.

Education-Related Expenses

Along with tuition, students typically have to pay for other education-related expenses. Depending on your major and coursework, this could involve books, lab equipment, or other supplies required for classes.

Research

Students may be able to use scholarship money for research activities. For example, there are STEM scholarships specifically intended to help students advance their research in the fields of science, technology, engineering, and mathematics (STEM).

Supplies

Some of the supplies you need for school, such as a laptop, notebooks and pens, and even a backpack may be eligible expenses for scholarship funds.

Books

Books are another expense that could be covered by scholarship money. How much students need to spend on books and supplies varies by school, major, and from semester to semester. On average, students can expect to pay between $930 to $1,500 on books and supplies, according to the Education Data Initiative.

Living Expenses

Whether you live at home, on campus, or in an off-campus apartment, living expenses are another significant cost to plan for. What college students spend monthly on living expenses is around $2,932, according to the College Board.

Not all scholarships cover living expenses, but some of them do consider these expenses to be part of a college student’s cost of attendance.

Housing

You may wonder, can I use scholarship money for rent or student housing? Scholarship funds can often be used for room and board, but there may be limitations on the type of housing that’s covered.

In general, on-campus housing, which is a cost that is verified by schools, is more likely to be an eligible use of scholarship money than off-campus housing.

Bills

Students may have a number of bills to pay, including transportation costs.

Scholarships may help cover some transportation-related expenses, such as campus parking fees, but can you use scholarship money to buy a car — or pay for monthly car loan payments? It’s unlikely your scholarship funds can be used for car payments, unless the scholarship funds are completely unrestricted in their use.

Food

How much students spend on food depends on a number of factors, but the average monthly cost is $673 according to the Education Data Initiative.

Purchasing a school meal plan is a fixed cost that may be covered by scholarship funds. However, spending on groceries and dining at restaurants could be harder to justify as an eligible use of scholarship money.

Should You Save Scholarship Money for Certain Things?

Receiving a scholarship can change your expected family contribution on the FAFSA and impact what financial aid you qualify for. Additionally, students are typically limited to borrowing only up to the cost of attendance at their school if taking out student loans for undergrads. So if you don’t spend scholarship money wisely, you could come up short.

That’s why it’s wise to use a scholarship to cover education-related and eligible living expenses like tuition and fees, room and board, and supplies needed for classes.

Consequences of Misspent Scholarship Money

Using scholarship money inappropriately can have consequences. While scholarship funds aren’t meant to be repaid, it’s possible that an organization providing an award will have stipulations for how money is spent. This means that students could be on the hook for repaying a scholarship if it’s used for personal expenses instead of their education.

Additionally, scholarship money can be taxable if it’s used for living expenses not related to being enrolled in school.

If you have questions about whether an expense is eligible for scholarship money, check with your school’s financial aid office or the organization that issued the award.

The Takeaway

Scholarship funds are typically sent directly to a school to cover a student’s education costs, including tuition and fees, books and supplies, and room and board. Using scholarship money for personal expenses could mean having to pay taxes on the award or even repaying the funds if it violates the scholarship terms.

If, after applying for scholarships and grants and taking out federal loans, you still have a funding gap, you may want to consider private student loans. And remember, you can refinance student loans in the future for a lower interest rate and more favorable loan terms, if you qualify for them, which could help make your payments more manageable.

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.

FAQ

Can you cash scholarship money out?

Scholarship money is typically sent directly to your school. If there are leftover scholarship funds, your school might send the unused money to you as a refund check. This money would be subject to taxes, however, and its use may be restricted by the awarding organization.

Could you use scholarship money to buy a car

Buying a car is considered a personal expense, so it’s unlikely that a car purchase would be eligible for scholarship funds.

Are there any restrictions on what scholarship money can be spent on?

Many scholarships include restrictions on how the money can be spent. Some scholarships may limit funds to tuition and fees, while other awards might also cover education-related expenses and room and board. Check with the organization that awarded you a scholarship for specific funding restrictions.


Photo credit: iStock/ADragon

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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.

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.

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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8 Medical School Loan Forgiveness Programs for Doctors

Doctors have the potential to earn a good salary after graduating medical school and completing their residency — the average primary care physician in the U.S. earns about $260,000, according to a 2022 report by Medscape. But they also typically end up owing hundreds of thousands dollars in student loan debt.

Getting the education and training required to practice medicine in the U.S. is a long and expensive endeavor. Fortunately, there are forgiveness programs and repayment options that can help. Read on to learn about eight medical school loan forgiveness programs that doctors can use to relieve their student debt burden, plus other methods that could make it easier to manage student loan payments.

Key Points

•   There are a number of programs that offer medical school loan forgiveness for doctors, including federal and state initiatives.

•   Public Service Loan Forgiveness requires 120 payments and full-time work for a qualifying employer.

•   The National Health Service Corps Loan Repayment Program can erase up to $75,000 in medical student debt for a two-year commitment.

•   State-based initiatives aim to attract health care professionals to underserved areas with specific eligibility criteria.

•   Other options for managing medical school loan debt include income-driven repayment plans, federal loan consolidation, employer repayment programs, and student loan refinancing.

Physician Student Loan Forgiveness

According to the Association of American Medical Colleges (AAMC), the average medical school debt in 2024 was more than $200,000. Add the cost of interest, and some doctors can end up paying $400,000 or more over the life of their loans.

If you are dealing with medical school loans, here are some of the student loan forgiveness programs that might help you pay down — or even erase — your debt.

1. Public Service Loan Forgiveness

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

Doctors who make 120 qualifying student loan payments while working full-time for a qualifying government, nonprofit, or public health employer, may be eligible to have their remaining federal loan balance erased through the PSLF program. The amount that’s forgiven is not subject to federal taxes.

Participants in the PSLF program must meet several requirements. Only Federal Direct Loans are eligible. (Federal Family Education Loans, Parent Plus loans, and Perkins loans must be consolidated to a Direct Consolidation Loan to qualify.) And you must be on a qualifying repayment plan, such as an income-driven repayment plan.

You can get more information about PSLF at the Federal Student Aid website. While you’re there, you can also use the loan simulator to get a personalized projection to help determine if PSLF makes sense for you based on your financial and career goals.

2. National Health Service Corps Loan Repayment Program

The National Health Service Corps Loan Repayment Program (NHSC LRP) offers doctors and other eligible health care providers an opportunity to have their qualifying federal or private student loans repaid while also earning a competitive salary in exchange for serving in communities with limited access to care.

Award amounts may vary based on the health care field you’re in. For instance, primary care providers who make a two-year full-time commitment to working at an NHSC-approved site can erase up to $75,000 in student debt. And those who serve half-time for two years may be able to cancel up to $35,000 in student loans. (If you pass a Spanish-language competency assessment, you may be eligible for an additional amount.) These awards are not subject to income tax.

Find out more about NHSC LRP program requirements to see if you qualify.

3. National Health Service Corps Students to Service Loan Repayment Program

The National Health Service Corps Students to Service Loan Repayment Program (NHSC S2S LRP) offers eligible fourth-year medical students an opportunity to receive up to $120,000 (in $30,000 installments) in tax-free student loan repayment funds to put toward qualifying federal or private student loans.

To enter the program, participants must commit to working full- or half-time at an NHSC-approved site in an underserved area for at least three years. After the initial three-year contract is completed, you may be eligible for a service extension.

Learn more information about NHSC S2S eligibility and how to apply.

4. Military Health Professionals Student Loan Repayment Programs

Several branches of the U.S. military offer medical school loan repayment programs to doctors who serve in the military. Benefits may be used to repay qualifying federal or private student loans. Eligibility requirements and benefit amounts may vary, so contact your service branch (Army, Navy, National Guard, and so on) for details and specific information.

5. Department of Veterans Affairs (VA) Specialty Education Loan Repayment Program

The VA’s loan repayment program is for recent graduates of accredited medical or osteopathic schools who are currently in a residency that’s been identified as experiencing a shortage. Eligible specialties include psychiatry, family practice, internal medicine, emergency medicine, gastroenterology, urology, and geriatric medicine. (Other specialties may be considered on an individual basis.)

The loan repayment amount is $40,000 per year for qualifying federal and private student loans, with a lifetime maximum of $160,000. In exchange, recipients agree to serve in a clinical practice at a VA facility for a minimum of two years.

6. National Institutes of Health Loan Repayment Programs

The National Institutes of Health (NIH) Loan Repayment Programs were established by Congress to recruit and retain highly qualified health professionals in biomedical or biobehavioral research careers.

These NIH programs are for medical professionals in a variety of fields, including pediatric research, health disparities research, and clinical research. Payments may be up to $50,000 annually and can be applied to qualifying federal or private educational debt.

7. Indian Health Service Loan Repayment Program

This program allows Indian Health Service (IHS) clinicians to repay up to $50,000 of their eligible health profession education loans in exchange for a two-year service commitment to practice in health facilities serving American Indian and Alaska Native communities. After their initial commitment is completed, participants can apply to extend their contract annually until their qualified federal or private student loans are repaid.

Interested physicians can applyy online.

8. State Medical Student Loan Forgiveness Programs

A number of states offer student loan repayment options to physicians and other health care professionals. Use the Association of American Medical Colleges’ searchable database to find any med school loan forgiveness and repayment opportunities in your state.

In addition, the National Health Service Corps provides grants to all 50 states and the U.S. territories through its State Loan Repayment Program. These grants allow individual states to offer their own repayment programs with a goal of incentivizing health care providers to work at their facilities. You can find out more about the available programs, eligibility requirements, and practice sites to see if one is near you.

Other Strategies to Repay Medical School Debt

If you aren’t eligible for a medical student loan forgiveness program, or you can’t find one that’s a good fit for your situation, there are other methods for managing loan payments that you may want to consider.

Here are some repayment options to explore.

Income-Driven Repayment (IDR) Plans

With a federal IDR plan, your monthly federal student loan payments are based on your discretionary income and the size of your family. So, for instance, while you’re earning a medical resident’s salary, an IDR plan could make your payments more affordable.

Under an IDR plan, you must recertify your income every year. That means if your income increases as you advance in your career, your payments may go up. However, your monthly payments will never be more than they would be under the federal 10-year Standard Repayment Plan.

You also may qualify for federal loan forgiveness with an IDR plan. If you reach the end of your payment term (which is generally 20 or 25 years), and you still have a balance, the government will forgive the remaining amount due. You won’t owe federal income taxes on the forgiven amount.

Federal Loan Consolidation

With a Federal Direct Consolidation Loan, borrowers who have federal loans from their undergraduate and medical school degrees can combine them into one loan. The interest rate of the consolidation loan is based on the weighted average of your current loan rates, so you may not save any money, but if you choose a longer loan term, you can lower your monthly payments (though you may pay more interest overall). Consolidating your federal loans may also give you access to additional federal repayment options like income-driven repayment.

There are pros and cons to student loan consolidation to consider, depending on your overall payment strategy. Be sure to compare the costs and benefits.

Employer Repayment Programs

Many employers, including health care facilities, offer student loan repayment assistance as a tool for recruiting and retention. If your employer offers an educational assistance program (EAP), you may be able to receive tax-free contributions to help pay the principal and interest on qualified federal and private student loans. You can get up to $5,250 in tax-free EAP benefits each year. (Any assistance provided above that threshold will be taxable as wages.)

Student Loan Refinancing

If you have private student loans, or you have federal loans and you aren’t pursuing federal benefits such as forgiveness, refinancing your student loans with a private loan is another alternative you might want to consider.

Student loan refinancing is offered by private lenders, such as banks, credit unions, and online lenders. The lender pays off your existing student loan balances and gives you a new private loan that ideally has a lower interest rate and more favorable terms. (It’s important to note that refinancing federal loans makes them ineligible for federal forgiveness and other federal benefits.)

If you decide to refinance only some of your loans — such as your private loans — it may make sense for your situation, especially if refinancing student loans could save you money.

A student loan refinancing calculator can help you see what your monthly payments might be.

Recommended: Student Loan Refinancing Guide

The Takeaway

The average doctor typically owes hundreds of thousands of dollars in student loan debt, and paying it off can be a challenge long after they graduate, complete their residency, and begin practicing medicine.

That’s why student loan repayment and forgiveness programs for doctors can be so helpful. Physicians who are willing to work for a nonprofit organization, pursue a career in public service, or commit to practicing in an underserved area may be able to get their student loans forgiven.

For those doctors who don’t qualify for forgiveness, there are repayment options that may reduce or make it easier to manage monthly student loan payments. These include income-driven repayment, federal loan consolidation, and student loan refinancing. Thoroughly researching all the available options can help doctors choose the best method for tackling their student loan debt.

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.


Photo credit: iStock/andresr

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


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.


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.

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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How to Negotiate Student Loan Payoff

Paying off student loans can feel overwhelming, but with the right strategies, you may be able to negotiate a more manageable solution. Whether you’re struggling with payments or looking to settle your loan for less than the total amount owed, understanding the negotiation process can open up options you didn’t know were available.

Let’s look at how the student loan payoff process works. We’ll explore when negotiation might be a viable option, how to approach lenders, and tips for reaching a favorable agreement.

Key Points

•   Before negotiating a student loan payoff, evaluate your income, expenses, and overall financial health to determine how much you can realistically offer toward a student loan payoff.

•   Federal and private student loans have different rules for negotiation. Federal loans rarely offer settlements, while private lenders may be more open to negotiating reduced balances.

•   For defaulted loans, lenders may accept lump-sum payments or reduced balances to settle the debt, especially if recovery seems uncertain.

•   Ensure any negotiated terms are confirmed in writing to protect yourself and avoid misunderstandings regarding the settlement or adjusted repayment plan.

•   Another option for a student loan payoff is student loan refinancing, which could lower your interest rate and possibly your monthly payment. Just keep in mind that by refinancing federal loans with a private lender, you’ll lose access to federal benefits and protections.

What Student Loan Settlement Is

Student loan settlement refers to an agreement between the borrower and lender where the borrower pays a lump-sum amount that is less than the total balance owed to settle the debt. This option is generally available for borrowers who are in default or facing severe financial hardship.

You’ll go into default after a certain number of days, depending on your loan type (270 days for some federal loans; Perkins loans go into default immediately).

Defaulting on student loans can lead to several negative consequences, including:

•   Your entire unpaid loan balance becomes immediately due (called acceleration)

•   Tax refunds and federal benefit payments may be withheld to go toward your defaulted loan(s)

•   Garnished wages (your employer must withhold a portion of your pay to send to your loan holder)

•   No deferment or forbearance options available to you (more on these later)

•   Losing eligibility for other federal student loan benefits, including the ability to choose repayment plans

•   Losing eligibility for additional federal student aid

•   Damaging credit

•   Your loan holder taking you to court, which could result in court costs and collection and attorney’s fees

•   Withheld official college transcripts

How Student Loan Settlement Works

Settling loans can reduce what you owe and eliminate future repayment obligations. Here’s how it works in a nutshell:

1.    You negotiate with your loan servicer or a collections agency and offer to make a lump-sum payment.

2.    The loan servicer or collections agency agrees to the terms.

3.    You pay an amount lower than what you owe in outstanding loans, collection fees, and interest charges.

4.    The servicer or agency marks the debt as settled, and your loan obligation is satisfied.

5.    The default status comes off your credit report (but note that the settlement can still affect your credit).

How to Be Eligible for Student Loan Settlement

You can only qualify for a student loan payoff if your federal student loans are in default. If you have loans in good standing, you can’t qualify for a settlement request. It’s also important to note that federal student loan settlements are rare, because it’s difficult to get rid of student loans even if you go bankrupt.

You might also be able to negotiate a settlement with private student loans if you’re in default (which usually means you’re 120 days late on payments). Check with your lender for a definition of default on your particular private student loans.

Private student loan lenders cannot pursue the money owed them in the same way that federal loan servicers can, so they may be more likely to settle the loan(s).

Recommended: How to Get Student Loans Out of Default

Steps to Negotiating Student Loan Payoff

Can you negotiate student loan payoff? In other words, can you settle student loans?

Absolutely! Read on to learn the steps on how to settle student loan debt.

Step 1: Gather Your Documents

You must show that you can’t repay your student loans, which may include gathering the following:

•   Health records, such as your mental or physical illness diagnosis that makes it difficult for you to hold a job

•   Pay information, such as pay stubs, W-2 forms, and tax returns

•   Financial records, including information about a potential inheritance that could help pay your debts

•   Credit reports

Step 2: Contact the Agency and Negotiate Settlement Terms

Your loans typically go into collections after you go into default. You can call or email the collections agency, lender, or loan servicer and tell them you want to settle the debt by paying a portion of the total amount you owe. Describe the challenges you’re facing, such as financial challenges or medical problems.

Federal student loans often offer four settlement options:

•   Principal and interest: You only pay the outstanding principal and interest.

•   Principal and 50% interest: You pay the outstanding principal and 50% of interest, with collection costs waived.

•   90% principal and interest: You pay 90% of the outstanding principal and interest charges, with collection costs waived.

•   Discretionary compromise: You pay less than what you would owe under the other three standard options.

You may be able to settle private student loans for 40% to 70% of the amount you owe. Check with your lender or collection agency for more information.

Step 3: Review and Make Your Payment

You’ll receive a letter about your settlement terms. The letter will outline the amount you have to pay and the deadline. After you receive the letter, make your lump sum payment.

Note that if you don’t pay by the deadline, the agreement will be canceled and you’ll owe the total outstanding amount, interest, and fees. Keep track of all paperwork involved in the settlement.

Alternatives to Student Loan Settlement

Instead of opting for a loan settlement, consider repaying your loans in full. Repaying them in full may prevent you from having to go through loan repayment that could drag on for years. If you can’t repay them in full, consider deferment or forbearance, income-driven repayment plans, or student loan refinancing, which we’ll outline below.

Deferment or Forbearance

A student loan deferment or forbearance might be a good alternative to settlement. Here’s the definition of each:

•   Loan deferment: You temporarily stop making payments.

•   Loan forbearance: You stop making payments or reduce your monthly payments for up to 12 months.

It’s important to note that both are temporary situations and that you can accrue interest while your loan is in either forbearance or deferment.

Income-Driven Repayment Plan

An income-driven repayment (IDR) plan bases your monthly payments on your income and family size.

There is currently one income-driven repayment plan open to everyone: Income-Based Repayment (IBR). With this plan, borrowers typically pay 10-15% of their discretionary income, with payments adjusted annually. IBR plans offer loan forgiveness after 20-25 years of qualifying payments, depending on when the loans were issued. It’s a helpful option for those with high student loan debt compared to their income, ensuring payments remain affordable.

Note that there are two other income-driven repayment plans available — Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR). However, you must currently be enrolled in the Saving on a Valuable Education (SAVE) plan in order to apply.

Student Loan Refinancing

You may also consider refinancing your student loans instead of negotiating student loan debt. Student loan refinancing means a private lender pays off your existing federal or private student loan(s). A private lender might be a bank, online lender, or another type of financial institution. It’s worth shopping around for a private lender that offers a better:

•   Term

•   Interest rate

•   Monthly payment

Refinancing does have some downsides. You’ll lose access to federal repayment plans (such as the standard, graduated, and extended repayment plans, and income-driven plans) and Public Service Loan Forgiveness, and you’re no longer eligible for federal repayment protections or grace periods (where student loan payments haven’t yet started).

Also, it may not be possible to refinance student loans that are already in default. However, borrowers can rehabilitate or consolidate defaulted federal loans to regain eligibility for refinancing. Private loans in default may require negotiation with the lender before refinancing becomes an option.

Recommended: Does Refinancing Student Loans Save Money?

The Takeaway

If you’re wondering if you can negotiate a student loan payoff, the answer is yes, but it’s often difficult to get approved. Therefore, it’s important to consider all your options, including paying off your entire existing loan balance, refinancing, or another option listed above.

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.

FAQs

What are the benefits of student loan settlement?

The biggest benefit of student loan settlement is that you pay an amount lower than what you owe in loans, fees, and interest charges. Once you follow the settlement terms, your loan is settled and your obligation to pay the loan “goes away.” The default also gets removed from your credit report.

What are the downsides of student loan settlement?

The largest downside of student loan settlement is simply that they don’t happen that often. Federal loans are extremely difficult to discharge, even in bankruptcy. Student loan settlement can harm your credit score, as settled debts are reported as less than fully paid. Additionally, forgiven amounts may be considered taxable income, increasing your tax liability.

Will settling student loans hurt your credit score?

Yes, settling student loans can hurt your credit score. When a loan is settled for less than the full amount, it’s reported as “settled” rather than “paid in full,” indicating you didn’t meet your original repayment terms. This can negatively impact your credit history and future borrowing potential.


Photo credit: iStock/Jacob Wackerhausen

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


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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.


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.

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.

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 .

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How to Get Perkins Loan Forgiveness in 2025

Borrowers with Perkins Student Loans may be eligible for forgiveness. Although the Federal Perkins Loan Program was discontinued in 2017, forgiveness is still an option for qualifying individuals who are repaying these loans.

Read on to learn the details about Perkins loan forgiveness, the eligibility requirements, and how to apply.

Key Points

•   Perkins loan forgiveness may partially or fully cancel Perkins student loan debt for those who work full-time in public service.

•   Qualifying roles include certain teaching, law enforcement, and health care jobs, each with specific requirements.

•   Perkins forgiveness is granted incrementally — typically, 15% in the first two years, 20% in the third and fourth years, and 30% in the fifth year.

•   To apply for forgiveness, contact your school or loan servicer for application forms and detailed instructions.

•   Those not eligible for Perkins forgiveness may consider alternatives like Federal Direct Loan Consolidation, income-driven repayment plans, or refinancing student loans.

How Does Perkins Loan Forgiveness Work?

Through Perkins loans forgiveness, your Perkins loan debt could be partially or fully canceled. You may qualify for forgiveness by working full-time in a public service job, such as military service, law enforcement, or education.

Once a Perkins loan borrower applies and is approved for student loan forgiveness, they will no longer be required to repay some or all of their loans. However, federal Perkins loan forgiveness doesn’t happen all at once. Instead, forgiveness happens in percentage increments that increase over time (see more on that below).

What Are Perkins Loans?

Perkins loans are subsidized low-interest federal student loans for undergraduate and graduate students who have exceptional financial need. Under the Perkins loan program, undergraduate students could borrow $5,500 per year with a cumulative maximum of $27,500, while graduate or professional students could take out $8,000 annually with a cumulative maximum of $60,000.

Perkins loans have a fixed federal student loan interest rate of 5.00%. Because the loans are subsidized, the government covers the interest that accrues on Perkins loans while borrowers are in school. Repayment for Perkins loans begins nine months after a student graduates, leaves school, or drops below half-time status.

As noted, the Perkins Loan program ended in 2017, when Congress did not renew it. The federal government allowed final Perkins loan disbursements through June 30, 2018.

Who Qualifies for Perkins Loan Forgiveness?

You may be eligible for Perkins loan forgiveness if you work full-time in a public service role. Jobs that may qualify a borrower for forgiveness include:

•   Elementary or secondary teacher in a low-income district or service agency in a teacher-shortage area

•   Special education teacher at a public or nonprofit school

•   Preschool or prekindergarten teacher

•   Law enforcement officer or correctional officer

•   First responder

•   Attorney for a federal public or community defender organization

•   AmeriCorps, VISTA, or Peace Corps volunteer

•   Member of the U.S. Armed Forces

•   Health care worker such as a nurse or medical technician

For each job, there are a number of requirements that need to be met to qualify for federal Perkins loan forgiveness, including the number of years worked, and in some cases, the year you started. Some Perkins loan holders may have as much as 100% of their Perkins loans forgiven after five years in a public service job.

Borrowers who are not eligible for Perkins student loan forgiveness might be able to have their Perkins student loans discharged in certain circumstances. For instance, you may qualify for total and immediate cancellation of your Perkins loans in the following situations:

•   Your school closed while you were attending it

•   Bankruptcy

•   Total and permanent disability

•   Death

If any of these circumstances apply to your situation, contact your school’s financial aid office or loan servicer about getting a loan discharge.

How to Apply for Perkins Loan Forgiveness

To apply for Perkins student loan forgiveness, contact the school that originally issued your Perkins loans or your loan servicer to get the application forms. Your school or loan servicer can also give you specific instructions on how to apply.

As part of the application process, be aware that you will need to show proof that you work in a qualifying public service job.

What Happens If You’re Approved for Perkins Loan Forgiveness?

If you’re approved for Perkins loan forgiveness, you will likely receive forgiveness for your loans in increasing percentages. For example, if you are eligible for 100% forgiveness, your debt will typically be forgiven in these years and increments:

•   First and second years of qualifying employment: 15% of the loan amount

•   Third and fourth years of of qualifying employment: 20% of the loan amount

•   Fifth year of qualifying employment: Final 30% of the loan amount

Recommended: Are Forgiven Student Loans Taxed?

What to Do If You Don’t Qualify for Perkins Loan Forgiveness

If you aren’t eligible for Perkins student loan forgiveness, there are other options that can help you manage or lower your student loan payments. Methods to consider include:

Federal Direct Consolidation Loan

With a Direct Consolidation loan, you can combine one or more federal student loans, including Perkins loans, into a new loan to lower your monthly payment amount and access federal forgiveness programs, including Public Service Loan Forgiveness. After consolidation, you’ll have one loan with a fixed interest rate, which may be easier to manage.

Income-Driven Repayment Plans

Income-driven repayment (IDR) plans base your federal loan payments on your discretionary income and family size. This often results in a lower monthly loan payment. Under an IDR plan, you could qualify for forgiveness of your remaining debt after 20 or 25 years.

Perkins loans are not eligible for IDR plans, but if you consolidate them with a Direct Consolidation Loan, you can enroll in an IDR plan.

Student Loan Refinancing

Refinancing student loans allows you to replace your old loans with a new private loan, ideally one that has a lower interest rate and more favorable terms.

Borrowers interested in refinancing student loans to save money should compare lenders and offers to choose the best one for their situation. Also, be aware that refinancing federal loans makes them ineligible for federal benefits like income-driven repayment.

A student loan refinancing calculator can help you decide whether refinancing makes financial sense for you.

Recommended: Student Loan Refinancing Guide

The Takeaway

Borrowers with Perkins loans may qualify for forgiveness if they are employed full-time in a qualifying public service job. They might get up to 100% of their loan amount forgiven.

Those who are not eligible for Perkins forgiveness may be able to have their Perkins loans fully discharged in certain situations, such as bankruptcy or if their school closed before they could earn their degree.

However, these aren’t the only options to help borrowers tackle student loan debt. You can also explore methods that could help lower your monthly loan payments, such as an income-driven repayment plan, a Federal Direct Consolidation Loan, or student loan refinancing.

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.


Photo credit: iStock/designer491

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


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.


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.

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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How to Prepay Student Loans Without Penalty

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

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

Key Points

•   Federal and private student loans in the U.S. allow prepayment without penalties, enabling borrowers to pay off their debt faster and save on interest.

•   Ensure that any additional payments are applied directly to the loan principal by specifying this with your loan servicer, reducing overall interest.

•   Prioritize extra payments toward loans with the highest interest rates to maximize savings over time.

•   Understand your loan’s terms, and coordinate with your servicer to confirm that prepayment strategies align with your financial goals.

•   Another way to save money on student loans is by refinancing them, ideally with a lower interest rate or shorter loan term. Keep in mind that refinancing federal student loans means you’ll no longer have access to federal benefits and protections.

What Is a Prepayment Penalty?

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

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

Recommended: How to Avoid Paying a Prepayment Penalty

Student Loan Prepayment Penalties

Is there a prepayment penalty on student loans?

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

Prepaying Federal Student Loans

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

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

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

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

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

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

•   Graduate

•   Drop below half-time enrollment or

•   Leave school

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

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

•   Your income or

•   A fixed monthly payment over a set repayment period

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

How to Make Sure Prepayments Are Applied Correctly

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

Student loan servicers usually apply your payments in this order:

1.    Toward late fees you incur.

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

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

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

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

Recommended: 6 Strategies to Pay Off Student Debt Loans Quickly

Prepaying Private Student Loans

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

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

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

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

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

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

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

Recommended: Does Refinancing Student Loans Save Money?

The Takeaway

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

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

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

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

FAQ

Should you prepay student loans?

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

What about interest charges when you prepay student loans?

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


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


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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.


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.

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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