SoFi

When you’re preparing to buy a home, understanding the early steps in the mortgage process can make your search smoother and more effective.

Two common terms you’ll hear are prequalification and preapproval — each gives lenders and home sellers insight into your borrowing potential, but they differ in how they evaluate your finances and how much confidence they provide in your ability to secure a loan. Knowing the distinction helps you plan better, shop smarter, and present stronger offers in a competitive housing market.

Here’s a look at how these two steps vary, how each can play a part in a home-buying strategy, and how one in particular can increase the chances of having a purchase offer accepted.

What Does Prequalified Mean?

Getting prequalified is a way of finding out how much you might be able to borrow to purchase a home and what your monthly payments might be.

To get prequalified for a home loan, you’ll provide a few financial details to mortgage lenders. The lenders use this unverified information, usually along with a soft credit inquiry, which does not affect your credit scores, to let you know how much you may be able to borrow and at what interest rate.

You might want to get prequalified with several lenders to compare monthly payments and interest rates, which vary by mortgage term. But because the information provided has not been verified, there’s no guarantee that the mortgage or the amount will be approved.

Recommended: How Much House Can I Afford?

What Does It Mean to Be Preapproved?

Preapproval for a mortgage loan requires a more thorough investigation of your income sources, debts, employment history, assets, and credit history. Verification of this information, along with a hard credit pull from all three credit bureaus (which may cause a small, temporary reduction in your credit scores), allows the lender to conditionally preapprove a mortgage before you shop for homes.

A preapproval letter from a lender stating that you qualify for a loan of a specific amount can be useful or essential in a competitive real estate market. When sellers are getting multiple offers, some will disregard a purchase offer if it isn’t accompanied by a preapproval letter.

When seeking preapproval, besides filling out an application, you will likely be asked to submit the following to a lender for verification:

•   Social Security number and card

•   Photo ID

•   Recent pay stubs

•   Tax returns, including W-2 statements, for the past two years

•   Two to three months’ worth of documentation for checking and savings accounts

•   Recent investment account statements

•   List of fixed debts

•   Residential addresses from the past two years

•   Down payment amount and a gift letter, if applicable

The lender may require backup documentation for certain types of income. Freelancers may be asked to provide 1099 forms, a profit and loss statement, a client list, or work contracts. Rental property owners may be asked to show lease agreements.

You should be ready to explain any negative information that might show up in a credit check. To avoid surprises, you might want to order free credit reports from www.annualcreditreport.com. A credit report shows all balances, payments, and derogatory information but does not give credit scores.

Calculate Your Potential Mortgage

Use the following mortgage calculator to get an idea of what your monthly mortgage payment would look like.

Do Preapproval and Prequalification Affect Credit Scores?

Getting prequalified shouldn’t affect your credit scores. Only preapproval requires a hard credit inquiry, which can affect scores. But the good news for mortgage shoppers is that multiple hard pulls are typically counted as a single inquiry as long as they’re made within the same 14 to 45 days.

Newer versions of FICO® allow a 45-day window for rate shoppers to enjoy the single-inquiry advantage; older versions of FICO and VantageScore 3.0 narrow the time to 14 days.

You might want to ask each lender you apply with which credit scoring model they use.

Do I Have to Spend How Much I’m Preapproved for?

No, you don’t have to spend the full amount you’re preapproved for on a mortgage. Preapproval shows the maximum a lender is willing to offer based on your finances, not what you should borrow. Choosing a lower-priced home can leave room in your budget for savings, emergencies, and other financial goals.

Recommended: Guide to First-Time Home Buying

Are Prequalification and Preapproval the Same Thing?

Prequalification and preapproval are not one and the same. Here’s a visual on what’s needed for each:

Do I Need a Prequalification Letter to Buy a House?

No, you do not need a prequalification letter to buy a house, nor do you have to have a preapproval letter when making an offer on a house.

But getting prequalified can allow you to quickly get a ballpark figure on a mortgage amount and an interest rate you qualify for, and preapproval has at least three selling points:

1.    Preapproval lets you know the specific amount you are qualified to borrow from a particular lender.

2.    Going through preapproval before house hunting could take some stress out of the loan process by easing the mortgage underwriting step. Underwriting, the final say on mortgage approval or disapproval, comes after you’ve been preapproved, found a house you love and agreed on a price, and applied for the mortgage.

3.    Being preapproved for a loan helps to show sellers that you’re a vetted buyer.

The Takeaway

In the homebuying process, understanding the difference between mortgage prequalification and preapproval can make your search smoother and more strategic. Prequalification gives you a general idea of what you may afford, while preapproval involves verified financials and can strengthen your offers in a competitive market. Knowing when to use each step helps you shop confidently and prepares you to move quickly when you find the right home.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What is mortgage prequalification?

It’s an early step where a lender estimates how much you might be able to borrow based on basic financial information you provide.

What does mortgage preapproval mean?

Preapproval is a more formal process where the lender verifies your income, debts, and credit, and may issue a conditional approval for a specific loan amount.

How do prequalification and preapproval differ in documentation?

Prequalification uses self-reported details, while preapproval requires verified documentation like pay stubs and tax returns.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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.

SOHL-Q126-077

Renovations can improve your home and increase its value. But as any seasoned homeowner will tell you, those projects can be expensive. If you can’t afford to cover the costs out of pocket, you may wonder if a construction loan is right for you. While it is an option, there are complications that people should be aware of, as well as other home loans for renovations that might be a better fit.

Let’s take a look at construction loans, their requirements, and some alternatives to consider.

What a Construction Loan Is and How it Works

Construction loans finance the building of a new home or substantial renovations to a current home. They are typically short-term loans with higher interest rates, designed to cover the costs of land, plans, permits and fees, labor, materials, and closing costs. They can also provide a contingency reserve if construction goes over budget.

With a construction loan for home renovation or a new build, applicants must submit project plans and schedules along with their financial information as part of the qualification process. We’ll get into that in more detail below.

How Funds Are Disbursed During the Project

Once approved for a construction loan for a remodel or new build, a homeowner receives funding for the first phase of the project only, rather than a lump sum. As construction progresses, assessments are provided to the lender so that the next round of funds can be released. Meanwhile, borrowers make interest-only payments on the funds they’ve received.

When construction is finished — and the borrower now has a home to serve as collateral — the construction loan may be converted to or paid off by a regular mortgage. The borrower then begins repaying both the principal and interest.

Eligibility Requirements and Typical Terms

The formal application process for a construction loan involves submitting plans and specifications for the proposed building. Your builder will need to provide blueprints, estimated costs, and a schedule for the project. With a typical home mortgage loan the back-and-forth is between you and the lender; in a construction loan the builder or contractor will also play a key role, supplying important supporting documents.

As with a typical mortgage, the lender will scrutinize the borrower’s credit score (680 or above is ideal) and debt-to-income ratio, and you can expect to be asked to provide proof of income. A down payment of 20% is often required for a construction loan — after all, the lender is loaning money against collateral that doesn’t entirely exist yet.

Recommended: Home Maintenance Checklist

Renovation Loans vs. Construction Loans: What’s the Difference?

Though renovation loans and construction loans can be used for similar purposes, there are important differences to know. Let’s take a closer look at both types of loans.

Renovation Loans

Unlike other types of home improvement loans, a renovation loan takes into account the property’s after-repair value, which is an estimation of the home’s value once the improvements are made. This can be good news for borrowers, especially those buying a fixer-upper. That’s because they may be able to secure a larger loan amount than they would with a traditional mortgage based on the home’s current value.

What’s more, renovation loans often come with lower interest rates than credit cards and unsecured personal loans.

Some common types of lending for renovations include:

•  Government-sponsored loans, such as the FHA 203(k) home loan, Freddie Mac’s CHOICERenovation loan, and Fannie Mae’s HomeStyle renovation loan. Each type has its own rules and requirements.

•  VA renovation loans, which are available to eligible veterans and active-duty military personnel.

It’s also possible to use a home equity loan or home equity line of credit for renovations. More on that below.

Construction Loans

As we mentioned, a construction loan is commonly used to pay for building a brand-new home. In some cases, the loan can be converted to a mortgage after your home is finished. However, getting one can be more challenging than securing a conventional mortgage.

Lenders generally want to see a debt-to-income ratio of 45% or lower and a high credit score, and you may be required to make a down payment of at least 20%. Depending on the type of construction loan you apply for, you may also be required to provide a detailed plan, budget, and schedule for the construction. Some lenders will also need to approve your builder.

There are different types of construction loans to consider:

•  Construction-to-permanent loans, or single-close loans, which converts to a mortgage once the project is finished. The borrower saves money on closing costs by eliminating a second loan closing.

•  Construction-only loans, or standalone construction loans, which must be paid off when the building is complete. You will need to apply for a mortgage if you don’t have the cash to do so.

•  Renovation construction loans, which are designed to cover the cost of substantial renovations on an existing home. The loan gets folded into the mortgage once the project is complete.

Pros and Cons of Using a Renovation Loan

As you explore different home improvement loans, consider the following pros and cons of renovation loans.

Pros

•  Borrowers may have access to substantial funds that can pay for major upgrades or repairs.

•  Money can be used for a wide variety of renovation projects.

•  The loan amount is based on the home’s projected value after the repairs and renovations are complete.

•  Interest rates tend to be lower than what you’d be offered with an unsecured loan or credit card.

Cons

•  You may be required to use your home as collateral.

•  As with any loan, you’ll need to meet certain eligibility requirements, such as a good credit score, low debt-to-income ratio, and proof of income and employment.

•  A renovation loan increases your debt load, which could put a strain on your finances.

Recommended: Home Inspection Checklist

Pros and Cons of Using a Construction Loan

There are advantages and disadvantages to consider before taking out remodeling construction loans to fund renovations.

Pros

•  Funds can be used to cover all construction expenses.

•  Borrowers can use equity from other investments as collateral.

•  Loan requirements are generally focused on the construction process instead of a borrower’s credit profile.

•  Borrowers may only need to make interest payments during construction.

•  Loan terms may be more flexible than a traditional loan.

Cons

•  Funds are released as work progresses instead of in one lump sum.

•  It can be difficult to find lenders that offer competitive rates and to qualify for them — particularly if you don’t have a flawless credit history.

•  Loans tend to be short-term and must be paid in full at the end of the term.

•  May need to provide extensive documentation on the construction process in order to get approved.

•  If construction is delayed, you may need to ask the lender for an extension on the loan. This can cause interest rates and fees to accumulate.

When to Use a Renovation Loan vs. a Construction Loan

The key to knowing when to use a renovation loan vs. a construction loan is written right in the names of these financial tools. If you’re building a home, a construction loan will be necessary. But if you are substantially renovating a home, a renovation loan might be just the ticket. It’s not your only option, however, and there are less complicated ways to finance small- or medium-size renovations.

Alternative Ways to Finance Home Renovations

If you are planning a small construction project or renovation, there are a few financing alternatives that might be easier to access and give you more flexibility. Here’s a look at home equity loan vs. HELOCs vs. home improvement loans.

Personal Loans for Renovations

An unsecured personal loan can fund a renovation project or supplement other construction financing.

Personal loan interest rates are typically lower than construction loan rates, depending on your financial profile. And you can frequently choose a personal loan with a fixed interest rate.

Personal loans also offer potentially better terms. Instead of being required to pay off the loan as soon as the home is finished, you can opt for a longer repayment period. And applying for a personal loan and getting approved can be much faster and easier than for a construction loan.

The drawbacks? You won’t be able to roll your personal loan into a mortgage once your renovation or building project is finished.

And because the loan is disbursed all at once, you will have to parse out the money yourself, instead of depending on the lender to finance the build in stages.

Cash-Out Refinance for Construction Costs

A cash-out refinance is also a good financing tool, particularly if you have a lot of equity in your current home. With a cash-out refinance, you refinance your home for more than you owe and are given the difference in cash.

You can estimate your building or renovation expenses with this Home Improvement Cost Calculator. Add your estimate to what you owe on your home to get the amount of your refinance.

Home Equity Loans and HELOCs

Both a home equity loan and a home equity line of credit (HELOC) allow you to borrow funds based on your home equity to use for any purpose you wish. Your home serves as collateral. This means that if you fail to repay what you borrow, with interest, the lender could foreclose. The good news, though, is that because the lending is secured by your home, interest rates are often pretty attractive.

Home equity loans are lump-sum loans, typically with a fixed interest rate. So your monthly payment remains the same for the full repayment term, which could be up to 30 years.

A HELOC is a credit line. You can draw against it as needed, up to the maximum you are allowed. For the first five or ten years, you often don’t have to repay the principal — you can just pay interest. Interest on HELOCs is more likely to be a variable rate, so payments can be somewhat unpredictable. After the initial “draw” period you have to stop borrowing and you begin to repay what you have borrowed, with interest.

Grants or Government Programs for Certain Renovations

FHA loans and VA loans aren’t the only government programs that can help fund renovations. There may be grants or loans available from government or nonprofit sources, depending on your specific renovation project and your personal circumstances. Check your local government web site for more information about programs in your local area. There are often programs specifically for older adults, Native Americans, and those in rural areas. If your renovations might make your home more energy efficient, also check in with your local power company.

Using Savings or Cash for Smaller Projects

Remember that if your renovations aren’t a big production, you may be able to earmark savings for them, if the repairs aren’t urgent and you are willing to be patient and save up the money. Flexing your savings muscle is a good idea even if you are financing some or all of the work. “When budgeting for a remodel, it can be helpful to have a dedicated fund for renovation expenses. This can help you allocate the appropriate amount of money,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

The Takeaway

Planning a new home or substantial renovation? There are several ways to pay for the projects. One option is a renovation loan, which lets you pay for major (and minor) renovations without having to dip into your personal savings. Another option is a construction loan, which typically covers the entirety of new construction expenses. For smaller projects, a personal loan can be a good option — and a lot less complicated.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can you use a construction loan for renovations on an existing home?

It is possible to use a construction loan to fund renovations on an existing home, but it may not be the easiest way to borrow for your renovation. That said, if you need a very large sum and are planning to work with a builder or contractor who can help provide plans and other supporting documents, it is doable.

Can you convert a construction loan to a regular mortgage after renovations are complete?

It is possible to either convert a construction loan to a typical mortgage or take out a mortgage to pay off a construction loan. Explore what your options will be before you sign on to a construction loan with a lender.

Do you need equity in your home to qualify for a renovation or construction loan?

Lenders who fund renovation or construction loans often like to see that a homeowner has a significant amount of equity — sometimes 20% or more — before financing the work. The exception would be for an FHA 203(k) loan. If you have a credit score of 580 or better, you may be able to fund a renovation with an FHA loan even if you have just 3.5% equity. A score from 500 to 579 will require 10% equity.

How do inspections and draw schedules work with construction loans?

In the application stage of your construction loan, you will (with your builder or contractor’s help) submit a schedule with certain milestones that correspond to stages of funding of your loan. As your project reaches each milestone, the project manager, builder, or you will report in to the lender. It’s not just a casual phone call: Your draw request (the process of drawing down your loan) will require documentation, and an inspector may come out to review the work. Once all this is completed and the lender is satisfied, the lender will send the funds.

What are some alternatives if I don’t qualify for a construction or renovation loan?

If you don’t qualify for a construction loan for renovation or a government-backed renovation loan such as an FHA 203(k) loan, you might look into a personal loan, which is unsecured. Or if you have some equity built up in your home, you might fund your renovations by using a home equity loan, home equity line of credit (HELOC), or a cash-out refinance.

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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOPL-Q126-004

If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing and How Does it Work?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Common Ways to Refinance Credit Card Debt

A common way to accomplish a credit card refinance is to pay off your existing credit cards with a brand-new balance-transfer credit card. This type of card offers a low or 0% interest rate for a promotional period that may last from a few months to 18 months or more. Can you refinance a credit card that you already have? Perhaps. You can always try to approach your existing credit card issuer and ask for a lower interest rate, possibly by doing a balance transfer to a lower-rate card issued by the same company.

What are the Benefits of Credit Card Refinancing?

We’ve discussed what is credit card refinancing and its goal: to lower your interest rate. Now let’s explore some of the benefits (and drawbacks) of refinancing.

Pros

•   You may qualify for a promotional 0% annual percentage rate (APR) during your card’s introductory period. If you can pay down your debt during this time, you could potentially get out of debt faster.

•   Depending on the interest rate you’re offered, you could save money in interest charges.

•   Bill paying would be streamlined if you decide to refinance multiple credit cards into one new credit card.

•   If monthly payments are reasonable, it may be easier to consistently pay them on time. This can help build your credit score.

Cons

•   The introductory 0% interest period is short-term, and after it ends, the interest rate can skyrocket to as high as 25%.

•   There may be a balance transfer fee of 3%-5%, which can add to your debt.

•   0% interest balance transfer cards often require a good or excellent credit score to qualify.

•   Your credit score may temporarily dip a few points when you apply for a new credit card or loan. That’s because the lender will likely run a hard credit check.

Recommended: What Is the 10% Credit Card Interest Rate Cap Act?

Who Should Consider Credit Card Refinancing?

Credit card refinancing isn’t right for everyone. That said, a balance transfer to a 0% APR card could be a good move if you have a smaller debt to manage or are carrying a balance on more than one credit card. Plus, transferring multiple balances into one card can streamline bills. All of the usual credit card rules apply when you transfer a balance, so you’ll want to make every payment on time with your new card.

Refinancing may make sense if you’re looking for better terms on your credit card debt, qualify for a 0% APR, and can pay off the balance before the promotional period ends.
So, as you’re weighing your options, you’ll want to consider a number of factors, including:

•   Your credit score and credit history

•   How much debt you have

•   Your personal finances and whether or not you can eliminate the debt fairly quickly

Recommended: The Risks of Payday Loans

What Is Credit Card Debt Consolidation?

Credit card debt consolidation is an alternative to credit card refinancing. The term “debt consolidation” refers to the process of paying off multiple credit cards or other types of debt (such as medical debt) with a single loan, referred to as a debt consolidation loan. The main purpose of consolidation is to simplify bills by combining multiple payments into one fixed loan payment, while ideally also saving on interest.

Types of Debt Consolidation

There are two primary types of debt consolidation loans: a personal loan and a loan secured by your home equity. The latter could be either a home equity loan or a home equity line of credit (HELOC). Not everyone owns a home or has enough equity to qualify for home equity lending, so let’s focus on what a personal loan is and how you might use it to consolidate debt.

A personal loan (sometimes referred to as a debt consolidation loan) will often have a lower interest rate than most credit cards (with the exception of the 0% APR period on a credit card, of course). However in order to qualify for a lower rate on a personal loan, you’ll need to have a strong credit score, which will largely determine your personal loan interest rate. Depending on your financial profile, you might be able to borrow anywhere from $5,000 to $100,000.

There are pros and cons to paying off multiple credit cards with a single short-term loan. Let’s take a look:

Pros

•   Personal loans often have lower interest rates than credit cards and can save you money on monthly payments as well as on interest charges over the life of your debt repayment.

•   You can pay off multiple debts with one loan, which can take the hassle out of bill paying.

•   The structured nature of a personal loan means you can make equal payments toward the debt at a fixed rate until it is eliminated.

•   With most personal loans, you can opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.)

Cons

•   The terms of a loan will almost always be based on your credit history and holistic financial picture (another reminder to keep an eye on personal finance basics like making timely payments). Not every borrower will qualify for a low interest rate or get approved for a personal loan at all.

•   Some lenders may charge fees, including personal loan origination fees.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay off debt.

Credit Card Refinancing vs. Debt Consolidation

To recap, the difference between debt consolidation and a credit card refinance is first a matter of goals.

With credit card refinancing — as with other forms of debt refinancing — the aim is to save money by lowering your interest rate. Debt consolidation may or may not save you money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule. This structure and simplification can be just what it takes to help some borrowers who are struggling with credit to get their debt paid off.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low interest rate for a short time. This limits the amount you can transfer to what you can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Which strategy is right for you? That depends on a number of factors, including the amount of debt you have, your current interest rates, and whether you’re able to stick to a structured repayment schedule. Of course, it’s important to regulate your use of credit cards in either scenario. The last thing you want is to be paying off a personal loan or facing the expiration of a 0% interest rate when you’ve racked up more credit card debt.

The chart below sums up the credit card refinancing vs. debt consolidation story.

Side-by-Side Comparison of Key Features

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for the best rates on these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

Which is better: credit card refinancing or debt consolidation?

There are advantages and drawbacks to both strategies. Credit card refinancing can help you lower your interest rate, which can save you money. Debt consolidation might save you money on interest, but it will definitely simplify bill paying by replacing multiple cards with one monthly bill.

Is refinancing a credit card worth it?

Refinancing a credit card may be worth the effort because it can lower your interest rate, potentially save you money, and make payments more manageable.

Is refinancing the same as consolidation?

Though refinancing and consolidation can both help you manage your debt, they serve different purposes. Refinancing involves moving credit card debt from one card or lender to another, ideally with a lower interest rate. Paying less in interest while you pay off your debt is the main goal of refinancing. When you consolidate, you settle multiple debts with one loan. Simplifying bills into one fixed loan payment is the main reason to consider this strategy.

How do credit card refinancing and consolidation affect my credit score?

Credit card refinancing and debt consolidation might temporarily reduce your credit score because your lender will likely do a hard credit check to qualify you for the account. But with time and consistent, on-time payments, your credit score should rebound. Consolidating several credit cards into one personal loan might also help improve your credit utilization ratio, which in turn should nudge your score upward. Opening new credit accounts, however, can reduce the overall age of your credit accounts, as can closing old accounts. Both of these can ding your credit score. If you aren’t applying for other forms of financing, such as a mortgage, none of this should be a huge concern so long as you are using the credit card refinance or consolidation to reduce debt and better manage your finances.

What should I consider before refinancing or consolidating?

The most important thing to consider when thinking about credit card refinancing or debt consolidation is whether you will save money when interest and fees are factored in. It’s also important to have a good look at your credit habits. If you think having a new credit card with 0% introductory financing might result in you charging even more and falling more deeply into debt, you might want to consider a personal loan and/or explore credit counseling, in which you will work with a professional to help change unhealthy habits and develop a strategy to reduce debt.

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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOPL-Q126-002

Students who graduate with a master’s degree carry an average debt of $69,140, according to the Education Data Initiative. Fortunately, there are many ways to pay for grad school, including options that don’t require borrowing.

Keep reading to learn more on how to pay for grad school in 2025, including how to take out graduate student loans, how to qualify for scholarships and grants, and other ways to reduce your total tuition.

Ways to Pay for Grad School Without Taking on Debt

You can pay for grad school without taking on debt by filling out the FAFSA, applying for scholarships and grants, or working for an employer who offers tuition reimbursement. Continue reading for even more strategies to pay for grad school without taking on debt.

1. Fill Out the FAFSA

The first step to seeing if you qualify for financial aid is to fill out the Free Application for Federal Student Aid, or FAFSA®.

Your FAFSA will determine your eligibility for federal student loans, federal work-study, and federal grants. In addition, your college may use your FAFSA to determine your eligibility for aid from the school itself. Here’s a closer look at federal grants and federal work-study programs.

Federal Grants

Unlike student loans, federal grants do not need to be repaid. Grants for college for grad students include TEACH Grants and Fulbright Grants.

The TEACH Grant, or Teacher Education Assistance for College and Higher Education Grant, has relatively stringent requirements and is available for students pursuing a teaching career who are willing to fulfill a service obligation after graduating.

The Fulbright Grant offers funding for international educational exchanges. Sponsored by the U.S. government, it supports students, scholars, teachers, and professionals to study, research, or teach abroad.

Federal Work-Study Program

Federal work-study for grad students provides part-time jobs to help cover educational expenses. These positions are often related to a student’s field of study or serve the community. Eligibility is based on financial need, and earnings are exempt from being counted as income on the FAFSA, maximizing financial aid opportunities.

2. Figure Out What Your University Can Offer You

After narrowing down your federal options, make sure to consider what university-specific funding might be available. Many schools offer their own grants, scholarships, and fellowships. Your school’s financial aid office likely has a specific program or contact person for graduate students who are applying for institutional assistance.

Many schools will use the FAFSA to determine what, if anything, the school can offer you, but some schools use their own applications.

Although another deadline is the last thing you need, seeking out and applying for school-specific aid can be one of the most successful ways to pay for grad school. Awards can range from a small grant to full tuition remission.

3. Employer Tuition Reimbursement

It might sound too good to be true, but some employers are happy to reimburse employees for a portion of their grad school costs. Employers that have tuition reimbursement plans set their own requirements and application processes.

Make sure to consider any constraints your employer puts on their tuition reimbursement program, including things like staying at the company for a certain number of years after graduation or only funding certain types of degree programs.

4. Become an In-State Resident

If you’re applying for graduate school after taking a few years off to work, you might be surprised to find how costs have changed since your undergraduate days. Graduate students interested in a public university can save tens of thousands of dollars by considering a university in the state they already live in.

Each state has different requirements for determining residency. If you are planning on relocating to attend grad school, be sure to look into the requirements for the state of the school you are planning to attend.

Certain states require only one year of full-time residency before you can qualify for in-state tuition, while others require three years. During that time, you could work as much as possible to save money for graduate school. More savings could mean fewer loans.

Recommended: 6 Ways to Save Money for Grad School

5. Become a Resident Advisor (RA)

Resident Advisors (RAs) help you get settled into your dorm room, show you how to get to the nearest dining hall, and yell at you for breaking quiet hours.

RAs may be underappreciated, but they’re often compensated handsomely for their duties. Students are typically compensated for a portion or all of their room and board, and some schools may even include a meal plan, reduced tuition, or a stipend. The compensation you receive will depend on the school you are attending, so check with your residential life office to see what the current RA salary is at your school.

Serious savings. Save thousands of dollars

thanks to flexible terms and low fixed or variable rates.

6. Find a Teaching Assistant Position

If you’re a graduate student, you can often find a position as a Teaching Assistant (TA) or Research Assistant (RA) for a professor. The position will be related to your undergrad or graduate studies and often requires grading papers, conducting research, organizing labs, or prepping for class.

TAs can be paid with a stipend or through reduced tuition, depending on which school you attend. Not only can the job help you to potentially avoid student loans, but it also gives you networking experience with people in your field.

The professor you work with can recommend you for a job, bring you to conferences, and serve as a reference. Being a TA may help boost your resume, especially if you apply for a Ph.D. program or want to be a professor someday. According to ZipRecruiter, the average TA earns $15.66 an hour, as of November 2025.

Recommended: How to Become a Graduate Assistant

7. Apply for Grants and Scholarships

Applying for grants and graduate scholarships is a smart way to fund graduate school without accumulating debt. Start by researching opportunities specific to your field, school, or demographics. Many scholarships focus on academic achievements, leadership, or community involvement, while grants often emphasize financial need.

An easy way to search for scholarships is through one of the many websites that gather and tag scholarships by criteria. Keeping all your grad school and FAFSA materials handy means that you’ll have easy access to the information you’ll need for scholarship applications.

8. Utilize Military Education Benefits (If Eligible)

Military education benefits can significantly reduce or even eliminate the cost of graduate school for qualifying service members, veterans, and sometimes their families. Programs like the GI Bill® and the Yellow Ribbon Program can cover tuition, fees, and even housing costs at many institutions. Additionally, some branches offer tuition assistance while on active duty, enabling students to pursue advanced degrees with little to no out-of-pocket expenses.

How to Pay for Grad School With Student Loans

Grad students may rely on a combination of financing to pay for their education. Student loans are often a part of this plan. Like undergraduate loans, graduate students have both federal and private student loan options available to them.

Federal Loans for Graduate School

There are different types of federal student loans, and each type has varying eligibility requirements and maximum borrowing amounts. Graduate students may be eligible for the following types of federal student loans:

•   Direct Unsubsidized Loans. Eligibility for this loan type is not based on financial need.

•   Direct PLUS Loans. Eligibility for this loan type is not based on financial need; however, a credit check is required to qualify for this type of loan. As of July 1, 2026, Grad PLUS Loans will no longer be available (Parent PLUS Loans will still be available, however).

•   Direct Consolidation Loans. This is a type of loan that allows you to combine your existing federal loans into a single federal loan.

Federal Student Loan Forgiveness Programs

Federal student loan forgiveness programs either assist with monthly loan payments or can discharge a remaining federal student loan balance after a certain number of qualifying payments.

One such program is the Public Service Loan Forgiveness (or PSLF) program. The PSLF program allows qualifying federal student loan borrowers who work in certain public interest fields to discharge their loans after 120 monthly, on-time, qualifying payments.

Additionally, some employers offer loan repayment assistance to help with high monthly payments. While loan forgiveness programs don’t help with the upfront cost of paying for grad school, they may offer a meaningful solution for federal student loan repayment. (Unfortunately, private student loans don’t qualify for these federal programs.)

Private Loans for Graduate School

If you’re not eligible for scholarships or grants, or you’ve maxed out how much you can borrow using federal student loans, you can apply for a private graduate student loan to help cover the cost of grad school.

Private loan interest rates and terms will vary by lender, and some private loans have variable interest rates, which means they can fluctuate over time. Doing your research with any private lender you’re considering is worth it to ensure you know exactly what a loan with them would look like.

Also, keep in mind that private student loans do not offer the same benefits and protections as federal student loans. It’s best to use all federal funding first before relying on private funding.

Comparing Federal vs. Private Loan Options

Understanding the differences between federal vs private student loans is important when considering grad school loans. Each option offers unique benefits, eligibility rules, and repayment features that can impact long-term costs.

•   Federal loans: These loans are funded by the government and typically offer more borrower protections, such as fixed interest rates, income-driven repayment plans, and potential for deferment, forbearance, or loan forgiveness programs. They usually don’t require a cosigner and are often based on financial need.

•   Private loans: Offered by banks, credit unions, and other private lenders, these loans often have variable interest rates that can be higher than federal loans. They usually require a strong credit history or a cosigner, and their repayment terms and borrower benefits are generally less flexible than federal options.

Recommended: Private Medical School Loans

Steps to Take Before Applying to Graduate School

Before applying to graduate school, it’s important to consider the earning potential offered by the degree in comparison to the cost. At the end of the day, only you can decide if pursuing a specific graduate degree is worth it. Here are a few steps to take before applying to grad school.

1. Research Potential Earnings by Degree

Perhaps you are already committed to one degree path, like getting your JD to become a lawyer. In that case, you should have a good idea of what the earning potential could be post-graduation.

If you’re considering a few different graduate degrees, weigh the cost of the degree in contrast to the earning potential for that career path. This could help you weigh which program offers the best return.

2. Complete the FAFSA

Regardless of the educational path you choose, filling out the FAFSA is a smart move. It’s completely free to fill out and you may qualify for aid including grants, work-study, or federal student loans. Federal loans have benefits and protections not offered to private loans, so they are generally prioritized first.

3. Estimate Your Cost of Attendance

Estimating your cost of attendance will help you understand the full financial commitment beyond just tuition. This estimate should include fees, textbooks, housing, transportation, and personal expenses, as well as potential increases in tuition over time. By creating a detailed budget upfront, you can compare programs more accurately, anticipate funding needs, and avoid surprises once you enroll.

4. Explore Financing Options

As mentioned, you may need to rely on a combination of financing options to pay for grad school. When scholarships, grants, and federal student loans aren’t enough, private loans can help you fill in the gaps.

When comparing private lenders, be sure to review the loan terms closely — including factors like the interest rate, whether the loan is fixed or variable, and any other fees. Review a lender’s customer service reputation and any other benefits they may offer, too.

The Takeaway

Grad school is a big investment in your education, but the good news is there are grants and scholarships that you won’t have to pay back. Some employers may also offer tuition reimbursement benefits, or you could find work as a Resident Advisor to supplement your tuition costs. If you need more funding to finance grad school, there are federal 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.

FAQ

Does FAFSA give money for grad school?

FAFSA provides access to federal financial aid for graduate school, including Direct Unsubsidized Loans and Grad PLUS Loans (through July 1, 2026). Graduate students may not qualify for federal grants but can explore assistantships, scholarships, and work-study opportunities through FAFSA to help cover their educational expenses.

Does Pell Grant cover a master’s degree?

No, the Pell Grant does not cover master’s degree programs. It is a federal grant specifically designed for undergraduate students with financial need. Graduate students must explore other funding options like scholarships, assistantships, and federal loans to finance their education.

Is it worth paying for grad school?

Paying for grad school can be worth it if the degree significantly boosts your career prospects, earning potential, or personal goals. Consider the return on investment, including salary increases and opportunities. Research funding options and weigh potential debt against long-term benefits to determine if grad school aligns with your financial future.

What are the best student loans for graduate school?

The best student loans for graduate school often start with federal options, like Direct Unsubsidized Loans, because they offer fixed rates, borrower protections, and forgiveness eligibility. Private student loans can be a good alternative for borrowers with strong credit who may qualify for lower interest rates and flexible terms.

Can I get scholarships for graduate school?

Yes, you can get scholarships for graduate school. Many universities, private organizations, professional associations, and foundations offer merit-based, need-based, and field-specific awards. You can apply before or during your program, and using scholarship databases or your school’s financial aid office can help you find opportunities that match your background and goals.

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., Puerto Rico, U.S. Virgin Islands, or American Samoa, 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 4/22/2025 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.

SOISL-Q425-047