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Nearly two-thirds of students graduate college with some debt. The average student loan debt, including federal and private loans, is $37,338. The key to paying down that debt quickly is to stay organized. If you have a mix of federal and private loans (with different payment plans, interest rates, and due dates), however, that’s easier said than done.

Unfortunately, lenders are not very forgiving. One late payment can tarnish your credit history. Before you get into any trouble, it is a good idea to put together a system and a plan for making payments and keeping track of your loans. The following tips and strategies can help.

Understanding Your Student Loans

If you’re like many borrowers, you may have a combination of different types of student loans. Each type has different benefits and features, so it’s important to differentiate between federal and private student loans, and to take note of each loan’s amount, interest rate, and payment requirements.

If you’re not sure what type of federal student loans you have, you can log on to StudentAid.gov and select “My Aid” in the dropdown menu under your name. There you can find:

•   Your student loan amounts and balances

•   Your loan servicer(s) and their contact information

•   Your interest rates

•   Your current loan status (e.g., repayment, in default, etc.)

The government’s database won’t tell you about private loans, though. For that, you can get details from the bank or lender where you obtained the loan. If you completely lost track of what private loans you have, you can check your credit report. You can get a free credit report at AnnualCreditReport.com.


💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

Understand Loan Repayment Options

Federal student loans offer multiple payment options. If you don’t choose a specific plan, you’ll automatically be placed on the 10-year standard repayment plan, which can be a good choice if you’re looking to save on interest. Other options include the Extended Payment Plan and Graduated Repayment Plan.

If you want low monthly payments and student loan forgiveness, you might want to apply for an income-driven repayment plan. With these plans, your payment amount is a percentage of your discretionary income (typically 10% to 20%). After making payments for 20 or 25 years, any remaining loan balance is forgiven.

Private student loans generally offer less flexibility, but you likely had a choice of a few different repayment plans when you initially borrowed the loan. Typically, lenders will let you choose a loan term between five and 20 years when you first sign for a student loan.

Organizing Your Loan Information

If you’re feeling overwhelmed by your student loans, these tips can help you get organized and make the repayment process simpler and less stressful.

Gather Your Documents

An important first step toward keeping track of your student loans is to gather all of your documents and keep them in one place (such as a three-ring binder or file folders). These documents may include:

•   Financial aid award letters

•   Promissory notes (legal contracts detailing the terms that you received when you originally signed for your student loans)

•   Disclosure documents (which include information about rates, fees, disbursement dates, and amounts)

•   Monthly billing statements and emails from your loan servicers
As any mail comes in regarding your loans, be sure to add it to your binder or file system.

Create a Spreadsheet

A spreadsheet allows you to have all of the details of your student loans summarized in one place. You could use something like Microsoft Excel or Google Sheets, or just a regular computer document. Details you may want to include in your master spreadsheet:

•   Name of the federal loan and whether it is subsidized or unsubsidized

•   Name of the private lender (if applicable)

•   Name and contact details of the lender or loan servicer

•   Total amount borrowed

•   Term of the loan

•   Interest rate (this can help you decide which loans you should pay off first)

•   Payment due date

•   Current loan balance (this will go down as you update your spreadsheet)

With all your loan details in one place, you’ll likely find it easier to stay on top of your student loans. It’s also a good idea to take a few minutes every month to update the columns to reflect the latest status of every loan.

Recommended: Tips to Lower Your Student Loan Payments

Sign Up for Autopay

If you have a job with a steady income, you may want to set up autopay for all of your loan payments. Since your payments will be automatically taken from your bank account, you won’t have to worry about missing a payment or getting hit with a late fee. Plus, you’ll receive a 0.25% interest rate deduction on your federal loans. Many private lenders will also lower your interest rate by .25% to .50% when you enroll in autopay. This can add up to substantial savings over the life of your loan.

You’ll want to be careful, however, that you have sufficient funds in your bank account. If you don’t, you will have to manually adjust your payment amount accordingly.

Organize Your Login Details

Organizing your login details for each student loan website can save you a lot of time and frustration in the coming years. It also makes it quick and easy to check in on your loans and track your repayment progress.

You can go old school and simply write down all of your usernames and passwords on a piece of paper and store the document in a secure place. Or, you might choose to go more high-tech and use a password manager app or website (such as Dashlane or 1Password) or a built-in manager like Apple’s Keychain. This can save you the headache of repeatedly trying — and failing — to access your accounts.

Utilize Online Tools and Apps

There are free websites and online student loan trackers that can help you stay on top of your student loans. There are also apps that specialize in managing and paying off loans easily. Some you might want to check out:

•   Undebt.it This free app can help you eliminate all debt, not just student loans. Once you enter your loan information, you can see how quickly you can pay them off using the debt snowball strategy, as well as the amount that you’ll save on interest over the life of each loan.

•   Debt Payoff Assistant This free iPhone app lets you view all of your debts in one place. Simply enter your loan information and the dashboard will break down your different types of debts and your total amount of debt. You can then use the app to see how much you’ll save using the debt snowball payoff method.

•   Changed You link your credit or debit card to the app and every time you make a purchase, the app rounds it up to the nearest dollar and puts the change into your Changed account. Once you reach a certain threshold, that money gets deposited to your student loan provider. The app also offers a dashboard that lets you see all your loans in one place. (There is a $3/month fee.)

Recommended: 6 Strategies to Pay off Student Loans Quickly

Simplify Your Loans by Refinancing

When you refinance your student loans, you combine your federal and/or private loans into one private loan with a single monthly payment. This can simplify repayment and might be a smart move if your credit score and income can qualify you for lower interest rates.

With a refinance, you can also change your repayment terms. You might choose a shorter term to pay off your student loans faster. Or, you might go with a longer repayment term to lower your monthly payments (note: you may pay more interest over the life of the loan if you refinance with an extended term).

If you’re considering a refinance, keep in mind that refinancing federal loans with a private lender disqualifies you from government benefits and protections, such as income-driven repayment plans and generous forbearance and deferment programs.


💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.

The Takeaway

When it comes to paying off your student loans, knowledge is power. So a great first step is to take inventory of all the loans you have, noting the loan amounts, interest rates, payment amounts, and due dates. Other ways to stay organized include: storing all of your loan paperwork and mail in one place, creating a master student loan spreadsheet, and using technology (like apps and loan platforms) to help you track your progress and pay off your loans faster.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

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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Cash settlement in options is a method where the buyer of an option contract can exercise their right to receive the underlying asset, such as a stock or commodity, in the form of cash rather than the physical delivery of the asset. This means that instead of receiving the stock or commodity, the option holder will receive an amount of cash equal to the value of the underlying asset when the option is exercised.

Cash settlement may be used in options trading because it allows traders to speculate on the price movement of securities without actually having to own or hold the underlying assets. This can be particularly useful for traders looking to hedge their positions or who want to avoid the risks associated with holding the underlying assets.

What Is Cash settlement?

As noted above, cash settlement refers to a settlement method where the buyer of an option contract receives the cash difference between the strike price and the current market price of the underlying security. This is in contrast to the more traditional method of physical settlement, where the buyer of the option contract would receive the underlying security upon exercise.

When trading options, there are two primary methods for settling the contract: physical delivery and cash settlement. In physical delivery, the buyer of the option receives the underlying asset, such as a stock or commodity, when the option is exercised. Most listed equity options contracts are settled with the actual delivery of shares.

On the other hand, cash settlement allows the buyer of an option to receive the value of the underlying asset in the form of cash when the option is exercised. This means that the buyer does not receive the stock or commodity but receives an amount of cash equal to the value of the underlying asset when the option is exercised. Often, equity index and binary options are cash-settled.

💡 Recommended: Options Trading 101: An Introduction to Stock Options

How Does Cash Settlement Work?

The cash settlement process in options works like this:

When an options contract is exercised, the buyer has the right — but not always the obligation — to buy or sell the underlying security at the agreed-upon price (called the strike price). In a cash settlement, the buyer of the option is not required to purchase or sell the underlying security. Instead, they receive a cash payout based on the difference between the strike price and the current market price of the underlying security.

💡 Recommended: 10 Options Trading Strategies for Beginners

Example of Cash Settlement

Suppose an investor buys a call option on stock ABC with a strike price of $50. This means that the investor has the right to buy the stock at $50 per share at any time before the option expires if the stock’s price is above the strike price. If the stock’s market price rises above $50, the option becomes “in the money,” and the investor can exercise their right to buy the stock at $50, even if the market price is higher.

Suppose that, when the option expires, the stock’s market price is $55 per share. If the option is cash-settled, the investor can exercise their right to buy the stock at $50 per share and receive a cash payment of $5 per share (the difference between the strike price and the market price) multiplied by the number of options contracts that are exercised. This means the investor would receive a total cash payment of $500 (assuming they exercised a standard options contract of 100 shares).

Alternatively, if the stock’s market price is below $50 when the option expires, the option becomes “out of the money,” and the investor will not exercise their right to buy the stock. In this case, the option would expire worthless, and the investor would not receive any cash payment.

💡 Recommended: In the Money vs Out of the Money Options

Pros and Cons of Cash Settlement

Advantages of Cash Settlement

There are several advantages to using cash settlement in options trading. First, it can be more convenient for the buyer, as they do not have to worry about physically receiving and storing the underlying asset. Cash settlement can be beneficial for traders who cannot hold the underlying asset, such as those who are trading options on futures contracts of commodities.

Another advantage of cash settlement is that it can be more cost-effective. Since the buyer does not have to take possession of the underlying asset, they do not have to pay any additional fees or expenses associated with holding an asset like gold, oil, wheat, or other commodities. This can help to reduce the overall cost of trading options and make them more accessible to a broader range of investors.

In addition to these advantages, cash settlement can provide greater flexibility for options traders. With physical delivery, the buyer must take possession of the underlying asset when the option is exercised, which can limit their ability to trade the asset in the future. With cash settlement, the buyer can use the funds received from the option to buy or sell the underlying asset in the market, allowing them to take advantage of changing market conditions.

Furthermore, cash settlement allows for a more efficient transaction in the overall derivatives markets — which includes options — adding to its liquidity.

Drawbacks of Cash Settlement

However, there are some drawbacks to cash settlement compared to physical settlement. For example, some investors may prefer the security and control that comes with physically owning and holding the underlying asset rather than receiving a cash payment. This is because cash can be more easily lost, stolen, or subject to inflation, whereas physical assets may provide a more tangible form of wealth. Also, physical settlement is not usually subject to manipulation by either party involved in the options contract because the activity is monitored by the broker and clearing exchange.

Other cash settlement drawbacks include that it is usually only available to European-style options, where the option holder can only exercise the contract at expiration rather than early like American-style options. Also, physical settlement may be preferred by traders who need the underlying asset for use.

Cash Settlement vs Physical Settlement

There are several important differences between cash settlement and physical settlement.

Definitional Differences

Cash settlement of options is a financial reconciliation. Physical settlement reconciles a contract with the underlying asset. A common physical delivery example is a commodity, but it can also be shares of an underlying financial asset such as stock.

Mode of Payment

Option cash settlement payments are made instantly by parties. It is a straightforward financial account transfer of the difference between the underlying asset’s spot price and the options contract or strike price.

Physical settlement’s mode of payment is a full payment of the underlying asset — the option contract’s underlying asset is physically delivered to the buyer.

Level of Liquidity

Liquidity is better in markets with a cash settlement option versus those with physical settlement only. More market traders — hedgers and speculators — can participate in cash-settled derivative markets since there can be lower capital requirements. Options traders also can engage in rolling options instead of exercising them.

Time Taken

Option cash settlement can be done with instantaneous financial transactions. Physical delivery involves potentially lengthy delivery times of an underlying commodity.

Level of Risk

Another upshot in markets with a cash settlement option is market risks are lower. Physical settlement often involves transfer certificates and other documents that could be susceptible to manipulation, loss, and theft.

Convenience

It is hard to argue with the convenience of cash settlement. Two parties square up using straightforward price differences rather than figuring out the logistics of the physical delivery of an asset. With equity index options, taking delivery of all the shares of a stock index can also be unwanted by the buyer. There can also be fewer fees with cash settlement, resulting in fewer trades.

Practicality, costs, and simplicity make cash settlement easier than physical settlement.

Practicality

Due to lower costs and quick payments, option cash settlement is more practical than physical settlement.

Costs Involved

Trades with cash settlements have low or even zero cost until settlement when the buyer and seller reconcile with a payment. With physical delivery, there are several costs, such as transportation costs, delivery expenses, and broker fees.

Simplicity

A final aspect that makes cash settlement advantageous versus physical settlement is the pure simplicity of cash settlement. Cash settlement is a netted payment from one party to the other.

Popularity

The Takeaway

Cash settlement in options trading may provide a convenient and cost-effective way for buyers of options contracts to exercise their rights to the underlying asset. By receiving the asset’s value in cash, traders can avoid the costs and complications associated with physical delivery while still maintaining the flexibility to trade the underlying asset in the market. However, investors should be aware that most equity options are not cash-settled but are settled with the delivery of underlying shares of stock.

If you’re ready to try your hand at options trading, SoFi can help. You can trade options from the SoFi mobile app or through the web platform. And if you have any questions come up along the way, SoFi offers educational resources about options to learn more.

FAQ

What is the difference between a physical and cash settlement?

Cash settlement is a financial payment for the value of a stock or commodity underlying an options or futures contract when the holder exercises. Physical settlement entails the actual delivery of the underlying asset. In commodities markets, that means the commodity is delivered to the buyer. With equity options, physical delivery happens when the buyer receives shares of the underlying asset specified in the options contract.

Can you trade with unsettled cash?

Yes. You can use the proceeds from a sale to make another purchase in a cash account while your funds remain unsettled. Unsettled cash from a day trade cannot be used for another purchase until the settlement date

Which futures are cash settled?

According to the CME Group, equity indexes and interest rate futures are the most common cash-settled markets. Some precious metals and foreign exchange markets also settle in cash, along with agricultural products. In the options market, cash-settled options include digital options, binary options, and plain-vanilla index options.

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