SpendPar Archives

Nov

2025

In the Money (ITM) vs Out of the Money (OTM) Options

In the Money vs Out of the Money Options: Main Differences

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Does “In the Money” Mean?
What Does “Out of the Money” Mean?
What’s the Difference Between In the Money and Out of the Money?
Should I Buy ITM or OTM Options?
Frequently Asked Questions

In options trading, knowing the difference between being “in the money” (ITM) and “out of the money” (OTM) allows the holder of a contract to know whether they might realize a profit from their option. The terms refer to the relationship between the option contract’s strike price and the market value of the underlying asset.

“In the money” refers to options that may be profitable if exercised today, while “out of the money” refers to those that lack intrinsic value. In the rare case that the market price of an underlying security reaches the strike price of an option exactly at the time of expiry, this is considered an “at the money option.”

Key Points

• Understanding the difference between “in the money” and “out of the money” options can help options traders gauge potential profitability.

• Options classified as “in the money” have intrinsic value and may be profitable if exercised, while “out of the money” options lack intrinsic value and may expire worthless.

• The potential for profit from options largely depends on the relationship between the strike price and the current market price of the underlying asset.

• Options based on assets with higher volatility are often written “out of the money,” which can appeal to speculators due to their typically lower premiums and the potential for larger price swings.

• Decisions to buy “in the money” or “out of the money” options should align with an investor’s goals, risk tolerance, and outlook for the underlying asset’s future performance.

What Does “In the Money” Mean?

In the money (ITM) describes a contract that may result in a profit if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.

A call option would be in the money if the strike price is lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and potentially sell it for a profit.

Put options, which are a way to speculate on a decline of a stock (known as shorting a stock), would be in the money if the strike price is higher than the current market price of the underlying security. A contract of this nature allows the holder to sell the security at a higher price than it currently trades for and potentially profit from the difference.

In either case, an in the money contract has intrinsic value, so the options trader may choose to exercise the option to profit from it, assuming the gains exceed the premiums paid to purchase the contract.

Example of In the Money

For example, say an options trader owns a call option with a strike price of $15 on a stock currently trading at $17 per share. This option would be in the money because its owner could exercise the option to realize a profit. The contract gives the holder the right to buy 100 shares of the stock at $15, even though the market price is currently $17.

The contract holder could take shares acquired through the contract for a total of $1,500 and potentially sell them for $1,700, hypothetically realizing a profit of $200 minus the premium paid for the contract and any associated trading fees or commissions.

While call options give the holder the right to buy a security, put options give holders the right to sell. For example, say an investor owns a put option with a strike price of $10 on a stock that is trading at $8 per share. This would be an in the money option. The holder could sell 100 shares of stock at a price of $10 for a total of $1,000, even though those shares are only worth $800 shares on the market. The contract holder would then realize that difference of $200 as profit, minus the premium and any fees.

What Does “Out of the Money” Mean?

Out of the money (OTM) is the opposite of being in the money. OTM contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract expires worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities is the opposite of in the money options: they have no intrinsic value but may still carry time value before expiration.

For calls, an option with a strike price higher than the current price of the underlying security would be out of the money. Exercising such an option through a brokerage (or online brokerage) would result in an investor buying a security for a price higher than its current market value.

For puts, an option with a strike price lower than the current price of its security would be out of the money. Exercising such an option would cause an investor to sell a security at a price lower than its current market value.

In either case, the contracts are out of the money because they don’t have intrinsic value – anyone exercising those contracts could incur a loss.

Example of Out of the Money

Say an investor buys a call option with a strike price of $15 on a stock currently trading at $13. This option would be out of the money. An investor might buy an option like this in the hopes that the stock may rise above the strike price before expiration, in which case a profit may be realized.

Another example would be an investor buying a put option with a strike price of $7 on a stock currently trading at $10. This would also be an out of the money option. An investor might buy this kind of option with the belief that the stock may fall below the strike price before expiration.

What’s the Difference Between In the Money and Out of the Money?

The premium of an options contract involves two different factors: intrinsic value and extrinsic value. Options that have intrinsic value at the time they are written have a strike price that is favorable relative to the current market price. In other words, such options are already in the money when written.

But not all options are written ITM. Those without intrinsic value rely instead on their extrinsic value. This value comes from speculative bets that investors make over a period of time. For this reason, options contracts based on assets with higher volatility are often written out of the money, as investors anticipate there may be bigger price swings. Lower options premiums could make these contracts appealing, despite possible lower probabilities of profit. Conversely, assets considered to be less volatile often have their options written in the money.

Options written out of the money may appeal to speculators because their contracts may come with lower premiums and offer a high potential payoff relative to cost, despite a lower chance of expiring in the money.

Should I Buy ITM or OTM Options?

The answer to this question depends on an investor’s goals and risk tolerance. Options that are further out of the money may offer higher potential rewards but can come with greater risk, uncertainty, and volatility. Whether an option is in or out of the money (and the extent that it’s out of the money), can impact the premium for that option, as can the amount of time before expiry and its level of implied volatility.

Whether to buy ITM or OTM options also depends on how confident an investor feels about the future of the underlying asset. If a trader believes that a particular stock may trade at a much higher price three months from now, then they might not hesitate to buy a call option with a very high strike price, which would be both deeply out of the money and likely lower cost.

Conversely, if an investor thinks a stock may decline in value, they might buy a put option with a very low strike price, which would also make the option out of the money and lower cost.

Beginning options traders and those with lower risk tolerance may prefer buying options that are only somewhat out of the money or those that are in the money. These options often have lower premiums than in-the-money contracts, and cost more than deeply out-of-the-money options, striking a balance between affordability and probability. There are also generally greater odds that the contract might end up in the money before expiration, as it requires a less dramatic move to make that happen.

Investors can also choose to combine multiple options legs into a spread strategy that attempts to take advantage of both possibilities.

Recommended: 10 Important Options Trading Strategies

Test your understanding of what you just read.

The Takeaway

In options trading, “in the money” refers to options that offer profit potential if exercised immediately (having extrinsic value), while “out of the money” refers to those that don’t (lacking intrinsic value). Options contracts don’t necessarily have to be exercised for a trader to realize a profit from them. Sometimes investors buy out-of-the-money contracts with the intent of selling them on the open market for a profit if they move into the money before expiration. Though, of course, they risk losing the premium paid if the option remains out of the money and expires worthless.

In either case, it’s important to consider if an option is in the money or out of the money when buying or writing options contracts, as well as when deciding when to execute them. Options trading is an advanced investing strategy, and investors may benefit from understanding the risks before participating or consulting a financial professional for guidance.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

Frequently Asked Questions

What is the difference between in the money and out of the money?

ITM options have intrinsic value because the strike price is favorable relative to the market price. OTM options have no intrinsic value and would not be profitable if exercised immediately. ITM options generally cost more, while OTM options tend to have lower premiums and rely on the price of the underlying asset moving in a favorable direction before expiration.

What is the difference between ITM and OTM options?

ITM options can be exercised at a price that’s better than the current market value, giving them intrinsic value. OTM options have strike prices that are not favorable relative to the market price and therefore have no intrinsic value. ITM options are more expensive but carry a higher probability of expiring with value, while OTM options are cheaper but more speculative.

What is the difference between an out-of-the-money and in-the-money put?

An ITM put has a strike price above the current market price of the underlying asset, which gives it intrinsic value. An OTM put has a strike price below the current market price, so it cannot currently be exercised for a profit. The difference lies in whether the put option would generate value if exercised immediately.

How can you tell if an option is in or out of the money?

Check the relationship between the option’s strike price and the current market price of the underlying asset. A call is in the money when the strike price is below the market price; it’s out of the money when the strike is above. For puts, it’s the opposite: the option is in the money when the strike is above the market price and out of the money when it’s below.

Photo credit: iStock/damircudic

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

SOIN-Q325-031

Nov

2025

What Is Supplemental Life Insurance?

By Kelly Boyer Sagert | Budgeting & Goals, Family Finances, Insurance | Comments Off

Table of Contents

Understanding Supplemental Life Insurance
Do You Need Supplemental Life Insurance?
How Much Supplemental Life Insurance Should You Buy?
Types of Supplemental Life Insurance
How Much Coverage Can You Get Through Work?
How Much Does Supplemental Life Insurance Cost?

Supplemental life insurance is typically an additional policy that you can purchase to augment the group life insurance policy obtained via your employer.

These policies can provide extra peace of mind when it comes to protecting your loved ones, but is more insurance always better? You may wonder whether purchasing this kind of policy is a good idea or not worth the added expense. Let’s take a closer look to see whether supplemental life insurance makes sense for your situation.

Key Points

• Supplemental life insurance enhances existing coverage, typically from an employer.

• Policies offer a lump-sum death benefit or cover specific expenses.

• Health and age impact the premiums for supplemental life insurance.

• Compare rates to find the most affordable option.

• Check if the policy is portable and meets total coverage needs.

Understanding Supplemental Life Insurance

Supplemental life insurance is a policy taken out in addition to basic coverage, which might be term or permanent life insurance. You can often purchase a supplemental policy through an employer to augment what they offer as an employee benefit. However, these policies don’t have to be secured through your job. We’ll learn more about that in a minute.

Some of these policies come with a death benefit, a lump sum payment that goes to the beneficiaries you’ve named (the loved ones who will inherit the money). Others may be a different kind of policy; say, one that pays funds that are earmarked to pay for funeral expenses. Depending on the details of your life, these add-ons may be an inexpensive way to boost your protection and sense of security.

💡 Quick Tip: With life insurance, one size does not fit all. Policies can and should be tailored to fit your specific needs.

Life Insurance, Made Easy.

Apply in minutes with a simple online application. No medical tests are required for many eligible applicants.*

Do You Need Supplemental Life Insurance?

Deciding whether or not to buy a supplemental policy is a very personal decision. To help figure out the right answer for your situation, it may help to ask yourself and answer a few questions. Let’s consider some of those here.

Does Your Employer Provide Life Insurance?

Because supplemental insurance is meant to enhance the life insurance policies you already have, check to see if your employer offers basic life insurance as a benefit. If so, how much? Many times, employers offering this insurance will provide a multiple of the employee’s current salary. Other times, it’s significantly less — $10,000 to $25,000 worth of coverage is common. Those are figures that many people will find too low to provide the kind of protection they’d like.

If you feel you don’t have enough protection, you may want to look for ways to boost your coverage so that in a worst-case scenario, you know your loved ones will have enough money to cover their expenses. Perhaps your employer offers supplemental policies that will get you to the level of life insurance coverage that you desire. Otherwise, you can also look on the open market for primary or supplemental policies.

Have Your Compared Life Insurance Rates?

If you haven’t compared prices of life insurance rates in a while (or ever), you might want to give it a try. Just because an employer offers life insurance, including supplemental coverage, you may not want to buy it. You may discover that you can get enough life insurance through a standard policy without adding a supplemental one.

You can quickly get quotes by calling an insurance agent or, to save even more time, from a website that provides them from multiple companies. When looking at the quote that gives you the best coverage for the most affordable premiums, would you still need a supplemental policy? The answer may be no. There’s a good deal of competition in the marketplace and great deals to be found.

Recommended: How to Buy Life Insurance in 9 Steps

How Is Your Health?

First, let’s understand that your health rating is a key factor in buying life insurance on the open market. Rates tend to be lower when you are healthier and younger. Health is typically assessed by the insurer asking you questions about your medical status and possibly having you submit to a brief health exam that involves the collection of blood and urine samples.

While plenty of life insurance policies require health exams and/or medical records, many insurers also offer lab-free options that don’t require medical exams (although you’ll almost certainly need to answer health-related questions). These are often the kind employers offer employees. Typically, these policies are for people who fit into certain age groups and other categories in which they’re likely to be healthy. These lab-free policies are often available for up to $1 million.

Now that you know how this works, understand the implications of your health status. If you have an underlying health condition, are a smoker, or have other qualifying factors, you would probably pay more for life insurance if you went shopping on the open market. In these cases, buying a supplemental policy through your job could be a good way to get coverage at a relatively low cost.

Do You Need Portable Coverage?

Before you sign up for a supplemental policy, consider whether it’s portable. “Portability” is your ability to keep certain benefits if you switch your place of employment or leave the workforce entirely — in this case, your life insurance. If you’re thinking about changing jobs or have reason to believe that you may not work at your current employer for much longer, it’s important to know if your life insurance is portable.

How Much Supplemental Life Insurance Should You Buy?

A common recommendation is to carry 10 to 15 times your annual income in life insurance coverage. Your goal is to choose a policy that would replace the income you would have brought in if you weren’t around to provide for your family. So, if you multiply your salary by those numbers and then subtract what you have in your “regular” life insurance policy, that can be a starting point to determine how much supplemental insurance makes sense.

If you make $50,000 a year and multiply by 10 or 12, that’s $500,000 to $600,000 in coverage you want to purchase. (You might want to bump it up a bit to account for inflation.) So, if you have a term life insurance policy for $500,000, you might decide to get a supplemental policy for $200,000.

Now, factor in your outstanding debt. Life insurance payouts can be used to pay them off, including mortgage loans, car loans, student loans, credit cards, and so forth. So, if you have these debts, you can add their outstanding balances up and consider adding those amounts to your life insurance needs. If, for example, these debts total $300,000, you might bump up the supplement policy example above to $500,000.

Recommended: Life Insurance Definitions

Types of Supplemental Life Insurance

We’ve been focusing on one kind of supplemental insurance, a popular option that lets you increase the overall life insurance coverage you own. This kind of policy would pay a lump-sum death benefit to your beneficiaries. If you purchase this, it’s an employee benefit that can increase the amount of coverage that you own (although you may be responsible for part of all of those premiums albeit at a group rate).

But let’s consider some other possibilities that may be offered:

• Supplemental spouse life insurance. This kind of insurance provides a death benefit if the employee’s spouse dies and may also be called supplemental family life insurance. Employees may also have the option to buy supplemental child life insurance to cover the death of a child or other dependent who qualifies.

• Accidental death and dismemberment (AD&D). This provides coverage to your beneficiaries if you are killed or lose physical function in a type of accident that’s covered in the policy. Depending on the kind of work you do or the pastimes you pursue, this may or may not suit your needs. With AD&D insurance, you could receive a benefit, say, if you were to lose your eyesight, your hearing, or limb in an accident. But it won’t provide any benefit if you die due to other medical conditions, which are more likely to occur.

• Final expenses. These policies pay a small benefit (typically between $5,000 and $35,000) to cover end-of-life expenses, such as funeral and burial costs. Some people like to have this kind of coverage, which means your loved ones wouldn’t have to pay out of pocket for these charges.

How Much Coverage Can You Get Through Work?

It’s worthwhile to evaluate what life insurance options are available through your work. Employers may offer lower rates since they get a group insurance rate. Also, it’s also possible that your employer would pay part of your premiums. It’s typically easier to get insured through a group plan. While you may need to answer medical questions, it’s less likely that you’ll need a medical exam for group insurance.

Group plans through your employer, though, are usually not portable. This means that if you leave that employer, the coverage ends and then you’ll need to shop around again — now at an older (although not necessarily old) age and perhaps with new health conditions. Plus, these plans aren’t as customizable as you might get on your own.

How Much Does Supplemental Life Insurance Cost?

If your employer offers this benefit as part of a group policy, the cost may be minimal, especially if the workplace subsidizes the premiums.

Otherwise, it can make sense to get personalized quotes, given that age, gender, health conditions, amount of the policy, term, and more can impact the price. There are online calculators that can help you do the math and see how the numbers add up.

The Takeaway

To recap: What is supplemental life insurance? It’s a policy that enhances a person’s primary life insurance policy. It helps to ensure that they have enough financial benefit to protect their loved ones if they weren’t there to provide for them.

While supplemental policies through your employer can be affordable, they may not deliver the level of coverage you need. Take a close look at your options, and take advantage of the simple online tools that can help you find the kind of policy you need at the right price.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

Explore your life insurance options with SoFi Protect.

Photo credit: iStock/Kemal Yildirim

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOPRO-Q425-020

Nov

2025

A mother and daughter sitting together looking at a calculator and jotting down notes about Parent PLUS loan repayment options.

Understanding Parent Plus Loan Forgiveness

By LeeMarie Kennedy | Fresh Out of School, Going to College, Student Loans, student_loan | Comments Off

Table of Contents

Are Parent Plus Loans Eligible for Student Loan Forgiveness?
Parent Student Loan Forgiveness Program
Alternatives to Parent Plus Student Loan Forgiveness
Explore Private Student Loan Options for Parents
The Takeaway
FAQ

Parent PLUS loan forgiveness provides financial relief to parents who borrowed money to cover the cost of their children’s college or career school. It isn’t always a quick fix, but there are certain federal and private programs that might offer the financial forgiveness needed.

Keep reading to learn more about the available student loan forgiveness possibilities for Parent PLUS loans.

Key Points

• Parent PLUS loans may be eligible for forgiveness through programs such as Total and Permanent Disability Discharge (TPD), the Income-Contingent Repayment (ICR) Plan, and Public Service Loan Forgiveness (PSLF).

• The ICR plan is currently available to Parent PLUS borrowers after Direct loan consolidation.

• PSLF requires 120 qualifying payments and employment of the borrower (the parent, not the child) in a qualifying public service job.

• TPD discharge applies if the parent, not the student, has a disability.

• Parent PLUS loans cannot be directly transferred to the student, but the student could refinance the loan in their own name and assume the financial obligation for it.

Are Parent Plus Loans Eligible for Student Loan Forgiveness?

Parent PLUS loans are eligible for several of the same student loan forgiveness programs as federal student loans for students, including:

• Borrower Defense Loan Discharge

• Total and Permanent Disability (TPD) Discharge

• Public Service Loan Forgiveness (PSLF)

That said, Parent PLUS loans generally have fewer repayment and forgiveness options. Parent PLUS loans do not directly qualify for most income-driven plans. And guidelines are strict for the programs that parent loans are eligible for.

Refinancing Parent PLUS loans is another option for borrowers. With refinancing, you apply for a new loan from a private lender that ideally has a lower interest rate.

It’s important to note that refinancing a PLUS loan will eliminate it from any federal repayment plans and benefits.

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

Parent Student Loan Forgiveness Program

As mentioned above, a Parent PLUS loan may be eligible for parent student loan forgiveness through the Public Service Loan Forgiveness program. To qualify, the loan must be repaid under the Income-Contingent Repayment Plan (ICR). Other forgiveness options may also be available through a borrower’s state or in certain situations as outlined below.

Income-Contingent Repayment (ICR)

An Income-Contingent Repayment plan is the only income-driven repayment plan that’s currently available for Parent PLUS borrowers. In order to qualify, parent borrowers must first consolidate their loans into a Direct Consolidation Loan, then repay that loan under the ICR plan. Bear in mind:

Bear in mind:

• A Parent PLUS loan that’s included in a Direct Consolidation Loan could be eligible for Income-Contingent Repayment.

• A Parent PLUS loan that’s included in the Federal Direct Loan Program or the Federal Family Education Loan Program (FFELP) is also eligible for ICR if it’s included in the Federal Direct Consolidation Loan.

It’s important to be aware that as of July 1, 2026, the ICR plan will be changing, as a result of the big U.S. domestic policy bill that was passed in the summer of 2025. Parent PLUS loan holders must consolidate their loans before July 1, 2026 and enroll in ICR. Any Parent PLUS loans consolidated after that date will not be eligible for ICR.

The ICR plan is an income-driven repayment plan. Monthly payments are the lesser of what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income, or 20% of your discretionary income. After a payment period of 25 years, any remaining loan balance will be forgiven.

Typically, the IRS considers canceled debt a form of taxable income, but the American Rescue Plan Act of 2021 made student loan forgiveness tax-free through 2025 on federal returns. Some states tax student loan forgiveness amounts; you can consult with a tax professional about your situation.

Public Service Loan Forgiveness (PSLF)

Qualified borrowers with Parent PLUS loans may be eligible for the Public Service Loan Forgiveness Program. In order to pursue that option, they must first consolidate the Parent PLUS loan into a Direct Consolidation Loan.

Then, after they’ve made 120 qualifying payments, borrowers may become eligible for the PSLF. The parent borrower (not the student) must be employed full-time in a qualifying public service job. PSLF also has strict requirements such as certifying employment, so it’s important to follow instructions closely if pursuing this option.

Student Loan Forgiveness for Death of Parent

Federal student loans qualify for loan “discharge” when the borrower dies. In the case of Parent PLUS loans, they are also discharged if the student who received the borrowed funds dies.

In order to qualify for federal student loan discharge due to death, borrowers must provide a copy of a death certificate to either the U.S. Department of Education or the loan servicer.

Some, but not all, private lenders discharge student loans after the student or loan holder dies.

Recommended: Can Student Loans Be Discharged?

State Parent PLUS Student Loan Forgiveness Programs

Many individual states offer some sort of student loan repayment assistance or student loan forgiveness programs for Parent PLUS loan borrowers.

For an overview of options available in different states, you can take a look at SoFi’s student loan forgiveness guide.

Disability

In the event of the borrower becoming totally and permanently disabled, a Parent PLUS loan may be discharged. To qualify for a Total and Permanent Disability (TPD) discharge, borrowers must complete and submit a TPD discharge application, as well as documentation showing that they meet the requirements for being considered totally and permanently disabled.

Note that in order to qualify for TPD, the parent borrower must be considered disabled. This type of forgiveness does not apply to Parent PLUS loans in the event that the student becomes disabled.

Bankruptcy

If a borrower can demonstrate that repaying a Parent PLUS loan would be an undue financial hardship on them, they might be able to have the loan discharged in bankruptcy. However, the process is complicated. First, the borrower must file an action known as an “adversarial proceeding.” They must also file for bankruptcy and show the bankruptcy court that undue hardship would be the result if they paid the loan.

Having student loans discharged in bankruptcy is challenging. Proving undue hardship varies depending on the court that’s granting it, but many rulings look at these criteria these criteria in order to discharge the student loan:

• Maintaining a minimal standard of living for the borrower and their dependents is deemed impossible if they’re forced to repay their student loans.

• The borrower’s current financial situation will likely continue for the majority of the repayment period.

• The borrower has made a “good faith” effort to repay their student loans.

Closed School Discharge

For parent borrowers whose children attended a school that closed while they were enrolled or who withdrew from the school within 180 days before its closure, a Closed School Discharge is another available form of student loan forgiveness that may be an option.

If you meet the eligibility requirements for a discharge of loans you obtained for your child to attend a school that closed, your loan holder will automatically send you an application you can submit to your loan servicer.

Or you can contact your loan servicer for an application.

Borrower Defense

Borrower Defense Loan Discharge is potentially available to Parent PLUS borrowers whose children were misled by their college or university or whose college or university engaged in certain forms of misconduct or violation of state laws.

To make a case for borrower defense, the Parent PLUS borrower must submit a “materially complete” application that contains such information as what the school’s misconduct consisted of and when it occurred, how the misconduct affected your child’s decision to attend the school or your decision to take out the Parent PLUS loan, and a description of the harm experienced because of the misconduct.

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

Alternatives to Parent Plus Student Loan Forgiveness

When it comes to Parent PLUS loans, there are a few ways to get out of student loan debt, including the scenarios outlined below.

Refinance Parent Plus Loans

Refinancing a Parent PLUS loan is another option that could provide some financial relief. However, in doing so, you’ll lose the government benefits associated with your federal loans, as briefly mentioned above, such as:

• Forbearance options or options to defer your student loans

• Income-driven repayment options

• Student loan forgiveness

Refinancing a Parent PLUS loan into your child’s name is another option, which some borrowers opt for once their child has graduated and started working. Some private lenders offer this type of refinancing option to those who qualify, but not all do.

Transfer Parent Plus Student Loan to Student

Transferring Parent PLUS loans to a student can be complicated. There isn’t a federal loan program available that will conduct this exchange, and, as mentioned above, some private lenders don’t offer this option.

However, other private lenders, like SoFi, allow qualifying dependents to take out a refinanced student loan, which pays off the PLUS loan of their parent.

Explore Private Student Loan Options for Parents

Banks, credit unions, and online lenders typically offer private student loans for parents who want to help their children pay for college as well as refinancing options for parents and students.

Refinancing options will vary by lenders and some may be willing to refinance a Parent PLUS loan into a private refinanced loan in the student’s name. In addition to competitive interest rates and flexible terms, SoFi does allow students that qualify to take over their parent’s loan during the refinancing process. Interest rates and terms may vary based on individual criteria such as income, credit score, and history.

The Takeaway

Parent PLUS Loan forgiveness offers financial relief to parents who borrowed money to help their child pay for college. To receive federal relief for Parent PLUS loans, parent borrowers have options such as enrolling in the Income-Contingent Repayment plan, pursuing Public Service Loan Forgiveness, taking advantage of a state Parent PLUS student loan forgiveness program, or opting for student loan refinancing.

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

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

FAQ

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

If you can’t pay your Parent PLUS loans, you have a few options. You may be able to qualify for Public Service Loan Forgiveness (you’ll need to consolidate the loans first); refinance the loans, which may lower your monthly payments; or consolidate them and repay them through the Income-Contingent Repayment Plan. You can also check to see if your state offers forgiveness programs for Parent PLUS loan borrowers.

Can I transfer my Parent PLUS loans to my child?

You cannot directly transfer your Parent PLUS loans to your child. However, some private lenders may allow you to do something similar through refinancing. Here’s how it works: As long as they meet the eligibility requirements, your child refinances the loan in their name, which pays off the original loan and transfers all financial responsibility to them. Just be aware that refinancing federal student loans makes them ineligible for federal benefits and protections.

Can a Parent PLUS loan be discharged due to disability?

Yes, a Parent PLUS loan may be discharged due to disability if the parent borrower (not the student) becomes totally and permanently disabled. This is called a Total and Permanent Disability (TPD) Discharge, and to qualify, the parent must submit a TPD discharge application along with the appropriate documentation showing they meet the requirements.

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

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

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

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.

Photo credit: iStock/DragonImages
SOSLR-Q425-002

Oct

2025

A mother with glasses researches 529s on a laptop, smiling with her young son leaning on her shoulder.

Tips for Avoiding the 529 Withdrawal Penalty

By LeeMarie Kennedy | Student Loans, student_loan | Comments Off

Table of Contents

What Is a 529 Plan?
What Is a 529 Early Withdrawal Penalty?
Can I Make a Withdrawal From 529 Without Penalty?
What if My Child Doesn’t Go to College?
Other College Financing Options
FAQ

A 529 college savings plan is one of the best tools for funding education, but using the money incorrectly can lead to unexpected taxes and penalties. Whether you’re paying for tuition, books, or other college-related expenses, it’s important to understand how withdrawals work. Making even a small mistake — like using the funds on ineligible expenses or exceeding spending limits — can reduce your savings. Here are key tips to help you avoid 529 withdrawal penalties and make the most of your education funds.

Key Points

• A 529 plan offers tax advantages for saving for college, but using funds for nonqualified expenses can result in penalties.

• Qualified education expenses include tuition, fees, room/board, books, supplies, computers, internet, and K-12 tuition.

• Nonqualified expenses include travel, extracurriculars, and health insurance.

• The 10% penalty may be waived in certain situations, such if the beneficiary receives a scholarship.

• If your child doesn’t attend college, you can change the beneficiary, use the funds for trade school, or roll funds into a Roth IRA.

What Is a 529 Plan?

A 529 plan offers a tax-advantaged way to save for a child’s future college expenses. You can make contributions to the 529 account, which can then be invested in a variety of assets (such as stocks, bonds, or mutual funds), and any earnings grow tax-free. You can make withdrawals from a 529 federal income tax-free if the funds are used for qualified education expenses.

If you withdraw money from a 529 and spend it on nonqualified expenses, you’ll pay ordinary income tax on any earnings, plus a 10% penalty. There are some exceptions — such as no penalty if your student receives a scholarship and you withdraw up to that amount from the 529, though you’ll still need to pay tax on the earnings.

💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

What Are Qualified 529 Plan Distributions?

Education expenses that are considered qualified within a 529 plan include:

• College tuition and fees

• Room and board (not to exceed the allowance for room and board included in the school’s cost of attendance)

• Books and supplies

• Computers and internet

• K-12 tuition and expenses (up to $10,000 in per year, increasing to $20,000 per year starting on January 1, 2026)

• Student loan payments (up to $10,000 per beneficiary)

• Apprenticeship programs registered with the U.S. Department of Labor

What Are Nonqualified 529 Plan Distributions?

Some expenses you’ll encounter when your child goes to college, however, are considered nonqualified distributions. Withdrawing funds from your 529 to cover these expenses can trigger taxes and penalties:

• Transportation costs

• Sports expenses or monthly gym dues

• Electronics and smart phones

• Health insurance costs

• Off-campus room and board in excess of what the school housing would cost

• Costs associated with extracurricular activities

• Fratnerity/sorority dues

Are Distributions Taxable?

Qualified withdrawals are federal income tax-free (and in some states, state income tax-free) as long as your total withdrawals for the year don’t exceed your child’s higher education expenses.

If distributions are used to cover nonqualified expenses (such as travel to and from college or entertainment expenses), any part of the distribution that is made up of earnings on contributions will be taxed as ordinary income and could also incur a 10% federal penalty.

What Is a 529 Early Withdrawal Penalty?

A 529 withdrawal penalty is an additional 10% federal tax imposed on the earnings portion of a withdrawal from a 529 plan if the funds are used for nonqualified educational expenses. This penalty is levied on top of standard income tax, which is also applied to the earnings. The original contributions to the 529 are made with after-tax dollars and are not subject to the penalty or income tax upon withdrawal.

Keep in mind, however, that there’s no early 529 withdrawal penalty like with retirement accounts. Funds can be withdrawn at any time penalty-free, provided they are used for qualified education expenses. They can also remain in the account indefinitely if not immediately needed, continuing to grow tax-deferred.

Can I Make a Withdrawal From 529 Without Penalty?

Yes, you can make a withdrawal from a 529 without penalty so long as you use the funds for qualified education expenses. In addition, the 10% penalty may be waived in certain situations.

529 Withdrawal Penalty Exceptions

Here are some scenarios where the 10% penalty won’t apply (though taxes still will):

• The beneficiary dies or becomes disabled.

• The beneficiary attends a United States military academy

• The qualified education expenses were only taxed because the student or parents claimed the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC).

• The beneficiary received nontaxable educational assistance, including college scholarships, fellowship grants, veterans’ educational assistance, and employer-provided educational assistance.

What if My Child Doesn’t Go to College?

If you’ve been saving for a child’s college education and they decide not to go to college, there are some other ways you use your 529 funds that won’t trigger taxes and penalties. Here are some options to consider:

Change the Beneficiary

When you open a 529 plan, you designate a beneficiary, which is the person whose education you’re saving for. However, that name isn’t set in stone — you can change the beneficiary at any time.

If the child you’re investing for decides not to go to college (or gets a significant scholarship), you can change the beneficiary to a younger child, yourself, or even a future grandchild. Alternatively, you can also simply leave the account, let it grow, and change the beneficiary at a later date.

Trade School or Apprenticeships

If your child decides they want to attend a trade school or apprenticeship program rather than go to a traditional college, you can use 529 funds to cover those costs (without paying any taxes or penalties), provided the institution participates in federal student aid programs or is registered with the Department of Labor.

Repay Student Loans

As a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, 529 plan holders can make penalty-free withdrawals to pay off student loan debt (both federal and private) for the designated beneficiary, up to a lifetime maximum of $10,000 per person. You can also change the beneficiary multiple times to help pay down student debt for more than one family member.

Roll the Funds to a Roth IRA

Thanks to SECURE 2.0, passed at the end of 2022, you can make tax- and penalty-free rollovers to a Roth IRA, giving your beneficiary’s retirement savings a substantial head start. However, there are some conditions and limitations to keep in mind:

• The 529 must have been open for at least 15 years.

• Contributions made within the last five years aren’t eligible.

• There is a $35,000 lifetime limit per beneficiary.

• Rollover amounts are subject to annual Roth IRA contribution limits.

• The Roth IRA must be in the beneficiary’s name

Other College Financing Options

If you don’t have enough funds in your 529 to fully pay for a child’s college education, there are still many ways to cover the costs. Here are some to explore:

• Maximize financial aid: The first step is for the student to complete the Free Application for Federal Student Aid (FAFSA®) every year they are in school. The FAFSA determines eligibility for grants, work-study programs, and federal loans. Many schools also use FAFSA data to award their own institutional aid.

• Research scholarships: Many private organizations, nonprofits, and community groups offer college scholarships. They may be awarded based on merit (such as academic, athletic, or artistic abilities) or financial need. Have your child search local community groups and online databases for various scholarship opportunities.

• Borrow wisely: Federal student loans are often the best option for borrowing, as they typically offer lower interest rates and more flexible repayment options than private loans. If additional funding is needed, private student loans are an option, but your student may need a cosigner to get approved or secure a better interest rate.

💡 Quick Tip: Parents and sponsors with strong credit and income may find more-competitive rates on no-fees-required private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

The Takeaway

A 529 plan can be an excellent way to save for college, offering tax advantages for qualified educational expenses. However, it’s important to understand what constitutes a qualified withdrawal to avoid penalties and taxes on the earnings. If your child’s plans change, options like changing the beneficiary, using funds for trade schools or apprenticeships, and repaying student loans can help you utilize your savings without incurring penalties. By being aware of the rules and exceptions, you can maximize the benefits of your 529 plan and use your educational savings effectively.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How do I withdraw from a 529 without paying a penalty?

You can withdraw from a 529 plan without paying a penalty by using the funds for qualified education expenses. These include tuition, fees, room and board (up to the school’s allowance), books, supplies, computers, internet, and K-12 tuition.

The 10% federal penalty may also be waived in specific situations, such as the death or disability of the beneficiary, attendance at a U.S. military academy, or if the beneficiary received nontaxable educational assistance, such as scholarships or fellowship grants, and you withdraw up to that amount. In these cases, however, you may still owe ordinary income tax on the earnings portion of the withdrawal.

What is the 529 loophole?

The “529 loophole” typically refers to the “grandparent loophole.” As a result of changes to the Free Application for Federal Student Aid (FAFSA®) in 2024–2025, studentsno longer need to report distributions from a grandparent-owned 529. As a result, grandparent support won’t impact a student’s eligibility for financial aid. Another popular 529 “loophole” (made possible by the SECURE 2.0 Act) allows unused 529 plan funds to be rolled over into a Roth IRA for the beneficiary, though restrictions and limitations apply.

What are the exceptions to the 529 withdrawal penalty?

The 10% federal penalty for nonqualified 529 withdrawals can be waived in several situations. These include the death or disability of the beneficiary and the beneficiary attending a U.S. military academy. Also, if the beneficiary received nontaxable educational assistance (such as scholarships, grants, or employer-provided educational assistance) and you withdraw up to that amount, the penalty will not apply. However, in these cases, ordinary income tax on the earnings portion of the withdrawal may still be owed.

Photo credit: iStock/FG Trade

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.

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

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

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.

SOISL-Q425-032

Oct

2025

A man in a green shirt and ripped jeans researches student loans at a small table in a bright room.

Are Student Loans Worth It?

By Kayla McCormack | Student Loans, student_loan | No Comments

Table of Contents

College Costs Vary By School
Factoring in Financial Aid
Not All Majors Have the Same Income Potential
How Much Should I Borrow for College?
College Graduates May Have More Financial Stability
Here’s What You Might Consider if You Choose to Take Out Student Loans
FAQ

If you’re thinking about taking out student loans to pay for college, you’re in good company: More than half of college graduates leave school with debt. Like most loans, student loans charge interest, which is the cost of borrowing money from a lender. Whether you take out federal or private student loans, you’ll end up paying back more than your original borrowed.

Is it worth it?

The answer depends on your degree, major, and the type and size of your debt. Read on to learn more about whether the current cost of college is worth it, different ways to pay for school, and when it makes sense to take out student loans.

Key Points

• Whether student loans are worth it depends on your major, career path, and total debt, since some fields offer higher income potential than others.

• College costs vary: public in-state averages ~$27K per year, while private nonprofit schools average ~$58K+.

• A good rule of thumb is to borrow no more than your expected first-year salary to keep repayment manageable.

• Federal loans offer fixed rates and protections like income-driven repayment, while private loans may have higher or variable rates and fewer safeguards.

• Interest accrues and capitalizes on loans, so repayment length and strategy greatly affect total cost.

College Costs Vary By School

It’s no secret that college costs have gone up over the years, causing more students to take on debt as a means to afford a college education. Indeed, student debt has more than doubled over the last two decades. As of August 2025, about 42.5 million U.S. borrowers collectively owed more than $1.8 trillion in federal and private student loans.

But not all schools cost the same amount. In fact, some colleges cost considerably less than others. According to Educationdata.org, the average cost of attendance for a student living on campus at a public four-year in-state college is $27,146 per year. The average cost of attending a private, nonprofit university and living on campus, by contrast, is $58,628 per year.

💡 Quick Tip: You can fund your education with a competitive-rate, no-fees-required private student loan that covers up to 100% of school-certified costs.

Factoring in Financial Aid

Financial aid is another factor that affects the cost of going to college. Some schools may have a high sticker price but offer a variety of need- and merit-based aid options to students, which can lower the actual cost of attendance.

Colleges and universities will frequently publish what percentage of their students receive financial aid and will sometimes also publish the average award amount. This can be helpful information for students applying to colleges.

When deciding where to apply and attend school, keep in mind that even if the sticker price for College A is higher than College B, the financial aid package at College A may make it a more affordable option in the end.

Not All Majors Have the Same Income Potential

Another consideration when evaluating whether borrowing student loans is worth it is to factor in the earning potential based on your selected major, keeping in mind that not all majors offer the same income potential.

For example, students who graduate with degrees in software engineering earn an average starting salary of $104,863. Other majors, such as dance or drama, generally don’t offer the same earning potential to graduates.

It’s a good idea to do some research on the future income potential for the major and field you hope to pursue. This can be helpful in understanding how much you’d realistically stand to earn and, therefore, how long it may take to pay back student loans. Resources like the Payscale College Salary Report or the Bureau of Labor Statistics are two places to start.

How Much Should I Borrow for College?

A general rule of thumb is that students should limit what they borrow to what their potential career will reasonably allow them to repay. As a rough guideline, you may want to avoid borrowing anything more than you will likely be able to earn in your first year out of college.

Keep in mind that just because your financial aid package may include a certain amount in federal student loans, you are not required to borrow the maximum. Consider reviewing other sources of financial aid like private scholarships and grants, which are essentially “free money” for college. It can also be worth setting up an annual budget with anticipated costs for tuition, fees, room and board, and other expenses so you have an idea of how much you may actually want or need to borrow to pay for school.

College Graduates May Have More Financial Stability

In the long term, a college degree can lead to more financial stability. Research suggests that people with bachelor’s degrees have both a higher median income than those without a college degree and earn more over their lifetimes.

Another factor, based on unemployment rates, is that people with a college degree tend to have greater career stability than those without a college degree.

This isn’t always true, however. As some recent studies suggest, certain career paths that don’t require a degree — such as construction inspectors or cardiovascular technicians — also offer significant earning potential.

Here’s What You Might Consider if You Choose to Take Out Student Loans

There are a number of factors to consider when deciding what type of student loan will best suit your particular needs, so it’s important to do your research beforehand.

Things like whether the loan is federal or private, what the current interest rates are, and how long it will take to pay off the loan could all contribute to how much student loan debt you ultimately find yourself in and are important considerations before taking out a loan.

Federal Loans vs Private Loans

There are two main types of student loans — federal loans and private loans. Federal loans are borrowed directly from the government, whereas private loans are borrowed from private lenders like banks, credit unions, and other financial institutions.

While the two loans serve the same purpose, there are some important distinctions. Because federal loans are made by the government directly, the terms and conditions are set by law. These loans also come with certain perks and protections, such as low fixed interest rates and income-driven repayment, that may not be offered with private loans.

Private loans are less standardized, since the terms and conditions are set by the lenders themselves. For example, some may offer higher interest rates than federal loans, and interest rates may be fixed or variable. It’s important to understand the specific terms and conditions set by a private lender. Since private student loans may lack the borrower protections and benefits offered by federal loans, you generally want to tap financial aid and federal student loans first, then consider filling in any gaps with private student loans.

💡 Quick Tip: New to private student loans? Visit the Private Student Loans Glossary to get familiar with key terms you will see during the process.

Understanding Interest Rates

Sometimes people fail to consider the interest rate on the student loan and how it will affect the amount of money they will end up owing.

Interest is calculated as a percentage of the unpaid principal amount (total sum of money borrowed plus any interest that has been capitalized).

Capitalization is when unpaid interest is added to the principal balance of a loan, and interest is calculated using this new, higher amount. You might have interest capitalization if, for example, you decide not to make interest payments on an unsubsidized federal loan or private student loan while you are in school. This unpaid interest will be added to your loan balance and interest will be charged on this new, higher balance.

For all federal student loans, interest rates are set by the government and are fixed, which means they won’t change over the life of the loan. With private student loans, it’s up to the lender to set the rate and terms. Generally, students (or their parent cosigners) who have strong credit qualify for the best rates. If you are interested in borrowing private student loans, it’s a good idea to do some research and shop around so you can find the loan that best meets your needs.

How Long Will it Take to Repay Your Loan?

Paying more money sooner can significantly reduce the amount of time it takes you to pay off a loan (as well as lower the cost). But that may not always be a feasible option. It’s important to consider the implications of different kinds of repayment plans when you take out a loan.

Currently, the standard term to repay a federal student loan is 10 years. But you can also choose an extended repayment plan (that gives you up to 25 years to pay off your loans) and one of several income-driven repayment (IDR) plans, which base your monthly payment amount on how much money you make. For those that take out federal student loans on or after July 1, 2026, there will only be two repayment options: the standard repayment plan and an IDR plan called the Repayment Assistance Plan (or RAP). The standard repayment plan will also change, offering borrowers 10- to 25-year repayment terms depending on the amount borrowed.

When choosing your loan term, keep in mind that a longer repayment term will lead to lower payments but a higher overall cost, since you’ll be paying interest for a longer period of time.

The Takeaway

Student loans can help open up doors to higher education for students, but borrowing responsibly is important. When deciding if student loans are worth it for you — and how much you should borrow — you’ll want to consider multiple factors, including your choice of major, future career path and earning potential, and the cost of the school you hope to attend after factoring in financial aid.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Is it a good idea to take a student loan?

Whether taking out a student loan is a “good” idea depends on your individual circumstances. Student loans can be a valuable tool to pursue higher education, which often leads to increased earning potential and career stability. However, it’s crucial to borrow responsibly. Consider your chosen major’s earning potential, the total cost of your education after financial aid, and your ability to repay the loan. Research different loan types, interest rates, and repayment plans to make an informed decision that aligns with your financial goals.

Is $70,000 in student loans a lot?

Whether $70,000 in student loans is “a lot” depends on your individual circumstances, including your expected income after graduation, your living expenses, and the interest rates and repayment terms of your loans.

For some career paths with high earning potential, $70,000 might be manageable, while for others, it could be a significant burden. It’s generally recommended to keep your total student loan debt below your expected first-year salary to help ensure manageable repayment. You might research the average salaries in your chosen field to determine if this amount of debt is sustainable for you.

How much is a $30,000 student loan per month?

The monthly payment on a $30,000 student loan can vary significantly based on the interest rate and repayment term. For instance, with a 10-year repayment plan and a 5.00% interest rate, your monthly payment would be approximately $318. With a 20-year term and 7.00% interest rate, your monthly payments would be around $232. Keep in mind that longer terms can result in lower monthly payments but more total interest paid.

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

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.

SOISL-Q425-014