How Much Debt Does the U.S. Have and Who Owns It?

How Much Debt Does the United States Have and Who Owns It?

When consumers spend more than they make, they often find themselves in debt. The same is true for countries, and the United States is no exception. When the United States spends more than it earned through taxes and other revenue sources, it creates a deficit.

The United States borrows money, typically by issuing Treasury securities, such as treasury bills (T-Bills), notes (T-Notes) and bonds (T-Bonds), to cover that difference. Every year the United States cannot pay the deficit between revenue and expenses, the national debt grows.

Here’s everything you need to know about the national debt, how it impacts the American economy, and who owns US debt.

How Much Debt Does the US Have?

As of July 2023, the United States is $32.47 trillion in debt and that number continues to climb. Some economists prefer to look at national debt as a percentage of gross domestic product (GDP). At 118.5%, the current US debt level is higher than the country’s GDP.

Who Is the US in Debt to?

There are generally two categories of debt: intragovernmental holdings and debt from the public. The debt that the government owes itself is known as intragovernmental debt. In general, this debt is owed to other government agencies such as the Social Security Trust Fund.

Because the Social Security Trust Fund doesn’t use all its generated capital, it invests the excess funds into U.S. Treasuries. If the Social Security Trust Fund needs money, it can redeem the Treasuries. As of June 2023, intergovernmental debt hovers around $6.87 trillion, making the US government the largest single owner of US debt.

The public debt consists of debt owned by individuals, businesses, governments, and foreign countries. Foreign countries own roughly one-third of U.S. public debt, with Japan owning the largest chunk of American debt hovering around $1.1 trillion. US debt to China ranks second, with that country owning roughly $859 billion of American debt.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

What is The History of the National Debt?

Since the founding of the United States and the American revolution, debt has been a grim reality in America. When America needed funding for the Revolutionary War in 1776, it appointed a committee, which would later become the Treasury, to borrow capital from other countries such as France and the Netherlands. Thus, after the Revolutionary War in 1783, the United States had already accumulated roughly $43 million in debt.

To cover some of this debt obligation Alexander Hamilton, the first Secretary of the Treasury, rolled out federal bonds. The bonds were seemingly profitable and helped the government create credit. This bond system established an efficient way to make interest payments when the bonds matured and secure the government’s good faith state-side and internationally.

The debt load steadily grew for the next 45 years until President Andrew Jackson took office. He paid off the country’s entire $58 million debt in 1835. After his reign, however, debt began to accumulate again into the millions once again.

Flash forward to the American Civil war, which ended up costing about $5.2 billion. Because the war dragged on, the U.S. was strained to revamp the financial systems in place. To manage some of the debt at hand, the government instituted the Legal Tender Act of 1862 and the National Bank Act of 1863. Both initiatives helped lower the debt to $2.1 billion.

The government borrowed money again to fuel World War I, and then substantially more money to pay for public works projects and attempt to stem deflation during the Great Depression, and even more to pay for World War II, reaching $258 billion in 1945.

Since 1939, the United States has had a “debt ceiling,” which limits the total amount of debt that the federal government can accumulate. The Treasury can continue to borrow money to fund government operations, but the total debt cannot exceed the prescribed limit. However, Congress regularly raises the ceiling. The latest change came in June 2023, when President Biden signed a bill that suspended the limit until January 2025 in exchange for imposing some cuts on federal spending.

Since the debt ceiling was first introduced, American debt’s growth continued growing, with the pace accelerating in the 1980s. US debt tripled between 1980 and 1990. In 2008, quantitative easing during the Great Recession more than doubled the national debt from $2.1 trillion to $4.4 trillion.

More recently, the national debt has increased substantially, with Covid-related stimulus and relief programs adding nearly $2 trillion to the national debt over the next decade.

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

Why The National Debt Matters to Americans

As the national debt continues to skyrocket, some policymakers worry about the sustainability of rising debt, and how it will impact the future of the nation. That’s because the higher the US debt, the more of the country’s overall budget must go toward debt payments, rather than on other expenses, such as infrastructure or social services.

Those worried about the increase in debt also believe that it could lead to lower private investments, since private borrowers may compete with the federal government to borrow funds, leading to potentially higher interest rates that can affect investments and lower confidence.

In addition, research shows that countries confronted with crises while in great debt have fewer options available to them to respond. Thus, the country takes more time to recover. The increased debt could put the United States in a difficult position to handle unexpected problems, such as a recession, and could change the amount of time it moves through business cycles.

Additionally, some worry that continued borrowing by the country could eventually cause lenders to begin to question the country’s credit standing. If investors could lose confidence in the US government’s ability to pay back its debt, interest rates could rise, increasing inflation or other investment risks. While such a shift may not take place in the immediate future, it could impact future generations.

The Takeaway

The national debt is the amount of money that the US government owes to creditors. It’s a number that’s been steadily increasing, which some investors and policymakers worry could have a negative impact on the country’s economic standing going forward.

Some economists believe that the growing national debt could lead to higher interest rates and lower stock returns, so it’s a trend that investors may want to factor into their portfolio-building strategy, especially over the long-term.

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


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


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SoFi Invest®

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

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

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.

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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Purchasing Power 101: Examining the Value of the US Dollar

Purchasing Power 101: Examining the Value of the US Dollar

Purchasing power is a concept used to express the amount of goods and services a consumer or business can buy with a given unit of currency. In the United States, purchasing power is directly linked to the value of the dollar.

Due to inflation, a dollar today typically won’t go as far as it did last year. And a dollar next year won’t buy the same things that it did this year. This fluctuation in US dollar purchasing power is constant, and goes unnoticed, except in times of extreme inflation.

How Does Purchasing Power Impact Investors?

Once you understand the purchasing power definition, you can start to understand its context for investing. The purchasing power of a dollar affects investors because it makes an impact on virtually every aspect of the broader economy. When the dollar buys less, it changes the shopping decisions of consumers, the hiring practices of employers, the strategic decisions of corporations, and the monetary policy of the Federal Reserve.

One way to track inflation and purchasing power of a dollar is the Consumer Price Index (CPI), a statistic compiled by the US Bureau of Labor Statistics (BLS), which reports the figure every month. The statistic measures the average of prices of a set of goods and services in sectors such as transportation, food, and healthcare. Economists consider it a valuable gauge of the ever-changing cost of living, though it does exclude some important spending categories, including real estate and education.

Investors, executives and policymakers use CPI as a lens through which to scrutinize other economic indicators, including sales numbers, revenues, earnings and so on. It also determines the payments made to the millions of people on Social Security, which gets adjusted for the cost of living every year, and retirees drawing a pension from the military or the Federal Civil Services.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Why Does the Value of the Dollar Change?

A number of factors drive the value of the US dollar, including large scale factors having to do with economic cycles, government politics and international relations. But the dollar has also experienced inflation for most of the last century.

Inflation rose after World War I amid increased demand for food and other raw materials, which raised prices of most consumer goods up until the Great Depression, in which the country experienced prolonged deflation.

That’s when President Franklin Roosevelt stepped in with a surprising policy decision: He banned private ownership of gold, and required people to sell their holdings to the government. That allowed the Federal Reserve to increase the money supply and stop deflation in its tracks.

Since 1933, through World War II, the Cold War, and a host of changing monetary and economic policies, the US dollar has seen various rates of inflation. It reached its peak during the late 1970s and early 1980s oil and gas shortages exacerbated existing inflation and led to a gas shortage, and an increase in the price of manufacturing and shipping of nearly every single consumer good.

Inflation rose at a more steady pace through the 1990s, falling to historically low levels in the past decade. One reason for the ongoing inflation is that the Federal Reserve continually increased the money supply via economic stimulus. The logic is simple supply and demand: If there are more dollars, then each one is worth less in terms of purchasing power.

In response to the Covid-19 pandemic and the ensuing lockdowns, the Federal Reserve injected trillions into the economy. That, along with other stimulus measures, has had many investors worried about the impact on the purchasing power of the dollar, and what that might mean for the broader economy. In 2022, inflation rose at the fastest pace in 40 years, making prices more expensive and resulting in many consumers having less money to spend.

What Purchasing Power Means for Investors

Generally, investors consider inflation a headwind for the markets, as it drives up the costs of materials and labor, boosts the cost of borrowing and tends to reduce consumer spending. That all tends to translate to lower earnings growth, which can depress stock prices.

But after decades of steady inflation, the markets have priced in a certain amount of shrinkage when it comes to the purchasing power of the dollar. Inflation has a great impact when it occurs suddenly and unexpectedly.

But inflation can have benefits for investors as well. During an economic upswing, inflation is a reliable side effect of prosperity, since economic booms produce higher profits, which drives up the markets. Historically, some experts say that the decades when the S&P 500 Index has delivered the highest returns have been when inflation has been between 2% to 3% annually.

Investors saving for long-term goals, such as retirement, must take declining purchasing power into account when determining how much they’ll need to reach those goals.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

How Does Inflation Influence Stocks?

Inflation impacts different types of stocks differently, and there are several strategies that investors can use to hedge against inflation. During periods of high inflation, growth stocks tend to underperform, simply because so much of their value is tied up in the expectation of future earnings, and inflation diminishes those expectations.

Value stocks, on the other hand, typically boast steadier earnings, and are valued in line with those earnings. As a result, value stocks, as a category, tend to hold up better during periods of high inflation.

Other investments to consider during periods of high inflation include dividend-paying utility stocks and REITs, gold and other commodities. And because periods of high inflation usually brings higher interest rates, it can be a good time to buy bonds, especially government bonds

The Takeaway

The value of the dollar, in terms of what it can buy, changes over time, but inflation isn’t always bad news for investors. Some stocks may perform better than others in an inflationary environment, and higher interest rates may be good news for bond investors and savers.

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


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

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SoFi Invest®

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

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

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.

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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How to Use Social Media for Investing Tips: The Smart Way

How to Use Social Media for Investing Tips: The Smart Way

Social media has become an important news source for many people, including investors looking for ideas to guide their strategy. That said, social media users must be careful when sifting through the vast quantities of information on the web to make sure they’re relying on legitimate sources.

There are a variety of social media platforms that investors use for information, including Twitter, Facebook, LinkedIn, Stocktwits, and even TikTok. While there are potential benefits to using social media to invest, there are also plenty of pitfalls.

Why Understanding Social Media Investing Is Important

In 2013, the Securities and Exchange Commission (SEC) allowed companies to start using social media platforms like Facebook and Twitter to communicate information to investors. As long as companies tell investors which website to check, they can use social media to announce information like company metrics that may influence stock price. Individuals interested in investing in a particular company may want to follow that company directly to stay abreast of breaking news.

Social media can also be an important place to gather information from analysts and financial bloggers who post their thoughts about stocks and news events or upcoming IPOs. Since these folks are typically reacting to news, following them may be a way to stay on top of popular investment trends. More than a third of young investors say that they now use social media to look into possible investments, making it their most popular source of investing information ideas.

Recommended: 10 Popular Investing Trends

Recently, social media has entered the investment space in a new way with the rise of meme stocks. Meme stocks are companies that experience increased volume in trades due to hype on social media. Perhaps the original, and most famous, meme stock is GameStop. Retail investors encouraged each other to buy shares of the company over the subreddit message board r/wallstreetbets to force a short squeeze among hedge fund investors betting against the stock. Together these retail investors drove the share price up nearly 8,000% by late January 2021 to $86.88 a share.

Because investor sentiment, rather than company fundamentals, often fuels meme stock price increases, they can be extremely volatile. While meme stock investing can be exciting, it can also expose investors to large amounts of risk. As of July 2023, GameStock was down to $23.50 a share.

💡 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.

How to Use Social Media When Investing

Individuals aren’t the only ones using social media to guide their investing decisions. Fully 80% of institutional investors said that social media is part of their regular workflow. If you want to use social media as a way to inform your investment decisions, there are a few strategies to consider.

1. Follow Companies in Which You Invest (or Want to Invest)

Directly following a company’s social media accounts ensures the information you receive is timely and accurate.

2. Follow Informed Experts

Follow news sources, journalists, and analysts who cover the companies and sectors, such as healthcare or electric vehicles, in which you’re interested. Consider people who have large followings, a good clue that they provide information that is useful to a broad range of investors.

3. Use Tech Tools

Some brokerages offer social media tools such as social sentiment trackers that aggregate and analyze information that’s posted on social media sites. For example, some firms use software to compile information from Tweets, blog posts, and messages. Others offer in-house social media platforms that allow investors to communicate with each other to discuss trading ideas. Or they may offer crowd-sourced research and analysis, using a website or app to gather ideas and opinions from the public at large. For example, analysts, investors and academics might weigh in with their thoughts on earnings estimates.

It’s important for investors to beware that these tools can be inaccurate or misleading. Data gathered from social media may be old, or contain hidden agendas. Read all disclosures offered by social sentiment tools to understand how they collect data and any risks or conflicts of interest.

Recommended: Understanding Market Sentiment

Social Media Investing Mistakes to Avoid

While social media can be a helpful tool for investors, it also has several pitfalls that investors should understand.

1. Impulsive Decisions

Information driven by social media, such as discussion boards or buy/sell indicators based on social sentiment can drive investors toward emotional investing, especially when information appears in real time. Impulsive investments carry additional risks. Trading securities without proper due diligence can lead you to buy stocks as prices are peaking, or sell as prices tumble, locking in losses and missing out on potential rebounds. Avoid allowing social media to feed the tendency to time the market.

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

2. Failing to Do Your Own Research

Think of information you get from social media as a jumping-off point, something that sparks your interest and leads you to do more research.

For example, if someone posts about how great they think a stock is, take a look at the company’s financials yourself. Look at past and present earnings reports to understand trends. You can find out this and other information on a company’s quarterly report. Look at the annual report as well. It will let you know about any risks the company foresees in its future. In addition, look at what a number of analysts are predicting the company’s earnings will be in the future.

You may also want to consider broader economic indicators or market measures, such as the Fear & Greed Index.

3. Trusting Bots

Bots are programs—not humans—built to engage on social media. It’s not always clear what their agenda is, and they certainly don’t have your best interests in mind. There are several signs that an account could be a bot, including:

• No profile picture

• Strange numbers of characters in the account name

• Posting at irregular hours

• Repetitive, formulaic language

• Repeated posting on the same subject or the the link

The Takeaway

Social media has become an important way to gather investment information. But learning to recognize reliable sources is critical to finding accurate and useful information to create a strategy whether you’re investing in stocks, bonds, options, or other financial securities. What’s more, investors must understand the behavioral biases that social media investing can trigger, namely the temptation to time the market.

To avoid this pitfall, create and follow a long-term financial plan. Use social media to research stocks and funds that fit your plan, including your time horizon and tolerance for risk.

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


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

Photo credit: iStock/GOCMEN


SoFi Invest®

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

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

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.

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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11 Strategies for Paying for College and Other Expenses

For the 2022-2023 school year, the average cost of tuition and fees for a four-year private college was $39,400, $28,240 for a public four-year college (out-of-state) and $10,950 for a public four-year college (in-state), according to the College Board.

Add in other living expenses and it’s no surprise that students and their families often rely on a combination of funding sources to pay for their education. Students may turn to savings, scholarships, grants, and student loans to find enough money to pay for college.

11 Ways to Pay for College and Other Expenses

Paying for college, plus living expenses, often requires a hodgepodge of funding sources. As mentioned, students rely on things like scholarships, grants, in addition to student loans.

Students attending trade school or community college may also be able to use these sources of funding to pay for their education. Continue reading for details on different ways to pay for college.

1. Fill Out FAFSA and See What Aid You Qualify For

The Free Application for Federal Student Aid, better known as FAFSA®, is the application students will fill out if they are interested in securing any form of federal financial aid. This includes federal scholarships, grants, work-study, and loans. Many schools will also use information provided on the FAFSA to determine school-specific scholarships or grants.

Completing the FAFSA is free — it requires a bit of time, but that’s worth it if you qualify for much-needed funding to pay for schools.

Be sure to compare financial aid packages from each college to understand the net cost at each. Some colleges may have more expensive sticker prices, but offer more aid.

2. Applying for Scholarships

Many colleges and private organizations offer merit-based scholarships. This means money is awarded based on academic or athletic ability, not financial need. There are plenty of databases and scholarship search tools that can help students find scholarships.

Scholarships often have specific requirements, so read the criteria carefully. For instance, you might need to live in a certain state or major in a particular subject to qualify. If you’re unsure whether you qualify, contact the scholarship sponsor.

Recommended: What Is a Scholarship & How to Get One?

It may also benefit you to start researching scholarships early. Gather required documents and information to apply so that you are ready to meet any early deadlines. Many scholarships require you to submit a high school transcript, your standardized test scores, a financial aid form, and information about your family’s finances, including your parent’s tax returns from the previous year.

Many scholarships also require you to write an essay and provide at least one letter of recommendation. Be sure to follow all the directions carefully and to keep copies of your application.

3. Applying for Grants

Unlike scholarships, most grants are based on financial need, not academic achievement. The largest source of need-based grants is the federal government’s Pell Grant program, but there are other federal student grants available.

To qualify for a Pell Grant, you must be a U.S. citizen attending either a two- or four-year undergraduate program. If you have already earned a baccalaureate or professional degree, you won’t be eligible for a federal grant, so this link has four simple steps if you’re looking for ways to pay for graduate school.

Pell Grant amounts are based on financial need, the cost to attend your college, and your enrollment status. The amount awarded will vary based on those factors, but the current maximum award is $7,395 for the 2023-2024 academic year.

Many states also distribute grants. Check out SoFi’s financial aid database with state-by-state guides.

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4. Asking the College for More Money

While it may seem like a bold move, one strategy for obtaining additional student aid might be asking the college to provide a larger financial aid package. Appealing a financial aid decision is a possibility, but there are no guarantees. Financial aid awards are usually based on information provided on the FAFSA, and in some cases changes in financial circumstances can lead to an amended financial aid award. Some colleges and universities might also be willing to match a more competitive financial aid offer from a comparable school.

The appeals process might vary based on the school’s policies, so check in with the financial aid office or review the school’s website to determine the exact process.

Many schools will require a letter of explanation. Depending on the circumstances, documentation might be necessary to supplement the information detailed in the appeals letter.

5. Getting a Part-Time Job

Another way to pay for college is to look for a part-time job, either on or off campus. Campus career services offices may also have resources for students looking for part-time work and may even help with resume writing.

Websites popular with college students looking for work during the academic year include QuadJobs , WayUp , and Upwork .

Students looking for part-time jobs may want to consider the following types:

Student Research Positions

Bolster your resume while working as a lab assistant or teaching assistant. Some colleges and universities may have research positions available for undergraduate students.

Jobs with Tuition Reimbursement

Some companies may offer tuition reimbursement or support to part-time employees. This means you could earn money to boost your income and also gain some extra funding to pay for your tuition. For example, at Starbucks, part-time employees may qualify for the company’s education assistance program.

Applying for Internships

Internships can be a good way to help you gain work experience and round out your resume. While some internships are unpaid, if you can secure a paid internship it could allow you to earn some extra money and build skills directly applicable to your future career.

6. Applying for a Tax Credit

Qualifying students — or their parents, if the student is a dependent — may claim the American Opportunity Tax Credit (AOTC) for up to $2,500 for each eligible child attending college. To be eligible, the student must:

•   be enrolled in a degree program at least half time for one academic period.

•   have not finished the first four years of higher education at the beginning of the tax year.

•   have not claimed the AOTC (or the former Hope credit) for more than four tax years.

•   have not had a felony drug conviction at the end of the tax year.

Another tax credit, the Lifetime Learning Credit (LLC) , is also available for qualifying students, but cannot be claimed for the same student on an individual tax return. The maximum benefit of the LLC is $2,000 per tax return, and there is no limit on the number of tax years the credit can be claimed.

Requirements for either of these tax credits may change from year to year, so it’s recommended to check the most recent information before claiming the credit.

7. Federal Student Loans

The U.S. The Department of Education oversees the Federal Direct Loan Program which offers a few different types of student loans. Undergraduate students may qualify for subsidized or unsubsidized loans.

Subsidized loans are awarded based on financial need. The interest accrued on a subsidized loan is covered by the Department of Education while the borrower is enrolled at least half-time, during the grace period, and during periods of deferment.

Unsubsidized loans don’t have a financial need requirement, and borrowers are responsible for paying the interest on an unsubsidized loan once it’s disbursed.

Parents of undergraduate students or graduate students may also qualify for Direct PLUS Loans. Unlike other types of federal loans, a credit check is required for a Direct PLUS Loan.

8. Work-Study

Some students may have been awarded Federal Work-Study as part of their federal student financial aid package. This program is administered by individual colleges or universities, so check with the financial aid office to see if the school participates in the program.

If you are awarded work-study, you’ll still need to find a job that qualifies for the program. Many schools will run an on-campus job database for this sort of thing. Based on your financial aid award, you’ll be allowed to work a certain number of hours each week.

9. Private Student Loans

If you aren’t awarded a scholarship or grant and have exhausted your federal loan options, there are a variety of private student loans you can apply for to help pay for college.

Private loans are offered by banks, credit unions, and other financial institutions. They are not need-based or subsidized, and the lender will often review your credit score among other financial factors. In some cases, you may need to add a cosigner to your application to be approved.

Interest rates and terms vary from lender to lender, so compare loan options before committing.

10. Use Your Savings

If you’re lucky enough to have money saved away for college, put it to work! Some students may have a 529 savings plan set up in their name. A 529 savings plan is a dedicated college fund that offers certain tax advantages. Money contributed to the plan is invested and can be withdrawn tax-free if it is used for qualified education expenses.

Recommended: Guide to Paying for College for Parents

Using money saved up could help you take on less student loans or make it so you can work fewer hours at a part-time gig.

11. Income-Share Agreements

Income share agreements are made between a student and the school they attend. The college or university lends the student money required to pay for their educational costs, and in exchange the student agrees to pay a share of their future earnings for a fixed amount of time after graduation.

Unlike a student loan where the amount you repay is determined by the interest rate on the loan, the amount you repay for an income share agreement can fluctuate based on how much you earn after you graduate.

Income share agreements can be helpful for students who have exhausted their federal loan options. A potential negative is that students who are high-earners after graduation may end up repaying more than they would if they had borrowed a more traditional loan.

The Takeaway

One place to start figuring out how to pay for college is by speaking with a guidance counselor and doing some research about financing college costs. Understanding the options available can help you and your family figure out what types of funding work best for your situation. Students can use a combination of funding — from student loans to grants and scholarships — to pay for their education.

No-fee private student loans from SoFi may be an option to help students pay for school after all federal student aid options have been exhausted. The application process can be completed easily online and you can see rates and terms in just a few minutes. Flexible repayment plans allow borrowers to select the option that best suits their 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.

FAQ

Does anyone actually pay full price for college?

Some students pay the full sticker price for college. According to data from the National Center for Education Statistics, from 2009 to 2020, nearly 87% of first-time degree seeking students at four year universities received some form of financial aid.

Can you borrow from a 401(k) to pay for your child’s college?

It is possible to borrow a loan against your 401(k) to pay for your child’s college education. However, when you borrow against your 401(k), it can potentially limit growth in your retirement fund. There are also Parent PLUS Loans available from the federal government or private student loans for parents that could be considered to help pay for your child’s college education without requiring you to withdraw from or borrow against your 401(k). Consider speaking with a qualified financial professional for personalized advice.

Do student loans go away after 7 years or a set amount of time?

Repayment terms for federal student loans range from 10 to 25 years. Private student loan repayment terms may vary by lender.


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.


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.

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.

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.

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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All You Need to Know About Subsidized Loans for Graduate School

All You Need to Know About Subsidized Loans for Graduate School

Subsidized loans, a type of loan offered by the federal government, used to be available to graduate students. Unfortunately, that is no longer the case. The program that allowed graduate students to receive subsidized loans was ended in 2011 by the Budget Control Act. For now, these loans are only available for undergraduate students. However, there are other loans available to help pay for grad school. Continue reading for more information on subsidized loans and the other options available to graduate students.

What Are Subsidized Loans?

Federal student loans are offered through the U.S. Department of Education to help students cover the cost of higher education. The government helps students pay for degrees or certificates from colleges and universities, community colleges, and trade, career, or technical schools.

Direct Subsidized Loans are available to undergraduate students able to demonstrate financial need. The amount of the loan is determined by the school you are applying to.

The Department of Education pays all interest on the loans while you are in school at least half-time, during the six-month grace period after you leave school, and during periods of deferment. Outside of these periods, the borrower is responsible for making all principal and interest payments.

Subsidized vs Unsubsidized Loans

Federal Direct Unsubsidized Loans, on the other hand, are one of the student loans available to undergrads and graduate students. Students do not have to demonstrate financial need to qualify for these loans.

The loan amount is still determined by your school, and you are entirely responsible for making interest payments during all periods.

When considering subsidized vs. unsubsidized loans, it’s important to understand both are subject to loan limits. In aggregate, dependent students, except those whose parents are unable to take out PLUS loans, may borrow no more than $31,000, at a given time, of which only $23,000 may be in subsidized loans.

For undergraduates whose parents are unable to access PLUS loans, the loans limit is $57,500, with no more than $23,000 in subsidized loans.

And for graduate students, the loan limit is $138,500, of which no more than $65,500 may be in subsidized loans. What’s more, the aggregate limit also includes whatever student loans you may have from your time as an undergraduate.

When you reach the aggregate loan limit, you will not be allowed to borrow any more money in federal student loans. However, if you are able to pay off some of your loans you may be able to borrow again up to the aggregate loan limit.

Interest rates for both types of loans are set by the federal government each year. For the 2023-2024 academic year, the interest rate for undergraduate borrowers is 5.50% for Direct Subsidized Loans and Direct Unsubsidized Loans. The interest rate for graduate borrowers for Direct Unsubsidized loans is 7.05%. The interest rate is fixed over the life of the loan.

Alternatives to Subsidized Loans

In addition to unsubsidized loans, there are other loans available from the government and private sources that can help you pay for grad school.

Grad PLUS Student Loans

Grad PLUS Student loans are another federal loan available through the Department of Education. They are also known as Direct PLUS loans. Grad PLUS Loan requirements include that you must be a graduate student enrolled at least half-time at an eligible school. Your program must lead to a graduate degree, a professional degree, or a certificate. You meet the basic eligibility requirements for federal student aid and must not have an adverse credit history.

Under the Grad PLUS program you are allowed to borrow the cost of attendance less any other financial aid. And you don’t have to repay the loan until six months after you leave school or drop below half-time enrollment.

Interest rates on the loan are fixed. Any loans disbursed after July 1, 2023, carry an interest rate of 8.05%.

To apply for federal student loans, you’ll need to fill out the Free Application for Federal Student
Aid (FAFSA®)
. Your school will use the information on this form to determine how much aid you are eligible to receive and present it to you in an offer letter. The offer letter will also give you information about grants and work-study programs you may be eligible for.

Recommended: Grad PLUS Loans, Explained

Private Loans

Private student loans are available through banks and credit unions and other private institutions. The individual lender will determine the amount you can borrow, terms of the loan, and interest rate based in large part on financial factors such as your income and your credit score. Many undergraduates will need a cosigner to qualify for a private student loan. Cosigners are responsible for making loan payments if you fail to do so.

Private loans may allow you to borrow beyond the federal limits imposed on federal loans, or help you pick up the slack if you didn’t qualify for enough federal funding. Though they may lack protections afforded to federal student loans, and as a result, are generally thought of as a last-resort option when paying for grad school.

Personal Loans

Personal loans are also available through private lenders. Borrowed funds can be used for practically any purpose, which means they could potentially be used to cover expenses beyond tuition, fees, room and board, such as transportation. As with private loans, the amount you can borrow will depend on your financial history or that of a cosigner.

How Much Can You Borrow for Graduate School?

The amount you can borrow for graduate school will depend on the types of loans that you use.

Grad PLUS student loans potentially allow you to borrow up to the full cost of attending your program less any other financial aid.

However, unsubsidized loans limit your aggregate borrowing to $138,500, and that’s including any federal loans that you took out as an undergraduate.

Borrowers who are enrolled in certain health profession programs may be subject to a higher aggregate limit for Direct Subsidized Loans, and should talk to their school’s financial aid office.

Private student loans may limit borrowers to the cost of attendance. Policies will likely vary by lender.

Personal loans may allow you to borrow as much as $100,000 with no limitations on how the money must be spent. Again, specific policies may vary by lender.

Recommended: What is the Maximum Amount of Student Loans for Graduate School?

The Takeaway

Federal subsidized loans are no longer available to graduate students. Though organizations like the National Association of Student Financial Aid Administrators are pushing for legislation that would reintroduce the loans. In the meantime, graduate students have other options, and may rely on federal unsubsidized loans, Grad PLUS Loans, loans from private lenders, or a combination of the above to help pay for school.

Visit SoFi, to learn more about options for private student loans.

FAQ

Does the US Department of Education offer subsidized loans for graduate students as part of financial aid packages?

Federal Direct Subsidized Loans are no longer available to graduate students.

Are Grad PLUS Loans subsidized loans?

Grad PLUS Loans are not subsidized, which means that interest accrues while the student is in school.

Can you pay off subsidized loans before graduating?

You can pay off federal subsidized loans before you graduate without paying any penalty. Note that federal subsidized loans do not accrue interest while you are in school.


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.


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.

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.

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.

Photo credit: iStock/Kseniia Ivanova
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