Feb
08
2024
calendar with post-its

How Soon Can You Refinance Student Loans?

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

Typically, student loan borrowers cannot refinance their debt until they graduate or withdraw from school. At that point, federal student loans and the majority of private student loans have a grace period, so it can make sense to refinance right before the grace period ends.

Depending on your financial situation, the goal of refinancing may be to snag a lower interest rate and/or have lower monthly payments. Doing so can alleviate some of the stress you may feel when repaying your debt. In this guide, you’ll learn when you can refinance and what options are available, plus the potential benefits and downsides of each.

Key Points

•   Most borrowers can refinance after graduation or when they leave school; some lenders allow earlier refinancing with strong financials.

•   Refinancing federal loans with a private lender forfeits federal benefits like income-driven repayment and forgiveness.

•   It’s possible to refinance only select loans, such as those with high rates or variable interest.

•   You may refinance with a cosigner if you don’t meet a lender’s eligibility criteria.

•   Alternatives include federal loan consolidation, forbearance, or interest-only payments while still in school.

What Do Your Current Loans Look Like?

Before deciding whether or not to refinance your student loans, you need to know where your loans currently stand. Look at the loan servicers, loan amounts, interest rates, and terms for all loans before making a decision.

Contact Info for Most Federal Student Loans

The government assigns your loan to a loan servicer after it is paid out. To find your loan servicer, visit your account dashboard on studentaid.gov, find the “My Aid” section, and choose “View loan servicer details.” You can also call the Federal Student Aid Information Center at 800-433-3243.

Loans Not Owned by the Department of Education

Here’s how to get in touch:

•   If you have Federal Family Education Loan Program loans that are not held by the government, contact your servicer for details. Look for the most recent communication from the entity sending you bills.

•   If you have a Federal Perkins Loan that is not owned by the Education Department, contact the school where you received the loan for details. Your school may be the servicer for your loan.

•   If you have Health Education Assistance Loan Program loans and need to find your loan servicer, look for the most recent communication from the entity sending you bills.

Private Student Loans

Private student loans are not given by the government, but rather banks, credit unions, and online lenders. You’ll need to find your specific lender or servicer in order to find out your loan information.

Can You Refinance Student Loans While Still in School?

You may be able to refinance your student loans while still in school with certain lenders, but doing so may not make the most sense for your situation.

If you’re worried about interest accruing on your unsubsidized federal loans and/or private student loans while in school, you can most certainly make interest-only payments on them in order to keep the interest from capitalizing.

One important note: With federal student loans, any payments you make while still in school or during the grace period will not count as a qualifying payment toward loan forgiveness, if you plan on using that.


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

Which Loans Can Be Refinanced While Enrolled?

You can refinance any type of student loan while enrolled in school, assuming that the lender allows it. If you’re still in school and want to refinance, a lender will want to make sure you have a job or job offer on the table, are possibly in your last year of school, and have a solid credit profile. You could also consider refinancing your student loans with a cosigner if you do not meet the lender’s requirements on your own.

A couple of important points if you are considering refinancing federal student loans with a private lender:

•   Doing so means you will forfeit federal benefits and protections, such as forbearance and forgiveness, among others.

•   If you refinance for an extended term, you may have a lower monthly payment but pay more interest over the life of the loan. This may or may not suit your financial needs and goals, so consider your options carefully.

Which Loans Can’t Be Refinanced While Enrolled?

If you find a lender willing to refinance your student loans while still in school, they most likely won’t exclude a certain type of loan. However, it is best not to refinance federal student loans while enrolled. Federal Subsidized Loans, for example, do not start earning interest until after the grace period is over. Since you aren’t paying anything in interest, it doesn’t make sense to refinance and have to start paying interest on your loans immediately.

If you plan on using federal benefits, such as income-driven repayment plans or student loan forgiveness, refinancing student loans could be a bad idea. Refinancing gives you a new loan with a new private lender, thereby forfeiting your eligibility to federal benefits and protections, as noted above.

Is It Worth Refinancing Only Some of Your Loans?

Yes, it can be worth refinancing only some of your loans. The student loans you may want to focus on refinancing may include ones that have a variable rate (and you prefer a fixed rate), ones with a relatively high interest rate, or ones where you’ve had a less-than-ideal relationship with the servicer and are looking for a new experience.

When you might want to think twice about refinancing:

•   If you have federal loans and plan on using an income-based repayment plan, for example, it makes sense not to include those loans in the refinance.

•   If you have a low, fixed interest rate currently, you should probably keep those loans as is. The main reason to refinance is to secure a lower interest rate or a lower payment. Keep in mind, though, that by lowering your payment, you typically are extending your term. This can mean that you end up paying more in interest over the life of the loan.

Pros and Cons of Refinancing Student Loans

Pros Cons

•   Possibly lower your monthly payment

•   Possibly lower your interest rate

•   Shorten or lengthen the loan term

•   Switch from variable to fixed interest rate, or vice versa

•   Combine multiple loans into one

•   Lose access to federal benefits and protections

•   Lose access to remaining grace periods

•   May be difficult to qualify

•   May end up paying more in interest if you lengthen the term

Examples of Refinancing Before Earning a Degree

As stated above, there are some lenders that may allow you to refinance before you graduate or withdraw from school. These lenders may currently include Citizens Bank, Discover, RISLA, and Earnest.

Graduate students are also eligible to refinance their undergraduate student loans, assuming they meet the lender’s requirements or use a cosigner. Parents with Parent PLUS Loans are also typically allowed to refinance their loans prior to their child graduating. Rules will vary by lender, so make sure to do your research and choose a lender that will work with your unique situation.


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

Alternatives to Refinancing

If refinancing your student loans isn’t the right option for you, there are alternatives to refinancing you can explore.

•   The main alternative is student loan consolidation, which combines your federal student loans into one loan with one monthly payment. The main difference between consolidation and refinancing is the interest rate on a federal loan consolidation is the weighted average of the rates of the loans you are consolidating, rounded up to the nearest one-eighth of a percentage.

•   You typically won’t save on interest, but you can lower your monthly payment by extending the loan term. Doing this, however, means you’ll probably pay more in interest over the life of the loan.

•   Student loan refinancing refers to paying off current loans with a new loan from a private lender, preferably with a lower rate. This rate is not the weighted average of the loans, but rather is based on current market rates, your credit profile, and your debt-to-income ratio.

•   Other alternatives to refinancing include making interest-only payments while still enrolled in school or requesting a student loan forbearance if you’re struggling to make your payments. Forbearance means you can reduce or pause payments for a designated period of time.

You’ll want to know all your student loan repayment options — and the pros and cons of consolidating or refinancing your loans, prior to making a decision.

A calculator tool for student loan refinancing can come in handy when estimating savings, both monthly and over the life of your loan.

Weighing Perks and Interest Rates

Before deciding whether refinancing is right for you, it’s important to again highlight this important point: If you refinance your federal student loans with a private lender, those loans will no longer be eligible for programs like income-driven repayment plans, federal forbearance, and Public Service Loan Forgiveness.

But if you can get a lower interest rate, refinancing may be a good fit. Most refinancing lenders offer loan terms of five to 20 years. Shortening or elongating your loan term can affect your monthly payment and the total cost over the life of your loan.

For some borrowers, lengthening the term and lowering the monthly payment will be a valuable option, even though it can mean paying more interest over the life of the loan. Only you can decide if this kind of refinancing makes sense for your personal finances.

The Takeaway

When can you refinance student loans? As soon as you establish a financial foundation or bring a solid cosigner aboard. Can you refinance your student loans while in school? Yes, however, not all lenders offer this and it may not make sense for your situation. It’s also important to understand the implications of refinancing federal student loans with a private lender. If you do not plan on using federal benefits and protections and are comfortable with the possibility of paying more interest over the loan’s term, it might be a move worth considering.

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


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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


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.

SOSL0124014

Read more
Jan
26
2024
What Is a Liquid Certificate of Deposit?

Guide to Liquid Certificates of Deposit (CDs)

By | Family Finances, Investing, money | Comments Off on Guide to Liquid Certificates of Deposit (CDs)

If you’re in search of a low-risk way to grow your money, a liquid certificate of deposit (CD) might be worth a closer look. A liquid CD gives you a fixed, guaranteed rate of interest for a specific term, but unlike standard CDs, you don’t pay a penalty if you withdraw the funds before the maturity date.

Granted, the returns you earn on a liquid CD may not compete with stock market investments, but knowing that your money is earning interest and likely won’t incur any losses can be powerful benefits.
Here, you’ll learn more about liquid CDs, including:

•   What a liquid CD is

•   How to withdraw money from a liquid CD

•   The pros and cons of liquid CDs

•   Alternatives to liquid CDs.

What Is a Liquid Certificate of Deposit?

Before you think about investing in a CD, here’s a look at definitions:

•   A certificate of deposit, or CD, is a savings vehicle that usually gives you a bit of interest with virtually no risk, provided you keep the money in place for a certain term. If, however, you withdraw funds before the CD matures (or reaches the end of its term), you are usually penalized. You will likely lose some or all of the interest earned and perhaps even a bit of the principal. In other words, are certificates of deposit liquid? Usually not.

•   A liquid certificate of deposit, on the other hand, gives you flexibility. It allows the account holder to withdraw money from their account prior to the maturity date without incurring penalties. This means you can access funds in the CD should you need them without penalty. However, the rates for liquid CDs tend to be lower than other kinds of CDs.


💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

Understanding a Liquid CD

You may be wondering, “What are liquid assets?” In the realm of finance, the concept of “liquid” means that an asset can quickly be converted to cash. A liquid CD is a time-bound deposit account where you can earn interest for a specific period of time. Compared to traditional CD’s however, liquid CDs will not charge you early withdrawal penalties. This means you can easily liquidate (turn into cash) your CD without taking a hit in terms of its value.

As noted above, there’s a “but” to this proposition, which you may hear referred to as no-penalty CDs: Liquid CDs typically pay less than traditional CDs. Depending on which financial institution you go to, these products can offer various terms, either as little as a few months or up to several years or longer. Your fixed interest rate will vary according to the length of the term you’ve chosen. Typically, the longer you hold your money in the liquid CD, the higher the rate of return.

What can be a big plus about CD rates is that they are locked in during the full term. This means even if interest rates decrease, your rate would not change. Some financial institutions may require a minimum deposit for these CDs, and they can be significantly higher than traditional CDs; some are at the $10,000 and up level. What’s more, the minimum deposit may go up if you are seeking a higher interest rate, while others don’t have a minimum deposit requirement at all.

How Do You Withdraw Money From a Liquid CD?

If you have decided that you need to withdraw from your liquid CD, here’s what usually happens:

•   Check with your bank about how long it will take to process a withdrawal and whether you need to withdraw a certain percentage at a time. (Some banks may require you to close the account entirely.)

•   When ready, notify your bank of your withdrawal.

•   You will likely have to wait about a week after opening the liquid CD before you can start withdrawing.

•   Wait for your funds. Withdrawal is likely not as quick as withdrawing funds from a checking or savings account; your financial institution might require anywhere from a week to a month to process the transaction.

Recommended: What Happens If a Direct Deposit Goes to a Closed Account?

Liquid CD: Real World Example

Once you have decided a no-penalty CD is right for you, you will need to go to a bank or credit union that offers this account. Once you’ve opened an account, you have to fund it.

How it grows will depend on the principal, your APY (annual percentage yield), and how often the CD compounds the interest, which could be, say, daily or monthly.

•   If you invested $10,000 in a liquid CD with a three-year at a rate of 5.30%, at the end of the three-year period with interest compounded monthly, you will have a total balance of about $11,719.28.

Increase your savings
with a limited-time APY boost.*

*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.20% APY Boost (added to the 3.80% APY as of 7/10/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 8/12/25. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.

Pros of a Liquid CD

When evaluating liquid CDs, it’s worthwhile to review the benefits of these accounts. Some of the key upsides are:

•   Liquidity. You can access and withdraw your funds prior to the term’s end. Perhaps you’re having an emergency that requires cash, or you decide to move around your money to better meet your financial goals. It’s possible!

•   No penalties. If you dip into the account before it matures, you won’t be assessed a fee.

•   Security. Liquid CDs are safe investments. These accounts are federally insured up to $250,000 per depositor, per account ownership category, per insured institution. You’ll know your money is protected when you open a liquid CD with a bank or credit union. Even in the very rare situation of a bank failure, you’re covered as noted.

•   Guaranteed returns. When you start a liquid CD account, you usually know the interest rate upfront. It may not be stratospheric, but it’s a sure thing.

Cons of a Liquid CD

Now that we’ve explored the good things about a liquid CD, we need to give equal time to the potential downsides:

•   Lower rate of return. The interest rates are significantly lower compared to certificate of deposit rates.

•   Withdrawal rules. Yes, these accounts are more accessible, but after your deposit has been in place for a week, your withdrawal guidelines may be quite specific. For instance, you may have to remove all your funds if you want to make a withdrawal, or the amount might be limited to a certain percentage that doesn’t suit your needs. Check before starting a liquid CD investment.

•   Tax implications. Earnings on your liquid CD will be taxed at your federal rate, which is something to keep in mind as that will take your return down a notch.

Recommended: How to Automate Your Personal Finances

Alternatives to a Liquid CD

If the idea of a liquid CD doesn’t sound like an appealing low-risk investment option, there are alternatives to also consider.

Traditional CDs

Traditional certificates of deposit require you to stow your money away for a certain period of time. In exchange, you receive a return at the end of that period. The catch is, you are not able to withdraw your funds during this holding period. If you have a financial emergency, for example, and need the money from your CD, you will receive penalties for withdrawing your cash before the period of maturity.

However, this might be a gamble you are willing to take, especially if you have a nice, healthy emergency fund set aside. You’ll earn a better rate of return than with a liquid CD.

Laddering

CD laddering usually involves opening CDs of different term lengths. This strategy allows you to invest long-term CDs which provide higher rates of return, while having the ability to access your funds through a shorter-term CD maturing.

Money Market Account

Another CD alternative is a money market account, which is similar to a savings account with some added benefits. Money market accounts typically require minimum balances and offer rates comparable to savings accounts, which can change over time. While the rates may be lower than a CD, money market accounts typically allow you to withdraw and transfer your money six times per month or more.

Emergency Fund

An emergency fund, or a rainy-day fund, is a savings account that should only be used in times of financial emergencies or unexpected expenses. Depending on your financial position, you can have an emergency fund in a regular savings account, money market account, CD, or liquid CD. It depends on how much you plan to access your emergency fund and how much interest you want to earn in the account.

High-Yield Savings Account

A high-yield savings account can offer a competitive rate of interest, depending on the financial institution offering it (online banks tend to pay more than traditional ones). And you’ll have more liquidity than a CD because you can deposit and withdraw from the account more frequently, though the specifics may vary with each bank. If you want easy access to your funds plus interest, a high-yield bank account may be a good option.

The Takeaway

Liquid CDs are a financial product that offers the safety and guaranteed return of a traditional CD with the bonus of not being penalized if you make an early withdrawal. For those who are comfortable locking their money into a CD but worry an emergency or other need might pop up, this accessibility can be very attractive. Worth noting: Expect lower interest rates from a liquid CD than a standard one. Alternatives to a liquid CD can include a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Are CDs liquid investments?

Traditional CDs are not liquid investments. Funds held in a CD cannot be accessed until the account term is reached. If you need to withdraw money from your CD prior to its maturity date, you will have to pay a penalty. A liquid CD, however, offers flexibility to withdraw money from your account prior to its term date without the usual fees.

What is a non-penalty CD?

A non-penalty CD, also known as a liquid CD, is a time deposit that offers interest on your money. However, the rate is usually somewhat lower than the rate for a typical CD (the kind with penalties). The longer the term you choose for your liquid CD, the more you usually can earn.

How much is the penalty for early withdrawal from a CD?

Each financial institution has its own way of calculating this, but it usually involves losing some of all of the interest you have accrued. If you have a two-year traditional CD and withdraw funds early, the fee could vary considerably; a recent search found anywhere from two months’ to a year’s’ worth of interest. If you have a liquid or no-penalty CD, you will of course avoid these fees.

Photo credit: iStock/champc

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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

SOBK0124023

Read more
Dec
04
2023
books on the wall

Strategies for Lowering Your Student Loan Interest Rate

By | Budgeting & Goals, Financial Independence, Fresh Out of School, Student Loans, student_loan | No Comments

When you’re in college, you don’t have a lot of control over the interest rates on your student loans. With federal loans, the U.S. Department of Education sets the rate each year for all borrowers. And if you get private student loans, a limited credit history can make it hard for young people to score favorable terms.

But once you graduate, there are a few things you can try to save money on interest. Here are a few tips that may lower your interest rate on student loans.

Refinancing Your Student Loans

Scoring discounts with your current servicer can help you get a lower student loan interest rate, but there is another option to consider. Depending on your financial profile, you may qualify for a lower student loan interest rate than what you’re currently paying with student loan refinancing.

There are multiple advantages to refinancing student loans. You can potentially lower your interest rate by bundling several loans (federal and private) into one new loan. And if you shorten your loan term, you may be able to pay off your student loans much faster and pay less in interest over the life of your loan.

Student Loan RefinancingStudent Loan Refinancing

Student loan refinancing is ideal for borrowers with high-interest student loans who have good credit scores and know they won’t use any of the federal loan benefits, like student loan forgiveness. (All federal loan benefits, including income-based repayment, will be lost if you refinance.)

Here are a few things that can help you improve your chances of getting a lower student loan interest rate with refinancing:

•   A high credit score: Lenders typically have a minimum credit score requirement, so the higher your score, the better your chances of getting a low rate usually are.

•   A low debt-to-income (DTI) ratio: Your income is also an important factor that lenders consider, especially as it relates to your overall debt burden. If a smaller portion of your monthly income goes toward debt payments, it shows you may have more income to dedicate to your new loan’s payments.

•   A co-signer: Even if your credit and income situation is in good shape, having a co-signer with great credit and a solid income might help your case.

•   A variable rate: Some student loan refinance lenders offer both variable and fixed interest rates. Variable interest rates may start out lower but increase over time with market fluctuations. Fixed rates, stay the same over the life of the loan. If you’re planning on paying off your student loans quickly, a variable rate might save you money.

•   The right lender: Each lender has its own criteria for setting interest rates, so it’s important to shop around to find the best lender for your needs. Some lenders, including SoFi, even allow you to view rate offers before you officially apply.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

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

Consolidate Your Student Loans

Have multiple student loans floating around that you’d love to combine into one? Consider loan consolidation, where you’ll merge all your student loans into one easy monthly payment with a single interest rate. Here’s the rub, though: Consolidation alone does not necessarily get you a lower student loan interest rate. It just offers you one payment instead of multiple.

When consolidating federal student loans, you can use a Direct Consolidation Loan. Your new interest rate is simply the weighted average of all your current student loan interest rates. The weighted average might be a smidge higher than the interest rates you were paying previously. Often folks utilize consolidation to stretch out the life of their student loan, which lowers your payments but may increase the amount you owe over time.

Even though consolidation itself is not a direct way to get a better rate on your student loans, it can be helpful if you’re having trouble keeping track of your monthly payments. Consolidation may also be useful if you want to merge non-direct federal loans (like Perkins loans) with direct loans, in order to qualify for income-driven repayment and/or loan forgiveness programs.

By the way, the term “consolidating” is often used interchangeably with “refinancing,” but they technically mean different things. When refinancing student loans, you also happen to be consolidating, but it is done with the goal of achieving a more favorable interest rate on your student loans.

Recommended: The Basics of the Student Loans

Set Up Automatic Payments

Many student loan servicers — both federal and private — offer an interest rate discount if you set up autopay on your account. Depending on the servicer, you can lower your student loan interest rate. SoFi, for example, offers a 0.25% autopay discount.

The reason servicers offer this discount is that by setting up automatic payments, you’re less likely to miss payments and default on the loan.

In addition to getting a lower student loan interest rate, you’ll also (hopefully!) have peace of mind knowing that you won’t accidentally miss a payment. If you feel you’re putting a little too much money toward student loans, check with your loan servicer to see whether they offer an autopay discount.

To get an idea of how a change in interest rate would impact your loan, take advantage of a student loan refinance calculator to see what your new payments could be.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private student loans.

Choose the Right Repayment Plan

If you don’t choose a specific repayment path, you’re typically opted into the Standard Repayment Plan. In this plan, your payments are generally based on a 10-year timeline. But this one-size-fits-all plan is not the best option for everyone.

The federal government also offers four income-driven repayment (IDR) plans — Pay As You Earn (PAYE), Saving on a Valuable Education (SAVE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) — where the monthly payments are based on your income and family size. While choosing one of these plans may lower your monthly payments, it will likely not alleviate how much interest you pay over time. In fact, you might even pay significantly more.

After 20 or 25 years, depending on the IDR plan, any remaining balance is forgiven. However, the amount forgiven may be considered taxable income by the IRS. So even though your student loan debt goes away, prepare yourself for a big tax bill that year.

Another money-saving repayment option for federal student loans is the Public Service Loan Forgiveness (PSLF) program. If you work in a qualifying public service job — for the government or a nonprofit organization — you might be eligible to have your student loans forgiven after 10 years of service.

You can confirm whether your work qualifies here. You’ll want to submit an Employment Certification as soon as possible to be sure that you’re on track to qualify.

Recommended: 4 Student Loan Repayment Options, and How to Choose

Lower Your Student Loan Interest Rate

There are several ways to get a lower student loan interest rate. It can be as easy as calling your servicer to find out what discounts are available. You can also choose a new repayment plan, consolidate your federal loans, or refinance federal and private loans. With refinancing, you may secure a lower interest rate if you have a high credit score, low debt-to-income ratio, a cosigner, or a variable interest rate. Just know that when refinancing federal student loans, borrowers lose federal protections and forgiveness.

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


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.


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.


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.

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.

SOSL0923048

Read more
Oct
21
2023
A Look into the Public Service Loan Forgiveness Program_780x440

A Look Into the Public Service Loan Forgiveness Program

By | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments
The SAVE Plan is no longer available after a federal court blocked its implementation in February 2025. However, applications for other income-driven repayment plans and for loan consolidation are available again. We will update this page as more information becomes available.

If you are employed by a government or a nonprofit, you might be able to get forgiveness for the remaining balance on your federal student loan through the Public Service Loan Forgiveness Program (PSLF).

Created by the Department of Education (DOE) in 2007, PSLF is intended to help public-service professionals who may not earn large salaries and must struggle to repay their federal student loans. In this context, many teachers, firefighters, and social workers qualify.

The program has drawn frequent criticism for being hard to navigate and difficult to qualify for, charges that the DOE says it is addressing to make sure as many people as possible can access PSLF. To that end, the DOE conducted a payment count adjustment that updated borrowers’ progress toward PSLF. To become eligible for the adjustment, borrowers with privately held Perkins or FFEL Program loans had to submit a Direct Consolidation Loan application. The deadline for submission was June 30, 2024.

Below is the latest information on PSLF eligibility and student debt forgiveness.

What Is Public Service Loan Forgiveness?

The PSLF program provides professionals a way out of their federal student loan debt by working full-time in public service. The remaining balance on your Direct Loans will be forgiven—meaning you will not have to pay it back–after you’ve made the equivalent of 120 qualifying monthly payments under an accepted repayment plan and while working full-time for an eligible employer.

What Are Public Service Loan Forgiveness Jobs?

The question for many people is who qualifies for PSLF? The jobs include teachers, firefighters, first-responders, nurses, military members, and doctors. But with this program, it is not only the type of job you have that determines if you can get forgiveness but also the type of employer. That is crucial. Qualifying employers include federal, state, local, tribal government and non-profit organizations.

To find out if your employer qualifies for PSLF, you can search through the Federal Student Aid search tool.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Who Is Eligible for the Public Service Loan Forgiveness Program?

How does PSLF work? To qualify, borrowers must meet certain eligibility criteria. They include:

Work for a Qualified Employer

Part of PSLF eligibility requires working for a qualified government organization (municipal, state, federal, military, or tribal) or a qualified 501(c)(3) non-profit organization. Full-time AmeriCorps or Peace Corps volunteers are also eligible for PSLF. (Learn more about military student loan forgiveness.)

Some other types of non-profits also qualify, but not labor unions, political organizations, and most other non-profits that don’t qualify for 501(c)(3) status. Working for a government contractor doesn’t count; you have to work directly for the qualifying organization.

Only full-time workers are eligible — that is, workers who meet their employer’s definition of full-time or work a minimum of 30 hours per week. People employed at multiple qualifying organizations in a part-time capacity can be considered full-time as long as they’re working a combined 30 hours per week.

Note that time spent working in religious instruction or worship does not count toward meeting the full-time requirement.

Recommended: How to Get Out of Student Loan Debt

Having Eligible Loans

Eligible loans include Direct loans such as Stafford loans, PLUS loans (but not Parent PLUS loans), and Federal Direct Consolidation loans.

If you held Federal Family Education Loan (FFEL) or Perkins loans forgiven, you had to consolidate them into a Direct Consolidation Loan first. Any payments you made on the FFEL Program loans or Perkins Loans before you consolidated didn’t count toward the necessary payments.

Private student loans are not eligible for Federal forgiveness programs.

Recommended: Student Loan Forgiveness Guide

Applying for Public Service Loan Forgiveness

There are a few hoops to jump through in order to pursue PSLF. To apply for the program, you’ll need to take the following steps:

1. Consolidate FFEL Program and Perkins Loans

Borrowers with FFEL Program and Perkins Loans had to consolidate them with a Direct Consolidation Loan. Consolidation applications should have been submitted no later than June 30, 2024. This was necessary because if you consolidate your loans afterward, you won’t get credit for any qualifying payments you made on those loans.

2. Sign Up for an Income-Driven Repayment Plan

There are now two income-driven repayment plans to choose from. They are designed to make your student loan debt more manageable by giving you a monthly payment based on your income and family size.

The latest IDR program is called the Saving on a Valuable Education (SAVE) Plan. It lowers payments for almost all people compared to other IDR plans because your payments are based on a smaller portion of your adjusted gross income (AGI). Also, if you make your full monthly payment, but it is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month.

Note: As a result of the CARES Act, months that you were in repayment while the requirement to make a payment was paused still count as qualifying payments if you also certify your employment for the same period of time.

3. Certify Your Employment

To do this, print out an Employment Certification form and get your employer to fill it out and send it in for approval. The Federal Student Aid website suggests filling this form out annually or at least every time you switch jobs.

You can also use the Public Service Loan Forgiveness Help Tool at StudentAid.gov/pslf/ to find qualifying employers and get the forms that you need.

4. Make 120 Qualifying Monthly Payments

You must make these payments while you’re employed by a qualified public service employer. Switching employers isn’t a problem, so long as you are still working for a qualifying organization.

5. Apply for Forgiveness

After you make the final payment, submit your application for forgiveness.

Current State of the Program

Because the program was created in 2007, the first borrowers to qualify for loan forgiveness applied in 2017. However, early estimates by the Government Accountability Office (GAO) reported the denial rate as more than 99%. At the same time, many borrowers weren’t even aware that the forgiveness program exists.

In 2022, the Biden Administration addressed these issues by introducing a “limited PSLF waiver,” which allowed student loan holders to receive credit for payments that previously didn’t qualify for PSLF. The waiver deadline expired on Oct. 31, 2022. The DOE extended elements of the waiver through the IDR account adjustment program. To be eligible for the adjustment, Perkins and FFEL Program loan holders had to submit a Direct Consolidation Loan application no later than June 30, 2024.

President Biden announced in October 2023 that during his administration the DOE had secured relief for “almost $51 billion for 715,000 public servants through Public Service Loan Forgiveness (PSLF) programs, including the limited PSLF waiver and Temporary Expanded PSLF (TEPSLF).”

Beware of false communications from scammers posing as the DOE or your loan servicer. Read up on the latest student loan forgiveness scams.

Pros and Cons of the Public Service Loan Forgiveness Program

The advantages of the program are pretty straightforward. The disadvantages have more to do with how the program is executed in the real world.

Pros of PSLF

1.    The balance of your student loans is forgiven after a set time. This works as a kind of bonus to make up for the low pay earned by people working in the public sector.

2.    The amount forgiven usually isn’t considered income, so you aren’t taxed on it (and you don’t have to save additional money to account for the IRS bill). With other loan forgiveness programs, you might see a big tax bill.

3.    Professionals in qualifying jobs are making a difference, and your government appreciates it enough to give you a break on your federal student loans.

4.    You may pay less monthly because you’re on an income-driven plan. This means paying out less of your hard-earned cash every month.

Cons of PSLF

1.    The program is only open to those with certain types of employers. And it’s contingent on staying with a qualifying public service employer for 10 years. With the SAVE program, qualifying loan holders may be able to pay off their federal student loans no matter who their employer is.

2.    Some borrowers aren’t aware of the program, partly due to a lack of education by employers, loan servicers, and schools.

3.    There are a lot of hoops to jump through to get your loans forgiven. Plus, if you don’t jump through a hoop properly, you can jeopardize your forgiveness.

4.    The extra money that can potentially be earned from working for a corporate employer may help you pay off your loans sooner than through PSLF.

5.    You might end up paying more in interest by making 120 payments than if you budgeted to aggressively repay your loans in less than 10 years.

Alternatives to the Public Service Loan Forgiveness Program

Another program available to some individuals is the Teacher Loan Forgiveness program. This program is available to full-time teachers who have completed five consecutive years of teaching in a low-income school. This program has strict eligibility requirements that must be met in order to receive forgiveness.

If you receive Teacher Loan Forgiveness, the five-year period of service that supported your eligibility will NOT count toward PSLF. However, the limited PSLF waiver discussed above temporarily waived this restriction for individuals who previously received Teacher Loan Forgiveness.

These federal forgiveness programs do not apply to private student loans. If you are looking for ways to reduce your interest rate or monthly payments on private student loans, refinancing with a private lender can be an option. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

It is important to mention that refinancing your federal student loans with a private lender may make you ineligible for the Public Service Loan Forgiveness program, should you choose that route.

The Takeaway

The Public Service Loan Forgiveness program is one way for eligible borrowers to have their federal student loans forgiven. Recent changes to the program by the Biden Administration promises to make qualifying for PSLF easier. However, if you have student loans that aren’t eligible for PSLF, consider taking advantage of either refinancing or income-driven repayment.

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


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

SOSL0923006

Read more
Oct
05
2023
piggy bank with books

Can You Pay Off Student Loans with Your 401(k)?

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

If you’re one of the 44 million Americans who currently hold a portion of the country’s more than $1.7 trillion student debt—and are perhaps now back to making payments after a three-year pause—chances are you’re looking for solutions to get rid of that debt ASAP. After all, the average student who borrowed money to pay for school graduates with just over $37,000 in federal student loan debt alone.

Paying off that much debt is an impressive feat which takes discipline and commitment. If you’re currently living under the heavy weight of your student loans, you may have considered using your 401(k) for student loans. But should you really cash out your 401(k) for student loans?

It probably goes without saying that figuring out how you’re going to pay off your student loans is overwhelming—and there isn’t one definitive solution. And while it’s certainly tempting to just take the cash from your 401(k) and pay off a high-interest loan, there are some serious drawbacks to consider before running with that plan.

Key Points

•   Using a 401(k) to pay off student loans can eliminate debt quickly but has significant drawbacks, including penalties and lost investment growth.

•   Early withdrawal from a 401(k) before age 59½ incurs a 10% penalty and is subject to income tax.

•   Alternatives like income-driven repayment plans or loan forgiveness programs offer safer ways to manage student loan debt without risking retirement savings.

•   Refinancing student loans might lower interest rates and monthly payments, providing a financial breather without tapping into retirement funds.

•   Borrowing from a 401(k) or taking a hardship withdrawal are options, but they compromise future financial stability and retirement planning.

The Downsides of Using Your 401(k) to Pay Off Your Student Loans

A potential benefit of using your 401(k) to pay off student loans is that you can eliminate your debt in one fell swoop. However, withdrawing money from your 401(k) should be considered a last resort option—or maybe not an option at all. That’s because there are several major downsides to doing so:

•   Early withdrawal penalty: If you’re under the age of 59½, you’ll generally have to pay a 10% early withdrawal penalty on the amount you take out. The amount you withdraw will also be considered taxable income, which means you could owe a hefty tax bill for that year.

•   Opportunity cost: By using your 401(k) money to pay off student loans, you are potentially losing out on an overall higher return from your investments. For example, if your loan has an interest rate of 6% and your 401(k) returns an average of 8% per year, you essentially lose 2% a year by liquidating those funds to pay off your loans.

•   Difficulty catching up: With your stunted 401(k) balance, you’ll need to make much larger contributions going forward to make up for it, which could strain your budget. Plus, there is a cap on the total amount you can contribute to a 401(k) each year. You may never be able to fully make up for the growth you would have experienced if that money stayed invested.

When deciding whether or not to withdraw money from your retirement savings, it’s important to note that while you borrow loans for other expenses in life, there’s no such thing as a “retirement loan.” You’re responsible for ensuring you have enough money to live on in retirement.

While it can feel like student loans are preventing you from living your life or meeting your financial goals today, saving for retirement can be a valuable investment in your future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Alternatives to Help Control Your Student Loan Debt

If you’re struggling with student loan payments, there are alternatives to taking money out of your 401(k) that can help you get your student loan debt under control while keeping your retirement savings intact. Here are a few examples:

Applying for Income-Driven Repayment

The SAVE Plan is no longer available after a federal court blocked its implementation in February 2025. However, applications for other income-driven repayment plans and for loan consolidation are available again. We will update this page as more information becomes available.

One option is applying for an income-driven repayment (IDR) plan. These plans reduce your payments to a small percentage of your discretionary income. The term length also gets extended out to 20 or 25 years, depending on the specific program. At the end of the repayment term, any remaining debt is forgiven. The exception is the newest plan, Saving on a Valuable Education (SAVE), which awards forgiveness for some borrowers with smaller balances within as few as 10 years.

Keep in mind that extending your repayment term usually means paying more in interest over the life of the loan. Any canceled IDR debt may also be taxed as income. Still, if your payments are far too high to afford on the Standard Repayment Plan, income-driven repayment could provide much-needed relief. In fact, if your income is below a certain threshold, you could qualify for $0 payments.

Pursuing Loan Forgiveness

There are also many programs that forgive student loans after you’ve worked in a qualifying profession and made a certain number of payments. On the national level, Public Service Loan Forgiveness (PSLF) is one example. If you work for a qualifying employer in the public service sector, such as the government or a non-profit, you can have your loans forgiven after 120 payments. Other similar programs include Teacher Loan Forgiveness and National Defense Student Loan Discharge.

In addition to federal forgiveness programs, there are also hundreds of programs offered through states, schools, and other organizations.

Refinancing Your Student Loans

When you refinance your student loans, you take out a brand new loan from a private lender, who will review your credit history and other financial factors to determine how much they will lend to you and at what rate. You then use those funds to pay off your existing loan(s).

With a solid financial picture and credit history, you could qualify for a lower interest rate. This could result in lower monthly payments, as well as reducing the amount of money you spend in interest over the life of the loan (depending on the loan term, of course).

You could also lower your monthly payments by extending the length of the loan term. This results in paying more money in interest over the life of the loan, but could help free up some cash flow more immediately.

It’s important to note that refinancing federal student loans with a private lender means you’ll permanently lose access to federal loan benefits including income-driven repayment plans, forbearance, and deferment.

To help you decide if refinancing is a good idea, take a look at SoFi’s student loan payoff calculator to see when you might pay off your current loans. Then compare that with a potential new loan—you may be surprised at how much of a difference refinancing can make. And with more wiggle room in your budget, you could make headway toward student loan repayment and save for a retirement you’ll be able to enjoy.

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



💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Options for Using Your 401(k) to Pay Off Debt

If you decide to pursue using 401(k) funds to pay off student loans despite the many risks and drawbacks, there are a few ways to go about it. First, you’ll need to determine how much you are eligible to withdraw from your 401(k), and what penalties and taxes you would encounter. In most cases, you would be responsible for a 10% penalty and regular income taxes on a withdrawal from your 401(k) prior to age 59 ½.

There are a few exceptions to this rule. For instance, if you were laid off, you may be able to withdraw money penalty-free as long as certain requirements are met.

And depending on the exact terms of your 401(k) plan, you may be able to withdraw the money from your plan without penalty in certain hardship situations—like to cover tuition or medical expenses.

If you already attended college and are trying to use your 401(k) to pay back student loans, that doesn’t qualify for a hardship withdrawal. If you’re not sure what the exact rules of your plan entail, it’s worth contacting your HR representative or the financial firm that handles your company’s 401(k) program.

Again, using money from your 401(k) to pay off debt can be a risky proposition. While on the bright side it would potentially allow you to eliminate your student debt, it also puts your retirement savings at risk. You’ll not only potentially have to pay a penalty and taxes on the withdrawn amount, but you’ll also lose out on years of compounding returns on money you take out.

Still, depending on your circumstances, you might be considering cashing out your entire 401(k). Alternatively, however, you could borrow against your 401(k) by taking out a 401(k) loan. Here’s a bit more info about those two options.

Cashing Out Your 401(k)

Withdrawing money from your 401(k) can seem like a tempting idea when your student loan payments are causing you to stress at the moment and retirement feels like it’s ages away.

But making an early withdrawal comes with penalties. If you withdraw your money prior to the age of 59 ½ you’ll pay a 10% penalty on the amount you withdraw, in addition to regular income tax on the distribution itself. In addition to the taxes and the early withdrawal penalty, money that you withdraw loses valuable time to grow between now and retirement. That is why, as mentioned, simply withdrawing money from a 401(k) very rarely makes sense, when you consider the taxes, penalties, and lost growth.

To reinforce this point, let’s consider a (completely hypothetical) person who earns $68,000 per year and is a single filer, putting them in the 22% income tax bracket. (And remember, this is just an example – there are many other factors that can come into play, but this should give you a high-level glimpse into why withdrawing cash from your 401(k) might not be the best call.)

If this person cashed out $20,000 from their 401(k), they would have to pay a 10% penalty of $2,000 right off the top. Then they’d need to pay federal income taxes at the highest end of their bracket, totaling $4,400. So even though this person took out $20,000 from their account, they actually receive just $13,600. Depending on their state, they might also pay state income taxes, let’s not get bogged down on that right now.

Now let’s assume they used that money to pay off $13,600 in student loans, which have a 5% interest rate and five years left on the loan. In this scenario, they would save roughly $1,798.93 in interest.

So essentially, this person would have incurred $6,400 in penalties and taxes in order to save $1,798.93 in interest. Plus, had they let that money stay invested in their 401(k) over the next five years, that $20,000 could have grown to more than $28,000, assuming a 7% average return. That’s why cashing out a 401(k) to pay off student loan debt might not be a great idea.

Borrowing from Your 401(k)

When you borrow money from your own 401(k), you are really borrowing from yourself. You are accessing your retirement funds and then paying them back, with interest, in an attempt to replenish your savings. So these loans don’t require a formal application or credit check.

Not all companies offer 401(k) loans, so it’s important to check with your employer to confirm if the option is available to you. (And for the record, you can’t take out a loan from an employer-sponsored 401(k) if you’re no longer with that employer.)

In addition to the rules determined by your employer, the IRS sets limits on 401(k) loans as well. The current maximum loan amount as determined by the IRS is 50% of your vested balance
or $50,000, whichever is less. If you have a balance of less than $10,000, you may be able to borrow up to $10,000.

The IRS also requires that the money borrowed from your 401(k) be paid back within five years based on a payment plan that is established when you borrow the money. There is an exception; if you buy a house with the money you withdraw, you may be able to extend the repayment plan.

If you don’t pay the loan back according to the terms, it’s considered defaulted and the balance may be treated as a distribution instead. That means you’d owe penalties and taxes on that amount for that year.

Note that if you change jobs, your 401(k) plan will roll over, but not your loan. If you leave your employer with an unpaid 401(k) balance, you’ll face an accelerated payment plan.

Interest rates are usually set by your plan administrator, and are relatively low compared to other financing options. It could be a viable option for those interested in securing a lower interest rate for their debt, but don’t qualify for student loan refinancing due to their credit history or other factors.

A 401(k) loan typically offers a relatively low interest rate and doesn’t require a credit check.

You may want to crunch some numbers and compare the interest rates on your student loans with the interest rate on a 401(k) loan before you commit to this course of action.

If your student loan interest rate is lower than the potential interest rate on your 401(k) loan, it could make sense to keep your retirement savings intact.

The other factor to consider is the missed growth on the money you borrow from your 401(k), which is why 401(k) loans could make more sense for high-interest debt such as personal loans or credit cards, but are typically less ideal for low-interest debt such as student loans or mortgages.

Hardship Withdrawals

While a hardship withdrawal won’t be an option if you are looking to pay off your student loans, it could be worth considering if you are planning on attending graduate school or are assisting a family member with their college education.

To qualify for a hardship withdrawal, you must meet certain criteria. You must prove your need is immediate and heavy. Tuition for the school year usually qualifies as immediate.

Student loan repayment wouldn’t qualify because they provide a repayment plan over a set period of time. You must also prove the expense is heavy. Usually, that means things like college tuition, a down payment on a primary residence, or a qualifying medical expense that is 10% or more of your adjusted gross income.

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 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 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.


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.

SOSL0923041

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ 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.

©2025 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender