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With your undergraduate years behind you, you may be mulling over what’s next. Will you take time to gather work experience in your field of interest? Or perhaps you already know in what professional direction your headed. If that’s the case, and grad school is in your future, you might be comparing institutions to determine which one is the best fit for you.

According to the most recent U.S. census data, almost 22% of Americans above the age of 25 hold a bachelor’s degree, and around 13% of them went on to earn even higher degrees—master’s degree, doctorate, or other professional degree.

The number of U.S. college students has been rising, and with increased university enrollment has come increased national student debt. Student loan debt in America currently totals around $1.5 trillion .

If graduate school is your next step, it’s a good idea to know how much debt you may be saddled with once you have that freshly printed degree in hand—as well as how much money you stand to earn in your chosen profession. Here’s a look at the average graduate student loan debt for different graduate school options in the U.S.

Average Loans for Law School

Approximately 130,000 people enrolled in U.S. law schools last year, and those who graduated left with anywhere between $51,000 and $213,000 in student loan debt. The average amount of debt for a private law school grad last year was $130,900. At an interest rate of, say, 6.5%, paid over 20 years, the monthly loan payment for that amount would be around $976.

With such a hefty price tag, people may ask if law school is worth it. One way to think about that is through the lens of salary. According to respondents on employee review website Glassdoor , the average salary for a first-year attorney is $151,026, or about $12,600 per month before taxes.

But some studies show much lower first-year earnings for lawyers. If you’re making in the lower range —say $60,000 per year, or $5,000 per month before taxes—forking over nearly $1,000 per month for your loans may feel more constricting.

Average Loans for Business School

This year, more than 10,000 business school graduates reported their debt totals in a survey , and the collected data revealed that many owed more than $100,000. The survey polled graduates at some of the top-ranked business schools, such as MIT Sloan School of Management and NYU Stern School of Business. Of participating MIT students, 36% owed more than $100,000, and of Stern students, 34% carried six-figure debt.

Related: What is the Average Debt by Age?

“I don’t view [the debt] as a burden,” said Mike Sanchez, an investment banker and recent graduate of the University of Chicago Booth School of Business, in a Bloomberg Businessweek article .

Sanchez reported owing $110,000 in loans after graduate school—but students out of Booth make a median starting salary of $130,000, according to the school. Sanchez finds that the return on investment, or ROI, is quite good.

Average Loans for Medical School

More than 91,000 people enrolled in U.S. medical schools for the 2018–19 school year. Among 2018 medical school graduates, 75% had some hefty student debt. In fact, the average medical school debt last year was a staggering $196,520 after graduation. Average dental school debt is even higher, at $287,331, while the average pharmacy school debt is $163,494.

Similar to business school grads, medical professionals are met with relatively high salaries when they enter the work world, which may make those steep average debt numbers feel more manageable.

Pediatricians, for example, were offered an average salary of $230,000 last year, and urgent care physicians were offered $234,000. Keep in mind that those numbers are at the lower end of salaries in the medical field. On the higher end, you have dermatologists and orthopedic surgeons being offered annual incomes of $425,000 and $533,000, respectively.

Average Loans for Post-Bachelor Humanities Degrees

According to data from the U.S. Department of Education, average grad school debt for those who have earned a master’s degree is $66,000 . Common master’s degree programs (that are not business programs) include education, Master of Arts, and Master of Science.

The average debt for such programs is noticeably less than the debt accrued by students holding professional degrees mentioned in the previous sections.

It is worth noting that starting salaries for employees with these degrees are also less than those seen in the law, business, and medical fields. Those with a master’s degree in philosophy, art, and early childhood education tend to earn the lowest incomes of this group.

Ways to Pay for Graduate School

Even before your graduate school work has started, you might be thinking about how you’ll pay for this part of your education. To ease your worries, know that there are myriad ways to fund grad school.

For example, as you may have done during your undergraduate years, graduate students may apply for federal aid via the Free Application for Federal Student Aid, or FAFSA®, which may help you access federal loans like Direct PLUS Loans —or qualify for grants, work-study programs, and more.

Private graduate school loans are also available from various banks and lenders, though it’s wise to keep in mind that grad school loans and undergrad loans can differ, so read all the fine print to be sure you know the terms you’re accepting.

It’s also a good idea to look into what financial aid options your school of choice offers, such as university-specific scholarships and fellowships. And don’t forget other avenues of payment, such as employer tuition reimbursement programs, which is when your employer pays or helps pay (or reimburse you) for your related graduate work, though this assistance may come with a promise to work for that company for a stipulated amount of time.

After Graduation Options

Once you’ve completed your graduate work, loan repayment is likely right around the corner. If you find that you’re paying loans off to multiple lenders—which can get complicated and overwhelming—or that your interest rate is high, there are some steps you can take.

First, you could look into consolidating your federal loans, which lets you make one payment, but your interest rate is a weighted average of all your loans’ interest rates, rounded to the nearest eighth of a percent, so you may not save on interest.

You can also refinance your student loans, both federal and private, which allows you to turn your old loans into a new loan with new terms and, ideally, a lower interest rate—which may mean paying less interest over the life of your loan.

It’s important to note, however, that refinancing your federal loans with a private lender means that you lose the benefits offered through the government, including income-driven repayment plans and Public Service Loan Forgiveness (PSLF). Under the latter program, some government and nonprofit employees qualify for forgiveness on certain loans they took out for school.

Wherever you land for graduate school and beyond, keeping good track of your loans and your payments will help benefit your overall financial health. SoFi offers a number of financial products that can support you, including fast and easy online tools to help you learn more about student loan refinancing.

Interested in learning more about how to potentially save money on your student loan debt? Check out SoFi’s student loan refinancing.

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Lending Corp. or an affiliate and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
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If you listen to or read the news, you may have come across some version of the following story: “The Federal Reserve had increased (or decreased) its target rate.”

You’ve heard of the Federal Reserve and know that it plays an important role in the economy. You may even know that “the Fed” somehow controls interest rates.

But what may be less clear is how the decisions of the Fed affect regular Americans.

The Federal Reserve is the U.S. central bank system. As the country’s central bank, the Fed has a lot of big jobs. For example, the Fed implements policy and strategy in order to stabilize the economy and keep unemployment low.

These big-picture decisions made by the Fed may seem like they have little to do with your life, but such decisions could have an impact on your money and your employment. And if not you, the personal financial situations of people you love.

What does the Federal Reserve do? Why was the Federal Reserve created in the first place? Here’s more about the Federal Reserve, along with reasons it should be important to you.

Why Was the Federal Reserve Created?

When there was no central bank, the banking system was fraught with bank failures and “bank runs,” where depositors would rush to banks to withdrawal all of their money. To create a safer and more stable bank system, President Woodrow Wilson signed the Federal Reserve Act .

About now, you might be envisioning one big cartoon bank bursting with gold bars and plopped down in the center of Washington, D.C., but the Fed is actually an intricate system that consists of several different parts. These are the three bodies of the Fed:

The Federal Reserve Board of Governors

There are seven Federal Reserve board members that oversee the Federal Reserve System. This includes the chairman and vice chairman. As of 2019, the chairman is Jerome Powell. Before him, the chairman of the Federal Reserve was Janet Yellen.

The Board of Governors, which is made up of seven governors, is based in D.C. and reports to Congress. Board members are appointed by the U.S. president and serve staggered 14-year terms (so the entire board isn’t replaced in a single year). The chairman and vice chairman serve four-year terms and may be reappointed at the end of their term.

Federal Reserve Branches

There are 12 Federal Reserve bank branches in major cities throughout the country that act as the operating arms of the Federal Reserve.

You wouldn’t walk into a Federal Reserve bank and open up a checking account. Instead, Federal Reserve banks work with other institutions, such as banks and credit unions, and the U.S. Treasury. They provide services like holding deposits for banks, processing payments, and issuing and redeeming government securities.

The Federal Open Market Committee (FOMC)

monetary policy. The committee comprises all members of the Board of Governors and five rotating Reserve Bank presidents. Although not all Reserve Bank presidents vote, all participate in policy discussions.

The FOMC meets eight times a year to review economic trends and vote on new monetary policy measures. During these meetings, the committee will set a federal funds rate. The FOMC may also take steps to control the money supply.

What Does the Federal Reserve Do?

The Federal Reserve has several primary functions:

Setting Monetary Policy

One of the primary roles of the FOMC is to set monetary policy. With monetary policy, there are typically two primary goals: Maximum employment and stable inflation.

Often, we hear about monetary policy in terms of the setting of the federal funds rate. This is the rate at which banks charge each other on an overnight basis.

A bank might need to borrow money from another bank in order to meet the Fed’s minimum reserve requirement, or how much cash the bank has available in its reserves.

The federal funds rate as set by the FOMC may influence other interest rates. In this way, the federal funds rate can be used as a tool to encourage or restrict borrowing. For example, the Fed may attempt to fight inflation by raising the federal funds rate. Conversely, the Fed may lower that same rate in an attempt to ward off a recession.

But this isn’t the only monetary policy that the FOMC is engaged in. According to the Federal Reserve, its main tool for controlling the money supply is “open market operations,” which is the buying and selling of government securities, like treasury bills. They may do this in conjunction with a rate change or other strategies.

Regulating Banks

To ensure the safety and solvency of the nation’s banking and financial system, the Fed regulates banks and other financial services institutions. This is done not only for the protection of the consumer but to promote stability within the banking system.

The Board of Governors typically sets guidelines for member banks through policy regulation and supervision. The Reserve Banks then examine member banks to ensure that they comply with existing laws and regulations. Often, new guidelines are created because of legislation that has been passed through Congress.

Overseeing Payment Systems

The Fed provides financial services to the U.S. government, major financial institutions, and foreign official institutions. The Fed acts as the depository institution for the U.S. Treasury—essentially, the Treasury’s checking account.

The Fed also plays a major role in operating and overseeing the nation’s payment systems. In addition to making sure there is enough currency in circulation, the Fed clears millions of checks and processes electronic payments. Social Security checks and the payrolls of government institutions are processed by the Fed.

Limiting Risk

At the end of the day, the Federal Reserve wants to control risks to the economy and financial markets (such as the stock market) as best they can. They utilize a number of measures, including those discussed above, in order to best achieve this stability.

How Does the Federal Reserve Affect Me?

Although you might not always feel it, the Federal Reserve enacts policies and makes decisions that affect the lives of everyday Americans.

Although the Fed does not set rates like mortgage rates and credit card interest rates, those rates can shift as the Fed Funds rate does.

An increase or decrease in interest rates can affect consumers in plenty of ways. If overall rates increase, then it becomes more expensive to be a borrower. Variable interest rates may rise, and any new debt will be issued at higher rates.

The rates at which money is flowing freely throughout an economy may also have rippling impacts. For example, when rates are low and access to money is cheap, businesses may borrow money in order to invest in development or expand operations. If there is too much money in circulation, inflation may increase. This could cause the prices of everyday goods, like groceries, to increase as well.

One of the Fed’s goals is an economy with full employment. If they are not able to succeed using the tools at their disposal, people may lose jobs, and unemployment may increase. This could also have effects throughout the greater economy, such as decreased consumer spending and overall slowed economic growth.

The decisions of the Fed may seem elusive and far away, but those same decisions can have a big impact on the lives of everyday people. In the meantime, you could try SoFi Invest to do more with the money that you already have. SoFi Invest offers both active stock trading and automated investing accounts—so it’s up to you how hands-on you’d like to be with the investing process. No matter which account you choose, SoFi charges no trading fees and requires no account minimums.

Start trading with SoFi Invest and gain access to our exclusive member events, financial advisors, and more.

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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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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The Fed. Maybe you’ve heard of it? Maybe you’ve heard they’re doing some stuff with interest rates that will have an effect on the economy at large. Maybe you’ve heard they’re doing some stuff that will affect you directly. Maybe you have heard of the Fed, but don’t know what it is and what all the terms that are often bandied about actually mean.

And maybe you’ve even seen a tweet or two directed at Fed Chair Jay Powell and have wondered what’s going on and why there are so many terms and acronyms when it comes to the Fed.
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You’re not alone.

The Fed can seem hard to wrap your head around. It works on complicated financial matters and often makes complicated policy decisions that might seem tough to understand if you’re not a CPA or have a deep background in macroeconomics.

Like a lot of government institutions, it can seem like they’re talking a different language with acronyms and terms that can be hard to decipher if you haven’t spent a lifetime in the Fed or some other government agency. Don’t worry—this cheat sheet will break it down for you.

What the Fed is, Where it Came From, and What it Does

The Fed is actually itself a shorthand term for the Federal Reserve System . The Fed is the central bank of the United States and it performs five basic functions , according to their web site:

•  Conducts national monetary policy. The Fed is charged with promoting maximum employment and stable prices. They also influence long-term interest rates when the economy might seem to be stalling or growing.

•  Promotes economic stability. One of the main reasons the Fed was established was to help stabilize the economy. They do this by trying to minimize risks and monitoring the economy at home and overseas.

•  The Fed also monitors financial institutions like banks to help promote their safety and soundness and the way they affect the financial system at large.

•  The Fed helps make sure payments between banks settle efficiently and safely. They provide services to banks and the government to accomplish this goal.

•  Consumer protection and community development also fall under the Fed’s responsibilities. The fed examines consumer trends and issues and administers consumer laws and regulations.

Even though it’s called a central bank, the Federal Reserve System is actually made up of 12 decentralized reserve districts that operate independently with supervision. Confusing, right? These districts were drawn in 1913 (the year the Fed was created) based on trade regions at the time.

On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act to create the central bank we now know as the Fed. The need for a central bank was driven by episodes of bank failures, panics, and credit concerns. The hope was that the Fed would help build a more stable financial system.

The Fed tries to do this through their five basic functions, but there’s one thing they do that seems to get a lot of press: influencing the direction of interest rates. Which is a good place to start when it comes to terms related to the Fed.

Fed Terms and Acronyms

FOMC

FOMC – The Federal Open Market Committee is the monetary policymaking body of the Fed. It’s made up of 12 members—the seven members of the board of governors and five of the 12 reserve bank presidents.

The FOMC meets eight times a year and conducts monetary policy to work toward the goals of reaching the highest level of employment and stable prices.

Board of Governors

The Board of Governors guides the Fed. It is made up of seven members who each serve a 14-year term. The members are nominated by the president and confirmed by the Senate.

The terms of members are staggered, with a new appointment every two years, in an attempt to give the board more independence. This means that no president or congressional party can appoint every member to the board.

Chairman of the Fed

The chairman of the Fed acts as the public face of the entire Federal Reserve Bank. This person is responsible for carrying out any mandates of the Fed, as well as provide leadership for the system, and act as chair of the Federal Open Market Committee (FOMC).

Some duties of the chairman include testifying before congress twice a year in regards to monetary policy and meeting regularly with the Secretary of the Treasury. The chairman is picked from the seven members of the Board of Governors and are appointed to four-year terms. The current Chairman of the Federal Reserve is Jerome Powell.

FAC

The Federal Advisory Council is made up of 12 representatives from the banking industry. The council acts as an advisor to the Board of Governors on matters within the Board’s jurisdiction.

CAC

The Community Advisory Council was formed by the Federal Reserve Board in 2015 to offer perspectives on the needs of consumers and communities, with a focus on the concerns of lower income populations.

The CAC meets semi-annually with the Board of Governors, and the selection process is done through public nomination. The 15 CAC members serve staggered three-year terms.

Interest Rates

You might be familiar with the interest rate of your credit card, student loans, or car loan. When connecting the Fed and interest rates, you might want to think a little bigger. The fed tries to influence interest rates nationwide as part of its mission to help the country maintain full employment (estimated to be about 4% to 5% unemployment).

Lower interest rates can make capital easier to secure, spurring growth. Higher interest rates can work as a check against inflation. The Fed tries to influence interest rates through affecting the discount rate and indirectly affecting the federal funds rate.

The Discount Rate

The Fed requires its member banks to keep a certain amount of cash on hand. The Fed lets these banks borrow money and offers them a discount. The Fed raises the discount rate in order for all interest rates to rise.

This process is known as contractionary monetary policy, and it’s used by central banks in order to fight inflation. The money supply is reduced and instances of lending decrease, therefore slowing economic growth.

Federal Funds Rate

The federal funds rate is the interest rate that banks use when charging other banks for lending them money from their reserve balances. This process happens on an overnight basis, and can get pretty complicated. But the fed can influence how much money banks have on hand to lend, which should help move interest rates toward a target rate.

IOER Rate

The interest rate on excess reserves (IOER rate) acts as a tool for the Fed to conduct monetary policy. The Federal Reserve adjusts the IOER rate during monetary policy normalization, in order to bring the federal funds rate into the target range that the FOMC sets.

Prime Rate

The prime rate is the rate commercial banks would charge creditworthy customers. It usually correlates with the federal funds rate. This rate might have an effect on lenders as it can influence the interest rates that banks charge on mortgages, car loans, and personal loans.

FOIA Request

An FOIA request is a request from the public for information from the government. FOIA stands for the Freedom of Information Act that was passed in 1967 as a way to help citizens stay informed.

Federal agencies are required to disclose information requested in an FOIA request as long as it doesn’t fall under one of nine exemptions . The Fed maintains public and private records. Public records are available at the FOMC reading room, while private records are secured through an FOIA request.

The Fed and You

The Fed can seem like a nebulous government body making decisions that seem complicated and opaque. But the Fed works every day on policy and monetary approaches that might affect your daily life, especially if you’ve got loans or are thinking about big purchases like a house or a car.

Hopefully having a grip on some of the common Fed terms will give you a better understanding of how this vital piece of the country’s financial system operates.

Ready to start exploring some investment vehicles for your personal finance goals? Check out SoFi Invest today.

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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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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When you hear the word bonds, you may think of the savings bonds your family members gave you on your birthday as a child. And you may not have given them much thought since.

But, as a generally lower-risk investment than stocks that offer a reliable source of interest payments, bonds can (and should) be a part of your grown-up investing strategy, too. Read on for an explanation of how they work—and how they can work for you.

What Are Bonds?

In short, bonds are loans you make to either a company or a government entity for a fixed period of time. The specific terms of the deal vary, but basically: You give someone money, they promise to pay it back in the future, and they pay you interest until they do.

For example, you might buy a GE bond that lends the company money for 20 years at 4% interest. For each $1,000 you invested, you would get $40 per year for 20 years; then you’d get your $1,000 back.

Why Invest in Bonds?

There are two good reasons to buy bonds—income and safety. Bonds pay interest at a fixed rate, usually twice a year. People in retirement who need a reliable source of income often invest in bonds.

High quality, investment grade bonds (more on this later) are typically safer, because the borrower is less likely to default on their promise to repay your investment. This doesn’t mean you can’t lose money if you need to sell the bond before it matures, but the issuer is unlikely to go broke. The price of bonds can fluctuate, but usually much less than the price of stocks. They are used in a portfolio to smooth out the volatility of stocks and reduce the risk of your overall investment strategy.

Who Issues Bonds?

There are four broad categories of bonds available to most investors:

• Treasury Bonds: Bond issued by the U.S. government.

• Corporate Bonds: Bonds issued by a corporation.

• Municipal Bonds: Bonds issued by a state or local government or agency (for example airports, school districts, and sewer or water authorities).

• Mortgage and Asset Backed Bonds: Bonds that pass through the interest on a bundle of mortgages or other financial assets such as student loans, car loans, or the accounts receivable of companies.

The main difference between them? Risk. The U.S. government (probably) won’t go broke, but a company might. Because the expected return is tied to risk, you are likely to see higher returns with a corporate bond than with a treasury bond. Municipal and mortgage and asset backed bonds vary widely in risk.

Just How Risky Are Bonds?

Depends on the issuer. To help investors understand the risk, corporate bonds are rated for risk by agencies such as S&P and Moody’s. The precise scale varies with the rating agency, but bonds rated AAA to BBB by S&P are considered “Investment Grade,” those rated BB+ to C are high-yield, or “junk bonds“. Bonds with a D rating are in default and not paying interest.

Muni and asset backed bonds are also rated by agencies on a similar scale. Muni ratings depend on the credit quality of the issuing city or state, while asset backed bonds depend on the quality of the assets backing the bonds. As a rule, investors demand higher interest on lower quality bonds. High-yield bonds yield more because the risk of default is higher. Note that ratings can (and do) change over time.

Bonds can also go up or down in value if interest rates change. You can buy a 20-year bond that only has 8 years left on it in the bond market. The price you’d pay for the bond depends on whether interest rates on similar bonds went up or down since it was issued. If this kind of bond pays 4% today, you would pay more than $1,000 for one issued some years ago that pays 5%. An old bond that pays only 3% would be worth less, since interest rates today are 4%.

Recommended: Bond Valuation Definition and How to Calculate It

Should I Buy Bonds?

Unless you are a very aggressive investor, you should probably have some bonds in your portfolio. Some people can’t stomach the wild swings of stock values. Adding even a small percentage of bonds to your investment mix can smooth out the volatility and might help you from panic selling when the market drops.

With that said, buying individual bonds isn’t always the best approach. Since most bonds have a face value of $1,000, it can be difficult and expensive to build up a diversified bond portfolio. Unless the bond portion of your portfolio is several hundred thousand dollars, it usually makes more sense to invest in bond mutual funds or exchange traded funds (ETFs). A typical bond fund will generally hold between dozens and hundreds of individual bond issues.

Bond ETFs generally contain bonds of similar types of issuer, maturity range, and quality.
(Again, the issuer is the entity that borrowed the money. Maturity is how long the bond holders have to wait for their money. The longer it is, higher the interest rate they usually get, but also the greater the risk that something will go wrong. Quality is the financial strength of the issuer. How likely is the borrower to not be able to pay back your investment?)

If you invest in SoFi Invest®, all but our most aggressive portfolios contain at least some bonds. We currently use nine different bond ETFs to build our portfolios. Each ETF contains different kind of bonds, which lets us use the right combination of bonds for each portfolio.

Not sure what the right investment strategy is for you? An investment account with SoFi makes it easy: Our technology helps you determine the right asset allocation mix for you, while advisors are available to offer you complimentary, personalized advice. Consider working with a SoFi Invest advisor today.

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