Paying Off Trade School Loans: Refinancing and Other Options

Sulaiman Abdur-RahmanUpdated October 12, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Students who borrow money to attend a trade school are expected to repay their loans over a set term. A trade school loan is a student loan that covers some or all of the expenses of getting a trade school education. A trade school is a postsecondary institution that can help students develop technical skills for a specific trade or career. Some certificate-granting programs may participate in the U.S. Department of Education’s student aid program. This means trade school students may be eligible for federal student loans and private student loans. Annual tuition at two-year trade schools can cost anywhere from $3,900 to $18,000 on average, and federal student loans might not be available for all trade schools. Whether you’ve borrowed money to pursue a career in plumbing, carpentry, or electrical work, you may have several options for paying off that debt if you don’t qualify for total student loan forgiveness.

What Are Trade School Loans?

As mentioned above, trade school loans are student loans that cover some or all of the expenses of getting a trade school education. A trade school is a postsecondary institution that can help students develop technical skills for a specific trade or career. Trade school loans, for example, can help you pay for the cost of attending a certificate program in plumbing or pipefitting. These loans can come from the federal government or a private lender. The difference between private and federal student loans is that federal student loans are provided exclusively by the U.S. Department of Education. Banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans.

Loan Options for Trade School

Below we highlight some of the loan options for trade school:

Private Student Loans

Private student loans can help you pay for the cost of attending an eligible trade school certificate program. As mentioned above, banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans.

Federal Student Loans

Federal student loans can help you pay for the cost of attending an accredited trade school program. As mentioned above, the U.S. Department of Education offers federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.

Paying Back Trade School Loans

Here are some of the ways you may pay back trade school loans:

Loan Consolidation

Borrowers may consolidate their federal student loans into a Direct Consolidation Loan. Consolidation can merge all of your federal student loan liabilities into a single federal loan. It can also give you up to 30 years to repay your loans in certain cases. You may lower your monthly payment by consolidating into a longer repayment period. Consolidation can also simplify your federal student loan repayment obligations if you merge all of your federal loans into a single loan product.

Income-Based Repayment Plan (IBR)

Borrowers with a high level of federal student loan debt relative to their annual discretionary income may qualify for an IBR repayment plan. Borrowers under an IBR plan may have a monthly payment equal to 15% or 10% of their discretionary income. The repayment period under this plan may be 20 years or 25 years. Borrowers who qualify for an IBR plan may have monthly repayments never exceeding the 10-year Standard Repayment Plan amount. Any remaining loan balance at the end of an IBR plan’s repayment period would be forgiven. The U.S. Department of Education is proposing a rule that would give certain borrowers an income-driven repayment option based on 5% of the borrower’s discretionary income. The proposed rule would also allow borrowers with an original loan balance of $12,000 or less to have their federal student loans forgiven after 10 years of making repayments. The White House revealed the proposed IDR reforms in August 2022 when President Joe Biden announced a broad debt forgiveness plan that would provide relief to 43 million borrowers. The forgiveness program announced by President Biden would provide up to $10K in debt relief to federal student loan borrowers with annual incomes below $125,000 ($250,000 for married couples). Some borrowers may qualify for $20K in debt forgiveness under Biden’s plan if they’re Pell Grant recipients who meet the income threshold.

REPAYE Plan

Federal student loan borrowers may repay their obligations under the Revised Pay As You Earn Repayment Plan, also known as the REPAYE plan. Borrowers under a REPAYE plan may have monthly payments equal to 10% of their discretionary income divided by 12. The repayment period under a REPAYE plan is either 20 years or 25 years, depending on the federal loan type. Similar to an IBR plan, any remaining loan balance at the end of a REPAYE plan’s repayment period would be forgiven. As mentioned above, the U.S. Department of Education is proposing a rule that would give certain borrowers an income-driven repayment option based on 5% of the borrower’s discretionary income. The proposed rule would also allow borrowers with an original loan balance of $12,000 or less to have their federal student loans forgiven after 10 years of making repayments.

Student Loan Refinancing

Borrowers may refinance federal student loans with a private lender. This means federal student loan borrowers may switch from a federal repayment plan to a private student loan refinancing payment plan. Student loans for trade schools can be federal or private, and borrowers may refinance both. One of the advantages of refinancing student loans is it may provide you with a lower interest rate. One of the big disadvantages of refinancing student loans with a private lender, however, is you’ll be forfeiting federal benefits, including federal student loan forgiveness programs.

Choosing the Right Option For You

Reviewing the pros and cons of refinancing student loans can help you decide whether refinancing is right for you. Refinancing federal student loans will remove your access to income-driven repayment plans offered by the federal government, such as the IBR and REPAYE plans highlighted above. Refinancing may not be right for you if you’re eligible for federal student loan forgiveness programs. Borrowers who receive $10K or $20K in federal student loan forgiveness from the Biden administration may immediately refinance any remaining student debt afterward. Loan consolidation may also not be right for you if it will cause you to lose interest rate discounts or other perks. Your personal circumstances may dictate what the right repayment option is for you. Some may ask, how long does it take to pay off student loans? It can take borrowers between 10 to 30 years to pay off federal student loans and five to 25 years to pay off private student loans. Some borrowers may never finish repaying a student loan during their lifetime. What happens to student loans when you die is the debt might be discharged, although some private lenders may demand repayment from your estate. The federal government in March 2020 suspended student loan payments in response to the COVID-19 pandemic. After a number of extensions, the moratorium on student loan payments is scheduled to be lifted on Dec. 31, 2022. Borrowers can make more than the minimum payment when paying off student loans.

Other Payment Considerations

A student loan deferment allows borrowers to temporarily stop making payments on their student loan debt obligations. Federal student loan borrowers can request a deferment for various reasons, including economic hardship or unemployment. Some private lenders may also offer temporary deferment relief to qualifying borrowers. Refinancing federal student loans can allow borrowers to replace their existing federal loans with the terms and conditions of a private loan agreement. Private lenders can set their own underwriting standards, but some may require applicants to have steady income and good credit. For subprime borrowers, it might be difficult to refinance student loans with bad credit. To refinance your student loans, you may submit a student loan refinancing application with a private lender and see if you qualify. Student loan refinancing might be right for you if you can lock in a lower interest rate. The average interest rate on student loans is 5.8% among all existing borrowers as of April 2022, according to the Education Data Initiative. The average federal student loan debt in 2021 stood at $36,510 per borrower, while private student loan debt averaged $54,921 per borrower, data show.

The Takeaway

Student loans for trade schools can help you get the knowledge, training, and certifications needed to build a career in skilled labor. Some students who complete a trade school program may be eligible for federal student loan forgiveness programs. Borrowers who receive partial forgiveness may consider refinancing the rest of their student loan debt with a private lender. Lantern by SoFi can help you compare student loan refinance rates. Refinancing for a lower interest rate and shorter term may save you money over the life of your loan. Find and compare student loan refinance options with Lantern.

Frequently Asked Questions

Will student loans pay for trade school?

How do you finance going to trade school?

Can you get a student loan for technical school?

Photo credit: iStock/andresr

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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