Student Loan Deferment vs Forbearance: What’s The Difference?

If you’re struggling to keep up with student loan payments, rest assured you are not alone. In fact, 17% of those with education-related debt were behind on payments in 2019, according to the Federal Reserve .

There are many reasons why you may be having difficulty with your loans. Some students may struggle to find a job after graduation, or some may not earn as much as they anticipated right out of the gate.

When monthly student loan payments become insurmountable, the worst thing to do is nothing at all. When a borrower stops paying their student loans, they may go into default. This has the potential to devastate an individual’s credit score.

In default, borrowers could also face relentless collection agencies or could even have their wages garnished. Plus in most cases, student loans can’t be discharged even if the borrower files for bankruptcy.

But take heart: Those borrowers with federal student loans may have options for pausing or temporarily reducing their monthly payments, if they’ve found themselves in a tough financial spot. Namely, borrowers can apply for either student loan deferment or forbearance from the federal government in order to avoid default.

It can be tough to figure out the difference between these two programs and which is best for your situation. Here’s a breakdown of the differences between deferment and forbearance:

What Is The Difference Between Deferment and Forbearance?

Let’s start with the similarities: Both deferment and forbearance allow a borrower to temporarily lower or stop making payments on their federal student loans for a defined period of time, if they qualify.

In both cases, the borrower needs to contact their loan servicer, submit a request, and provide the documentation requested by the loan service.

The main difference between the two is that, while in deferment, borrowers are not required to pay the interest that accrues if they have a qualifying loan .

Specifically, interest is not owed on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans.

Interest payments are still required on Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans, FFEL Plus Loans, and unsubsidized portions of Direct Consolidation Loans and FFEL Consolidation Loans.

With federal student loan forbearance, borrowers are always responsible for paying the interest that accrues, regardless of what kinds of federal loans you have.

You can either pay the interest as it adds up, during the forbearance period, or you can have it capitalized (added to the principal) at the end, which could increase the total amount you repay.

Who Is Eligible for Deferment?

Overall, deferment is tailored to people who are having economic difficulties because, for example, they’re in school at least half-time, in the military, in another eligible post-graduate role, or can’t find a full-time job.

Here are more details: Federal student loan borrowers may qualify for deferment if they are enrolled at least half-time at an eligible college or vocational school, and if they’re in an approved graduate program, for six months after enrollment ends.

Individuals may also be eligible if they are in an approved graduate fellowship, in an approved rehabilitation training program for disabled people, on active duty with the military (and for 13 months afterward), or are serving in the Peace Corps.

Related: Examining How Student Loan Deferment Works

Finally, unemployed individuals are also able to apply for deferment. In the case of unemployment and the Peace Corps, you may be granted deferment for a maximum of three years. Review all the possible eligibility scenarios at the Department of Education’s webpage about deferment .

Who Is Eligible for Forbearance?

There are two kinds of forbearance : mandatory and general.

Mandatory Forbearance

Loan servicers are required to grant mandatory forbearance to qualifying borrowers. Depending on the type of federal student loan, borrowers may be eligible if they are in a medical or dental internship or residency, serving in AmeriCorps or the National Guard, or working as a teacher and performing a teaching service that qualifies for teacher loan forgiveness.

Borrowers may also qualify if their monthly student loan payment is at least 20% of their gross monthly income, for up to three years, again depending on the type of loan you have. Note: Mandatory forbearance is granted for up to a year at a time. After that, borrowers can request it again.

General Forbearance

With general forbearance, it’s up to the loan servicer to decide whether to grant it, only certain federal student loans are eligible (Direct Loans, FFEL, and Perkins Loans), and like mandatory forbearance, general forbearance can only be granted for 12 months at a time. There is a three-year cumulative limit on general forbearances.

Borrowers can apply for a general forbearance if they’re unable to make loan payments because of financial hardship, medical bills, or changes in their job (such as reduced pay or unemployment). If there are other reasons they’re unable to pay, it’s also possible to make that case to the loan servicer, but the decision will be theirs to make. Check out all the possible eligibility scenarios at the Department of Education’s webpage about forbearance .

Forbearance vs Deferment for Student Loans: Which Option to Choose?

If your federal student loan type and circumstances allow you to, getting a deferment can be a no-brainer since it’ll allow you to get a break on interest during the deferment period. If you’ve already exhausted the maximum time for a deferment, or your situation doesn’t fit the narrow eligibility criteria, then it could make sense to apply for a forbearance.

If your ability to afford your loan payments is unlikely to change anytime soon, or if you have private loans or federal loans that don’t qualify for a deferment or forbearance program, you may want to consider other solutions, such as an income-driven repayment plan or student loan refinancing.

How Does an Income-Driven Repayment Plan Work?

Another way to potentially reduce your federal student loan payment is to apply for an income-driven repayment plan. The government offers four different income-driven plans that tie the borrower’s monthly payment to their discretionary income, while considering other factors including family size.

The plan a borrower qualifies for depends on the type of loan they have and when it was borrowed. Depending on the plan, your monthly payment will generally be reduced to between 10% and 20% of your discretionary income. If you make the required qualifying payments every month, your balance can be forgiven in 20 or 25 years.

There are lots of specific qualifying factors and important details to consider for this repayment option. For more information, The Department of Education offers resources for borrowers to review.

How Can Student Loan Refinancing Help?

For some borrowers, refinancing student loans can be an option that helps them reduce their monthly payment or interest rate. Refinancing involves taking out a new loan from a private lender and using it to pay off existing federal or private loans, effectively combining multiple loans into one.

The new loan will have a new term and interest rate, which has the potential to help borrowers save on interest or the amount they pay over the life of the loan. Borrowers with a solid credit score and employment history (among other positive financial indicators) are especially likely to be able to qualify for favorable terms.

With SoFi, it’s possible to refinance loans without paying any hidden fees or penalties at either a fixed or variable interest rate.

Keep in mind that if you refinance federal loans, you will no longer qualify for the federal benefits we discussed in this post, including deferment, forbearance, or income-driven repayment programs.

However, some private lenders do offer temporary relief if you experience financial hardship. Rather than stopgaps that can require you to re-apply year after year, refinancing can help you gain a long-term plan for getting your payments under control.

The Takeaway

Deferment and forbearance are both options that allow borrowers to temporarily pause payments on their federal student loans.

Deferment differs from forbearance in that some borrowers may not be required to pay interest that accrues during deferment, depending on the type of loan they have. With forbearance, borrowers are generally required to cover interest that accrues while the loan is in forbearance.

Borrowers who anticipate having trouble making monthly federal student loan payments in the long-term might consider applying for income-driven repayment plans, which ties monthly payments to the borrower’s income level.

Other individuals may consider refinancing to secure a more competitive interest rate or a lower monthly payment. Note that a lower monthly payment generally extends the repayment terms and is more expensive in the long run.

Refinancing federal student loans eliminates them from borrower protections, including deferment, forbearance, and income-driven repayment plans, so it won’t make sense for borrowers with federal loans who are taking advantage of those programs.

Learn more about refinancing with SoFi. Potential borrowers can prequalify in a few minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

A Guide to Student Loan Refunds

Nobody wants student loan debt. Higher education can be a worthwhile pursuit but it can come with some hefty tuition, housing, and living expenses that many students and their parents need to take out student loans to cover.

There is some good news regarding student loans that a lot of people don’t know about. Getting your hands on a student loan refund check is possible. This guide will break down what a student loan refund is, how to get one, and what to do with one.

What Is a Student Loan Refund?

To understand what a student loan refund is, it can be helpful to first look at what financial aid is and how it is distributed to students. When a student or their parent pursues federal financial aid, such as a student loan, that aid is distributed via a credit to the student’s account at their college.

Private student loans are distributed differently depending on the lender’s preferences. Some private lenders may deliver the funds directly to the student in a mailed check.

Others may choose to credit the student’s college account similar to how federal aid is distributed.

Private or federal, this is where student loan refunds may come into play. Student financial aid can cover costs such as tuition, room and board, and fees.

On occasion, an aid distribution can lead to there being an additional credit in the student’s college account.

This happens if there is any excess money after paying for the necessary expenses. In that case, the student or parent will receive a student loan refund via a check or in the form of a direct deposit to their bank account.

How To Get a Student Loan Refund

Whether a student or a parent takes out a federal student loan, the process of getting a student loan refund will generally look similar. Each semester, the school will generally review student accounts to determine if there are any eligible credit balances that can be refunded to the student.

In that case, the school has 14 days to issue a payment to the student if there is credit on their account. In some cases, schools may determine that credit balances should be applied to student’s future costs at the university.

In some cases, if the credit is not a result of the student receiving financial aid, the school may require that students request a refund. Follow the refund request process as determined by the school you attend.

In general, the school in question will contact the student or their parents in writing any time they distribute any loan money. The loan servicer will also provide confirmation that the loan money was delivered.

Alongside this notice, borrowers will generally also receive information on how to cancel part or all of the student loans. If the borrower realizes they don’t need the full loan amount, this may be an option they want to pursue.

Know that any amount refunded is still considered part of the total amount borrowed. So, borrowers who receive a portion of their student loans refunded would still be responsible for repaying that amount, with interest, if the refund is not canceled.

If this is the case, when it comes to federal student loans, the borrower can cancel all or part of their loan within 120 days of receiving it. They will incur no interest during this time and no fees will be charged.

The process of getting student loan refunds may vary when dealing with private lenders.

Recommended: Is Paying Off Student Loans Early Always Smart?

Common Refund Mistakes

When it comes to student loan refunds, there are a few common pitfalls that students and their parents should avoid. Especially if they want to get their hands on a student loan refund check sooner rather than later.

Moving too slow

Requesting a student loan refund is a bit of a time sensitive process. If someone realizes they won’t need the full amount of a federal student loan awarded before the funds are disbursed, they can actually request the school cancel the check or deposit before the need to process a refund even arises.

If the borrower realizes after distribution of a federal student loan that they don’t need all or any of the funds, they have 120 days post-disbursement to return the funds without incurring interest or fees.

If a borrower misses both of these opportunities, the process of working with their school’s financial aid office to return the funds can become more complicated and time consuming.

Not establishing a paper trail

When making a student loan refund request, it may be a good idea to keep a paper trail of all requests and communication in order to establish a clear history of a desire to return the unused funds. If things get lost in translation (which could happen), having a paper trail can be extremely helpful.

Over relying on student loans

Some students and their parents lean too heavily on student loans and may be able to get a bigger refund if they can find another way to finance any qualified education expenses. Student loans can be used to pay for academic and living expenses for the student while they’re in school.

However, pursuing other forms of financial support, such as a work-study program can allow students to send more of their aid funds back, which will leave them with less loans when they graduate.

While it can be tempting to use a student loan refund to cover extra expenses like clothing and transportation—the less that is borrowed, the less that will be owed at graduation.

What to Do With a Student Loan Refund

When a student or their parent gets a student loan refund, they have two main options. They can keep it or return it. Typically, it may be beneficial in the long run to return the funds if they aren’t needed. Try to avoid viewing student loan disbursements as free money that can be spent on anything.

This is money the borrower will have to pay back (with interest) and spending it on unnecessary expenses can be quite a disservice to the borrower.

That being said, borrowers won’t have to submit any proof of what they spent the funds on, which is why it can be so easy to stray from only using it for qualified expenses.

If the borrower chooses to keep the student loan refund check, or miss the deadline to return it, there are still some next steps available to them. One such option is to make a payment on their student loan balance.

Even though federal student loans don’t require payment until the student graduates, this can be one way to cut down student loan debt. The borrower can also use those funds for expenses in the next term and as a result can choose to borrow less money for that term.

Refinancing Student Loans

All that hard work has finally paid off. It’s time to cross that graduation stage. Once graduation day rolls around, students and their parents will begin to think about how they want to manage and pay off their student loan debt.

One option that can lead to saving money on interest and potentially expedite the repayment process is to refinance student loans.

When someone refinances a student loan, they get a new loan at a new interest rate and/or a new term. If a borrower initially had more than one student loan, this leaves the borrower with only one monthly payment to make instead of multiple and in some cases can lead to a lower interest rate.

The Takeaway

Refinancing student loans with SoFi can help qualifying borrowers secure a competitive interest rate, and potentially save money in interest over the life of the loan. There are also no hidden fees. It’s time to send origination fees and prepayment penalties packing.

Refinancing can be a solid solution for graduates who are working and have high interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.

It’s worth noting that when someone refinances their federal student loans, they will lose federal benefits such as Public Service Loan Forgiveness and economic hardship protections, like deferment or forbearance.

When someone refinances their student loans with SoFi, they also gain access to unique perks like career coaching and financial advice, at no cost to them.

Learn more about student loan refinancing with SoFi and get a quote to see if you prequalify, and at what rates, in just a few minutes.



Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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

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Source: sofi.com

APR vs. Interest Rate: What’s The Difference?

When the interest rate and annual percentage rate (APR) are calculated for a loan—especially a large one—the two can produce very different numbers, so it’s important to know the difference when evaluating what a loan will cost you.

Basically, the interest rate is the cost for borrowing money, and the APR is the total cost, including lender fees and any other charges.

Let’s look at interest rates vs. APRs for loans, and student loans in particular.

What Is an Interest Rate?

An interest rate is the rate you pay to borrow money, expressed as a percentage of the principal. Generally, an interest rate is determined by market factors, your credit score and financial profile, and the loan’s repayment terms, among other things.

Nearly all federal student loans have a fixed interest rate that is not determined by credit score or financial standing. (A credit check is made for federal Direct PLUS Loans, which reject applicants with adverse credit, except in specific circumstances.)

Rates on federal student loans are rising: For loans made from July 1, 2021, to June 30, 2022, rates are increasing by nearly 1 percentage point:

•  Direct Loans for undergraduate students. 3.734%, up from 2.75% for 2020-21.

•  Direct Loans for graduate students. 5.284%, up from 4.3% in 2020-21.

•  Direct PLUS Loans. 6.284%, up from 5.3% in 2020-21.

If a loan were to have no other fees, hidden or otherwise, the interest rate and APR could be the same number. But because most loans have fees, the numbers are usually different.

What Is APR?

An APR is the total cost of the loan, including fees, expressed as an annual percentage.

Compared with a basic interest rate, an APR provides borrowers with a more comprehensive picture of the total costs of paying back a loan.

The federal Truth in Lending Act requires lenders to disclose a loan’s APR when they advertise its interest rate.

In most circumstances, the APR will be higher than the interest rate. If it’s not, it’s generally because of some sort of rebate offered by the lender. If you notice this type of discrepancy, ask the lender to explain.

APR vs. Interest Rate Calculation

The bottom line: The interest rate percentage and the APR will be different if there are fees (like origination fees) associated with your loan.

Let’s say you’re comparing loans with similar interest rates. By looking at the APR, you should be able to see which loan may be more cost-effective, because typically the loan with the lowest APR will be the loan with the lowest added costs.

So when comparing apples to apples, with the same loan type and term, APR may be helpful. But lenders don’t always make it easy to tell which loan is an apple and which is a pear. To find the best deal, you need to seek out all the costs attached to the loan.

You may find that a low APR comes with higher upfront fees, or that you don’t qualify for a super low advertised APR, reserved for those with stellar credit.

How APR Works on Student Loans

Not all students (and graduates, for that matter) understand the true cost of their student loans. Borrowers may think that only private student loans come with origination fees, but that is not the case.

Most federal student loans have loan fees that are taken directly out of the balance of the loan before the loan is dispersed. It’s on the borrower to pay back the entire amount of the loan, not just the amount received at disbursement.

Federal student loan fees from Oct. 1, 2020, to Oct. 1, 2022, are as follows:

•  Direct Subsidized and Direct Unsubsidized loans. 1.057% of the total loan amount

•  Direct PLUS Loans. 4.228% of the total loan amount

While interest on many other loans is actually calculated monthly or annually, interest on federal Direct Loans is calculated daily. As a result, it is slightly more difficult to do an interest rate-to-APR calculation on a federal student loan.

An online calculator can help you discover the APR on a loan after you provide the loan amount, interest rate, loan fees, and repayment term in years.

Consider a $10,000 Direct PLUS Loan at 6.284%. With a 4.228% loan fee (about $423) that a borrower pays back over 10 years, the loan’s APR is about 7.2%.

Comparing Private and Federal Student Loans

Federal and private student loans have their pros and cons. In general, Direct Subsidized Loans offer competitive rates that are not dependent on the borrower’s credit.

When a federal student loan is subsidized, the borrower is not responsible for paying the interest that accrues while the student is in school and during most deferment periods.

Additionally, federal student loans offer flexible repayment plans, including income-driven repayment options.
Federal student loans have fixed rates, and private loans may have fixed or variable rates.

Private student loans typically take borrowers’ credit into consideration. They can be useful in bridging gaps in need if you reach a cap on federal student loan borrowing.

Understanding Interest Costs

Being able to compare an APR to another APR may help level the playing field when shopping for loans, but it’s not the only thing to consider.

You might want to take into consideration the repayment period of the loan in question, because it will also affect the total amount you’ll owe in interest over the life of the loan.

Two loans could have the exact same APR, but if one loan has a term of 10 years and the other has a term of 20 years, you’ll pay more in interest on the 20-year loan even though your monthly payments may be lower.

To illustrate this, imagine two $10,000 loans, each at a 7% interest rate, but with 10- and 20-year repayment terms.

10-year repayment:

$116.11 monthly payment
Total interest paid: $3,933

20-year repayment:

$77.53 monthly payment
Total interest paid: $8,607

As you can see, the monthly payment on the 20-year loan is lower, but you pay significantly more in interest over time.

The reverse is also true: Shortening the payback period should lower the amount that you pay in interest over time, all else being equal.

Can Refinancing Help?

When you refinance student loans, you pay off your existing federal and/or private student loans with a new loan from a private lender, aiming for a lower interest rate or a repayment timeline that works better for your finances.
A brand-new loan means dealing with only one monthly payment.

Refinancing may be a good idea for working graduates who have high-interest Unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. Just realize that when borrowers refinance federal student loans, they give up benefits like income-​driven repayment plans and loan forgiveness.

To understand how interest rates, loan repayment terms, and total interest charges interplay with one another, check out this student loan refinancing calculator.

The Takeaway

APR vs. interest rate: It’s not the next superhero movie. It’s what you may want to look at when deciding on a loan, because the APR reflects the fees involved. Even when it comes to federal student loans, fees are part of the story.

SoFi offers student loan refinancing with flexible terms and low fixed or variable rates, with absolutely no application or origination fees.

See all of the refi perks SoFi offers and view your rate.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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

The Navy Loan Repayment Program Explained

The U.S. Navy offers service members a proud and venerable tradition, having patrolled the seas since its inception in 1775.

Almost 250 years later, the Navy still offers its sailors a remarkable life experience, a chance to serve the country, and a host of benefits that make life somewhat easier for military personnel.

One perk that may appeal to Navy members is the Navy Loan Repayment Program, the cornerstone of the service’s student loan relief and forgiveness efforts.

The Navy Loan Repayment Program can pay up to $65,000 toward a service member’s student loans. That makes it well worth a closer look for Navy members looking for help paying down their college loan debt.

Who Qualifies for the Navy Program?

The Navy Loan Repayment Program is designed to pay federally guaranteed student loans, up to $65,000, for Navy personnel who qualify. The program is offered to members of the service’s Delayed Entry Program who eventually enlist in the Navy full time.

The Delayed Entry Program, also known as the Delayed Enlistment Program or inactive reserves, is meant to provide an onboarding experience before official enlistment. In the case of the Navy, a future sailor who signs on to delayed entry agrees to report for active duty in the next year. Currently, delayed-entry members can remain on inactive duty for 365 days. At that point, they must enlist for active duty in the Navy to receive student loan aid.

The Delayed Entry Program is only one hurdle Navy members must clear before becoming eligible for the loan repayment program. Service members must also meet the following criteria.

•   They must be “first time” military service members (meaning applicants have never served in the U.S. military before).
•   They must have a high school diploma.
•   They must have achieved a minimum score of 50 on the Armed Forces Qualification Test, which the Navy uses to measure a potential sailor’s IQ and aptitude. A test score of 35 will get an applicant into the Navy, but a higher score of 50 is needed to qualify for the loan repayment program.

How Navy Student Loan Repayment Works

Through the program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500—whichever is higher—for each year of naval service, up to three years. If the student loan balance falls below the 33.3% threshold and the borrower is in good standing with the Navy, the Navy will pay the remaining student loan balance.

Only specific federal student loans qualify for the loan repayment program. They are as follows:

Stafford loans, subsidized or unsubsidized. Also known as Direct Stafford Loans, these low-interest loans are made to qualified borrowers for tuition and other college costs. The funds come directly from the U.S. Department of Education.

Federal PLUS loans. Otherwise known as Direct PLUS Loans, Direct Plus Loans are offered by the U.S. government to undergraduate and graduate students to cover tuition and college costs. In many cases, Direct PLUS Loans offer funds to college students to cover expenses not covered by other financial aid programs.

Consolidation loans. These loans bundle multiple loans into a single loan, often at a lower interest rate.

Perkins loans. These are low-interest loans geared toward college students (both undergraduate and graduate) who demonstrate financial need. Congress stopped making Perkins student loans in 2018, but naval personnel may still have outstanding Perkins loan debt and thus are eligible for help from the Navy Loan Repayment Program.

A future Navy member may apply for the loan repayment program early in the service enrollment process. A Navy applicant is given the option to enroll in the program at the Military Entrance Processing Stations.

MEPS, the stations funded by the U.S. Department of Defense to enroll military service members, handle their applications, and assess their physical, mental, and emotional health to see if they’re fit for military service.

For student loan relief purposes, the Navy recruiter on hand (also known as the MEPS classifier) will process all of a Navy recruit’s paperwork, including loan repayment application documents, and submit them for processing.

What Documents Do You Need To Apply?

All documents are available at the MEPS recruiting center or through specific U.S. government websites and you need all of the following to apply:

•   A copy of the Loan Repayment Program Worksheet.
•   A copy of the Navy Enlistment Guarantee. The Navy Loan Repayment Program must be noted as a guarantee on the document.
•   A copy of the Statement of Understanding.
•   A copy of the Future Sailor’s National Student Loan Data System printout (available at the Department of Education’s website. When filing the data system form, the applicant will be assigned a PIN. By and large, it’s the same pin assigned to a financial aid applicant on the Free Application for Federal Student Aid. If the applicant doesn’t have a FAFSA® PIN, one will be assigned.
•   A copy of the Personalized Recruiting for Immediate and Delayed Enlistment
•   (PRIDE system) loan repayment text filed. This document must be printed out and signed by both the Navy classifier and the recruit applicant. PRIDE is one of the Navy’s recruiting platforms.
•   A copy of DD Form 2475, Annual Application for Student Loan Repayment, completed by the student loan lender.
•   A copy of the lender’s promissory note for each Parent PLUS loan, which clearly designates the student dependent on the note.

If you’re already serving in the military or served, Public Service Loan Forgiveness is a great option. The program is for those working for a qualified government organization (municipal, state, or federal) or many nonprofit organizations.

Filling Out the Loan Repayment Form

The key document when applying for the Navy Loan Repayment Program is DD Form 2475, which is broken down into four sections.

Section 1 is completed and approved by the recruiting officer (i.e., the verifying official). The section includes the naval office address and contact information so the lending institution can forward the proper paperwork. If the section is blank, the lender is under no obligation to complete the form. Basically, Section 1 includes the recruiter’s name and signature and the date.

Section 2 includes the applicant’s name, address, telephone number, email address, and Social Security number. This section is completed by the service member/applicant.

[email protected]

Other Ways to Repay Student Loans

Former students who are on the fence about a military commitment, who are struggling to make student loan payments, or who have more debt—or different debt—to pay off than a program covers have alternatives to military-supported repayment.

One is student loan refinancing with a lender like SoFi®. Someone with a combination of private and federal student loans can refinance both types into a single loan.

If you are thinking of taking advantage of federal programs like income-driven repayment or Public Service Loan Forgiveness, refinancing may not be right for you because you’ll lose your eligibility for those programs.

But borrowers who choose to refinance may qualify for a lower interest rate or lower monthly payments. They’ll have only one payment a month and may be able to either lengthen or shorten the term.

It’s simple to get prequalified for refinancing online with SoFi®.

Interested in student loan refinancing? Get started with SoFi today.



SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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Source: sofi.com

When Would You Need a Student Loan Payoff Letter?

Loans of any size for any purpose are a bit of a trade-off: The sudden, planned-for infusion of cash can be a powerful tool to facilitate many major life decisions or rites of passage, like pursuing a college degree or becoming a homeowner. But that financial flexibility also comes with equally strong strings attached.

Some people may want or need to take out more than one loan at the same time. For the 54% of young adults who went to college and took on debts including student loans, a student loan payoff letter may come into play. In this guide, we’ll run through what these letters are and some of the commonly navigated twists in understanding their use in managing loans.

What Is a Student Loan Payoff Letter?

Despite what it sounds like, a student loan payoff letter is not a document proving a student loan has been paid in full. Rather, it’s a document generated by the loan servicer stating the current loan balance, monthly payments, and other account information.

Note that a loan payoff letter is not exactly the same thing as a monthly statement—it’s a tool for other lending institutions to weigh how a borrower manages debt on an existing loan that also forecasts future interest costs based on when the loan is due to be repaid.

There is generally a time limit placed on payoff letters—a “good-through date”—after which the amount of interest due on the loan would change.

A student loan payoff letter may be needed when, for example, the borrower is still paying off student debt and also applying for a mortgage, refinancing an existing loan, or when they’re planning to pay off the loan.

The payoff letter will play a part in determining an applicant’s debt-to-income (DTI) ratio, which many lenders look at to determine whether the applicant can afford potential future payments on a loan.

A high student loan balance, in relation to income, could limit a person’s loan options. So, it pays to pay your debt down as much as you can.

Getting a Student Loan Payoff Letter

A loan payoff letter can be requested from the lender at any stage of a loan’s term—it does not matter whether the borrower hasn’t made an initial payment or they’re close to making their last. Obtaining a loan payoff letter can be done by contacting the lender and simply requesting it.

Lenders’ websites may have an option for requesting these letters via an online form. If that option isn’t available, the borrower may need to call the lender’s customer service line to request the letter.

There may be a fee charged for requesting a payoff letter—if there is one, it should be explained in the loan agreement. The lender’s customer service representative should also be able to verify whether there is a fee for the letter.

Managing Student Loans

An important factor in determining a student loan payoff strategy is figuring out when the first payment is due, information which the loan servicer will provide.

According to the Federal Student Aid Office, “For most federal student loans, there is a set period of time after you graduate, leave school, or drop below half-time enrollment before you must begin making payments.”

This “grace period” could last anywhere from six to nine months depending on which type of federal student loan a borrower has. It may help to think ahead about how best to take advantage of the grace period in advance.

While it might be tempting to view the grace period as a time to sink extra money into things you want or need, borrowers may want to consider instead saving up for when student loan payments will start coming due.

Interest on Direct Subsidized Loans is paid by the US Department of Education while the borrower is in school at least half-time, during the grace period, or a deferment period—a factor that might make paying the loan off, in the long run, a little less burdensome.

Borrowers of Direct Unsubsidized Loans are responsible for paying interest during the entire term of the loan. Interest accrues from the time the loan is disbursed to the borrower.

Strategies for paying off student loans quickly may include looking into ways to make money outside your day job, asking if there is a student loan repayment program at your company, paying down other debt during the grace period, among others.

Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), relief measures including suspension of loan payments, cessation of collections, and waiver of interest on Education Department-held loans are in place until September 30, 2021. The Federal Student Aid website has more details about this program .

Selecting the Right Repayment Plan

Several repayment options are available for eligible borrowers of federal student loans depending on the type of loan—this Federal Student Aid Office brochure explains the most common repayment plans and eligibility details.

It also links to information on consolidating federal student loans. Refinancing a student loan is an option some borrowers may want to consider. A student loan payoff calculator may help when comparing repayment options.

Standard Repayment Plan

For Federal Direct Loans and Federal Family Education Loans (FFEL), the loan servicer will automatically place borrowers on the Standard Repayment Plan unless they choose a different repayment plan.

The Standard Repayment Plan gives the borrower up to 10 years (between 10 and 30 years for consolidation loans) to repay, with fixed monthly payments of at least $50 during that time. This repayment plan may not be the best option for borrowers who are considering seeking Public Service Loan Forgiveness (PSLF).

Graduated Repayment Plan

Eligible Direct Loan and FFEL borrowers who expect their income to increase gradually over time may opt for a Graduated Repayment Plan. This plan has the same10-year term (between 10 and 30 years for consolidation loans) that the Standard Repayment Plan does, but the payment amount differs.

Monthly payments start low and increase every two years, will always be at least the amount of accrued interest since the last payment, and will be limited to no more than three times the amount of any previous payment.

Extended Repayment Plan

Borrowers who need to make lower monthly payments over an extended time may want to consider the Extended Repayment Plan, which allows for a 25-year repayment term. This plan is for eligible Direct or FFEL borrowers who have outstanding loan balances of $30,000 or more on each loan.

Monthly payments on this plan can be either fixed or graduated and are generally lower than those made under the Standard or Graduated plans.

Income-Driven Repayment Plans

There are a few options for borrowers who might be having trouble making their payments and want to lower their monthly payments. This income-driven repayment (IDR) plans allow eligible borrowers to responsibly manage their debt while remaining on track to pay it off.

The plans take into account a borrower’s income, discretionary income, family size, and/or eligible federal student loan balance. Borrowers under an IDR must recertify their income and family size each year or risk losing their eligibility for the plan.

Borrowers considering any type of repayment plan are encouraged to use the Federal Student Aid Office’s Loan Simulator to determine which repayment plan is best for their individual needs.

The Takeaway

It’s doubtful that anyone enjoys the thought of borrowing money for college, but there are strategies to manage repayment. When you find a plan that works for you, a student loan payoff letter might pave the way to the next financial step of adulthood.

Choosing to refinance student loans may be an option for some borrowers to make financial management easier and maybe even save money and pay off some loans a bit earlier than planned.

Refinancing federal student loans into a private student loan means forfeiting all federal loan benefits, so borrowers are encouraged to look at all options before making a decision.

Options like forbearance, deferment or an income-driven repayment plan might make more sense if the borrower needs to reduce their monthly payment.

SoFi private student loan refinance options are available with low fixed or variable interest rates, a rate reduction with autopay, and no fees.

Learn more about refinancing student loans with SoFi.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
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.

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Source: sofi.com

Where Do You Pay off Student Loans?

Looking for the right place to pay off loans? Unfortunately, there’s no blinking neon sign for borrowers to “Repay Loans Here.”

Instead, borrowers may have to go old school, and make a phone call to meet their new best friend—the student loan servicer. It all starts with contacting the Federal Student Aid Information Center to learn next steps.

Contact Your Student Loan Servicer

Before paying off student loans, graduates will have to figure out who their student loan servicer is. A student loan servicer is the company assigned by the US Department of Education (federal student loan creator) to take care of the day to day servicing of a federal student loan. If a person needs to talk to someone about their federal student loan, they can reach out to the servicers instead of to a government office.

Students don’t have to do anything for their loan to be transferred to a loan servicer. The federal student loan will be transferred to a servicer after its first disbursement. Once that happens, students should expect to be contacted by the servicer.

But, unexpected moves or outdated contact information could mean the servicer doesn’t reach you. If a student needs help figuring out who their servicer is, one option is to call the Federal Student Aid Information Center (FSAIC): 1-800-433-3243.

However, FSAIC can only help students figure out their servicer if they hold federal student loans, not private student loans.

Another option for borrowers with federal student loans is to log into their Federal Student Aid account. From this portal, borrowers can access information on their student loan servicer.

Federal student loan borrowers can also check the National Student Loan Data System to find information about their loan servicer.

Once a student figures out their loan student servicer and contacts them, they can begin sorting through the repayment process. A loan servicer should help a student figure out how to repay loans free of charge.

Be warned, any federal loan servicer that asks for payment may be a scam, warns the US Department of Education.

Recommended: How to Find Out Who Your Student Loan Lender Is

Grace Periods

A loan servicer can help students and graduates figure out when their loan repayment will begin. Most, but not all, federal student loans have a six-month grace period , or an allotted amount of time before a student has to start paying back the loan.

The student loan grace period generally begins once a student graduates, leaves school, or enrolls in class less than part-time. This time is meant for students to get in contact with their loan servicer and begin setting up a repayment plan, so they don’t have to scramble post-graduation when so many other changes are happening.

Students should be aware that interest on their loan may be accruing during their grace period. For that reason, some students may decide to begin repayment before the grace period is up, in order to keep the interest capitalization down.

Borrowers with subsidized student loans will not accrue interest on their loans during their grace period.

There are some circumstances that can extend, or end a grace period early :

•  Being called into active military duty. This will restart the grace period, which will begin again once the student returns.
•  Going back to school before the end of the grace period. If a student goes back to school at least part-time, then they won’t have to repay their loans until they finish school, in which case they’ll have another six-month grace period.
•  Consolidating loans. If a student decides to consolidate or refinance a loan before the end of the grace period, they’ll start their repayment as soon as the paperwork is processed.

Recommended: How Long is a Student Loan Grace Period?

Selecting a Repayment Plan

During the grace period, students can work with their loan servicer, and other online tools to figure out the right repayment plan for them. The US Department of Education has a loan simulator tool where users can calculate interest rates to help them determine the best repayment scenario.

There are several repayment plans a student can choose from, depending on their finances and the type of federal student loans they have.

•  Standard Repayment Plan. All federal loan borrowers are eligible for this repayment plan, where payments are in a fixed amount each month, typically with the plan to pay off the loan within ten years.
•  Graduated Repayment Plan. This plan, which nearly all federal loan holders can enroll in, starts out with low monthly payments, then gradually increases every two years. Payments are made monthly for up to ten years for most loans.
•  Extended Repayment Plan. In this plan, which nearly all borrowers can adopt, payments standard or graduated payments are made monthly, but at a lower rate over a longer period of time, typically 25 years.
•  REPAYE. The Revised Pay As You Earn Repayment Plan is for any Direct Loan borrower. Payments are calculated as 10% of a person’s discretionary income, and monthly payments will be recalculated each year based on family and income.
•  IBR. The Income-Based Repayment Plan allows for monthly payments between ten to 15% of a person’s monthly income, but borrows must have a high debt to income ratio to qualify.
•  ICR. In the Income-Contingent Repayment Plan, eligible borrowers will make monthly payments based on the lesser value of either 20% of their income, or the “amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income,” according to the Department of Education.
•  Income-Sensitive Repayment Plan. This plan is only available under a few federal loan programs. Payments are based on annual income, and the loan will be paid off within 15 years.

Depending on a borrower’s income and the type of loan they took out, they can work with their servicer to determine which student loan repayment plan might be the best course of action. If a borrower doesn’t reach out to their servicer to coordinate a repayment plan before the end of the grace period, they will be on the standard repayment plan by default.

Recommended: Getting to Know Your Student Loan Repayment Options

Start Repaying Student Loans

Once a repayment plan is selected, and the grace period draws to a close, borrowers will begin making payments on their student loans.

Where a borrower will make their payment is dependent upon who their student loan servicer is. Most student loan servicers make it possible for borrowers to make monthly payments online, but it’s best to confirm that with the servicer before payments begin.

Most servicers also have an automatic payments set-up, where monthly payments are automatically debited out of borrowers’ accounts each month. Setting up an automatic payment can help borrowers avoid missing a payment, or rack up late fees.

Additionally, some federal student loans provide a discount when a borrower sets up automatic repayment online. For example, if a borrower has a Direct Loan, their interest rate is reduced by .25% when they choose automatic debit.

Recommended: Tips for Student Loans Payoff & Repayment

Repaying Private Student Loans

Private student loans are generally repaid directly to the bank or financial institution that issued them. Borrowers can check their statements to see who the loan servicer is. Generally, payments can be made online.

The Takeaway

To find out who their loan servicer is, borrowers with federal student loans can call the Federal Student Aid Information Center (FSAIC): 1-800-433-3243 or log into their Federal Student Aid account. Federal student loan borrowers can also check the National Student Loan Data System to find information about their loan servicer.

Borrowers with private student loans will generally make repayments to the financial institution from which they borrowed the loan.

Refinancing with SoFi

When a borrower works with their student loan servicer, they can take advantage of free tools that might help them pay back their student loans easier.

But, for some student loan borrowers, the existing interest rates and repayment plans offered by a servicer might not be the best fit.

In that case, borrowers may have the option of refinancing student loans. This can be helpful when there are multiple loans to pay off since refinancing allows borrowers to combine multiple loans into a new single loan and qualifying borrowers may be able to secure a lower interest rate.

Refinancing federal student loans eliminates them from all federal benefits and borrower protections, such as income-driven repayment plans and deferment.

SoFi’s student loan refinancing offers flexible terms, and low or variable interest rates. With no hidden fees or pre-payment penalties, borrowers can apply for refinancing in an easy online process—no phone calls required.

The first step to figuring out student loan repayment is figuring out who holds the loan, but with the right help, borrowers can have a plan set up to conquer their loans before the grace period is even finished.

Learn more about student loan refinancing options available with SoFi.



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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.

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Source: sofi.com

Consequences for Late Student Loan Payments

If you fail to make a student loan payment by its due date, your loan becomes delinquent, and there are all sorts of consequences that can result, from late fees to having your loan sent to collections. These consequences will typically depend on how long your loan is delinquent and whether you have a federal student loan or a private loan.

If you miss a student loan payment, take action immediately so you can work to avoid these consequences.

Federal Student Loans

If you fall behind on federal student loan payments, you can expect the following consequences:

Late Fees

Your loan becomes a delinquent payment the day after you miss a payment. During the first 30 days of your delinquency, your loan servicer may charge you a late fee penalty. Your loan servicer will determine when to charge you a penalty and how much to charge.

Damaged Credit

If your loan is delinquent for 90 days or more, your servicer will report the late payments to the three major national credit bureaus—Experian, TransUnion, and Equifax—which keep track of consumer credit scores.

A delinquent loan can potentially damage your credit score. A lower credit rating can make it more difficult to open a credit card, take out loans to buy a house or a car, and limit your ability to obtain other types of consumer credit.

A low credit rating means that lenders likely see you as a greater risk. As a result, borrowers with a less than stellar credit score may qualify for a high-interest rate or be subject to less favorable terms for lines of credit or loans than a borrower with a more competitive credit score.

Credit scores can impact other areas of life too. For example, someone with a low credit score may have trouble signing up for homeowner’s insurance options and utilities or even getting approved to rent an apartment.

Recommended: How Do Student Loans Affect Your Credit Score?

Default

If your loan is delinquent long enough, it can go into default. The timeline for this varies depending on the type of loan you have.

After 270 days of delinquency, loans made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan (FFEL) Program go into default.

For loans made in the Federal Perkins Loan Program, a default may be declared more quickly such as soon as a payment is late.

Borrowers with a Perkins Loan, which stopped being made by the federal government in 2017, can contact the school that made the loan or the school’s loan servicer to learn more about repayment requirements.

Once a federal loan goes into default, it can trigger the following consequences, among others:

•   The entire loan balance becomes due immediately, including any interest that you owe. This is a process known as acceleration.
•   Deferment or student loan forbearance, which allow borrowers to temporarily suspend loan payments, are no longer options. Borrowers may also lose the ability to choose a repayment plan.
•   You lose eligibility for additional federal student aid, so you won’t be able to take out federal student loans in the future should you decide to go back to school.
•   Your transcript is the property of the school you attend, and your school is allowed to withhold it until you are out of default.
•   Your tax refunds may be withheld to repay your defaulted loans. This process is known as a Treasury offset. The government will send a notice of intent to your last known address before these offsets begin, and they will continue until your loan is repaid or the default status of your loan changes.
•   Your employer may be forced to garnish your wages. This means that they will withhold up to 15% of your paycheck and send it to your loan holder to repay your loan. The government will send a notice that explains the intent to garnish your wages in the next 30 days. At this point you may have a chance to enter into a voluntary repayment agreement.
•   You may be taken to court by your loan holder, and you may be liable for court costs, collection fees, attorney fees, and other costs.
•   You are liable for the cost of collecting your defaulted loans. Your default loan may be placed with a private collections agency, which may charge 17.2% of your outstanding balance, including interest and fees. Before your loan is sent to collections, the Department of Education will send you a notice explaining how to avoid this outcome and how to avoid having it reported to the credit bureaus. Having a defaulted loan turned over to a private collections agency can significantly increase the total cost of the loan. That’s because when you make a payment after your loan has been sent to collections, the 17.2% collections cost is taken out first and the remainder is put toward paying off your loan.

Recommended: Types of Federal Student Loans

Private Student Loans

When you miss payments on private student loans, you may face similar consequences as when you miss federal payments. However, private lenders can choose the actions they pursue, and they may operate on completely different timelines.

For example, they may report late payments to credit bureaus or declare that a loan is in default faster than with federal loans.

Private lenders do not have the option of accessing your tax refund to pay back your defaulted loan. However, they can take you to court to gain the ability to garnish your wages.

Lenders may have different policies when it comes to late or missed payments on student loans so check with your lender directly if you have questions about a private student loan.

What To Do If You Miss A Payment

First things first: When you miss a payment, contact your lender immediately and let them know. This is your chance to clue them into any financial hardships that you might be experiencing. For example, if you missed a payment due to job loss or a medical emergency, there may be things your lender can do to help.

If paying off your loans looks like it will be difficult for the foreseeable future, consider deferment or forbearance. Federal student loan deferment is a program offered by the government that allows you to pause student loan payments for up to three years.

The deferment can give you time to put your finances back in order so you can start making regular payments again. Those with direct subsidized loans won’t usually be responsible for paying the interest that accrues over the deferment period. On the other hand, those with unsubsidized loans, are on the hook for those interest payments.

Forbearance can allow you to stop making payments for specific periods. This program can help you if you’re facing short-term emergencies. Unfortunately, interest continues to accrue on your loans, adding to your total cost over time.

Private lenders may or may not have an option that allows borrowers facing financial difficulties to pause their payments.

SoFi, for example, offers Unemployment Protection which allows qualifying borrowers to temporarily suspend monthly payments. Check with your lender directly to see what options are available for your private student loans.

If you have a federal student loan in default, consider enrolling in a student loan rehabilitation program. To rehabilitate a defaulted Direct Loan or FFEL Program Loan you’ll enter into an agreement with your loan holder under which you’ll make nine affordable monthly payments, each within 20 days of its due date. And you’ll need to make all nine payments during a 10-month consecutive period.

To rehabilitate a Perkins loan, you’ll have to make full monthly payments each month (within 20 days of the due date) for nine consecutive months. Your loan holder will determine the monthly amount you’ll pay.

The Takeaway

Late student loan payments can have consequences for borrowers. For many federal loans, after 90 days of missed payments, the late payments will be reported to the three major credit bureaus. This has the potential to negatively impact an individual’s credit score.

After 270 days of missed payments, a borrower’s loan will be placed in default where additional consequences can kick in. These consequences can include the full total of the loan being due immediately, wage garnishment, and more.

The consequences for late payments on private student loans may vary by lender but can include things like late fees and the loan being sent to a collections agency.

Taking Action

Missing a student loan payment can lead to some serious consequences, especially if you let it go for too long. Understanding the consequences and taking action immediately can help you avoid some of the most serious effects and keep you on track to eliminate your debt.

If the cost of a student loan has become too much, one option borrowers may consider is refinancing to a loan with better terms and a lower interest rate.

Note that refinancing is not the right option for everyone, and borrowers who have struggled to make payments on an existing loan or have a low credit score may not qualify for more competitive terms on a refinanced loan.

Refinancing a federal loan also results in the elimination of federal benefits, such as deferment or forbearance which may be useful tools for borrowers who are struggling to make on-time payments on an existing student loan.

Check out SoFi to learn more about the refinancing student loan options available.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.

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Source: sofi.com

What is a Federal Perkins Loan?

Perkins Loans were designed for undergraduate and graduate students who demonstrated exceptional financial need. Although the program has ended, 1.6 million borrowers still owe $4.7 billion in Perkins Loans as of mid-2021.

The loans were meant to make going to school and repaying student loans easier for students whose financial situation may have prevented them from going to school at all.

The program expired on Sept. 30, 2017. If you were awarded a Perkins Loan before then, you still have to pay your loan back, in almost all cases.

Benefits of Federal Perkins Loans

Perkins Loans Are Subsidized Loans

With federal subsidized student loans like Perkins Loans, the government pays the interest on the loan while you’re in school, during your grace period, and if you need to defer your loan payments for an eligible reason.

That creates significant savings compared with federal unsubsidized student loans, when interest may continue to grow even if you are not currently required to make payments on the loan.

The benefit still exists for students who took out Perkins Loans.

Additionally, Federal Perkins Loans had no origination fee. In contrast, Direct Loans currently have an origination fee of 1.057%, and Direct PLUS Loans for parents and grad students have a fee of 4.228% until Oct. 1, 2021. (The percentages change on Oct. 1 every year.)

Perkins Loan Interest Rate

While other federal student loan rates are tied to the 10-year Treasury note, the Perkins Loan rate was fixed at 5%—which used to be lower than some other loan types.

Currently, the rate for Direct Loans disbursed from July 1, 2021, through June 30, 2022, is 3.73% for undergraduate students and 5.28% for graduate or professional students. Direct PLUS Loans for graduate students or parents carry a rate of 6.28%.

Extended Grace Period

Another benefit of Perkins student loans is their extended grace period.

Most federal student loans have a grace period of six months after graduation to begin payments. Perkins Loans give an extra three months, so borrowers don’t have to start repaying a Perkins Loan for nine months after they graduate, leave school, or drop below half-time enrollment.

That said, any borrower who is eager to start repaying student loans doesn’t have to wait until a grace period is over to begin.

Perkins Loan Forgiveness Programs

If you have Perkins Loans, you may also qualify for certain forgiveness programs, depending on your employment or volunteer status.

If you work as a Peace Corps volunteer, firefighter, law enforcement officer, nurse, librarian with a master’s degree at a Title I school, public defender, teacher who meets specific criteria, among several other jobs, you could be eligible to have all or part of your Perkins Loan forgiven.

How Much Could You Borrow?

If you were eligible for a Perkins Loan, you most likely were only able to take a portion of your federal loans out as Perkins Loans. The amount you were able to borrow in Perkins Loans was determined by your personal financial situation.

For dependent undergraduate students whose parents are eligible for Direct PLUS Loans, the aggregate federal student loan limit is $31,000, with no more than $23,000 of that for subsidized loans. Undergrads deemed independent can have an aggregate of $57,500 in federal student loans, with no more than $23,000 in subsidized loans.

The aggregate federal loan limit for graduate or professional students is $138,500, which includes federal loans received for undergraduate studies.

Refinancing Your Student Loans

You may now be seeking a lower interest rate for your outstanding student loan balance.

Since graduating from college and getting a job, you may be making significantly more money and have established good credit. If that’s the case, refinancing your federal and/or private loans may be a good choice.

Even though Perkins Loans have good repayment options and a steady, reasonably low interest rate, not all student loans enjoy the same perks.

Before you refinance, which means paying off any or all current loans with a new, private loan, preferably with a lower interest rate, it is important to review the benefits of your current loans. Refinancing would eliminate federal benefits like deferment and income-driven repayment plans.

Depending on your credit history and earning potential, you may be able to qualify for lower monthly payments or a lower interest rate, which could potentially reduce the amount of money you pay in interest over the life of the loan.

The Takeaway

Federal Perkins Loans, for students of exceptional need, came with benefits and a fixed interest rate that was relatively low at the time. Billions are still owed on Perkins Loans, and a borrower may want to weigh the merits of seeking a lower rate.

SoFi is a leader in the student loan space, offering refinancing of both federal and private student loans with a fixed or variable rate and no application or origination fees.

See your interest rate in just a few minutes. No strings attached.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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.
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Source: sofi.com

How Rising Inflation Affects Student Loan Interest Rates

For people with variable-rate student loans, or any kind of debt, it can pay to watch inflation.

Inflation has been a growing concern for the past year, even as interest rates have remained low. COVID-19 relief measures worth trillions served as a lifeline for many and helped drive major stock indices to record highs. The broader economy began to recover from the pandemic.

But production snags and widespread shortages are driving prices higher for many items, stoking the risk of rampant inflation. Some economists warned that the government largesse also could spark inflation that would outpace wage gains.

When the economy “runs hot,” the Federal Reserve typically raises interest rates to cool down the economy and maintain stability.

When might a cooldown begin? As of now, the St. Louis Fed president has forecast an initial rate increase in 2022.

What Exactly Is Inflation?

Inflation—the rising cost of everyday items—is an important economic factor to everyone from investors to policymakers to borrowers. The reason it matters to borrowers is that inflation can lead to higher interest rates on every kind of debt, including student loans.

Put simply, inflation means that the price of bread will be higher tomorrow than it is today. So lenders tend to increase interest rates when they lend money, given that borrowers will be paying the money back when those dollars will buy less. That’s one reason inflation and many interest rates have typically risen or fallen in step with each other.

The Federal Reserve is another reason. The country’s central bank plays a major role in managing the economy, especially with factors like interest rates and inflation. It recently raised its projections for inflation this year. And, to keep a lid on inflation, it recently moved forward the date when it will likely raise the interest rates at which it lends money to banks.

What Does Inflation Mean for Student Loans?

inflation can be good news . Inflation drives up the price of everything, including wages. As a result, some borrowers are paying back certain fixed-rate loans, for example, with dollars that have less value than the ones they borrowed.

There are exceptions. If a borrower took out a variable-rate private student loan, it’s likely that inflation will lead to higher interest rates, which will translate into higher interest rates that the borrower has to pay. But if the borrower has a fixed-rate private student loan and her salary keeps up with the pace of inflation, then inflation can be helpful.

So, with the specter of inflation looming over the economy, it’s worth checking to see if your private student loan has a fixed or variable rate.

As a quick primer, fixed-rate loans have the same interest rate from when borrowers take out the loan to when they pay it off. Variable-rate loans change the interest they charge, which is influenced by Federal Reserve rate changes.

Variable-rate loans, also sometimes called “floating rate” loans, usually start out with lower interest rates than fixed-rate loans.

All federal student loans have a fixed rate; the rate for new loans is determined annually. The only variable-rate student loans are those offered by banks and other private lenders, though they also usually offer fixed-rate loans.

When Does Refinancing Make Sense?

Even with inflation on the horizon, interest rates have been at historic lows for more than a year. That has borrowers of all stripes refinancing their debts. That may mean getting a lower interest rate on their home mortgage, or bundling their credit card debt and paying it off with a single, lower-interest personal loan.

People with student loans may also be able to refinance their debt at a lower rate and change the length of the loan.

check the interest rates on your existing student loans against the rates offered by other lenders. If they offer a better rate, then it may be possible to pay off that student loan debt faster or reduce your monthly payments.

Some lenders refinance both federal and private student loans. If you choose to refinance federal student loans with a private lender, realize that you will give up federal benefits and protections like income-driven repayment plans and loan forgiveness options.

Timing is everything. If the Fed acts sooner than expected to prevent the economy from overheating, rates could climb. Especially if you have private student loans with variable rates, refinancing could save you significant money and help you pay off your loans faster. (To reiterate, fixed-rate federal student loans are not affected by Fed rate changes.)

A student loan refinancing calculator could come in handy as you weigh your options.

The Takeaway

The Fed expects to raise interest rates sooner than anticipated as inflation fears rise. What does that mean for private student loan holders? They may want to refinance some or all of their loans while rates remain low.

SoFi refinances federal student loans, parent PLUS loans, and private student loans with no origination or prepayment fees.

You’re probably aware of the payment and interest pause on most federal student loans through September. Here’s an offer to think about:

If you qualify to refinance your federal student loans with SoFi, you can pay 0% interest through Sept. 20, 2021, and make no payments until October.

Find your rate on a student loan refinance today.

Photo credit: iStock/MicroStockHub


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
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Source: sofi.com

The Student Loan Discharge Process Explained

Being able to forget about a debt altogether—instead of having to pay it back—sounds like a dream come true. But waving goodbye to some types of debt doesn’t always require a Fairy Godmother. For those who qualify for a student loan discharge, it can be possible to make some or all student debt disappear.

Student debt forgiveness, cancellation, and student loan discharge all refer to programs that allow graduates to stop paying off their student loans and cancel out any remaining debt.

There are some slight differences between forgiveness, cancellation, and discharge, generally having to do with the reason for which the debt is discharged.

In each case though, the end result is the same: having a student loan forgiven, canceled, or discharged means no more loan payments and an outstanding balance of zero dollars.

Who Qualifies for Student Loan Discharge?

Student loan forgiveness programs are offered by the federal government for certain individuals working in some public service jobs, including some teaching positions.

With the average annual cost of tuition, fees, room, and board coming in at an average of $21,950 for individuals enrolled in in-state public institutions in 2019-2020, and $49,870 for those attending private schools, it’s unsurprising that many people have to borrow money to fund their education.

The Federal Reserve estimates that some 55% of people under 30 who attended college—and 31% of all adults—had to incur some debt to pay for their schooling, while in all, the total value of all student debt in the U.S. was worth a whopping $1.7-trillion dollars as of December 2020.

While many of these individuals will have to repay their student loans, some may qualify for student loan discharge and forgiveness programs.

Individuals may also apply for a federal student loan discharge under certain circumstances such as total and permanent disability, school closure, and, in some cases, bankruptcy.

Student loan discharge programs are intended for individuals with federal student loans. But the type of loan matters too. With the exception of Borrower Defense to Repayment, which is available for Direct Loans only, all of the below discharge programs are available for both Direct and FFEL Program loans.

Perkins Loans have their own forgiveness and discharge programs, though most of the below scenarios qualify. Note that the Perkins Loan program ended in 2017.

There are no blanket programs or rules about private student loan discharge. While some lenders will discharge a student loan in the event of disability or death, there are no regulations obligating them to do so.

Recommended: What Is the Student Loan Forgiveness Act?

Types of Federal Student Loan Discharge Programs

The federal government offers a number of programs for canceling or discharging student debt.

Forgiveness/cancellation programs are generally available to individuals who:

•   work in the public sector, for a government or not-for-profit organization
•   or for full-time teachers at low-income schools or educational services agencies, who have been employed there for five full consecutive years.

There are also a number of circumstances under which an individual may qualify to have their student loan discharged. Read on for more details on the different reasons federal student loans may be discharged.

Recommended: Types of Federal Student Loans

Closed School Discharge

Individuals may be eligible for a 100% discharge on some types of student loans if their school closes while they are still enrolled or soon after they withdraw. Students on an approved leave of absence at the time of school closure are still eligible.

There are some exceptions:
•   For loans disbursed prior to July 1, 2020, an individual may not have withdrawn from their program more than 120 days before the school closure (180 days prior to closure for loans disbursed after July 1, 2020)
•   The individual may not have completed the coursework for their program prior to the closure
Students cannot transfer to another school to complete the program or do so via other means

Total and Permanent Disability Discharge

In order to qualify for a total and permanent disability discharge, an individual must be able to provide documentation that they have become totally and permanently disabled. There are only three allowed sources that can provide the documentation required to qualify:
•   the U.S. Department of Veteran Affairs
•   the Social Security Administration
•   or a physician

Each of these sources carries unique requirements in order to verify eligibility.

Recommended: Student Loan Disability Discharge Eligibility

Discharge Due to Death

A federal student loan may be discharged with acceptable proof of death. Documentation such as a death certificate generally qualifies as acceptable proof of death.

Discharge in Bankruptcy

Though not automatic, it is possible to have a student loan discharged in the event of Chapter 7 or Chapter 13 bankruptcy. This discharge requires a separate legal action, called an adversary proceeding, in which the court must agree that having to continue to repay the debt would impose an undue hardship on the individual.

In addition to discharges granted due to an individual’s personal circumstances, there are also some scenarios where the school’s actions may confer eligibility. These include:
•   Borrower Defense to Repayment: if the school engaged in certain types of misconduct based on certain state laws
•   False Certification Discharge: if an individual’s school falsely certifies their ability to receive a loan
•   Unpaid refund discharge: if an individual withdraws but the school does not return loan funds as required

Recommended: Bankruptcy and Student Loans: What You Should Know

The Takeaway

There are a few programs that allow eligible borrowers to discharge their student loan debt. For private student loans, there is no universal rule or regulation governing discharge.

While getting rid of student debt would indeed be a dream come true for most people, the stringent requirements for receiving federal student loan discharge means many people are not eligible.

But that doesn’t mean there aren’t other ways to reduce the burden. Refinancing a student loan is one way to help lower the total cost of student debt by tapping into more favorable interest rates for qualifying borrowers, which could reduce the total amount of interest paid.

The benefits of federal student loans are eliminated when the loan is refinanced, so those pursuing federal loan forgiveness, and others, may not want to refinance.

Learn more about whether student loan refinancing is the right option for you.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.

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Source: sofi.com