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The question of how student loan forgiveness would be funded doesn’t have a clear-cut answer, and ideas about how it would be paid for can be heavily influenced by a person’s political leanings. One recent survey found that the majority of Democrats support canceling some or all student debt, while most Republicans oppose any cancelation. Read on to learn more about this important issue.

Who Pays for Student Loan Forgiveness?

There’s no easy answer in terms of how plans to cut student debt would be funded. Government finance is complex. Typically, the federal government would need to foot the bill for student loan forgiveness, and the government would have two options to pay for it: cut spending or raise taxes. Making the situation more complicated is the fact that forgiven loans may have already earned a profit, which could make reconciling the impact of writing off this debt even harder.

In addition, viewpoints on student loan debt are often divided by political affiliation. Democrats are more likely to support debt cancellation and hold the government and lenders responsible for the high levels of student debt. Republicans, on the other hand, usually are against the idea of student loan forgiveness and often feel the borrowers themselves should shoulder some of the blame for the situation.

Spending Cuts and/or Higher Taxes

If some or all student loans were to be forgiven, here’s a closer look at some potential paths:

•  Cutting spending, which can be challenging. Some financial and legal experts worry that cuts would wind up hurting education resources, such as universal pre-K and higher education initiatives. These could be trimmed to save money.

•  Raising taxes, which could involve increasing individual income tax rates or reducing tax deductions, such as mortgage interest, charitable contributions, medical expenses, IRA contributions, and more. The government could also opt to raise taxes on corporations and the wealthy.

•  A combination plan of the two methods: some tax cuts along with some tax hikes.

Neither Is Necessary

Another point of view to consider: Some pundits say that the cancellation of federal student loan debt won’t cost the government anything. They point to the fact that student loans were paid for by taxpayers when the funds were first disbursed.

They also hold that, over time, payments by borrowers of student loans to the Department of Education have almost been equal to the amount of money loaned out. In that way, they see the situation of forgiving loans as being close to break-even. One review found that the government collected about $85 billion a year in payments on about $95 billion a year in loans paid out. In terms of government spending, they believe forgiveness would not result in a major shortfall.

Proponents of this theory also say that records reveal that the Department of Education has been profiting on student loans over the years, and that gain can also be seen as an asset against which canceled federal loans can be compared.

Obviously, this is a complex issue with many different viewpoints regarding the best path forward.

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

The Current State of Student Loan Forgiveness

It can be helpful to keep in mind the recent events surrounding student loan forgiveness.

•  The Biden administration announced a $441 billion federal student loan debt relief program for borrowers who earned less than $125,000 ($250,000 for married couples) in 2022. This was blocked by the Supreme Court in 2023.

In the wake of this decision, the Biden administration proposed new initiatives in April 2024 to forgive $7.4 billion in student debt, including waiving:

•  Accrued and capitalized interest for certain borrowers

•  Debt for those eligible for the Saving on a Valuable Education (SAVE) Plan, in the event of a closed school discharge, and other forgiveness programs

•  Student loan debt for those who entered loan repayment 20 years ago

•  Debt for those who enrolled in programs or institutions that provided low financial value

•  Debt for those who experience repayment hardship

In May, the U.S. Department of Education announced cancellation of $7.7 billion for certain borrowers under Public Service Loan Forgiveness Program (PSLF) and through the SAVE Plan, which offers borrowers a shortened forgiveness period. However, court orders recently halted the SAVE program after several states sued.

Where Does All the Canceled Debt Go?

It’s hard to say where all the canceled student debt would go, and it’s also difficult to forecast how much forgiving debt would cost the government, if anything. The government would at least have to adjust its revenue projections, even when the original principal has been paid off with interest.

One important note: Canceled student debt can have a positive impact on borrowers. It gives them more disposable income, which they can use in ways that stimulate the economy, from buying more consumer goods to taking out more mortgages.

Will My Taxes Increase if Student Loans Are Forgiven?

Many believe that federal student loan forgiveness, as planned, could transfer debt from borrowers who took out student loans to taxpayers, according to the U.S. House Budget Committee. This is a viewpoint that tends to be held by Republicans who are opposed to forgiveness for various reasons.

The Budget Committee has stated that approximately 87% of adults without student loans will wind up paying for the 13% of borrowers who borrowed for college and 56% of the student loan debt for graduate degree borrowers.

Currently, some estimates say that $1 trillion in federal student loan cancellation would mean an additional $2,500 tax bill for most Americans.

Another angle to consider: If borrowers’ debt is forgiven, it could be taxable. Borrowers would receive IRS Form 1099-C in this instance, and might need advice from a professional tax preparer.

Recommended: Guide to Student Loan Forgiveness

Will Private Student Loans Be Forgiven?

The Biden administration’s student loan forgiveness plans would not cancel private student loans, which come from private companies, including online banks. The forgiveness plans only apply to those with federal student loans, or loans that come from the U.S. Department of Education.

Unlike federal student loans, which borrowers apply for using the Free Application for Federal Student Aid (FAFSA), you can apply directly to the lender for a private loan. Unlike in the case of federal loans, you may need to undergo a credit check and may encounter less flexible repayment plans with private student loans.

However, private loan lenders may offer some benefits that are similar to those of federal student loans, including deferment (when borrowers can temporarily stop making payments and interest may not accrue), forbearance (when borrowers can temporarily stop making payments or make smaller payments and where interest does accrue), or unemployment protection.

It’s wise to check carefully with your lender to find out their exact policies.

Alternative Options for Paying Off Student Loans

Since the future of forgiveness is largely uncertain, borrowers can consider other ways to pay off student loan debt. They can take advantage of several alternative options, including putting extra toward principal, considering other repayment plans, making lump sum payments, and additional methods.

Here are several possible options:

•  Put extra toward the principal: Putting extra cash toward your principal student loan can result in a faster payoff than by simply making your usual monthly payment. Putting an extra $100 toward your principal every month, for example, can make a difference. You will typically not pay prepayment penalties on private or federal loans, which is a charge that penalizes you from paying off your student loans early.

•  Make lump-sum payments: If you have a lump sum, like a tax refund, a bonus, or other windfall money, you can put that toward your debt instead of spending it. If you can find extra money regularly (such as a couple of times a year), that could help you pay off your student loans. A side hustle can also help you make lump-sum payments as well.

You might also consider using the debt snowball method of taking care of your loans, which means you put money toward your smallest loan balance, then progress to larger loan balances after that.

•  Check with your employer: Your employer may offer a student loan repayment benefit. Learn whether your employer will help pay for qualified educational expenses, including your student loan balance.

•  Budget your money: Living on a budget is a great way to ensure you make on-time student loan payments. Though you’re shielded from penalties on late payments through September 2024 through an on-ramp period, it’s still good practice to avoid late payments so you don’t risk default later.

•  Refinance or consolidate student loans: Refinancing means changing one or more loans to private student loans with a new interest rate, term, and monthly payment. Securing a lower interest rate means you’ll pay less interest over time. However, it’s important to be aware that refinancing federal student loans in this way means you will forfeit the right to certain benefits and protections, such as deferment. Also, if you refinance for a longer term, you may well pay more interest over the life of the loan.

•  Consolidating federal student loans: This means pooling one or more federal student loans into a Direct Consolidation Loan with one monthly payment with one interest rate. You may save money over time when you consolidate, but check to be sure.

•  Repayment plans: Several repayment plan options exist for both federal and private student loans. For example, with federal loans, you may look into several income-driven repayment plans, such as the SAVE, Pay As You Earn (PAYE), income-based repayment (IBR), and Income-Contingent Repayment (ICR) plans as repayment options. Check with your loan servicer to determine which makes sense for you, whether you have a mix of federal and private loans or just federal loans.

Recommended: Are Student Loans Forgiven After 20 Years?

The Takeaway

There are different opinions about how federal student loan forgiveness will be paid for, if and when it’s enacted. Viewpoints often align with a person’s political beliefs, with Democrats tending to favor loan cancelation and Republicans being against it.

Regardless of the future of student loan forgiveness, there may still be options to help you manage your student debt, such as budgeting, considering alternate repayment plans, or refinancing.

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

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

FAQ

How will student loan forgiveness be funded?

Some experts claim that the government would need to cut spending or raise taxes to fund student loan forgiveness.

What impact will student loan forgiveness have on borrowers?

Pending legal blocks, borrowers could see some of their student loans disappear, providing relief for millions of borrowers. It’s also important to understand that student loan forgiveness may be subject to tax. You’d receive Form 1099-C to document it; consider checking with a tax professional to learn more about how tax applies in your situation.

What are the potential drawbacks of student loan forgiveness?

In addition to the potential for taxpayers to shoulder the debt, other downsides of debt forgiveness might include the forgiven amount being taxed, cuts to government educational spending, and overspending and increased debt for students who find themselves with more disposable income.

Photo credit: iStock/Drazen Zigic

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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

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

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

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Every college major requires work, but some fields of study are more rigorous than others. For instance, you won’t find too many people who think that pre-med is a snap. While earning your undergrad degree isn’t going to be effortless, there are definitely some easier college majors out there that won’t be as taxing.

Choosing a less complex major doesn’t mean you’re doomed to a low-paying job for life. In fact, it can be quite the opposite. Read on to learn about 12 relatively easy college majors that can lead to jobs that pay well.

What Makes a Major “Easy”?

The workload for an easier major, like creative writing, probably won’t be as intensive as that of, say, biomedical engineering, neuroscience, or applied mathematics. You likely won’t have long lab sessions, tons of problem sets, and other arduous assignments.

This could make achieving higher grades a simpler proposition. Your noteworthy grades could, in turn, help you get a leg up after graduation. You might be able to step into a higher-paying job more easily, which could help you pay off any private school loans for college you might have.

A college major can also feel easier if it’s a field you’re interested in and passionate about. Your excitement about a major will likely make going to class something you’ll look forward to and the work required seem like less of a drag.

Recommended: A Guide to Choosing the Right College Major

12 Easy College Majors That Ultimately Pay Well

While getting an entry-level job paying a six-figure salary isn’t the norm for these easy college majors, you could still earn big bucks down the road.

Here, you’ll learn about 12 easy majors along with some average entry-level salaries and mid-career pay for positions within each field, according to Salary.com.

1. Marketing

A marketing degree opens up many career possibilities. People who major in marketing can find positions in all types of companies, industries, institutions, and nonprofits. Jobs in marketing include positions focusing on a business’s or brand’s strategy, sales techniques, advertising and communications, or public relations.

Marketing careers can pay off over time.

•   Average entry-level salary: $35,516 for a marketing assistant.

•   Average mid-career salary: $91,870 for a marketing manager.

As you see from that mid-career pay grade, a six-figure salary could be just around the corner.

2. Human Resources

With a college degree in human resources (HR), you can work in many different roles, including talent recruitment, benefits administration, DEI initiatives, or workplace development training.

In terms of landing a well-paying job, here are some salaries to note:

•   Average starting salary: $43,386 for an HR assistant.

•   Average mid-career salary: $94,576 for an HR manager.

3. Hospitality

Do you love looking at fab resorts and restaurants in your social media feeds? This major might be a perfect fit for you. With a degree in this field (which likely doesn’t involve any science labs), you might work in an array of positions. Some examples: hotel, resort, or restaurant management; event planning; or travel booking and tourism, among others.

Some salaries to note for this college major:

•   Average starting salary: $50,949 for an event planner.

•   Average mid-career salary: $76,898 for a hotel manager.

These figures are notably higher than $43,262, which Indeed cites as the current average starting salary in the U.S.

Recommended: Is $50K a Good Salary for a Single Person in 2024?

4. Communications

As one of the most popular college majors, a communications degree can prepare you for many different career paths. Marketing (mentioned previously) can fall under the umbrella of communications. Other areas for employment with this degree include public relations, advertising, journalism, writing, broadcasting, publishing, and social and digital media development.

A sample of the salaries you might expect at different points in your career:

•   Average starting salary: $51,928 for a corporate communications assistant or $45,955 for a social media assistant.

•   Average mid-career salary: $125,700 for a corporate communications manager and $116,090 for a social media manager.

5. Public Relations

Public relations (PR) has a broad reach. If you’re looking to capitalize on a degree in public relations, you might find a job in a small or large PR agency, a corporate PR department, or as an independent consultant to various clients. Since working in PR often involves frequent communication with clients and the public, this field can offer some of the better jobs for extroverts.

•   Average starting salary: $49,383 for a public relations specialist.

•   Average mid-career salary: $93,556 for a public relations manager.

6. Liberal Studies

A liberal arts or liberal studies major allows for a lot of flexibility and variety when it comes to job prospects. Students majoring in liberal arts or studies participate in a multi-disciplinary program, often including courses in humanities, history, art, literature, science, and philosophy. Earning a liberal studies degree can offer students a chance to develop many important “soft skills,” including problem solving, communication, and analytical and critical thinking.

Someone with a liberal arts degree may be drawn toward work in libraries, arts administration, government, or education and academia.

•   Average starting salary: $66,575 for a public policy analyst.

•   Average mid-career salary: $147,140 for a public policy manager.

7. Anthropology

Anthropology focuses on the study of humans in different cultures and societies, spanning various time periods and locations. It may not involve the kind of coursework that, say, studying law does, but it can be a fascinating field.

An anthropologist can work for ethnic or cultural organizations, museums, historical sites, research firms, or as a social or community services manager.

•   Average starting salary: $47,660 for a museum collectors curator.

•   Average mid-career salary: $64,962 for a museum director.

8. History

Knowledge of the past can be a powerful career springboard. Besides becoming a historian, history majors may find work in journalism, teaching, and politics. People with history degrees can also possibly find work at historical societies, museums, and libraries.

•   Average entry-level salary: $57,015 for a library archivist.

•   Average mid-career salary: $85,724 for a senior librarian.

9. Advertising

Advertising often taps a student’s interest in sales and contemporary consumer culture. Careers for advertising majors range from creative pursuits (copywriting or art direction, for instance) to more business-driven ones, such as being an account coordinator or a sales rep.

•   Average starting salary: $47,346 for junior copywriter, $45,686 for a junior graphic designer, or $43,300 for a junior sales rep.

•   Average mid-career salary: $122,524 for a copywriting manager, $122,236 for a graphic design director, or $107,183 for a senior advertising account manager, all of which can be a good salary for a single person.

10. English/Creative Writing

An English or creative writing major may be what many people consider easy. Depending on the path you take, it could lead to a high-paying job. People who choose this field may pursue a job as a proofreader, copy editor, technical writer, book editor, author, or an editor at a publishing company or magazine. These may all be lower stress jobs that are good for introverts.

•   Average starting salary: $44,750 for an entry-level proofreader.

•   Average mid-career salary: $98,101 for a senior editor.

11. Sports Management

Anyone who loves sports (whether participating, watching, or both) may be attracted to a major in sports management. Sports management encompasses a wide array of jobs, including becoming a sports agent, an athletic director, or a sports facility manager.

•   Average starting salary: $51,539 for a sports coordinator position.

•   Average mid-career salary: $69,061 for a sports manager job.

12. Criminal Justice

If you’re always watching procedural dramas on TV, you might be interested in majoring in criminal justice. While this field of study may be considered easy as compared with, say, a mathematics major, that doesn’t mean a career in criminal justice isn’t going to be challenging and rewarding.

Jobs for criminal justice majors can include working in the areas of law enforcement, forensics, investigations, and crime prevention.

•   Average starting salary: $50,733 for a fraud investigation officer or $56,376 for a police officer (plus, you might eventually qualify for federal student loan forgiveness programs) .

•   Average mid-career salary: $123,694 for a fraud manager or $90,671 for a chief detective position at a business.

Factors Besides Difficulty

Now you know 12 relatively easy majors that can lead to a job with high pay. But it’s worthwhile to consider some other factors that should be considered when choosing a college major.

Job Outlook

Some fields are growing faster than others. As you think about your major, it can be a good idea to make sure the one you choose will lead to a field that is growing and will have plentiful job opportunities after college. For instance, if you have a criminal justice degree and want to work in fraud investigations, you might find that there’s considerable growth in digital fraud and focus your education to prepare you for that kind of work.

Passion/Interest

Sometimes what makes coursework in college seem easy is that you love it. Ask any astrophysics major. They may think what they are studying is hard, but because they love it, the pursuit feels engaging and worthwhile.

In other words, if you are passionate about a subject, that can be a good reason to major in it, even if it has a reputation for being hard.

School Prestige

When it comes to getting a high-paying job after graduation, it can help if you pursue a program that your school is known for. For instance, some universities are renowned for having great journalism programs, and that reputation could give graduates an advantage in the job market.

The Takeaway

Getting an undergraduate degree, no matter what the major, requires hard work and dedication. However, there are some majors that fall into the “easier” category such as communications, anthropology, and history. These majors may not require as intensive a curriculum as others (say, chemical engineering), but grads can still go on to earn high salaries.

Regardless of whether your major is considered hard or easy, you may need some help paying for your education.

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

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

FAQ

Is an “easy” major looked down on?

There may be some people who think certain majors are easy, but virtually all college majors require hard work. After graduation, hiring managers are likely looking for someone who performed well in school, is enthusiastic about their studies, and wants to apply their skills to their chosen career.

Do easy majors require less study time?

How much time and effort a college major requires can depend on the school, the curriculum, and a student’s approach to their studies and their aptitude. It’s not possible to say that all easy majors require less study time.

What are the highest paying majors overall?

According to a 2024 report from the National Association of Colleges and Employers, the highest paying majors are those in the STEM (science, technology, engineering, and math) category. The three highest paying majors are engineering, computer sciences, and math and sciences.

Photo credit: iStock/Drazen Zigic

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

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

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Student loans are often the go-to choice for families who need help paying for a child’s college education. But as you put together your financing plan, you may find there are other options worth considering — including using a home equity line of credit, or HELOC, to cover some college costs.

Both types of borrowing have advantages and disadvantages that may influence your decision to use one or both to pay for school. Read on for a look at student loans vs. HELOCs, and how each can be used to help with your family’s educational and financial goals.

What Is a HELOC?

A home equity line of credit, or HELOC, is a revolving line of credit provided by a private lender and secured with the equity you have in your home.

HELOCs are sometimes confused with home equity loans, but they are not the same thing. Because a HELOC is a line of credit, you pay interest only on the amount of money you’ve actually borrowed. Payments can vary from month to month, and as you replenish the account by making payments, you can borrow from it again. With a lump-sum home equity loan, a borrower receives all the money upfront and pays interest on the entire loan amount from day one.

A HELOC can be used to pay for just about anything — including tuition, books and supplies, housing, transportation, and other college expenses. But because the line of credit is secured with your home, if you fall behind on your payments, you could risk foreclosure. And should you decide to sell your home, you may be required to repay what you currently owe.

Recommended: Different Types of Home Equity Loans

What Are Student Loans?

Student loans allow students and, in some cases, their parents, to borrow money to pay for a college education. Here’s how the two main types of student loans work:

Federal Student Loans

There are a few different types of federal student loans, and each has its own rules when it comes to how much you can borrow and how the money is repaid. But generally, they offer lower interest rates than many other types of loans and include more protections for borrowers, including temporary relief programs in case of financial hardship, and even the potential for loan forgiveness.

To apply for federal student aid, you must submit the Free Application for Federal Student Aid (FAFSA®) form. If you qualify for assistance and accept what’s offered, the school will apply your federal loan funds to your outstanding account charges (tuition, fees, etc.). Whatever is left after that will then be turned over to you to use for other educational costs.

Private Student Loans

Private student loans are issued by nongovernment lenders, such as banks, credit unions, and other financial service companies. Because they aren’t backed by the federal government, these loans do not offer the same repayment options or safety-net protections as federal loans. So, if your family (student and/or parents) qualifies for federal student loans, you’ll probably want to tap those first. However, if you’ve exhausted your federal financial aid and require additional funds, you may find you can get the help you need by borrowing through a private lender.

Key Differences Between a HELOC and Student Loans

While you may decide to use federal or private student loans, a HELOC, or all three types of financing to help pay for a college education, it’s important to be aware of some key differences in how they work.

Interest Rates

•   Federal student loans are usually the way to go for borrowers who are looking for the lowest interest rates available. These loans come with a fixed interest rate that is set by the government, so once you sign on the dotted line, you can expect to pay the same rate for the life of the loan. But different types of federal student loans have different interest rates, and the way interest starts accruing on these loans also varies. If you have a subsidized loan, for example, you won’t accrue any interest while you’re in school, for six months after you leave school, or during any deferment. The U.S. Department of Education pays the interest during these periods. The interest on an unsubsidized loan starts accruing immediately, however, and it is the borrower’s responsibility.

•   Private student loans are generally available with a choice of a fixed or variable interest rate, but these rates, which are set by the individual lenders, can vary quite a bit — so it can be a good idea to shop for the most competitive offer based on your creditworthiness and other qualifications.

•   HELOCs have a variable interest rate, which means the rate can fluctuate over time. This could be good or bad, depending on which way interest rates are going. If rates drop, the borrower could benefit; but if they rise, it may make it harder to keep up with the payments. Still, because a HELOC is secured with your home, the interest rate may be lower than with other types of unsecured borrowing, such as personal loan or credit card. And because it’s a line of credit and not a lump-sum loan, you’ll only be charged interest on the amount you’ve actually borrowed.

Recommended: Student Loan Interest Rates Guide

Fees

•   Federal student loan borrowers are often surprised to learn they’ll be expected to pay an origination fee on each loan they receive. Origination fees are currently 1.057% for federal subsidized and unsubsidized loans for undergraduate and graduate students, and 4.228% for federal PLUS loans for parents and graduate students. The lender who is servicing the loan also may charge a fee if a payment is more than 30 days late.

•   Private student loan fees also can vary based on the lender you choose. Some may charge an origination fee or fees for late payments, while others, including SoFi, have zero fees on student loans.

•   HELOC fees can vary depending on the lender, but they often include an application/origination fee, notary fee, title search, appraisal fee, credit report fee, document prep fee, and recording fee. There also may be an annual maintenance fee, and charges for early termination or account inactivity.

Repayment Terms

•   Federal student loans offer the most repayment options for borrowers, including a fixed payment plan that ensures loans are paid off within 10 years and income-driven plans that base your monthly payment on your earnings and your family size. Some borrowers also may be able to have a portion of their loans forgiven. And those who have multiple federal student loans may choose to consolidate them into a single Direct Consolidation Loan. Another plus: Student and parent borrowers may be eligible for a deferment period if they become unemployed, experience an economic hardship, or serve in the military.

•   Private student loans have different repayment terms depending on the lender, and can often be repaid over a period of 10 to 15 years or longer, usually starting six months after graduation. There is no loan forgiveness with a private student loan, but some lenders, including SoFi, may offer borrowers a student loan deferment period that’s similar to what some federal loans offer. However, you can expect your loan to continue accruing interest during this time.

•   HELOC borrowers usually are required to make at least a minimum monthly payment during their account’s “draw” period. When the draw period ends — typically after 10 years — access to the line of credit ends and the lender sets up a repayment schedule based on the balance owed.

Credit Requirements

•   Federal student loan borrowers who are undergraduates don’t have to worry about passing a credit check as part of their application process — and they don’t need a cosigner to get a loan. Though parents and graduate students do have to pass a credit check to get a federal loan, there’s no required minimum credit score.

•   Private student loan lenders may have different credit requirements, but all borrowers (including undergraduates) should expect to go through a credit check. Lenders generally will be looking for a solid credit history, a good-to-excellent credit score, and other factors that show the borrower — alone or with the help of an eligible student loan cosigner — has the ability to repay the loan.

•   HELOC credit requirements can vary, but typically lenders require that you have at least 15% to 20% equity in your home, a healthy debt-to-income ratio that shows you can afford to take on the added debt load, and a credit score that indicates you can reliably repay the money you owe.

Tax Deductibility

•   Federal student loan interest payments can qualify for a tax deduction of up to $2,500, as long as you used the loan to pay eligible higher education expenses for yourself, your spouse, or a dependent. And you don’t have to itemize deductions on your return to get the tax break: The interest you pay is considered an income adjustment, so there’s no separate form to fill out.

•   Private student loan interest payments qualify for the same tax deduction as federal student loans, with the same requirements.

•   HELOC borrowers can only claim their interest payments as a deduction if they used the borrowed funds to “buy, build, or substantially improve your home.” Interest paid on money used for college doesn’t qualify for a tax break.

Borrowing Limits

•   Federal student loans have different borrowing limits based on the loan type and your student status (undergraduate or graduate) or if you’re a parent.

•   Private student loan limits can vary by lender; there is no set borrowing limit as with most federal loans. However, the maximum amount you can borrow may be based on your school’s estimated cost of attendance minus any other forms of financial aid you receive, your creditworthiness, and other factors.

•   HELOC lenders typically will allow you to tap into your home equity for 85% or more of your home’s current appraised value minus the amount you currently owe, So, for example, if your home is valued at $350,000 and you owe $250,000, you might qualify for a HELOC that’s $47,500 ($350,000 x 85% = $297,500 – $250,000 = $47,500).

Alternative Options

Although a HELOC can be used to pay for college — especially if you find you need more money than you can get in student loans — there are other options that could help your family manage education costs.

Scholarships and Grants

A wide range of scholarships and grants are available to students who are willing to take the time to do some research and apply. And this type of financial aid, which can come from private organizations, colleges, and other sources, doesn’t have to be repaid.

Work Study or a Part-Time Job

A work-study program or part-time job can also help pay some college costs. A student can check with the financial aid office at his or her school to learn more about participating in federal or state work-study programs. And local businesses like coffee shops, restaurants, retail stores, and markets often hire college workers to help out at night and on the weekends.

529 Plans

If your student is still a few years away from attending college, you may want to look into a state-sponsored 529 college savings plan, also known as a qualified tuition program. These tax-advantaged plans offer parents and others an opportunity to save ahead for a family member’s college expenses.

The Takeaway

Using a HELOC vs. student loans to pay for college has advantages and disadvantages. Because you only have to pay interest on the amount you actually borrow, a HELOC can be an affordable alternative, or addition, to lump-sum student loans. And since your home is used as collateral with a HELOC, the interest rate may be lower than with some other borrowing options. Of course, this also means you could lose your home if you can’t make your HELOC payments.

You may want to exhaust any federal financial aid for which your family is eligible — and check out potential private student loan offers — before turning to a HELOC for help. Federal student loans offer borrower protections you can’t expect with a HELOC, and you won’t be putting your home at risk.

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

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

FAQ

Can I use both a HELOC and student loans?

Yes, if the federal financial aid for which you are eligible doesn’t cover all your college costs, you may choose to combine a HELOC with both federal and private student loans. You may want to compare all your options before moving forward, however, and it may be helpful to make a plan for how you expect to use and repay the money you borrow.

Does the interest rate on a HELOC vary?

Yes, a HELOC comes with a variable interest rate, which means the interest rate you pay could fluctuate based on movements in the underlying benchmark interest rate or index.

Are student loan interest rates fixed?

Federal student loans have fixed interest rates, so you’ll pay the same rate for the life of the loan. Private student loans may be offered with a choice of a fixed or variable interest rate.

Can you use a HELOC to pay off student loans?

If you can qualify for a lower interest rate, you might consider using a HELOC to pay off your student loans. But it’s important to keep in mind the upfront and ongoing costs that come with a HELOC — and you’ll lose the tax deduction you receive for the interest paid on your student loans. You’ll also lose the protections that student loans offer borrowers, and you could put your home at risk if it turns out you can’t make your HELOC payments.

Photo credit: iStock/andresr

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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

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

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

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

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

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If you’re delinquent on your student loans, you may experience garnishment if your student loan debt is with a state or federal government or part of a federally insured student loan program. (Garnishment means withholding a tax refund by automatically sending it to your loan servicer to repay a defaulted loan.) Private creditors may also collect your tax refund to repay your student loan debt.

Obviously, garnishment is a difficult situation. Read on to learn more about your alternatives if you are potentially dealing with this scenario.

Can Student Loans Garnish My Tax Refund?

If your loans came from a state or federal student loan program, the federal government may garnish up to 100% of your tax refund if you’re in default repaying your loans. Default is defined as the failure to repay a student loan according to the terms of your promissory note.

You’re considered to be in default if you haven’t made a payment in more than 270 days. You may also experience legal consequences and will lose eligibility for more federal student aid.

However, it’s worth noting that if you are just 90 days or more behind on your payments, you are still considered to be delinquent in your payments. The three major credit bureaus (Equifax®, Experian®, TransUnion®) will likely be alerted. This information may possibly lower your credit score.

Also, only federal loans in default can result in tax refund garnishment, not private student loans, though your servicer might take other steps to get the funds they are owed.

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

Options for Managing Student Loans

Fortunately, you may be able to avoid default and avoid worrying about the government garnishing your refund. You can head off tax refund garnishment using a few different methods.

It can be wise to talk with your student loan servicer about all your available options. They can help you identify the right repayment strategy for your unique situation. If you have private student loans, you can also talk to your provider to determine the right course of action.

That said, here are a few options to consider:

SAVE Plan

The Saving on a Valuable Education (SAVE) Plan, which replaced the Revised Pay As You Earn (REPAYE) Plan, offers a potential alternative to tax refund garnishment of federal student loans. The SAVE Plan is an income-driven payment plan that lowers your federal student loan payments, taking your income and family size into account to determine your monthly payment.

The plan determines your payment based on your discretionary income, or the difference between your adjusted gross income and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for your family size.

The SAVE Plan eliminates monthly interest for both subsidized and unsubsidized federal student loans if you make your full monthly payment due. The government covers your monthly interest, meaning your loan balance won’t grow due to accrued unpaid interest.

Under the original SAVE Plan, if you initially borrowed $12,000 or less, after as few as 10 years, your loans would be forgiven (meaning you wouldn’t have to continue to repay your loans after you satisfy all the requirements and guidelines of the plan).

However, it’s important to note that two U.S. district judges (one in Kansas, the other in Missouri) recently placed an injunction on the next phase of the SAVE program and blocked it from providing additional loan forgiveness. The next phase of the SAVE program was scheduled to take effect on July 1, 2024. This is a still evolving situation as of this article’s publication date and one to monitor carefully.

Recommended: Can Student Loans Be Discharged?

Offer in Compromise

You can also take a different tack and work directly with the IRS (Internal Revenue Service) to avoid wage garnishment instead of approaching your student loan servicer. An Offer in Compromise (OIC) may also help your situation.

In an OIC, you pay the IRS less than your total tax debt if you owe the IRS more back taxes than you can afford to repay. If the IRS accepts your OIC, you must meet all the terms of your offer agreement — the IRS will only release your federal tax liens and levies once you fulfill those obligations.

You can fill out the OIC prequalifier tool to learn about your eligibility for an OIC.

Federal Student Loan On-Ramp

Most federal student loan borrowers began federal student loan repayment in October 2023 after the payment pause ended.

To ease borrowers into repayment, the Department of Education created an “on-ramp” period through Sept. 30, 2024, which prevents borrowers from suffering the worst consequences of missed, late, or partial payments, such as:

•   Being considered delinquent (meaning your loan payments are 90 days or more late)

•   Reports of delinquency to credit scoring companies

•   Loans going into default

Note that interest will still accrue, and not making payments means you’ll owe more money on your student loans over time. Your loan servicer may eventually have to increase your monthly payment to ensure you pay your loans off on time.

Also be aware that you can only qualify for the on-ramp if your loans were eligible for the payment pause. You don’t have to do anything to enroll in the on-ramp period.

The Takeaway

If you are not up to date on repaying your student loans, you could be in a situation in which your loan servicer can garnish, or directly take, a tax refund that was heading your way. If this could happen to you, it may be time to consider other options, such as the SAVE Plan, an “offer in compromise” with the IRS, the federal student loan on-ramp option, or another alternative. Talking to your loan servicer can be a smart move, whether you have federal or private loans.

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

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

FAQ

Will student loans affect my tax refund?

If you continue to repay your federal student loans on time and in full, you won’t suffer any consequences to your tax refund. It’s only when your federal loans go into default (meaning they are 270 days or more late in terms of payment) that the government may garnish your tax refund to satisfy student loan debt repayment.

Can my spouse’s tax refund be garnished for my student loans?

A refund from a joint tax return with your spouse may be subject to tax refund garnishment, even though your spouse isn’t liable for your loan default. Your spouse may qualify to reclaim their portion of the refund by filing IRS Form 8379. Check with your tax preparer or search online for more information and details.

What happens if my student loans are in default?

Your federal student loans are considered in default if you don’t make your scheduled payments for at least 270 days. “Default” for private loans may be longer or shorter than the 270 days — ask your service provider for details. The consequences of defaulting on federal loans can include the entire unpaid loan balance and interest becoming due in a process called “acceleration,” lost eligibility for more federal student aid, no eligibility for deferment or forbearance, and lost ability to choose a repayment plan. Your credit score could be negatively impacted, and your wages or tax refund could be garnished.

Photo credit: iStock/MTStock Studio

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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

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

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

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

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

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

SOSL-Q224-1940149-V1

Source: sofi.com

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In the evolving landscape of employee benefits, HR professionals are increasingly recognizing the importance of supporting their workforce in managing student debt. With the resumption of federal student loan payments last year, the nearing end of the federal on-ramp, and the introduction of innovative matching programs, there’s a pressing need for HR teams to stay informed and proactive. Here’s a closer look at the current state of student loan benefits and how HR can effectively implement these programs to enhance financial wellness in the workplace.

Understanding the Impact of Student Loan Debt

Student loan debt remains a significant burden for millions of Americans, with many employees seeking positions that offer not just a paycheck, but also help in managing this debt. Recent surveys, such as the Employee Benefit Research Institute’s 2022 Financial Wellbeing Survey , indicate that nearly three-quarters of employers are now offering or planning to offer student loan debt assistance or tuition reimbursement programs. This shift underscores the growing recognition that student loan benefits offer significant value — not just for workers but also employers. SoFi at Work’s 2024 Future of Workplace Financial Well-Being study found that employees spend a full 8.2 hours dealing with finances every week while at work.

Analyzing the currently available data from the Department of Education (ED), we found that while total loan forgiveness approved by the Biden-Harris Administration has jumped to $167 billion for 4.75 million borrowers , that still leaves roughly $1.73 trillion in student debt outstanding for 43.2 million borrowers. This means that there are still a significant number of individuals in the workforce and about to enter the workforce who will still be working on paying down their student debt.

This will be particularly felt in a few key talent segments. Older borrowers represent an increasing proportion of borrowers who carry federal student debts, both in terms of the number of borrowers and the amount they owe (14% of borrowers are aged 50-61 and have federal student debt with an average balance of $44.2K). Additionally, among borrowers under 40, first-generation borrowers are about three times more likely to be behind on their payments than borrowers whose parents also attended college.

HR professionals should also be aware of the upcoming end of the federal student loan “on-ramp” period and the grace period for 2024 graduates. Specific to this year, as federal student loan repayments resumed, the ED introduced a temporary “on-ramp” period until September 30, 2024. During this time, borrowers who fail to make payments do not face default. The program was aimed to assist borrowers who might find it challenging to resume payments after the pause of almost four years.

Shortly after the on-ramp ends, most of the graduating class of 2024 (those who tossed their caps in April, May, and June this year) will experience the end of the standard federal loan grace period. Most federal student loan types have a six-month grace period after graduation, leaving school, or dropping below half-time enrollment. This means these employees will likely start their repayment journeys in September, October, and November.

It is shaping up to be a busy Open Enrollment season!

Recommended: Helping Employees Make Smart Student Debt Decisions: The Urgent Need for HR Support

Legislative Enhancements: The CARES Act and Secure 2.0 Act

The introduction of the CARES Act and the subsequent Secure 2.0 Act has provided HR teams with new tools to support their employees. Under the CARES Act, employers can contribute up to $5,250 annually per employee towards student loans on a tax-exempt basis through 2025. By enhancing Section 127 benefits, this provision not only aids employees but also offers payroll tax exclusions for employers, making it a mutually beneficial arrangement.

Further expanding the horizon, the Secure 2.0 Act, effective from January 2024, introduces the option for employers to match their employees’ student loan payments with contributions to their retirement accounts. Companies like Chipotle and Kimley-Horn have already adopted this innovative approach, allowing employees to address their student debt while enhancing their retirement savings, presenting a win-win scenario for financial wellness.

Recommended: How Does an HR Team Implement a Student Loan Matching or Direct Repayment Benefit?

Implementing Student Loan Repayment Benefits

For HR professionals looking to implement or enhance student loan repayment benefits, several key considerations must be addressed:

Direct Educational Assistance Benefits (Section 127 Provisions)

•   Determine the contribution level. While the maximum tax-exempt direct contribution stands at $5,250, companies can start with smaller amounts, such as $25 to $100 per month, which can still significantly reduce the interest burden for employees.

•   Consider tenure and eligibility. Some companies may tie these benefits to tenure, requiring a certain period of employment before employees can qualify, which can aid in retention.

•   Ensure compliance. While there are still several open questions for the IRS to clarify, it’s crucial to have a program document that complies with IRS regulations and coordinates with any other educational assistance programs offered by the employer.

Recommended: Understanding Educational Assistance Programs: A Comprehensive FAQ

Qualified Student Loan Payment Matching (Secure 2.0 Act Provisions)

•   Understand the timeline for qualified student loan payments. When setting up a qualified student loan match, plan advisers and sponsors must be clear on the timing of when these payments may be reported. This is crucial because the timeline for these matching contributions differs from that of a traditional 401(k) deferral match. Understanding and communicating these timelines can ensure smooth implementation and compliance.

•   Don’t exceed matching fund limits. When it comes to the level of matching funds that are available, it’s important to note that contributions that exceed the 402(g) limit, which is the maximum amount of money employees may defer to their 401(k) plan each year, may not be matched. For 2024, this limit is set at $23,000. The traditional 401(k) rule for matching, which allows matching only up to this limit, remains in effect. This ensures that the matching contributions are made within the legal financial thresholds.

By carefully considering these aspects, HR professionals can effectively implement student loan repayment benefits that help employees manage their debt and align with regulatory requirements and fiscal prudence.

The Role of HR in Facilitating Smart Debt Management Without a Formal Program

Beyond implementing direct financial benefits, HR can be pivotal in educating and supporting employees in managing their student debt. If your organization is not yet ready to implement Direct Educational Assistance Benefits or Qualified Student Loan Payment Matching programs, consider starting with providing resources like the SoFi at Work’s Navigating Your Student Debt Workbook and organizing workshops on student loan management. Both offerings can empower employees to make informed decisions about their repayment options.

In addition, the SoFi at Work Guide to the Restart of Federal Student Loan Repayments was developed explicitly to help borrowers reestablish their financial footing after the federal loan pause. This relevant guide provides essential information on smoothly transitioning back into making repayments. Additionally, it includes valuable resources and advice on budgeting, saving, and enhancing financial health overall.

Recommended: The Student Loan Crisis and Its Impact on Borrowers

The Takeaway

As we navigate a landscape where student loan debt remains a critical issue for many workers, the role of HR in facilitating debt management and financial wellness is more important than ever. By leveraging legislative tools and providing educational support, HR professionals can significantly impact their employees’ financial health and, by extension, their overall job satisfaction and loyalty. This proactive approach not only enhances the company’s appeal to top talent but also fosters a supportive workplace culture that recognizes and addresses the real-world challenges its team members face.

Photo credit: iStock/ArLawKa AungTun


Products available from SoFi on the Dashboard may vary depending on your employer preferences.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery, or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Advisory tools and services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. 234 1st Street San Francisco, CA 94105.

SoFi Student Loan Refinance Loans, Personal Loans, Private Student Loans, and Mortgage Loans are originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org ). The Student Debt Navigator Tool and 529 Savings and Selection Tool are provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. 2750 E. Cottonwood Parkway #300 Cottonwood Heights, UT 84121. ©2024 Social Finance, LLC. All rights reserved. Information as of April 2024 and is subject to change.

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.

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

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

SOBD-Q324-1951411-V1

Source: sofi.com

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Navigating the complexities of educational assistance programs can be challenging for employers and employees alike. Recent legislation changes have expanded how employers can provide direct and indirect education assistance. Still, the new tax incentives offered by the Secure 2.0 Act and Section 127 can be confusing. While they sound alike, they take different approaches to the same problem.

In this article, we’ll provide a detailed FAQ based on section 127 of the Internal Revenue Code to help you understand how these benefits can be leveraged, whether you’re an employer, employee, or self-employed individual.

What Is an Educational Assistance Program?

An educational assistance program is a plan established by an employer to provide educational benefits to its employees. To qualify under U.S. Code § 127 – Educational Assistance Programs , the plan must be in writing and meet specific requirements. These programs are designed to support employees in furthering their education, covering expenses such as tuition, qualified education loans (as defined in section 221(d)(1) of the Code ), fees, books, and supplies.

Most importantly, these programs have the benefit that they are tax-free, up to $5,250 per calendar year. This means the benefits provided under this threshold are not included in the employee’s gross income nor reported as wages on their Form W-2.

Recommended: How Does an HR Team Implement a Student Loan Matching or Direct Repayment Benefit?

Can Educational Assistance Cover Loan Payments?

Yes, under certain conditions. Payments on principal or interest of qualified education loans are considered educational assistance benefits if made after March 27, 2020, and before January 1, 2026. These payments must be for the employee’s education and not intended for a family member’s education. The total combined limit for these payments and other educational assistance is still $5,250 annually.

This section of the Code is most commonly referred to as the “CARES” provisions of Section 127, as these amendments were part of the broader Coronavirus Aid, Relief, and Economic Security (CARES) Act package. The CARES Act provision was set to expire at the end of December 2020, but Congress passed the Consolidated Appropriations Act before that happened, extending the tax break through the end of 2025.

The IRS discusses what qualifies as an eligible loan in more detail here.

Recommended: Helping Employees Make Smart Student Debt Decisions: The Urgent Need for HR Support

Are There Restrictions on the Types of Courses Covered?

Per the Code, educational assistance benefits can not cover payments for the following items:

•   Meals, lodging, or transportation.

•   Tools or supplies (other than textbooks) that you can keep after completing the course of instruction (for example, educational assistance does not include payments for a computer or laptop that you keep).

•   Courses involving sports, games, or hobbies unless they:

◦   Have a reasonable relationship with the business of the employer

◦   Are required as part of a degree program

An employer can further define what their program will or will not pay for as long as it meets the other requirements of the provision.

Recommended: Guide to College Tuition Reimbursement

Who Can Benefit From These Programs?

Educational assistance programs are intended for the exclusive benefit of employees. They cannot discriminate in favor of highly compensated employees or disproportionately benefit shareholders or owners. However, self-employed individuals and owners who meet specific criteria can also receive benefits, though not more than 5% of the total benefits provided can go to owners or their families.

Recommended: The Student Loan Crisis and Its Impact on Borrowers

What Happens if Benefits Exceed $5,250?

Suppose educational assistance benefits exceed $5,250 in a given tax year. In that case, the employer must include the excess amount in the employee’s gross income, subject to relevant business and income tax.

Both employers and employees should keep track of these benefits to ensure they are reported correctly. This is especially important for employees who change organizations within a given tax year, as the total assistance they receive can be at most $5,250, regardless of the employer paying it. Additionally, any “unused” amounts of the $5,250 annual limit cannot be carried over by the employer/employee to subsequent years or retroactively applied to previous years of employment.

Can Educational Assistance Be Used for Non-Employees?

Generally, educational assistance benefits are exclusively for employees. Benefits extended to spouses or dependents do not qualify under section 127 and must be included in the employee’s gross income unless they also qualify as employees.

How Do Employers Benefit From Offering These Programs?

Employers can deduct the costs of educational assistance up to the $5,250 limit per employee per year as a business expense. This helps employers support their employees’ pursuit of higher education and skill development while also benefiting from tax incentives. Education assistance initiatives can enhance the workforce’s expertise and knowledge, boost employee morale and productivity, and decrease staff turnover.

Recommended: How Student Loan Benefits Can Help Retain Employees

What Should Employers Include in an Educational Assistance Plan?

An effective educational assistance plan should clearly outline the eligibility criteria, types of benefits provided, conditions for receiving benefits, and procedures for claiming benefits. Employers may customize their plans to include provisions for part-time employees and/or prorate benefits based on employment tenure, or even grades received at course completion.

Here is an example plan document that outlines an Educational Assistance Program. Though it will have to be adapted to your organization’s unique needs and policies, this template can help you meet the written plan requirement.

The Takeaway

Educational assistance programs offer valuable benefits that significantly reduce the financial burden of furthering education. Both employers and employees stand to gain from well-structured programs that align with IRS guidelines. As these programs are subject to specific IRS rules and potential legislative changes, staying informed through reliable sources like IRS publications and updates is crucial for maximizing the benefits while remaining compliant.

For more detailed information or specific scenarios, visit the IRS website . You may also want to consult with a tax professional, who can provide guidance tailored to individual circumstances.

SoFi at Work can also help. We’re experts in the employee education assistance space. With SoFi at work, you can access platforms and information that will help build the benefits needed to create a successful and loyal workforce.


Products available from SoFi on the Dashboard may vary depending on your employer preferences.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery, or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Advisory tools and services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. 234 1st Street San Francisco, CA 94105.

SoFi Student Loan Refinance Loans, Personal Loans, Private Student Loans, and Mortgage Loans are originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org ). The Student Debt Navigator Tool and 529 Savings and Selection Tool are provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. 2750 E. Cottonwood Parkway #300 Cottonwood Heights, UT 84121. ©2024 Social Finance, LLC. All rights reserved. Information as of April 2024 and is subject to change.

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.

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

SOBD-Q324-1953127-V1

Source: sofi.com

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Ignoring student loans can damage your credit score, lead to wage garnishment, and accrue interest and fees. It may also result in legal action, tax refund offsets, and impact co-signers, making it crucial to address repayment issues promptly with your loan servicer.

Student loan debt in the United States stands at $1.727 trillion as of 2023. The repayment process may seem overwhelming if you’re among the more than 43 million borrowers with outstanding student loan debt. When the bills start piling up, you may ask yourself, “What happens if I don’t pay my student loans?” Here, we’ll take a closer look at student loans and what happens if you ignore them. 

What Happens If I Don’t Pay My Student Loans?

Technically, failure to make just one student loan payment could put you in default. However, the default period for federal student loans is generally 270 days, while the default period for private student loans depends on the terms of the loans. 

Once you default on your loan, lenders can take steps to recover these funds. It’s essential to understand what could happen if your student loan debt goes into default. 

Consequences of Not Paying Student Loans

If you’re struggling to meet all your financial obligations, you might consider not paying your student loans. However, ignoring this debt tends to lead to even more trouble. Below are several consequences you could face for not paying your student loans. 

Drop in Credit Score

Depending on the student loan type, missing just one payment could damage your credit. Because payment history accounts for up to 35% of your overall FICO® credit score, having just one missed or late payment often hurts your credit. Unfortunately, these missed payments remain on your credit report for up to seven years. 

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Poor credit might impact your ability to purchase a car or a home, rent an apartment, or even land your dream job. It’s important to take action before you miss a payment. 

Fall Deeper Into Debt

Ignoring your student loan debt won’t make it go away. In fact, it will only make matters worse. Failing to make your monthly payments only prolongs the time it takes to pay off your debt, and your loan continues to accrue interest during this time. The longer it takes to pay off your student loans, the more you’ll end up paying in interest. 

Wage Garnishment

If you have federal student loans, it’s important to realize that the government has power to collect this money if you fail to pay. One of these powers is wage garnishment—the federal government can garnish up to 15% of your disposable income. This can be a huge hit to your budget and should be avoided if possible. 

Loss of Tax Refund

Are you expecting a tax refund this year? If you default on your federal student loan, there’s a good chance you’ll lose it. Once in default, the federal government has the power to take all or a portion of your tax return until the amount due is paid. 

Damage Cosigner’s Credit

You may not be the only one impacted by ignoring student loan debt. If a cosigner helped you get one or more of your student loans, they can be impacted by late loan payments. It’s critical to speak to your cosigner when you realize you may not have the funds to pay your student loans. 

Go to Court

While the government doesn’t have to take you to court to collect federal student loan payments, private lenders do. Depending on the terms of your loan, you could be in default after missing just one payment. Private lenders can sue you to collect payments. If you’re sued, you may need to find an attorney who works with student loan debt cases to help you through the court process. 

Debt Doesn’t Go Away

Student loan debt doesn’t disappear just because you ignore it. Instead, it could haunt you for the rest of your life. There’s no statute of limitations for collecting federal loans. 

On the other hand, private lenders must adhere to state statutes of limitations. While this may limit the time they have to sue you in court, it doesn’t stop them from trying to collect this debt. This means debt collectors could hound you for the rest of your life.

What to Do If You Can’t Afford to Pay

If you simply don’t have funds to pay your student loans, the last thing you want to do is ignore the problem. There are several steps you can take to avoid making this situation worse. 

Check Your Credit

Before you take any action regarding your student loans, take the time to check your credit report. Credit.com’s Free Credit Report Card can help you see what debt is already impacting your credit health. 

Check the National Student Loan Database

If you have federal loans, you can use the National Student Loan Database to check the status of your loans. This database provides information about your payments and total debt amounts. 

Switch or Update Your Repayment Plan

If you have federal student loans and you’re struggling to keep up with your current repayment plan, you may be able to change it. Start by contacting StudentLoans.gov and explaining your situation. They can help you switch or update your repayment plan to make the payments more affordable. 

Contact Your Lenders

If you have private loans and are struggling to make your monthly payments, start by contacting the lender directly. If your situation is temporary, such as a loss of employment or medical condition, you can request a deferment of your payments. This step essentially pauses your payments for a set period, such as six months, to give you time to deal with your situation. 

Consider Debt Consolidation

Making monthly payments on multiple student loans can be extremely difficult. If you’re in this situation, it may be time to consider debt consolidation. This strategy allows you to combine all your student loans into one. Rather than having several monthly payments to make, you’ll just have one.

Talk to an Attorney

If you simply can’t afford to pay your private student loans, bankruptcy is another alternative. However, filing for bankruptcy can negatively impact your credit for up to 10 years. You should only consider this step after trying all other methods. 

Apply for Student Loan Forgiveness

Check your student loan forgiveness options if you haven’t done so already. Depending on your specific situation, you may qualify for student loan forgiveness, discharge, or cancellation of debt. 

Be Proactive About Your Credit

Now that you know about the potential negative consequences of not paying your student loans, you know how important it is to be proactive about them. Start by checking your Free Credit Score with Credit.com to see how where you stand and how your student loans could impact your credit. 

Source: credit.com

Apache is functioning normally

Federal student loan interest rates for 2024-25 are now live. Some have reached record highs, increasing the cost of college for people who will take out student loans for the upcoming school year.

Here’s how the current 2024-25 federal student loan interest rates compare to 2023-24 rates:

  • Direct unsubsidized loans for graduate students: 8.08% interest rate for 2024-25, up from 7.05%

  • PLUS loans, available to parents and grad students to fill in funding gaps: 9.08% interest rate for 2024-25, up from 8.05%. 

Since 2006, all federal student loans have had fixed interest rates. Undergraduate direct loan interest rates haven’t been this high in 16 years, since the 2008-09 academic year. (The standing record is 6.8%, for loans disbursed between 2006 and 2008.) Interest rates on direct graduate loans and PLUS loans have never been this high.

The latest federal interest rate hikes come on the heels of major FAFSA errors, which impacted and delayed financial aid offers, including federal loan eligibility, for millions of students. For some families, private student loans with lower interest rates may look more attractive this year — but private loans come with fewer borrower protections and no forgiveness options.

Rising rates increase the total cost of college

Each spring, the government sets federal student loan interest rates for the academic year ahead. The rates are effective from July 1, 2024 to June 30, 2025, and they apply to all borrowers who take out new federal student loans for the 2024-25 school year. Federal student loans have fixed interest rates, so they won’t change during the repayment period — which typically lasts from 10 to 25 years, depending on your repayment plan. (If you’re already repaying older student loans, this interest rate hike doesn’t affect you.)

Ultimately, higher interest rates will make college more expensive for the millions of college students and their families who take out loans. Today, 42.8 million people collectively owe $1.62 trillion in outstanding federal student loans, per Department of Education data.

That tally may grow in the coming years: A 2024 high school graduate heading to college this fall could amass about $37,000 in student loan debt while pursuing their bachelor’s degree, according to a recent NerdWallet analysis. Dependent undergraduate students can take out no more than $31,000 in federal loans, so more students may turn to private loans to fill the gaps.

Here’s an example of how the higher interest rates can hit your wallet: If you start college in the fall and borrow $31,000 worth of unsubsidized federal direct loans over the course of your undergraduate education, with a 6.53% interest rate, you’ll wind up paying back about $42,315 under a standard 10-year repayment plan. If you’d started college in 2020-21 and taken out the same $31,000 in unsubsidized federal loans with a record-low 2.75% interest rate, you’d have had to repay around $35,510 over 10 years — a $6,805 difference.

In practice, you could pay even more. You can’t borrow the full $31,000 at once — the capped amount is split up over the years you’re in school. If you’ll be a college freshman in the fall, interest rates could increase in the three (or more) years to follow.

Federal vs. private student loan interest rates

In recent years, federal student loans have offered lower interest rates than private alternatives — but that may no longer be true for some borrowers. Currently, private student loans for undergraduates have interest rates from 3.85% to 15.9%, according to a May 2024 NerdWallet analysis.

“More than ever, we are really encouraging our families to be good consumers,” says Stacey MacPhetres, senior director of education finance at EdAssist by Bright Horizons.

Shop around for private student loans and compare interest rates like you would for a mortgage, MacPhetres adds.

To qualify for the lowest rates on private student loans, borrowers must have a high credit score. Many students will need a parent or co-signer with excellent credit to co-sign the loan and accept equal legal responsibility for repaying it.

Federal student loans don’t allow co-signers, and only federal PLUS loans require a credit check. Other federal student loan borrower protections not typically offered by private lenders include:

As a general guideline, borrowers should prioritize federal student loans. If they still have remaining costs, private student loans are a good option to fill in the gaps.

But when it comes to PLUS loans, private alternatives may be a better choice this year if you can qualify for a lower interest rate. PLUS loans don’t offer the same robust protections and flexible repayment options as other types of federal student loans, and they have a 4.228% origination fee that most private lenders don’t require.

Submit the FAFSA and free up cash flow to minimize borrowing

Evaluate your family’s capacity to pay out of pocket or consider using some savings or investments to cover education bills this year, MacPhetres says. “We’re really trying to encourage everybody to exhaust all of their other options before borrowing at all, which includes federal student loans.”

You can also minimize your total college debt and interest payments by leaning on funding sources you won’t have to repay, like scholarships, grants and work-study. You must submit the FAFSA for each year you’ll be in school to qualify for most grants and work-study. That includes the federal need-based Pell Grant, which can give you up to $7,395 per year in free money to pay for college. Many scholarships require applicants to submit the FAFSA. You also need to submit the form to be eligible for federal student loans.

The Free Application for Federal Student Aid is open until June 30, 2025, for the 2024-25 school year, but you should fill it out as soon as possible to increase your chances of getting more money — some types of aid draw from limited pools and can run out.

Another strategy to reduce borrowing: See where you or your child can trim college costs in the first place.

“Your student doesn’t have to live in the best residence facility right now … or maybe they don’t need the 21-meal plan if they have never eaten breakfast in their lives,” MacPhetres says. “Little things that you might not think would have a significant impact can certainly help in trying to reduce your overall spending.”

Source: nerdwallet.com