Sep
22
2023
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Can a Parent PLUS Loan Be Transferred to a Student?

By | Debt Payoff, Student Loans, student_loan | No Comments

If you’ve taken out a Parent PLUS loan to help your child through college, you may be wondering if it’s possible to transfer the loan into your child’s name now that they have an income. While there are no federal loan programs that allow for this, there are other options that allow your child to take over the debt.

How to Transfer a Parent PLUS Loan to a Student

In order to transfer a Parent PLUS loan to a child or student, the student can apply for student loan refinancing through a private lender. With a student loan refinance, the child takes out a refinanced student loan and uses it to pay off the Parent PLUS loan. The student is then responsible for making the monthly payments and paying off the loan.

To get a student loan refinance and use the funds to pay off a Parent PLUS loan, simply have your child fill out a student loan refinancing application. Make sure to include the Parent PLUS loan information in the application.
If approved, the student can pay off the Parent PLUS loan with their new loan and begin making payments on the new loan.

Key Points

•   Transferring a Parent PLUS loan to a student involves refinancing through a private lender.

•   The student must apply for a new loan to pay off the Parent PLUS loan.

•   Once refinanced, the student becomes responsible for the new loan’s repayments.

•   Refinancing can potentially lower the interest rate and monthly payments.

•   The process is irreversible, making the student solely responsible for the debt.

Advantages of Refinancing a Parent PLUS Loan

The main advantage of refinancing a Parent PLUS loan is to get the loan out of the parent’s name and into the student’s. However, there are other potential advantages to refinancing student loans, including:

•   Lowering your interest rate

•   Reducing your monthly payments

•   Paying off your loan quicker

•   Allowing the student to build a credit history

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

Disadvantages of Refinancing a Parent PLUS Loan

While it may be beneficial to get the loan out of the parent’s name and into the student’s, there are some disadvantages that should be considered, such as:

•   Losing federal student loan benefits, including income-driven repayment, deferment options, and Public Service Loan Forgiveness

•   Possibly getting a higher interest rate, especially if the student has poor credit

•   The student is now responsible for the monthly payment, which might become a hardship if their income is low

If you do choose to refinance your Parent PLUS loan by means of a student loan refinance, you should note that this process is not reversible. Once your child signs on the dotted line and pays off the Parent PLUS loan, the debt is now theirs.

Parent PLUS Loan Overview

The Department of Education provides Parent PLUS loans that can be taken out by a parent to fund their child’s education. Before applying, the student and parent must fill out the Free Application for Federal Student Aid (FAFSA®). Then the parent can apply directly for a Parent PLUS loan, also known as a Direct PLUS Loan.

The purpose of a Parent PLUS loan is to fund the education of the borrower’s child. The loan is made in the parent’s name, and the parent is ultimately responsible for repaying the loan. Parent PLUS loans come with higher interest rates and origination fees than federal student loans made to students. Further, these loans are not subsidized, which means interest accrues on the principal balance from day one of fund disbursement.

Parents are eligible to take out a maximum of the cost of attendance for their child’s school, minus any financial aid the student is receiving. Payments are due immediately from the time the loan is disbursed, unless you request a deferment to delay payment. You can also opt to make interest-only payments on the loan until your child has graduated.


💡 Quick Tip: Federal parent PLUS loans might be a good candidate for refinancing to a lower rate.

Pros and Cons of Parent PLUS Loans

Parent PLUS loans allow you to help your child attend college without their accruing debt.

Pros of Parent PLUS loans include:

You can pay for college in its entirety. Parent PLUS loans can cover the full cost of attendance, including tuition, books, room and board, and other fees. Any money left over after expenses is paid to you, unless you request the funds be given directly to your child.

Multiple repayment plans available. As a parent borrower, you can choose from three types of repayment plans: standard, graduated, or extended. With all three, interest will start accruing immediately.

Interest rates are fixed. Interest rates on Parent PLUS loans are fixed for the life of the loan. This allows you to plan your budget and monthly expenses around this additional debt.

They are relatively easy to get. To qualify for a Parent PLUS loan, you must be the biological or adoptive parent of the child, meet the general requirements for receiving financial aid, and not have an adverse credit history. If you do have an adverse credit history, you may still be able to qualify by applying with an endorser or proving that you have extenuating circumstances, as well as undergoing credit counseling. Your debt-to-income ratio and credit score are not factored into approval.

Cons of Parent PLUS loans include:

Large borrowing amounts. Because there isn’t a limit on the amount that can be borrowed as long as it doesn’t exceed college attendance costs, it can be easy to take on significant amounts of debt.

Interest accrues immediately. You may be able to defer payments until after your child has graduated, but interest starts accruing from the moment you take out the loan. Subsidized loans, which are available to students with financial need, do not accrue interest until the first loan payment is due.

Can a Child Make the Parent PLUS Loan Payments?

Yes, your child can make the monthly payments on your Parent PLUS loan. If you want to avoid having your child apply for student loan refinance, you can simply have them make the Parent PLUS loan payment each month. However, it’s important to note that the loan will still be in your name. If your child misses a payment, it will affect your credit score, not theirs. Your child also will not be building their own credit history since the debt is not in their name.

Parent PLUS Loan Refinancing

As a parent, you may also be interested in refinancing your Parent PLUS loan. Refinancing results in the Parent PLUS loan being transferred to another lender. By transferring your loan, you may be able to qualify for a lower interest rate. Securing a lower interest rate allows you to pay less interest over the life of the loan — and if you also shorten your loan term, you can pay off the loan more quickly.

When you refinance Parent PLUS loans, you do lose borrower protections provided by the federal government. These include income-driven repayment plans, forbearance, deferment, and federal loan forgiveness programs. If you are currently taking advantage of one of these opportunities, it may not be in your best interest to refinance.

At SoFi, you can refinance federal Parent PLUS loans and qualified private student loans into one new loan with one convenient payment. You can do this on your own and keep the Parent PLUS loan in your name, or you can have your child apply for student loan refinancing and use that money to pay off your Parent PLUS loan. With SoFi, there are no application fees, no origination fees, and no prepayment fees.

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


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

FAQ

What if I can’t pay my Parent PLUS loans?

If you are struggling to pay your Parent PLUS loan, we recommend getting in touch with your lender and asking for a deferment or forbearance to temporarily suspend your payments. Keep in mind, though, that interest will continue to accrue on your loan even if payments are postponed. You could also consider switching the repayment plan you are enrolled in to an extended repayment plan, or refinancing your loan in order to get a lower interest rate. If you’re able to consolidate your Parent PLUS loan with a federal Direct Consolidation loan, you can also make it eligible for the Income-Contingent Repayment plan. This plan adjusts your monthly payment to 20% of your discretionary income while extending your repayment terms to 25 years.

Can you refinance a Parent PLUS loan?

Yes, it is possible to refinance a Parent PLUS loan through a private lender. Doing so will make the loan ineligible for any federal borrower protections, but it might allow you to secure a more competitive interest rate or have the refinanced loan taken out in your child’s name instead of your own.

Is there loan forgiveness for parents PLUS loans?

It is possible to pursue Public Service Loan Forgiveness (PSLF) with a Parent PLUS loan. To do so, the loan will first need to be consolidated into a Direct Consolidation loan and then enrolled in an income-driven repayment plan. Then, you’ll have to meet the requirements for PSLF, including 120 qualifying payments while working for an eligible employer (such as a qualifying not-for-profit or government organization). Note that eligibility for PSLF depends on your job as the parent borrower, not your child’s job.

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 Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY 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).

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep
13
2023

How and When to Combine Federal Student Loans & Private Loans

By | Fresh Out of School, Student Loans, student_loan | No Comments

One of the biggest student loan myths out there is that borrowers can’t combine federal student loans and private student loans into one refinanced loan.

It’s understandable why people may think that, since this wasn’t always an option. And consolidation through the Department of Education is only available for federal student loans.

But now you can choose to combine federal and private loans. So it’s important to understand whether combining federal student loans and private student loans is right for you.

Key Points

•   Borrowers can now combine federal and private student loans through refinancing, which simplifies payments and may result in lower interest rates.

•   Refinancing federal loans with a private lender results in the loss of federal benefits, such as forgiveness programs and income-driven repayment plans.

•   Interest rates for federal student loans are fixed and determined annually, while private loans may offer lower rates based on creditworthiness and income.

•   Federal student loans offer various benefits, including deferment and forbearance options, which are not available once loans are refinanced as private loans.

•   Evaluating financial goals and loan details is essential before deciding to refinance, as it can impact payment terms and overall debt costs.

Can I Consolidate Federal and Private Student Loans?

Yes, you can combine private and federal student loans by refinancing them with a private lender.

Through this process, you actually apply for a new loan (which is used to pay off your original loans) and obtain one with a new — ideally lower — interest rate.

Why would you want to do this? In addition to the advantages of loan consolidation (like having one, simplified monthly payment), refinancing student loans at a lower interest rate may lead to lower monthly payments. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

Before you refinance federal student loans, there are a couple of things to think about. Here’s an easy decision tree to help you understand whether private student loan consolidation and refinancing federal loans is right for you:

Federal-Loans-Decisions--Tree-853x500

Federal Student Loan Interest Rates

Some people assume that federal loans always offer the best rates, but this isn’t necessarily true.

Depending on loan type and disbursement date, new federal student loan interest rates are reassessed annually, every July. For the 2025-2026 school year, interest rates on new federal student loans range from 5.50% to 8.05% . Interest rates on federal student loans are determined by Congress and are fixed for the life of the loan.

Some borrowers — particularly those with established credit and a strong, stable income or who can find a cosigner with similar qualities — may be able to qualify for a private student loan with a rate lower than a federal loan. For example, grad school borrowers who have higher-interest-rate unsubsidized federal Direct Loans and borrowers with federal Direct PLUS loans may also be able to qualify for a private loan with a lower interest rate than those federal loans. Undergraduates are likely to find lower rates with federal student loans — without a cosigner or credit check.

When you apply to refinance, private lenders evaluate things like your credit history and credit score, in addition to other personal financial factors, in order to determine the interest rate and terms you may qualify for. This applies when you consolidate private student loans as well.

This means if you’ve been able to build credit during your time as a student, or your income has significantly improved, you may be able to qualify for a more competitive interest rate with a private lender when you refinance. (If you aren’t interested in or don’t qualify for student loan refinancing, a Direct Consolidation
Loan from the Department of Education might be worth a look — but you can’t combine federal and private loans into a Direct Consolidation Loan.) Private student loan consolidation is a different matter.

To get an idea of how much refinancing could potentially reduce the cost of interest on your loans, take a look at SoFi’s student loan refinancing calculator.

Recommended: subsidized vs unsubsidized student loans

Federal Student Loan Benefits

When you refinance a federal student loan with a private lender, it becomes a private student loan. This means that the loan will no longer be eligible for federal benefits and protections.

Before you contemplate the idea of refinancing, consider taking a look at your loans to see if any of these federal loan benefits and programs apply to you — or whether you might want to take advantage of them in the future. Here are some to consider:

Student Loan Forgiveness

There are a few forgiveness programs available for borrowers with federal student loans. For example, under the Public Service Loan Forgiveness Program (PSLF), your Direct Loan balance may be eligible for forgiveness after 120 qualifying, on-time payments if you’ve worked for an eligible public sector entity that entire time.

Pursuing PSLF can require close attention to detail to ensure your loan payments and employer qualify for the program. The qualification requirements are clearly stated on the PSLF section of the Federal Student Aid website .

Similarly, the Teacher Loan Forgiveness Program is available for teachers who work in eligible schools that serve low-income families full time for five consecutive years. The total amount forgiven will depend on factors like the eligible borrower’s role and the subject they teach. The Federal Student Aid website has all the details of this program.

These forgiveness programs can be beneficial for people who choose careers in public service or education.

Income-Driven Repayment Plans

There are also a number of federal loan repayment plans that can ease the burden for eligible borrowers who feel their loan payments are higher than they can afford.

Under the student loan repayment plans and the other income-driven repayment options, monthly payments are calculated based on a certain percentage of the borrower’s discretionary income.

President Joe Biden’s Save on a Valuable Education (SAVE) Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

But if your income is over a certain threshold, you likely won’t benefit from these programs.

And if you do qualify but you’re at the high end of the spectrum, your slightly lowered payments may come at a disproportionate price in the form of accumulating interest. Although the Department of Education says that if you make your monthly payment under the SAVE plan, your loan balance won’t grow due to unpaid interest.

Deferment or Forbearance

Life can be unpredictable — sometimes that means borrowers might have difficulty making payments on their student loans. When this happens, borrowers with federal student loans may qualify for deferment or forbearance.

President Biden proposed a federal student loan debt canceling of up to $20,000 for qualified loan holders but it was struck down by the Supreme Court in a ruling released in late June 2023.

The three-year-long pause on federal student loan payments due to Covid-19 lockdowns ends in the Fall of 2023. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October.

For borrowers who can’t make payments, the DOE created a temporary on-ramp period through Sept. 30, 2024. This on-ramp period protects borrowers from having a delinquency reported to credit reporting agencies. And it prevents the worst consequences of missed, late, or partial payments.However, payments are still due, and interest will continue to accrue.

Also, there are ongoing deferment and forbearance options that allow borrowers to temporarily pause payments on their federal student loans in the event of economic hardship.

The biggest difference between the two is that with forbearance, the borrower is responsible for paying the interest that accrues on the loan during this time. Forbearance can have a major financial impact on a borrower, as any unpaid interest will be added to the original loan balance. With deferment, the borrower may or may not be responsible for paying the interest that accrues.

The type of loan you hold will determine whether or not you qualify for deferment or forbearance. Both options can be potentially helpful tools to borrowers going through a short period of financial difficulty, but both have important considerations .

Refinancing Your Student Loans

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


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

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY 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., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep
12
2023
What Happens if You Just Stop Paying Your Student Loans

What Happens if You Just Stop Paying Your Student Loans

By | Student Loans, student_loan | No Comments

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 one in ten Americans has defaulted on a student loan, according to the Education Data Initiative.

And now, for the first time in a long time, many student loan borrowers are faced with making payments again. The reason: The end of the three-year pause on federal student loan payments, which requires interest accrual to resume on September 1, 2023 and payments to resume on October 1, 2023. This resumption in federal student loan payments was part of the debt ceiling bill that President Biden signed into law in early June 2023.

In addition, the Supreme Court’s ruling against the President’s plan to forgive up to $20,000 in federal student loan debt means that student loan borrowers who may have been hoping for that forgiveness now don’t have that option.

You may be thinking, I haven’t paid my student loans in years – do I really have to start now? What happens if I just don’t pay?

The answer is that borrowers do indeed have to start paying their student loans again, and simply not paying can have consequences. Late or missed “delinquent” payments can make it harder to get a credit card, car loan, or apartment lease. And if you default on a loan, the balance of the loan will become immediately due, your wages may be garnished, and your tax refund can be withheld, among other serious consequences.

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.

Key Points

•   Stopping student loan payments can lead to delinquency and default, affecting credit and future loan approvals.

•   Delinquent payments can hinder the ability to secure credit cards, car loans, or apartment leases.

•   Defaulting on a loan triggers the entire balance due, potential wage garnishment, and withholding of tax refunds.

•   Several options like deferment, forbearance, and income-driven repayment plans can prevent default.

•   It’s essential to compare these options to determine the best course for managing student loan debt.

Do Student Loans Ever Go Away?

The short answer to the question of do student loans ever go away? is no, unless you’re part of the Public Service Loan Forgiveness Program. Unlike other forms of debt, such as home and auto loans, student loans generally cannot be discharged during bankruptcy. Borrowers are still required to repay student loans even if they don’t graduate or are struggling to find a job.

So what happens if you don’t pay student loans? In addition to the interest that accrues over time and increases in the amount you owe, failing to repay a student loan on time can result in additional fees if your debt gets moved into collections.

Because on-time payments account for a portion of a borrower’s credit score, failing to make payments can negatively impact a person’s credit score. Having a low credit score can impact your ability to get a mortgage, car loan, credit card, or apartment lease.

If you default on federal student loans, the government can take your tax refund or up to 15% of your wages. You can also be sued, though this is more common with private loans.


💡 Quick Tip: Often, the main goal of refinancing student loans is to lower the interest rate — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing makes sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections.

Is There a Student Loan Statute of Limitations?

There is no statute of limitations for federal student loans. That means you can be sued at any point for not paying your loans.

There is a statute of limitations for private student loans, which is set by individual states and generally ranges from three to 10 years. But even this limit just means the lender can’t sue you anymore — it doesn’t mean the loan goes away or they stop trying to collect what is owed.

Take control of your student loans.
Ditch student loan debt for good.

Is Getting Out of Paying Student Loans Possible?

There are options that allow borrowers to temporarily stop making student loan payments. Here’s what happens if you don’t pay your student loans because you’ve been approved for one of these plans.

Relief for Federal Student Loans

If you have federal student loans, the end of the federal payment pause requires payments to resume on October 1, 2023. To help borrowers, the Department of Education is launching a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Federal student loan borrowers can also 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.

Federal student loans can be deferred for up to three years. 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.

You can temporarily pause payments on your federal loans by requesting a deferment or forbearance.

Loan servicers are required to award qualifying borrowers a mandatory forbearance. Qualifications include participating in AmeriCorps, National Guard duty, or medical or dental residency. The Federal Student Aid website has a full list of criteria for mandatory forbearance. 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.

Borrowers who enroll in an income-based repayment plan can qualify to have their loan balance forgiven after a certain amount of time; the amount of time depends on the plan. (Keep in mind, you’d still have to pay taxes on the amount forgiven.)

For instance, under President Biden’s new SAVE Plan, which is based on income and family size, qualifying federal student loan borrowers with undergraduate federal loans can get their monthly payments reduced by half — from 10% to 5% of their discretionary income.

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.


💡 Quick Tip: When rates are low, refinancing student loans could make a lot of sense. How much could you save? Find out using our student loan refi calculator.

Consequences of Defaulting on Your Student Loans

As mentioned earlier, what happens when you stop paying student loans is that the loan is at risk of going into default. The national default rate was 2.3% for fiscal year 2019 (the most recent year for which numbers are available), according to the U.S. Department of Education. (Because of the pause on federal student loans payments during the pandemic, the default rate dropped significantly from 7.3% in 2018.)

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.

Recommended: Student Loan Refinancing Guide

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.

Temporary Relief for Private Student Loans

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 90 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.

Recommended: Should You Refinance Your Student Loans?

The Takeaway

Because student loans don’t disappear, it’s important to stay on top of payments, especially with federal student loan payments resuming on October 1, 2023. Borrowers with federal student loans may be able to take advantage of the Department of Education’s 12-month on-ramp to repayment until September 30, 2024. Or they might qualify for deferment, forbearance, or income-based repayment options which can provide some temporary relief or help make monthly payments more manageable.

Options available for borrowers facing financial hardships with private student loans vary by lender.

For some borrowers, student loan refinancing may be a way to lower interest rates, reduce monthly payments, and combine all your loans into a single monthly payment. Reducing monthly student loan payments by extending the life of the loan may result in more interest over the life of the loan. If you qualify for a lower interest rate, you could save money over the life of the loan.

It’s also possible to refinance both federal or private loans, or a combination of the two. However, it’s very important to understand that if you refinance federal loans, you’ll lose access to federal benefits and protections, including deferment, forbearance, income-driven repayment, and loan forgiveness for public service, so it’s not recommended for borrowers who are planning to take advantage of those programs.

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


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


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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 FOREFEIT YOUR EILIGIBILITY 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 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.


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12
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How to Get Out of Student Loan Debt: 6 Options

By | Debt Payoff, Student Loans, student_loan | No Comments

Dealing with substantial student loan debt can be overwhelming, especially if you find yourself struggling to make your payments.

Fortunately, there are some options that may help minimize the amount of money you pay back on your federal student loans, such as the Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.

When trying to figure out how to get rid of student loans, it’s important to understand that you might be able to reduce your monthly payment with a student loan refinance. Or you may be able to temporarily postpone your federal loan payments through deferment or forbearance.

Key Points

•   Federal programs like Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) can reduce or eliminate federal student loan debt.

•   Refinancing student loans may lower monthly payments and total interest paid.

•   Deferment or forbearance options allow temporary suspension of federal loan payments.

•   Disability discharge is available for federal student loans if the borrower has a permanent disability.

•   Bankruptcy is a last resort for discharging student loans, requiring proof of undue hardship.

Options to Get Out of Repaying Student Loans Legally

1. Loan Forgiveness Programs

Depending on your eligibility, there are a few different federal loan forgiveness programs available to borrowers with federal student loans. These programs could help you get out of paying a portion of student loan debt as they forgive your loan balance after a certain number of years.

President Joe Biden proposed a federal student loan debt cancellation of up to $20,000 for those who met household income eligibility. However, the Supreme Court ruled against Biden’s plan, saying the president did not have the necessary authority to take such action. Since then, President Biden has announced various programs to provide relief for those carrying federal loans, along with calling attention to existing plans.

Each forgiveness program has different eligibility criteria.

Teacher Loan Forgiveness

This federal student loan forgiveness program forgives the loans of highly qualified teachers. Depending on the subject area they teach, teachers who meet the eligibility requirements may have up to $17,500 or up to $5,000. Teachers are eligible to apply for this loan forgiveness program after they have completed five years of service.

Recommended: Explaining Student Loan Forgiveness for Teachers

Public Service Loan Forgiveness

This program is designed for those working in public service. In order to qualify, applicants must meet the programs eligibility requirements, including:

•   Work for a qualified employer

•   Work full-time

•   Hold Direct Loans or have a Direct Consolidation Loan

•   Make 120 qualifying payments on an income-driven repayment plan

Borrowers who are interested in pursuing PSLF will have to follow strict requirements in order to qualify and have their loan balances forgiven.

🛈 While SoFi does not offer loan forgiveness solutions, we do offer student loan refinancing, which could help you save money on your student loan debt.

2. Income-Driven Repayment Plans

Income-driven repayment plans for federal student loans tie a borrower’s monthly loan payments to their income and family size.

The repayment period for income-driven repayment plans varies from 20 to 25 years. While these plans help make loan payments more affordable for borrowers, extending the loan terms may result in accruing more interest over the life of the loan.

President Biden has announced the creation of the Saving on a Valuable Education (SAVE) Plan , which replaces the existing Revised Pay As You Earn (REPAYE) Plan. Borrowers on the REPAYE Plan will automatically get the benefits of the new SAVE Plan.

The SAVE Plan, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size. According to the White House, the SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

Starting next summer, borrowers on the SAVE Plan will have their payments on federal undergraduate loans cut in half (reduced from 10% to 5% of income above 225% of the poverty line).

A beta version of the updated IDR application was made available in early August 2023 and includes the option to enroll in the new SAVE Plan. The DOE says that if you apply for an IDR plan (such as the SAVE Plan) in the summer of 2023, your application will be processed in time for your first federal student loan payment due date.

Recommended: The SAVE Plan: What Student Loan Borrowers Need to Know About the New Repayment Plan

3. Disability Discharge

When working out how to get rid of student loans, take into account that It may be possible to have federal student loans discharged if you have a permanent disability. To be eligible for the disability discharge, you need to show the Department of Education that you are not able to earn an income now or in the future because of your disability.

To do so, you need to get an evaluation from a doctor, submit evidence from Veterans Affairs, or show that you are receiving Social Security Disability Insurance. You cannot apply for disability discharge until you have been disabled for 60 months unless a doctor writes a letter saying that your disability and inability to work will last at least 60 months.

4. Temporary Relief: Deferment or Forbearance

Federal student loan repayment was put on pause over three years ago due to the Covid-19 shutdown. As part of the agreement reached in the Debt Ceiling bill, the Department of Education’s student loan forbearance program ends in 2023, with interest resuming on September 1, 2023 and payments due beginning in October 2023.

However, in late June, President Biden announced the creation of the On-Ramp Program . The Department of Education is instituting a 12-month “on-ramp” to repayment of federal student loans, running from October 1, 2023 to September 30, 2024, so that “financially vulnerable borrowers” who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Apart from the On-Ramp Program, forbearance and deferment both offer borrowers the ability to pause their federal student loan payments if they qualify.

Depending on the type of loan you have, interest may continue to accrue even while the loan is in deferment or forbearance. However, applying for one of these options can help borrowers avoid missed payments and potentially defaulting on their student loans.

Note that private student loans don’t offer the same benefits as federal student loans, but some may offer their own benefits.

5. Student Loan Refinancing

This option won’t get rid of your student loans, but it could help make student loans more manageable. By refinancing your student loans, you can potentially qualify for a lower interest rate, which can possibly lower your monthly payments or save you money on interest over the life of your loan.

If you refinance with a private lender, you can also change the length of your student loan. While private lenders can refinance both your federal and private student loans, you do lose access to the protections that federal student loans provide, such as income-based repayment programs, on the amount that is refinanced.

6. Filing for Bankruptcy: A Last Resort

Bankruptcy is a legal option for the problems caused by people struggling with how to take out student loans. However, it is rare that student loans are eligible for discharge in bankruptcy. In some instances, if a borrower can prove “undue hardship,” they may be able to have their student loans discharged in bankruptcy.

Filing for bankruptcy can have long-term impact on an individual’s credit score and is generally a last resort. Before considering bankruptcy, review other options, such as speaking with a credit counselor or consulting with a qualified attorney who can provide advice specific to the individual’s personal situation.

Recommended: Bankruptcy and Student Loans: What You Should Know

The Takeaway

When you are learning how to take out student loans, the future debt may not be obvious. It can be challenging to pay student loan debt, but there are options that can temporarily reduce or eliminate your payment. It is only in extremely rare circumstances that student loans can be discharged in bankruptcy.

For federal student loans, some options that can help alleviate the burden of student loan debt include deferment or forbearance, which may be helpful to those who are facing short-term issues repaying student loans. Another avenue to consider may be income-driven repayment plans, which tie a borrower’s monthly loan payments to their income, helping make monthly payments more manageable.

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


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


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 FOREFEIT YOUR EILIGIBILITY 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 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.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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23
2023
mother and daughter on laptop

Refinancing Student Debt With a Cosigner

By | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

If you’re interested in possibly refinancing your student loans, but you don’t think your credit history is strong enough, there are options that might help. One is to refinance student loans with a cosigner.

A cosigner could potentially help you qualify for a refinanced loan. But is taking out a new loan with a cosigner the right choice for you? There are pros and cons to carefully consider in order to decide if student loan refinance with a cosigner makes sense for your personal situation.

Key Points

•   A cosigner with strong credit can help you qualify for student loan refinancing and potentially secure a lower interest rate.

•   If you fail to make payments, your cosigner is legally responsible for repaying the loan, which can impact both of your credit scores.

•   Refinancing federal loans with a cosigner makes them ineligible for federal benefits like income-driven repayment plans and loan forgiveness.

•   Asking someone to cosign a loan is a big request—approach the conversation respectfully and demonstrate financial responsibility.

•   Cosigners should understand the risks, stay informed about payments, and be prepared for potential financial consequences.

What Is a Cosigner on a Loan?

A cosigner is someone who legally agrees to pay your debt, such as your student loan debt, in the event that you can’t make payments yourself. The exact terms will vary based on the loan type and lender, but in general, this person signs your loan with you and accepts responsibility for your loan if you don’t make payments.

A cosigner can potentially be used for several different types of loans, from taking out a mortgage to borrowing for a car.


💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

Can a Cosigner Refinance a Student Loan?

If you have private student loans, you might have needed a cosigner to qualify if your credit history was too new or not robust enough to qualify on your own.

Creditors review a variety of factors to determine whether or not they will give someone a loan. Things like a lot of existing debt or a low credit score can sometimes serve as an indicator to lenders that an individual could be a credit risk. Adding a cosigner could make a potential borrower appear less risky, since there’s another person (ideally one with a strong financial background) to help guarantee repayment of the loan.

Recommended: Applying for a Student Loan Without a Cosigner

Finding a Cosigner

If you can’t qualify for a loan based on your own credit history or current income, sometimes student loan refinancing with a cosigner who has a strong credit history could help improve your prospects.

You could ask a friend or relative to be a cosigner for refinancing student loans. Being a cosigner can be a hefty responsibility, so treat the request with respect, and perhaps plan to be open and honest about why you need to refinance student loans with a cosigner.

Pros and Cons of Having a Cosigner

Taking out a loan with a cosigner is a significant commitment, so it’s worth considering some pros and cons. What’s right for you will depend on your personal and financial situation.

One of the most notable benefits of refinancing with a cosigner is the potential to qualify for a loan that may not have been an option otherwise. A cosigner could also possibly help you qualify for a lower student loan interest rate than you otherwise may have received. If you have little to no credit history or bad credit, it could help to refinance student loans with a cosigner by giving you an opportunity to begin strengthening your credit.

On the flip side, there can be some cons to refinancing with a cosigner. If you fail to make payments on your loan, your cosigner will be responsible for repaying your debt. As a result, missed payments will likely reflect on both of your credit histories. This could also negatively impact your personal relationship with your cosigner.

In addition, there are pros and cons to the process of student loan refinancing. For instance, if you have federal student loans, refinancing makes them ineligible for federal benefits and protections such as income-driven repayment plans, loan forgiveness for public service, and deferment options. If you want or need access to these programs and benefits, refinancing won’t make sense for you.

Using a Cosigner when Refinancing Your Student Loans

When you’re refinancing your student loans, enlisting a friend or family member to cosign your refinanced loan could help strengthen your loan application.

If you’re trying to find a cosigner, you can start with the people you trust the most. Keep in mind that acting as a cosigner has risks — if you don’t pay back your loans, your cosigner is on the hook. It’s a big request, so take some time to think about how you’ll make it. Here are some tips that may help inform your conversation:

1.    Asking respectfully. You’ll want to broach the subject thoughtfully and respectfully. You’re asking the person for a serious commitment, so asking with tact to show you understand the gravity of your request is crucial.

2.    Showing your dedication. It’s also important to make it clear to your cosigner that you’re going to be making timely payments on the loan. One simple way to do so is by providing them with regular updates.

3.    Illustrating to your cosigner that you understand the intricacies of your loan. They’ll be responsible for the loan if you fail to make payments, so they’ll likely want to make sure you understand the responsibility you’re taking on — and asking them to take on.


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

Things to Consider if You’re Asked to Cosign a Loan

If you’ve been asked to cosign a loan, be aware that serving as a cosigner can come with consequences for your finances if the primary borrower fails to make payments. If you’re a family member or friend with excellent credit and a well-paying job, you could be a candidate as a cosigner. If you have some hesitation, here are a few steps you can take:

1.    Talking it out with the borrower. The borrower is going to use your name and credit history to take out a loan. It can be helpful to understand why they feel they need a cosigner while making sure they have the means to repay the loan.

2.    Following up often. Keeping the lines of communication open so you are aware of any issues can be helpful for both parties. If need be, you could discuss making payments on their behalf to avoid the effect of a late or missed payment on your own credit score.

3.    Accepting negative outcomes. Even if you’ve done everything you can to ensure the borrower is trustworthy, something might come up where they let you down. Your credit score might take a hit and you might be responsible for making payments yourself. Remember that this could happen, so accepting it as a possibility may be helpful.

Cosigning a loan is a big responsibility that can have implications on your financial future, so take some time to consider if there’s anything you’re not comfortable with.

If you decide not to cosign, you can let the requester down gently by trying to help them think of some alternative options to secure the loan or money they need.

Refinancing Student Loans With SoFi

If you’re interested in refinancing student loans but your credit isn’t strong enough, enlisting a trusted person with a strong financial background as a cosigner may help you qualify for a loan.

But remember: Refinancing federal student loans makes them ineligible for federal programs or borrower protections. If you think you may need these federal benefits, refinancing may not be right for you.

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


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

FAQ

Do I need a cosigner for student loan refinance?

The specific requirements for refinancing a loan with a cosigner will depend on your credit history and income (among other factors) and the eligibility requirements of the lender. Borrowers who have a less than stellar credit history may find adding a cosigner to their application allows them to qualify for a more competitive interest rate.

Can I consolidate my student loans with a cosigner?

If you are consolidating federal loans through the Direct Consolidation Loan program, you don’t need a cosigner.

Can a cosigner become the primary borrower?

In order for the cosigner to become a primary borrower, the loan would generally need to be refinanced.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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 Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY 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).

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