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When an undergraduate’s financial aid doesn’t meet the cost of attendance at a college or career school, parents may take out a Direct PLUS Loan in their name to bridge the gap.

These loans are available to parents when their child is enrolled at least half-time at an eligible school. Before you apply, it’s important to understand the benefits and challenges of this kind of federal student loan.

A “Direct” Difference

First, to clarify, there are federally funded Direct Loans that are taken out by students themselves. Then there are federally funded Direct PLUS Loans, commonly called Parent PLUS Loans when taken out by parents to help dependent undergrads.

To apply for a Parent PLUS Loan, students or their parents must first fill out the Free Application for Federal Student Aid (FAFSA®).

Then a parent typically applies for a PLUS Loan on the Federal Student Aid site. A credit check will be conducted to look for adverse events, but eligibility does not depend on the borrower’s credit score or debt-to-income ratio.


💡 Quick Tip: Some lenders help you pay down your student loans sooner with reward points you earn along the way.

Pros of Parent PLUS Loans

At least 3.5 million parents (and in some cases, stepparents) have taken out Parent PLUS Loans to lower the cost of college. Here are some upsides.

The Sky’s Almost the Limit

The government removed annual and lifetime borrowing limits from Parent PLUS Loans in 2013, so parents, if they qualify, can take out sizable loans up to the student’s total cost of attendance each academic year, minus any financial aid the student has qualified for.

Fixed Rate

The interest rate is fixed for the life of the loan. That makes it easier to budget for the monthly payments.

Flexible Repayment Plans

The options include a standard repayment plan with fixed monthly payments for 10 years, and an extended repayment plan with fixed or graduated payments for 25 years.

More College Access

PLUS Loans can allow children from families of more limited means to attend the college of their choice.

Loan Interest May Be Deductible

You may deduct $2,500 or the amount of interest you actually paid during the year, whichever is less, if you meet income limits.

Recommended: Are Student Loans Tax Deductible?

Cons of Parent PLUS Loans

Many Parents Get in Too Deep

The program allows parents to borrow without regard to their ability to repay, and to borrow liberally, as long as they don’t have an “adverse credit history.” (If they did have a negative credit event, they may still be able to receive a PLUS Loan by filing an extenuating circumstances appeal or applying with a cosigner.)

The average Parent PLUS borrower has more than $29,000 in loans, a financial hardship for many low- and middle-income families.

And if a student drops out, parents are still on the hook.

Interest Accrual

PLUS loans are not subsidized, which means they accrue interest while your child is in school at least half-time. You’ll need to start payments after 60 days of the loan’s final disbursement, but parents can request deferment of repayment while the student is in school and for up to 6 months after. Interest will still accrue during that time.

The Rate

The current interest rate for Direct PLUS Loans is 8.05%

Origination Fee

The government charges parents an additional fee of 4.228% of the total loan.

Fewer Repayment Options

Parents who struggle with payments typically have access only to the most expensive income-driven repayment plan, which requires them to pay 20% of their discretionary income for 25 years, with any remaining loan balance forgiven. And parents must first consolidate their original loan into a Direct Consolidation Loan.

Options to Pay for College

Instead of PLUS Loans, private student loans may be used to fill gaps in need.

Private lenders that issue private student loans typically look at an applicant’s credit score and income and those of any cosigner. The lenders set their own interest rates, term lengths, and repayment plans. Some do not charge an origination fee.

You may want to compare annual percentage rates among lenders, and decide if a fixed or variable interest rate would be better for your financial situation.

Any time a student or parent needs to borrow money for education, a good plan is a good idea.

Sometimes scholarships can significantly reduce the amount of money that needs to be paid out of pocket for college, and personal savings and wages can also help. But it isn’t unusual for students to also need to take out loans.


💡 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.

Refinancing a Parent PLUS Loan

The goal of Parent PLUS Loan refinancing is to get a lower interest rate than the federal government is charging.

And student loan refinancing may allow children to transfer PLUS Loan debt into their name.

Refinancing could potentially lower your interest rate, which gives you the option to either:

•  Reduce your monthly payments

•  Pay the loan off more quickly, which may allow you to pay less interest over the life of the loan

Note that Parent PLUS Loans come with certain borrower protections, like the income-based repayment option and Public Service Loan Forgiveness, that you would lose if you refinanced. Also note that if you refinance with an extended term, you may pay more interest over the life of the loan.

Eligibility for refinancing Parent PLUS loans depends on factors such as your credit history, income, employment, and educational background.

The Takeaway

Millions of parents have used federal Parent PLUS Loans to help pay for their children’s college education. Anyone tempted to take out one of these loans may want to know the pros, cons, and options.

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.

SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOIS0723033

Expected Family Contribution (EFC), which will soon be replaced by the Student Aid Index (SAI), is a measure of how much a student and their family can be expected to contribute to the cost of college for an upcoming academic year. Your EFC/SAI is an important number because it impacts how much need-based financial aid you qualify for.

EFC meaning is sometimes mistaken as the dollar amount that a student and their family will pay for college. However, the amount families end up paying could be significantly more or less than the EFC, depending on the cost of attendance and scholarships.

As a result of this confusion, the EFC will be replaced by the Student Aid Index (SAI) starting in the 2024-2025 academic year. While the name change is essentially just a rebranding, there will be some changes in how a family’s expected contribution will be calculated. The change is part of the new, simplified Free Application for Federal Student Aid (FAFSA) that will be available to students in December 2023.

Here’s what you need to know about EFC/SAI and how it affects your potential aid.

Expect Family Contribution vs Student Aid Index

The Expected Family Contribution and Student Aid Index are essentially the same thing — an estimate of how much money a family can contribute out of pocket toward a student’s college education based on information provided on the FAFSA.

However, it’s only an estimate. As college tuition has gone up over the years, many students will pay significantly more than the EFC/SAI amount that the FAFSA form generates. The change from Expected Family Contribution to Student Aid Index reflects that the amount is simply a guideline, not a determination of what an applicant will pay. The switch to SAI also comes with some differences in how a family’s EFC is calculated (more on that below).

Like EFC, SAI is a vital metric used to determine how much — if any — federal financial aid students will receive to help them pay for college. However, it’s not the only factor. Eligibility for federal aid also takes into account a student’s year in school, enrollment status, and the cost of attendance at the school the student will be attending.


💡 Quick Tip: Some lenders help you pay down your student loans sooner with reward points you earn along the way.

How Colleges Used the Information

Once you complete the FAFSA, college financial aid staff will use all the information provided to determine your financial need.

Here’s the process:

1. The college financial aid staffers decide your cost of attendance (which includes tuition, fees, room and board, and books) at that school.

2. They then consider your EFC/SAI.

3. Next, they subtract your EFC/SAI from your cost of attendance to determine how much need-based aid you can get.

For example, let’s say a school’s total cost of attendance is $30,000 and your EFC/SAI is $8,000. You could qualify for up to $22,000 of need-based aid through programs like federal Pell Grants, direct subsidized loans, and the work-study program.

That doesn’t necessarily mean you will get that much aid, however. Colleges aren’t required to meet 100% of a student’s demonstrated financial need (the total cost of attendance minus your EFC/SAI). The amount you receive will depend on funding availability at your school, and how much has already been given out to other students.

Generally, the lower the SAI/EFC value, the higher the financial need, and the greater the eligibility for federal financial aid programs, such as Pell Grants, Direct Subsidized Loans, federal work-study programs.

Your offer of financial aid may change from year to year.

How Your EFC/SAI Is Calculated

EFC/SAI methodology utilizes financial information from the FAFSA (such as taxed and untaxed income, investments, assets, benefits, and household size) to quantify an applicant’s financial need. With the change to a simplified FAFSA, however, students and families will not only see a different measure of their ability to pay (SAI vs EFC), but will also experience a change in the methodology used to determine aid.

One key change is that, unlike the EFC, the SAI will not factor in the number of family members currently enrolled in college (which benefited families with multiple children in college). Three other changes that will happen with the switch from EFC to SAI:

•  Unlike the EFC, SAI can be a negative number (as low as -$1,500). This enables financial aid officers to better differentiate levels of need.

•  SAI will increase the Income Protection Allowance (IPA), which shelters a certain amount of parent income from being included in the calculation of total income.

•  The SAI calculation will eliminate the EFC allowance for state and local taxes.

After you complete the FAFSA, your EFC/SAI will be listed in the top right corner of your Student Aid Report, which outlines financial aid eligibility.

Calculating EFC/SAI With the CSS Profile

Around 200 colleges require students to provide supplemental financial information through the College Scholarship Service (CSS) Profile. The 2023-2024 list of participating institutions is available online .

Colleges may customize their questions on the CSS Profile to capture more information to evaluate a student’s financial need. For instance, the CSS Profile may ask about home value and financial information from both households if a student’s parents are separated. The CSS Profile may also consider the regional cost of living and personal circumstances in its calculation of financial need.

These colleges use the CSS Profile to calculate a different EFC/SAI for awarding their own financial aid funds. Typically, they will use their own institutional EFC/SAI methodology when determining a financial aid award.

While filling out the CSS Profile is extra work, it can give you access to private student aid from many universities and scholarship programs. However, the CSS is not used to determine federal financial aid.

Federal Need-Based Aid Available for Qualifying Students

Depending on your EFC/SAI and other eligibility criteria, a financial aid package could include the following need-based federal student aid programs.

•  Federal Pell Grant: Student eligibility for a Pell Grant is determined by financial need and the funding amount can fluctuate each year. For the 2023-2024 academic year, the maximum award is $7,395. The amount an individual student may receive depends on a number of factors.

•  Federal Supplemental Educational Opportunity Grant (FSEOG): Participating schools receive a set amount of federal funding that is distributed to students based on financial need each year. Eligible students can receive between $100 and $4,000 a year based on funding availability and their overall financial aid package.

•  Direct Subsidized Loans: Undergraduate students with financial need may qualify for subsidized loans — a type of federal student loan that does not accrue interest payments while you are in school at least half-time. Students also receive a six-month grace period on interest payments after graduation and may qualify for a deferment based on income, health, continuing education, military service, and other factors.

•  Federal Work-Study: This program provides part-time employment for undergraduate and graduate students with financial needs at participating schools. The total work-study award depends on the level of need, the timing of application, and a school’s available funding.

💡 Quick Tip: Federal student loans carry an origination or processing fee (1.057% for Direct Subsididized and Unsubsidized loans first disbursed from Oct. 1, 2020, through Oct. 1, 2024). The fee is subtracted from your loan amount, which is why the amount disbursed is less than the amount you borrowed. That said, some private student loan lenders don’t charge an origination fee.

Fill Out the FAFSA Early?

Even if you qualify for a specific amount of need-based aid, you may not receive all of it. That’s because the amount a student receives depends on the available funding at their school.

Colleges are not required to meet 100% of a student’s financial need, and some programs like the Pell Grant have limited funds that are divided up among schools each year.

It can be a smart idea to fill out the FAFSA as soon as possible to ensure they are among the first in line to receive available aid.

Typically, the FAFSA is available as of October 1 for the following academic year. However, the simplified FAFSA will not be available to students until December 2023 for the 2024-25 academic year. You have until June 30, 2024 to fill it out, but earlier may be better than later. Stay tuned for more updates on the new FAFSA deadline.

Bridging the Financial Gaps

Once you get your EFC/SAI and financial aid package (which may include scholarships, grants, work-study, and federal loans), you may find there are still some gaps in funding. If you’ve already exhausted federal loan options, you might consider looking into the possibility of getting a private student loan.

Unlike federal student loans, private loans require a credit check. Students who have strong financials (or who have cosigners who do) generally qualify for the best rates and terms. Just keep in mind that private loans don’t come with government protection programs, like forgiveness or forbearance, offered by federal student loans.

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.

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

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

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOIS0723017

Private companies often choose to go public in the country that offers the brightest prospects for a successful IPO. Sometimes, that means getting listed on a stock exchange in the company’s home country — but sometimes it makes more sense to list in a foreign market.

So, while many U.S. investors focus primarily on domestic companies, it’s also possible to invest in an international IPO.

Likewise, foreign companies can choose to launch their IPO on U.S. stock exchanges, such as the New York Stock Exchange (NYSE) or Nasdaq. And in some cases, a company could choose to do both through a global IPO.

Investing in IPOs, international or domestic, may appeal to certain investors who want more geographic diversity within their portfolio, and understand the risks of doing so. Knowing how these IPOs work and where to find them is the first step.

What Are International IPOs?

An international IPO is an initial public offering from a private company that takes place outside of that company’s home country. For example, a company based in South Korea decides to go public but instead of listing on the Korea Exchange (KRX), it wants to list on an American exchange.

If the company successfully meets the regulatory requirements established by the Securities and Exchange Commission (SEC), it could move forward with an international IPO. International investors could then purchase shares of the company once it begins trading on the NYSE or Nasdaq.

In most cases, an investor must apply or qualify to buy IPO shares through their brokerage, as these stocks can be restricted in certain ways, limited in quantity, and come with a much higher risk level than other types of stocks.

There are a number of reasons and companies may choose an international IPO. Those include:

•   More lenient regulatory requirements for securities on a foreign exchange than those of the home country.

•   Better prospects for raising capital through an IPO on a foreign exchange.

•   More credibility versus listing on its home country’s exchange.

The most important thing to keep in mind with foreign companies that list on U.S. stock exchanges is that they must complete the IPO process just like a domestic company would.


💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

Understanding IPOs

When discussing IPOs, “international” refers to public launches involving companies that are foreign to the market they plan to list in. But what is an IPO in general?

In simple terms, an IPO represents the first time that a private company allows investors to purchase shares on a public stock exchange.

Why do companies choose to go public? The answer can depend on the company and its overall business plan. In most cases, the answer is to raise capital so the company can continue to grow and expand. Companies don’t enter into the IPO process lightly, however, as it can be time-consuming and costly.

In the United States, the SEC regulates the IPO process. An IPO can take upwards of a year to complete, as the company moves through the various phases, including:

•   Due diligence

•   SEC review

•   Road show

•   Valuation

•   Launch

International IPO Funds

With domestic companies, it’s possible to purchase IPO stock on the day the company goes public, using an online brokerage account. In the case of companies that offer pre-IPO placements, it may also be possible to purchase shares before they’re made available to the market at large. Effectively, you’re investing in a private placement.

When investing in international IPOs, you may choose to invest through IPO mutual funds or international exchange-traded funds (ETFs) instead. You might go this route if you want more diversification, or if you don’t have access to IPO shares.

When comparing international IPO ETFs or international mutual funds, it’s important to consider a few things, including:

•   Underlying holdings (i.e. which sectors does the fund include, what countries does it offer exposure to)

•   Expense ratios

•   Management style (i.e. active versus passive)

With either type of fund, you’d also want to consider the track record and performance, particularly in the case of actively managed funds with a higher expense ratio. This can help you determine if a higher returns justify a higher expense ratio.


💡 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.

International IPO ETFs

What is an exchange-traded fund (ETF)? An ETF is a type of pooled investment that combines features of both mutual funds and stocks. Essentially, it’s a mutual fund that trades on an exchange like a stock.

This feature makes ETFs different from mutual funds. However, like mutual funds, ETFs have an expense ratio that reflects the annual cost of owning the fund over the course of a year. ETFs can follow an active or passive management strategy, with some funds using an index-based approach.

For some investors, international ETFs that concentrate holdings on companies that go public in foreign markets could make sense since they provide diversified exposure to newly listed non-U.S. companies in a single investment vehicle.

International IPO Mutual Funds

Mutual funds are also pooled investments, meaning multiple investors contribute funds used to buy underlying securities. Each investor in the fund assumes a share of the fund’s earnings (or losses), based on the number of shares they own.

The key difference between mutual funds and exchange-traded funds is how they’re bought and sold. Rather than trading on an exchange like stocks, traders settle mutual fund transactions once a day.

Mutual funds that invest solely in international IPOs may be harder to come than international IPO ETFs. But there are mutual funds that focus on international holdings.

How to Find International IPOs to Invest In

You may be able to purchase international IPOs or international IPO funds through your brokerage account.

To find potential investments, you might use an online resource like the Nasdaq IPO calendar, which lists all upcoming IPO dates. This can help you identify potential investment opportunities for upcoming international IPOs or global IPOs. Investing websites that report on the latest market trends and news offer another way to gain information about foreign companies that are pursuing international IPOs.

Recommended: How to Find Upcoming IPO Stocks Before Listing Day

Key Things to Consider When Investing in International IPOs

If you’re looking to international IPO funds for investment, consider the following:

•   What the fund holds (both the companies and the geographies)

•   The expense ratio, or costs associated with the fund

•   The fund manager’s strategy (or the index it follows)

•   If you’re investing in multiple international IPO funds, consider whether there’s any overlap in the holdings that might reduce your diversification

Evaluating international IPOs is similar to evaluating domestic IPOs. The company’s prospectus provides important information about the offering. Though keep in mind that a red herring prospectus may not disclose full details about the company’s financials or organizational structure.

It’s also important to consider risk factors unique to a foreign company that could affect its IPO outcome. A company located in a country that’s experiencing geopolitical turmoil or economic impact related to climate change, for instance, may have a higher risk profile than a company that isn’t facing those types of threats. So getting familiar with a company’s economics, politics and geography may be helpful before investing in an international IPO.

The Takeaway

IPOs allow investors to get in on the ground floor of an up-and-coming company. Whether you choose to invest in domestic IPOs or international IPOs, it’s important to understand, however, that they can also represent a riskier investment than an established public company.

International IPOs come with their own special set of concerns. While qualified U.S. investors may have access to IPO shares, it’s important to read the prospectus of international companies carefully, understand the product and the market you’re investing in, and vet the terms of any IPO international stock before you choose to buy it.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

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