Emerging market investments include owning shares in companies from countries like China, India, Brazil, and South Africa, among others. There are pros and cons to owning emerging market investments, but these stocks are a significant part of the global market.
Investing in emerging markets can help diversify your portfolio, which is one of the reasons that some investors do it. There are, however, risks associated with investing in emerging markets that investors should be aware of.
Understanding Emerging Markets
Investing in emerging markets, or even if you plan to open an IRA and use it to add foreign stocks to your portfolio, may prove to be a part of a successful investment strategy. If, that is, you understand what you’re investing in.
Emerging markets are economies that are in the middle between the developing and developed stages. Emerging markets risk can be high since these areas often see rapid growth and high volatility with booms and busts. Some of the most well-known and biggest countries that investors may look to invest in include China, India, Brazil, and South Korea.
Emerging market investments are generally seen as a higher-risk area of the global stock market. Volatility can spike during periods of political upheaval and when emerging market recessions strike.
As investors get older, risk must be managed through diversified investment plans. You might consider reducing emerging market exposure in your portfolio as your time horizon shortens and retirement nears.
Why Invest in Emerging Markets?
Emerging market investments have been popular for decades. It became easy to own a broad emerging market index fund within an investment portfolio in the early, when exchange-traded funds (ETFs) gained popularity.
The decade of the 2000s featured strong outperformance from the high-risk, high-reward profile of emerging market investments. But volatility in these markets has also been a factor.
People like to invest in areas of the stock market that exhibit rapid growth potential along with having the potential for diversification. High economic growth rates, such as those in China and India, often attract investors seeking to benefit from stocks of those nations. Indeed, there can be periods like the 2000s when strong bull markets take place.
Moreover, owning high-growth areas within a tax-advantaged account can be a savvy retirement savings strategy. This can be helpful when choosing a retirement plan.
Can You Build a Retirement Portfolio With Emerging Markets?
It’s possible to build a segment of a retirement portfolio by investing in emerging markets. Also consider that emerging market bonds are a growing piece of the global fixed-income market.
In addition, owning emerging market investments in retirement accounts is possible via ETFs and both active and passive mutual funds. Moreover, many 401(k) plans offer an emerging markets fund, too.
When thinking about investing in emerging markets, keep in mind that emerging market stocks comprise a fraction of the overall market. Emerging markets stocks represent 27% of the global stock market.
Pros of Investing in Emerging Markets
There are many pros and cons of investing in emerging markets. When you start saving for retirement, it may be a good time to think about investing in emerging market stocks, since you’d likely have a relatively long time horizon to weather volatility.
Here are some of the pros of investing in emerging markets.
Opportunity to Generate Returns
Investing in emerging markets may present the opportunity to generate returns in your portfolio, although it does assume risks, too.
Also consider that more than 80% of the world’s population lives in emerging market countries, while just 27% of the global stock market is weighted to them. Investing for retirement could have at least some exposure to this area for risk-tolerant individuals.
Diversification Benefits
International investments can help offset the ebbs and flows of U.S. stocks through diversification. Consider that the domestic equity market is more than 60% of the global market. So if the U.S. goes into a bear market, foreign shares might outperform. Retirement investing should have a diversified approach.
Cons of Investing in Emerging Markets
Emerging markets can be volatile, and they expose investors to a host of risk factors. Political, economic, and currency risks can all hamper emerging market investments’ growth.
Due to the many risks, it’s common for retirement investors to tone down their stock allocation as they approach retirement. Here are some potential downsides to investing in emerging markets.
Potential Underperformance
Emerging market stocks have underperformed in recent years for a host of factors – such as the global pandemic, and military conflicts in Europe and the Middle East. So, it’s important to consider that these stocks could underperform domestic stocks in the future as well.
Correlations Might Be Changing
Some argue that emerging markets today have more correlation to other markets, so having exposure might simply expose someone to the risks and not the benefits.
High Volatility
Investors of all experience levels might want to steer away from the boom-and-bust nature of emerging markets. The process of evolving from an emerging market to a developed market is usually fraught with risk. In some areas, political turmoil might cascade into a full-blown economic recession.
Emerging market fixed-income investors can also suffer when high-risk currency values fall during such periods of volatility. Back in 1998, the “Asian Contagion” was an emerging markets-led debacle that caused a big decline in markets across the globe.
Uncertainty in China
China is now the biggest weighting in many emerging market indexes, up to one-third in some funds. That can be a lot in just one country, particularly in one as uncertain as China, given its one-party controlled economy.
Start Investing for Retirement With SoFi
Building a retirement portfolio often includes owning many areas of the global stock market. Emerging market investments can play a pivotal role to ensure your allocation has higher growth potential, but you must be mindful of the risks.
It’s possible to invest in emerging markets through a variety of means, including through a retirement account, such as an IRA. But keep the risks in mind, along with your overall investment goals and time horizon.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
Is it worth investing in emerging markets?
Strong growth potential and diversification benefits are reasons to own emerging markets for your retirement portfolio. That said, emerging markets are a small part of the global stock market. A diversified retirement portfolio should include this slice of the market, but investors also must recognize the risks. There are periods during which emerging market investments can underperform the U.S. stock market.
What is the best emerging market to invest in?
When figuring out emerging markets, you might be curious which one is the best. It is hard to say there is one in particular. Emerging market risk can be high, so to help mitigate that, owning the entire basket can help ensure the benefits of diversification.
Should my entire retirement portfolio be in emerging markets?
Building a retirement portfolio with emerging markets is common but putting all your eggs in the emerging market basket might not be the wisest move. Young investors can perhaps own a larger weight in this volatile equity area, but older investors should think about winding down their emerging markets stock exposure as they near retirement.
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The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.
As a resident, Dr. Saira Z. worked in one of the most expensive places in the country—the New York City area. Besides managing the high cost of living on a residency budget, Saira was also paying back loans from medical school.
Figuring out how to stretch her $65,000 a year medical resident’s salary wasn’t easy, even after she got married. She and her husband tried to be as frugal as possible. When they took stock of their spending, however, they found places to cut back.
The couple drew up a budget to help them stay the course through Saira’s three-year residency and when her medical fellowship salary dipped. It also allowed them to set good habits that still serve them well. Saira and her husband now have twins, and she’s in a private practice.
As Saira learned, residency can test your finances. While you’re finally drawing an income—the average annual salary of a first-year resident is less than $63,000, according to 2023 data from the Association of American Medical Colleges—a residency budget needs to cover a lot. Your medical school finances likely include considerable student loan debt. The median medical school debt for the class of 2023 is $200,000, according to the Association of American Medical Colleges, which doesn’t include undergraduate student loans, credit card balances or other debt.
Having a financial plan is a way to make the most of your income and set up for the future. These tips for budgeting for residents may help you get started.
Identify Your Biggest Budget Busters
A budget can serve a variety of purposes. It can help you make progress toward your savings goals, adopt healthier spending habits, and pay down debt. It can even allow you to spot the biggest drains on your money so you can look for ways to curb spending.
For Saira and her husband, meals out with friends were a top budget buster. But they had no idea that was the case until they reviewed their finances. “You don’t realize eating out is such a huge expense until after the fact,” Saira says. As a result, the couple decided to temporarily stop going to restaurants, which allowed them to put that money into their savings.
Build Your Financial Foundation
Budgeting for medical residents should include working on your financial foundation, says Brian Walsh, CFP, senior manager, financial planning for SoFi. “These foundational pieces are so critical to establish,” Walsh says. “Then, once you get that big paycheck, it will be much easier to sock away 25% or more of your income toward retirement.”
Here are a few steps he recommends:
• Pay off “bad debt.” Walsh defines “bad debt” as anything that accelerates consumption and comes with a high interest rate (such as credit cards).
• Build up an emergency fund. This stash of cash should cover three to six months’ worth of your total living expenses and be placed in an easy-to-access place, like money market funds, short-term bonds, CDs or a high-yield savings account.
• Protect your income. There are two types of protection you may want to consider. Disability insurance covers a portion of your income in the event you’re unable to work due to an injury or illness. Monthly premium amounts vary, but generally, the younger and healthier you are, the less expensive the policy. You may also want to consider purchasing a life insurance policy if other people depend on your income.
Next, Walsh suggests putting any leftover funds into retirement. Over time, as your emergency fund grows and “bad debt” diminishes, you’ll be able to put more money into retirement.
One simple way to build up savings now is to contribute to your employer’s 401(k) or 403(b) retirement plan, if one is available, and tap into any matching funds program. There’s a limit to how much you can contribute annually to either plan. In 2024, the amount is $23,000; if you’re 50 or older, you can contribute up to an additional $7,000, for a total of $30,500.
There are other investment vehicles Walsh suggests exploring if you have additional money to save, don’t have access to a 401(k) or 403(b), or simply prefer to have more control over your money. These include an individual retirement account (IRA), such as a traditional IRA or Roth IRA, both of which can offer tax advantages.
Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds. However, there are limits on how much you can contribute each year and on your income.
Another option is a health savings account (HSA), which may be available if you have a high deductible health plan. HSAs provide a triple tax benefit: Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.
As a resident, you have several priorities competing for a piece of your paycheck: lifestyle expenses, long-term savings goals, and medical student loan debt. Loan repayment typically starts six months after graduation, and options vary based on the type of loan you have.
If you have federal student loans and need extra help making payments, for example, you can explore a loan forgiveness program or an income-driven repayment (IDR) plan, which can lower monthly payments for eligible borrowers based on their income and household size. You also have the option to postpone payments during residency, but the interest will continue to accrue and add to your total balance.
Your medical student loan debt may feel overwhelming, but there are a couple of ways to consider tackling it. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball approach, you pay off the smallest balance first and then work your way up to the highest balance.
While the right approach is the one you’ll stick with, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says.
Find Out If Refinancing Is Right for You
You may want to consider refinancing your student loans as part of your repayment strategy. When you refinance, your existing loans are paid off and you get one new loan. You may be able to get a lower interest rate, which could potentially reduce your monthly payments. Some lenders, including SoFi, also provide benefits for residents and other medical professionals.
Though the refinancing process is fairly straightforward, “People overestimate the amount of work it takes to refinance and underestimate the benefits,” Wash says. A quarter of a percentage point difference in an interest rate might seem small, but if you have a big loan balance, it could save you quite a bit.
However, refinancing may not be right for everyone. By refinancing federal student loans, you could lose access to benefits and protections, such as income-driven repayment and student loan deferment. Your best bet is to weigh all of your options and decide what makes the most sense for your situation.
The Takeaway
After years of medical school, you’re finally starting to make some money. But you also likely have a lot of student loan debt that you need to start paying back during your residency. Having a solid plan for repaying your loans, and using a few key strategies to start saving money for your future, can help position you for long-term financial success.
If part of that plan includes refinancing your student loans, SoFi can help. With our medical professional refinancing, you may qualify for a special competitive rate if you have a loan balance of more than $150,000. You can also reduce your monthly payments to as low as $100 during residency, for up to seven years.
SoFi reserves our lowest interest rates for medical professionals like you.
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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).
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The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.
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If you’re a new dentist, you have plenty of reasons to smile about your profession. You can start practicing soon after completing dental school, and you stand to earn a healthy salary right off the bat. The average entry-level dentist in the U.S. earns $189,979 a year, according to ZipRecruiter.
At the same time, you also need to figure out how to pay off your student loans. According to the American Dental Association (ADA), the average dental school graduate leaves school with nearly $300,000 in education debt. By comparison, medical school graduates owe an average of $243,483 in total educational debt, according to the Education Data Initiative. That’s where budgeting for dentists comes into the equation.
Key Points
• Consider disability insurance to protect income.
• Establish saving and investing strategies early, leveraging a pay-yourself-first mentality.
• A good budgeting rule of thumb: Set aside 30% of income for savings, with 25% for retirement and 5% for other savings.
• Think about diversifying your investments and including HSAs, IRAs, and after-tax brokerage accounts.
• When tackling student loans, consider aggressive repayment strategies, as well as refinancing.
How Budgeting Helps
Starting a career with a six-figure loan debt may feel overwhelming, but budgeting for dentists can help. In fact, now is an ideal time to establish your saving and investing strategies, says Brian Walsh, CFP®, Head of Advice and Planning for SoFi. “When you’re right out of school and your lifestyle is already lean, you can more easily build a pay-yourself-first mentality without making any drastic adjustments,” he explains. “It’s significantly easier to do it at this point instead of when you have a house, a car, and a family and then need to start making cuts.”
Here are some strategies to help you create your budget and plan for the future.
Protect Your Income
With its repetitive motions and constrained work area, dentistry can be physically taxing work, especially on the back and joints. According to the ADA, dentists have a one in four chance of becoming disabled. To mitigate your risk, you may want to consider disability insurance, which covers a percentage of your income if you become unable to work due to an illness or injury.
If you purchased a policy during dental school, you have the option to increase your coverage now that you’re making more. If you don’t have a policy, you can buy one as part of a group plan or as an individual. Find out if your employer offers it as part of your benefits package; some do. Monthly premium amounts vary, but in general, the younger and healthier you are, the cheaper the policy.
Dropping a bundle on meals out? Clicking “add to cart” more frequently? Enjoy your hard-earned income, but don’t go overboard on splurges.
To help you focus on where you put your money, consider prioritizing your financial goals — saving for a home, for example, or paying off your debt. This is an important strategy in budgeting for dentists. Walsh also recommends that early-career professionals use cash or debit cards for purchases to build up good spending habits, and automate their finances whenever possible. For example, pre-schedule your bill payments and set up automatic contributions to your retirement account.
Kick-Start a Savings Plan
Tackling student loans is likely a top priority for you right now, but just as important is creating a savings plan.
Walsh recommends early-career dentists set aside 30% of their income for savings. Of that, 25% should be for retirement and 5% for other savings, like building an emergency fund that can tide you over for three to six months. The remaining 70% of your income should go toward expenses, including monthly dental school loan payments.
The sooner you start saving and investing, the sooner you can enjoy compound growth, which is when your money grows faster over time. That’s because the interest you earn on what you save or invest increases your principal, which earns you even more interest.
You may even want to consider buying a dental practice at some point, so that’s another reason budgeting for dentists makes sense.
Explore Different Ways to Invest
As a high earner, you may need to do more with your money than max out your 401(k) or 403(b), though you should do that, too. Walsh suggests new dentists leverage a combination of different investments. This strategy, called diversification, can help shield you from risk. Here are some types of investments to consider:
• A health savings account (HSA), which provides a triple tax benefit. Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.
• An individual retirement account (IRA), like a traditional IRA or Roth IRA, can offer tax advantages. Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds, provided certain requirements are met. However, there are limits on how much you can contribute to an IRA each year.
• A Simplified Employee Pension IRA (SEP IRA) can be a good option if you’re a solo practitioner. “Total contributions can be just like those with an employer-sponsored plan, but you control how much to contribute, up to a limit,” Walsh says. Contributions are tax-deductible, and you don’t pay taxes on growth until you withdraw the money when you retire.
• After-tax brokerage accounts offer no tax benefits but give you the flexibility to withdraw money at any time without being taxed or penalized.
Two investments to consider bypassing are variable annuities and whole life insurance. Neither is a suitable way to build wealth, Walsh says.
Whatever your strategy, keep in mind that there may be fees associated with investing in certain funds. Those can add up over time, Walsh points out.
Determine a Student Loan Repayment Strategy
Since new dentists tend to start earning money more quickly than other health care professionals, they are often better positioned to tackle loan repayments more aggressively.
But your repayment strategy will depend on a number of factors. To start, consider the types of student loans you have. Federal loans have safety nets you can explore, like loan forgiveness and income-driven repayment (IDR) plans, which can lower monthly payments for eligible borrowers based on their income and household size.
Once you’ve assessed the programs and plans you’re eligible for, figure out your goals for your loans. Do you need to keep monthly payments low, even if that means paying more in interest over time? Or are you able to make higher monthly payments now so that you pay less in the long run?
If you have multiple loans and/or other debts, there are two approaches you might consider for paying them down. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball method approach, you pay off the smallest balance first and work your way up to the highest balance.
While both have their benefits, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says. But as he points out, the right approach is the one you’ll stick with.
Consider Your Refinancing Options
Paying down debt has long-term benefits, like lowering your debt-to-income ratio and building your credit. In order to help do this, you may want to include refinancing your student loans in your student loan repayment strategy.
When you refinance, a private lender pays off your existing loans and issues you a new loan. This can give you a chance to lock in a lower interest rate than you’re currently paying and combine all of your loans into a single monthly bill, which can be easier to manage. Some lenders, including SoFi, also provide benefits for new dentists.
The refinancing process is straightforward, yet some common misconceptions persist, Walsh says. “People overestimate the amount of work it takes to refinance and underestimate the benefits,” he says. A quarter of a percentage point difference in an interest rate may seem inconsequential, for instance, but if you have a big loan balance, it could save you thousands of dollars.
That said, refinancing may not be right for everyone. If you refinance federal student loans with a private lender, for instance, you lose access to federal benefits and protections, such as forgiveness programs and forbearance. Consider all your options and decide what makes sense for you and your financial goals.
The Takeaway
Dentistry can be a rewarding career with the potential to earn a healthy salary right from the start. However, you’re likely to have a significant loan debt when you graduate from dental school. Fortunately, balancing your goals with some smart saving, investing, and loan repayment strategies can help you get your finances on firm footing.
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.
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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).
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
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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.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
After getting approved for a student loan, there is one more step that must be completed before your funds are disbursed: the loan certification process. This step is designed to protect you as a borrower.
Keep reading to find out more about student loan certification, how long it takes, and the process for federal and private student loans.
What Is Student Loan Certification?
Student loan certification is a mandatory step before loan funds can be sent to your school. Your school will verify enrollment details, such as your expected graduation date, your year in the program, and the loan amount.
For private student loans, a Private Education Loan Applicant Self-Certification form is required. This highlights borrower-protection language, informs you of your ability to submit a Free Application for Federal Student Aid (FAFSA®), and explains how a private loan might affect your other financial aid awards. The self-certification step also provides your lender with your enrollment details and financial aid received.
Student loan lenders require a certification before disbursement under the Higher Education Act of 1965 and the Truth in Lending Act.
Certification ensures that the lender and your school have done their due diligence to inform you about federal financial aid options, confirm that you meet academic enrollment requirements for the loan, and disclose the difference between your school’s cost of attendance (COA) and the financial assistance you’ve received for that period.
For federal aid, your school is responsible for determining the type of student aid you’re eligible for, including federal student loans. If your school finds that you’re eligible for federal loans, it will record its certification of your eligibility into the Common Origination and Disbursement system. This system tracks your loan data throughout your academic career.
The loan certification process for private lenders has a different intent. Your lender can request a completed Self-Certification form from you, which includes a section for your institution to fill out. Alternatively, your lender can communicate directly with your school for its certification sign-off.
What Is the Process of Student Loan Certification?
After a lender approves your loan application and you accept the loan and its terms, the student loan certification process is automatically initiated. As a student borrower, you may not need to do anything. However, make sure to follow the process, via any emails or notifications from your lender or school, to make sure everything runs smoothly and no additional information is needed from you.
Here is the process of student loan certification:
1. Lender Sends Loan Details to the School
The lender forwards your loan information to your school for certification. This includes details you’ve submitted during your application, like your personal information, enrollment information, and the loan amount requested.
2. School Reviews Loan Details
During this step, your school will certify that your enrollment details are correct, the estimated COA for the enrollment period, and how much aid you are receiving during the period.
Private student loan amounts can’t exceed a student’s COA, minus existing financial aid. If your loan details are correct and the amount is within the unfunded COA gap, the school can certify your loan with no changes.
Alternatively, the school can certify your loan with changes, either to reduce the loan amount or correct your enrollment information, if needed. It can also deny the loan certification, which might happen if it can’t verify that you’re enrolled or you already have sufficient financial aid to cover your COA.
Your lender will notify you when your student loan certification is complete. At this time, it will provide you and your student loan cosigner, if applicable, with the final loan disclosure.
If your loan amount was lowered by your school, this is where you’ll see the new amount outlined in the updated disclosure agreement.
4. “Right-to-Cancel” Waiting Period
After the borrower has signed the final loan disclosure, lenders are not allowed to disburse funds right away. Federal law requires a waiting period of three business days after the lender sends you the final disclosure.
This is another layer of borrower protection that gives you time to cancel the loan, if desired, with no penalty.
5. Lender Disburses Loan Funds
After the waiting period expires, the lender can send certified student loan disbursements directly to your school, on the date requested by your institution.
How long school certification takes for a loan varies by school. Generally, it can take up to five weeks for schools to complete student loan certification, but sometimes it’s longer.
Additionally, loan certification is often done in the weeks before the start of classes. Enrollment status can change at the last minute, as when a student drops out or reduces their course load. The timing helps schools process certifications based on the most current information.
Can Student Borrowers Hurry Along the Certification Process?
It’s true that the loan certification process can be lengthy, but there’s not much that can be done to hasten it. The best that student borrowers can do is to stay on top of emails and account notifications from their lender, informing them of status updates and next steps.
What Happens if a School Doesn’t Certify That You Are a Student?
If your school doesn’t certify your enrollment status, your lender can’t legally disburse the loan funds to your school. At best, this results in payment delays as you sort things out with your financial aid office. At worst, it halts disbursement entirely, if your school can’t certify that you are, in fact, an enrolled student.
What to Do if It Is the School’s Error
If you believe a mistake has been made on your student loan certification, contact your financial aid department immediately. Find out what the school needs from you to certify your enrollment and loan.
Additionally, ask what will happen to your enrolled courses while you figure out a resolution. The last thing you want is to get dropped from your classes.
What to Do if It Is the Student’s Error
Student loan certification might be in limbo because of an oversight on your part. This can come up, for example, if you forget to enroll in classes.
If you’re in this situation, reach out to your school’s admissions and records department or your degree program’s department for guidance about what you need to do. Make sure to note that you are waiting on private student loan certification needed for disbursement.
The Takeaway
The loan certification process can feel like another hurdle to overcome in financing your education. However, it’s a step that’s meant to protect student borrowers and keep you aware of your rights.
The process and intent of certification are different for private student loans and federal student loans. If you do not get certified, don’t panic. Discuss the issue with your school to find out if the error is yours or the school’s, and take immediate steps to resolve it.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
What is the certification process for student loans?
The certification process for student loans involves the college verifying a student’s enrollment status, academic progress, and loan eligibility. The school confirms the student’s loan amount aligns with federal or institutional limits and tuition costs. Once certified, the lender disburses funds directly to the school to cover education expenses.
How long does it take to get a student loan certified?
It typically takes a few days to several weeks for a student loan to be certified, depending on the school’s processing time and the lender’s requirements. Factors such as enrollment verification, financial aid status, and the school’s workload can influence the certification timeline, potentially causing delays.
What is self-certification for a student loan?
Self-certification for a student loan is often required for private student loans to ensure borrowers understand their financial responsibility and to prevent borrowing more than necessary for educational expenses.
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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).
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Often the hub of a person’s financial life, bank accounts can be quick and simple to open with the right materials in hand, including a valid government-issued photo ID, personal information such as your Social Security number (SSN), and perhaps an opening deposit.
Here, learn the details on what you need to open a bank account and how to navigate the process itself.
Key Points
• Opening a bank account typically requires a valid government-issued photo ID, personal information such as your age and Social Security number, and possibly an initial deposit.
• Joint account applications require personal and identifying information for all account owners.
• How you open a bank account may vary slightly depending on the bank’s criteria, such as whether a minor needs an adult co-owner to be on the account.
• After opening a bank account, you may be able to utilize features like online bill pay, account alerts, and linking accounts to manage finances effectively.
• The process for opening a bank account online and in-person are similar, though the deposit methods, if required, may differ.
🛈 SoFi members interested in the personal information needed to open a bank account can review these details.
What You Need to Open a Bank Account
Here’s a list of what you are likely to need when opening a bank account. Gathering these materials before you actually begin the process of starting a new account can help you save time and frustration.
1. Qualifying information: First, you’ll need to make sure you’re eligible to open a bank account. If you’re under 18, many (but not all) banks may require a parent or legal guardian to open the account with you.
2. Identification: You’ll also need to provide a valid government-issued photo ID such as a driver’s license, non-driver state ID card, or passport.
3. Personal information: Be prepared to provide basic information such as your birthdate and SSN. You’ll also need to give contact information such as your address, phone number, and email. You might be required to submit proof of residency, such as a utility bill.
◦ If you’re opening a joint account: You’ll need the identifying and personal information listed above for all the account owners. If you are doing this in person at a bank branch, you may not need the other person present.
4. Initial deposit: In many instances, you’ll need an initial deposit when opening a bank account. The minimum amount required to open an account varies from bank to bank but is often between $25 and $100. In some cases, it can be absolutely zero. If you’re transferring the minimum deposit from another bank, you will likely need the routing and account numbers.
5. Username and password: If you’re applying online or opening a checking or savings account at an online-only bank, you’ll need to establish a username and password.
6. Signatures: If you are applying for an account in person at a branch, you’ll likely be able to sign all documents there. If you’re applying online, you may be able to use an e-signature, or, depending on the bank, you may have to wait and sign documents that are sent to you via the mail in order to access full privileges.
Get up to $300 with eligible direct deposit when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 3.80% APY on savings balances.
Up to 2-day-early paycheck.
Up to $3M of additional FDIC insurance.
How to Open a Bank Account
With these materials in hand, it can be quite simple to open a bank account. Here are the typical steps involved.
Decide What Kind of Account and Which Bank Is Best for You
First, determine if you want to open a checking or savings account (learn more about the differences below) or both; most people have at least one of each.
Then, you can review various bank options. For instance:
• You might decide to go with an online bank because of the convenience and the higher interest rates they may offer.
• You might prefer a traditional bank, with a nearby branch, where you can regularly meet with the team in person.
• You might like to bank at a credit union that you can become a member of based on, say, your profession.
Shop around a bit, and compare features to find the best fit.
Gather Your Documentation
As noted above, whether you are applying online or in person, you will need to have a few documents on hand, including government-issued photo ID and your SSN.
Fill out the Application
Whether in person or online, you will want to make sure to fill this out carefully, double-checking the information to make sure it’s accurate.
Pay an Opening Deposit if Required
You may or may not need to pay a deposit to get your account up and running. (If you are opening an account online and an opening deposit is required, you can typically do an electronic funds transfer.)
Many banks look for $25 to $100 as an opening deposit, but some — especially for checking accounts — may allow you to open an account without any cash.
Start Using Your Account
Depending on the kind of bank account you are opening (checking vs. savings; at a traditional or an online bank), you may need to wait to get a debit card, checks, and other materials. However, you should be able to use your account right away for at least some functions, such as setting up direct deposit and making electronic payments.
Bank Account Types to Choose From
There are two main types of basic bank accounts: checking and savings accounts. Many people choose to open multiple types of bank accounts at the same time.
Type of Account
Pros
Cons
Checking Account
Easy access to money
Unlimited withdrawals/transfers
Low initial deposit; typically, $25-100 but possibly $0
Traditional savings may have low annual percentage yields (APYs)
Some account restrictions (such as limited monthly withdrawals) may apply
May charge fees
In a nutshell:
• If you’re looking for a bank account to use primarily for paying expenses, a checking account with no or low fees is probably best. You can get to your money using checks, ATMs, electronic debits, and debit cards tied to the account. You can deposit using ATMs, direct deposit, electronic transactions, and over-the-counter deposits.
• If you are trying to save for short-term financial goals such as a car, vacation, or down payment on a home, a savings account may fit your needs. Savings account interest rates vary, with the amount of interest paid often being quite modest at traditional banks and potentially higher at online banks. There may be limits on how many transactions you can make in a given time period.
A couple of notes regarding bank accounts:
• Any interest earned on a savings or checking account is considered taxable income and will be reported to the Internal Revenue Service (IRS).
• It’s wise to check with banks to see what the minimum deposit and balance requirements are and what kinds of fees are applied to accounts to make sure there aren’t hidden costs lurking.
Using Your New Bank Account
Now that you know what you need to open a bank account and how to start one, here’s some advice on how to use your new savings or checking account. (Remember to keep an eye out for anything coming to you in the mail, such as a debit card or paper checks.)
• Utilize online features: You’ll likely want to sign up for any electronic features associated with your account that may help you manage your money. This includes online bill pay, which allows you to pay bills electronically, eliminate paper checks, and take advantage of remote check deposits. Account alerts are another benefit of electronic bank accounts, as they can warn you about unusual activity in your account and if your balance is getting low.
• Track activity: It’s a wise move to keep close track of the activity in your checking account to make sure you don’t overdraw. Most banks charge hefty overdraft fees for purchases that put the account in the red. Those fees can add up fast.
• Consider linking accounts: If you’ve opened both a savings and checking account, you may want to consider linking the two. This way, you may be able to avoid overdraft charges and have a place to put any extra money from your checking account into a more lucrative, interest-bearing account.
As you see, starting to use a bank account takes just a little bit of time and effort. Getting up and running can be an important step towards putting your money to work for you and optimizing your financial life.
The Takeaway
Opening a bank account is usually quite simple. Typically, you’ll need personal information, government-issued photo ID, and an opening deposit to open a bank account. You might choose to open a checking or savings account or, if you’re like most Americans, both kinds of accounts. Once your bank account or accounts are established, you can enjoy a variety of conveniences and features that can help you manage your money better.
Looking for one-stop banking? See what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 up to 3.80% APY on SoFi Checking and Savings.
🛈 SoFi members interested in the personal information needed to open a bank account can review these details.
FAQ
How much money do you need to open a bank account?
You will often need an initial deposit to open your checking account or your savings account. For checking and savings accounts, this can be as low as $25 or $100, depending on the bank and the account services you’ve signed up for. In some cases, though, a bank (usually an online bank) may let you open a checking account with no money until your first paycheck or other amount of money is deposited.
Are the requirements to open a bank account online any different?
The requirements for opening a bank account online vs. in person are similar if not the same, generally requiring personal information and ID documents. Worth noting: You might open a bank account in person with cash. However, with an online bank account, you would probably need to make an electronic transfer or set up direct deposit.
What ID do you need to open a bank account?
You will typically need a government-issued photo ID to open a bank account. Usually, this means a driver’s license, a non-driver’s ID card, or a valid passport.
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
