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The federal GENIUS Act, passed in July 2025, is the first major piece of legislation aimed at bringing clear rules to the fast-evolving world of cryptocurrency.^[1] The Act primarily focuses on how stablecoins — digital tokens designed to keep a steady value, usually tied to the U.S. dollar — can be issued and managed.

For people who buy and sell digital assets, this new legislation represents a major turning point: It attempts to balance innovation in crypto with much-needed regulation and consumer protections. Here’s a closer look at what the GENIUS Act means for stablecoins and how its effects may ripple through the larger crypto ecosystem.

What Is the GENIUS Act?

The GENIUS Act — formally titled the Guiding and Establishing National Innovation for U.S. Stablecoins Act — represents the first major U.S. statute to codify rules specifically for stablecoins.^[2] It aims to provide a regulatory framework that allows wider use of stablecoins as a legitimate form of payment.

As a quick refresher, stablecoins are a type of cryptocurrency that has its value pegged to another asset, which is typically a traditional fiat currency like the U.S. dollar. Designed to stay close to a fixed price (typically $1), stablecoins offer a more practical way to make payments via blockchain. With most cryptocurrencies, payments can be risky since the price of the coin can fluctuate dramatically from one minute to the next.

Until now, there was no federal framework governing stablecoins, which limited their widespread use. The GENIUS Act is looking to bring this digital currency into the mainstream by establishing clear rules for how stablecoins must operate, how issuers are supervised, and what protections users can expect.

Holders of stablecoins should understand, however, that these coins do not carry the same safety net as money held in a traditional bank or brokerage account, since crypto assets are not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).^[3]

Key Provisions of the GENIUS Act

The GENIUS Act is designed to help payment companies, financial institutions, and consumers navigate the stablecoin market with greater confidence. While the legislation is long, here are some key highlights.

Stablecoin Definition and Oversight

Under the Act, a stablecoin is explicitly recognized as a “digital asset issued for payment or settlement and redeemable at a predetermined fixed amount (e.g., $1).”^[4] This definition excludes algorithmic stablecoins, which are stablecoins that use complex computerized rules to keep prices stable, leaving them outside the law’s consumer protections.

The Act lays out how payment stablecoins must be issued and regulated. This includes:

•   Licensing: No one may issue or sell a U.S.-pegged payment stablecoin unless they are a licensed permitted payment stablecoin issuer (PPSI). Issuers with over $10 billion in stablecoin issuance can apply federally; smaller fintechs can opt into certified state-level frameworks that meet or exceed federal rules.^[2]

•   Reserves: Stablecoins must be backed with highly liquid assets (such as U.S dollars and short-term U.S. treasuries) on a 1:1 basis.

•   Transparency: Issuers must release periodic public disclosures and submit to routine reserve audits.

•   Consumer protection: In case of insolvency or bankruptcy, stablecoin holders are given priority claims over other creditors when reserves are distributed.

•   Restrictions on yields: Issuers may not offer interest or yield to stablecoin holders to prevent them from functioning like and being perceived as securities rather than payment vehicles.

•   Truth in marketing: Issuers cannot make misleading marketing statements, such as claims that stablecoins are government-backed or legal tender.

•   Compliance: All issuers must comply with the Bank Secrecy Act, enforce strong anti–money laundering measures, and adhere to consumer protection rules.^[5]

Together, these provisions are designed to end the “Wild West” era of unregulated stablecoins and bring the market closer to the rigor of traditional banking regulation and oversight.

Impact on Cryptocurrency Markets

By establishing clear regulatory guardrails, the GENIUS Act legitimizes stablecoins and opens the door to broader adoption of digital assets. The prospect of banks and payment platforms introducing their own stablecoins could further validate cryptocurrencies and push them more toward mainstream financial use.

This growing legitimacy could potentially lead to greater market stability and even improved performance for other crypto assets such as Bitcoin and Ethereum.

That said, the long-term impact of the GENIUS Act on crypto prices and stability is impossible to predict. For now it’s important to remember that crypto as an asset class is still highly volatile and is strictly for buyers with a high tolerance for risk.

Potential Impact on Stablecoins and Crypto Holders

With the passage of the GENIUS Act, stablecoin issuers and crypto holders will need to adapt to a new landscape. Here’s how the legal change could ripple through the markets.

For Stablecoin Issuers

•   Higher compliance costs: Issuers face strict reserve, licensing, audit, and disclosure requirements. Smaller firms may struggle to keep up.

•   Barrier to entry and consolidation: The costs and intricate requirements of the GENIUS Act may favor large institutions for stablecoin issuance, making it more challenging for smaller entities to compete.

•   Greater legitimacy: PPSI status could attract institutional partnerships and boost user confidence.

•   Regulatory consistency: The Act aligns state and federal stablecoin frameworks, ensuring fair and consistent regulation throughout the U.S.

For Crypto Holders and Users

•   Improved transparency: Regular audits and federal oversight will give users more confidence that their stablecoins are truly backed.

•   Stronger consumer protections: Priority in bankruptcy and clear redemption policies reduce the chance that funds will be lost in a stablecoin collapse.

•   Regulatory complexity and delays: The new rules will require significant adjustments from issuers and may lead to initial delays in their operations. Some stablecoins not fully in compliance may need to change structure.

•   Possible higher costs or fewer options initially: Higher operating expenses could be passed on to users via transaction fees. Also, smaller or less well-funded issuers might find the regulatory burden heavy and some could exit or consolidate, reducing competition.

The GENIUS Act and Bitcoin

While the act doesn’t directly regulate Bitcoin itself, its passage aims to increase stability and confidence in the broader digital asset market. This could potentially increase mainstream adoption and interest in cryptocurrencies, including Bitcoin. For those who regularly buy, hold, and sell Bitcoin, this can be seen as a positive development.

At the same time, however, the Act’s emphasis on centralization and compliance marks a shift away from the decentralized ethos that drew many to Bitcoin and other cryptocurrencies. As a result, many crypto users view the GENIUS Act (and other crypto legislation that may follow) with cautious optimism.

Policy Outlook on the GENIUS Act

While the GENIUS Act is now law, it won’t be implemented immediately. It is scheduled to take effect 18 months after the enactment of the GENIUS act or 120 days after federal regulators issue the implementing rules, whichever comes first.

As we move through 2025, federal agencies — including the Office of the Comptroller of the Currency, the Treasury Department, and the Federal Reserve —- will be engaged in rulemaking and formulating guidance to implement the bill’s provisions, a process that could take many months.

In the meantime, we may see even more federal crypto legislation coming out of Washington. The Digital Asset Market Clarity (CLARITY) Act, for example, is currently moving through Congress. This proposed law aims to clarify the roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in regulating the crypto market. If passed, it would set standards for the wider crypto industry.

What the GENIUS Act Means for Everyday Crypto Users

For people who use stablecoins as a gateway to crypto or as a digital cash equivalent, the GENIUS Act brings both benefits and new rules to be aware of.

First, the law puts certain safeguards in place for stablecoin users. Issuers can no longer claim their tokens are legal tender or backed by the U.S. government, helping protect users from misleading ads. If a stablecoin company goes bankrupt, holders also get priority in getting their money back ahead of other creditors.

But there are limits to the law. For example, the Act does not guarantee instant redemption of stablecoins or provide deposit insurance, as mentioned above, leaving some risks for everyday users.

Crypto users also need to prepare for tighter compliance. Stablecoin issuers must now follow strict anti-money laundering laws, which means users will face stronger identity checks when buying, selling, or redeeming tokens. Everyday crypto users may also see changes in stablecoins availability, as some stablecoins could disappear, while new federally licensed ones take their place.

The Takeaway

The GENIUS Act is the first significant U.S. crypto regulation. It aims to reshape stablecoins by defining how they must be backed, disclosed, licensed, and protected. For issuers, it introduces heavier compliance but also credibility and access to broader markets. For users, it offers greater safety and transparency, but also imposes new rules that could remove some offerings from the market.

Overall, the GENIUS Act represents a turning point for crypto regulation. By setting a clear national standard for stablecoins, it paves the way for additional legislation and signals that the U.S. government may be ready and willing to integrate digital assets into the financial mainstream in the coming years.

Soon, SoFi members will be able to buy, sell, and hold cryptocurrencies, such as Bitcoin, Ethereum, and more, and manage them all seamlessly alongside their other finances. This, however, is just the first of an expanding list of crypto services SoFi aims to provide, giving members more control and more ways to manage their money.

FAQ

What is the main goal of the GENIUS Act for cryptocurrency?

The primary objective of the GENIUS Act is to create the first clear and enforceable federal framework for stablecoin regulation in the U.S. It aims to protect consumers, promote transparency, manage financial stability risks, help prevent fraud and illicit activity, and bolster U.S. dollar dominance in digital payments.

Is the GENIUS Act a law yet?

Yes, the GENIUS Act was signed into law on July 18, 2025, after passing both the Senate and the House. It is set to take effect 18 months after the enactment of the GENIUS act or 120 days after federal regulators issue the implementing rules, whichever comes first.

How does the GENIUS Act define and regulate stablecoins?

Under the GENIUS Act, a “payment stablecoin” must be redeemable at a stable value and backed 1:1 by liquid, low-risk reserves such as U.S. dollars or short-term Treasuries. Issuers must publicly disclose reserve composition monthly, maintain segregation from their own assets, and comply with strict consumer-protection rules. In the event of insolvency, holders’ claims get priority over other creditors. The act also states that payment stablecoins are not considered securities or commodities.^[6]

Will the GENIUS Act impact the price of Bitcoin?

The Act focuses narrowly on stablecoins, so any direct effect on Bitcoin’s price is uncertain. Some market participants expect improved regulatory clarity could increase institutional confidence in crypto broadly, which might buoy demand for Bitcoin and other major coins. However, because Bitcoin is not a stablecoin, its price dynamics remain driven by supply, demand, macro factors, and sentiment rather than these reserve-backing rules.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

Photo credit: iStock/Ihor Lukianenko

SOCRYP-Q325-109

While the blockchain technology used in cryptocurrencies is generally thought to be highly secure, crypto scams do occur, with fraudsters convincing people to send them crypto payments, transact in fake crypto products, or share their digital wallet details. According to the FBI’s Internet Crime Complaint Center (IC3) 2024 Internet Crime Report, cryptocurrency-related scams accounted for $9.3 billion in victim losses, which represents a steep 66% increase from the previous year.^[1] As scammers get more sophisticated (integrating AI, for instance), it can be more challenging to recognize crypto fraud.

An important step to take is to educate yourself about and then avoid the scams you might encounter in 2025 if you buy, hold, or sell crypto. Read on for advice.

What Are Crypto Scams?

Crypto scams are schemes in which fraudsters trick people into sending cryptocurrency for fake purposes, buying fraudulent crypto products, or revealing their crypto wallet credentials so that funds can be stolen.

Unfortunately, there has been a major uptick in these crimes over the past year. Scammers are becoming more sophisticated, using AI and other tools to appear legitimate. They also often use the same principles deployed in non-crypto financial scams, such as:

•   Slowly building trust, over weeks or even months

•   Creating a sense of urgency, such as, “This opportunity expires in one hour”

•   Exploiting knowledge gaps (such as telling people there’s a serious error with their technology which they can fix)

These scams take many guises. Some involve phishing, in which fraudsters masquerade as legitimate, trusted businesses, to steal crypto. Others are romance ploys, where someone cultivates a relationship with someone only to convince them to transact in a bogus type of cryptocurrency.

The Most Common Types of Crypto Scams in 2025

To help you stay vigilant against evolving cryptocurrency fraud, here are 10 common scams to know about for 2025 and beyond. Learning how these schemes operate is the first step toward avoiding them.

1. Pig Butchering Scams

Pig butchering is an admittedly unpleasant name for a scam in which perpetrators win the trust of victims over time and convince them to buy fake crypto assets. The scammer, who often appears wealthy and financially savvy, might meet someone on social media, a dating app, or via a text message.

They may share stories about their life and send alleged selfies, but find excuses not to meet in person or have video calls. Eventually, they offer to help their target pursue buying crypto so they too can profit. However, the scammer directs the person to an illegitimate platform that steals their money.

Why is it called “pig butchering”? That turn of phrase refers to the practice on a farm of fattening up pigs before they are slaughtered. Scammers “fatten up” their victims with ongoing attention, securing their trust to more easily cheat them.

2. Rug Pulls

A rug pull scam involves a supposed crypto developer talking about a great new project (a new kind of crypto or NFT, perhaps) that will be a lucrative opportunity. The scammers often create hype on social media, promising high returns or innovative technology to attract investors. Once enough people invest and the token’s value rises, the creators abandon the project or disappear, taking the raised assets with them. This leaves the participants with worthless tokens.

The “rug pull” name comes from the saying about pulling the rug out from under someone. The scammer makes their victim feel as if they will reap a considerable profit, but when the rug gets pulled, they are actually left with nothing.

3. Romance Scams

In a romance scam, the fraudster forms a romantic relationship with the victim. The scheme often starts on a dating app or social media, where the scammer builds a fake persona (often attractive, trustworthy, and emotionally available) to gain the victim’s affection and trust.

In some cases, the scammer will cultivate a relationship over months or even years. Eventually, they will suggest that the victim buy into a profitable crypto opportunity. They might even position it as a way to grow funds for a wedding or purchasing a home together. However, it’s just a way to whisk their “darling’s” money away.

4. Fake Exchanges and Wallets

Scammers are getting so good at their pursuits that it can be almost impossible to tell what’s real and what’s fake. That’s what fuels fake exchange and wallet scams. A victim might receive communication about or see an ad for what seems to be a legitimate and possibly even well-known crypto exchange or digital wallet. There might even be a celebrity endorsement involved (this could be an AI-generated deepfake) and/or claims of major returns on a slick-looking site.

However, these can be fraudulent offerings that look almost identical to real crypto exchanges and wallets. If a crypto buyer, holder, or seller interacts with these fake platforms, they can have their funds stolen.

5. Phishing Attacks

In a phishing attack, scammers reach out to victims, often by email, text message, or social media communication, saying there’s an urgent problem with an account that needs attention. Targets are then lured into clicking fake links and entering their private information (such as private keys or wallet passwords) on cloned platforms, giving attackers access to their funds.

6. Giveaway and Airdrop Scams

In this scheme, scammers trick people into sending cryptocurrency or sharing personal information under the guise of receiving free tokens. Scammers often impersonate well-known companies, influencers, or crypto projects on social media, claiming to host “giveaways” or “airdrops” (a method used by blockchain projects to distribute free cryptocurrency tokens to users’ digital wallets).

To qualify for the freebie, users must typically first send a small amount of crypto to “verify” their wallet. In reality, victims never receive anything in return, and the scammers disappear with the funds.

7. Pump and Dump Schemes

A pump and dump scheme in the crypto world is a fraudulent practice in which scammers create or acquire large amounts of a low-value crypto and promote it to inflate the token price artificially. They then sell this “in-demand” crypto to unwitting individuals.

That’s the “pump” part of the process. Then comes the “dump,” when scammers sell off their tokens at this inflated price. The supply of the token then soars, the price typically plummets, and the buyers are left with worthless holdings.

8. Ponzi and Pyramid Schemes

Ponzi and pyramid schemes in crypto are fraudulent scams that promise high returns with little or no risk. It’s another type of “get rich quick” scheme. In a crypto-based Ponzi scheme (named after 1920s con artist Charles Ponzi^[2]), the victim thinks they are transacting with a legitimate form of cryptocurrency that will have solid returns. However, when they buy coins, they are actually funding returns to those who paid into the offering earlier. The scheme relies on a constant inflow of new money to appear profitable and it collapses when new investments slow down.

Crypto pyramid schemes, on the other hand, depend on recruiting new participants. Members earn money (typically free tokens) primarily by bringing in others rather than from genuine investment. New recruits pay into the system, with a portion of their fees going to the person who recruited them and those above them in the “pyramid.” The scheme collapses when it’s impossible to recruit enough new people to pay everyone, leaving most participants at the bottom with losses.

9. Impersonation and Fake Support Scams

In these cryptocurrency scams, the orchestrators pretend to be allied with well-known companies. Typically, they reach out using authentic-looking emails, text messages, social media messages, or computer pop-ups, or by a phone call. Often, their ruse is to say there is an issue with the victim’s account, and that their money or credentials are at risk. In order to get the problem fixed, the victim needs to buy crypto and send it their way.

In another version of this scam, the fraudsters claim to be working for an established or new business that is now issuing their own crypto coin or token. They might have a legitimate-looking website, press releases, and news articles to back up their claim. This is false, and if you purchase the new offering, you are left with nothing of value.

10. Malware and Remote Access Scams

In this crypto crime, scammers steal people’s coins in one of two ways. In a crypto malware scam, fraudsters trick users into downloading malicious software, often through phishing emails, fake apps, or fraudulent websites. The software then steals private keys or passwords to transfer funds to the attacker’s account.

In a remote access scam, the criminal convinces the victim that there is a problem with their hardware or account access, which can be repaired via remote access. Once the target allows access, the scammer may direct them to log into their crypto exchange, claiming they need to “secure” their funds. This allows the attacker to steal sensitive information or drain their crypto assets.

Examples of Cryptocurrency Scams

Here are two examples of well-known cryptocurrency scams to be aware of and learn from:

•   As reported by CNN^[3], Dennis Jones, an 82-year-old grandfather, was befriended on Facebook by a woman he believed was named Jessie, who gradually encouraged him to buy crypto. Having full trust in Jessie, Jones complied and ultimately invested everything he had. Then one day, Jessie — and all of the money he invested — disappeared, leaving him in ruin.

•   An example of a rug pull unfolded with BitConnect.^[4] Its BitConnect Coin (BCC) promised returns of up to 40% per month. As the government began looking into claims that it was a Ponzi scheme, BitConnect shut down in January 2018, wiping out $2 billion in consumer funds.

How to Protect Yourself from Crypto Scams

Knowing the top crypto scams to watch out for in 2025 is one step towards protecting yourself. But since scammers continually develop new ploys and crypto transactions usually are not reversible, also follow these tips:

•   If you are told you must pay in crypto, you are likely dealing with a scammer.

•   When you hear about “guaranteed” returns on crypto, you are probably dealing with an untrustworthy individual or business, according to the Federal Trade Commission (FTC).

•   Be wary of crypto offers via email, text, phone, or on social media that claim to come from a well-known brand or business. This might be a scammer engaging in impersonation. Rather than immediately engage, look up the company’s official contact details and reach out that way.

•   Don’t let dire warnings that your bank account, crypto account, or computer are at risk rattle you. A sense of urgency is a tool scammers often use. Don’t rush to click on links, reveal sensitive information, or pay in crypto. Slow down, and again contact the supposedly at-risk account via publicly-available information.

•   Dating and crypto don’t mix. Whether you’ve been seeing someone for a week or a year, if they are guiding you toward crypto transactions, it may well be a scam.

•   Be cautious with the promise of free cash or crypto, especially excessively generous offers. This could be a ruse, as described above.

•   If you are transacting in crypto, opt for reputable platforms and verify the URL carefully. Scammers can create fake platforms that are just one letter off.

•   To protect your accounts, use multifactor authentication (MFA) to enhance security. Use unique passwords as well.

•   If you believe you’ve been the victim of crypto fraud, report the scam as quickly as possible to the authorities (including the FTC and the FBI’s Internet Crime Complaint Center), as well as the cryptocurrency exchange company you used to send the money.

The Takeaway

While crypto blockchain technology is generally thought of as transparent and secure, scams related to crypto are unfortunately rising. Being aware of the common ploys and staying alert to emerging ruses is an important step in protecting yourself when buying, holding, and selling crypto.

Soon, SoFi members will be able to buy, sell, and hold cryptocurrencies, such as Bitcoin, Ethereum, and more, and manage them all seamlessly alongside their other finances. This, however, is just the first of an expanding list of crypto services SoFi aims to provide, giving members more control and more ways to manage their money.

FAQ

What is the most common type of crypto scam?

According to the FBI, one of the most common types of crypto scams is what is known as pig butchering. In this scenario, the scammer wins the confidence of a person and convinces them to transact with what winds up being fake crypto.

How can you tell if a crypto website or offer is fake?

Some ways to identify a fake crypto website or offer are as follows: a URL that is slightly different from the expected name and spelling; unrealistic promises (such as guaranteed growth); lack of contact details or full list of team members’ names; pressure to act quickly; low-quality websites; and issues with withdrawing funds.

What is a pig butchering scam and how does it work?

A pig butchering scam is a type of long-term fraud where scammers develop a relationship with a victim over weeks or months before persuading them to get involved in a fake online cryptocurrency scheme. The term describes the process of “fattening up” a victim with false affection and trust before “slaughtering” their finances.

Can you recover money lost in a crypto scam?

Getting money back from a crypto scam is difficult because crypto transactions are usually irreversible. That is why it is especially important to be aware of common and emerging crypto scams to protect yourself. If you do lose funds this way, report the crime as quickly as possible to government authorities and the local police. Be highly suspicious of “recovery companies” that contact you, as these are likely another scam to get more money from you.

Are crypto airdrops and giveaways usually legitimate?

Crypto airdrops and giveaways can be a legitimate promotional method. However, they are also used by scammers, so it’s important to do your due diligence when considering an offer. Signs that you may be dealing with a scam include the lack of an official announcement, promises of unrealistically generous rewards, URLs that are similar to a legitimate address, requests for private keys, grammatical errors, and low-quality graphics.

Photo credit: iStock/chekyfoto

SOCRYP-Q325-112

The question of whether parents should pay for their children’s college education is complex and multifaceted. It involves not only financial issues (namely, can you afford to?) but also ethical and personal considerations. While many parents aspire to pay 100% of their children’s college expenses to allow them to graduate debt-free, others feel that it’s important for kids to have some skin in the game.

If you’re weighing this issue, you’ll want to consider both the reasons for and against paying for your kid’s college education. Here’s a closer look at both sides of the argument.

Why Parents Pay for College

Some parents feel it’s their duty to cover the cost of their child’s college education. Here’s a look at some arguments in support of that viewpoint.

Giving Your Child a Head Start

The average student borrows over $30,000 to pursue a bachelor’s degree, according to the Education Data Initiative. That’s no small sum. Students who graduate debt-free generally have a leg-up on achieving their professional and financial goals. They can consider taking a job based on their career aspirations, rather than the one that pays the most. They also have the freedom to put all of their financial resources into other goals, such as building an emergency fund or buying a home.

Helping Your Child Stay in School

When you send your child off to college, you likely expect them to emerge with a bachelor’s degree. But the national college graduation rate is only around 61%. Among those who leave school, a significant number cite financial reasons for their decision. Taking the college bill off your child’s plate may help them stick to the program.

Allowing Your Child to Focus

Getting a job can help your student cover some of their tuition costs, but if they have to work too many hours, it can make it difficult for them to focus on their studies. Paying for their education may give them a better chance of getting good grades and possibly qualifying for academic scholarships. They might even be able to take on a bigger course load every semester and graduate early.

💡 Quick Tip: Fund your education with a low-rate, no-fee SoFi private student loan that covers all school-certified costs

Why Parents Don’t Pay for College

While many parents believe they should pay for college, others feel that students should be responsible for investing in their own education. Here’s a look at some reasons why some parents decide not to pay for college.

It Could Threaten Your Retirement

If you can afford to save for a healthy retirement and pay for college, you’re in good shape. But if you feel like you have to choose between the two, paying for college and not saving for retirement could force you to work longer or leave the workforce with less money than you might need.

It Builds Responsibility and Accountability

Having your child contribute to their education through part-time jobs and loans can help foster a sense of responsibility and ownership. They may value their education all the more — and work as hard as they can — knowing how much this opportunity costs.

It’s a Good Teaching Moment

Helping your child figure out their college financing and teaching them good financial habits now can help them continue those habits after they graduate. If you cover everything for them, they may have a difficult time transitioning to life after college and may end up coming back to you for help.

How Parents Paying for College Can Get Financing

If you’re interested in footing some or all of the bill for your child’s college education, you have a few different funding options. Here are some to consider.

Savings

One way to help students pay for college is to put some money aside each month in a 529 plan. Even if your child is already in high school, you can still open a 529 plan and take advantage of the federal (and sometimes state) tax benefits. Money in a 529 account grows tax-deferred and withdrawals are tax-free when used for eligible educational expenses. Any amount saved for college can reduce your child’s future student loan debt.

Parent PLUS Loans

The U.S. Department of Education offers PLUS Loans for parents that you can qualify for as long as you don’t have an adverse credit history. Parent PLUS Loans give you access to certain benefits, including the option to defer repayment while your child is enrolled at least half-time and for an additional six months after your child graduates. However, these loans also charge relatively high interest rates and upfront loan fees.

Recommended: Should You or Your Child Take Out a Loan for College?

Private Student Loans

If you have excellent credit and a strong, steady income (and your child doesn’t get enough federal aid), you may want to explore getting a student loan for parents with a private lender. Typically, you can get prequalified with a soft credit check with many lenders online to see what rate you qualify for and compare it to other lenders and Parent PLUS Loan options.

💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

Financing Options for Your Child

If you’ve decided that you can’t or don’t want to fully pay for your child’s college education, here are some ways that your child can get the funding they need.

Grants and Scholarships

By completing the Free Application for Federal Student Aid (FAFSA®), your child will automatically be considered for many federal, state, and institutional grants and scholarships. Scholarships are also available through private organizations and companies. To apply for these, your student will likely need to fill out a separate application for each one. To find more “free money” for school, your student may want to use an online scholarship search tool.

Part-Time Job

One good way to pay for school, especially if your child has a full or partial scholarship lined up, is to work part-time while in school. This can help pay for living expenses, books, or possibly even tuition. Working full-time during the summers can help to pay for the next year’s worth of expenses.

Student Loans

College students have a choice between federal and private student loans. In general, federal loans are better-suited for undergraduate students because they don’t require a credit check, have relatively low-interest rates, and offer access to income-driven repayment and loan forgiveness programs. Your child can apply for federal student loans by completing the FAFSA.

If federal student loans and other aid isn’t enough to cover your child’s full cost of attendance, however, private student loans may be another option. Just keep in mind that you may need to cosign the loan application to help them get approved.

The Takeaway

The question of whether parents should pay for college is a personal one with valid arguments on both sides. Ultimately, the decision depends on your individual financial situation, retirement goals, and philosophical beliefs about your child’s responsibility.

Many parents choose to contribute to give their child a head start and allow them to focus on their studies, while others prioritize their own financial security and believe it’s important for their child to have “skin in the game.” There are various financing options available for both parents and students to help cover college costs, so it’s important to explore all avenues and create a plan that works best for your family.

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

FAQ

Are parents supposed to pay for college?

There’s no universal “yes” or “no” answer to this question. Whether parents pay for college depends on many factors, including their financial situation, retirement goals, the child’s academic performance, and personal beliefs about financial responsibility. Some parents feel a strong obligation to cover college costs to help their children avoid debt and focus on studies, while others believe contributing to education builds responsibility.

Do parents who make $120,000 still qualify for FAFSA?

Yes, parents making $120,000 may still qualify for financial aid, as there is no income cutoff for the FAFSA®. Financial aid eligibility is based on the Student Aid Index (SAI), which takes into account a variety of factors beyond just income, such as family size and assets. While a higher income can make it harder to get need-based aid, a student can still qualify for federal student loans and merit-based programs. Completing the FAFSA is always recommended to explore all available financial aid options. federal

Is it worth paying off your child’s student loan?

Paying off your child’s student loan can be worthwhile if you’re financially secure and it won’t impact your retirement or emergency savings. It can relieve your child’s financial stress and help them build a stronger financial future. However, if it strains your budget and limits your ability to meet personal goals, it may be better to offer partial help — like contributing to monthly payments — rather than paying off the entire balance.

How does a middle class family pay for college?

Middle-class families often combine several strategies to pay for college. These include applying for federal and state financial aid by completing the FAFSA®, seeking out scholarships and grants based on academic merit, talents, or specific backgrounds, utilizing 529 college savings plans, and having students work part-time jobs. Many also consider federal student loans, and sometimes private student loans, to cover remaining costs. It’s often a blend of savings, financial aid, and loans that makes college affordable.

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SOISL-Q425-010

Implied volatility (IV) is a metric that describes the market’s expectation of future movement in the price of a security. Implied volatility, also known by the symbol σ (sigma), employs a set of predictive factors to forecast how volatile a security’s price may be.

Some investors may use implied volatility as a way to understand the level of market risk they may face. Implied volatility is often calculated using either the Black-Scholes model or the Binomial model.

What Is Volatility?

Volatility, as it relates to investments, is the pace and extent that the market price of a security may move up or down during a given period. During times of high volatility, prices experience frequent, large swings, while periods of low volatility see fewer and smaller price changes.

What Is Implied Volatility?

Implied volatility is, in essence, a metric used in options trading that reflects the market’s anticipation of a security’s future price movements, rather than its historical performance. While it informs the price of an option, it does not guarantee that the price activity of the underlying security will be as volatile, or as stable, as the expectation embedded in its implied volatility. While implied volatility isn’t a window onto the future, it can often correlate with the broader opinion that the market holds regarding a given security.

To express implied volatility, investors typically use a percentage that shows the rate of standard deviation over a particular time period. As a measure of market risk, investors typically see the highest implied volatility during downward-trending or bearish markets, when they may expect equity prices to go down.

During bull markets on the other hand, implied volatility tends to go down as more investors may believe equity prices will rise. That said, as a metric, implied volatility doesn’t predict the direction of the price swings, only that the prices are likely to swing.

How Implied Volatility Affects Options

So how does implied volatility affect options? When determining the value of an options contract, implied volatility is a major factor. Implied volatility can help options traders evaluate an option’s price and also evaluate whether the option may be a good fit for their strategy.

An investor buying options contracts has the right, but not the obligation, to buy or sell a particular asset at an agreed-upon price during a specified time period. Because IV helps estimate the extent of the price change investors may expect a security to experience in a specific time span, it directly affects the price an investor pays for an option. It would not help them determine whether they want a call or a put option.

It may also be used by some traders to help them determine whether they want to charge or pay an options premium for a security. Options on underlying securities that have high implied volatility tend to come with higher premiums, while options on securities with lower implied volatility typically command lower premiums.

Recommended: Popular Options Trading Terminology to Know

Implied Volatility and Other Financial Products

Implied volatility can also impact the prices of financial instruments other than options. One such instrument is the interest rate cap, a product aimed at limiting the increases in interest charged by variable-rate credit products.

For example, homeowners might purchase an interest rate cap to limit the risks associated with their variable-rate mortgages and adjustable-rate mortgage (ARM) loans. Implied volatility may be a consideration in the prices that borrowers may pay for those interest rate caps.

How Is Implied Volatility Calculated?

There are two implied volatility formulas that some investors typically use to estimate fair option pricing based on market conditions.

Black-Scholes Model

One of the most widely used methods of calculating implied volatility is the Black-Scholes Model. Sometimes known as the Black-Scholes-Merton model, the Black-Scholes model is named for three economists who published the model in a journal in 1973.

It can be a complex mathematical equation investors use to project potential price changes over time for financial instruments, including stocks, futures contracts, and options contracts. Investors use the Black-Scholes Model to estimate the value of different securities and financial derivatives. When used to price options, it uses the following factors:

•  Current stock price

•  Options contract strike price

•  Amount of time remaining until the option expires

•  Risk-free interest rates

The Black-Scholes formula takes those known factors and effectively back-solves for the value of implied volatility.

The Black-Scholes Model offers a quick way to calculate European-style options, which can only be exercised at their expiration date, but the formula is less useful for accurately pricing American options, since it only considers the price at an option’s expiration date. With American options, the owner may exercise at any time up to and including the expiration date.

Binomial Model

Many investors consider the binomial option pricing model more intuitive than the Black-Scholes model. It also represents a more effective way of calculating the implied volatility of U.S. options, which may be exercised at any point before (and on) their expiration date.

Invented in 1979, the binomial model uses the assumption that at any moment, the price of a security will either go up or down.

As a method for calculating the implied volatility of an options contract, the binomial pricing model uses the same basic data inputs as Black-Scholes, along with the ability to update the equation as market conditions change or new information becomes available. In comparison with other models, the binomial option pricing model is very simple at first. It can become extremely complex, however, as it accounts for many time periods and supports early exercise for pricing American-style options.

By using the binomial model with multiple periods of time, a trader can use an implied volatility chart to visualize potential changes in implied volatility of the underlying asset over time, and evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements and emerging market news.

The calculations involved in the binomial model can take a long time to complete, which may make it difficult for short-term traders to use.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

What Affects Implied Volatility?

The markets fluctuate, and so does the implied volatility of any security. As the price of a security rises, that can change its implied volatility, which can influence changes in the premium it costs to buy an option.

Another factor that changes the implied volatility priced into an option is the time left until the option expires. An option with a relatively near expiration date tends to have lower implied volatility than one with a longer duration. As an options contract grows closer to its expiration, the implied volatility of that option tends to fall.

Implied Volatility Pros and Cons

There are both benefits and drawbacks to be aware of when using implied volatility to evaluate a security.

Pros

•  Implied volatility can help an investor quantify the market sentiment around a given security.

•  Implied volatility can help investors estimate the size of the price movement that a particular asset may experience.

•  During periods of high volatility, implied volatility can help investors identify potentially lower-risk sectors or products.

Cons

•  Implied volatility cannot predict the future.

•  Implied volatility does not indicate the direction of the price movement a security is likely to experience.

•  Implied volatility does not factor in or reflect the fundamentals of the underlying security, but is based primarily on the security’s price.

•  Implied volatility does not account for unexpected adverse events that could affect the price of the security and its implied volatility in the future.

The Takeaway

Some investors use implied volatility to assess expected price movement and evaluate option value. It can be a useful indicator, but it has limitations. Investors may want to use it in connection with other types of analysis to better contextualize risk and potential price behavior.

That said, having a basic understanding of implied volatility can be a helpful foundation for nearly all investors.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

What is implied volatility?

Implied volatility measures the extent and frequency that the market expects a security’s price to move. Options traders may use it to evaluate whether premiums are relatively expensive or inexpensive, and to help them gauge strategy timing.

Is high IV good for options?

High implied volatility can work in favor of option sellers, since they may collect a higher premium for those options. Option buyers typically pay more upfront for an option with high implied volatility, but the potential for bigger price swings may increase the likelihood that the option will move into the money, though this comes with higher risk, as well.

How can I try to profit from implied volatility?

Traders may try to profit by buying options ahead of events that are likely to trigger sharp price moves, hoping the option’s value rises. Others may sell options when IV is high to collect larger premiums, expecting volatility may drop. Both strategies hinge on timing and carry risk.

What is the function of implied volatility?

Implied volatility reflects how much price movement the market anticipates for a given security. It helps determine options pricing and offers a snapshot of perceived risk, but it doesn’t predict the direction that the security’s price may move.

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