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Sep

2023

Average Student Loan Debt by State in 2024

By Constance Brinkley-Badgett | Going to College, Student Loans, student_loan | Comments Off

Student loan debt nationwide currently totals $1.774 trillion (including federal and private student loans). The average federal student loan debt balance is $37,717 while the total average balance (including private student loans) is estimated to be $40,505, according to EducationData.org.

Student loan debt is now the second highest consumer debt category in the country behind only housing debt. Around 54% of bachelor’s degree recipients from public and private nonprofit four-year colleges and universities graduate with debt, according to the College Board.

A recent report from EducationData.org details the average student loan debt per borrower (based on federal student loan only) in each state. Overall, residents of Washington, D.C., are the most likely of all U.S. residents to have student debt, averaging $54,945 per borrower. Hawaiians, on the other hand, are the least likely to have student loans outstanding, with just 8.4% of residents in debt.

Student Loan Debt in Each State

Read on for an overview of what student loan debt looks like across the country according to EducationData.org . Note that this data refers to federal student loan debt only; private student loans, which represent 7.2% of all student debt, are not reflected.

Alabama

Average borrower debt: $37,137

Total student loan debt: $23.5 billion

Everything you need to know about student loans & scholarships in Alabama

Alaska

Average borrower debt: $34,024

Total student loan debt: $23.5 billion

Everything you need to know about student loans & scholarships in Alaska

Arizona

Average borrower debt: $35,396

Total student loan debt: $31.4 billion

Everything you need to know about student loans & scholarships in Arizona

Arkansas

Average borrower debt: $33,333

Total student loan debt: $13.0 billion

Everything you need to know about student loans & scholarships in Arkansas

California

Average borrower debt: $37,084

Total student loan debt: $141.8 billion

Everything you need to know about student loans & scholarships in California

Colorado

Average borrower debt: $36,822

Total student loan debt: $28.5 billion

Everything you need to know about student loans & scholarships in Colorado

Connecticut

Average borrower debt: $35,162

Total student loan debt: $17.5 billion

Everything you need to know about student loans & scholarships in Connecticut

Delaware

Average borrower debt: $37,559

Total student loan debt: $4.8 billion

Everything you need to know about student loans & scholarships in Delaware

District of Columbia

Average borrower debt: $54,945

Total student loan debt: $6.5 billion

Everything you need to know about student loans & scholarships in Washington D.C.

Florida

Average borrower debt: $38,459

Total student loan debt: $100.9 billion

Everything you need to know about student loans & scholarships in Florida

Georgia

Average borrower debt: $41,639

Total student loan debt: $68.6 billion

Everything you need to know about student loans & scholarships in Georgia

Hawaii

Average borrower debt: $36,765

Total student loan debt: $4.5 billion

Everything you need to know about student loans & scholarships in Hawaii

Idaho

Average borrower debt: $33,012

Total student loan debt: $7.2 billion

Everything you need to know about student loans & scholarships in Idaho

Illinois

Average borrower debt: $37,757

Total student loan debt: $61.6 billion

Everything you need to know about student loans & scholarships in Illinois

Indiana

Average borrower debt: $32,874

Total student loan debt: $29.8 billion

Everything you need to know about student loans & scholarships in Indiana

Iowa

Average borrower debt: $30,464

Total student loan debt: $13.2 billion

Everything you need to know about student loans & scholarships in Iowa

Kansas

Average borrower debt: $32,578

Total student loan debt: $12.5 billion

Everything you need to know about student loans & scholarships in Kansas

Kentucky

Average borrower debt: $32,779

Total student loan debt: $19.7 billion

Everything you need to know about student loans & scholarships in Kentucky

Louisiana

Average borrower debt: $34,525

Total student loan debt: $22.5 billion

Everything you need to know about student loans & scholarships in Louisiana

Maine

Average borrower debt: $33,137

Total student loan debt: $6.2 billion

Everything you need to know about student loans & scholarships in Maine

Maryland

Average borrower debt: $42,861

Total student loan debt: $35.9 billion

Everything you need to know about student loans & scholarships in Maryland

Massachusetts

Average borrower debt: $34,146

Total student loan debt: $30.8 billion

Everything you need to know about student loans & scholarships in Massachusetts

Michigan

Average borrower debt: $36,116

Total student loan debt: $51.0 billion

Everything you need to know about student loans & scholarships in Michigan

Minnesota

Average borrower debt: $33,604

Total student loan debt: $26.5 billion

Everything you need to know about student loans & scholarships in Minnesota

Mississippi

Average borrower debt: $36,902

Total student loan debt: $16.2 billion

Everything you need to know about student loans & scholarships in Mississippi

Missouri

Average borrower debt: $35,397

Total student loan debt: $29.3 billion

Everything you need to know about student loans & scholarships in Missouri

Montana

Average borrower debt: $33,149

Total student loan debt: $4.2 billion

Everything you need to know about student loans & scholarships in Montana

Nebraska

Average borrower debt: $31,919

Total student loan debt: $7.9 billion

Everything you need to know about student loans & scholarships in Nebraska

Nevada

Average borrower debt: $33,743

Total student loan debt: $11.8 billion

Everything you need to know about student loans & scholarships in Nevada

New Hampshire

Average borrower debt: $34,085

Total student loan debt: $6.5 billion

Everything you need to know about student loans & scholarships in New Hampshire

New Jersey

Average borrower debt: $35,434

Total student loan debt: $42.5 billion

Everything you need to know about student loans & scholarships in New Jersey

New Mexico

Average borrower debt: $34,211

Total student loan debt: $7.8 billion

Everything you need to know about student loans & scholarships in New Mexico

New York

Average borrower debt: $37,678

Total student loan debt: $92.7 billion

Everything you need to know about student loans & scholarships in New York

North Carolina

Average borrower debt: $37,721

Total student loan debt: $49.2 billion

Everything you need to know about student loans & scholarships in North Carolina

North Dakota

Average borrower debt: $28,604

Total student loan debt: $2.5 billion

Everything you need to know about student loans & scholarships in North Dakota

Ohio

Average borrower debt: $34,721

Total student loan debt: $62.3 billion

Everything you need to know about student loans & scholarships in Ohio

Oklahoma

Average borrower debt: $31,525

Total student loan debt: $15.4 billion

Everything you need to know about student loans & scholarships in Oklahoma

Oregon

Average borrower debt: $37,017

Total student loan debt: $20.1 billion

Everything you need to know about student loans & scholarships in Oregon

Pennsylvania

Average borrower debt: $35,385

Total student loan debt: $64.5 billion

Everything you need to know about student loans & scholarships in Pennsylvania

Rhode Island

Average borrower debt: $32,056

Total student loan debt: $4.6 billion

Everything you need to know about student loans & scholarships in Rhode Island

South Carolina

Average borrower debt: $38,414

Total student loan debt: $28.1 billion

Everything you need to know about student loans & scholarships in South Carolina

South Dakota

Average borrower debt: $30,954

Total student loan debt: $3.6 billion

Everything you need to know about student loans & scholarships in South Dakota

Tennessee

Average borrower debt: $36,418

Total student loan debt: $31.4 billion

Everything you need to know about student loans & scholarships in Tennessee

Texas

Average borrower debt: $32,920

Total student loan debt: $120.0 billion

Everything you need to know about student loans & scholarships in Texas

Utah

Average borrower debt: $32,835

Total student loan debt: $10.1 billion

Everything you need to know about student loans & scholarships in Utah

Vermont

Average borrower debt: $37,516

Total student loan debt: $2.9 billion

Everything you need to know about student loans & scholarships in Vermont

Virginia

Average borrower debt: $39,165

Total student loan debt: $42.4 billion

Everything you need to know about student loans & scholarships in Virginia

Washington

Average borrower debt: $35,510

Total student loan debt: $28.0 billion

Everything you need to know about student loans & scholarships in Washington

West Virginia

Average borrower debt: $31,690

Total student loan debt: $7.2 billion

Everything you need to know about student loans & scholarships in West Virginia

Wisconsin

Average borrower debt: $31,894

Total student loan debt: $23.2 billion

Everything you need to know about student loans & scholarships in Wisconsin

Wyoming

Average borrower debt: $31,250

Total student loan debt: $1.7 billion

Everything you need to know about student loans & scholarships in Wyoming

The Takeaway

The average amount of debt held by borrowers varies from state to state. The five states with the highest average amount of student loan debt per borrower are: Washington D.C., Maryland, Georgia, Virginia, and Florida. The five states with the lowest average of student loans per borrower are: Wyoming, South Dakota, Iowa, North Dakota, and Puerto Rico. North Dakota is the only state where the average borrower owes less than $30,000.

For millions, student loans and student loan refinances are a necessary part of paying for college. When federal aid and savings aren’t enough to pay for school, some borrowers turn to private student loans. These are available from banks, credit unions, and online lenders. While private lenders are not required to offer the same benefits or protections as federal student loans, they can be helpful for borrowers who have tapped other resources and are looking to fill in gaps in funding.

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.

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Sep

2023

The Monte Carlo Simulation & Its Use in Finance

The Monte Carlo Method & Its Uses in Finance

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

A Monte Carlo simulation is a mathematical technique used by investors and others to estimate the probability of different outcomes given a situation where multiple variables may come into play.

Monte Carlo simulations are used in such a wide range of industries — e.g., physics, engineering, meteorology, finance, and more — that the term doesn’t refer to a single formula, but rather a type of multivariate modeling technique. Multivariate modeling is a statistical method that uses multiple variables to forecast outcomes. A Monte Carlo simulation is an example of this type of calculation, which provides a range of potential outcomes using a probability distribution.

What Is the Monte Carlo Method?

A Monte Carlo simulation calculates a probability distribution for any variable that has inherent uncertainty. It then recalculates the results thousands of times over, each time using a different set of random numbers pertaining to each variable, to produce a vast array of outcomes that are then averaged together. In this way, a Monte Carlo analysis enables researchers from many industries to run multiple trials, and thus to define the potential outcome or risk of an event or a decision.

Applying mathematics to investment or business scenarios is difficult precisely because there are so many random variables involved in any single decision or any single investment or portfolio of investments. That’s why a Monte Carlo analysis can be more informative compared with predictive models that use fixed inputs.

The ability to apply mathematics to situations where many elements are probable, and then rank the likelihood of possible outcomes in order to gauge the potential for risk, is a chief advantage of Monte Carlo simulations.

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Monte Carlo Method History

Using simulations to solve problems dates back to the 19th century, and perhaps even earlier, when simulations were an experimental way to test theories, analyze data, or support scientific intuition using statistics. But these simulations typically dealt with established deterministic problems. A modern Monte Carlo analysis, however, inverts that structure by using probabilities to solve the problem.

One of the first known uses of a modern Monte Carlo simulation dates back to the 1930s, when physicist Enrico Fermi experimented with an early form of the method to understand the diffusion of neutrons.

Physicists Stanislaw Ulam and John von Neumann are credited with developing and refining the current Monte Carlo method while working at the Los Alamos National Laboratory on nuclear weapons in the 1940s. Of course, the technique needed a code name, and Monte Carlo was chosen because the element of chance also drives the games at a casino (the Monte Carlo region of Monaco is well-known as a gambling hub).

Soon, the simulation method gained traction in the fields of physics, chemistry, and operations research, thanks to its adoption by the Rand Corporation and the U.S. Air Force. From there, it spread to many of the natural sciences, and eventually found its way to finance.

How the Monte Carlo Method is Used in Finance

In terms of practicality in the financial space, the Monte Carlo method has numerous potential uses.

For instance, money managers might use a Monte Carlo analysis to estimate risk levels for different investments when constructing a portfolio. Corporate finance managers might use a Monte Carlo simulation to assess the impact of variables like future sales, commodities prices, interest rates, currency fluctuations, and so on. Brokers might use a Monte Carlo analysis to calculate the risks of stock options.

Monte Carlo Simulation Method

The Monte Carlo simulation works by constructing a model of possible outcomes based on an estimated range of possible conditions. It does this by creating a curve of different variables for each unknown variable, and inserting random numbers between the minimum and maximum value for each variable, and running the calculation over and over again.

A Monte Carlo experiment will run the calculation thousands upon thousands of times. Along the way, it will produce a large number of possible outcomes.

But even for a simple investment, there are a host of factors that will affect its outcome. There are interest rates, regulations, market swings, as well as factors innate to that investment, such as the sales and revenue of the underlying business, or its competitive landscape, or disruptive technology, and so on.

And as an investor seeks to peer further into the future, more possible variables emerge. Using a Monte Carlo simulation to understand those potential investment risks requires using a growing number of inputs as the time horizon grows longer.

After an investor runs a Monte Carlo simulation, the calculation will deliver a range of possible outcomes, with a probability score assigned to each outcome. By weighing the probability scores of different outcomes, an investor can proceed with a better sense of the risks and possible rewards of a given investment decision.

Monte Carlo Simulation Steps

Using a Monte Carlo simulation is a complicated process that requires a background in mathematics, though some investors have created Monte-Carlo-like models using spreadsheet software. Some of those homespun programs can be used to try to project possible price trajectories of a given asset.

If you wanted to get an idea of how the Monte Carlo method could be used to estimate potential stock movements, the steps to do so would look something like the following — but note that this is a very simplistic, pared down model.

• Step 1: Use historical price data of a stock to generate a set of daily returns data

• Step 2: Use that data set to determine further variables, such as standard deviations and variance

• Step 3: Define a random input or variable

• Step 4: Run a simulation (again, this will require software or a program) and analyze the results

In Monte Carlo fashion, the user will repeatedly run the equation an arbitrary number of times, to see how often each outcome occurs. The frequency of each outcome will reflect the likelihood of each outcome.

The results will most likely form a bell curve, with the most likely result in the middle of the curve. But as with any bell curve, those results also indicate that there is an equal chance that the actual result will be either higher or lower than the number in the middle.

Estimating Risk Using the Monte Carlo Method

The Monte Carlo method can be used to determine the likelihood of certain risks when investing, but there are some important things to take into consideration.

For one, a Monte Carlo simulation is only as good as the data that’s programmed into it. No matter how well the simulation is run, its predictive powers can easily be undone by factors that haven’t been added into the equation. For example, when using a Monte Carlo simulation to decide whether or not to buy a given stock, the model could seem to deliver a clear picture of the risks and rewards of the investment.

In that example, the problems arise if the programmer or investor leaves out one single factor, such as macro trends, the effectiveness of company leadership, cyclical factors, political changes, and so on.

There’s a chance that factor could be the one that completely subverts the simulation. And those variables are potentially without limit.

Who Uses Monte Carlo Simulations, and How

Nonetheless, large institutional investors might use Monte Carlo simulations as a tool in their projections and decision making. And its use for investors isn’t limited to hedge fund managers and spreadsheet wizards. There are even online Monte Carlo simulators that can help people save for retirement.

Those tools are designed for the average investor to input some basic information like their savings, and years until retirement to help them understand the likelihood that they will be able to reach their financial goals, and whether they will have enough income in retirement. Those calculators use a generic set of parameters for their calculations, with inputs such as interest rates, and a generic portfolio allocation.

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The Takeaway

A Monte Carlo simulation is a mathematical technique used to estimate possible outcomes of an uncertain event, such as the movement of securities.

The basis of this analysis is that the probability of different outcomes cannot be determined because random variables cannot be predicted. Therefore, a Monte Carlo simulation will constantly repeat random samples to achieve certain results that can be used to gauge the likelihood of various outcomes, and therefore different risk levels associated with different choices.

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FAQ

What are the advantages of using the Monte Carlo method compared to other numerical techniques?

Though many other numerical techniques have the same goal as the Monte Carlo method, it may be advantageous in that it tests out numerous random variables and then works to an average, rather than starting from an average — which is not to say that it’ll always provide a superior result than another technique.

How is randomness or probability incorporated into the Monte Carlo method?

The Monte Carlo method incorporates randomness or probability into the mix by using random numbers and distributions of probability, which could include formulas or data sets associated with random variables.

Are there any techniques to improve the efficiency or speed of Monte Carlo simulations?

There are potential techniques and strategies to improve upon the base Monte Carlo method model, and they’re all fairly high-level and abstract (remember, it was developed by physicists at Los Alamos!). For the typical investor, it may not be worth looking too far into.

What are some historical origins and applications of the Monte Carlo method?

The Monte Carlo method’s origins can be traced back to the 1930s and the experiments of physicist Enrico Fermi, and later, others during the 1940s working on nuclear weapon development. It can be used to determine the probability of different outcomes or results that may not easily be predicted.

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Sep

2023

Pros and Cons of Paper Trading

By Colin Dodds | Financial Independence, Growing Wealth, invest, Investing | Comments Off

Paper trading is simulated trading, done for practice without real money. It’s a way to test different trading strategies without the risk of losing money, before an investor starts trading with real capital.

The practice gets its name from how investors would once mark down their hypothetical stock purchases and sales — and track their returns and losses — on paper. But today, investors typically use digital platforms to virtually test out hypothetical investment portfolios, day-trading tactics, and broader investing strategies.

How do Paper Trades Work?

What is paper trading? In its most basic form, paper trading involves selecting a stock, group of stocks, or a sector, then writing down the ticker or tickers and choosing a time to buy the stock. The paper trader then writes down the purchase price or prices.

When they sell the stock or stocks, they write down that price as well, and tally up their return.

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Pros and Cons of Paper Trading

Paper trading has both benefits and drawbacks. Here are a few factors to consider before you try paper trading.

The Pros of Paper Trading

Build skills: Paper trading is a way to learn and build trading skills in either a bear or a bull market. For new traders, a virtual trading platform offers a way to make rookie mistakes without risking real money. It’s a method to get comfortable with the process of buying and selling stocks, and making sure you don’t enter a limit order when you mean to place a market order.

Test out strategies: Paper stock trading allows for experimentation. For example, an investor might hear about shorting a stock. But they may not know how the process works, and what it actually pays out. Paper trading permits investors to learn how these trades work in practical terms. Or, they might want to try out other strategies, such as swing trading.

Learn about strengths and weaknesses: Paper trading is also a way for investors to learn about their own strengths and weaknesses. Traders lose money in the markets for a number of personal reasons. Some stick to their guns too long, while others give up too soon when the market is down. Some lose money because they panic, while others lose money because they ignore clear warning signs. Paper trading is a way for investors to learn their own tendencies and weaknesses without paying for the lesson.

Keep emotions out of it: Finally, paper trading can help teach investors to keep their emotions in check while the markets are going up and down. Investing with hypothetical dollars can be good practice in the valuable art of making rational decisions in stressful situations and allow investors to find risk management techniques that work best for them.

The Cons of Paper Trading

It’s not real: The biggest drawback of paper trading is that it’s not real. An investor can’t keep the returns they earn paper trading. And those paper returns can lead the investor to have an unrealistic sense of confidence, and a false sense of security. Paper trading also doesn’t account for real-life situations that might require an investor to withdraw money from the market for personal reasons or the impact of an unexpected recession.

The emotional impact is hard to gauge: Paper trading does limit the impact of emotions, but once an investor’s real, actual money is in play, it may be more difficult to reign in emotions. That money represents a month’s salary, or a semester’s tuition, or a house payment, and so forth, so it can be hard to remain calm and keep perspective when the market plunges over the course of a trading day.

Could be misleading: While paper trading offers important lessons, it can also mislead investors in other ways. If a paper trading strategy focuses on just a few stocks, or using one trading strategy, they can easily lose sight of how broader market conditions actually drive the performance of those stocks, including stock volatility, or their strategy, or have an inflated confidence in their ability to time the markets. They need to realize their holdings or strategy may offer very different results in a real-world scenario.

Doesn’t involve the true costs of trading: Another danger with paper-trading is that traders may overlook the cost of slippage and commissions. These two factors are a reality of actual trading, and they erode an investor’s returns. Slippage is the difference between the price of a trade at the time the trader decides to execute it and the price they actually pay or receive for a given stock.

Especially during periods of high volatility, slippage can make a significant impact on the profitability of a trade. Any difference, up or down, counts as slippage, so slippage can be good news at times. Since brokerage commissions and other fees always come out of a trader’s bottom line, paper traders should include them in their model.

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Live Trading vs Paper Money

When an investor uses live trading, they are using real money to buy and/or sell stocks or other securities. They will confront market fluctuations and need to make decisions, sometimes quickly, about what to do. Live trading can be very stressful, but it does offer the opportunity for an investor to earn money. However, it also comes with the very real risk of losing money.

With paper trading, there is no money involved to lose. But once again, it’s not “real,” so while it may teach you some basics, paper trading does have limits and drawbacks, as detailed above.

Paper Trading in the Digital Age

Wondering how to paper trade? There are different ways to do it. Some investors swear by a tangible notebook-and-paper approach to paper trading, others keep a spreadsheet, which allows them to track other factors involved in the investment, including the exact time of the purchase and sale, volume, holding period, index direction, overall market volatility, and other factors they may be studying.

But while paper or spreadsheets are valuable tools, most investors testing out their trading chops or portfolio-construction skills now prefer virtual trading platforms, which pit a hypothetical portfolio or strategy against real markets. These platforms mimic the look and feel of an actual trading platform, but deal only in hypothetical assets. Understanding a platform can make it easier to transition to real-life trading in the future.

On these platforms, an investor will start with fake money and begin trading. As they do, they can track the fluctuations in an account’s value, along with profit and loss, and other key metrics. Many trading simulators offered by online brokerages allow investors to virtually trade in real-time during live markets without risking their money. For some investors, this can be a valuable experience before they dive in with real money–and the potential for real losses.

How to start paper trading

If you’d like to try paper trading, be sure to research your investments, just like you would if you were investing for real, and use the same amount of paper money you would use in real life. This will help mimic the actual experience.

If you choose to paper trade with a pencil and paper, you can simply choose a stock or group of stocks, write down the ticker, and pick a time to buy the stock. You then write down the purchase price, or prices. When you sell the stock you record that price and then figure out your up their return.

If you decide to use a virtual trading platform, you’ll need to choose a platform. There are many free platforms available. You may want to look for one that has live market feeds so that you can practice trading without delays.

Setting up a Paper Trading Account

Once you’ve selected a virtual trading platform, you’ll set up an account. Simply log onto the platform and follow the prompts to set up an account. Once you’ve done that, there should be a “paper trading” option you can click on.You’ll need to select a balance and then you should be able to start simulating trading.

The Takeaway

Paper trading can be a way to learn about investing. By keeping track of all trades, and the losses or gains they generate, it creates a low-stress practice for examining why certain stocks, and certain trades, perform the way they do. That can be invaluable later, when there’s real money on the line.

However, remember that paper trading isn’t real. In real-life trading with an investment account, you’ll have the potential for gains, but also for losses. Make sure you are comfortable taking that risk.

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FAQ

Do you make money from paper trading?

No. With paper trading, there is no real money involved, so there is no opportunity to make (or lose) money. Paper trading is a way to learn about trading without risking money.

How realistic is paper trading?

Paper trading involves using real trading strategies and simulates a real market experience. However there are no real losses or gains since no real money is involved. Because of that, it doesn’t convey a fully realistic experience.

Is paper trading good for beginners?

Paper trading can be a way to learn the basics of investing. A beginner could build their skills and test different strategies without risking loss. However, paper trading can be misleading because there is no real risk involved. An investor might be tempted to take more risks than they would in a real life investing scenario, for instance.

Why is paper trading important?

Paper trading could be important because it allows beginning investors to practice trades, build their skills, and test different market strategies, without the risk of losing money. However, it can’t replicate the experience of real trading with actual money and the potential to possibly lose money, which someone who tries paper trading should keep in mind.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep

2023

What Is a Direct Stock Purchase Plan (DSPP)?

By Matthew Zeitlin | Growing Wealth, invest, Investing | Comments Off

A direct stock purchase plan (DSPP) is a plan that allows investors to purchase stock in a company without a broker and get it directly from the company instead.

With DSSPs, there are often no brokerage fees. Meanwhile, discounts to the share prices may be available for larger purchases. With shares purchased through a DSPP, investors have the same profit and loss opportunities, access to dividends, as well as stockholder voting rights.

However, direct stock purchase plans may not be right for every investor. Learn more about buying stock direct from companies through a DSPP, including the pros and cons.

Direct Stock Purchase Plan, Explained

What is a direct stock purchase plan? Typically, many investors use a broker to buy shares of stock. But you can sometimes purchase stocks directly from companies, no broker required. This is what it means to participate in a direct stock purchase plan.

Many blue-chip stocks tend to offer DSPPs. For example, let’s say Company X offers a plan that allows investors to buy $500 or more worth of company stock directly from it, up to $250,000 a year, with some service and transaction fees.

With a DSPP, investors directly purchase shares, sometimes at a small discount. Discounts can range from 1% to 10% to encourage investors to buy more shares.

However, because many brokerage accounts now waive fees and commissions entirely for many investors, the savings difference is smaller than it used to be.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Pros and Cons of a DSPP

Direct stock purchase plans have benefits and drawbacks. These include:

Pros:

• No broker needed. Investors can purchase shares of stock directly from the company.

• Very little money is required to get started, and the process is typically simple to do.
Good for long-term investing.

• Some DSPP programs offer dividend reinvestment plans.

Cons:

• An investor may not achieve portfolio diversification because not all stocks offer DSPPs.

• Companies may put maximum limits on how much an individual investor can purchase.

• When selling DSPP stocks, multiple types of fees can sometimes be charged.

How To Invest in a DSPP

Armed with information about how to buy directly from companies, investors may want to explore what specific opportunities exist. Perhaps they already have a publicly traded company in mind. In that case, they can go to that company’s investor relations website to see if the company offers this type of investment opportunity.

They can also search on the Internet to see which direct stock purchase plans are available.

More specifically, if someone wants to buy stocks in this way, they typically open an account and make deposits into it. Usually, these deposits are automatically made monthly through an ACH funds transfer from the investor’s bank account. In some cases you can write checks as well.

Then, that dollar amount is applied toward purchasing shares in that company’s stock, which can include fractional shares. For example, let’s say that one share of a company’s stock currently costs $20. If an investor sets up an ACH withdrawal of $50 monthly, then, each month they have purchased 2.5 shares of that company’s stock.

One of the benefits of investing through a direct stock purchase plan is the ability to incrementally invest in an inexpensive way. This might make it a good choice for some first-time investors with smaller amounts of money to invest, with initial deposits ranging from $100 to $500. In some cases, initial deposit minimums can be waived if you purchase a certain dollar value of stock every month. But again, it may be difficult to achieve portfolio diversification with DSPP.

Companies With DSPPs

A number of large, well-established companies offer DSPPs. Companies with direct stock purchase plans include Walmart, The Coca-Cola Company, Starbucks, and Home Depot, and Best Buy, among others.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

What to Consider Before Buying DSPPs

When online investing was new, people typically needed to pay significant fees to brokers to buy stock. In that era, direct stock purchase plans could be money-savers for investors. Over time, though, fees for online investing have lessened, making this less distinctive of a benefit.

In addition, many DSPPs charge initial setup fees, and may have other investment fees, including ones for each purchase transaction or sale. Although they may be small, these fees can build up over time. And it may be challenging to re-sell shares without the use of a broker, which makes this investment strategy more of a long-term one.

Plus, any time a share is purchased, some degree of stock volatility comes along with it — how much depends upon what is happening with that specific company and the overall levels of turbulence in the market.

Here’s something else to consider: When owning stock in just one company, or only a couple of them, portfolios aren’t diversified. When you diversify your investment assets, it helps to spread out the degree of risk. That’s because, if one stock’s value decreases, others may rise to balance out that portfolio.

The Takeaway

Direct stock purchase plans are when individual investors can directly purchase shares of that company’s stock without the need for broker involvement. The benefits of DSPPs potentially include purchasing company shares at a discount, and not needing a broker to make the transaction.

The downside of DSPPs is that a limited number of companies offer them, which means that an investor who invests solely through DSPPs may not have the best portfolio diversification. Plus, with brokerage commissions and fees rapidly shrinking, in many cases to zero, DSPPs have become a less essential way of cutting down trading costs for investors.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the difference between a brokerage and a direct stock purchase?

The main difference between a brokerage and a direct stock purchase is this: With a direct stock purchase, an investor buys shares of one company. A brokerage, on the other hand, offers multitudes of different stock options an investor may choose from.

What is direct stock vs portfolio stock?

With direct stock, an investor purchases shares of stock directly from a company. A portfolio refers to a collection of different types of investments an investor may have, including stocks, bonds, or stock funds, to name a few.

What is the difference between DSPP and DRIP?

By using a DRIP (dividend reinvestment plan), investors can buy more stock in companies whose shares they own by reinvesting what they earn from dividends. With a DSPP, an investor can purchase stock directly from a company. Unlike a DRIP, they don’t have to use dividends to purchase shares.

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

Sep

2023

Why College May Not Be for Everyone

By Anna Davies | Building Your Career, Life & Career, Student Loans, student_loan | No Comments

While college is a good option for many people, it isn’t for everyone — and not going to a four year college doesn’t mean you can’t have a meaningful career.

More people than ever before have a college degree, but a four-year program isn’t the only way to be successful. Even employers are realizing that there are many skills that can’t be captured in a degree program. In fact, some major tech companies, including Google and Apple, no longer require applicants to have a four-year degree for some of their positions.

There are certain jobs for which you need a college degree, like an electrical engineer, marketing manager, or teacher, but there are plenty of careers out there that don’t require additional degrees.

Table of Contents

Reasons You Should Not Go To College
Reasons You Should Go To College
Alternatives to a College Degree
If You Do Go the College Route

Key Points

• College may not suit everyone, and skipping it doesn’t preclude a successful career.

• Major tech companies are increasingly open to hiring individuals without a four-year degree.

• Specific careers require a college degree, but many do not.

• Alternatives like trade schools, apprenticeships, and certificate programs offer viable career paths.

• Taking a gap year or starting a business are potential options for those opting out of college.

Reasons You Should Not Go To College

There are a number of valid reasons to delay college — or put it off entirely. Here are some to consider:

• You’re not excited about your options. Maybe you didn’t get into the schools you expected to or you’re having second thoughts when you try to imagine yourself attending the schools you did get into. If the thought of college fills you with dread or doubt rather than excitement, taking a year off to reassess your options can be a good strategy.

• You’re unsure what career you are interested in pursuing. You may want to explore different options by being exposed to college-level courses at a community college, or spend time volunteering, working, or traveling.

• You’re already working. If you already have a job, you may be wanting to lean into your current job or save money to go to school in a few years.

• You’re exploring non-degree avenues. There are many high-paying trades that don’t require a degree but may require on-the-job experience or an apprenticeship.

• You have a plan for a gap year. Some people like to take a year to travel, work, or otherwise take a break in between high school and college to further explore their identity and what they want to do in the future.

• You feel you’re going to college only to please your family. If you feel pressured to go to college, it may be a sign that college isn’t the right option for you, at least right now.

• You have essential family obligations. Some students need to help their families and may not be able to take time off to go to school. These students may consider community college or a part-time degree program. Speaking with your current high school counselor may help you find ways to juggle multiple responsibilities.

• You want to take time to pursue a talent. From sports to the performing arts to a creative path, some people choose to explore a talent more seriously, focusing time, energy, and resources prior to going to college. This can be a decision you make with the help of your family and any coaches or teachers.

Refi now to pay off loans &
reach your goals faster with a shorter term.

Reasons You Should Go To College

College can be a great time to grow and learn and, for some, it’s a natural step. Here are some other reasons why college may make sense:

• You’re excited and realistic about college. You recognize college may have ups and downs but feel confident that college feels “right” as your next step — not just something your family or teachers expect from you.

• A college degree will help you achieve your career goals. You’ve done your research and/or talked with alums and people working in your targeted field and feel confident that college makes sense for your career goals.

• College fits into your overall financial plan. You have a sense of how much college will cost and a plan for how you will pay for it, which might include a combination of financial aid, savings, and federal or private student loans. You also want to make sure you will be able to manage any student loan payments after you graduate.

• You have a ‘Plan B’ in case you realize that college isn’t the right fit. Sometimes people realize one semester into school that college may not be what they need at that moment in their lives. It can be helpful to talk about what this may be, so that you don’t feel trapped if school doesn’t feel like it’s a good fit.

How Graduation Rates Vary by Type of College
Source: National Center for Education Statistics

Alternatives to a College Degree

Just because you aren’t interested in a four-year degree doesn’t mean you need to forgo higher education entirely. Alternative educational models, like trade schools and community colleges, offer many practical certification and two-year associate degree programs that can help you get ahead.

It is important to know that even if you’re not planning to pursue a four-year degree, you still have options when it comes to creating a career that is right for you.

💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

Trade School

Sometimes known as technical or vocational schools, trade schools can prepare you for a specific job, such as a dental hygienist, electrician, cosmetologist, or web developer. These programs are normally much shorter than four years, and certain programs may allow you to finish in only a few months. There are both public and private trade schools.

Trade schools don’t award bachelor’s degrees. Instead, when you graduate from a trade school, you typically receive a diploma or certificate indicating that you are trained and certified to perform a specific job. Some trade school programs do offer associate degrees, which are the same type of degrees offered by many community colleges.

Community College

As mentioned above, community colleges usually offer two-year degrees called associate degrees. These degrees can either stand alone or be a stepping stone to obtaining a bachelor’s degree at a four-year school.

Indeed, many community colleges offer career preparation programs that are designed to help students jump into the workforce without the need for a bachelor’s degree.

Community college could also be a great way to test out college life and see if you want to continue pursuing higher education. They tend to be much less expensive than four-year universities, which means it won’t cost you an arm and a leg before you decide if higher education is right for you.

Apprenticeships

Apprenticeships are paid positions designed to teach the apprentice about a specific job or industry. They can help you learn how to use industry-specific tools and technologies and help you develop your skills over a period of time. This may be in fields as diverse as plumbing to transportation engineering to baking.

Apprenticeships can be a win-win for employers and employees because they allow those starting out to begin working (and earning a paycheck) immediately, and they help employers fill vacant jobs.

Recommended: A Complete Guide to Apprenticeships

Certificate Programs

Similar and sometimes overlapping with trade schools, certificate programs offer specialized training in a specific area. This may include coding, cybersecurity, yoga, fitness, getting a commercial driver’s license (CDL) or other areas where specialized knowledge may be a prerequisite. These certificates may also be helpful in making job seekers eligible for positions with higher starting salaries.

Recommended: Are Coding Bootcamps Worth the Money?

Taking a Gap Year

A gap year is when a student takes a year off between high school and college. Some colleges allow accepted students to defer for a year, holding a place for them in the next year’s incoming class. Some people create a travel itinerary, others may work or volunteer for the year. There are some gap year programs that create opportunities for students, but keep in mind that some programs may be costly.

Starting a Business

If you are already passionate about — and have a lot of knowledge about — a specific field or industry, you might consider skipping college altogether and jumping into that business.

Starting your own business takes a lot of hard work, but it could mean that you get to be your own boss and work in an industry you love. And because you could quickly become an expert on the products or services you provide, you aren’t necessarily at a disadvantage because you lack a degree.

If You Do Go the College Route

There are plenty of options if you choose not to attend a four-year college. However, there are also options within the world of college, including the type of college you choose, the major you decide to pursue, and how you pay for college.

There’s no denying that college can be expensive. In the 2022-2023 school year, the average cost for tuition and fees at an in-state college was $10,423, while the average sticker price for a private college was $39,723. And, these numbers don’t include room and board. This can be a big financial commitment, especially if you are on the fence about pursuing higher education.

That’s why it can be a good idea to begin creating a payment strategy early. A great first step is to fill out the Free Application for Federal Student Aid (FAFSA) to see how much federal aid — including scholarships, grants, work-study, and federal student loans — you qualify for.

Federal student loans do have limits on how much a student can borrow each year they are enrolled in school. Some students may need additional funds to bridge the gap. In that case, some may consider borrowing a student loan from a private lender, such as a bank or credit union, to help cover college costs.

In general, it can be a smart idea to tap all your federal loan and grant options before you consider private student loans. That’s because federal loans offer some protections, such as deferment options, that private loans may not. However, private loans can cover up to 100% of the cost of attendance, including money to pay for books, room and board, and personal expenses.

💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

The Takeaway

College can lead students on a new career path, but depending on your goals and other factors, may not be necessary. Some students may choose to pursue a trade or vocational program instead of a four-year degree, while others may simply want to wait a year or so to earn and save more money to cover the cost of going to college.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.