Aug
08
2025

Asset Allocation by Age: 20s and 30s, 40s and 50s, 60s

By | Growing Wealth, invest, Investing | Comments Off on Asset Allocation by Age: 20s and 30s, 40s and 50s, 60s

Asset allocation is an investment strategy that helps you decide the ratio of different asset classes in your portfolio to ensure that your investments align with your risk tolerance, time horizon, and goals.

In other words, the way you allocate, or divide up the assets in your portfolio, helps to balance risk, while aiming for the highest potential return within the time period you have to achieve your investment goals. Here’s what you need to know about asset-based asset allocation.

Key Points

•   Asset allocation is the process of dividing investments among different asset classes based on factors like age, risk tolerance, and financial goals.

•   Younger investors can typically afford to take more risks and allocate a higher percentage of their portfolio to stocks.

•   As investors approach retirement, they may shift towards a more conservative asset allocation, with a higher percentage allocated to bonds and cash.

•   Regularly reviewing and rebalancing your asset allocation is important to ensure it aligns with your changing financial circumstances and goals.

•   Asset allocation is a personal decision and should be based on individual factors such as risk tolerance, time horizon, and investment objectives.

What Is Age-Based Asset Allocation?

The mix of assets you hold will likely shift with age. When you’re younger and have a longer time horizon, you might want to hold more stocks, which offer the most growth potential. Also, that longer time horizon gives you plenty of years to help ride out volatility in the market.

You will likely want to shift your asset allocation as you get older, though. As retirement age approaches, and the point at which you’ll need to tap your savings draws near, you may want to shift your retirement asset allocation into less risky assets like bonds and cash equivalents to help protect your money from downturns.

In the past, investment advisors recommended a rule of thumb whereby an investor would subtract their age from 100 to know how much of their portfolio to hold in stocks. What is an asset allocation that follows that rule? A 30-year-old might allocate 70% of their portfolio to stocks, while a 60-year-old would allocate 40%.

However, as life expectancy continues to increase — especially for women — and people rely on their retirement savings to cover the cost of longer lifespans (and potential healthcare expenses), some industry experts and advisors now recommend that investors keep a more aggressive asset allocation for a longer period.

The new thinking has shifted the formula to subtracting your age from 110 or 120 to maintain a more aggressive allocation to stocks.

In that case, a 30-year-old might allocate 80% of their portfolio to stocks (110 – 30 = 80), and a 60-year-old might have a portfolio allocation that’s 50% stocks (110 – 60 = 50) — which is a bit more aggressive than the previous 40% allocation.

These are not hard-and-fast rules, but general guidelines for thinking about your own asset allocation strategy. Each person’s financial situation is different, so each portfolio allocation will vary.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Asset Allocation Models by Age

As stated, age is a very important consideration when it comes to strategic asset allocation. Here are some asset allocation examples for different age groups.

Asset Allocation in Your 20s and 30s

For younger investors, the conventional wisdom suggests they may want to hold most of their portfolio in stocks to help save for long-term financial goals like retirement.

That said, when you’re young, your financial footing may not be very secure. You probably haven’t built much of a nest egg, you may change jobs relatively frequently, and you may have debt, such as student loans, to worry about. Setting up a potentially volatile, stock-focused allocation might feel nerve-wracking.

If you have a 401(k) at work, this might be your primary investment vehicle — or you may have set up an IRA. In either account you can invest in mutual funds or exchange-traded funds (ETFs) that hold a mix of stocks, providing some low-cost diversification without sacrificing the potential for long-term growth.

You could also invest in a target date fund, which is designed to help to manage your asset allocation over time (more on these funds below).

When choosing funds, it’s important to consider both potential performance and fees. Index funds, which simply mirror the performance of a certain market index, may carry lower expense ratios but they may generate lower returns compared to, say, a growth fund that’s more expensive.

Remember that the younger you are, the longer you have to recover from market downturns or losses. So allocating a bigger chunk of your investments to growth funds or funds that use an active management strategy could make sense if you feel their fees are justified by the potential for higher returns — and the higher risk that comes along with it.

And of course, you can counterbalance higher-risk/higher-reward investments with bonds or bond funds (as a cushion against volatility), index funds (to help manage costs) or target date funds (which can do a bit of both). Just be aware that the holdings within some funds can overlap, which could hamper your diversification strategy and require you to choose investment carefully.

Asset Allocation in Your 40s and 50s

As you enter middle age you are potentially entering your peak earning years. You may also have more financial obligations, such as mortgage payments, and bigger savings goals, such as sending your kids to college, than you did when you were younger. On the upside, you may also have 20 years or more before you’re thinking about retiring.

In the early part of these decades, one approach is to consider keeping a hefty portion of your portfolio still allocated to stocks. This may be useful if you haven’t yet been able to save much for your retirement because you’d be able to add potential growth to your portfolio, and still have some years to ride out any volatility.

Depending on when you plan to retire, adding stability to your portfolio with bonds as you approach the latter part of these decades might be a wise choice. For example, you may want to begin by shifting more of your IRA assets to bonds or bond funds at this stage. These investments may produce lower returns in the short term compared to mutual funds or ETFs. But they can be useful for generating income once you’re ready to begin making withdrawals from your accounts in retirement.

Asset Allocation in Your 60s

Once you hit your 60s and you’re nearing retirement age, your allocation will likely shift toward fixed-income assets like bonds, and maybe even cash. A shift like this can help prepare you for the possibility that markets may be down when you retire.

If that’s the case, you might be able to use these fixed-income investments to provide income during the downturn, so you can avoid selling stocks while the markets are down since doing so would lock in losses and might curtail future growth in your portfolio. Thus, leaning on the fixed-income portion of your portfolio allows time for the market to recover before you need to tap into stocks.

If you haven’t retired yet, you can continue making contributions to your 401(k) to grow your nest egg and take advantage of any employer match.

If you chose to invest in a target date fund within your retirement account when you were younger, it’s likely that fund’s allocation would now be tilting toward fixed-income assets as well.

Retirement Asset Allocation

Once you’ve retired it may seem like you can kick back and relax with all of your asset allocation worries behind you. Yet, your portfolio allocation is as important to consider now as it was in your 20s.

When you retire, you’ll likely be on a fixed income — and you won’t be adding to your savings with earned wages. Your retirement could last 20 to 30 years or more, so consider holding a mix of assets that includes stocks that might provide some growth. Keeping a modest stock allocation might help you avoid outliving your savings and preserve your spending power.

While that may sound contrary to the suggestion above for pre-retirees to keep more of their assets allocated to fixed-income, the difference is the level of protection you might want just prior to retirement. Now as an official retiree, and thinking about the potential decades ahead, you may want to inject a little growth potential into your portfolio.

It might also make sense to hold assets that grow faster than the rate of inflation or are inflation-protected, such as Treasury Inflation-Protected Securities, or TIPS, which can help your nest egg hold its value.

These are highly personal decisions that, again, go back to the three intersecting factors that drive asset allocation: your goals, risk tolerance, and time horizon. There’s no right answer; the task is arriving at the right answer for you.

Understanding Assets and Asset Classes

At its heart, a financial asset is anything of value that you own, whether that’s a piece of property or a single stock. When you invest, you’re typically looking to buy an asset that will increase in value.

The three broad groups, or asset classes, that are generally held in investment accounts are stocks, bonds, and cash. When you invest, you will likely hold different proportions of these asset classes.

Asset Allocation Examples

What are some asset allocation examples? Well, your portfolio might hold 60% stocks, 40% bonds, and no cash — or 70% stocks, 20% bonds, and 10% in cash or cash equivalents. But how you decide that ratio gets into the nuts and bolts of your actual asset allocation strategy, because each of these asset types behaves differently over time and has a different level of risk and return associated with it.

•   Stocks. Stocks typically offer the highest rates of return. However, with the potential for greater reward comes higher risk. Typically, stocks are the most volatile of these three categories, especially in the short term. But over the long term, the return on equities (aka stocks) has generally been positive. In fact, the S&P 500 index, a proxy for the U.S. stock market, has historically returned an average of 10% annually (approximately 7% when adjusted for inflation).

•   Bonds. Bonds are traditionally less risky than stocks and offer steadier returns. A general rule of thumb is that bond prices move in the opposite direction of stocks.

When you buy a bond, you are essentially loaning money to a company or a government. You receive regular interest on the money you loan, and the principal you paid for the bond is returned to you when the bond’s term is up. When buying bonds, investors generally accept smaller returns in exchange for the security they offer.

•   Cash. Cash, or cash equivalents, such as certificates of deposit (CDs) or money market accounts, are the least volatile investments. But they typically offer relatively low returns.

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

How Do Diversification and Rebalancing Fit In?

The old adage, “Don’t put all your eggs in one basket,” is apt for a number of concepts in investing.

Putting all of your money in one investment may expose you to too much risk. When it comes to asset allocation, you can help manage risk by spreading money out over different asset classes that are then weighted differently within a portfolio.

Here is a possible asset allocation example: If your stock allocation was 100%, and the stock market hit a speed bump, your entire portfolio could lose value. But if your allocation were divided among stocks, bonds, and cash, a drop in the value of your stock allocation wouldn’t have the same impact. It would be mitigated to a degree, because the bonds and cash allocation of your portfolio likely wouldn’t suffer similar losses (remember: bond prices generally move in the opposite direction of stocks, and cash/cash equivalents rarely react to market turmoil).

Diversification

Portfolio diversification is a separate, yet related, concept. Simple diversification can be achieved with the broader asset classes of stocks, bonds, and cash. But within each asset class you could also consider holding many different assets for additional diversification and risk protection.

For example, allocating the stock portion of your portfolio to a single stock may not be a great idea, as noted above. Instead, you might invest in a basket of stocks. If you hold a single stock and it drops, your whole stock portfolio falls with it. But if you hold 25 different stocks — when one stock falls, the effect on your overall portfolio is relatively small.

On an even deeper level, you may want to diversify across many types of stock — for example, varying by company size, geography, or sector. One way some investors choose to diversify is by holding mutual funds, index funds, or ETFs that themselves hold a diverse basket of stocks.

Rebalancing

What is rebalancing? As assets gain and lose value, the proportion of your portfolio they represent also changes. For example, say you have a portfolio allocation that includes 60% stocks and the stock market ticks upward. The stocks you hold might have appreciated and now represent 70% or even 80% of your overall portfolio.

In order to realign your portfolio to your desired 60% allocation, you might rebalance it by selling some stocks and buying bonds. Why sell securities that are gaining value? Again, it’s with an eye toward managing the potential risk of future losses.

If your equity allocation was 60%, but has grown to 70% or 80% in a bull market, you’re exposed to more volatility. Rebalancing back to 60% helps to mitigate that risk.

The idea of rebalancing works on the level of asset allocation and on the level of asset classes. For example, if your domestic stocks do really well, you may sell a portion to rebalance your domestic allocation and buy international stocks.

You can rebalance your portfolio at any time, but you may want to set regular check-ins, whether quarterly or annually. There may be no need to rebalance if your asset allocation hasn’t really shifted. One general rule to consider is the suggestion that you rebalance your portfolio whenever an asset allocation changes by 5% or more.

What’s the Deal with Target Date Funds?

One tool that some investors find useful to help them set appropriate allocations is a target date fund. These funds, which were described briefly above, are primarily for retirement, and they are typically geared toward a specific retirement year (such as 2030, 2045, 2050, and so on).

Target funds hold a diverse mix of stocks and fixed-income investments. As the fund’s target date approaches, the mix of stocks and bonds the fund automatically adjusts to a more conservative allocation — aka the fund’s “glide path.”

For example, if you’re 35 and plan to retire at 65, you could purchase shares in a target-date fund with a target date 30 years in the future. While the fund’s stock allocation may be fairly substantial at the outset, as you approach retirement the fund will gradually increase the proportion of fixed-income assets that it holds.

Target-date funds theoretically offer investors a way to set it and forget it. However, they also present some limitations. For one, you don’t have control over the assets in the fund, nor do you control how the fund’s allocation adjusts over time.

Target funds are typically one-size-fits-all, and that doesn’t always work with an individual’s unique retirement goals. For example, someone aggressively trying to save may want to hold more stocks for longer than a particular target date fund offers. Also, as actively managed funds, they often come with fees that can take a bite out of how much you are ultimately able to save.

Test your understanding of what you just read.

The Takeaway

While many investors spend time researching complex issues like bond yields and options trading, understanding and executing a successful asset allocation strategy — one that works for you now, and that you can adjust over the long term — can be more challenging than it seems.

Although asset allocation is a fairly simple idea — it’s basically how you divide up different asset classes in your portfolio to help manage risk — it has enormous strategic implications for your investments as a whole. The three main factors that influence your asset allocation (goals, risk tolerance, and time horizon) seem straightforward enough as separate ideas, yet there is an art and a science to combining them into an asset allocation that makes sense for you. Like so many other things, arriving at the right asset allocation is a learning process.

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


¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What does asset allocation mean?

Asset allocation refers to the percentage of an overall investment portfolio that an investor sets aside for different types of assets or investments, such as stocks, bonds, cash, or alternative investments.

Is asset allocation the same as diversification?

Portfolio diversification is a separate, yet related, concept. Simple diversification can be achieved with the broader asset classes of stocks, bonds, and cash. But within each asset class you could also consider holding many different assets for additional diversification and risk protection.

Why might your asset allocation change as you get older?

Your goals and risk appetite might change as the years go by, and as such, your portfolio’s composition could change or be reallocated to reflect that.

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Aug
08
2025
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How to Invest in Emerging Markets

By | Financial Independence, Growing Wealth, invest, Investing, Terminology | Comments Off on How to Invest in Emerging Markets

Emerging markets or emerging market economies (EMEs) are in the process of achieving the building blocks of developed nations: they’re establishing regulatory bodies, creating infrastructure, fostering political stability, and supporting mature financial markets. But many emerging markets still face challenges that developed market countries have overcome, and that contributes to potential instability.

Developed economies have higher standards of living and per-capita income, strong infrastructure, typically stable political systems, and mature capital markets. The U.S., Europe, U.K, and Japan are among the biggest developed nations. India, China, and Brazil are a few of the larger countries that fall into the emerging markets category. Some emerging market economies, like these three, are also key global players — and investors may benefit by understanding the opportunities as well as the potential risks emerging markets present.

Key Points

•   Emerging market economies show rapid growth, rising personal incomes, and increasing GDP, despite lower per-capita income.

•   Political and economic instability, infrastructure, and climate challenges are potential factors to consider.

•   China and India have robust sectors and growing foreign investment potential.

•   Thailand and South Korea offer high growth potential but face potential political instability and other risks.

•   Potential returns and portfolio diversification are advantages, but significant volatility and currency risks exist.

What is an Emerging Market?

In essence, an emerging market refers to an economy that can become a developed, advanced economy soon. And because an emerging market may be a rapidly growing one, it may offer investment potential in certain sectors.

Internationally focused investors tend to see these countries as potential sources of growth because their economies can resemble an established yet still-young startup company. The infrastructure and blueprint for success have been laid out, but things need to evolve before the economy can truly take off and ultimately mature. At the same time, owing to the challenges emerging market economies often face, there are also potential risks when investing in emerging markets.

Investors might bear the brunt of political turmoil, local infrastructure hurdles, a volatile home currency and illiquid capital markets (if certain enterprises are state-run or otherwise privately held, for example).

Emerging Market Examples

What constitutes an emerging market economy is somewhat fluid, and the list can vary depending on the source. Morgan Stanley Capital International (MSCI) classifies 24 countries as emerging; Dow Jones also classifies 24 as emerging. There is some overlap between lists, and some countries may be added or removed as their status changes.

India is one of the world’s biggest emerging economies. Increasingly, though, some investors see India as pushing the bounds of its emerging market status.

China

China is the second-largest economy globally by gross domestic product (GDP). It has a large manufacturing base, plenty of technological innovation, and the largest population of any country in the world.

Yet China still has a few characteristics typical of an emerging market, and with its Communist-led political system, China has embraced many aspects of capitalism in its economy but investors may experience some turbulence related to government laws and policy changes. The Renminbi, China’s official currency, has a history of volatility.

India

India is another big global economy, and it’s considered among the top 10 richest countries in the world, yet India still has a low per-capita income that is typical of an emerging market and poverty is widespread.

At the same time, India was ranked as being among the more advanced emerging markets, thanks to its robust financial system, growing foreign investment, and strong industrials, especially in telecommunication and technology.

Brazil

Brazil is a large country, with more than 200 million people, 26 states, and 5,500 municipalities. In 2024, Brazil’s GDP clocked in at more than 3%, and its economy has grown steadily in recent years, despite hiccups caused by the pandemic.

As the largest country in South America, and one that is continuing to see growth, it’s attracted the attention of some investors. In all, it’s one of a handful of emerging markets, though there are still areas rife with poverty, similar to India.

South Africa

South Africa is the largest economy in Africa, and one of only a handful that has seen a relatively stable macroeconomic environment. It’s a country that has its issues, of course, and some ugly history to contend with — as most countries do. Even so, it’s created a fairly welcoming environment for businesses, and thus, investors.

Mexico

Mexico is another country that ticks all the boxes to qualify as an emerging market, and is a major trading partner with countries like the U.S. Like the aforementioned countries, though, it still has economic weaknesses, and widespread poverty.

Characteristics of an Emerging Market Economy

As noted above, there isn’t a single definition of an emerging market, but there are some markers that distinguish these economies from developed nations.

Fast-Paced Growth

An emerging market economy is often in a state of rapid expansion. There is perhaps no better time to be invested in the growth of a country than when it enters this phase.

At this point, an emerging market has typically laid much of the groundwork necessary for becoming a developed nation. Capital markets and regulatory bodies have been established, personal incomes are rising, innovation is flourishing, and gross domestic product (GDP) is climbing.

Lower Per-Capita Income

The World Bank keeps a record of the gross national income (GNI) of many countries. For the fiscal year of 2025, lower-middle-income economies are defined as having GNI per capita of between $1,146 and $4,515 per year. At the same time, upper-middle-income economies are defined as having GNI per capita between $4,516 and $14,005.

The vast majority of countries that are considered emerging markets fall into the lower-middle and upper-middle-income ranges. For example, India, Pakistan, and the Philippines are lower-middle-income, while China, Brazil, and Mexico are upper-middle-income. Thus, all these countries are referred to as emerging markets despite the considerable differences in their economic progression.

Political and Economic Instability

For most EMEs, volatility is par for the course. Risk and volatility tend to go hand in hand, and both are common among emerging market investments.

Emerging economies can be rife with internal conflicts, political turmoil, and economic upheaval. Some of these countries might see revolutions, political coups, or become targets of sanctions by more powerful developed nations.

Any one of these factors can have an immediate impact on financial markets and the performance of various sectors. Investors need to know the lay of the land when considering which EMEs to invest in.

Infrastructure and Climate

While some EMEs have well-developed infrastructure, many are a mix of sophisticated cities and rural regions that lack technology, services and basic amenities like reliable transportation. This lack of infrastructure can leave emerging markets especially vulnerable to any kind of crisis, whether political or from a natural disaster.

For example, if a country relies on agricultural exports for a significant portion of its trade, a tsunami, hurricane, or earthquake could derail related commerce.

On the other hand, climate challenges may also present investment opportunities that are worth considering.

Currency Crises

The value of a country’s currency is an important factor to keep in mind when considering investing in emerging markets.

Sometimes it can look like stock prices are soaring, but that might not be the case if the currency is declining.

If a stock goes up by 50% in a month, but the national currency declines by 90% during the same period, investors could see a net loss, although they might not recognize it as such until converting gains to their own native currency.

Heavy Reliance on Exports

Emerging market economies tend to rely heavily on exports. That means their economies depend in large part on selling goods and services to other countries.

A developed nation might house all the needs of production within its own shores while also being home to a population with the income necessary to purchase those goods and services. Developing countries, however, must export the bulk of what they create.

Emerging Economies’ Impact on Local Politics vs. Global Economy

Emerging economies play a significant role in the growth of the global economy, accounting for about 50% of the world’s economic growth. Moreover, it’s estimated that by 2050 three countries could represent the biggest economies: the U.S., China, and India, with only one currently being classified as a developed economy.

But, while emerging markets help fuel global growth, some of those with higher growth opportunities also come with turbulent political situations.

As an investor, the political climate of emerging market investments can pose serious risks. Although there is potential for higher returns, especially in EMEs that are in a growth phase, investors should consider the potential downside. For example, Thailand and South Korea are emerging economies with high growth potential, but there is also a lot of political instability in these regions.


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

Pros and Cons of Investing in Emerging Markets

Let’s recap some of the pros and cons associated with EME investments.

Pros

Pros of investing in emerging markets include:

•  High-performance potential: Selecting the right investments in EMEs at the right time may result in returns that might be greater than other investments. Rapidly growing economies could provide opportunity for potential returns. But as noted above, it’s impossible to guarantee the timing of any investment.

•  Global diversification: Investing in EMEs provides a chance to hold assets that go beyond the borders of an investor’s home country. So even if an unforeseen event should happen that contributes to slower domestic growth, it’s possible that investments elsewhere could perform well and provide some balance.

Cons

Cons of investing in emerging markets include:

•  High volatility: As a general rule, investments with higher liquidity and market capitalization tend to be less volatile because it takes significant capital inflows or outflows to move their prices.

EMEs tend to have smaller capital markets combined with ongoing challenges, making them vulnerable to volatility.

•  High risk: With high volatility and uncertainty comes higher risk. What’s more, that risk can’t always be quantified. A situation might be even more unpredictable than it seems if factors coincide (e.g. a drought plus political instability).

All investments carry risk, but EMEs bring with them a host of fresh variables that can twist and turn in unexpected ways.

•  Low accessibility: While liquid capital markets are a characteristic of emerging markets, that liquidity still doesn’t match up to that of developed economies.

It may be necessary to consult with an investment advisor or pursue other means of deploying capital that may be undesirable to some investors.

Why Invest in Emerging Markets?

Emerging markets are generally thought of as high-risk, high-reward investments.

They can provide yet another way to diversify an investment portfolio. Having all of your portfolio invested in the assets of a single country may put you at the mercy of that country’s circumstances. If something goes wrong, like social unrest, a currency crisis, or widespread natural disasters, that might impact your investments.

Being invested in multiple countries may help mitigate the risk of something unexpected happening to any single economy.

The returns from emerging markets could potentially exceed those found elsewhere. If investors can capitalize on the high rate of growth in an emerging market at the right time and avoid any of the potential mishaps, they could stand to profit. Of course timing any market, let alone a more complex and potentially volatile emerging market, may not be a winning strategy.

Strategies for Investing in Emerging Markets

There are a few ways or strategies that investors can utilize to invest in emerging markets, such as buying funds, or buying stocks directly.

Exchange-Traded Funds (ETFs) and Mutual Funds

Investors can look at different exchange-traded funds (ETFs) or mutual funds that comprise assets from emerging markets. Funds may have some degree of built-in diversification, too, within those markets (such as holding different types of assets, or stocks of companies from various industries). This may be a simple way to add exposure to a specific or slate of emerging economies to a portfolio.

Direct Stock Investments

It’s also possible to buy stocks of companies based in various emerging markets. That could entail buying Chinese or Indian stocks, for example, but it’s possible that you may need to buy them over-the-counter (OTC).

Diversification Strategies

If diversification is a chief concern for mitigating risk, then investors may want to look at starting with some emerging market funds that are already diversified to some degree. There are many options out there, and it may also be worth discussing with a financial professional to see what your options are.

The Takeaway

While developed nations like the U.S. and Europe and Japan regularly make headlines as global powerhouses, emerging market countries actually make up a major part of the world’s economy — and possibly, some opportunities for investors. China and India are two of the biggest emerging markets, and not because of their vast populations. They both have maturing financial markets and strong industrial sectors and a great deal of foreign investment. And like other emerging markets, these countries have seen rapid growth in certain sectors (e.g., technology).

Despite their economic stature, though, both countries still face challenges common to many emerging economies, including political turbulence, currency fluctuations and low per-capita income.

It’s factors like these that can contribute to the risks of investing in emerging markets. And yet, emerging markets may also present unique investment opportunities owing to the fact that they are growing rapidly. But investors need to carefully weigh the potential risks.

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

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What qualifies as rapid growth to make a market emerging?

Generally, “rapid growth” in reference to an emerging market would take economic growth into account, often measured by GDP. So, if an emerging market is seeing high GDP growth, it may be said to be experiencing rapid growth.

How do emerging markets compare to developed markets from an investing standpoint?

Developed markets are inherently more stable, and investing in those markets may introduce less risk to a portfolio. Emerging markets are generally riskier for a variety of reasons, but could also provide the opportunity to see faster growth, and thus, bigger potential returns. There are no guarantees, however.

Which industries thrive in emerging markets?

It’s possible that industries such as tech, health care, and even renewable energy could thrive in emerging markets, but there are many factors that could stymie their growth, too. Suffice it to say that each market is different, and because an industry thrives in one country doesn’t mean it necessarily would in another.

How can investors gain exposure to emerging markets?

Investors can buy shares of stocks from companies in emerging markets, or even buy shares of funds with significant holdings in those markets.

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

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SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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07
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Financial Health: What It Is and 7 Ways to Improve It

By | Budgeting & Goals, Debt Payoff, Financial Independence, money | Comments Off on Financial Health: What It Is and 7 Ways to Improve It

Your financial wellness has a significant impact on your daily life, as well as your future. It reflects how well you are managing your money, working toward short- and long-term goals, and avoiding pitfalls, such as taking on too much debt. What’s more, having poor financial health can lead to money stress, which can in turn affect your physical and mental health.

Read on to learn more about assessing your financial health and techniques that can enhance it.

Key Points

•  Financial health involves effective management of such factors as credit, debt, savings, investments, and income.

•  To help improve financial health, regularly monitor financial metrics such as savings rate, debt-to-income ratio, net worth, and credit score.

•  Automating savings and investments can help maintain and improve financial stability.

•  Prioritizing the repayment of high-interest debt can enhance financial health.

•  Setting clear, measurable, and realistic financial goals can contribute to financial decision-making and wellness.

What Does It Mean to Be Financially Healthy?

Financial health is defined as the current state of your monetary situation, such as your credit, debt, savings, investments, and income. Being financially healthy means you are managing your money well.

You can meet your monthly financial obligations, are on track to achieve your financial goals, and have enough cash in the bank to be able to absorb a financial setback.

Signs that your finances are in good health include:

•  You make enough money to cover your monthly expenses

•  You pay all of your bills on time

•  You have no debt or have debt that is manageable and being repaid on schedule

•  You’re saving enough to meet your short- and long-term goals

•  Your credit score is strong enough to help you qualify for whatever loans you might need at low rates

•  You feel comfortable with your financial situation

How to Check Your Financial Health: 4 Key Areas

Here are four key ways to check on your financial health and how it’s tracking.

Your Savings Rate

Your savings rate is calculated by dividing your monthly savings amount by your monthly gross income, and then multiplying that decimal by 100 to get a percentage. Currently, the average savings rate in the U.S. is around 4.50%, with a rate over 8.00% for long-term savings.

Many people focus on their retirement savings when thinking about savings rates. Because there are so many variables, it’s hard to know exactly how much you need to save for retirement. One rule of thumb is to aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Check how your savings compares to ideal retirement savings by age to know if you’re on track or if you need to catch up

Your Debt-to-Income Ratio

Carrying too much debt can be harmful to your financial health. Lenders use a calculation called debt-to-income ratio (DTI) that compares a person’s monthly debt payments to their monthly gross income to determine how manageable someone’s debt load is. Lower is generally better. Lenders often like to see DTI ratios of 36% or less.

Your Net Worth Trajectory

Your net worth equals your assets minus your liabilities. You can think about how your net worth will evolve as you consider such factors as earning power, growth of savings over time, and building equity, such as owning your own home. Charting this trajectory regularly can help you evaluate financial progress and devise strategies to increase wealth.

Your Credit Score

Having a strong credit score is an indicator of good financial health. Factors that impact your score include amounts you owe on your debt accounts, repayment history, your credit mix, and the length of credit history. FICO® Scores range from 300 to 850. Having a score above 700 is generally considered good credit, while above 800 is considered excellent.

Recommended: Banking 101

7 Ways to Improve Your Financial Health

Implementing just a few good financial habits — such as tracking your spending and saving at least something each month -– can improve your financial health right away, and even more so over time.

Below are seven practical tips to help you move forward.

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1. Create and Follow a Realistic Budget

When it comes to money in and money out each month, many of us leave it to chance — and hope that the numbers work out. Taking some time to actually crunch the numbers and set up a monthly budget, however, can help ensure that you are living within your means, spending in line with your priorities, and working towards your future goals.

A simple way to get started on making a budget is to collect the last few months of financial statements and calculate the average amount coming in (after taxes) each month, and average amount going out each month. Subtract the latter from the former and see what you get. If you’re spending more than you are bringing in, or it’s so close there is little left over for saving, you may want to take a closer look at your spending.

There are many different types of budget but one simple guideline you might consider is the 50/30/20 budget. With the approach, you divide your monthly take-home income into three categories: 50% goes to needs (essentials), 30% goes to wants (nonessentials), and 20% to savings and debt repayment (beyond the minimum payment).

2. Track Your Spending, Net Worth, and Credit Score

Keeping tabs on how much you are spending each month, and on what, is crucial to financial wellness. Indeed, tracking spending can be both eye-opening and motivating. You might notice, for example, that you’re spending more than you think for certain things, or that your spending is out of line with your priorities. You might also spot some immediate areas for improvement.

One easy way to track expenses and spending is to put a budgeting app on your phone (many are free for the basic service). Budgeting apps typically connect with your financial accounts (including bank accounts, credit cards, and investment accounts), track spending, and categorize expenses so you can pinpoint exactly where your money is going.

Also regularly check in on your net worth and credit score, as detailed above. Checking your credit score is typically free at AnnualCreditReport.com.

3. Create a Plan to Pay Down High-Interest Debt

Credit cards and similar high-interest consumer loans can drag down your financial health by making it harder to meet your monthly expenses — and even harder to save for future goals. Paying off high-interest debt is an important investment in your financial future.

If you have multiple balances racking up high interest charges, here are two popular strategies that can help you whittle them down to zero.

The snowball method: With the snowball method, you list your debts by size then put an extra monthly payment towards the loan with the smallest balance, while continuing to pay the minimum on the others. Once the smallest debt is paid, you put your extra payment towards the next smallest balance, and so on.

The avalanche method: Using the avalanche method, you list your debts in order of interest rate then focus extra payments towards the debt with the highest interest rate, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra payments to the debt with the next-highest interest rate, and so on.

4. Build and Maintain an Emergency Fund

Without an emergency cash cushion, an unexpected expense (like a car repair or large medical bill) or loss of income can quickly derail your finances. You may be forced to rack up expensive credit card debt. This can put you in a debt spiral that can be difficult to get out of, and take a long-term toll on your financial health.

Even if you do have an emergency fund, it’s wise to periodically check in to make sure it’s sufficient. A good rule of thumb is to keep at least three- to six-months’ worth of living expenses in the bank. (If you’re self-employed or work seasonally, you may want to aim for six- to 12-months worth of expenses.) Ideally you want to keep this money in a savings account that earns a competitive rate but allows you to easily access your money when you need it.

5. Automate Your Savings and Investments

Tackling financial health can feel overwhelming, and it’s not likely something you want to be thinking about all the time. Fortunately, it’s easy to automate saving at least a little money every month, which is one of the best financial health-boosters

There are two ways to do this: One is to have a portion of your direct deposit go right into a savings account. The other is to set up a recurring transfer from your checking to your savings on the same day each month ( ideally, right after you get paid). You can’t spend what you don’t see. And, chances are, you won’t even miss it.

To help your savings grow faster, consider putting this money in an online bank. Since online institutions generally have lower overhead than traditional brick-and-mortar banks, they tend to offer better rates and low (or no) fees.

6. Regularly Review Your Insurance Coverage

Another financial health tip is to review your insurance coverage. This kind of coverage can play a vital part in improving and maintaining your financial health. Check in regularly to make sure your insurance is keeping pace with your needs, taking inflation and life events into account.

For instance, you may not have thought life insurance was necessary a couple of years ago, but if you have gotten married or had a child, it’s important to revisit that. The same holds true for checking your other types of insurance, such as homeowners’ insurance.

7. Set Clear and Motivating Financial Goals

When you are setting financial goals, it’s wise to think in terms of short-term (one year or less), medium-term (those that will take a couple to several years to achieve), and long-term (ones that take, say, seven or eight years or longer) to achieve.

Then, you can use the acronym S.M.A.R.T. as a guideline to help you finetune your money aspirations. Here’s what it stands for:

•   S for Specific: Instead of saying your goal is “to be rich,” maybe it’s to have no credit card debt within two years.

•   M for Measurable: Assign specific figures to your goals. For instance, saving for college isn’t a measurable goal, but saving $200K for your children’s college funds is.

•   A for Achievable: Set realistic expectations in terms of amounts and timelines so you don’t wind up feeling disappointed or frustrated.

•   R for Realistic: Similarly, don’t expect to cut your spending by, say, 75% to achieve a goal. And don’t forget to factor in the impact of inflation as you consider longer-term goals.

•   T for Time-based: Give yourself due dates, such as “Save $400 a month until I have $5,000 in my emergency fund in about a year.”

Recommended: When Should You Start Saving for Retirement?

Tools That Can Help You Manage Your Financial Health

There are a number of tools that can help you manage your financial health. Automating your finances can play a key role in success. You might use one, some, or all of these methods.

•   Spending trackers, which may be available from your financial institution or from a third-party

•   Round-up apps, which can round up purchases to the next nearest dollar and put the difference vs. actual purchase price into savings or investments

•   Different budget techniques, which can help you allocate the right amounts to different needs and manage spending.

•   Savings calculators, which can include digital tools like an emergency fund calculator, can offer guidance on how much of your earnings to put towards savings goals.

•   Debt management techniques, which can help you pay off high-interest debt via guidelines like the debt avalanche or snowball method.

•   Robo-advisors to help make the investing process more efficient.

The Takeaway

Some habits that can significantly boost financial wellness include setting up a simple budget, tracking spending, automating savings, building an emergency cash reserve, paying down expensive debt, and investing more of your earnings.
No matter what your income or current state of financial health, putting some smart money habits into place now can go a long way toward boosting your financial security, reducing stress, and building wealth over time.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What is the first step to improving financial health?

The first step in improving financial health is often creating and following a solid budget. This can allow you to dig into your income, your spending, and your savings, and manage this balance more effectively. Following a budget and tweaking it regularly can help you reach your short- and long-term financial goals.

How often should I do a financial health check?

It’s wise to check in with your finances at least once a year. However, whenever you have a major life change (say, starting a new job, getting married or divorced, having a child, buying a house), it can be a good idea to revisit your money and how you’re managing it.

Can you be financially healthy even with debt?

It is possible to be financially healthy with debt. It’s important to consider how much debt you have and whether it’s considered good (low-interest) or bad (high-interest) debt. For instance, if you have a 30-year $100,000 mortgage as your debt, you are likely in a better situation than someone who has $100,000 in credit card debt.

What is more important, saving or paying off debt?

Both saving and paying off debt are important, and whether one is more important than the other will depend on unique aspects of a given situation. If someone has high-interest debt, it may be wise to focus on paying that off vs. saving. However, if you have low-interest debt (perhaps a mortgage), you might continue to make payments on that while saving for your kids’ college education.

What is a good financial health score?

Financial health scores are sometimes used by financial institutions to measure an individual’s or a business’s financial standing. This score is based on such factors as income, expenses, credit score, debt, and savings/investments. A score between 71 and 100 is considered good.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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.

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 .

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07
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What Happens if You Just Stop Paying Your Student Loans

What Happens if You Stop Paying Your Student Loans

By | Student Loans, student_loan | No Comments

If your student loan payments seem overwhelming, you’re not alone. U.S. borrowers owe a combined $1.77 trillion in student loan debt, and 6.24% of student loans are in default at any given time, according to the Education Data Initiative.

Struggling to make ends meet can sometimes lead to tough decisions, and one of the most daunting is the prospect of stopping payments on your student loans. Whether due to financial hardship, job loss, or other unforeseen circumstances, the consequences of defaulting on these loans can be severe and long-lasting.

There are several options that can help you avoid defaulting on your student loan, such as deferment, forbearance, and income-driven repayment plans. Here’s what to know before you stop making payments on your student loans.

Key Points

•   Stopping student loan payments can lead to delinquency and default, affecting credit and future loan approvals.

•   Delinquent payments can hinder the ability to secure credit cards, car loans, or apartment leases.

•   Defaulting on a loan triggers the entire balance due, potential wage garnishment, and withholding of tax refunds.

•   Several options like deferment, forbearance, and income-driven repayment plans can prevent default.

•   It’s essential to compare these options to determine the best course for managing student loan debt.

Can Student Loans Be Forgiven or Discharged?

Student loans can be forgiven or discharged under certain circumstances, providing a glimmer of hope for those burdened by significant debt.

Federal student loans offer several forgiveness programs, such as Public Service Loan Forgiveness (PSLF), which is designed for borrowers who work in public service jobs and make 120 qualifying payments while employed in these roles. Additionally, there are forgiveness options for teachers, nurses, and other professionals in specific fields, as well as for borrowers who have made consistent payments over a long period, such as 20 or 25 years, depending on the repayment plan.

Student loan discharge, on the other hand, is typically more challenging and is reserved for extreme situations. For instance, if a borrower becomes totally and permanently disabled, they may qualify for a total and permanent disability discharge, which can wipe out their federal student loans.

Bankruptcy is another potential avenue for discharging student loans, but it is extremely difficult to achieve. To discharge student loans in bankruptcy, you must prove that repaying the loans would cause an undue hardship, a standard that is rarely met and requires a separate legal process known as an adversary proceeding.

Recommended: Student Loan Debt Guide

Take control of your student loans.
Ditch student loan debt for good.

What Are the Consequences of Not Paying Student Loans?

If you stop making your student loan payments, consequences may include a negative impact on your credit score, wage garnishment, student loan default, and legal actions taken against you.

Impact on Your Credit Score

Missed payments are reported to the major credit bureaus — Equifax®, Experian®, and TransUnion® — after they become 90 days delinquent. Each missed payment can cause your credit score to drop, and the longer you go without making payments, the more significant the damage.

A poor credit score can make it difficult to secure future loans, credit cards, or even a mortgage. If you continue to miss payments, your loans can eventually go into default, which typically occurs after 270 days of non-payment for federal loans and varies for private loans.

Recommended: How Long Do Late Payments Stay on a Credit Report?

Federal vs. Private Loan Consequences

For federal student loans, the consequences of non-payment are often more severe and can be enforced by the government. When you miss a payment, your loan becomes delinquent, and this delinquency is reported to the major credit bureaus after 90 days. If you continue to miss payments, your loans can go into default, which typically occurs after 270 days of non-payment. Once in student loan default, the government can take several actions, including garnishing your wages and withholding tax refunds. You may also lose eligibility for deferment, forbearance, and other federal loan benefits.

Private lenders, on the other hand, will report delinquencies to credit bureaus after 30 to 60 days of missed payments, which can also negatively impact your credit score. If you default on a private student loan, which typically happens after 120 days, the lender can take legal action, such as filing a lawsuit. This can result in wage garnishment and the placement of a lien on your property.

What Relief Options are Available for Federal Student Loans?

Federal student loan borrowers can temporarily pause payments by requesting a deferment or forbearance. You might qualify if you’re still in school at least part-time, unable to find a full-time job, facing high medical expenses, or dealing with another financial hardship. The type of loan held by the borrower will determine whether they can apply for a deferment or forbearance.

There are two types of forbearance: general and mandatory. Borrowers facing financial difficulties can request a general forbearance, and their loan servicer determines whether they qualify. General forbearance is awarded in 12-month increments and can be extended for a total of three years.

Loan servicers are required to award qualifying borrowers a mandatory forbearance. Qualifications include participating in AmeriCorps, National Guard duty, or medical or dental residency. Mandatory forbearances are also granted in 12-month increments but can be extended so long as the borrower still meets the criteria to qualify for mandatory forbearance.

In rare cases, certain loans can be canceled or discharged if your school closes while you’re enrolled or you are permanently disabled. For obvious reasons, these aren’t options to count on, so you can assume your loans will be sticking with you.

Recommended: Is It Possible to Pause Student Loan Payments?

Understanding Student Loan Default

There are serious financial repercussions for defaulting on a student loan.

For federal student loans, if a borrower fails to make payments for more than 270 days on a loan from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, the loan will go into default. (For loans made under the Federal Perkins Loan Program, the loan can be declared in default after the first missed payment.)

At this point, the balance of your loan becomes due immediately through a process called “acceleration.” You’ll also lose eligibility for federal programs such as deferment, forbearance, income-driven repayment plays, and additional federal aid.

Your wages may be garnished (meaning that your employer may be required to hold back a portion of your paycheck) and any tax refunds or federal benefit payments may be withheld.

Defaulting on a student loan will damage your credit rating and you may not be able to buy or sell certain assets, such as real estate. If your loan holder sues you, you may also be charged related expenses such as attorney fees.

Recommended: How to Get Student Loans Out of Default

What Relief Options Do Private Lenders Offer?

Private lenders sometimes offer relief like forbearance when you’re dealing with financial hardship, but they aren’t required to. If you have a private student loan, check with your lender directly to see what temporary relief programs or policies they may have.

Private student loans generally go into default after 120 days. Private lenders may also take you to court or use collection agencies to collect your student loan debt. Whether you have federal or private student loans, contact your loan servicer immediately if your loan is delinquent so you can understand what options are available to you before your loan goes into default.

Alternatives to Stopping Your Student Loan Payments

Rather than skipping your student loan payments, consider the following alternatives.

Student Loan Refinancing

Student loan refinancing involves taking out a new loan with a private lender to pay off your existing student debt, often at a lower interest rate or with more favorable terms. This can help reduce monthly payments, save money over the life of the loan, and consolidate multiple loans into a single, more manageable payment.

However, refinancing federal loans with a private lender means losing access to federal benefits like income-driven repayment plans, loan forgiveness programs, and deferment options. It’s important to weigh these trade-offs and consider your financial situation and long-term goals before making a decision.

Keep in mind, too, that your student loans often need to be in good standing in order to qualify for a refinance. If you’re currently making your payments but struggling, refinancing could be a good option to consider.

Deferment and Forbearance

As discussed above, student loan deferment and forbearance are options that allow borrowers to temporarily pause or reduce their loan payments during periods of financial hardship.

Deferment is typically available for federal loans and may be granted for reasons such as cancer treatment, unemployment, economic hardship, or returning to school. Forbearance, available for both federal and private loans, is a more flexible option but can lead to interest accrual, potentially increasing the total debt.

Both can provide short-term relief, but it’s important to understand the specific terms and impacts on your loan balance and repayment timeline.

Note: Economic hardship and unemployment deferments will be eliminated for loans made on or after July 1, 2027.

Income-Driven Repayment Plans

Income-driven repayment (IDR) plans are designed to make student loan payments more manageable by capping monthly payments at a percentage of your discretionary income. These plans typically cap your monthly payment at 5% to 20% of your discretionary income and extend the loan term to 20 or 25 years, depending on the specific plan.

Starting on July 1, 2026, income-driven repayment plans PAYE, ICR, and SAVE will be replaced by a new Repayment Assistance Plan (RAP). The existing IDR plans will be eliminated by July 1, 2028. With RAP, payments range from 1% to 10% of adjusted gross income with terms up to 30 years. After the term is up, any remaining debt will be forgiven.

The Takeaway

Stopping payments on your student loans can lead to severe consequences, including damaged credit, wage garnishment, and legal action. It’s crucial to explore alternative options like deferment, forbearance, income-driven repayment plans, and student loan refinancing to manage your debt responsibly and avoid long-term financial harm.

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.

FAQ

How soon after missing a payment does a student loan default?

For federal student loans, default typically occurs after 270 days of missed payments. For private student loans, default can happen sooner, often after 120 days of non-payment. Both scenarios can severely impact your credit score and lead to serious financial consequences.

Will my credit score recover after a student loan default?

Your credit score can recover after a student loan default, but it takes time and effort. Paying off the defaulted loan or rehabilitating it can help improve your score. Additionally, maintaining good credit habits, such as paying bills on time and keeping credit card balances low, will gradually rebuild your credit over several years.

Can my wages be garnished for unpaid student loans?

Yes, your wages can be garnished for unpaid federal student loans without a court order. Private lenders typically need a court order to garnish wages. Garnishment can take up to 15% of your disposable income.

Can I refinance a student loan that is in default?

Yes, you can refinance a student loan in default, but it’s challenging. Most private lenders require loans to be in good standing. To qualify, you’ll likely need to rehabilitate or consolidate your federal loan first or build your credit before seeking a private refinance option.

Do student loans get forgiven after 20 years?

Federal student loans can be forgiven after 20 years under certain repayment plans, such as income-driven repayment (IDR). However, forgiveness is not automatic and requires meeting specific eligibility criteria, including consistent payments and maintaining a low income relative to your debt. Private loans typically do not offer forgiveness.

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 FORFEIT YOUR ELIGIBILITY 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., Puerto Rico, U.S. Virgin Islands, or American Samoa, 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 4/22/2025 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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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.

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