Jan
28
2022
bitcoin vault

Bitcoin IRA: Retirement Investing With Cryptocurrency

By | Growing Wealth, invest, Investing | Comments Off on Bitcoin IRA: Retirement Investing With Cryptocurrency

A Bitcoin IRA (individual retirement account) is a self-guided retirement account that holds Bitcoin in its portfolio. Typically, most IRAs invest in stocks, bonds, mutual funds, and ETFs. A Bitcoin IRA invests in Bitcoin, and perhaps several different types of cryptocurrency.

What is a Bitcoin IRA

The term “Bitcoin IRA” simply refers to an IRA that includes Bitcoin. There is no official designation for a Bitcoin IRA or Bitcoin Roth IRA by the IRS or any other regulatory agency.

How Does a Bitcoin IRA Work?

A cryptocurrency IRA works much like any other IRA. It’s a retirement account that invests in Bitcoin. The main difference for most customers is they will likely be interacting with three different entities:

1. Bitcoin IRA Service Providers: These are the companies an individual will deal with when they want to add Bitcoin to their IRA. They are the financial rails through which assets will be converted into Bitcoin.

2. Self-Directed IRA Custodians: These may be banks, trust companies, or any other entity approved by the Internal Revenue Service (IRS) to act as an IRA custodian. Traditional IRAs invest in stocks and bonds, but self-directed IRAs may allow alternative assets such as real estate, promissory notes, tax lien certificates, or cryptocurrency.

3. Custody or Wallet Providers: Typically, a Bitcoin IRA service will have a partnership established with a trusted wallet provider or custody solution that securely holds the private keys to a customer’s Bitcoin funds.

Can You Invest a 401(k) in Bitcoin?

The answer to this question is “maybe, but probably not.”

Until recently, 401(k) plans didn’t allow for the direct purchase of cryptocurrency. But some companies, like ForUsAll, BitWage, and Digital Asset Investment Management are starting to offer Bitcoin and other cryptocurrencies in 401(k) plans. Of course, since 401(k) plans are employer-sponsored, interested investors may be limited by what their particular company offers in terms of options. A self-employed individual seeking out a solo 401(k) may find they have more options.

There are other potential ways to roll over a portion of your 401(k) plan into Bitcoin, but the easiest way might be to use a traditional IRA.

Pros and Cons of Using a Bitcoin IRA

There are plus sides and down sides to including Bitcoin in your IRA planning. Here are some major points worth noting.

Pros of a Bitcoin IRA

A cryptocurrency IRA could provide some unique benefits, including offering overall portfolio diversification, and potentially large price appreciation.

Diversification

Bitcoin provides a unique way to diversify an individual’s overall investment portfolio.

Given Bitcoin’s performance it’s often said that Bitcoin is “uncorrelated” with the rest of the investment world. While that trend was upended in early 2020 as Bitcoin experienced a positive correlation with the S&P 500, some investors still consider it a more volatile investment.

Price Appreciation

Given that cryptocurrency is an uncorrelated asset class and exists outside the control of any single centralized authority, some investors have wondered if it could be a reasonable retirement option.

That said, past performance is never a guarantee of future returns. Bitcoin has also seen some big drops, most recently falling 12% in just 10 days from January 1 – January 10, 2022.

Cons of a Bitcoin IRA

There are also potential drawbacks to holding investments in a Bitcoin IRA, including both volatility and fees.

Volatility

Bitcoin has shown extreme volatility at times. This is one of the main reasons that cryptocurrencies are considered a risky investment.

While the list of large corporations (like PayPal, Square, and MicroStrategy) and self-made billionaires announcing large investments in Bitcoin continues to grow, volatility could be a big drawback for investors with low risk tolerance, as well as people who are close to retirement. Seeing investment funds fall by 10 or 20% (or more) in a single day can be too much for some people.

Fees

Perhaps the biggest and most assured drawback of investing in a Bitcoin IRA is the fees involved.

Aside from initial deposit minimums that are typically in the thousands, investors in Bitcoin IRAs can expect to pay fees including account setup fees, monthly platform fees, yearly administrative fees, transaction fees, and cold storage fees. Additionally, in some cases there are trade minimums, and there may be additional fees in excess of 1% per trade.

And as with other IRAs, withdrawing funds before retirement normally results in additional fees and taxes.

Taken together, the final taxes and fees could eat into a portion of the profits and tax advantages earned by a Bitcoin IRA.

How to Invest in a Bitcoin IRA

The main way to invest in a Bitcoin IRA is to use a trusted service provider that helps investors establish IRAs that hold Bitcoin.

There are some companies that have partnered with Bitcoin custodial services like BitGo, for example, to help safeguard funds for investors — although these companies cannot guarantee against loss. The specific process for starting a Bitcoin IRA might vary according to which provider an individual chooses.

A Bitcoin IRA provider can help investors buy cryptocurrency to add to their portfolio while also safeguarding the funds for them.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Is a Bitcoin IRA Account Safe?

The safety of a Bitcoin IRA account depends largely on how a Bitcoin IRA company stores the private keys to an investor’s crypto.

It is widely acknowledged that to be truly safe, keys must be held off-line in cold storage and secured using some kind of multi-signature (multi-sig for short) method. This ensures that the funds can’t be accessed by any hacker on the internet, and that multiple access methods are required to retrieve any funds.

Multi-sig works kind of like a safety deposit box, where there are two physical keys — one held by the bank and one held by the customer. There must be at least two means of user verification before funds can be accessed. A basic example would be a customer having to answer emails from two separate email accounts. More complicated methods might involve some kind of photo or voice identification in addition to multiple emails and an additional key held by the custodian of the funds.

Is Bitcoin Investing Safe?

There is no situation in which Bitcoin investing is “safe” — there is always a risk of loss with the current state of volatility in Bitcoin and cryptocurrency in general.

As far as investment gains or losses are concerned, investors will have to decide for themselves whether or not long-term Bitcoin investing falls within their comfort level and their goals.

That said, the prospect of incredible returns seems to sway more and more investors. Since 2009, the price of one Bitcoin in U.S. dollar terms has risen well over 1,000,000%, making Bitcoin the best performing asset of the decade — and in history.

While past performance is never a guarantee of future outcomes, if this trend were to continue, it could potentially mean substantial returns for investors over the long term.

Are Bitcoin IRAs Right for You?

As with any retirement planning, it’s important to take into consideration your time horizon (how many years it will be until you retire) as well as retirement goals, budget, and other personal factors. For individuals who feel comfortable with the general volatility of cryptocurrency in general, and Bitcoin in particular, a Bitcoin IRA might be one way to bring an additional layer of diversity to a retirement portfolio.

But for investors with low risk tolerance, a Bitcoin IRA is more financially risky than opening a traditional IRA composed of stocks and bonds.

The Takeaway

A Bitcoin IRA is an IRA that can hold a variety of assets like gold, real estate, or Bitcoin.

In recent years, several service providers have stepped in to fill the market need for people wanting to add Bitcoin to their retirement accounts.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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.

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.

Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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Jan
27
2022
What is BitClout and How Does It Work?

What is BitClout and How Does It Work?

By | Growing Wealth, invest, Investing | Comments Off on What is BitClout and How Does It Work?

Reputation is, in some sense, the ultimate asset — it’s associated with an individual person, it can be degraded quickly and it’s hard to build up, but once it’s established, can be converted into all sorts of value.

This is where BitClout steps in. BitClout, also known as DeSo (which stands for “Decentralized Social”), is a combination social network and cryptocurrency exchange, where individuals can create accounts that have their own coin associated with them, and users of the exchange can buy and sell those coins to express their opinion about the individuals who issue them. BitClout also has its own cryptocurrency called $CLOUT, which is used to buy those coins.

How Does BitCloud Work?

BitClout aims to use cryptocurrency and blockchain technology to create a kind of digital permanence. Each BitClout profile is intended to be associated with one person, giving them the ability to mint and profit from “creator coins.”

These creator coins are meant to be non-fungible tokens (NFTs) — digital images that are on the blockchain and thus have a fixed, non-replicable physical identity — giving people the ability to profit from their creation and trading. But these coins aren’t necessarily created by the account associated with them, which is one of the more intriguing (or controversial) aspects of BitClout.

Who Has a BitClout Profile?

When BitClout launched in March, 2021, there were already 15,000 accounts pre-loaded onto the site without any involvement by their supposed users. In less than a month, over $200 million worth of Bitcoin was deposited onto the platform despite little indication that many of the celebrity “users” of the service would ever opt into it.

As it turns out, some of BitClout’s “users” have since opted in. Several high-profile technology and cryptocurrency influencers and businesspeople rank highly on the network, including some who have actually verified their accounts, including venture capitalist Chamath Palihapitiya, entrepreneur and former CTO of Coinbase Balaji Srinivasan, and Coinbase founder and chief executive Brian Armstrong.

Who Is Behind BitClout?

Many users claimed their BitClout profile by tweeting something along the lines “Just setting up my BitClout,” with the hands and diamond emoji following.

This was a reference to two things: the first the notion of having “diamond hands” as the holder of a speculative or volatile asset like a cryptocurrency or memestock refusing to sell (the idea being that diamonds are very hard and thus someone with “diamond hands” wouldn’t “fold”). It’s also a reference to BitClout’s mysterious CEO. While the leader of the company has done several interviews with reporters, they have yet to reveal their identity.

But BitClout’s investors are quite well known and identifiable. They include Coinbase Ventures and the Winklevoss twins, two of the biggest names in crypto, as well as Andreessen Horowitz and Sequoia, two of high-profile Silicon Valley venture capital firms.

That there would be anonymity associated with BitClout is not surprising. BitClout is both inspired by and deeply enmeshed with the world of Bitcoin, whose creator Satashoi Nakamoto remains anonymous to this day.

How Can Someone Make Money on BitClout?

While BitClout claims to avoid some of the more negative aspects of mainstream social media networks, the idea is that money can be made by driving engagement or tracking those who do. Here’s a breakdown of the different ways a person could potentially make money on BitCloud.

1.    Through rewards on your “creator coins”. According to BitClout, these tokens “allow users to support their favorite creators by buying their coin, a little like a combination of AngelList and Patreon.” Like NFTs and ERC-20 tokens, creator coins are built on top of a different cryptocurrency product and are connected to a mainstream crypto, in this case Bitcoin.

Every user has creator coins and they can be bought and sold with $CLOUT, the BitCloud cryptocurrency. With your own creator coins, you can make money through rewards that flow specifically to you. These are called “founder rewards,” and the default is 10% — meaning you would get one tenth of every purchase of your coins. On the other hand, this makes the coins more expensive for others to buy and may discourage users from buying them.

2.    By holding on to your own creator coins. The idea is that the community would reward the content you create or whatever you do off the platform by bidding up the price of your creator coins, thus increasing the value of your holdings.

3.    Buying other creator coins and then waiting for the price to go up. This can be done by buying some of the more expensive coins and hoping the price shoots up after the individual has real world success that makes them more popular.

While it may seem that these money-making opportunities are more for boldface names than for regular people, there have been reports of users buying up very cheap coins or making money from selling their own coins even if there’s no association with celebrities. That said, these money-making opportunities come with a fair share of risk — it’s entirely possible that a person wouldn’t make any money, or might even lose money.

What Can You Do With $CLOUT?

One of the major complaints about BitClout when the service launched was that there wasn’t a way to turn your $CLOUT back into Bitcoin, let alone dollars. A workaround emerged — a service called BitSwap that allows for exchange from $CLOUT to Bitcoin and Ethereum. $CLOUT is also listed on Blockchain.com .

How Much Is $CLOUT Worth?

As of January 7, 2022, the price for $CLOUT is around $76 and the overall $CLOUT market cap is just under $824 million. In theory the value of $CLOUT, which is necessary to navigate BitClout and buy creator coins, is a good indicator of the overall health and use of the BitClout ecosystem.

The Takeaway

BitClout is a combo social media and cryptocurrency platform that allows users to create their own creator tokens and trade the tokens of other users, thus indicating the popularity of a given user and driving up (or down) the price of the tokens.

Photo credit: iStock/Luke Chan

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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.

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.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

SOIN0721295

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Jan
27
2022
How to Set Up a Cryptocurrency Wallet

How to Set Up a Cryptocurrency Wallet

By | Growing Wealth, invest, Investing | Comments Off on How to Set Up a Cryptocurrency Wallet

Setting up a cryptocurrency wallet can take anywhere from a few minutes to a few hours depending on the wallet type. Hardware wallets and exchange-hosted wallets will take some extra time, thanks to the additional steps involved for each.

The type of crypto wallet a user might choose will depend on what they want to do with their crypto and what level of security they’re looking for.

Understanding Crypto Wallets

A crypto wallet is used to send, store, and receive cryptocurrency. Some wallets have additional functionality, including the ability to:

•   Buy and spend crypto

•   Swap between different tokens

•   Stake tokens for a fixed return

•   Interact with different decentralized applications (dApps)

A wallet has two important parts: a private key and a public key. The private key is used to sign transactions, proving their authenticity. Anyone with the private key to a wallet can take control of the funds held there.

A public key is derived from the private key. One wallet can be used to create many public keys, so users can receive crypto to the same wallet from different addresses. Public keys are also referred to as wallet addresses.

Setting Up Different Crypto Wallets

The process for setting up a cryptocurrency wallet differs depending on the type of wallet.

Crypto wallets fall into one of two broad categories: hot wallets and cold wallets. Hot wallets are those that are connected to the internet, making them less secure. Cold wallets can hold private keys offline in cold storage, making them more secure.

Hardware Wallets

Hardware wallets are small devices that are separate from a user’s computer. This allows for the “signing” of transactions to happen on the wallet device, so a user’s private key is never exposed in the same way as it is when using a software wallet. For this reason, hardware wallets are considered a form of cold storage.

Hardware wallets are generally recommended for long-term storage of large amounts of crypto due to the added security. These wallets can also be used to send and receive transactions, but the additional investment and responsibility involved might not be worth it for those only holding a small amount of crypto.

Steps to Setting Up a Hardware Wallet

The process of setting up a hardware wallet differs somewhat depending on the exact wallet someone chooses. For many popular hardware wallets, users must do the following before their wallet will be ready to send and receive transactions:

1.    Order the physical device. The average hardware wallet costs around 100 USD. Users should do their own research before deciding which manufacturer is right for them.

2.    Install the appropriate software that will provide an interface to the wallet. Ledger wallets, for example, require the Ledger Live app. In some cases, this won’t be necessary — some wallets use a web-based interface, meaning users simply have to visit a website to access their wallet’s dashboard. KeepKey wallets, for example, utilize the ShapeShift web platform.

3.    Plug the wallet into your computer and follow the instructions provided. This usually begins with showing the user their backup seed phrase.

4.    Write down your backup seed phrase on paper. This phrase represents the wallet’s private key. Storing it in any online location can be dangerous, as it could be accessible to hackers. Anyone with this phrase can access all of the funds held in the wallet.

5.    Set up a PIN. This will be used to access the wallet.

6.    Buy or deposit crypto. At this point, it’s possible to put crypto into the new wallet. Some wallet platforms even have built-in exchanges where users can buy and trade crypto.

Paper wallets are also a form of cold storage, but they aren’t typically recommended due to their lack of durability and the high likelihood of user error.

Hosted wallets

In hosted wallets, a third party holds the private keys on a user’s behalf. This is similar to a bank holding someone’s fiat currency. The process of how to open a crypto wallet on an exchange is the same as signing up for an account.

Hosted wallets might be the easiest of all to create. Users simply have to sign up for an account on a crypto exchange and buy or deposit crypto into the wallet of their choice. The process could take some time, however, as exchanges have to verify a user’s identity. This could involve waiting for several days or longer.

For sending and receiving crypto transactions, many people turn to wallets hosted on exchanges.

Non-custodial wallets

Also known as self-custody wallets, these are software wallets that aren’t controlled by a third-party service like an exchange.

Non-custodial wallets allow users to hold their own private keys. This removes the counterparty risk associated with letting another party hold the keys to an individual’s crypto. However, it also makes the person 100% responsible for their funds.

There are many types of non-custodial wallets. Desktop wallets like Electrum work as simple software programs with user-friendly interfaces. If a crypto investor wants to take custody of their own keys, they might use desktop wallets like Electrum or similar non-custodial wallets on mobile devices.

Web wallets like MetaMask allow users to store, send, and receive Ethereum (ETH) right from their web browser.

Steps to Setting Up a Non-custodial Wallet Using MetaMask

Wallets like MetaMask are often used for Ethereum-based applications like decentralized finance (DeFi) and non-fungible token (NFT) platforms. Since MetaMask is one of the most popular non-custodial ETH wallets, let’s look at the step-by-step process of how to set up a cryptocurrency wallet of this kind.

1.    Download MetaMask. First, you’ll need to install the MetaMask browser extension. Visit Metamask.io and click on “Install MetaMask.” The extension is available for the following browsers: Chrome, Brave, Edge, Firefox.

2.    Create an account. After opening MetaMask for the first time, select the “create a wallet” button. Then accept the terms of use and create a password. After that, you’ll be asked to “click here to reveal secret words”. Doing so will reveal your 12-word backup seed phrase.

3.    Store your seed phrase. Write your seed phrase down on paper. Keep it somewhere safe and don’t share it with anyone. Don’t take a screenshot of the phrase or store it anywhere online.

4.    Fund your wallet. The final step in setting up a cryptocurrency wallet is to fund it. MetaMask supports in-app crypto purchases, but you can also deposit some from another location. To do this, simply send a transaction to your wallet address. When logged in to MetaMask, click the icon of two squares laid on top of each other in the top-center part of the screen. This will copy your wallet’s address to your clipboard. Send the right kind of crypto to this address to put funds into the wallet.

The Takeaway

The process of learning how to set up a cryptocurrency wallet is usually quick and simple. Developers have worked hard to make things as user-friendly as possible.

“Not your keys, not your crypto” is a popular saying among crypto enthusiasts. Some users like to hold their own keys while others may opt for hosted wallets for the sake of simplicity.

Note that software wallets are unique to a specific cryptocurrency. Hardware wallets often have the ability to hold multiple types of crypto. In any case, it’s very important to send the right kind of crypto to the appropriate wallet, otherwise those funds could be lost forever. Sending Bitcoin Cash (BCH) to a Bitcoin (BTC) wallet address, for example, could result in the sent funds being unretrievable.

Photo credit: iStock/Poike

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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.

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

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Jan
24
2022
7 Easily Avoidable Mistakes When Choosing (or Removing) a Student Loan Cosigner

7 Easily Avoidable Mistakes When Choosing (or Removing) a Student Loan Cosigner

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

In order to get approved for some student loans, some borrowers may choose to apply with a cosigner — a creditworthy individual who will be legally responsible for repayment should you default, become disabled, or die.

While there is no credit check or requirement to add a cosigner for most student federal student loans, students applying for private loans may consider adding a cosigner to their application. Applying for a student loan with a cosigner can help strengthen the overall application and as a result, may help a borrower get approved for a loan they otherwise wouldn’t have or could help the borrower secure a more competitive interest rate than they would have alone.

But, adding a cosigner is a serious decision, for both the borrower and the potential cosigner. That’s because both the cosigner and primary borrower are both equally on the hook for the loan. Read on for some cosigner mistakes to avoid.

Understanding the Role of a Cosigner

A cosigner is someone who signs onto a loan with a primary borrower, and in doing so, takes full responsibility for the loan. This means that if the primary borrower is unable to make payments on the loan, the cosigner is responsible for stepping in. The loan will appear on the cosigner’s credit report and if there are any missed or late payments, the cosigner’s credit score can also be impacted.

Pros and Cons of Cosigning on a Student Loan

There are benefits and downsides to having a cosigner on a student loan.

Pros of a Cosigner

If a student isn’t approved when applying for a student loan without a cosigner, the major pro of adding a cosigner to a student loan application is that the borrower becomes a more favorable candidate for the loan.

Additionally, adding a cosigner can help boost the creditworthiness of the application, allowing the student borrower to secure a more competitive interest rate or more favorable terms on their loan.

If the student is approved for the loan with a cosigner, this can help the student borrower build their own credit history as they make on-time payments on the loan.

Cons of a Cosigner

The cosigner’s debt-to-income ratio can be impacted by cosigning on a student loan. This could potentially impact the cosigner’s ability to borrow down the line, depending on their overall financial situation.

Additionally, because the cosigner is equally responsible for repaying the loan, if the primary borrower have any issues repaying the loan this could lead to serious implications for the cosigner, including:

•   The cosigner is responsible for making payments if the primary borrower cannot.

•   The cosigner’s credit report and credit score could be negatively impacted.

And having a cosigner on a student loan can potentially add stress or strain to the relationship should anything go wrong during the repayment process.

Mistakes to Avoid When Adding or Removing a Cosigner

Borrowing a private student loan with a cosigner is common. According to the Measure One Private Student Loan Report published in December 2021, during the 2021-2022 school year, 92.16% of newly originated private student loans borrowed by undergraduate students had a cosigner. But, before you jump in, make sure you understand the ins and outs of choosing — and removing — a student loan cosigner.

(And while you’re at it, check out SoFi’s Student Loan Debt Navigator tool to assess your student loan repayment options.)

1. Ignoring Your Income and Cash Flow

When you apply for a private student loan or refinance, lenders check your financial fitness (credit score, debt-to-income ratio, etc.) to see if you qualify.

Some lenders, (including SoFi) will review a borrower’s income as part of their eligibility requirements and may also consider something called “free cash” flow — the amount of money you have left at the end of each month after subtracting taxes and cost of living expenses. If the lender feels you lack the necessary free cash flow to repay your loan, either your application will be declined or your loan will be approved at a less-than-desirable interest rate.

If your cash flow is more of a trickle, the lender may prompt you to add a cosigner to your application.

2. Going for Romance

When considering the best cosigner, steer clear of asking your boyfriend or girlfriend. If the relationship goes south after signing, your ex will still be legally responsible for the loan. Would you want to be on the hook for the student loan payments of someone you’re no longer dating?

Instead of focusing on a romantic connection, it may make sense to consider family members. Though anyone can cosign a loan for you, a relative is generally a more reliable choice than a friend. Typically, a cosigner is a parent or guardian, spouse, or other family relative.

3. Going in Blind

A family member may think cosigning a loan is as simple as signing his or her name on a contract, but it’s more complicated than that. A cosigner is a coborrower, which means the debt will show up on your credit report and on his or hers.

Plus, if you can’t make good on your loan for any reason, the lender has the legal right to pursue your cosigner for repayment.

4. Failing to Set Expectations

It may be unpleasant, but it’s important to discuss worst-case scenarios with your cosigner. If you lose your job and can’t make payments, your cosigner must be prepared to assume full responsibility for the loan. Plus, you’ll need to discuss whether you’ll repay that person should he or she have to make payments at some point, or if those payments will be gifts.

Note: Once you set clear expectations, it’s a good idea to sign a legal agreement together. Depending on your relationship, the agreement can be as simple as an email or as formal as a document drafted by a lawyer.

5. Expecting a Handout

If you think a legal agreement sounds drastic, keep in mind that a friendly cosigning situation can go sour when you don’t hold up your end of the deal. As mentioned, if the primary borrower fails to make payments on their loan, the cosigner is equally responsible. That means they’re responsible for repaying the loan if the borrower cannot, their credit score can also be impacted by late payments, and should the loan go into default, collections agencies can try to collect from the cosigner as well.

Word to the wise: Don’t make your cosigner regret doing you the favor. The fact is, your cosigner is taking a risk for you. You should feel confident in your ability to repay the loan fully on your own.

6. Not Understanding How to Remove a Cosigner

When you start conversations with a potential cosigner understand the options for removing them down the line. Some lenders may offer an official cosigner release option. This means filing an application with the lender to remove the cosigner from the loan. If the lender doesn’t offer cosigner release, it may be possible to refinance the loan and remove the cosigner.

Not all lenders offer a cosigner release option — and those that do have stipulations for removal. Typically, you’ll need to make anywhere from 12 to 48 months of on-time, consecutive payments to qualify for cosigner release.

The lender will also look at your overall financial situation, including how well you’ve managed other debts, and may require that you submit supporting documentation such as a W-2 or recent pay stubs.

Understanding your lenders requirements for cosigner release and ensure you are establishing strong financial habits like making monthly payments on time, and are effectively budgeting and saving, could potentially improve your chances of being approved for a cosigner release.

7. Not Realizing Refinancing May Still Be an Option

In the event you aren’t successful in removing your cosigner via cosigner release, another potential option is refinancing the loan. When you refinance a loan, you take out a new loan (sometimes with a new lender), that has new terms. Doing this can allow you to potentially remove your cosigner, so long as you are able to meet the lender’s eligibility requirement on your own.

While refinancing can be an option to consider for some borrowers, it won’t make sense for everyone. When federal loans are refinanced, they are no longer eligible for any federal protections or programs.

The Takeaway

Adding a cosigner to your student loan can truly work to your advantage, potentially helping you qualify for a more competitive interest rate on a student loan or a refinance. So if someone in your life has offered to cosign, consider it seriously — just make sure you both understand what you’re signing up for from the start.

SoFi makes it easy to add a cosigner to student loan or refinance applications and borrowers can apply for a cosigner release after 24 months of on-time payments.

Check your rate for a student loan refinance, and share this article with someone else who should know the dos and don’ts of co-signing.

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.

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 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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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 .

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.

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

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Jan
23
2022

Guide to Spotting and Avoiding Student Loan Scams

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

Student loan scams are, unfortunately, not uncommon. They run the gamut — from offering student loan forgiveness scams to straight up stealing your hard-earned dollars. Since President Biden announced his plan for student loan forgiveness in August 2022, there has been an increase in student loan scams promising loan forgiveness or relying on borrower confusion around the new loan forgiveness program.

There are plenty of authentic refinancing and consolidation options, such as income-driven repayment plans, that might help you in the long run. Continue reading for more information on common student loan scams and seven red flags that can help you suss out if a company is legitimate or not.

Common Student Loan Scams

Those under stress from student loans can feel compelled to go to extreme measures to get rid of their debt, which can make them more susceptible to predatory tactics.

Promising Loan Forgiveness

One typical scam is a student loan assistance company that advertises loan forgiveness or lower payments in exchange for an upfront fee, followed by a few more payments.

Unsuspecting people pay and then six months later, the firm will shut down. This one isn’t as insidious as some other common scams, but you could still be out some money. And if you’re part of the college debt crisis and thousands of dollars in debt, that isn’t where you want to be.

Charging a Fee for Federal Student Loan Consolidation

Another common tactic is to offer federal student loan consolidation for a fee. Federal student loan consolidation is always available for free from the Department of Education. Or you could refinance your federal student loans with a reputable lender. But it is important to remember that if you refinance your student loans with a private lender, you will lose access to federal benefits such as student loan forgiveness, income-driven repayment plans, and deferment.

If you’re going to refinance your student loans, however, it’s a smart idea to do your due diligence before signing on with a lender (of course, keeping in mind that refinancing to private loans, even with reputable lenders, can strip you federal benefits like income-driven repayment plans).

7 Red Flags for Student Loan Scams

Here are a few tips to help you spot potential student loan scams.

1. Requests For Sensitive Information Over the Phone

A legitimate private lender will need your Social Security number and other info to process your refinance application, but they are unlikely to cold call you. If you’re working with an online lender, do a little homework by researching the company and reading consumer reviews.

And if you’re really unsure, you can contact your state attorney general’s office to see if complaints have been lodged against the company. The rule of thumb here? Never share any personal information until you are 100% certain you are dealing with a legitimate lender.

2. The Company Requires Direct Payment Immediately

A major indication that you’re dealing with a student loan scam is the requirement of an upfront fee. Once they get the fee, many scam companies simply take your money and disappear, leaving your loans in forbearance (or worse, default), and you none the wiser.

Debt counseling firms are not allowed to charge you any fees until after they renegotiate, settle, or reduce at least one debt for you. Yes, a reputable lender will charge interest on your loan, but they will not ask you for cash upfront.

3. A Promise of Immediate Loan Forgiveness

Student loans are notoriously difficult to shake, even if you file for bankruptcy. There are a few situations that can qualify you for federal student loan forgiveness — for example, if under the Public Service Loan Forgiveness Program (PSLF), you’ve worked for an eligible employer, are on an income-driven repayment plan, and have made 10 years of qualifying payments.

So immediate loan forgiveness is likely a ruse. While it would be nice for all your student loans to be forgiven in an instant, this is unfortunately a pie-in-the-sky dream.

If you do qualify for one of the federal loan forgiveness options, there’s no need to have a third party negotiate for you. Simply call your loan servicer for instructions on the process — free of charge. Just keep in mind that only 1% of those who have applied for PSLF have been approved.

4. You Are Encouraged to Pay Off Your Student Loans to a Third Party Directly

Why would you want someone else making payments on your behalf? It begs the question: What are they hiding?

5. The Company Claims to Be Working with the U.S. Department of Education

Some private lenders misrepresent themselves by using names, seals, and logos that give the impression they’re affiliated with the federal government’s student loan programs (hello, Obama Forgiveness Plan). However, the Department of Education does not solicit people to borrow money.

The Department of Education doesn’t work with private loan consolidation companies, but it does work with private loan servicer companies. A servicer collects payments and handles other services on the loan you already have, but it doesn’t offer private loan consolidation. The government offers its own Direct Consolidation Loan program (by application) for free, so if anyone tries to sell you this option, they are pulling one over you.

6. Someone Is Pressuring You to Sign Up under Time Constraints

No legitimate loan program is only available for a short period of time. If they are overly insistent and don’t go for an offer to call them back directly, this could be a red flag.

7. The Company Is Charging a Consolidation Fee

This is where things can get a little murky. As noted above, there are legitimate private companies that can help you consolidate and refinance student loans for a fee. As long as they don’t charge you any fees until refinancing has occurred, they’re most likely operating legitimately.

But be cautious. Again, if you want to apply to consolidate federal student loans through the Direct Consolidation program it’s a free process — so you don’t need a company to do it for you.

If you want to consolidate and refinance your private student loans on the other hand, know that the private company is probably refinancing your current loans into one new private loan. In that case, be sure to check the interest rate, any fees, and read the fine print to see if the new deal is actually better than your old one.

What to Do if You Suspect a Student Loan Scam?

If you suspect a student loan scam, do not engage. If it is a digital scam, do not click any links and report them as spam in your inbox. Do not offer any personal information via a phone call.

You can report the scam to the Consumer Financial Protection Bureau (CFPB) and to the Federal Trade Commission (FTC).

What Recourse Do You Have if You Are Victim of a Scam

If you have already fallen victim to a student loan scam, there are some important steps to take. First, contact your local police agency to report the scam. You’ll also want to report the scam to your local Attorney General’s office.

You can also report the scam, as mentioned, to both the CFPB and FTC.

What Is Student Loan Fraud?

Student loan fraud occurs when a company or individual wrongfully or deceptively over-promises or charges a fee for unachievable services. This could occur if a company offers a fee for the promise of instant loan forgiveness.

How Student Loan Fraud Works

If a company offers a borrower a path to loan forgiveness and requires a fee up-front, this could be considered student loan fraud. Scammers may ask for borrower’s personal information, like their Social Security number or access to their federal student aid account.

Scammers are resourceful and have been known to contact borrowers via phone, letters in the mail, email, or text messages. They may even impersonate reputable lenders — look for subtle changes in the logo on emails or websites. There have even been SoFi scammers, who have impersonated SoFi, offering fake giveaways to unsuspecting SoFi members.

Understand how your loan services contacts it’s borrowers — most lenders will cold call customers and ask for personal information. To protect yourself from scammers, avoid giving any personal information via phone and be sure you are interacting with a reputable agency.

Is Consolidating Your Student Loans the Right Decision for You?

Spotting a student loan scam isn’t always easy, especially when companies go out of their way to convince you they’re legit. If your gut tells you a deal is too good to be true, then it probably is.

When choosing between a Direct Consolidation Loan (for federal student loans) and student loan refinancing (for federal and/or private loans), it’s worth taking some time to learn about all your options, as the terms and potential outcomes (savings vs. interest spend) can be very different. Check out our quick guide to student loan consolidation vs. refinancing for more details.

Refinancing student loans can be a great way to make payments more manageable, depending on what kind of student debt you have. However, not all refinance options are created equal. It’s important to do your homework before deciding to consolidate and/or refinance your student loans, because your individual circumstances will dictate whether consolidation or refinancing is right for you:

Direct Consolidation Loans

Direct Consolidation Loans from the federal government can only be used to consolidate federal loans. It’s essentially a way to package multiple loans into one, giving you a new, fixed interest rate that’s a weighted average of all your federal loans (rounded to the nearest eighth of a percent) and, sometimes, a longer term. This means your monthly payment amount doesn’t necessarily go down, nor does your interest rate — it just makes things more straightforward.

Student Loan Refinancing

Refinancing means consolidating all your student loans — regardless of whether they’re federal or private. You refinance with a private lender, and typically do so if you think you might qualify for a lower interest rate. Refinancing may allow you to pay all your student loans off at a more competitive interest rate, which can save you over the life of your loan.

You can also typically change the term length on your refinanced loan — a longer term length could lower your monthly payments, while a shorter term length could help you pay off your student loans faster.

In order to know how much you could gain from refinancing, you can start by verifying how much you owe and what your interest rates are across both private and federal loans. Once you know that information, you can use this student loan refinancing calculator to see your estimated savings.

And, again, it is important to remember that if you choose to refinance your student loans with a private lender you will lose access to federal benefits such as student loan forgiveness, Direct Consolidation Loans, and income-driven repayment plans.

The Takeaway

Student loan scammers take advantage of borrowers who are trying to pay off student loan debt. These scams often appeal to borrowers looking for quick student loan relief and offer their service in exchange for a fee. To protect yourself, avoid offering personal information via requests on the phone.

If you are exploring loan options consider SoFi. SoFi is a leader in the student loan space — offering both private student loans to help pay your way through school or refinancing options to help you pay off your loans faster. See your interest rate in just a few minutes. No strings attached.

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


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FAQ

How do common student loan scams work?

Common student loan scams often promise student loan relief or a quick path to loan forgiveness in exchange for an upfront fee.

Is there a way to stop student loan scam calls?

It may not be possible to stop student loan scam calls completely. If you receive unwanted phone calls, block the phone number. You can also add your phone number to the national Do Not Call list. This list prevents telemarketers from contacting you via phone, but may not prevent scammers from reaching out.

If you receive unwanted calls after signing up for the Do Not Call list, you can report them to the FTC.

What is student loan forgiveness fraud?

Student loan forgiveness fraud can occur when a company offers to assist borrowers with repayment or offers student loan forgiveness or relief in exchange for a fee. This is illegal. Most federal programs do not require a fee to access.

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.

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.

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.


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

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

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

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