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Jun

2023

10 Home Office Ideas

By Jacqueline DeMarco | Home Ownership, Life & Career, personal_loan | Comments Off

Now that remote and hybrid work have become the new normal, you may find yourself spending a fair amount of time in your home office. Is it up to snuff?

Ideally, you want your home office to both inspire your creativity and allow you to get down to business. Unfortunately, many of us are still working from cramped, messy, and makeshift at-home work spaces.

If your home office space could use some sprucing, read on. Here are 10 simple makeover ideas that can transform a drab at-home work area into a well-organized and stimulating work space.

1. Refreshing the Home Office

For those lucky enough to have a dedicated home office space, it may be time to give that area a little refresh. Even though corporate office spaces tend to be a little drab, a home office doesn’t have to be.

Painting a home office a cheery color and making the space feel homey with the addition of a couch, a rug, or pictures on the walls will make a home office a welcoming place to spend your working hours.

Of course, a home office needs to be practical, too. Finding an organization system to keep office supplies and files neatly stored will provide some much needed peace of mind during busy work days.

When setting up a home office, it can be helpful to think about what systems were appealing in the workplace and which were more of a hindrance. Customizing the space to fit personal preferences and needs is one of the perks of working from home.

2. Taking Over the Guest Bedroom

For those who don’t have a separate room to dedicate to a home office, it can be tricky to strike a clear balance between work and play. Working in the bedroom or on the family room couch can make it difficult to mentally separate work time from personal time.

A guest bedroom can be an ideal spot in the home to add a desk. The space is likely unused most days of the year and you can easily shut the door during the workday when you need privacy. You can also shut the door after a long day of work when you need to feel like you are at home and not at work. Out of sight, out of mind.

A guest bedroom may also be easy to keep tidy, as most members of the household probably don’t spend too much time in that room of the house.

3. Renovating the Garage

If a guest bedroom isn’t an option, a garage may be an ideal space to build a home office. This project may require renovations, but this space feels very separate from the rest of the home, which can be appealing.

Adding flooring, installing heating and cooling systems, and adding lighting — task and ambient — may go a long way towards making this space both comfortable and functional. A coat of paint in a color that promotes productivity might help, too.

4. Rethinking Your Desk

For homeowners with a big family or apartment renters who are embracing the studio lifestyle, it might be hard to squeeze in another large piece of furniture. A kitchen table or dining room table can serve double duty and provide plenty of space to spread out.

If multiple members of the household are working from home, this large space can even act as a coworking space of sorts. After all, bumping into a loved one in the break room (aka the kitchen) might be a nice surprise during a stressful workday.

The key to making this work is to make this “office” portable. Having a tote bag or storage box to stash any work supplies at the end of the day will be ideal when it’s time to eat dinner. Finding ways to remove those work vibes from a personal space is important for fostering good work-life balance.

5. The Right Support

No matter what place in the home you decide to make your workspace, it’s important to have supportive seating. Having the right chair can make all the difference, and in many cases function is much more important than aesthetics.

Having a chair that was specifically designed to provide proper back and neck support during long work days is key.

An ergonomic chair that includes features such as adjustable height, tilt control, lumbar support, and solid padding can all make the workday a bit more comfortable.

6. Setting the Scene

While having the right tools — desk, chair, computer, etc. — is important to building a successful home office, working in the right atmosphere is important, too. Spending the first 10 minutes of the workday setting the scene can be a major game changer.

For those working from home while other members of the household are working, attending virtual school, or simply existing loudly (hello, adorable but noisy babies), creating an appropriate workplace atmosphere may lead to better focus and productivity.

Start by giving the workspace a little spruce and clear out any unnecessary clutter. Put on some light background music that isn’t distracting (think classical or nature sounds) to block out any unwanted noise. Write a to-do list that prioritizes tasks for the day.

Recommended: 20 Renter Friendly House Updates

7. Being Zoom Ready

Having a space that is appropriate for video calls is essential for looking professional at home. Zoom, Skype, or Microsoft Teams calls don’t have to take place at a desk if the background isn’t ideal. Present your best self in a quiet spot in the home with good lighting and a clean background.

8. Getting Inspired

In an ideal world, all workspaces would inspire workers, allowing them to feel creative. One of the advantages of working from home is the ability to have more control over the surroundings, making it an inspiring, creative workspace.

Decorating the space in your favorite colors; adding photos of loved ones, favorite vacations, or hobbies; incorporating a vision board; or keeping a brainstorming journal at the ready are some ways to make the environment one where there is room for creativity and inspiration.

9. Adding a Standing Desk

In your home office, you make the rules. If you don’t want to sit for eight hours a day — who can blame you? — using a standing desk or adding a standing desk converter is a good way to incorporate some movement into the workday.

10. A Room with a View

Last but not least, setting up a home office to take advantage of any pleasant views might bring some peace, calm, and inspiration into the space. Facing a desk towards a window, French doors, or any other space in the home that has a view of the outdoors or even just greenery in another part of the home can be stress reducing.

The Takeaway

While some employers might offer stipends or reimbursements for setting up a home office properly, many employees may have to foot the bill themselves. This expense can be worthwhile, but may not be one that many workers planned for.

For those who need help financing that new home office space or purchasing furniture, there are a few options that may be worth considering.

One option that can work well for a small to midsize project (like a home office renovation) is a home improvement loan. This is essentially an unsecured personal loan that is used for home repairs or upgrades. You receive a lump sum up front which you can use to fix up or refurbish your home office; you then repay the loan over a set term (often five to seven years) with regular monthly payments. Interest rates are typically fixed.

If you’re interested in exploring your personal loan options, SoFi could help. SoFi’s home improvement loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

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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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Jun

2023

How Much Should I Have in Savings?

By Janet Siroto | Budgeting & Goals, Financial Independence, money | No Comments

If you’re wondering how much you should have in savings, you may know that many financial experts feel three to six months’ worth of living expenses is vital. That said, you might also be curious if more cash in the bank equals a great sense of security and wellbeing.

Despite the saying that money can’t buy happiness, research indicates that having cash can indeed enhance one’s sense of wellbeing. A study conducted at the Wharton School of Management at the University of Pennsylvania found having more dinero does boost your positive feelings.

So with that in mind as well as your financial security, here’s a closer look at how much you should have in savings to get those good vibes going and give you a sense of security during uncertain times.

Why Should I Have Savings?

You want to be financially savvy, right? Most people do. But a startling 12% of Americans have no savings, according to a recent YouGov survey. Another 13% say they have less than $100 and 14% indicate they have between $1,000 and $4,999.

A savings account helps you avoid going into more debt and prepare for unexpected emergencies. Imagine if your car had a major breakdown, or your cell phone was trampled on during a weekend outing. How would you afford the unpredictable repairs?

An emergency fund stocked with extra cash can help you avoid taking out personal loans or using a credit card to cover an unexpected expense. And while emergencies are never fun, it might help you feel a little bit better knowing that you’re prepared.

How Much Money Should I Have in Savings?

If you don’t have much in savings, where exactly do you start? A general rule of thumb is to have three to six months of living expenses saved up. But keep in mind that your living expenses may increase as you age, as you start growing your family, have mortgage payments, or are saving for retirement.

But that is still a good figure to aim for. Once you figure out your bare minimum monthly expenses and multiply it by three or six, you can calculate how much to aim for and get that sum saved.

It’s worth noting that some money experts say 10 times your monthly expenses may be a wiser amount of a cash cushion to stash away.

How Much Money Should I Have in Savings by Age?

Now, here’s a look at how much to sock away in savings based on your age.

18-24: At Least $500 in Savings

Being a college student or recent grad is expensive. It’s hard to keep up with tuition and rent. However, as a college student, you can try starting with $500 in emergency savings and working your way up.

A $500 emergency fund is a great place to start for young people whose expenses are typically less than older Americans. Even just saving $10 per week can help you reach your goal in about a year.

20s: 3-6 Months of Expenses in Savings

After graduation, you’re figuring out the real world for the first time. Most post-graduates are determining how to pay back student loans, and maintain new living expenses. It may help to break down your larger goal of three to six months’ worth of living expenses into first saving $1,000 in your emergency fund.

This can help you feasibly achieve your savings goal while preparing for most emergencies with a sum of cash on hand. You might want to try automating your savings and having a small amount transferred from your checking account on payday to build up your reserves.

30s: 6+ Months of Expenses in Savings

By the time you reach your thirties, ideally you’d have at least six months of expenses saved. At this point, you may even be questioning if you should invest more or continue to save. An easy way to determine how much you need to save is to create a budget of your basic living expenses.

How much do you need to survive in the case of job loss or a medical emergency? A savings account of at least six months of your usual expenses can help you feel safe enough to cover rent, utilities, and food while you get back on your feet.

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Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!

40s: 6+ Months of Expenses in Savings

How would you survive if faced with a job loss? According to the Center on Budget and Policy Priorities, unemployment benefits vary state-to-state, but many states give up to 26 weeks in benefits.

However, the amount you receive might not be on par with what you are earning, so consider alternative safety nets. As an example, in New York, which can have a high cost of living, unemployment benefits may range from $100 to $500 a week.

When you’re in your 40s and 50s, replacing your income may prove to be more difficult as you search for positions with more work experience. If the government covers roughly six months of unemployment, then you’ll likely want to have at least that much and then some in your own savings.

50s: 6+ Months of Expenses in Savings

If you are in your 50s and wondering how much to have in savings, the answer again is at least six months’ worth of living expenses and ideally significantly more. For many people, this is their period of peak earnings. They may have multiple expenses as well, such as a mortgage, children’s education, and eldercare.

Given these pressing concerns, you want to make sure you have a cushion if you were to face an emergency like job loss. What’s more, you don’t want to tap your retirement savings, which can trigger steep early-withdrawal penalties.

Where Should I Put My Savings?

If you’re building up an emergency fund, then placing your savings in an account that can be easily accessed, like a savings account, is probably ideal.

Retirement Accounts

Putting your savings into a 401(k) or mutual fund might not be the best place for this purpose because these accounts are not very liquid. In other words, you can’t easily access the money when you need it.

Plus, withdrawing early from accounts specifically set up for retirement may come with penalties and hefty fees if you are under the age of 59.5. In addition, these funds may not be insured unless they are a self-directed account, which can include.

Investments

Investments can offer a place to grow your savings at a healthy rate of return. However, this money will not be insured, and you could face losses if the market drops. That could leave you vulnerable if you needed to access money at that moment. You might look into short-term vs. long-term investments if you do want to go down this path.

Savings Account

Savings account can provide a secure place to store your savings. There are different kinds of savings accounts to consider, and you may find varying rates of return depending on the annual percentage yield (APY) offered and how often compounding occurs.

When comparing traditional vs. online banks, you may find that the latter, since they don’t have brick-and-mortar locations, may offer better rates and lower fees.

Checking Account

While a checking account is a secure, typically FDIC-insured place to store your savings, it’s really designed to be more of a place for paying bills and saving. You likely won’t earn much interest.

Cash

While cash is perhaps the most liquid of ways to store your money, it can’t promise security. You could be robbed or could lose your money. That’s not what you want to happen to your nest egg!

Here is this information in chart form:

Location of Savings	Rate of return?	Insured?
Retirement	Variable	Maybe
Investments	Variable	No
Savings	Low to moderate	Yes
Checking	No to low	Yes
Cash	None	No

How Much Does the Average American Have in Savings

While you’ve now read the advice to have three to six months’ worth of living expenses stashed away, many Americans are not hitting that goal.

According to the Federal Reserve’s Board Survey of Consumer Finances, here are the average savings:

• Under 35: $11,200

• Age 35-44: $27,900

• Age 45-54: $48,200

• Age 55-64: $57,800.

Building Up Savings More Quickly

Convinced you need more savings, and a traditional savings account just won’t cut it? Here are a couple of ways to help build up your savings faster than a savings account alone.

Selling Your Stuff

Take inventory of things in your garage or closet that you can sell. There are several buy/sell apps out there that can make it easier to sell your unwanted items, and many places where you can sell your stuff and recoup some money.

Any money you make off of your items can be thrown into your savings account. This method is a win-win because you get rid of things you aren’t using, and you can build up your savings without changing your spending habits.

Cutting Out Unnecessary Spending

Want to make significant strides with your savings habit? It might be time to look at your expenses and cut out unnecessary spending.

There are several things you could change, even if it’s just temporary. Replace your $100 per month gym membership by exercising with free, full-length workout videos online. Cut out your cable expense and go all-in with a cheaper Netflix subscription.

How a Budget Can Help You Save

Yes, the dreaded budget. Actually seeing how much you spend each month in a written budget can help you save. When you track your monthly income and expenses, you can quickly identify what areas of life are costing the most so you can make adjustments.

An online budgeting tool like SoFi’s can help you track your spending, which can help you see where you might be able to trim some fat from your expenses.

If you’re looking for a checking and savings account where you can spend, save, and earn all in one product, consider SoFi Checking and Savings. You’ll earn a competitive APY and pay no account fees, both of which can help your money grow faster.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How much should a 30 year old have in savings?

How much money should you have in savings at age 30 will vary, but they should have at least three to six months’ worth of basic living expenses saved. Some financial advisors suggest that you should have the equivalent of one year’s salary (gross) saved.

How much does the average person have in savings?

Savings vary person to person, and with age. Currently, the average American under age 35 has approximately $11,200 saved.

Is $20000 a good amount of savings?

Whether $20000 is a good amount to have saved will depend on a few factors. If you are a single recent college grad, it could be a very good starting point for an emergency fund. Or if you are a professional who takes home $5,000 a month, you are well on your way to that three to six months’ worth of expenses you want to have in your emergency fund. However, if you are a person who is about to retire and has several dependents, then the amount is less positive.

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SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Jun

2023

What Can You Use Student Loans For?

By Kylie Ora Lobell | Student Loans, student_loan | No Comments

Student loans are meant to be used to pay for your education and related expenses so that you can earn a college degree. Even if you have access to additional student loan money, it doesn’t mean you should use it on nonessential living expenses.

By learning the answer to, “What can you use a student loan for?” you will make better use of your money and ensure you’re in a more stable financial situation post-graduation.

5 Things You Can Use Your Student Loans to Pay For

Here are five things you can spend your student loan funds on.

1. Tuition and Fees

The first thing your student loans are intended to cover is your college tuition and fees. The average college tuition and fees for a private institution is $37,641 per year, while the average for a public, out-of-state school is $27,279 per year, and a public, in-state school is $9,377 per year.

2. Books and Supplies

Beyond tuition and fees, student loans can be used to purchase textbooks and supplies, such as a laptop, notebooks and pens, and a backpack. You may be able to save money by purchasing used textbooks online or by renting textbooks instead of purchasing them.

3. Housing Costs

Your student loans can be used to pay for your housing costs, whether you live in a dormitory or off-campus. If you live off-campus, you can put your loans toward paying for related expenses, such as your utility bill. Compare the costs of on-campus vs. off-campus housing, and consider getting a roommate to help cover the costs of living off-campus.

4. Transportation

If you have a car on campus or you need to take public transportation to get to school, work, or your internships, you can use your student loans to pay for those costs. If you have a car, you may want to consider leaving it at home when you go away to school. Gas, maintenance, and a parking pass could end up costing much more than using public transportation and your school’s shuttle, which should be free.

5. Food

What else can you use student loans for? Food would qualify as a valid expense, whether you’re cooking meals at home or you’ve signed up for a meal plan. This doesn’t mean you should eat out at fancy restaurants all the time just because the money is there. Instead, you could save by cooking at home, splitting food costs with a roommate, and asking if local establishments have discounts for college students.

Recommended: 23 Tips on Saving Money Daily

5 Things Your Student Loans Should Not Cover

Now that you know what student loans can be used for, you’re likely wondering what they should not be used for. While your lender is not tracking your expenses, it’s not wise to use student loans for non-school related expenses. You will eventually have to pay this money back, with interest.

Here are five expenses that should not be covered with funds from your student loans.

1. Entertainment

Going to the movies, concerts, and bowling are all part of the college experience, but you should not use your student loans to pay for your entertainment. Your campus likely offers plenty of free and low-cost entertainment, such as sports games and movie nights, to pursue instead. You can also consider getting a job on campus to help pay for entertainment and fun.

2. Vacations

College is draining, and you deserve a vacation from the stress every once in a while. However, if you can’t afford to go on spring break or another type of trip out of your own pocket, then you should put it off at this time. It’s never a good idea to use your student loans to cover these expenses.

3. Gym Membership

You may have belonged to a gym at home before you went to college and you still want to keep up your membership there. You can, as long as you don’t use your student loans to cover it. Many colleges and universities have a gym or fitness center on campus that is available to students and included in the cost of tuition.

4. A New Car

Even if you need a new car, student loans cannot be used to buy a new set of wheels. Consider taking public transportation instead or buying a modest used car when you save up enough money.

5. Extra Food Costs

While you and your roommates may love pizza, it’s not a good idea to use your student loan money to cover that cost. You also shouldn’t take your family out to eat or dine out too much with that borrowed money. Stick to eating at home or in the dining hall, and only going out to eat every once in a while with your own money.

Student Loan Spending Rules

Your student loan refund — what’s left after your scholarships, grants, and loans are applied toward tuition, campus housing, fees, and other direct charges — isn’t money that’s meant to be spent willy-nilly. It’s meant for education-related expenses. If you don’t need the refund, it’s best to send it back to the loan servicer.

The amount of financial aid a student receives is based largely on each academic institution’s calculated “cost of attendance,” which may include factors like your financial need and your Student Aid Index, or SAI (formerly called the Expected Family Contribution, or EFC). Your cost of attendance minus your SAI generally helps determine how much need-based aid you’re eligible for. Eligibility for non-need-based financial aid is determined by subtracting all of the aid you’ve already received from your cost of attendance.

Recommended: What Is the Student Aid Index (SAI)?

Additionally, when you took out a student loan, you probably signed a promissory note that outlined what you’re supposed to be spending your loan money on. Those restrictions may vary depending on what kind of loan you received — federal or private, subsidized or unsubsidized. If the restrictions weren’t clear, it’s not a bad idea to ask your lender, “What can I use my student loan for?”

Alternatives to Using Student Loans

If you can’t pay for college on your own or you don’t have the luxury of someone paying for it for you, oftentimes you’ll have no choice but to rely on student loans to get you through. There’s nothing wrong with that; that’s what they’re there for! However, you may not need to cover all of your tuition and living expenses with loans. Here are some alternative ideas to help fund your college education:

Work Part-time While in School

While working and attending college is not easy, it’s possible. Roughly 40% of full-time undergraduate students maintain a job while in school, with 10% of those students working full-time hours in addition to a full class load. Working is a great way to reduce your student loan debt and pay for additional living expenses.

Recommended: Am I Eligible for Work-Study?

Apply for Scholarships

There are thousands of scholarships available for many different types of students, it’s just a matter of finding them. Putting in the time to find a scholarship, apply, and get awarded can save you thousands in tuition over the course of your college experience.

Attend a Community College

The best way to cut down on the cost of college and reduce your student loan debt is to choose a less expensive route, such as a community college or in-state institution. The average cost of community college is $5,155 per year for in-state students. Consider taking your prerequisites at your community college and then transferring to your in-state public university.

Refinancing Student Loans

If you’re interested in adjusting loan terms or securing a new interest rate, you could consider refinancing your student loans. Refinancing can allow qualifying borrowers to secure a lower interest rate or more preferable terms, which could potentially save them money over the long run. Refinancing federal loans eliminates them from all federal borrower benefits and protections, including deferment options and the ability to pursue Public Service Loan Forgiveness, so it’s not the right choice for all borrowers.

The Takeaway

Student loans are intended to be used to pay for qualifying educational expenses such as tuition and fees, room and board, supplies, transportation, and food. Expenses like entertainment, vacations, cars, and fancy dinners cannot generally be paid for using student loans.

If you already have student loans and are looking to lower your monthly payment, refinancing may be one way to do it – by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. And lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Jun

2023

Where to Get a Student Loan for College

By Kelly Boyer Sagert | Going to College, Student Loans, student_loan | Comments Off

With the rising price of tuition, fees, and room and board at four-year public colleges and private nonprofit institutions, more students in all income brackets have been taking out loans.

If you’re wondering where to get a student loan for college, you have two options. The first is getting a federal student loan through the government. Federal student loans account for more than 93% of all student loan debt. The second option is a private student loan, which is given by a bank, credit union, or online lender. Private student loans are not based on need, but rather your college’s cost of attendance, your credit profile, and your income (or your cosigner’s income).

Prioritizing a Plan

When creating a plan to fund college education, it can make good sense to first explore any avenues for free money in the form of grants and scholarships.

By taking a look at the remaining balance after any free money has been found, exploring federal loans can be a smart next step. They come with income-based repayment options and the ability to request loan forgiveness under some circumstances. There are also work-study programs that can help students earn money while attending college.

If all needs are not covered, then there are private student loans to consider, along with Direct PLUS Loans that parents can apply for to get funds for their children.

After that, some people may seek out personal loans to cover living expenses while in school and/or emergency loans from the college.

Here are more specifics about these options.

Where to Get a Federal Student Loan

When the funding for college comes from the federal government, then—as the name indicates—that’s considered a federal student loan. To obtain any kind of federal student loan, a student must first fill out the Free Application for Federal Student Aid, commonly called the FAFSA®. Here are tips on how to fill out the FAFSA®.

After filling out this form, a student will have insights into what federal funding is available for them, along with work-study options. More specifically, each school that a student applies to can send a financial aid offer letter, which includes information about how to apply for student loans that they qualify for.

Two broad types of federal loans are:

• Direct subsidized loans: These are for undergraduates with financial need.

• Direct unsubsidized loans: These are available for undergraduate students, as well as graduate and professional ones, that do not demonstrate financial need.

A key difference between the two types involves the interest on the loan. With a subsidized loan, the U.S. Department of Education pays the interest when a qualifying student is attending school at least half time, as well as during a six-month grace period when the student graduates, withdraws, or reduces to less than part-time. This can also apply if the loan goes into deferment, meaning when loan payments are postponed. With an unsubsidized loan, the student is responsible for paying the interest.

Where to Get a Private Student Loan

A variety of financial institutions offer private student loans and have their own criteria for qualification. Some allow students to apply online and can give quick responses, while others go a more traditional route with in-person applications.

Private lenders will typically review a student’s income, plus that of any cosigner, along with credit histories and more to make lending decisions. A lender might grant a private student loan to someone whose credit isn’t stellar, but charge a higher interest rate.

When applying for a private student loan, it’s important to understand the loan terms before signing the note. This includes the interest rate and whether the rate is fixed (staying the same over the life of the loan, with the principal and interest payments also staying the same) or variable. If a loan is variable, how much can the rate change? How often? What is the term of the loan?

Recommended: Fixed vs. Variable Rate Loans

Benefits of private student loans can include the following:

• They can bridge the gap between what is owed after federal student loans are applied to the balance and what is needed to attend college.

• Students can apply for them any time of the year, without the strict deadlines associated with federal loans.

• Borrowers may have more choices in interest rates and terms.

• The loans may not include origination fees or prepayment fees, although that isn’t universally true.

Potential cons can include these:

• It isn’t unusual for a private lender to require a cosigner because college students often don’t have enough income to qualify or have established a good enough credit profile to get the loan on their own.

• Students who are considered a higher credit risk may pay more in interest.

• Private student loans don’t come with many of the benefits associated with federal loans, such as forgiveness programs and income-based repayment plans.

• Students may borrow more than they can ultimately afford, and these loans are typically not dischargeable in bankruptcy proceedings.

Check out this Guide to Private Student Loans for more information on funding your education through a financial lender.

Parent PLUS Loans and More

Parent PLUS Loans

When asking “Where is the best place to get a student loan?” also consider the Parent PLUS Loan, in which parents can apply for federal funding to help their children attend college.

Eligibility for a Parent PLUS Loan isn’t based on financial need, but credit is checked. If applicants have a credit history that’s considered “adverse,” they “must meet additional requirements to qualify.”

So, what does “adverse” mean? According to the Federal Student Aid office, this can include:

• Having accounts that, in total, have an outstanding balance of more than $2,085 and are at least 90 days delinquent.

• A default or a bankruptcy discharge during the previous five years.

• Involvement in a foreclosure, repossession, or tax lien situation in the previous five years.

• Write-off of federal student loan debt or wage garnishment during the past five years.

Qualifying parents of a dependent undergraduate student can receive funding through this loan program to cover education-related costs that are not covered by other financial aid.

Personal Loans

It’s also possible to apply for personal loans from financial institutions to cover living expenses during college or to address an emergency. There are downsides to this, though, including:

• Interest rates will likely be higher than student loans, along with shorter payoff periods (which means principal and interest payments can be higher).

• There isn’t typically a grace period, which means repayment starts right away.

• These loans don’t come with deferments or forbearance, as can be available through federal student loans.

Emergency Loans

In an emergency, a student might want to reach out to the college financial aid center to see if the school offers emergency loans for those in need. These loans would not typically be large, perhaps $1,000 to $1,500, but might be enough to address a dire situation.

Each college has its own guidelines, so check them out carefully. Some charge interest; others may not. Some may charge a service fee; others may not. As with personal loans, repayment may start immediately, so factor that into budget planning.

Private Student Loans at SoFi

To help students who decide that private student loans should play a role in their funding mix for college, SoFi offers private student loans.

Students should take advantage of federal student aid opportunities first. Then, when private loans make sense, SoFi offers them with no fees and flexible repayment options to fit a range of budgets.

See if you prequalify with SoFi in just three minutes.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Jun

2023

How Does the Bond Market Work?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

One of the key tenets of building a strong portfolio is diversification—investing in different types of assets in order to mitigate risk and see steady long-term growth.

Besides stocks, bonds are a popular asset class which is considered one of the most secure investments one can make. When the stock market is headed for a storm, the bond market can act as a safe haven. Although people talk about stocks a lot more, the bond market is actually quite a bit larger. In 2020 the market cap of the global bond market was about $160 trillion, while the market cap of the stock market was $95 trillion.

The bond market has a long history. The first bonds were issued in the late 1600s by the Bank of England to help raise funds to fight a war against France. Since then, the global bond market has continued to grow and flourish.

So, what exactly is a bond and how does the bond market work?

Why the Bond Market Exists

Just as individuals need to take out loans in order to buy a home or pay for other expenses, governments, cities, and companies also need to borrow money. They can do this by selling bonds, a form of structured debt, and paying a specified amount of interest on them over time.

Essentially a bond is an interest-bearing IOU. An institution might need to borrow millions of dollars, but individuals are able to lend them a small amount of that total loan by purchasing bonds. The reason an institution would choose to issue bonds instead of borrowing money from a bank is that they can get better interest rates with bonds.

Bonds are issued for a specific length of time, called the “term to maturity.” A fixed amount of interest gets paid to the investor every six months or year, and the principal investment gets paid back at the end of the loan period, on what is called the maturity date. In some cases, the interest is paid in a lump sum on the maturity date along with the principal investment funds.

Recommended: How Do Bonds Work?

For example, an investor could buy a $10,000 bond from a city, with a 10-year term that pays 2% interest. The city agrees to pay the investor $200 in interest every six months for the 10 year period, and will pay back the $10,000 at the end of the 10 years.

Bonds are generally issued when a government or corporation needs money for a specific purpose, such as making capital improvements or acquiring another business.

Primary vs Secondary Bond Markets

Bonds are sold in two different markets: the primary market and the secondary market. Newly issued bonds are sold on the primary market, where sales happen directly between issuers and investors. Investors who purchase bonds may then choose to sell them before they reach maturity, using the secondary market. One may also choose to purchase bonds in the secondary market rather than only buying new issue bonds.

Bonds in the secondary market are priced based on their interest rate, their maturity date, and their bond rating, (more on that below). Notes with higher interest rates and more years left until maturity are worth more than those with low rates and those that are nearing maturity.

Differences in Bonds

Bond terms and features vary depending on the type and who issues them. The main types of bonds are:

US Treasury Bills

These government-issued short-term bonds are the safest, but pay the least interest. The sale of treasuries funds all government functions. These bonds are subject to federal income taxes, but are exempt from local and state income taxes.

Recommended: How to Buy Treasury Bills, Bonds, and Notes

Longer-Term Treasury Bills

Bonds such as the 10-year note are the next safest option and pay a slightly higher interest rate.

Treasury Inflation Protected Securities (TIPS)

These bonds specifically protect against inflation, so they pay out a higher interest rate than the rate of inflation.

Municipal Bonds

Also known as muni bonds, these bonds are issued by cities and towns. They are somewhat riskier than treasury bills but offer higher returns. Muni bonds are exempt from federal taxes, and often state taxes as well.

Agency Bonds

Agency bonds are sold to fund federal agriculture, education, and mortgage lending programs. They are sold by Government Sponsored Enterprise (GSE) including Freddie Mac and Fannie Mae.

Corporate Bonds

The riskiest bond types are those issued by companies. The reason they have more risk is that companies can’t raise taxes to pay back their debts, and companies always have some risk of failure. The interest rate on corporate bonds depends on the company. These bonds typically have a maturity of at least one year, and they are subject to federal and state income taxes.

Junk Bonds

Corporate bonds with the highest risk and highest potential return are called junk bonds or high yield bonds. All bonds get rated from a high of AAA down to junk bonds—more on bond ratings below.

Convertible Bonds

Corporate bonds that can be converted into stock at certain times throughout the term of the bond.

Mortgage-Backed Bonds

These bonds consist of pooled mortgages on real estate.

Foreign Bonds

Similar to US bonds, investors can also purchase bonds issued in other countries. These carry the additional risk of currency fluctuations.

Emerging Market Bonds

Companies and governments in emerging markets issue bonds to help with continued economic growth. These bonds have potential for growth but can also be riskier than investing in developed market economies.

Zero Coupon Bonds

Zero coupon bonds don’t pay interest, but are sold at a great discount. Some bonds get transformed into zero coupon bonds, while others start out as zero coupon bonds. Investors earn a profit when the bond reaches maturity because it will have increased in value, and they receive the face value of the bond at the maturity date.

Bond Funds

Investors can also buy into bond funds or bond ETFs, which are groups of different types of bonds collected into a single fund. There are bond funds that group together corporate bonds, junk bonds, and other types of bonds. These funds are managed by a fund manager. Bond funds are safer than individual bonds, since they diversify money into many different bonds.

Bond Indices

Similar to a stock index, there are bond indices that track the performance of groups of bonds. Examples of bond indices include the Merrill Lynch Domestic Master, the Citigroup US Broad Investment-Grade Bond Index, and the Barclays Capital Aggregate Bond Index.

What to Look at When Choosing Bonds

When investors are looking into stocks to invest in, the differences are mainly in the prospects of the company, the team, and the company’s products and services. Stock shares themselves tend to be pretty similar. Bonds, on the other hand, can have significantly different terms and features. For this reason, it’s important for investors to have some understanding of how bonds work before they begin to invest in them.

The main features to look at when selecting bonds are:

Maturity

The maturity date tells an investor the length of the bond term. This helps the buyer know how long their money will be tied up in the bond investment. Also, bonds tend to decrease in value as they near their maturity date, so if a buyer is looking at the secondary market it’s important to pay attention to the maturity date. Bond maturity dates fall into three categories:

•   Short term: Bonds that mature within 1-3 years.
•   Medium-term: Bonds that mature around ten years.
•   Long-term: These bonds could take up to 30 years to mature.

Secured vs. Unsecured

Secured bonds promise that specific assets will be transferred to bondholders if the corporation is unable to repay the bond loan. One type of secured bond is a mortgage-backed security, which is secured with real estate collateral.

Unsecured bonds, also known as debentures, are not backed by any assets, so if the company defaults on the loan the investor loses their money. Both have their benefits and disadvantages, so it is a good idea to understand the difference between secured and unsecured bonds.

Yield

This is the total return rate of the bond. Although a bond’s interest rate is fixed, its yield fluctuates since the price of the bond changes based on market fluctuations. There are a few different ways yield can be measured:

•   Yield to Maturity (YTM): YTM is the most commonly used yield measurement. It refers to the total return of a bond if all interest gets paid and it is held until its maturity date. YTM assumes that interest earned on the bond gets reinvested at the same rate of the bond, which is unlikely to actually happen, so the actual return will differ somewhat from the YTM.
•   Current Yield: This calculation can help bondholders compare the return they are getting on a bond to the dividend return they receive from a stock. It looks at the bond’s current market price and the amount of interest earned on that bond.
•   Nominal Yield: This is the percentage of interest that gets paid out on the bond within a certain period of time. Since the current value of a bond changes over time, but the nominal yield calculation is based on the bond’s face value, the nominal yield isn’t entirely accurate.
•   Yield to Call (YTC): Some bonds may be called before they reach maturity. Bondholders can use the YTC calculation to estimate what their earnings will be if the bond gets called.
•   Realized Yield: This is a calculation used if a bondholder plans to sell a bond in the secondary market at a particular time. It tells them how much they will earn on the bond between the time of the purchase and the time of sale.

Price

This is the value of a bond in the secondary market. There are two bond prices in the secondary market: bidding price and asking price. The bidding price is the highest amount a buyer is willing to pay for a specific bond, and the asking price is the lowest price a bondholder would be willing to sell the bond for. Bond prices change as market interest rates change, along with other factors.

Rating

As mentioned above, all bonds and bond issuers are rated by bond rating agencies. The rating of a bond helps investors understand the risk and potential earnings associated with a bond. Bonds and bond issuers with lower ratings have a higher risk of default.

Ratings are done by three bond rating agencies: Standard & Poor’s, Moody’s, and Fitch. Fitch and Standard & Poor’s rate bonds from AAA down to D, while Moody’s rates from Aaa to C.

Bond Market Terminology

When buying bonds, there are several terms which investors may not be familiar with. Some of the key terms to know include:

•   Liquidation Preference: If a company goes bankrupt, investors get paid back in a specific order as the company sells off assets. Depending on the type of investment, an investor may or may not get their money back. Companies pay back “Senior Debt” first, followed by “Junior Debt.”
•   Coupon: This is the fixed dollar amount paid to investors. For example, if an investor buys a $1000 bond with a 3% interest rate, and interest gets paid out annually, the coupon rate is $30/year.
•   Face Value: Also referred to as “par,” this is the price of the bond when it reaches maturity. Usually bonds have a starting face value of $1,000. If a bond sells in the secondary market for higher than its face value, this is known as “trading at a premium,” while bonds that sell below face value are “trading at a discount.”
•   Duration Risk: This is a calculation of how much a bond’s value may fluctuate when interest rates change. Longer term bonds are at more risk of value fluctuations.
•   Puttable Bonds: Some bonds allow the bondholder to redeem their principal investment before the maturity date, at specific times during the bond term.

The Bond Market and Stocks

Although there is no direct correlation between the bond market and the stock market, the performance of the secondary bond market often reflects people’s perceptions of the stock market and the overall economy.

When investors feel good about the stock market, they are less likely to buy bonds, since bonds provide lower returns and require long-term investment. But when there’s a negative outlook for the stock market, investors want to put their money into safer assets, such as bonds.

How to Make Money on Bonds

While the most obvious way to make money on bonds is to hold them until their maturity to receive the principal investment plus interest, there is also another way investors can make money on bonds.

As mentioned above, bonds can be sold on the secondary market any time before their maturity date. If an investor sells a bond for more than they paid for it, they make a profit.

There are two reasons the price of a bond might increase. If newly issued bonds come out with lower interest rates, then bonds that had been previously issued with higher interest rates go up in value. Or, if the credit risk profile of the government or corporation that issued the bonds improves, that means the institution will be more likely to be able to repay the bond, so its value increases.

Advantages of Bonds

There are several reasons that bonds are a good investment, and they have some advantages over stocks and other assets.

•   Predictable Income: Since bonds are sold with a fixed interest rate, investors know exactly how much they will earn from the investment.
•   Security: Bonds are considered to be a much safer investment than stocks. Although they offer lower interest rates than most stocks, they don’t have the volatility and risk.
•   Contribution: The funds raised from the sale of bonds may go towards improving cities, towns, and other community features. By investing in bonds, one is supporting community improvements.
•   Diversification: Bonds can be a great addition to an investment portfolio because they provide diversification away from stocks. Building a diversified portfolio is key to long-term growth.
•   Obligation: There is no guarantee of payment when investing in stocks. Bonds are a debt obligation that the issuer has agreed to pay.
Profit on Resale: Investors have the opportunity to resell their bonds in the secondary market and make a profit.

Disadvantages of Bonds

Although there are many upsides to investing in bonds, they also have some risks and downsides. Like any investment, it’s important to do research before buying.

•   Lack of Liquidity: Investors can sell bonds before their maturity date, but they may not be able to sell them at the same or higher price than they bought them for. If they hold on to the bond until its maturity, that cash isn’t available for use for a long period of time.
Bond Issuer Default and Credit Risk: Bonds are fairly secure, but there is a possibility that the issuer won’t be able to pay back the loan. If this happens, the investor may not receive their principal or interest.
•   Low Returns: Bonds offer fairly low interest rates, so in the long run investors are likely to see greater returns in the stock market. In some cases, the bond rate may even be lower than the rate of inflation.
•   Market Changes: Bonds can decrease in value if the issuing corporation’s bond rating changes, if the company’s prospects don’t look good, or it looks like they may ultimately default on the loan.
•   Interest Rate Changes: One of the most important things to understand about bonds is that their value has an inverse relationship with interest rates. If interest rates increase, the value of bonds decreases, and vice versa. The reason for this is that if interest rates rise on new bond issues, investors would prefer to own those bonds than older bonds with lower rates. If a bond is close to reaching maturity it will be less affected by changing interest rates than a bond that still has many years left to mature.
•   Not FDIC Insured: There is no FDIC insurance for bondholders. If the issuer defaults, the investor loses the money they invested.
•   Call Provision: Sometimes corporations have the option to redeem bonds. This isn’t a major downside, but does mean investors receive their money back and will be able to reinvest it.

How to Buy Bonds

Bonds differ from stocks in that they aren’t traded publicly. Investors must go through a broker to purchase most bonds, or they can buy US Treasury bonds directly from the government.

Brokers can sell bonds at any price, so it’s important for investors to research to make sure they are getting a good price. They can also check the Financial Industry Regulatory Authority (FINRA) to see benchmark data and get an idea about how much they should be paying for a particular bond. FINRA also has a search tool for investors to find credible bond brokers.

As mentioned above, traders can either buy bonds in the primary or secondary market, or they can buy into bond mutual funds and bond ETFs.

Get Started Buying Bonds

For those looking to start investing in bonds, stocks, and other assets, there are many great tools available to help. One easy way to start buying into the bond market is using SoFi Invest’s® online investment tools. SoFi has an easy-to-use app investors can use to buy and sell bond funds with a few clicks of a button and keep track of their favorite bond funds and stocks, research specific assets, and set personalized financial goals.

Buying into bond funds is a good way for investors to gain exposure to a diversified portfolio of bonds, rather than going through the complex process of choosing individual bonds.

Learn how to use SoFi active investing to buy and sell bond ETFs with zero commission fees.

SoFi Invest®
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