Aug
01
2023
Guide to Grad PLUS Loan Credit Score Requirements

Guide to Grad PLUS Loan Credit Score Requirements

By | Going to College, Student Loans, student_loan | Comments Off on Guide to Grad PLUS Loan Credit Score Requirements

According to EducationData.org, the average cost of a master’s degree at a public state college is $29,150, and $62,100 at private school.

To help pay for this expense, graduate-level students sometimes turn to federal graduate loans for assistance. Grad students no longer qualify for federal Direct Subsidized Loans but they may be eligible to borrow Direct Unsubsidized Loans or Graduate PLUS Loans.

Unlike most other loans in the Direct Loan program, Direct PLUS loans require a credit check. If you’re exploring loans to help fund your graduate program, here’s what to know about Grad PLUS Loan credit score requirements and eligibility.

What Are Grad PLUS Loans?

As alluded to previously, subsidized loans are for undergraduate students. In addition to Direct Unsubsidized loans, graduate students may also be able to borrow PLUS Loans. There are two options for PLUS Loans, Grad PLUS Loans are available to graduate or professional student borrowers while Parent PLUS Loans are options for parents with undergraduate students. Grad PLUS Loans are non-need based financial aid option.

Grad PLUS loans have a fixed interest rate. You can borrow up to the cost of attendance that’s certified by the school, minus existing financial aid you’ve received. Payments can be deferred while you’re enrolled at least half-time in school, and an automatic six-month grace period occurs after leaving school before you’re required to enter repayment. Note that while the loan is in deferment, interest will continue to accrue.

Who Is Eligible for Grad PLUS Loans?

Students don’t have to demonstrate financial need to be eligible for a Grad PLUS Loan. However, in addition to meeting basic federal aid requirements, applicants must be enrolled in a certificate- or degree-issuing program at least half-time, and the program must be at an eligible school.

Upon meeting these academic requirements, graduate applicants must also agree to a credit check. If you don’t satisfy the Department of Education’s credit requirement, you’ll need to meet additional Grad PLUS Loan requirements to receive funding.

Grad PLUS Loan Minimum Credit Score

Unlike a traditional consumer loan through a private lender, the Department of Education doesn’t set a minimum Grad PLUS Loan credit score to qualify. Instead, the program states that borrowers can’t have an adverse credit history.

It determines adverse credit as:

•   Having 90- or more day delinquent balance of $2,085 across one or more accounts.

•   Having a collection or charge-off in the past two years.

•   Having a foreclosure, repossession, bankruptcy discharge, tax lien, wage garnishment, or default within the past five years.

•   Having federal student debt charged- or written-off within five years.

Although primary borrowers with adverse credit aren’t eligible on their own, they might still be approved if they meet extra Grad PLUS Loan requirements.

How to Check Your Credit Score

There are a couple of options for those interested in finding their credit score. Check in with your credit card company or bank, many financial institutions now offer credit scores to their customers.

Since there is no minimum credit score for a Grad PLUS loan, you may also want to review your credit history. You can review your credit report from all three credit bureaus: Equifax, Experian, and TransUnion.

Your credit reports include details for every credit account under your name, and their payment status.

You can request a copy of each credit report in one sitting through AnnualCreditReport.com, the central website of the national credit bureaus. You can also request your credit reports by mailing an Annual Credit Report request form or by calling its toll-free number: 1-877-322-8228.

You’re entitled to a free credit report from each bureau every 12 months. Additionally, you can request up to six free Equifax credit reports every year until 2026; this can be requested directly on Equifax’s website.

Tips for Maintaining a Good Credit Score

Although there isn’t a minimum credit score for Grad PLUS loans, maintaining a positive credit profile today can be advantageous if you need loans for future academic years, or decide on a student loan refinance later on.

Some ways to keep your credit in good standing are by:

•   Making payments on time. Payment history accounts for 35% of your FICO® credit score. Make sure to pay at least the minimum payment by the due date every month.

•   Keeping your credit utilization low. If you have revolving credit, like a credit card, avoid using a high percentage of your available credit limit. As much as 30% of your score is based on credit utilization ratio.

•   Reviewing your credit report for mistakes. Although it’s rare, errors may come up on credit reports that can bring your score down. Regularly check your credit report and notify the bureaus of the error if you find one.

•   Keeping your longest credit account in good standing. The age of your credit accounts affect your overall credit score by 15%.

•   Having a mix of credit types. Keeping a mix of credit types could potentially help your credit score by 10%. For example, installment credit (student loan, auto loan, etc.) verus revolving credit (credit cards, Home Equity Lines of Credit, etc.).

What to Do if You Have Adverse Credit

For students with an adverse credit history, the Grad PLUS Loan program offers two options:

1.    Secure an endorser. This person must not have adverse credit and will be liable to repay the debt if you, as the primary borrower, are unable to do so.

2.    Provide proof of an extenuating circumstance. If your adverse credit history was due to an extenuating circumstance, you can appeal a denied application by providing supporting documentation. Approval isn’t guaranteed.

Regardless of which path you choose, if approved, you’ll also need to undergo PLUS Credit Counseling.

Alternatives to Grad PLUS Loans

Although you have access to apply for Grad PLUS Loans as a graduate or professional student, you’re not guaranteed for approval. For example, if you have adverse credit, but can’t secure an endorser, you might not receive Grad PLUS funding.

Below are some other graduate school loan options and financial aid ideas if you need alternatives.

Grants, Scholarships, and Work-Study

Grants, scholarships, and work-study are financial aid opportunities that can help bridge the gap for your graduate education.

The first step to seeing whether you’re eligible for these programs is completing a Free Application for Federal Student Aid (FAFSA®). If you’re eligible for federal-, state-, or school-sponsored programs, you’ll be notified through your FAFSA award letter.

You can also apply for need- or merit-based grants and scholarships through private organizations, professional associations, or other nonprofit community groups.

Personal Loans

If you’ve exhausted federal student aid options, a personal loan from a private lender could be an option to consider. Generally, you can use personal loans for nearly any large, upcoming expense, including costs associated with graduate school, like transportation or supplies.

Personal loans are available through private entities, like banks, credit unions, online lenders, and also through community groups and associations.

Recommended: Common Reasons to Apply for a Personal Loan

Private Student Loans

Another financial aid option that operates outside of the federal student loan system are private student loans. Private student loans are specifically for use toward educational expenses, like tuition and fees, and textbooks.

These loans are provided by private banks, credit unions, and financial institutions. Some states and schools also offer private student loan options.

A private student loan is an installment loan, and can have fixed- or variable interest rates. Each lender has its own eligibility requirements and loan terms. Since these loans aren’t federally owned they don’t offer the same benefits that federal loans provide, like access to loan forgiveness and extended deferment. For this reason, federal student loans are generally prioritized over private student loan options when evaluating financing options.

Explore Private Student Loan Rates

If after accessing your financial aid situation, you find you need more education funds, SoFi can help. SoFi’s private student loan lets you borrow up to your school’s certified cost of attendance at competitive rates. Plus, checking your rate online takes only three minutes.

Interested in learning more about SoFi’s private student loans? Find out if you prequalify and at what rates in just a few minutes.

FAQ

Can you be denied a Grad PLUS loan?

Yes, you can be denied a Grad PLUS Loan if you don’t meet the Department of Education’s eligibility requirements. You must be a graduate or professional student who’s enrolled in a degree- or certificate-granting program at an eligible school. You also must not have adverse credit, and must meet the general requirements for federal student aid.

Do Grad PLUS loans check your credit score?

Yes, Direct PLUS Loans, which include Grad PLUS Loans, require a credit check. The credit checks reviews a borrower’s credit history for adverse marks. Despite having adverse credit, however, borrowers might still be able to receive Grad PLUS funding by adding an endorser or by providing proof of extenuating circumstances.

Are cosigners required for Grad PLUS loans?

Cosigners are not required to qualify for a Grad PLUS Loan. However, if the primary borrower has adverse credit, having a cosigner (also known as an endorser), might help the primary borrower qualify.

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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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What Is Book Value Per Share (BVPS)?

What Is Book Value Per Share (BVPS)?

By | Growing Wealth, invest, Investing | Comments Off on What Is Book Value Per Share (BVPS)?

One of the most popular and trusted forms of fundamental analysis is Book Value Per Share (BVPS), or a company’s “book value.” Book value per share is an accounting metric that calculates the per-share value of a company’s equity.

The book value per share of an undervalued stock is higher than its current market price, so book value per share can help investors appraise a stock price.

Knowing what book value per share is, how to calculate it, and how it differs from other calculations, can add yet another tool to an investor’s tool chest.

What Is Book Value Per Share?

Book Value per Share (BVPS) is the ratio of a company’s equity available to common shareholders to the number of outstanding company shares. This ratio calculates the minimum value of a company’s equity and determines a firm’s book value, or Net Asset Value (NAV), on a per-share basis. In other words, it defines the accounting value (i.e. book value) of a share of a company’s publicly-traded stock.



💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Book Value Per Share vs Market Value Per Share

The Book Value Per Share provides information about how the value of a company’s stock compares to the current Market Value Per Share (MVPS), or current stock price. For example, if the BVPS is greater than the MVPS, the company’s stock market may be undervaluing a company’s stock.

The market value per share is forward-looking, since it’s based on what investors think a company should be worth, while book value per share is an accounting measure that uses historical data.

Recommended: Intrinsic Value vs Market Value, Explained

What Does Book Value Per Share Tell You?

Commonly used by stock investors and analysts, the Book Value Per Share (BVPS) metric looks at a company’s stock price to determine whether it’s undervalued compared to the stock’s current market price. An undervalued stock will have a BVPS higher than its current stock price.

If the company’s BVPS increases, investors may consider the stock more valuable, and the stock’s price may increase. On the other hand, a declining book value per share could indicate that the stock’s price may decline, and some investors might consider that a signal to sell the stock.

Book Value Per Share also theoretically reflects what shareholders would receive in a company liquidation after all its assets were sold and all of its liabilities paid. However, because assets would hypothetically sell at market value instead of historical asset values, this may not be an entirely accurate measurement.

If a company’s share prices dip below its BVPS, the company can potentially be vulnerable to a takeover by a corporate raider who could buy the company and liquidate its assets risk-free. Conversely, a negative book value indicates that a company’s liabilities exceed its assets, making its financial condition “balance sheet insolvent.”

Book Value Per Share solely includes common stockholders’ equity and does not include preferred stockholders’ equity. This is because preferred stockholders are ranked differently than common stockholders in the event the company is liquidated. If a corporate raider intends to liquidate a company’s assets, the preferred stockholders with a higher claim on assets and earnings than common shareholders are paid first and that amount gets deducted from the final shareholders’ equity distributed among common stockholders.

How to Calculate Book Value Per Share

An investor can apply BVPS to a stock by analyzing the company’s balance sheet. Specifically, an investor will need total asset value, cost of acquiring an asset, and accumulated depreciation of corporate assets which helps provide the most accurate BVPS figure.

Whereas some price models and fundamental analyses are complex, calculating book value per share is fairly straightforward. At its core, it’s subtracting a company’s preferred stock from shareholder equity and dividing that sum by the average amount of outstanding shares.

Book Value Per Share = (Shareholders’ Equity – Preferred Equity) / Total Outstanding Common Shares
Shareholders’ Equity = Total equity of all shareholders.
Total Outstanding Common Shares = Company’s stock currently held by all shareholders, including blocks held by institutional investors and restricted shares owned by preferred stockholders. This number may fluctuate wildly over time.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Example of Book Value Per Share

Company X has $10 million of shareholder’s equity, of which $1 million are preferred stocks and an average of 3 million shares outstanding. With this information, the BVPS would be calculated as follows:

BVPS = ($10,000,000 – $1,000,000) / 3,000,000
BVPS = $9,000,000 / 3,000,000
BVPS = $3.00

How to Increase Book Value Per Share

A company can increase its book value per share in two ways.

Repurchase Common Stocks

A common way of increasing BVPS is for companies to buy back common stocks from shareholders. This reduces the stock’s outstanding shares and decreases the amount by which the total stockholders’ equity is divided. For example, in the above example, Company X could repurchase 500,000 shares to reduce its outstanding shares from 3,000,000 to 2,500,000.

The above scenario would be revised as follows:

BVPS = ($10,000,000 – $1,000,000) / 2,500,000
BVPS = $9,000,000 / 2,000,000
BVPS = $4.50

By repurchasing 1,000,000 common shares from the company’s shareholders, the BVPS increased from $3.00 to $4.50.

Increase Assets and Reduce Liabilities

Rather than buying more of its own stock, a company can use profits to accumulate additional assets or reduce its current liabilities. For example, a company can use profits to either purchase more company assets, pay off debts, or both. These methods would increase the common equity available to shareholders, and hence, raise the BVPS.

The Takeaway

There are many methods that investors can use to evaluate the value of a company. By leveraging useful and insightful formulas such as a company’s Book Value Per Share, investors can determine a company’s value relative to its current market price. While it has limitations, the BVPS can identify companies that are undervalued (or overvalued) according to core fundamental principles, and it’s a relatively straightforward calculation that even beginner investors can use.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/Tempura

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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.

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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Gross Spread for IPOs Explained

What Is Gross Spread?

By | Growing Wealth, invest, Investing | Comments Off on What Is Gross Spread?

The term “gross spread” refers to an important element of the initial public offering (IPO) process: Gross spread is the money underwriters earn for their role in taking a company public.

When a company IPOs, or “goes public,” it releases its shares onto a public stock exchange, an undertaking that demands a tremendous amount of work behind the scenes. That work involves bankers, analysts, underwriters, and numerous others. All of that work must be compensated, which is where the gross spread — also called the underwriting spread — comes into play.

How Gross Spread Works

The gross spread refers to the cut of the money that is paid to the underwriters for their role in taking a company public. In effect, it’s sort of like a commission paid to the IPO underwriting team. But the underwriting spread isn’t a flat fee, but a spread in the sense that it represents a share price differential.

Underwriters

Underwriters are common players in many facets of the financial industry. It’s common to find underwriters working on mortgages, as well as insurance policies.

When it comes to IPOs, underwriters or underwriting firms work with a private company to take them public, acting as risk-assessors, effectively, in exchange for the underwriters spread. Their job is to evaluate risk and charge a price for doing so.

Recommended: What Is the IPO Process?

The Role of Underwriters in the IPO Process

These IPO underwriters generally work for an investment bank and shepherd the company through the IPO process, ensuring that the company covers all of its regulatory bases.

The underwriters also reach out to a swath of investors to gauge interest in a company’s forthcoming IPO, and use the feedback they receive to set an IPO price — this is a key part of the process of determining the valuation of an IPO.

In order to generate compensation for all this work, the underwriters typically buy an entire IPO issue and resell the shares, keeping the profits for themselves. So, the underwriters set the IPO price, buy the shares, and — assuming the shares increase in value once they become publicly available — the underwriters generate a profit from reselling them, the same way you would selling the shares of an ordinary stock that had risen in value.

For companies that are going public, the benefit is that they’re essentially guaranteed to raise money from the IPO by selling the shares to the underwriters. The underwriters then sell the shares to buyers they have lined up at a higher price in order to turn a profit. That difference in price (and profit) is the gross spread.

For the mathematically minded, the gross spread — basically the IPO underwriting fee — would be equal to the sale price of the shares sold by the underwriter, minus the price of the shares it paid for the shares.


💡Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

[ipo_launch]

Gross Spread & Underwriting Costs

The gross spread, for most IPOs, can range between 2% and 8% of the IPO’s offering price — it depends on the specifics of the IPO. There can be many variables that ultimately dictate what the gross spread ends up being.

The gross spread also comprises a few different components, which are divided up by members of the underwriter group or firm: The management fee, underwriting fee, and concession. The underwriters typically split the gross spread, overall, as such: 20% for the management fee, 20% for the underwriting fee, and 60% for the concession. More on each below:

Management fee

The management fee, or manager’s fee, is the amount paid to the leader or manager of the investment bank providing underwriting services. This fee essentially amounts to a commission for managing and facilitating the entire process. It’s also sometimes called a “structuring fee.”

Underwriting fee

The IPO underwriting fee is similar to the management fee in that it is collected by and paid to the underwriters for performing their services. Again, this is more or less a commission that is taken as a percentage of the overall gross spread and divided up by the underwriting teams.

Concession

The concession, or selling concession, is generally the compensation underwriters get for managing the IPO process for a company. So, in this sense, the concession is a part of the gross spread during the IPO process and is, effectively, the profits earned by selling shares when the process is complete. It’s divided up between the underwriters proportionately depending on the number of shares the underwriter sells.


💡Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Examples of Gross Spread

Here’s an example of how gross spread may look in the real world:

Company X is planning to IPO, and its shares are valued at $30 each. The underwriters working with Company X on its IPO purchase the full slate of shares prior to the IPO, and then go off and sell the shares at $32 each to investors and the general public.

In this case, the gross spread would be equal to the difference between what the underwriters paid Company X for the shares, and what they then sold the shares for to the public — $32 – $30 = $2.

Or, to express it as a ratio, the gross spread is 6.7%. More on the ratio calculation below.

Gross Spread Ratio

As mentioned, the gross spread can be expressed or calculated as a ratio. Using the figures above, we’d be looking to figure out what percentage $2 is (the gross spread) of $30 (the share price sold to the underwriters).

So, to calculate the ratio, you’d simply divide the gross spread by the share price — $2 divided by $30. The calculation would look like this:

$2 ÷ $30 = 0.0666

The figure we get is approximately 6.7%. Also note that the higher the ratio, the more money the underwriters (or investment bank serving as the underwriter) receives at the end of the process.

IPO Investing With SoFi

Though the gross spread, or underwriters spread, is not a well-known aspect of the IPO process, it’s relatively straightforward. Underwriters, who shepherd a company through the IPO process, ultimately buy the initial shares from the company at one price, and sell them to the public at the IPO at a higher price. The spread between the two is considered the gross spread, or the compensation the underwriting team earns for all their work.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is meant by the underwriting spread?

The underwriting spread is another term for the gross spread. Underwriters pay issuers, or an issuing company, for a company’s shares prior to the IPO. The underwriting firm then turns around and sells shares to investors. The difference (expressed as a dollar amount) that the underwriter pays the issuer and that it receives back from selling the shares during an IPO is the underwriting spread.

What are gross proceeds in an IPO?

Gross proceeds, in relation to an IPO, refers to the total aggregate amount of money raised during the public offering. This is all of the money raised by investors during the IPO.

What is a typical underwriting spread?

As underwriting spreads are usually expressed as dollar amounts, the typical underwriting spread can vary depending on several variables in the IPO process — including share price, share volume, etc. But in general, it can amount to between 3.5% and 7% of gross proceeds during an IPO.

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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.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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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What Are Non-Transparent ETFs?

What Are Non-Transparent ETFs?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Are Non-Transparent ETFs?

Unlike ordinary exchange-traded funds (ETFs), which disclose their underlying assets daily, non-transparent ETFs are only required to reveal their holdings on a quarterly or monthly cadence. This ability to conceal their assets can help active non-transparent ETF managers to cloak their strategies for longer periods, with the aim of maximizing performance.

To understand some of the advantages these funds may offer investors, it helps to compare them with standard ETFs.

Why Would You Invest in Non-Transparent ETFs?

For nearly 30 years, exchange-traded funds (ETFs) have been a mainstay for big institutional investors as well as individuals, thanks to their transparency, tax efficiency, and low cost. Today, the ETF industry in the U.S. has billions, if not trillions, under management.

Traditionally, investors have found ETFs an attractive option because of their liquidity, which has made ETFs more transparent than mutual funds. Unlike mutual funds, you can trade ETF shares throughout the day on an exchange, similar to stocks. And the way shares are created and redeemed gives investors more visibility into the funds’ underlying assets, compared with mutual funds. This ‘transparency’ has been true of both actively managed ETFs as well as passive ETFs, which track an index such as the S&P 500.

But the fundamental transparency of the ETF “wrapper” or fund structure has been a thorn in the side of some active ETF managers, who may prefer less visibility around their holdings for strategic reasons. Hence the appeal of non-transparent ETFs to active managers.

Active non-transparent ETFs — also called ANT ETFs — aren’t required to reveal their assets daily, as noted above; rather they report a snapshot of what they hold on a monthly or quarterly basis, similar to a mutual fund. In some cases they report the assets they hold, but not how much they hold.

Recommended: ETFs vs. Index Funds: What’s the Difference?


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

How Passive vs. Active Strategies Can Impact Transparency

If you think about it, the evolution of active non-transparent ETFs makes sense in the larger context of the ETF universe, where passively managed ETFs comprise more than 90% of that market.

Passively managed ETFs offer some of the lowest ETF fees in today’s market, which is one reason they’re typically cheaper to own than mutual funds. The overall tax efficiency of index ETFs also helps to lower investing costs, and has contributed to their overall popularity with investors.

ETFs, of course, are also valued for their role in adding diversification to investors’ portfolios, with many ETFs invested in specific sectors (e.g. electric vehicles, pharmaceuticals) or securities (e.g. U.S. Treasuries, corporate bonds).

No matter whether an ETF is invested in a broader equity market or a niche sector, passive ETFs are designed to mirror or track the stocks in a certain index. Thus the transparency of these funds is part of how they work.

That’s not true of active ETFs, which rely on the oversight of a fund manager to choose the underlying assets (just like an active mutual fund). But because ordinary ETFs require a daily disclosure of the fund’s holdings, this can hamper an active manager’s ability to execute their investment strategies.

When a fund’s assets are disclosed on a daily basis, the market can bid up the price for their holdings. And while in the short term this might be good (the assets could go up), in the long term it could disrupt the fund manager’s strategies. And, if other investors try to anticipate the trades that active managers might make, sometimes called front running, that could cause asset prices to fluctuate and potentially impact the ETF’s performance.

The Use of Proxies in Non-Transparent ETFs

How might a non-transparent ETF solve this problem?

The way ETFs keep their price in line with their assets is that the sponsor of the ETF trades throughout the day with an “authorized participant.” These authorized participants will create and redeem “baskets” of securities, i.e. the stocks or bonds that the ETF holds, and then trade them to the ETF for shares of the fund, which allows the ETF to stay in line with the price of its underlying stocks.

This process obviously requires a great degree of transparency across the board. So, how does a non-transparent ETF obscure its holdings? The answer is, by the use of “proxies”: These are baskets of stock that are similar to but not identical to the underlying holdings of the ETF.

Thus, non-transparent ETFs are able to occupy a happy middle ground in the ETF world: they enable fund managers to conceal their strategies while keeping the liquidity of pricing that is core to trading ETFs overall.

The History of Non-Transparent ETFs

For years, the ETF industry was composed mostly of index ETFs, which helps to explain why the universe of ETFs is primarily passive. But over time, some investment companies began seeking regulatory approval for non-transparent ETFs, also sometimes called semi-transparent ETFs, in order to pursue more active strategies. The approval for these funds, and the technology underlying the non-transparent strategy, began rolling out in late 2019, and ANT ETFs have seen steady inflows since then.

Though non-transparent ETFs are still a relatively small part of the overall ETF market, this sector is gaining traction and is now approaching $2 billion AUM. This reflects a similar trend among active ETFs, which have also seen more inflows this year.


💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

The Takeaway

Non-transparent ETFs may be a relative newcomer in the multi-trillion-dollar world of ETFs, but they offer an attractive new opportunity for investors who are interested in active investment styles — but still want the cost efficiency and liquidity of an ETF. Non-transparent ETFs also give active fund managers the ability to cloak their strategies, which may aid potential outcomes.

As with all ETFs, they may have a place in an investor’s portfolio. But it’s generally best that investors do some research or consult with a financial professional before investing.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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Aug
01
2023
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Do You Have to Apply for a Parent Plus Loan Every Year?

By | Budgeting & Goals, Going to College, Student Loans, student_loan | Comments Off on Do You Have to Apply for a Parent Plus Loan Every Year?

College is expensive and costs continue to rise. In 1989, the average cost of a 4-year degree school term was $1,730. As of 2023, the average annual cost increased to an average of $9,377 for in-state students at a public four-year college.

With college costs continuing to skyrocket, many parents apply for federal Parent PLUS loans. Since these loans are issued in the parent’s name, it is important that parents understand the details of what these loans entail and how often you have to apply to ensure students receive proper funding.

So, to avoid missing an application deadline, here’s some helpful information about Parent PLUS loans and their application process.

Parent PLUS Loan Recap

A Parent PLUS loan is a type of Direct PLUS loan, which is offered to parents who have a student enrolled at least part-time in an eligible education program.

Borrowers may be able to borrow an amount that equals but does not exceed the full cost of attendance, minus any other financial aid such as scholarships and grants that your child has received.

These loans are federally-funded and not subsidized. This means that the loan will accrue interest while the student is in school. Parent PLUS loans offer fixed interest rates and won’t change throughout the life of the loan.

The interest rate for Parent PLUS loans disbursed for the 2023-24 academic year is 8.05%. It’s also important to note that as of October 1, 2019, Direct PLUS Loans have a fee of about 4.228% of the loan amount (which is deducted from each loan disbursement proportionately).

Qualifying For a Parent Plus Loan

To qualify for a Parent PLUS loan, borrowers must:

•   Be the biological or adoptive parent, or in some cases, the stepparent, of an undergraduate student enrolled part-time at an eligible school
•   Have poor credit history (unless the parent meets additional criteria). More information on what is considered an adverse credit history can be found on the Student Aid website .
•   Meet general eligibility requirements for federally-funded student aid

Keep in mind that even if a grandparent is primarily responsible for a student they are not eligible for a Parent PLUS loan, unless, grandparents have legally adopted their grandchildren and are legal guardians.

Applying for a Parent PLUS Loan

The first step to apply for a Parent PLUS Loan is to complete the FAFSA® form with the student. Then, parents can log in at StudentLoans.gov , choose the Parent Borrowers tab, and the “Apply for a PLUS Loan” link.

Most schools require you to apply for Direct PLUS Loans online, however, some may have different application processes that you must follow. Studentaid.gov provides a list of schools that allow you to apply online. If your school is not on this list, check with the school’s financial aid office to verify the application process you must follow.

Those who qualify for a Parent PLUS loan, will have to sign a Direct PLUS Loan Master Promissory Note (MPN) . This document verifies that the borrower agrees to the terms of the loan. Each school may have a different process, double check with the financial aid office to ensure you understand the specific process for your student’s school of choice.

Keep in mind, those borrowing more than one parent PLUS loan for separate children, will need to sign multiple MPNs.

Apply for A Parent Plus Loan Every Year

When you complete the FAFSA form , you are applying for financial aid for one school year. Therefore, to receive financial aid for the next year, you will have to submit a new FAFSA form to get new aid.

However, the website allows you to select a Renewal FAFSA form that remembers your information from the previous years, making it earlier to submit a new financial aid application.

Additionally, it’s important to pay attention to the FAFSA deadlines to avoid missing out on any financial aid opportunities. General recommendations suggest submitting the FAFSA form by the earliest financial aid deadline of the schools to which you are applying, usually by early February.

Each state may have their own deadlines, so it can help to verify your state’s specific date.

Pros of Parent PLUS Loans

First, eligible borrowers can take out a generous Parent PLUS loan, as long as it doesn’t exceed the total cost of attendance at the student’s school of choosing (minus other financial aid they qualify for).

Another advantage of the Parent PLUS loan is that the interest rates are fixed. This means that even if rates increase nationally, the interest rate on the loan is locked in at the rate determined at the time the loan was disbursed.

Having a fixed interest rate can make it easier to budget for the monthly payments when they become due since borrowers know exactly what to expect.

Additionally, when it comes to loan repayment, there are several flexible repayment options . For example, you could select a standard repayment plan with fixed monthly payments for 10 years or an extended repayment plan with either a fixed or graduated payment schedule over a 25-year term.

Parent PLUS loans are not eligible for income-driven repayment plans, unless they have been consolidated with a Direct Consolidation Loan . This is when multiple federal loans are consolidated into one single Direct Consolidation Loans. These loans are still federal loans and the new interest rate is the weighted average of the existing loans.

Borrowers can select the best repayment option based on the plans they qualify for and their goals for repayment. Whether the goal is to keep payments low or pay off the loan balance as soon as possible, borrowers can select a plan that best fits their needs. Generally, selecting a repayment plan that helps pay off the loan quickly will result in paying less interest over the term of the loan.

Cons of Parent PLUS Loans

Not everyone qualifies for a Parent PLUS loan. Although this isn’t necessarily a disadvantage to a Parent PLUS loan, it’s important to understand that you will have to meet all eligibility requirements to qualify. This includes passing a credit check.

Adverse credit indicators include defaults of debt, foreclosures, repossessions, debts discharged through bankruptcy, tax liens, wage garnishments, or previous write-offs of federal student debt.

However, you might be able to qualify if you apply with an endorser or a cosigner. Keep in mind, you also need to be a United States citizen or national.

Alternative Financing Options

If your application is denied due to poor or “adverse credit history,” there are still other financing options. Here are a few to consider:

Enlisting an Endorser

If a parent doesn’t qualify based on their own credit history, they can try to enlist a co-signer , called an endorser, on the Parent PLUS loan. The endorser agrees to take responsibility for the loan if the borrower fails to repay, and the loan will show up on the endorser’s credit report as his or her own debt. If you apply with an endorser, you will be required to complete PLUS credit counseling .

Looking for Free Money

It can be wise to continue to apply and look for scholarships, work-study, or grant rewards. There’s a myriad of ways to find reward opportunities such as contacting the school’s federal aid office, federal agencies , state grant agencies , or other organizations a student or parent is involved with.

New opportunities may become available every year, so it can be wise to continue to stay out on the look for funding opportunities.

Applying for Unsubsidized Federal Loans

If a parent is ineligible for a Parent PLUS loan, the student may be eligible to receive additional Direct Unsubsidized Loan funds up to the loan limits for independent students.

Federal student loans can be reliable borrowing options because they often have lower interest rates and could have better repayment terms than other loans available to students. However, it’s worth making sure that a student isn’t taking out more debt than they can handle after graduation.

When we say no fees we mean it.
No origination fees, late fees, & insufficient fund
fees when you take out a student loan with SoFi.

Considering Private Loans

Lastly, if all other options fail, some families may want to consider private loans. These loans are offered through financial institutions such as banks, credit unions, and online lenders.

Keep in mind, private student loans tend to have less flexible repayment terms and higher interest rates than federal student loans.

For example, private lenders may require you to begin making payments before your child graduates. Conversely, with a Parent PLUS loan, parents can wait to make repayments until after their child has graduated.

Additionally, when applying for a private loan, the interest rate is generally based on factors like the borrower’s income and credit score.

If you think you may need to use private loans, don’t be discouraged, and instead, be informed about your options. First, it’s worth shopping around and comparing lenders for private loans.

Lenders’ terms will vary, so it can be helpful to get several quotes and ask about the interest rate (and whether it’s fixed or variable), the loan’s repayment terms, and what happens in the event there are financial difficulties that make it difficult to stick to the repayment plan.

If you do determine a private student loan is right for you, check out SoFi, where parent student loans are built to help you pay for your child’s education. SoFi loans have no fees, and qualifying borrowers can secure a competitive interest rate.

Check out what kind of rates and terms you can get in just a few minutes.


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.

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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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