Feb
06
2025
woman on smartphone

Are Robo-Advisors Worth It? Are They Safe?

By | Growing Wealth, invest, Investing | Comments Off on Are Robo-Advisors Worth It? Are They Safe?

Automated portfolios have become a common option offered by financial companies, providing many people with a cost-efficient way to invest for retirement and other goals — while helping to manage certain market and behavioral risks via automated features.

Because robo-advisors typically rely on sophisticated computer algorithms to help investors set up and manage a diversified portfolio, some have questioned whether technology alone can address the range of needs that investors may have — beyond basic portfolio management. Others note that the lower fees and lower minimum balance requirements typical of most robo-advisors, in addition to certain automated features, may provide a much-needed option for new investors.

Key Points

•   Robo-advisors offer cost efficiency and automation, reducing fees and providing features like automatic rebalancing and tax optimization.

•   Robo-advisors are well-suited for long-term goals like retirement, managing risks and maintaining diversified portfolios.

•   A key limitation may be limited investment options, sometimes restricted to pre-set portfolios of low-cost index ETFs.

•   Personal advice is generally limited, focusing on automated portfolio management based on initial client inputs.

•   The industry has grown rapidly, adding more sophisticated features and a broader range of investment options, appealing to a wider audience.

Is a Robo-Advisor Right for You?

Robo-advisors typically use artificial intelligence to generate retirement and financial planning solutions that are tailored to people’s individual needs. Here are some questions to ask yourself, when deciding whether a robo-advisor is right for you.

How Does a Robo-Advisor Pick Investments?

While the term robo-advisor can mean different things depending on the company that offers the service, investors usually fill out an online questionnaire about their financial goals, risk tolerance, and investment time frames. On the back end, a computer algorithm then suggests a portfolio of different securities based on those parameters.

For example one person may be investing for retirement, another saving for the purchase of a home. Depending on each person’s preferences, the robo-advisor generates an asset allocation that aligns with the person’s goals in the form of a pre-set portfolio.

A portfolio for someone nearing retirement age would typically have a different allocation versus a portfolio for someone in their 20s, for example. Depending on these details, the service might automatically rebalance the portfolio over time, execute trades, and may even conduct tax-loss harvesting. SoFi’s automated portfolio does offer automatic rebalancing, but not automatic tax-loss harvesting.

Can I Choose My Own Investments?

A robo-advisor typically has a range of investments they offer investors. Usually these are low-cost index exchange-traded funds (ETFs), but the offerings can vary from company to company. In most cases, though, your investment options are confined to those available through the robo-advisor, and typically you’re offered a selection of pre-set portfolios with limited or no ability to change the securities in that portfolio.

As the industry grows and becomes increasingly sophisticated, more companies are finding ways to offer investors new options like themed ETFs, stocks from different market sectors, socially responsible or ESG investing options, and more.

Who Manages the Portfolio?

Part of the appeal for some investors is that these portfolios are automated and thus require less hands-on involvement. This may be useful for people who are new to the process of setting up and managing a diversified portfolio, or who don’t feel comfortable doing so on their own.

In some cases, a robo-advisor service may also offer a consultation with a live human advisor. But again, in most cases the investor has limited control over the automated portfolio.

Recommended: Robo-Advisors vs. Financial Advisors

Are There Risks Involved in Using a Robo-Advisor?

Investment always involves some exposure to market risks. But robo-advisors may help manage behavioral risk. Many studies have shown that investors can be impulsive or emotional when making investment choices — often with less than optimal results.

By reducing the potential for human error through the use of automation, a robo-advisor may help limit potential losses.

What Do Robo-Advisors Cost?

While there are some robo-advisor services that have higher minimum balance requirements or investment fees, the majority of these services are cost efficient.

In some cases there are very low or no minimums required to set up a portfolio. And the management fees are typically lower than what you’d pay for a human advisor (although there are typically brokerage fees and expense ratios associated with the investments in the portfolio).

Pros and Cons of Robo-Advisors

Hopefully, the questions above have clarified the way a robo-advisor works and shed some light on whether a robo service would be right for you. In addition, there are some pros and cons to keep in mind.

Pros of Robo-Advisors

Saving for Retirement

It’s true that you can use a robo-advisor for almost any short- or long-term goal — you could use a robo-advisor to save for an emergency or another savings goal, for example. But in many ways these services are well-suited to a long-term goal like retirement. Indeed, most robo-services offer traditional retirement accounts like regular IRAs, Roth IRAs, SEP IRAs.

The reason a robo-advisor service can be useful for retirement is that the costs might be lower than some other investment options, which can help you keep more of your returns over time. And the automated features, like portfolio rebalancing and tax optimization (if available), can offer additional benefits over the years.

Typically, many robo-portfolios require you to set up automated deposits. This can also help your portfolio grow over time — and the effect of dollar-cost averaging may offer long-term benefits as well.

Diversification

Achieving a well-diversified portfolio can be challenging for some people, research has shown, particularly those who are new to investing. Robo-advisors take the mystery and hassle out of the picture because the algorithm is designed to create a diversified portfolio of assets from the outset; you don’t have to do anything.

In addition, the automatic rebalancing feature helps to maintain that diversification over time — which can be an important tool to help minimize risks. (That said, diversification itself is no guarantee that you can avoid potential risks completely.)

Automatic Rebalancing

Similarly, many investors (even those who are experienced) may find the task of rebalancing their portfolio somewhat challenging — or tedious. The automatic rebalancing feature of most robo-advisors takes that chore off your plate as well, so that your portfolio adheres to your desired allocation until you choose to change it.

Tax Optimization

Some robo-advisors offer tax-loss harvesting, where investment losses are applied to gains in order to minimize taxes. This is another investment task that can be difficult for even experienced investors, so having it taken care of automatically can be highly useful — especially when considering the potential cost of taxes over time.

That said, automatic tax-loss harvesting has its pros and cons as well, and it’s unclear whether the long-term benefits help make a portfolio more tax efficient.

Want to start investing?

Our robo-advisor service can offer a portfolio to suit
your needs and risk level.

Cons of Robo-Advisors

Limited Investment Options

Most automated portfolios are similar to a prix fixe menu at a restaurant: With option A, you can get X, Y, Z investment choices. With option B, you can get a different selection, and so on. Typically, the securities available are low-cost index ETFs. It’s difficult to customize a robo account; even when there are other investments available through the financial company that offers the robo service, you wouldn’t have access to those.

In some cases, investors with higher balances may have access to a greater range of securities and are able to make their portfolios more personalized.

Little or No Personal Advice

The term “robo-advisor” can be misleading, as many have noted: These services generally don’t involve advice-giving robots. And while some services may allow you to speak to a live professional, they aren’t there to help you make a detailed financial plan, or to answer complex personal questions or dilemmas.

Again, for investors with higher balances, more options may be available. But for the most part robo-advisors only cover the basics of portfolio management. It’s up to each individual to monitor their personal situation and make financial decisions accordingly.

Performance

Robo-advisors have become commonplace, and they are considered reliable methods of investing, but that doesn’t mean they guarantee positive returns.

Robo-Advisor Industry

Robo-advisors have grown quickly since the first companies launched in 2008-09, during and after the financial crisis. Prior to that, financial advisors and investment firms made use of similar technology to generate investment options for private clients, but independent robo advisor platforms made these automated portfolios widely available to retail investors.

The idea was to democratize the wealth-management industry by creating a cost-efficient investing alternative to the accounts and products offered by traditional firms.

Assets under management in the U.S. robo-advisor market amount to hundreds of billions of dollars, with the expectation that that will grow in the years ahead. While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

Because they are direct-to-consumer and digital only, robo-advisors are available around the clock, making them more accessible. Their online presence has meant that the clientele of robo-advisors has tended to skew younger.

Also, traditional asset management firms often have large minimum balance requirements. At the high end, private wealth managers could require minimums of $5 million or more.

The cost of having a human financial advisor can also drive up fees north of 1% annually, versus the 0.25% of assets that robo-advisors typically charge (depending on assets on deposit). Note that this 0.25% is an annual management fee, and does not include the expense ratios of the underlying securities, which can add on another 5 or even 50 basis points, depending on the company and the portfolio.

Recommended: How to Track Robo-Advisor Returns

The Takeaway

Despite being relative newcomers in finance, robo-advisors have become an established part of the asset management industry. These automated investment portfolios offer a reliable, cost-efficient investment option for investors.

Robo advisors don’t take the place of human financial advisors, but they can automate certain tasks such as selecting a diversified group of investments that align with an individual’s goals; automatically rebalancing the portfolio over time; using tax-optimization strategies that may help reduce portfolio costs.

Ready to start investing for your goals, but want some help? You might want to consider opening an automated investing account with SoFi. With SoFi Invest® automated investing, we provide a short questionnaire to learn about your goals and risk tolerance. Based on your replies, we then suggest a couple of portfolio options with a different mix of ETFs that might suit you.

Open an automated investing account and start investing for your future with as little as $50.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN-Q125-026

Read more
Feb
06
2025

What Is Automated Investing?

By | Growing Wealth, invest, Investing, Terminology | No Comments

Automated investing is a type of investing that uses computer algorithms to recommend investment portfolios to an individual based on their goals, time horizon, and risk profile. Automated investing platforms, also known as robo-advisors, tend to feature lower fees, lower minimum balances, digital applications, and a more hands-off approach to investing.

Because automated investing can be done with little or no direct human effort, it can be an ideal option for investors just starting their wealth-building journey. Automated investing may reduce the learning curve for some investors entering the financial markets, helping them start building and managing a portfolio to achieve their financial goals.

Key Points

•   Automated investing uses algorithms to provide tailored financial planning and retirement advice.

•   Lower fees and minimum balances make automated investing accessible for beginners.

•   Platforms collect data on financial situations, risk tolerance, and goals to manage a diversified portfolio.

•   Automated platforms handle tasks like portfolio rebalancing and tax-loss harvesting.

•   Drawbacks include limited human interaction and potential exposure to market volatility.

Automated Investing: A Primer

There are several reasons why investors choose automated investing tools to help them manage an investment portfolio.

Automated investing uses computer algorithms to select and trade stocks, exchange-traded funds (ETFs), or other assets without the need for oversight by a human financial advisor.

Automated investing has changed the financial advisory game in fundamental ways. Like so much else that has happened during the digital revolution, automated investing has eliminated the middle man and is delivering a service directly to the client – you, the investor.

Investors who sign up for an automated investing platform usually start by filling out a questionnaire, which collects information about the investor’s financial situation, risk tolerance, and goals. The automated investing advisor then uses this data to recommend investments to the client that may help them meet their financial goals. Based on the investor’s input, the automated investing platform will recommend and manage a pre-determined portfolio for the investor using computer algorithms and other data.

Automated investing advisors may also handle portfolio rebalancing and tax-loss harvesting if the client chooses these services. (SoFi’s automated portfolio includes the above features, but not automated tax-loss harvesting.)

Most automated advisors use Modern Portfolio Theory (MPT) to create and manage a portfolio’s asset allocation. The idea is to decrease risk by diversifying a portfolio into many assets and not “put all your eggs in one basket.”

Automated Investing vs Robo Advisors

Automated investing tools are sometimes referred to as robo advisors. Investors may see the terms automated investing and robo-advisors used interchangeably to describe digital tools that use computer algorithms to manage a financial portfolio.

In reality, though, automated investing is a broader term that can refer to several aspects of today’s financial products and features.

•   Using automatic transfers and contributions to investment portfolios and retirement plans is a form of automated investing.

•   Target date funds, a type of mutual fund that rebalances over time to become less conservatively invested, uses a form of automated investing known as a glide path.

Recommended: Robo-Advisor vs. Financial Advisor: Which Should You Choose?

Want to start investing?

SoFi’s robo-advisor can offer a portfolio to suit
your needs and risk level.

Why People Choose an Automated Investing Strategy

There are several reasons why investors choose automated investing tools to help them manage an investment portfolio.

Low-Cost Process

Automated investing advising generally costs less than traditional financial advisors. The reason the cost of automated advising is lower is because it relies on an algorithm, while the guidance of a live person can cost more. In other words: A human touch comes with a premium price.

Automated investment fees are usually a percentage of the assets under management (AUM). Typical fees are less than 0.5% of AUM annually. So if an investor puts $10,000 into an automated investing service, they generally pay less than $50 per year.

By comparison, a reasonable rate for a human financial advisor would be a 1% investment fee. On a $ 10,000 investment, that’s $100 per year just for the advisory fee. Investors may also have to pay fees on their investments and commissions for products the financial advisor sells.

However, automated investing services have additional fees as well. Robo-advisors charge a brokerage fee, and the ETFs themselves typically generate management fees, taxes, and other costs for which the consumer is responsible.

Like many investment costs, however, these fees can be hard to track as they may simply be deducted from investor returns. That’s why it’s important to look beneath the hood, so to say, of any investment product to learn the exact costs.

Recommended: How Much Does a Financial Advisor Cost?

More Affordable Initial Investment

Many automated investing platforms have low minimum account requirements. And some platforms have no minimum initial investment requirements.

In contrast, some human financial advisors won’t take on a client unless they have more than $100,000. At the high end, private wealth managers could require minimums of $5 million.

Because of the lower initial investment required, younger consumers have turned to automated investing in planning for their financial future. Previously, high minimum balances had been headwinds to younger investors, preventing them from getting financial advice.

As younger investors, like Generation Z and millennials, start hitting life milestones like getting married and saving for a house, automated investing may be a good option for them to begin building wealth.

Efficient & Convenient Access

With traditional financial advisors, clients had limited access and had to work around the human advisor’s schedule. Automated advisors use digital platforms. This allows clients to ask questions and access help 24 hours, seven days a week, if needed.

Need to make a trade or a change? There is no need to call to schedule an appointment, fill out a physical form, meet with an advisor in person, or wait for office hours. Usually, a few button pushes can do the trick.

Lower fees and minimum balances have attracted younger investors to the automated investing industry. But the digital and mobile platforms these services offer have also made younger users turn to such automated services more.

Concerns About Automated Investing Services

Robo advisors do come with some downsides, however.

Limited Human Interaction

While some automated services may offer investors the ability to contact a live advisor or representative, not all of them do. And even when that’s available, your access may depend on how much money you have invested.

In any case, if you have pressing questions or an investing dilemma, it’s likely it will be up to you to figure out the right steps to take.

Not Fully Customizable

It’s true that a robo-advisor is designed to offer a range of pre-set portfolios, one of which will hopefully meet an investor’s needs. But automated platforms don’t have the flexibility to offer each person a fully customizable portfolio — for that they would need to craft their own or work with a professional.

By the same token, if your personal circumstances changed in such a way that your investment strategy also shifted, it’s unlikely that you’d be able to adjust an automated portfolio except in terms of its basic asset allocation.

Risks and Costs of ETFs

Most robo advisors use a mix of ETFs and low-cost index funds. ETFs hold a basket of stocks or bonds and the vast majority of these funds are passively managed, i.e. they are built to mirror an index, such as the S&P 500. ETFs differ from index mutual funds in that they are traded throughout the day on an exchange, similar to stocks.

ETFs come with certain risk factors. Because ETF shares are traded throughout the day, they’re bought and sold at the market price, which may or may not reflect the fund’s net asset value or NAV. Thus, an ETF’s performance is subject to market volatility. In addition there can be tax consequences, owing to the trading of shares.

What to Look for in an Automated Investment Platform

If you’re interested in opening an automated investing account, there are several factors you may want to consider before deciding if automating investing is right for you.

Automated Investing Fees

As mentioned above, automated investing fees are generally lower than traditional financial advisors. However, you still want to compare the fees of the various automated investing platforms on the market.

Some platforms charge a flat fee, while others charge a percentage of your assets under management. In addition, some platforms charge fees for specific services, such as tax preparation or additional investment advice.

Affordability

Some automated investment platforms require a minimum investment to open an account. You’ll want to understand any minimum investment requirements before opening an account. For example, some automated investing platforms may offer a $0 account minimum, but that might not include certain robo-advisory services you’re looking for.

Investment Options

The investment options offered by automated investment platforms vary. Some platforms offer a limited selection of investment options, while others offer a wide range of investments. You want to ensure the automated investing platform you choose offers investment options that meet your needs.

Usually, robo-advisors only invest in ETFs and mutual funds, so you’ll want to see if the services offer a range of funds, from international equities to domestic corporate bonds. Knowing what investment options a robo-advisor provides may help you ensure that you may end up with a diversified portfolio that aligns with your goals.

Investment Rebalancing

Generally, a robo-advisor will make automated investments based on your risk tolerance and financial goals. These services will create a portfolio of a certain percentage of stock ETFs and bonds ETFs based on risk tolerance. But you want to check that the automated investing services will rebalance your portfolio to maintain that percentage of stocks and bonds.

For example, an investor with a more aggressive risk tolerance may have a portfolio with an asset allocation of 80% stocks and 20% bonds. With time, the portfolio may change and knock that ratio off balance — too much of one and not enough of the other. An automated investor can automatically rebalance your account to its original 80/20 ratio. No human interaction is needed; the rebalance happens through the automated investing algorithm.

Human Interaction

Some automated investing services may give investors access to human financial professionals, which can be helpful for investors who need to ask questions, discuss goals, and plan for the future. Automated investing services might charge for this service, but it could be helpful to have this option.

Who Might Want to Consider Auto Investing?

Automated investing may be a good option for people who want to invest for the long term but do not want to manage their own portfolios or pay high fees for a traditional financial advisor. It can also be a good option for people who want to invest in various asset classes, but don’t have the time or expertise to do so themselves.

That doesn’t mean auto investing is right for everyone. For those who aren’t particularly tech savvy or comfortable with automated platforms, using a robo-advisor might not make sense. Again, it’s important to be comfortable with the investments offered in these pre-determined portfolios, as well as the risks and costs associated with these products.

As noted above, many younger investors have begun using robo-advisors to create portfolios and make automated investment decisions. This may allow younger investors to build up experience in the financial markets while using a pre-set portfolio. As they build wealth and expertise, younger investors may decide to make investment decisions on their own or hire a traditional financial advisor to help manage their financial goals.

The Takeaway

An automated investing platform can be ideal for many investors, particularly regarding affordability, convenience, and avoiding potential human errors. This investment tool allows investors to use a hands-off approach, which many people may prefer over the time-consuming research and management required for picking and choosing stocks, bonds, and other assets to build and manage a portfolio.

Ready to start investing for your goals, but want some help? You might want to consider opening an automated investing account with SoFi. With SoFi Invest® automated investing, we provide a short questionnaire to learn about your goals and risk tolerance. Based on your replies, we then suggest a couple of portfolio options with a different mix of ETFs that might suit you.

Open an automated investing account and start investing for your future with as little as $50.

Photo credit: iStock/gorodenkoff

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN-Q125-017

Read more
Feb
06
2025
apple cut in half

Guide to Environmental, Social, and Governance (ESG) Investing

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Guide to Environmental, Social, and Governance (ESG) Investing

What Is ESG?

ESG investing can be considered a form of sustainable or impact investing, but the term itself emphasizes that companies must focus on positive results in light of environmental, social, and governance factors.

ESG investing strategies are still popular, with global mutual funds and exchange-traded funds (ETFs) that embrace ESG-focused strategies seeing a high of $480 billion in assets under management, as of November 2023, up from $391 billion in 2021.

But ESG strategies have waxed and waned over the last few years, particularly in the U.S. Domestic ETFs and open-end funds saw outflows of about $19.6 billion in 2024, the largest amount since Morningstar began tracking sustainable fund flows in 2015.

Unfortunately, there has yet to be a single ESG framework used by all investors or financial firms to evaluate a company’s progress toward ESG goals. Rather, there are a number of ESG standards worldwide, most of them voluntary, and investors must learn which ones a certain fund or stock adheres to before choosing to invest.

Key Points

•   ESG refers to non-financial criteria that can help investors assess a company’s performance in terms of environmental, social, and governance factors.

•   ESG strategies are seeing an increase in investor interest, with global ESG-specific funds reaching $480 billion in AUM in 2023. But U.S. open-end funds and ETFs had another year of outflows in 2024.

•   Tracking a company’s adherence to ESG standards can also reveal its ability to manage certain ESG risks.

•   Currently, ESG standards are largely voluntary, although some ESG frameworks are more widely used than others.

•   It’s possible to invest in ESG-focused stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

What Is ESG Investing?

ESG refers to environmental, social, and governance factors that underlie certain investment strategies. By using ESG standards, investors can evaluate how well companies meet relevant criteria and manage risks.

Following are some of the factors that investors can consider when evaluating the three pillars of ESG, and deciding whether to invest online or through a brokerage in ESG funds, ETFs, or other options.

Environmental

The environmental component of ESG criteria might include metrics on a company’s energy emissions, waste, and water usage. Investors may also focus on the risks and opportunities associated with the impacts of climate change on the company and its industry.

Some company information that environmentally conscious investors may evaluate include:

•   Pollution and carbon footprint

•   Water usage and conservation

•   Renewable energy integration (such as solar and wind)

•   Climate change policies

Recommended: Beginner’s Guide to Sustainable Living

Social

The social component of ESG generally describes the impact of a company’s relationships with people and society. Factors as varied as corporate culture, commitment to diversity, and how much a company invests in local organizations or communities can impact socially conscious investors’ decisions on buying into a specific corporation.

Some other social factors can include:

•   Employee pay, benefits, and perks

•   Diversity, equity, and inclusion

•   Commitment to social justice causes

•   Ethical supply chains (e.g., no sweatshops, conflict-free minerals, etc.)

Governance

The governance component of ESG generally focuses on how the company is run. Investors want to know how the board of directors, company, and shareholders relate to one another.

Some additional governance factors that investors evaluate include:

•   Executive compensation, bonuses, and perks

•   Diversity of the board of directors and management team

•   Transparency in communications with shareholders

•   Rights and roles guaranteed to shareholders

Understanding ESG Investment Strategies

At one point, ESG strategies were primarily guidelines for investing according to certain values. But in the last couple of decades, it’s become clear that ESG factors can also impact a company’s bottom line. For instance, there may be potential risks to company performance that require a company to follow ESG risk mitigation efforts.

Unfortunately, there is no universal set of standards for measuring a company’s progress in these three areas. That said, many companies have embraced global ESG frameworks, which are largely voluntary.

Additionally, third-party organizations have stepped in to create ESG scores for companies and funds based on their adherence to various ESG factors.

How ESG Scores Work

ESG scores — sometimes called ESG ratings — are designed to measure a company’s performance based on specific environmental, social, and governance criteria. Investors can use them to assess a company’s success, risks, and opportunities concerning these three areas.

Where ESG Scores Come From

Due to the growing need for ESG information and metrics, third-party data providers have become a part of the industry.

That’s because ESG guidelines are still very much a work in progress. Some are mandatory, some are not. In some cases, companies have developed proprietary systems to assess and report their own performance or risk mitigation efforts.

In short, investors can’t rely on just one ESG score, but must become familiar with how different ESG scores work and how they’re applied.

ESG Scoring Systems

An ESG score is typically calculated by analyzing a company’s available data on environmental, social, and governance policies and practices using various sources, like SEC filings, government databases, and media reports.

A high ESG score typically means a company is reaching certain targets, or manages ESG risks better than its peers, while a low ESG score means the company is not reaching its ESG goals, or it has more unmanaged ESG risks. Evaluating a company’s ESG score, along with financial analysis, can give investors a better idea of the company’s long-term prospects.

Some of the most prominent ESG score providers are MSCI, Morningstar Sustainalytics, and S&P Global. But some financial firms conduct their own ESG evaluations and provide proprietary scores. Transparency into how the scores are calculated can vary.

ESG vs SRI vs Impact Investing

ESG investing is sometimes called sustainable investing, impact investing, or socially responsible investing (SRI). But these terms are not interchangeable. Impact investing and SRI are broader terms. ESG could be seen as a type of impact or socially responsible investing.

What Is SRI?

Socially responsible investing selects or excludes investments according to specific ethical guidelines. Investors utilizing an SRI strategy may avoid investing in companies related to gambling and other sin stocks, or they may avoid companies that cause damage to the natural environment — or they may choose companies with a track record of green initiatives or policies that support a diverse workforce.

What Is Impact Investing?

Impact investing strategies are designed to have a measurable impact on certain industries, sectors, or even companies directly.

Impact investing is generally employed by institutional investors and foundations. The aim of impact investing is often to generate positive social or environmental impact, but it can refer to any agenda that involves using capital to push for a certain outcome or result.

Impact investing is a broad category that can include a range of strategies, including ESG (environmental, social, and governance) and SRI (socially responsible investing), as well as others.

Other Types of Impact Investing

In addition there are a couple of other designations investors may want to know:

•   Green investing refers to strategies that aim to benefit the physical environment. Investors may put money into organizations that support renewable energy, low carbon, pollution mitigation, and more.

•   Last, corporate social responsibility initiatives, or CSR refers to programs that companies may establish on their own. Often, these business initiatives support socially responsible movements, like environmental sustainability, ethical labor practices, and social justice initiatives.

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

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

*Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Types of ESG Investments

Investors can make ESG investments in the stocks and bonds of companies that adhere to ESG criteria or have high ESG scores. Other potential investment vehicles are mutual funds and ETFs with an ESG strategy.

Stocks

Buying stocks of companies with environmental, social, and governance commitments can be one way to start ESG investing. However, investors will often need to research companies that have ESG credibility, or rely on third-party agencies that release ESG scores.

Bonds

The bonds of corporations involved in ESG-friendly business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund green energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

Recommended: How to Buy Bonds: A Guide for Beginners

Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to hundreds of ESG companies and investments.

A growing number of index funds invest in a basket of sustainable stocks and bonds. These allow investors to diversify their holdings by buying shares of a single fund.
However, not all ESG funds follow the same criteria, and each fund can focus on different aspects of environmental, social, and governance issues. Interested investors would do well to look under the hood of specific funds to evaluate their holdings and other criteria.

Recommended: A Beginner’s Guide to Investing in Index Funds

Identifying ESG Companies

What is the best way to find an ESG company? Some 600 third-party agencies now gather ESG data from companies and conduct their own analysis and scoring.

Commonly used rating agencies include:

•   Bloomberg ESG Data Services

•   Dow Jones Sustainability Index

•   MSCI ESG Research

•   Morningstar Sustainalytics

•   S&P Global, ISS ESG

•   Moody’s Investors Service

•   Thomson Reuters ESG Research Data.

Benefits of ESG Investing

ESG investing has several potential benefits, including:

•   Improving long-term financial performance: A growing body of evidence suggests that companies with solid ESG ratings may be good investments. They tend to outperform those with weaker ratings, both in share price performance and earnings growth.

•   Mitigating risk: ESG factors can help identify companies with poor governance practices or exposure to environmental and social risks, leading to financial losses.

•   Creating social and environmental impact: By investing in companies that are leading the way on environmental, social, and governance issues, investors can help drive positive change and make a positive impact on society.

These potential benefits are increasing the popularity of ESG investing. According to Bloomberg, all global ESG assets reached $30 trillion by the end of 2022, and are projected to reach $40 trillion by 2030, up from $22.8 trillion in 2016.

Risks of ESG Investing

The main disadvantage of ESG strategies is that they limit the number of investments that people can consider. Thus, in some cases investors could end up trading potential returns for the ability to invest according to their values.

In addition, ESG investments can sometimes come with higher costs, for example an ESG fund may have a higher expense ratio vs. a traditional counterpart.

While there is a growing body of data regarding the performance of ESG indices and securities, it’s still a relatively new sector relative to more traditional investments, and again many standards and disclosures are still not mandatory.

How to Invest in ESG

If you’re interested in creating an ESG portfolio, you can start by contacting a financial advisor who can help you shape your investment strategy.

However, if you are ready to start investing and want to build a portfolio on your own, you can follow these steps:

1. Open a brokerage account

You will need to open a brokerage account and deposit money into it. Once your account is funded, you will be able to buy and sell stocks, mutual funds, and other securities.

2. Pick your assets

Decide what type of investment you want to make, whether in a stock of a company, an ESG-focused ETF or mutual fund, or bonds.

3. Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

4. Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive social and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and improve your returns.

ESG Investing Strategies

ESG investing can be different based on values and financial goals. It’s therefore essential to start with your investment goals and objectives when crafting an ESG investing strategy. Consider how ESG factors may help you reach these goals.

It’s also crucial to understand the data and information available on ESG factors; this will vary by company and industry. When researching potential ESG investments, you want to make sure a company has a clear and publicly available ESG policy and regularly discloses its ESG performance. Additionally, it can be helpful to look at third-party scores to determine a company’s ESG performance.

Why Is ESG Investing Important?

ESG investing offers investors a way to invest their money with the hope of having a genuine impact in terms of environmental, social, and governance factors.

In addition, companies today face a number of ESG risk factors. Adhering to certain ESG principles may help manage ESG risks.

Whether or not companies or funds that embrace ESG strategies deliver on the promised goals is a matter for investors to decide via due diligence. As noted above, without a commonly agreed-upon set of standards and some form of accountability, it’s difficult to ascertain which companies are truly having an impact.

Are ESG Strategies Profitable?

Investors have continued to be interested in ESG strategies over time. As noted above, global ESG-focused assets under management have continued to grow, although U.S. sustainable open-end fund and ETF outflows increased for the second year in a row, according to a 2024 report from Morningstar.

According to the report: “Sustainable funds faced many headwinds in 2024. They continued to lag conventional peers, with only 42% of sustainable funds landing in the top half of their respective Morningstar Categories.”

The Takeaway

In recent years, investor interest in sustainable investing strategies like ESG has grown. In addition, there is some data that suggests that ESG strategies may be just as effective as traditional strategies in terms of performance.

This is despite the fact that ESG criteria are inconsistent throughout the industry. There are a myriad different ways that companies can provide ESG-centered investments, but there aren’t industry-wide benchmarks for different criteria or success metrics.

Ready to start investing for your goals, but want some help? You might want to consider opening an automated investing account with SoFi. With SoFi Invest® automated investing, we provide a short questionnaire to learn about your goals and risk tolerance. Based on your replies, we then suggest a couple of portfolio options with a different mix of ETFs that might suit you.

Open an automated investing account and start investing for your future with as little as $50.

FAQ

What are the three pillars of ESG?

ESG stands for three areas that some companies strive to embrace by being proactive about the environment, supportive of social structures, and transparent and ethical in corporate leadership.

What are some examples of ESG investing?

There are many ways to add ESG strategies to your portfolio: You can consider investing in green bonds, in companies that focus on environmentally supportive technologies, in funds that invest in renewable energy companies, clean water initiatives, carbon sequestration, and more.

What is the difference between ESG and sustainability?

Sustainability is a broader term. Environmental, social, and governance (ESG) factors may support sustainability in different ways: by limiting air or water pollution, by supporting fair labor practices, by requiring transparency in corporate governance.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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.

SOIN-Q424-081

Read more
Feb
06
2025
What Are Hardship Loans and How Do They Work?

Financial Hardship Loans: What Are They and How Can You Apply?

By | Budgeting & Goals, personal_loan | Comments Off on Financial Hardship Loans: What Are They and How Can You Apply?

A financial hardship loan is a type of loan that can help people get through such monetary challenges as unemployment or medical debt.

Some people may have emergency savings to dip into or family or friends who can help them out if the unexpected happens. But for those who can’t access such resources, a hardship loan can offer the cushion needed until a person’s financial prospects brighten. There are a variety of hardship loans to consider, from personal loans to home equity borrowing, and each has its own application requirements.

Key Points

•   A hardship loan is a kind of personal loan that can help manage unexpected financial challenges, such as job loss or medical bills.

•   Proof of financial hardship, like termination notices or medical certificates, may be required.

•   Community-based resources, government programs, and employer assistance can offer alternative support.

•   Credit cards can cover expenses but may result in higher interest charges and increased debt.

•   Home equity loans or HELOCs allow borrowing against home value.

What Is a Hardship Loan?

A hardship loan is a loan that can help you get through unexpected financial challenges like unemployment, medical bills, or caregiving responsibilities. These are considered a kind of personal loan, and they typically require you to validate that you are facing severe financial issues in order to qualify. If approved, you get a lump sum of cash and pay it back over time with interest.

That said, it’s wise for potential borrowers to be informed and carefully consider their terms and options so they don’t wind up incurring more debt than they can manage.

What Can You Use a Hardship Loan For?

As one of the types of personal loans, a hardship loan typically works much like any standard personal loan. The borrower receives a lump sum of money to use as they need, with few limitations. Potential uses could include:

•   Rent or mortgage payments

•   Past-due bills

•   Everyday expenses like groceries and transportation

•   Medical needs

A hardship loan could overwhelm already strained finances, however. Debt in any form will have to be repaid eventually, with interest, even in the case of hardship loans.

Hardship Borrowing Options

When you’re experiencing financial difficulties, you may feel the need to make a quick decision. But assessing your options can help you find the best solution for your needs and financial circumstances. Here are some options you may consider when looking for financing during times of hardship.

Personal Loans

A personal loan allows you to borrow a lump sum of money, typically at a fixed interest rate, that you’ll then repay in installments over a set amount of time. Unlike a credit card, which is revolving debt, a personal loan has a set end date. This allows you to know exactly how much interest you’ll pay over the life of the loan (a personal loan calculator can always help with that determination, too).

The common uses for personal loans are wide-ranging. In addition to using a personal loan to help cover current expenses, you could also use personal loans to consolidate high-interest debt that you may have incurred, whether due to hardship or other reasons.

Typically, personal loan interest rates are lower than credit card interest rates, making them an attractive alternative to credit cards. When it comes to getting your personal loan approved, expect lenders to look at your credit history, credit score, and other factors.

Recommended: How to Apply for a Personal Loan

Credit Cards

Some people also may use credit cards to cover hardship expenses. While this strategy can help in the moment, it can lead to larger bills over time.

For instance, a credit card that offers a 0% annual percentage rate (APR) could allow you to minimize interest charges throughout the promotional period. However, you’ll need to ensure the balance is paid in full before the introductory period ends. Otherwise, you could start racking up interest charges quickly, adding to your financial challenges.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is becoming more common as people seek out nontraditional financing. P2P loans are generally managed through a lending platform that matches applicants with investors.

While it may offer more flexibility than a traditional loan, a P2P lending platform still looks at an applicant’s overall financial picture — including their credit score — during the approval process. Like a traditional loan, a P2P’s loan terms and interest rates will vary depending on an applicant’s creditworthiness.

Generally, lenders in the P2P space will report accounts to credit bureaus just as traditional lenders do. So making regular, on-time payments can have a positive effect on your credit score. And, conversely, making late payments or failing to make payments at all can have a negative effect on your credit score.

Home Equity

If you own your home, you may consider borrowing against your home’s value. You could do this in the form of a home equity loan, a home equity line of credit (HELOC), or by refinancing your mortgage through a cash-out refinancing option.

With a home equity loan, you’ll pay back the amount borrowed (with interest) over an agreed-upon period of time. While a home equity loan is offered in a lump sum, a HELOC is a revolving line of credit that can allow you to withdraw what you need. However, HELOCs often have variable interest rates, which can make it challenging to plan for repayment.

With a cash-out refinance, on the other hand, you’d refinance your current mortgage for more than what you currently owe, allowing you to get a bit of extra cash to use as you need. This process replaces your old mortgage with a new one.

In all of the options outlined above, if you can’t pay back the loan or follow the agreed-upon terms, there’s the potential that you may lose your house.

401(k) Hardship Withdrawal

It also may be possible to withdraw funds from your retirement plan. Under normal circumstances, a penalty typically is incurred for early withdrawal. There’s a chance the penalty will get waived due to certain types of financial hardship, but exceptions are limited.

Additionally, making a hardship withdrawal from your retirement account means a missed opportunity for these funds to grow. This could potentially put your retirement goals at a disadvantage or later require you to come up with an alternative catch-up savings strategy. In other words, really pause to think it through before using your 401(k) to pay down debt or put toward current expenses.

Alternative Options

While you can use personal loans for a variety of financial needs, there may be other options to consider depending on your situation. For example, if you’re a single parent, you might consider seeking out loans for single moms or dads who have sole financial responsibility for their household. Here are some other options you might explore:

•   Employer-sponsored hardship programs: If you’re facing financial hardship, ask your employer if they have an Employee Assistance Program (EAP). Financial assistance might be offered to help employees who have emergency medical bills, who have experienced extensive home damage due to fire or flood, or who have experienced a death in the family. Employees will likely have to meet specific qualifications to receive EAP funds.

•   Borrowing from friends and relatives: Asking for an informal loan from a friend or family member is certainly an option for getting through financial hardship, although not one that should be considered lightly. Having clear communication about each party’s expectations and responsibilities can go a long way to keeping a relationship intact. Consider having a written loan agreement that outlines details about the loan, such as the amount, interest rate (even if it’s nominal), and when repayment is expected.

•   Community-based resources: There may be specific grants within your community available for people with emergency financial needs. Organizations like 211.org help individuals find the assistance they need. Community-based social services organizations also may be able to make referrals to other organizations as needed.

•   Government programs: Federal and state governments list resources on their websites for individuals seeking financial hardship assistance. Depending on your circumstances, you may be eligible for certain government programs that could help reduce expenses for food, childcare, utilities, housing, prescription medication, and others.

The Takeaway

Researching all of your options for financial relief is a wise move. You might find help from government or community resources, your employer, or a friend or family member. Or, you might consider options such as a financial hardship loan, a home equity loan, or a P2P loan. Understanding the total cost of getting help and repayment terms is an important step in the process.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What qualifies as a hardship loan?

A hardship loan is a kind of loan that helps you afford unexpected expenses or get through an emergency. You might qualify for a hardship loan if you’re experiencing financial difficulties, such as job loss, medical bills, or home repairs.

What qualifies as financial hardship?

Some common scenarios that can qualify as financial hardship include being unable to repay a loan you took out in the past, being unable to keep up with debt payments due to unforeseen circumstances, and losing income so that you can’t afford your expenses.

What proof do you need for financial hardship?

You might need to show proof of financial hardship by submitting a termination notice if you’ve lost your job or a doctor’s certificate showing you are unable to work or have unpaid debt. You might be asked to submit bank statements or bills pending as well.

Photo credit: iStock/staticnak1983

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 .

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.


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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOPL-Q125-021

Read more
Feb
06
2025
Smart Medical School Loan Repayment Strategies

Smart Medical School Loan Repayment Strategies

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

If you’re a doctor or studying to be one, chances are you have student loans. A typical medical school graduate has an average student loan debt of $202,450, according to the Education Data Initiative. That’s seven times as much as the average college student owes.

Paying back the loans can be a challenge for doctors during residency and the early part of their career. But the good news is, the profession tends to pay well. In 2023, a typical entry-level doctor earned around $210,000 per year.

Key Points

•   High medical school debt can be a challenge for many new doctors. The average medical school graduate holds an average of $234,597 in student loan debt.

•   Income-driven repayment (IDR) plans can help manage and lower monthly payments based on discretionary income and family size.

•   Public service loan forgiveness may be an option for those in qualifying public service roles.

•   A Federal Direct Consolidation Loan allows borrowers the option to choose a new loan term, which could make payments more manageable.

•   Student loan refinancing may result in lower interest rates for those who qualify and reduce monthly payments. But borrowers who refinance federal student loans lose access to federal benefits.

Ways to Pay Off Medical School

No matter how much you owe, it’s smart to have the right student loan repayment strategy in place. This can help ensure your monthly loan payments are manageable and your financial health is protected.

Let’s take a closer look at the various student loan payment options available.

Choose a Repayment Plan

March 26, 2025: The SAVE Plan is no longer available after a federal court blocked its implementation in February 2025. However, applications for other income-driven repayment plans and for loan consolidation are available again. We will update this page as more information becomes available.

When it comes to federal student loans, borrowers have four different repayment options. Fixed repayment plans give you a fixed monthly payment. Income-driven Repayment (IDR) plans base your monthly loan payment on your discretionary income and family size.

•   Standard Repayment Plan. This fixed plan spreads out payments evenly over 10 years. For example, if you have a loan balance of $200,000 at 6.54%, your monthly payment will be about $2,275.

•   Graduated Repayment Plan. With a graduated plan, your payments start out lower and then gradually increase over time, typically every two years. Repayment takes place over 10 years.

•   Extended Repayment Plan. You can choose either fixed or graduated payments, and repayment takes place over 25 years. To qualify for this plan, you must have more than $30,000 in outstanding Direct Loans or Federal Family Education Loans (FFEL).

•   Income-Driven Repayment Plans. There are four types of income-driven repayment plans: Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE). However, the SAVE plan has been blocked in court and is on hold.

   Repayment on these plans takes place over 20 or 25 years, depending on your income and the plan you choose. At the end of the repayment period, the remaining balance is forgiven, though this amount may be taxable.

As you weigh your options, think about the length of the repayment term and the monthly payment amount. With a longer repayment term, your monthly bill is lower but the amount of interest you pay over the life of the loan is higher. With a shorter term, you pay less in interest over the life of the loan but your monthly payment is higher. A student loan payoff calculator will give you an idea of your monthly payment for different repayment terms.

Loan Forgiveness Programs

Loan forgiveness programs can wipe out some or all of your medical student loan debt, provided you meet certain criteria. If you work for an eligible nonprofit or public service agency, for example, you may qualify for the Public Service Loan Forgiveness (PSLF) program. With this program, med school grads considering a job with a local, state, tribal, or federal government organization or a nonprofit organization could be eligible for federal Direct Loan forgiveness after 10 years of qualifying payments under an IDR plan.

You may also qualify for a federal or state loan-repayment assistance program if you provide service to certain areas or segments of the population. For instance, the National Health Service Corps Loan Repayment program will erase as much as $75,000 of eligible student debt, tax-free, if you work full-time for at least two years in an approved medical facility.

Student loans from private lenders do not qualify for PSLF.

Student Loan Consolidation

If you’re paying off more than one federal loan, a Federal Direct Consolidation Loan may be an option worth exploring. Consolidation lets you combine different federal student loans into a single new loan with a fixed rate. The new rate is a weighted average of all your federal loan rates, rounded up to the nearest eighth of a percent. This may result in a slightly higher rate than you were paying before on some loans.

When you consolidate, you have the option to choose a new repayment plan that extends the life of the new loan up to 30 years. That can lower your monthly payment, but result in a longer loan repayment term and more interest overall. Keep in mind that you can’t include any private student loans in this type of consolidation loan.

Student Loan Refinancing

With student loan refinancing, you replace your current student loans with one new loan from a private lender. Ideally, the new loan will have a lower interest rate, if you qualify. This, in turn, could lower how much you pay in interest over the life of your loan. Refinancing can also make it easier to manage student loan payments. Instead of bills from different lenders, you get one bill each month from one lender.

You can choose a new length for your loan, which lets you adjust your monthly payments. This may be especially helpful if you choose to refinance during your residency.

It’s important to note, however, that refinancing federal student loans makes them ineligible for federal benefits such as income-driven repayment plans and forgiveness.

Recommended: A Guide to Private Student Loans

The Takeaway

Attending medical school isn’t cheap, and it’s common to graduate with significant student loan debt. The good news is, there are several repayment options that can help you tackle your debt more efficiently and protect your financial health. For example, under an income-driven repayment plan, your monthly payments are based on your discretionary income and family size. You may also qualify for a forgiveness program, which could erase part or all of your balance.

Other options for managing your student loan payments after medical school include federal Direct Loan Consolidation and student loan refinancing.

Looking to lower your monthly student loan 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. Also, 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
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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.



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.

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.

SOSLR-Q125-003

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

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

©2025 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender