Intrinsic value vs. market value refers to the difference between where a stock is currently trading and where it perhaps ought to be, according to its fundamentals. The term “market value” simply refers to the current market price of a security. Intrinsic value represents the price at which investors believe the security should be trading at. Intrinsic value is also known as “fair market value” or simply “fair value.”
When it comes to value vs. growth stocks, value investors look for companies that are out of favor and below their intrinsic value. The idea is that sooner or later stocks return to their intrinsic value. That’s why it can be important to understand the differences and help it inform your strategy.
What Is Market Value?
In a sense, there is only one measure of market value: what price the market assigns to a stock, based on existing demand.
Market value tends to be influenced by public sentiment and macroeconomic factors. Fear and greed are the primary emotions that drive markets. During a stock market crash, for example, fear may grip investors and the market value of many stocks could fall well below their fair market values.
News headlines can drive stock prices above or below their intrinsic value. After reading a company’s annual report that’s positive, investors may pile into a stock. Even though better-than-expected earnings might increase the intrinsic value of a stock to a certain degree, investors can get greedy in the short-term and create overextended gains in the stock price.
The rationale behind value vs price, and behind value investing as a whole, is that stocks tend to overshoot their fair market value to the upside or the downside.
When this leads to a stock being oversold, the idea is that investors could take advantage of the buying opportunity. It’s assumed that the stock will then eventually rise to its intrinsic value.
💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
What Is Intrinsic Value?
The factors that can be used to determine intrinsic value are related to the fundamental operations of a company. It can be tricky to figure out how to evaluate a stock. Depending on which factors they examine and how they interpret them, analysts can come to different conclusions about the intrinsic value of a stock.
It’s not easy to come to a reasonable estimation of a company’s valuation. Some of the variables involved have no direct physical, measurable counterpart, like intangible assets. Intangible assets include things like copyrights, patents, reputation, consumer loyalty, and so on. Analysts come to their own conclusions when trying to assign a value to these assets.
Tangible assets include things like cash reserves, corporate bonds, equipment, land, manufacturing capacity, etc. These tend to be easier to value because they can be assigned a numerical value in dollar terms. Things like the company’s business plan, financial statements, and balance sheet have a tangible aspect in that they are objective documents.
💡 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.
Calculating Intrinsic Value vs Market Value
There can be multiple different ways to determine the intrinsic value of an asset. These methods are broadly referred to as valuation methods, or using fundamental analysis on stocks or other securities. The methods vary according to the type of asset and how an investor chooses to look at that asset.
Calculating Intrinsic Value
For dividend-yielding stocks, for example, the dividend discount model provides a mathematical formula that aims to find the intrinsic value of a stock based on its dividend growth over a certain period of time. Dividends are periodic income given to shareholders by a company.
Upon calculating the dividend discount model, an investor could then compare the answer to the current market value of a stock. If market value were to be lower, then the stock could be seen as undervalued and a good buy. If market value were to be higher, then the stock could be seen as overvalued and not worth buying or possibly an opportunity to sell short.
Another method for estimating intrinsic value is discounted cash flow analysis. This method attempts to determine the value of an investment in terms of its projected future cash flows.
While the dividend discount model and discounted cash flow analysis can be seen as objective ways to determine a stock’s value, they also have a large subjective component. Analysts must choose a timeframe to use in their model. Using different timeframes can lead to different conclusions.
Longer timeframes are often thought of as being more accurate because they include more data points. But they could also dilute the significance of more recent trends.
Example Using Dividend Discount Model
For example, if a company had years of steady dividend growth, but recently slashed its dividend by 50%, a dividend discount model analysis based on a long timeframe would show this reduction in dividend payments to be less severe than an analysis based on a shorter time frame.
The longer timeframe would include previous years of dividend growth, which would theoretically outweigh the recent reduction.
The reduction may have come from a large decrease in earnings. If that trend were to continue, the company could be doomed to the point of having to suspend its dividends. So in this hypothetical example, a shorter time frame could actually lead to a more realistic conclusion than a longer one.
Calculating Market Value
The determination of market value is rather simple by comparison. Someone can either simply look at what price a stock is trading at or calculate its current market capitalization. The formula for market capitalization or market cap is:
Total number of outstanding sharesmultiplied bythe current stock price.
Dividing market cap by number of shares also leads to the current stock price.
Sometimes companies engage in “corporate stock buybacks,” whereby they purchase their own shares, which reduces the total number of shares available on the market.
This increases the price of a stock without any fundamental, tangible change taking place. Value investors might say that stocks pumped up by share buybacks are overvalued. This process can lead to extreme valuations in stocks, as can extended periods of market euphoria.
The Takeaway
Intrinsic value and market value describe the values of a security as they’re currently trading versus where their underlying fundamentals suggest they should be trading. Using the intrinsic value vs market value method is likely best suited to a long-term buy-and-hold strategy.
Stock prices can remain elevated or depressed for long periods of time depending on market conditions. Even if an investor’s analysis is spot on, there’s no way to know for sure exactly when any stock will return to its intrinsic value. That’s critical to understand if you hope to utilize intrinsic value vs market value in your own investing strategy.
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Attending graduate or professional school requires careful consideration so that you don’t end up with a heavier student debt burden than you planned for.
That means not only having a plan for graduate school loans but knowing what to do with any existing undergraduate student loans. One question many potential grad students may have is, if I go to graduate school, will my loans be deferred?
You could defer loans while in grad school for temporary relief, but loan refinancing or an income-driven repayment plan could bring longer-term help.
Read on to learn more about how to defer student loans while in grad school, and other alternatives to consider.
Deferment vs Forbearance
Graduation from undergrad or graduate school is followed by a payment grace period of six months for most federal student loans. But if you hit a snag at some point and can’t afford payments, both deferment and forbearance are designed to allow you to apply to postpone payments.
The main difference between the two: Interest accrues on only some federal student loans during deferment, whereas it accrues on nearly all of them in forbearance. Any unpaid interest is capitalized, or added to your loan balance, at the end of the payment pause, increasing the total amount you end up repaying.
To answer the question of, if I go to graduate school, will my loans be deferred?, it is possible to do, as long as you qualify for deferment.
Deferment, for up to 12 months at a time, for a maximum of 36 months, may be a better choice than forbearance if:
• You have subsidized federal student loans and
• You’re dealing with substantial financial hardship
If you apply to defer student loans while in grad school and don’t qualify, and your financial hardship is temporary, forbearance is an option.
If you have private student loans, many lenders will allow you to apply for a payment pause during hardship, too, though the terms and fees may be less borrower-friendly than is the case with federal student loans.
Do I Qualify to Defer My Payments?
Here’s how to defer student loans while in grad school: For federal student loans, you’ll need to submit a request to your student loan servicer, usually with documentation to show that you meet the eligibility requirements for the deferment. For private student loans, you’ll need to check the rules directly with the lender.
A variety of circumstances may qualify you for deferment. These are several of them.
Economic Hardship Deferment
You:
• Are receiving a means-tested benefit, like welfare
• Work full-time but have earnings that are below 150% of the poverty guideline for your family size and state
• Are serving in the Peace Corps
Unemployment Deferment
You receive unemployment benefits or you are unable to find full-time employment.
Graduate Fellowship Deferment
You’re enrolled in a graduate fellowship program that provides financial support while you pursue graduate studies and research.
Military Service and Post-Active Duty Student Deferment
You are on active duty military service in connection with a war, military operation, or national emergency; or you’ve completed active duty service and any grace period.
Rehabilitation Training Deferment
You’re enrolled in an approved program that provides mental health, drug abuse, alcohol abuse, or vocational rehab.
Cancer Treatment Deferment
You may qualify for deferment while undergoing cancer treatment and for six months afterward.
When Interest Accrues in Deferment
If you’re looking into defer student loans while in grad school, you’ll want to check how interest would be handled during the payment pause and whether, if unpaid interest is capitalized, you’re prepared to take on a higher overall cost of the loan.
During deferment, you are generally not responsible for paying interest on:
With deferment, you are generally responsible for paying interest on:
• Direct Unsubsidized Loans
• Direct PLUS Loans
• FFEL PLUS Loans
• The unsubsidized portion of Direct Consolidation Loans
• The unsubsidized portion of FFEL Consolidation Loans
• Private student loans (if the lender allows deferment)
If you’re starting graduate or professional school or are in the thick of it, your federal borrowing options are Direct PLUS Loans (commonly called grad PLUS Loans when borrowers are graduate students) and Direct Unsubsidized Loans (also available to undergrads).
As noted above, those loan types accrue interest during a deferment.
Direct loans for graduate students currently carry a 7.54% rate (the rates are set by federal law for each academic year), with a loan fee of 4.228%.
Nongovernment lenders may offer private graduate student loans, sometimes with a fixed or variable rate and no loan fee.
Something to consider: If you pursue deferment on loans in the second category above to manage costs while in grad school, it’s a good idea to at least consider making interest-only payments during the deferment.
Options to Deferment in Grad School
There are at least two other ways, beyond forbearance, to get a handle on student loan payments in grad school.
Income-Driven Repayment
Some graduate students who have federal student loans might want to consider switching, even temporarily, to an income-based repayment plan.
Your monthly payment would be tied to family size and income, which may be low for a graduate student enrolled full time.
The four income-driven repayment plans stretch payments over 20 or 25 years, after which any remaining balance is supposed to be forgiven. After graduation, you could switch the student loan repayment plan back to the standard 10-year plan.
Though borrowers often pay less each month using one of these plans, they’ll generally pay more in total interest over the duration of the drawn-out loan.
The good news is that new federal regulations will prevent interest from accruing in certain situations with these plans. For example, previously, a monthly payment might have been less than the amount to cover interest on your loans. That unpaid interest was added to the amount you borrowed, and the amount you owed increased. However, under the new rules, excess interest will no longer accrue starting in July 2023, which could save you money.
In addition, any student debt that was forgiven used to be taxed as ordinary income, but the 2021 COVID relief package put a stop to that at the federal level, at least through 2025.
Refinancing
Another way to potentially lower your monthly payments without deferring your loans (and accruing interest) is by refinancing your student loans. Note: You may pay more interest over the life of the loan if you refinance with an extended term.
With student loan refinancing, a private lender pays off your loans (both federal and private) with one new loan, ideally with a lower interest rate.
A decrease in an interest rate while maintaining the loan’s duration is a compelling way to both save money each month and over the life of the loan. To understand how a change of even 1% can affect how much interest you’ll pay on a loan over time, you can use this student loan refinance calculator.
Should you refinance your student loans, it’s important to first understand that you’ll lose access to federal programs such as income-driven repayment and loan forgiveness as well as future benefits applicable to federally held loans. Be sure to consider this carefully before refinancing.
Private lenders may or may not have a deferment option.
Lenders that offer student loan refinancing typically require a good credit history and a steady income, among other factors. A student loan refinancing guide can help you learn more about the process.
The Takeaway
Student loan deferment before or during grad school could bring temporary relief. It could also add unpaid interest to loans and create a bigger balance to pay off. Those looking to manage payments long term may want to look into alternatives.
One option is student loan refinancing. SoFi offers low fixed and variable rates, flexible terms, and no fees for refinancing student loans.
Plus, as a SoFi member, you’ll have access to a professional-grade list of benefits like career coaching and financial advice.
See what interest rate you may qualify for in just minutes.
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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.
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Refinancing allows you to consolidate your existing student loans — you trade multiple loans for one student loan payment. When you refinance, you may be able to lower your monthly payments, reduce your interest rate, shorten your repayment terms, save money, and even add or remove a cosigner.
It’s a good idea to ask yourself, “Why refinance student loans?” before you start searching for the right private lender for you. Read on for a list of the benefits that may come your way when you refinance your student loans.
What Is Student Loan Refinancing?
Student loan refinancing involves consolidating your student loans with a private lender. In the process, you receive a new loan with a new rate and term. Moving forward, you’d make payments to that private lender on that one loan only.
It’s worth noting that refinancing is not the same as consolidating through a Direct Consolidation Loan. A Direct Consolidation Loan means that you combine multiple federal loans into one federal loan through the U.S. Department of Education. You usually don’t save money with a Direct Consolidation Loan, because the resulting interest rate is a weighted average, rounded up to the nearest ⅛ of a percent.
You may be able to refinance your federal student loans and private student loans all at once. However, it’s important to remember that refinancing your federal student loans means that you lose access to federal benefits and protections like income-driven repayment plans, some deferment and forbearance options, and loan forgiveness programs for certain borrowers, such as Public Service Loan Forgiveness. Federal student loans come with benefits and repayment options unique to them.
Is Refinancing Your Student Loans Worth It?
Is refinancing student loans a good idea for you? There are some benefits of refinancing student loans, like securing a lower monthly payment or a more competitive interest rate.
Continue reading for more information on when refinancing your student loans may make sense for your specific situation. Remember that not everyone will benefit from each of these advantages — it depends on your own needs.
1. Lower Monthly Payments
Refinancing may lower your monthly payments because you may lower your interest rate.
Or refinancing can lower your monthly payments if you lengthen your loan term. Extending your loan term, however, means you may pay more in interest over the life of the new loan. Some private lenders may offer lengthier repayment terms, varying from five to 25 years.
2. Reduced Interest Rates
In the context of reduced interest rates, refinancing student loans is probably worth it, especially if you choose a shorter loan term. That said, it’s important not to assume anything. It’s a good idea to take all calculations and factors into consideration before you pull the trigger on a refinance.
Private student loan lenders may offer both variable and fixed interest rates. Variable interest rates fluctuate depending on the situation in the broader market. They may begin at a lower rate but increase over time. In contrast, fixed interest rates stay the same throughout the life of your loan. If you are planning to pay off your loan quickly, you may consider a variable interest rate refinance.
3. Shorter Repayment Terms
Your repayment term refers to the number of years that you spend repaying your loan. A shorter repayment term may save you money because you’ll pay interest over a fewer number of years. In general, loans with a shorter repayment term come with lower interest costs over time but higher monthly payments. On the other hand, loans with a longer repayment term usually come with lower monthly payments.
It’s important to calculate your monthly payment and decide whether a higher monthly payment can fit into your budget.
4. Opportunity to Save Extra Money
Qualifying for a lower interest rate and either shortening your repayment term or keeping your current loan term may allow you to save money. Not only that, but when you don’t have several student loan payments to juggle, it may be easier to budget by lessening the confusion of having to make multiple loan repayments.
5. Consolidating Loan Payments
The perks of refinancing aren’t all money related. As mentioned earlier, you can simplify your loans and eliminate the confusion of having to make several loan payments every single month. Organizing your loan payments can go even further than this. Simplifying all of your bills (not just your student loans) may even give you some of the same psychological benefits of a Marie Kondo tidy-up, such as improving mental health, time management, and productivity.
Simplifying could also help you avoid missing payments, which can affect your credit score.
Why might you want to remove a cosigner from your loans through refinancing? You may no longer want a cosigner to remain responsible for repaying your debt if you were to default. Cosigning can also have implications for a cosigner’s debt-to-income (DTI) ratio, the ratio between the amount of debt they have related to their income. Their credit will show the extra debt they took on when they cosigned for you.
Ready to find a lender? Start by getting quotes from a few lenders, which usually just takes a few minutes online. Once you have several estimates, compare rates among lenders. Make sure you look at annual percentage rates (APRs), which represent the true cost of borrowing — they include fees as well.
Beyond getting a low-interest rate, you also want to look carefully at repayment terms. Are you looking at a shorter- or longer-term length? Choosing your current term length or a shorter term can help you save money.
Life Changes That Can Make Student Loan Refinancing Worth It
Certain life changes and situations can also make refinancing worth it. For example, if you want to raise your credit score, save more money, or buy a house, you may want to consider refinancing.
• Higher credit score: Making payments on time helps boost your credit score. One refinanced student loan payment is much easier to keep track of than multiple student loan payments. Simplifying can help prove that you’re a reliable borrower.
• Save money for other things: If you want to save for a new living room set or for your child’s college fund, for example, refinancing can change your interest rate and help you save money over the long term.
• Lower your debt-to-income (DTI) ratio: When you’re on the hunt for another type of loan, such as a mortgage loan to buy a home, you may discover that you need to lower your DTI. Refinancing your student loan debt can help you pay off your loans faster and therefore lower your DTI more quickly.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. And lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
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SoFi 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 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.
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.
Money problems are pretty common. In fact, 73% of Americans say finances are their top source of stress in life. So if you are feeling the pinch and worrying, you are not alone.
But that doesn’t mean you should live with the anxiety that a mountain of debt or low credit score can bring. Here, you’ll learn about the most common financial issues you may face, how to avoid money problems, and how to resolve them if and when they strike.
Why Are Money Problems Common?
There are many factors that contribute to money problems. Depending on your situation, you might be dealing with, among other factors:
Financial challenges can happen to anyone — whether you are younger or older, rich or living paycheck to paycheck. Here are some of the most common money issues that people come up against.
1. High Credit Card Debt
Credit cards can be a useful tool for disciplined consumers who are trying to build good credit. And there are several perks to paying with a card instead of cash, including convenience, purchase protections, and rewards programs.
But many Americans aren’t able to pay off their account balance every month. According to U.S. Census Bureau and Federal Reserve Bank of New York data, the average household carries a whopping $7,951 in credit card debt.
Thanks to high interest rates, items you charge on a credit card and don’t pay off right away end up costing quite a bit more. As of spring of 2023, the average credit card rate topped 20%.
The interest you’re charged on a credit card also compounds, which means interest is calculated not only on the principal amount owed but also the accumulated interest from previous pay periods.
While this kind of compounding is a positive thing for compound-interest savings accounts, it can be a real issue with your plastic. It means a credit card balance can grow exponentially, even if you pay the minimum every month. Add in late charges and the possibility that the interest rate could be increased on an overdue account, and it’s easy to see how consumers get into trouble.
2. A Low Credit Score
Carrying too much debt or failing to make credit card or loan payments on time may result in a lower credit score. A low credit score can make it harder to get a loan, such as a mortgage or a credit card. And even if an application is approved, the interest rate the lender offers may be higher than what’s available to borrowers with better scores. That higher interest rate can make it harder to make payments and keep up with other bills, which can, in turn, further hurt your credit score.
A low credit score can also negatively impact your ability to get a job or rent an apartment. And, it can take years before negative factors like late payments, defaults, and collections are removed from credit reports.
3. Not Having an Emergency Fund
Setting money aside in an emergency fund may seem like a luxury for those who are struggling to meet everyday expenses. But a solid savings buffer can actually be even more important if you’re living on a tight budget.
Without an emergency fund, any unexpected expense that comes along — whether it’s a high medical bill, a car or home repair, or a temporary job loss – can throw you way off balance.
As a result, you might need to use high-interest credit cards, retirement savings (which can trigger penalty charges), or other options that can add even more stress to a challenging situation.
A solid contingency fund that contains at least three to six months’ worth of living expenses can be an essential component of financial stability.
4. Spending More Than You Earn
Picking up a morning latte and grabbing lunch out may not seem like it could make or break your bottom line. But just $25 per week spent eating out will cost you $1,300 per year, which is money that could go toward an extra loan payment or a few extra car payments.
If you tend to make spending decisions on the fly (without any type of budget or financial plan in mind), it can be easy to blow through more money than you actually earn, and much harder to achieve your financial goals.
While the causes of overspending are varied, the habit is one of the most common reasons why people get caught in the debt trap. If you don’t have the cash to cover your expenses, you may rely on credit cards to get you through.
Once you start paying interest on your credit card balance, your monthly expenses go up. This can make it even harder to live within your means and, as a result, lead to more debt.
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5. Facing Foreclosure
State foreclosure rates vary, but regardless of where you live, it can be a major concern for struggling homeowners, especially in tough economic times.
People can end up in foreclosure for any number of reasons, including financial mismanagement (buying too much house or choosing a loan payment they can’t afford), or uncontrollable events (such as a job loss or expensive medical condition).
The process is typically slow, but it can be daunting to imagine having to move, especially if it means taking children out of a school or neighborhood they love. And there can be long-lasting financial consequences, as well.
A foreclosure can have a significant effect on a credit score, and it can stay on a person’s credit record for years.
6. Student Debt
While getting a college degree can improve your earning potential, the cost of getting that degree continues to skyrocket. And so has student loan debt.
Recent statistics reveal that the average student has $37,338 in debt due to educational loans. As students leave college and enter the workforce, paying back that money can be a major challenge. Student loan burdens can lead to postponing certain milestones, including homebuying or having children, and saving for retirement.
According to a recent survey, one in four Americans has no retirement savings. Zip, nada. While having no money in the bank for later life can make some people feel like, “Why even bother trying to say,” know that financial advisors stress that saving something is better than nothing.
Thanks to the magic of compounding interest (when the interest earned on your money gets reinvested and earns interest of its own), even putting just a small percent of your paycheck into a 401K or IRA each month can add up over time.
If you recognize that you have money problems brewing or in full force, here are some steps to solve the problem:
Identify the Issue
Though it may be tempting to hide from what is going on, digging in and exploring where your money is going (or isn’t going) is an important move. Is your credit card debt feeling insurmountable? Are your housing and food costs rising too steeply? Did a job loss or medical bill force you into a difficult financial position?
Figure out and face the facts so you can move forward.
Develop and Implement a Plan
Once you know the source (or sources) of your money stress, you are in a position to take action. In a moment, you’ll learn some important ways to take control of financial issues. These include budgeting and paying down debt.
But other specific moves may suit your situation, such as debt consolidation or refinancing student loans.
Seek Help
If despite digging into your money issues, you are feeling unclear of how to proceed or as if there isn’t a feasible solution, reach out for help. There are an array of professionals who might be appropriate, from a certified financial planner (CPA) to a low- or no-cost debt counselor.
How to Cope with Money Issues
If you’re dealing with money problems (or hoping to avoid any future setbacks), here are some money management strategies you may want to put into place.
Setting a Budget
People tend to cringe at the word “budget” because it sounds like work, but having a budget in place can help simplify your finances and improve your money mindset.
To create a monthly budget, you simply need to gather up the last several months of financial statements and receipts and then use them to figure out how much you’re bringing in (after taxes) each month, as well as how much you are spending on average each month.
If the latter exceeds the former, or is so close there’s nothing left over for saving, you may want to drill down deeper.
To see exactly where your money is going you may need to track your expenses for a month or two and then determine exactly how much is going towards nonessential (or discretionary) purchases, where you may be able to cut back.
You may also want to consider adopting the 50-30-20 budget rule. With this type of budget, half your take-home income goes towards needs (or essential expenses), 30 percent goes towards wants (nonessentials), and 20 percent goes towards your financial goals–such as debt repayment beyond the minimum, building an emergency fund, and saving for a home or retirement.
Knocking Down Debt
Reducing debt may seem like a tall mountain to climb, but using a systematic approach can help make the process more manageable.
One method you might consider is the snowball method. This involves paying as much as you can each month toward your smallest balance while making the minimum payment on all your other debts so your accounts remain in good standing. Once you’ve paid off that smallest debt, you move on to the new smallest balance and continue this process until you’ve paid off all your accounts.
Another approach you may want to consider is the avalanche method. With this strategy, you start by paying as much as possible toward the debt with the highest interest rate, while making minimum payments on all the others. Once that debt is paid off, you move to the balance with the next-highest interest rate, and so on.
As briefly noted above, debt consolidation is an option as well, perhaps with a personal loan or a student loan refinance.
The Takeaway
It’s common to face money issues throughout your life, particularly when you are just starting out. Some of the most common include overspending, being burdened by debt, not having a financial cushion for emergencies, and not putting enough away for retirement.
Whatever financial challenges you are facing, you may want to clearly assess the issue and then come up with a spending, saving, and debt repayment plan that can help you get back onto solid ground.
Need some help? If you’re looking to keep better track of your spending and saving, a SoFi Checking and Savings high interest bank account may be a good option.
You can use the SoFi app to track your weekly spending and see how you’re doing with your budget. You can use the Vaults feature to earmark the cash in your account for different goals.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.
FAQ
What are common money problems?
Common money problems include high-interest credit card debt, lower income, student loan debt, a low credit score, and overspending.
What do people struggle with most financially?
What people struggle with financially will vary from person to person, but debt, inflation, high cost of living, and lack of emergency-fund and retirement savings are common issues.
What are 4 common investment mistakes?
Four common investment mistakes include not establishing a long-term plan, letting emotion guide your decisions, attempting to time the market, and flying to diversify your portfolio.
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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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According to data from The College Board, college graduates from the class of 2021 graduated with an average of $29,100 in student loan debt. The amount of student loan debt a person takes on can vary based on factors like the type of school they attended, whether or not they pursued an advanced degree, and whether they received any scholarships or not. Read on for more information on average student loan amounts.
Average Student Loan Debt After College
As of March 2023, the total amount of student loan debt was approximately $1.78 trillion , and according to EducationData.org, there are 45.3 million borrowers in the country.
That means there are a lot of us trying to understand and navigate the student loan landscape. How much are we borrowing? And what can we do to decrease the amount we owe?
As earlier mentioned, The College Board found that cumulative debt levels upon graduation — meaning the debt students had accumulated over the four years of undergrad — was $29,100 per borrower for those graduating in 2021 (the latest stats available). And in 2020 – 2021, 54% of graduates carried student loan debt.
How Average Student Loan Debt Has Changed in the Last 10+ Years
It’s no secret that college is expensive and has only gotten more expensive in the last 10 years. According to data compiled by U.S. News, the cost of attending college with in-state tuition at public national universities increased by nearly 175% from 2002 to 2022.
Over roughly that same period of time (from 2010 to 2020), total outstanding student loan debt grew from $845 billion to $1.7 trillion in order to cover those costs. Though as of the third quarter of 2022, the total outstanding federal student loan debt is $1.6 trillion. This student loan debt crisis is taking a financial toll on graduating students, potentially affecting their credit and home-buying prospects.
There is good news, though: the growth of student loan debt is starting to decline. The average cumulative student debt was $29,900 for 2011 graduates (with bachelor’s degrees) and $32,100 for 2016 bachelor’s degree recipients. For the undergraduate class of 2021, the average was $29,100.
Public vs Private Four-Year Schools Student Loan Debt
The College Board’s annual survey of trends in student aid found that 2021 graduates of public four-year institutions had an average college debt of $21,400, compared to private, non-profit school borrowers, who graduated with an average debt of $22,600.
It should be noted that numbers for for-profit schools are harder to come by, but what is true across analyses is that students at for-profit schools take out more in student loans and default at higher rates.
Let’s look at this from a different angle. How does undergrad debt compare to grad school debt? The College Board’s annual survey of student aid trends found that on average, undergraduates took out $3,780 in federal loans in the 2021-2022 school year. That same year, graduate students took out $17,680 in federal loans.
If you are planning to get an advanced degree, prepare for a potential mortgage-sized debt load. As an example, over half of people with law degrees have at least $150,000 in student loan debt according to the American Bar Association’s 2021 Law School Student Loan Debt survey.
The Average Student Loan Debt for Borrowers Under 25
There are about 6.9 million people under the age of 24 with student loan debt. As a group, they owe just over $101 billion, according to the U.S. Department of Education’s Q3 2022 report .
Average College Debt by State
When we look at the average student loan debt broken down by school and region, it also becomes clear there is a range of highs and lows across the country. The Institute for College Access and Success (TICAS) puts together a comprehensive report on national student debt, using numbers self-reported to college guide publisher Peterson’s from thousands of colleges and universities.
According to EducationData.org’s report (updated in April 2022) , the highest debt states (including Washington DC) in 2021, the last year for reported numbers, were Washington DC ($54,945), Maryland ($42,861), Georgia ($41,639), Virginia ($39,165), and Florida ($38,459). The states (including Puerto Rico) where college graduates had the lowest average debt were South Dakota ($30,954), Iowa ($30,464), North Dakota ($28,604), and Puerto Rico ($28,242).
Average Student Loan Payment
A borrower’s monthly student loan payment can vary quite a bit depending on the amount of debt they carry and the type of payment plan they have selected. According to data from the Federal Reserve, typical payments for student loans can range from $200 to $299. Though, as noted, your monthly payments may be more or less depending on factors like your loan amount and payment plan.
How Long It Takes to Pay Off Student Loans
But even as the growth of new student loan debt is slowing, there continue to be outstanding student loan amounts that haven’t yet been paid off — which helps to explain why the total loan balances are hitting record highs.
If you have a federal loan when you graduate, you can choose a repayment plan. The default option is the Standard Repayment plan, which is 10 years of fixed monthly payments.
There are a few other options that extend the repayment term or allow you to repay on an income-driven plan. Many graduates take longer than 10 years to pay back their loans, and about a third of borrowers have gone into student loan default in the past 20 years, according to survey data from The Pew Charitable Trusts .
Though, it’s worth noting that the U.S. Department of Education announced in April 2022 that it would eliminate the negative consequences for those with defaulted student loans as a part of the student loan pause that began due to Covid-19 and was extended by the Biden-Harris administration.
There isn’t a lot of data on exactly how long it takes students to pay off their student loans, partially because it varies based on how big your loan amount is and partially because some numbers count consolidation as loan repayment — when in reality you’ve taken out a new loan with different terms.
The U.S. Department of Education lists the maximum repayment timelines for Direct Consolidation loans, which for borrowers holding between $20,000 and $40,000 in student loan debt is 20 years. Direct Consolidation loans allow borrowers to consolidate their federal loans into a single loan.
But it is worth noting: the sooner you pay off your loan, the more you save in the long run because you aren’t accruing interest for as long. Part of the reason so many students struggle to make payments is that their student loan payments are large in comparison to their incomes.
The interest rate can be a big factor in that. While interest rates on federal student loans are fixed and set annually by the government, interest rates on private student loans are based on a number of factors and are updated as needed. Use SoFi’s student loan calculator to figure out how your monthly payments could change at different interest rates.
Refinancing Student Loans With SoFi
Those looking for options to manage student loan payments might consider student loan refinancing. This process involves borrowing a new loan from a private lender. Lenders review applicant credit history and earning potential (among other financial factors) to determine the new loan terms, with a new, hopefully, lower interest rate.
Borrowers who refinance student loans with a private lender may also be able to adjust their repayment term. Extending the term could lower monthly payments but may end up making the loan more expensive over the life of the loan.
Those who want to continue to take advantage of federal loan benefits like income-based repayment may not want to refinance with a private lender, because all federal student loan benefits are lost when a federal student loan is refinanced.
It takes just a few minutes to get a quote to see what refinancing with SoFi could do for your student loans. The application is entirely online and there are no fees.
Learn more about refinancing your student loans with SoFi.
FAQ
Is $50,000 a lot of student debt?
Yes, $50,000 is a lot of student loan debt. According to data from The College Board, the average amount of debt a 2021 graduate carried was $29,100.
How many people have student loan debt in the US?
In the U.S. as of Q3 2022, there are approximately 42.8 million people who have student loan debt, according to data from the U.S. Department of Education.
What is the average someone pays a month for student loans?
The average someone pays per month for student loans will vary based on factors like the total loan amount and the repayment plan they have selected.
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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.
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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.
