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Student loan debt can be overwhelming, especially as interest builds and payments drag on for years after graduation. For borrowers seeking relief, one strategy that sometimes comes up is using a personal loan to pay off student loans. On the surface, it may seem like a simple debt-swap — replace one loan with another and, ideally, secure better terms. But is it a smart idea?

While personal loans can be used for many things, they are generally not the best option for paying off student loans. Many lenders prohibit using personal loans for educational costs (including SoFi), which includes paying off student loans. Even if you can find a lender that does allow it, there are pros and cons to using a personal loan to pay off your student loan balance. Here’s what you need to know.

Personal Loans vs. Student Loans

At first glance, personal loans and student loans might seem similar. Both provide a lump sum of money up front, require you to pay it back in monthly payments, and charge interest. But the structure, purpose, and protections of each are different.

Student loans are specifically designed to help finance education. They often feature relatively low interest rates and deferred repayment while in school. In the case of federal student loans, they also offer unique benefits like income-driven repayment (IDR) plans, forbearance during hardship, and potential forgiveness programs.

Personal loans, by contrast, are loans that can be used for virtually any legal purpose. Common uses for personal loans include home renovations, unexpected emergencies, medical expenses, major events like weddings, and debt consolidation (when you combine multiple high-interest debts into a single loan with a potentially lower interest rate).

Personal loans tend to carry shorter repayment terms (often two to seven years), and their interest rates can vary widely based on your credit score. Importantly, they don’t offer any of the protections or flexible repayment options that federal student loans provide.

Note: While SoFi personal loans cannot be used for post-secondary education expenses, we do offer private student loans with great interest rates.

Can You Use a Personal Loan to Pay Off Student Loans?

It depends. While it may technically be possible to use a personal loan to pay off your student loans, either federal or private, many lenders do not allow you to use the proceeds of a personal loan for this purpose.

This restriction exists largely due to regulatory and risk concerns. Education-related lending in the U.S. is heavily regulated, and lenders that want to offer student loan refinancing must meet specific legal and compliance standards. To avoid those complications, many personal loan providers choose not to allow their products to be used for anything related to student loans or education.

If you are unsure if a lender will allow you to use the funds to pay off your student debt, it’s a good idea to let them know this is your intent at the outset. This could be a reason why you would be denied for a personal loan. However, if you use the proceeds of a personal loan for a prohibited use, you’ll be violating the loan agreement and might face legal consequences or be required to repay the full amount of the loan immediately.

So while using a personal loan to pay off student debt is theoretically possible, finding a lender that allows it — and does so under favorable terms — could be a major challenge.

Private vs. Federal Student Loans

If you do happen to find a lender that permits this use, it’s crucial to consider what kind of student loans you’re dealing with.

Private student loans often come with fewer borrower protections and may carry higher interest rates than federal loans. If your credit is excellent and the new personal loan offers a better rate and shorter term, using it to pay off private loans could make financial sense — if permitted by the lender.

Federal student loans, however, come with significant advantages that you will lose if you switch to a personal loan. These include access to IDRs, deferment and forbearance options, and the possibility of forgiveness through Public Service Loan Forgiveness (PSLF). Giving up these benefits for a loan that’s less flexible could be risky.

Pros and Cons of Using a Personal Loan to Pay off Student Loans

If you can find a lender that allows it, here are some pros and cons of using a personal loan to pay off student debt.

Pros

•  Potentially lower interest rate: If you took out private student loans with a relatively high rate and currently have strong credit, you may be able to qualify for a personal loan with a lower rate than your student loans.

•  Predictable payments: If you have a private student loan with a variable interest rate, using a fixed-rate personal loan to pay it off will provide you with a fixed monthly payment, which can make budgeting simpler.

•  Faster repayment timeline: Because personal loans usually have shorter terms, using a personal loan to pay off your student debt could help you eliminate your student loan debt more quickly — provided you can afford the higher payments.

Cons

•  Loss of federal protections: If you’re paying off federal student loans, you’ll forfeit benefits like IDR plans, deferment, forbearance, and forgiveness opportunities, which can provide a valuable safety net.

•  Higher monthly payments: Because personal loans generally have shorter repayment terms than student loans, your monthly payments may be higher, even if the interest rate is lower.

•  No tax benefits: You can generally deduct student loan interest, up to $2,500, from your taxable income each year. Interest on personal loans, on the other hand, doesn’t qualify for a similar tax break.

Other Ways to Pay Off Student Loans

If using a personal loan to pay off your student loans isn’t feasible or cost-effective, here are some other student loan repayment options to consider.

Student Loan Refinancing

Student loan refinancing involves taking out a new student loan from a private lender to replace one or more existing loans, ideally at a lower interest rate. Unlike personal loans, there are numerous options available when it comes to finding a lender that will refinance your student loans.

Be aware, though: Refinancing federal loans with a private lender will still eliminate federal protections. Also keep in mind that refinancing student loans for a longer term can increase the overall cost of the loan, since you’ll be paying interest for a longer period of time.

Recommended: Online Personal Loan Calculator

Income-Driven Repayment Plans

If you have federal loans and your payments are unaffordable, you may qualify for an IDR plan. Generally, your payment amount under an IDR plan is a percentage of your discretionary income and remaining debt may be forgiven after decades of consistent repayment.

Keep in mind that under the new domestic policy bill, many existing federal IDR plans will close by July 1, 2028. After those plans are eliminated, borrowers whose loans were all disbursed before July 1, 2026, can choose between the Repayment Assistance Plan (RAP) and Income-Based Repayment (IBR) plan.

Federal Loan Consolidation

Federal loan consolidation allows you to combine multiple federal loans into a single loan with a weighted average interest rate. Consolidation can simplify repayment and may help you qualify for certain forgiveness programs, but you won’t necessarily save on interest.

Loan Rehabilitation

If your federal loans are in default, loan rehabilitation allows you to make a series of consecutive, agreed-upon payments (usually nine over ten months) to bring your loan current. This also removes the default status from your credit report and restores eligibility for federal benefits. To begin the loan rehabilitation process, you must contact your loan holder.

Currently, borrowers can only use a rehabilitation agreement to remove their loans from default once. Starting July 1, 2027, borrowers will be able to use rehabilitation to exit default twice.

The Takeaway

While the idea of using a personal loan to pay off student loans might seem appealing, it may not be a viable nor an advisable solution. Many lenders prohibit using personal loan funds for education-related expenses, including paying off student loans. Even if you find a lender that allows it, the trade-offs can be significant, especially if you’re dealing with federal student loans.

Instead, you might explore options designed specifically for managing student debt, such as student loan refinancing, consolidation, or enrolling in an income-driven repayment plan. These programs may offer benefits that are better fit to your situation.

Debt repayment strategies are not one-size-fits-all. It’s important to carefully evaluate your options — and read the fine print — before making a move that could impact your financial future for years to come.

While SoFi personal loans cannot be used for post-secondary education expenses, they can be used for a wide range of purposes, including credit card consolidation. SoFi offers competitive fixed rates and same-day funding for qualified borrowers. See your rate in minutes.

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 consolidate student loans with a personal loan?

Technically, you might be able to use a personal loan to pay off student loans, but it’s not true consolidation — and many lenders don’t allow it. Personal loan lenders will often explicitly prohibit using loan funds for education-related expenses, including paying off existing student loans. Even if permitted, this route eliminates federal protections like income-driven repayment and forgiveness programs. Alternatives such as federal consolidation or student loan refinancing can be safer and more effective ways to manage or streamline student loan repayment.

What are the risks of using a personal loan to pay off student debt?

Using a personal loan to pay off student debt carries several risks, starting with the fact that many lenders prohibit this use altogether. If you find a lender that allows it, keep in mind that using a personal loan to pay off federal student loans will mean losing federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. Personal loans also typically have higher interest rates and shorter repayment terms than student loans, which could increase your monthly payments.

Does paying off student loans with a personal loan hurt your credit?

Many personal loan lenders don’t allow you to use a personal loan to pay off student loans. But if you can find one that does, paying off student loans with a personal loan may impact your credit in several ways.
Initially, your credit could dip temporarily due to the new account and hard inquiry. However, if you make regular, on-time payments, the loan could have a positive influence on your credit profile over time. On the other hand, missed payments could negatively affect your credit. It’s important to consider lender rules and your ability to manage repayment before using a personal loan to pay off student loans.

Are there better options than personal loans for student debt?

Yes, there are a number of options that may be better than personal loans for paying off student loans. Federal consolidation loans can combine multiple federal loans into one, simplifying repayment. Income-driven repayment plans for federal loans adjust payments to your earnings, making them more manageable. Refinancing with a private lender might reduce rates and monthly payments Additionally, some employers offer student loan repayment assistance, which can significantly ease the financial burden.

Can using a personal loan to pay student loans disqualify you from forgiveness programs?

Yes. If you pay off your federal student loans with a personal loan, you’ll forfeit federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. The same is true if you refinance your federal student loans with a private student loan lender.

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.

SOPL-Q325-011

Many homebuyers swimming in the pool of new mortgage terminology may wonder how mortgage principal differs from their mortgage payment. Simply put, your mortgage principal is the amount of money you borrowed from your mortgage lender.

Knowing what your mortgage principal is and how you can pay it off more quickly than the average homeowner could save you a lot of money over the life of the loan. Here’s what you need to know about paying off the principal on a mortgage.

Mortgage Principal Definition

Mortgage principal is the original amount that you borrowed to pay for your home. It is not the amount you paid for your home; nor is it the amount of your monthly mortgage payment.

Each month when you make a payment on your mortgage loan, a portion goes toward the original amount you borrowed, a portion goes toward the interest payment, and some goes into your escrow account, if you have one, to pay for taxes and insurance.

Your mortgage principal balance will change over the life of your loan as you pay it down with your monthly mortgage payment, as well as any extra payments. This changing balance may be called your outstanding mortgage principal. (While there is a difference between outstanding mortgage principal vs. mortgage principal balance, the terms are often used interchangeably.) Your equity will increase while you’re paying down the principal on your mortgage.

Mortgage Principal vs Mortgage Interest

Your mortgage payment consists of both mortgage principal and interest. Mortgage principal is the amount you borrowed. Mortgage interest is the lending charge you pay for borrowing the mortgage principal. Both are included in your monthly mortgage payment, and your mortgage statement will likely include a breakdown of how much of your monthly mortgage payment goes to mortgage principal vs. interest.

When you start paying down principal, as the mortgage amortization schedule will show you, most of your payment at this point will go toward interest rather than principal. Later on in the life of your loan, you’ll be paying more mortgage principal vs. interest.

Hover your cursor over the amortization chart of this mortgage calculator to get an idea of how a given loan might be amortized over time if no extra payments were made.

Mortgage Principal vs Total Monthly Payment

Your total monthly payment is divided into parts by your mortgage servicer and sent to the correct entities. It includes principal plus interest, and often other components.

Fees and Expenses Included in the Monthly Payment

Your monthly payment isn’t typically just made up of principal and interest. Most borrowers are also paying installments toward property taxes and homeowners insurance each month, and some pay mortgage insurance, too. In the industry, this is often referred to as PITI, for principal, interest, taxes, and insurance.

A mortgage statement will break all of this down and show any late fees.

Escrow for Taxes and Insurance

Among the many mortgage questions you might have for a lender, one should be whether you’ll need an escrow account for taxes and insurance or whether you can pay those expenses in lump sums on your own when they’re due. Many lenders prefer to take on the responsibility for your taxes and insurance in order to protect their investment, but they will charge you for those costs in your mortgage payments and hold that money in an escrow account until needed.

Conventional mortgages typically require an escrow account if you borrow more than 80% of the property’s value. In the world of government home loans, FHA and USDA loans need an escrow account, and lenders usually want one for VA-backed loans. If you live in a flood zone and are required to have flood insurance, an escrow account may be mandatory.

Private Mortgage Insurance (PMI)

When you get a conventional loan and put down less than 20% of the home’s value, your lender will require you to pay private mortgage insurance (PMI).It will probably want to handle this through an escrow account also, to avoid the possibility of your making late payments.

Benefits of Paying Additional Principal on Mortgage

Making extra payments toward principal will allow you to pay off your mortgage early and will decrease your interest costs, sometimes by an astounding amount.

If you make extra payments, you may want to let your mortgage servicer know that you want the funds to be applied to principal instead of the next month’s payment.

Could you face a prepayment penalty? Conforming mortgages signed on or after January 10, 2014, cannot carry one. Nor can FHA, USDA, or VA loans. If you’re not sure whether your mortgage has a prepayment penalty, check your loan documents or call your lender or mortgage servicer.

Reducing Interest Over Time

If you make additional payments toward your principal, you will decrease the amount of money that you’re being charged interest on, as your principal balance drops. This means that in the long run, you would end up paying less interest than if you simply made your payments as scheduled.

Shortening the Loan Term

It can be helpful – and motivating – to keep an eye on how your mortgage payments are impacting your principal balance and how much of them is going to interest. There are a couple of easy ways to do this.

Amortization Schedules

An amortization schedule can be a big help in understanding your mortgage payments and how you’re paying down principal on your mortgage. Essentially, it’s a chart that lists each planned payment for the entirety of your mortgage, detailing how much of each will go to principal and how much to interest. You’ll also see how much principal you still owe after each payment.

To get a full amortization schedule for the life of your loan, you may need to sign on to your account online or contact your lender and request the schedule.

Mortgage Statements

The easiest way to keep track of how much you’re currently paying on your mortgage principal and interest is to look at your mortgage statements every month. The mortgage servicer will send you a statement with the amount you owe and how much it will reduce your principal each month. You may also see the breakdown for your previous payment and/or for the year to date, as well as your total outstanding mortgage principal. If you have an online account, you can usually see the numbers there.

How to Pay Down Mortgage Principal Balance

Paying off the mortgage principal is done by making extra payments. Because the amortization schedule is set by the lender, a high percentage of your monthly payment goes toward interest in the early years of your loan.

When you make extra payments or increase the amount you pay each month (even by just a little bit), you’ll start to pay down the principal instead of paying the lender interest.

It pays to thoroughly understand the different types of mortgages that are out there.

Biweekly Payment Strategy

One tactic homeowners use is biweekly payments. Traditionally, you pay your mortgage once a month. But if you pay it every two weeks – which often aligns with pay schedules – you’ll be making an extra payment every year. That may not sound like much, but it can let you finish your loan term up to six or more years early.

Applying Windfalls Toward Principal

A relatively painless way to prepay principal is to apply any “extra” money you get – like a work bonus or an unexpected bequest – toward your principal. If you have a solid emergency fund in place and no higher-interest debts to pay off, this could be a good place to put your money.

The Takeaway

Knowing exactly how mortgage principal, interest, and amortization schedules work can be a powerful tool that can help you pay off your mortgage principal faster and save you a lot of money on interest in the process.

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 the mortgage principal amount?

The mortgage principal is the amount you borrow from a mortgage lender and must pay back. It is not the same as your mortgage payment. Your mortgage payment will include both principal and interest, as well as any escrow payments you need to make.

How do you pay off your mortgage principal?

You can pay off your mortgage principal early by paying more than your mortgage payment. Since your mortgage payment is made up of principal and interest, any extra that you pay can be taken directly off the principal – just make sure that your lender knows you want the extra funds applied there. If you never make extra payments, you’ll take the full loan term to pay off your mortgage.

Is it advisable to pay extra principal on a mortgage?

Paying extra on the principal will allow you to build equity, pay off the mortgage faster, and lower your costs on interest. Whether you can fit it in your budget or if you believe there is a better use for your money depends on your personal situation.

What is the difference between mortgage principal and interest?

Mortgage principal is the amount you borrow from a lender; interest is the amount the lender charges you for borrowing the principal.

Can the mortgage principal be reduced?

When you make extra payments or pay a lump sum to your lender, you can specify that those funds should be applied to your mortgage principal. This will reduce your principal and your interest payments.

Does your monthly principal payment change?

Yes. Since loans are typically amortized, at the beginning of the loan term, most of your monthly payment will be applied toward your interest charges. Over time, that balance will shift as you pay down your mortgage, and principal will be most of each payment that you make closer to the end of your loan. Your decreasing principal amount is sometimes called your outstanding mortgage principal vs. mortgage principal balance.

Photo credit: iStock/PeopleImages

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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-Q325-035

If your monthly mortgage payment no longer fits your lifestyle or financial goals, you may be able to change it with mortgage refinancing or recasting. Recasting and refinancing are two ways a borrower can save on mortgage costs — sometimes a jaw-dropping amount. To understand which might be best for you, it helps to understand the difference between them and the pros and cons of recasting your mortgage vs. refinancing.

The Difference Between Recast and Refinance

Recasting is the reamortizing of an existing mortgage, meaning the lender will recalculate your monthly payments. Refinancing involves taking out a completely new mortgage with a new rate, and possibly a new term, and paying off your old mortgage in the process.

Recasting

If your lender offers mortgage recasting and your loan is eligible, here’s how it works: You make a large lump-sum payment — $10,000 might be required — toward the principal balance of your mortgage loan. The lender recalculates the monthly payments based on the new, lower balance, which shrinks the payments. The lender may charge a few hundred dollars to reamortize the loan.

Mortgage recasting does not change your loan length or interest rate. But because your principal amount is lower, you’ll have lower monthly payments and will pay less interest over the life of the loan.

If you were to put a chunk of money toward your mortgage principal and not recast the loan, your payments would not change, though the extra principal payment would reduce your interest expense over the life of the loan.

Who might opt for mortgage recasting? Someone who has received a windfall and wants to put it toward the mortgage might like this option. Sometimes it’s someone who has bought a new home before selling the previous one. Once the old home is sold, the homeowner can use some of the proceeds to recast the new mortgage.

Another candidate for recasting might be someone who wants to use the lump sum to pay their loan down to 80% of the home’s value so they can request to stop paying for private mortgage insurance (PMI) or get it automatically dropped (when they reach 78%).

FHA, VA, and USDA loans are not eligible for mortgage recasting. Some jumbo loans are also excluded. If you want to change the monthly payments on those types of mortgages, you’ll need to refinance your loan.

Refinancing

When you seek refinancing, you’re applying for a brand-new loan with a new rate and terms, possibly from a new lender. Most people’s goal is a lower interest rate, a shorter loan term, or both.

While finding a competitive offer might take some legwork, refinancing could help you save money. A lower interest rate for a home loan of the same length will reduce monthly payments and the total amount of interest paid over the life of the loan.

A homeowner who refinances to a shorter term, say from 30 years to 15, will pay much less total loan interest. Fifteen-year mortgages also often come with a lower interest rate than 30-year home loans.

Refinancing may make sense for homeowners who are planning to stay put for years; those who want to switch their adjustable-rate mortgage to a fixed-rate one; and borrowers with FHA loans who want to shed mortgage insurance premiums (MIP), on a loan they’ve paid down or a home that has appreciated. Most FHA loans carry mortgage insurance for the life of the loan. Equity-rich homeowners who’d like to get their hands on cash may find cash-out refinancing appealing.

Recommended: Mortgage Questions for Your Lender

Pros and Cons of Mortgage Recasting

There are both positive and negative aspects to mortgage recasting.

Pros of Recasting

Mortgage recasting lowers your monthly mortgage payments and lets you save on total loan interest while keeping the same interest rate. Since you recast your mortgage with your existing lender, the process is pretty straightforward, and the cost could be as low as $150.

Cons of Recasting

There are some potential drawbacks to mortgage recasting, as well. Making a large lump-sum payment means you could be trading liquidity for equity – and creating financial instability if unexpected expenses arise or if the housing market takes a downward turn.
If you have other debts with higher interest rates, you may want to avoid mortgage recasting. It could make more sense to use the money you would put toward the principal to pay down your higher-interest debt first.

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

Recommended: Cash-Out Refinance vs HELOC

Pros and Cons of Mortgage Refinancing

Mortgage refinancing also has upsides and downsides.

Pros of Refinancing

If you are eligible to refinance, you won’t need a large cash source in order to lower your mortgage payments. Instead, your main goal is to qualify for a lower interest rate. If you succeed, you will save a lot of money in interest over time.

With a cash-out refi, you can tap your home equity and use that money for whatever you need to do: pay down higher-interest debt, add to the college fund, or remodel your kitchen.

Cons of Refinancing

Reducing your loan term with a refi could result in a higher mortgage payment, even though it can let you save total interest over the life of the new loan.

Refinancing involves closing costs, which could range from 2% to as much as 6% of the remaining principal. You’re taking out a new mortgage, after all. Some lenders will let you roll closing costs into your loan, though this may raise your interest rate or your loan balance.

To figure out whether a refinance might be worth the price of closing costs, it’s a good idea to calculate the break-even point, when interest savings will exceed closing costs. Everything beyond that break-even point will be savings.

💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

When to Choose Recasting Over Refinancing

Recasting vs. refinancing can seem like a tough choice. But there are a number of situations in which a recast may make more sense.

•   You’ve gotten a windfall and don’t have other pressing financial issues. A recast allows you to cheaply and easily reduce your monthly payments.

•   You have a better rate on your mortgage than you could get today. A recast will let you keep that rate, while reducing your payments.

•   You’re self-employed or have poor credit and would have difficulty qualifying for a mortgage refinance, but you want to lower your monthly payments.

•   You want to lower your monthly payments with a cheaper, faster process than a refinance.

Factors to Consider Before Making a Decision

As you contemplate getting a mortgage recast vs. a refinance, there are a few things to keep in mind.

Loan Type and Lender Policies

It may sound appealing to recast vs. refinance your mortgage but only conventional loans are eligible. If you have a government-backed loan – like a VA home loan or an FHA mortgage – you may need to consider a refinance vs. a recast.

Even if you do have a conventional loan, you’ll still need to find out if your lender offers mortgage recasts (not all of them do). If your lender does provide mortgage recasts, ask what your lender’s requirements are and see if you meet them. Typically, lenders may want:

•   A minimum payment toward principal – typically $10,000

•   Sufficient home equity, as determined by the lender

•   Good financial standing, meaning that you have built up a history of on-time payments

Long-Term Financial Goals

Before you decide on mortgage recasting vs. refinancing, you’ll want to review which process aligns better with your long-range plans.

Say you’re planning an early retirement. If you’d really like to pay off your mortgage soon and not have to budget for that monthly payment any longer, you may want to consider a mortgage refinance vs. a recast. It will let you adjust your interest rate and loan term. And though closing costs are more expensive than a recast servicing fee, a refinance can let you pay your loan off earlier.

However, if you’re planning to work for the next 30 years but would like to pay less each month and save on your overall interest, a mortgage recast vs. a refinance may make sense for you. That’s especially true if you’ve gotten a windfall – from a bonus at work or from selling a previous home, for instance – and don’t have other pressing debts or needs.

A recast may also be appealing if you already have a great interest rate and probably couldn’t get a better one, for instance. Or if you just started a business and don’t have the kind of documentable financial stability a lender would want to see before giving you a refinance. In these situations, you may want to consider recasting your mortgage vs. refinancing.

The Takeaway

A mortgage recast vs. refinance: different animals with similar aims. A recast requires a lump sum upfront but will shrink payments and total loan interest. A mortgage refinance may greatly reduce borrower costs and sometimes free up cash or shorten the loan term. The one that is right for you will depend on your current loan terms and your available cash, among other factors.

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

Can you recast and refinance at the same time?

Not exactly. However, a cash-in refinance combines characteristics of both, letting you make a large payment toward your principal as you get a new home loan. This allows you to get new and, ideally, more favorable terms on a smaller loan, which can save you money. You will, however, have to pay closing costs.

Can you recast any type of mortgage loan?

No. You can recast conventional loans, but not government-backed loans like FHA or VA mortgages. Some lenders may recast jumbo loans.

Does recasting your mortgage affect your interest rate?

Unlike refinancing, recasting your mortgage doesn’t change your interest rate or your loan term.

Are there fees associated with a mortgage recast?

There may be service fees for a mortgage recast, but those are typically no more than a few hundred dollars.

When is refinancing better than recasting?

You may be better off with a refinance vs. a recast if you are interested in paying your loan off earlier than originally planned, if you can get a better interest rate now, or if you don’t have a significant lump sum to put toward your loan principal.

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.

SOHL-Q325-034

If your student loan payments seem overwhelming, you’re not alone. U.S. borrowers owe a combined $1.77 trillion in student loan debt, and 6.24% of student loans are in default at any given time, according to the Education Data Initiative.

Struggling to make ends meet can sometimes lead to tough decisions, and one of the most daunting is the prospect of stopping payments on your student loans. Whether due to financial hardship, job loss, or other unforeseen circumstances, the consequences of defaulting on these loans can be severe and long-lasting.

There are several options that can help you avoid defaulting on your student loan, such as deferment, forbearance, and income-driven repayment plans. Here’s what to know before you stop making payments on your student loans.

Can Student Loans Be Forgiven or Discharged?

Student loans can be forgiven or discharged under certain circumstances, providing a glimmer of hope for those burdened by significant debt.

Federal student loans offer several forgiveness programs, such as Public Service Loan Forgiveness (PSLF), which is designed for borrowers who work in public service jobs and make 120 qualifying payments while employed in these roles. Additionally, there are forgiveness options for teachers, nurses, and other professionals in specific fields, as well as for borrowers who have made consistent payments over a long period, such as 20 or 25 years, depending on the repayment plan.

Student loan discharge, on the other hand, is typically more challenging and is reserved for extreme situations. For instance, if a borrower becomes totally and permanently disabled, they may qualify for a total and permanent disability discharge, which can wipe out their federal student loans.

Bankruptcy is another potential avenue for discharging student loans, but it is extremely difficult to achieve. To discharge student loans in bankruptcy, you must prove that repaying the loans would cause an undue hardship, a standard that is rarely met and requires a separate legal process known as an adversary proceeding.

Recommended: Student Loan Debt Guide

What Are the Consequences of Not Paying Student Loans?

If you stop making your student loan payments, consequences may include a negative impact on your credit score, wage garnishment, student loan default, and legal actions taken against you.

Impact on Your Credit Score

Missed payments are reported to the major credit bureaus — Equifax®, Experian®, and TransUnion® — after they become 90 days delinquent. Each missed payment can cause your credit score to drop, and the longer you go without making payments, the more significant the damage.

A poor credit score can make it difficult to secure future loans, credit cards, or even a mortgage. If you continue to miss payments, your loans can eventually go into default, which typically occurs after 270 days of non-payment for federal loans and varies for private loans.

Recommended: How Long Do Late Payments Stay on a Credit Report?

Federal vs. Private Loan Consequences

For federal student loans, the consequences of non-payment are often more severe and can be enforced by the government. When you miss a payment, your loan becomes delinquent, and this delinquency is reported to the major credit bureaus after 90 days. If you continue to miss payments, your loans can go into default, which typically occurs after 270 days of non-payment. Once in student loan default, the government can take several actions, including garnishing your wages and withholding tax refunds. You may also lose eligibility for deferment, forbearance, and other federal loan benefits.

Private lenders, on the other hand, will report delinquencies to credit bureaus after 30 to 60 days of missed payments, which can also negatively impact your credit score. If you default on a private student loan, which typically happens after 120 days, the lender can take legal action, such as filing a lawsuit. This can result in wage garnishment and the placement of a lien on your property.

What Relief Options are Available for Federal Student Loans?

Federal student loan borrowers can temporarily pause payments by requesting a deferment or forbearance. You might qualify if you’re still in school at least part-time, unable to find a full-time job, facing high medical expenses, or dealing with another financial hardship. The type of loan held by the borrower will determine whether they can apply for a deferment or forbearance.

There are two types of forbearance: general and mandatory. Borrowers facing financial difficulties can request a general forbearance, and their loan servicer determines whether they qualify. General forbearance is awarded in 12-month increments and can be extended for a total of three years.

Loan servicers are required to award qualifying borrowers a mandatory forbearance. Qualifications include participating in AmeriCorps, National Guard duty, or medical or dental residency. Mandatory forbearances are also granted in 12-month increments but can be extended so long as the borrower still meets the criteria to qualify for mandatory forbearance.

In rare cases, certain loans can be canceled or discharged if your school closes while you’re enrolled or you are permanently disabled. For obvious reasons, these aren’t options to count on, so you can assume your loans will be sticking with you.

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Understanding Student Loan Default

There are serious financial repercussions for defaulting on a student loan.

For federal student loans, if a borrower fails to make payments for more than 270 days on a loan from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, the loan will go into default. (For loans made under the Federal Perkins Loan Program, the loan can be declared in default after the first missed payment.)

At this point, the balance of your loan becomes due immediately through a process called “acceleration.” You’ll also lose eligibility for federal programs such as deferment, forbearance, income-driven repayment plays, and additional federal aid.

Your wages may be garnished (meaning that your employer may be required to hold back a portion of your paycheck) and any tax refunds or federal benefit payments may be withheld.

Defaulting on a student loan will damage your credit rating and you may not be able to buy or sell certain assets, such as real estate. If your loan holder sues you, you may also be charged related expenses such as attorney fees.

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What Relief Options Do Private Lenders Offer?

Private lenders sometimes offer relief like forbearance when you’re dealing with financial hardship, but they aren’t required to. If you have a private student loan, check with your lender directly to see what temporary relief programs or policies they may have.

Private student loans generally go into default after 120 days. Private lenders may also take you to court or use collection agencies to collect your student loan debt. Whether you have federal or private student loans, contact your loan servicer immediately if your loan is delinquent so you can understand what options are available to you before your loan goes into default.

Alternatives to Stopping Your Student Loan Payments

Rather than skipping your student loan payments, consider the following alternatives.

Student Loan Refinancing

Student loan refinancing involves taking out a new loan with a private lender to pay off your existing student debt, often at a lower interest rate or with more favorable terms. This can help reduce monthly payments, save money over the life of the loan, and consolidate multiple loans into a single, more manageable payment.

However, refinancing federal loans with a private lender means losing access to federal benefits like income-driven repayment plans, loan forgiveness programs, and deferment options. It’s important to weigh these trade-offs and consider your financial situation and long-term goals before making a decision.

Keep in mind, too, that your student loans often need to be in good standing in order to qualify for a refinance. If you’re currently making your payments but struggling, refinancing could be a good option to consider.

Deferment and Forbearance

As discussed above, student loan deferment and forbearance are options that allow borrowers to temporarily pause or reduce their loan payments during periods of financial hardship.

Deferment is typically available for federal loans and may be granted for reasons such as cancer treatment, unemployment, economic hardship, or returning to school. Forbearance, available for both federal and private loans, is a more flexible option but can lead to interest accrual, potentially increasing the total debt.

Both can provide short-term relief, but it’s important to understand the specific terms and impacts on your loan balance and repayment timeline.

Note: Economic hardship and unemployment deferments will be eliminated for loans made on or after July 1, 2027.

Income-Driven Repayment Plans

Income-driven repayment (IDR) plans are designed to make student loan payments more manageable by capping monthly payments at a percentage of your discretionary income. These plans typically cap your monthly payment at 5% to 20% of your discretionary income and extend the loan term to 20 or 25 years, depending on the specific plan.

Starting on July 1, 2026, income-driven repayment plans PAYE, ICR, and SAVE will be replaced by a new Repayment Assistance Plan (RAP). The existing IDR plans will be eliminated by July 1, 2028. With RAP, payments range from 1% to 10% of adjusted gross income with terms up to 30 years. After the term is up, any remaining debt will be forgiven.

The Takeaway

Stopping payments on your student loans can lead to severe consequences, including damaged credit, wage garnishment, and legal action. It’s crucial to explore alternative options like deferment, forbearance, income-driven repayment plans, and student loan refinancing to manage your debt responsibly and avoid long-term financial harm.

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.

FAQ

How soon after missing a payment does a student loan default?

For federal student loans, default typically occurs after 270 days of missed payments. For private student loans, default can happen sooner, often after 120 days of non-payment. Both scenarios can severely impact your credit score and lead to serious financial consequences.

Will my credit score recover after a student loan default?

Your credit score can recover after a student loan default, but it takes time and effort. Paying off the defaulted loan or rehabilitating it can help improve your score. Additionally, maintaining good credit habits, such as paying bills on time and keeping credit card balances low, will gradually rebuild your credit over several years.

Can my wages be garnished for unpaid student loans?

Yes, your wages can be garnished for unpaid federal student loans without a court order. Private lenders typically need a court order to garnish wages. Garnishment can take up to 15% of your disposable income.

Can I refinance a student loan that is in default?

Yes, you can refinance a student loan in default, but it’s challenging. Most private lenders require loans to be in good standing. To qualify, you’ll likely need to rehabilitate or consolidate your federal loan first or build your credit before seeking a private refinance option.

Do student loans get forgiven after 20 years?

Federal student loans can be forgiven after 20 years under certain repayment plans, such as income-driven repayment (IDR). However, forgiveness is not automatic and requires meeting specific eligibility criteria, including consistent payments and maintaining a low income relative to your debt. Private loans typically do not offer forgiveness.

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

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).

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