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Whether you apply for federal or private loans, you’ll need to meet several student loan requirements to receive your funds. Those requirements can vary depending on what type of loan you want.

It’s important to know exactly what the requirements are before applying. Because while student loans are a popular way to help pay for college, getting approved isn’t a given. Read on to learn the requirements for different types of federal loans as well as private loans.

Federal Student Loan Requirements

There are four different types of federal student loans available to college students and their parents. Loans generally require:

•   Demonstrated financial need (for most programs)

•   U.S. citizen or eligible non-citizen

•   Social Security number

•   Enrollment in or acceptance to an eligible degree or certificate program

•   Attendance at least half-time

•   Maintenance of satisfactory academic progress

•   Completion of the Free Application for Federal Student Aid (FAFSA®) form

•   Agreement to use the loan for educational purposes only

•   You’re not in default on a federal student loan and don’t owe money on a federal grant

•   High school diploma or GED certificate, state-approved homeschool setting, or enrollment in an eligible career pathway program and “ability-to-benefit” alternative

Depending on the type of loan, though, there may be additional requirements that parents or students need to meet. Read on for a quick breakdown of some additional requirements by loan type.

Direct Subsidized Loans

With Direct Subsidized Loans, the federal government covers your interest costs while you’re still in school. To qualify, you need to be an undergraduate student enrolled at least half-time at a participating school that will lead to a degree or a certificate. And you must show financial need through the FAFSA form.

Direct Unsubsidized Loans

With a Direct Unsubsidized Loan, you do not need to demonstrate financial need, and you are responsible for paying interest on the loan from the time you take it out. To qualify, you must be an undergraduate, graduate, or professional student who is enrolled at a participating school at least half-time. Typically, the program must result in a degree or certificate.

Recommended: College Tuition Payment Plans

Direct PLUS Loans

You can apply for a Direct PLUS Loan if you’re a graduate or professional student, or a parent of an undergraduate student. You generally can’t have an adverse credit history, which means, as stated by the Department of Education (DOE), you may not qualify if you have any of the following on your credit report:

•   Accounts with a total outstanding balance over $2,085 that are 90 or more days delinquent, or that have been placed in collection or charged off within the last two years.

•   Default determination within the last five years.

•   Bankruptcy discharge within the past five years.

•   Repossession during the last five years.

•   Foreclosure within the last five years.

•   Charge-off / write-off of federal student loans during the last five years.

•   Wage garnishment within the last five years.

•   Tax lien within the past five years.

That being said, if you do have an adverse credit history, you may still be able to receive a Direct PLUS Loan if you meet either of the following requirements and also complete credit counseling:

•   You get an endorser who does not have an adverse credit history.

•   You demonstrate to the DOE that you have extenuating circumstances relating to your adverse credit history.

Recommended: How To Pay for Grad School

Direct Consolidation Loans

A Direct Consolidation Loan allows you to consolidate multiple federal loans into one loan. To qualify, you must have one or more eligible loans and meet other requirements, including:

•   The loans must be in repayment or in the six-month grace period after you leave school.

•   In general, you must have at least one loan that isn’t already a consolidated loan.

•   If one or more loans are in default, you must make at least three consecutive monthly payments or agree to repay the Direct Consolidation Loan under one of the available income-driven repayment plans.

•   If your wages are being garnished to make payments on a defaulted federal loan, you can’t consolidate it until the wage garnishment order has been lifted or the judgment has been vacated.

Private Student Loan Requirements

While federal student loans often have the same requirements across the board because the DOE is the lender on all of them, that isn’t the case with private student loans. With private loans, requirements vary by lender, which means you may qualify for a loan from one private student loan company and not with another.

The requirements for a private student loan can also depend on what type you’re applying for, such as an undergraduate loan, graduate loan, or specialized loan.

In general, all private student lenders require a credit check and a minimum annual income. This means that if you don’t have a credit history, you may need a cosigner with an established credit history and a solid income to apply for the loan with you.

Each lender has different requirements when it comes to student loans. Common requirements among major private student loan companies include:

•   U.S. citizen, permanent resident, or international student.

•   Social Security number (some don’t require this for international students).

•   International students generally must have a cosigner.

•   Attendance at an eligible school.

•   Enrollment in a degree program and attendance at least half-time (some allow you to be less than half-time).

Depending on the lender, there may be other student loan qualification requirements and limitations, so it’s important to shop around to compare lenders and read the terms to make sure you qualify.

Also, look for private student lenders that allow you to get prequalified with just a soft credit check. This can give you an idea of your approval chances and show you possible loan terms you might qualify for without dinging your credit score.

The Takeaway

There are a number of requirements you may have to meet in order to qualify for a student loan. The requirements for different types of federal student loans tend to have more overlap, as they all have the same lender. Some are administrative, such as having a Social Security number. Others are risk-related, like not being in default on any previous student loans. Requirements for private student loans vary from lender to lender.

If you’re getting ready to apply for a loan to fund your education, make sure to explore your options and compare terms and rates. SoFi offers private student loans with fixed or variable rates and a number of repayment options.

SoFi offers no-fee private student loans for undergraduate and graduate students or their parents.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

There are several legitimate programs that federal student loan borrowers can utilize to have their federal student loans forgiven. Unfortunately, there are also student loan forgiveness program scams. Confusion surrounding loan forgiveness can create space for scammers to thrive. Most commonly, companies will promise something that cannot be done, or charge an upfront fee for something that can be done online for free.

The real trick for borrowers will be distinguishing between a company that is providing student loan counseling in a fair and legitimate way from a company that is trying to take advantage of unsuspecting students.

Is Student Loan Forgiveness a Scam?

There are millions of students paying college student loans and the idea of having those student loans forgiven can be very appealing. There are legitimate student loan forgiveness programs that are available to federal student loan borrowers who meet the program requirements.

These include programs like Public Services Loan Forgiveness or the Teacher Loan Forgiveness Program. There may be other options for forgiving student loans, depending on your background and program requirements.

What Is a Student Loan Forgiveness Scam?

A student loan forgiveness scam is when a service makes a promise that they cannot deliver on. For borrowers looking to get out of student loan debt quickly, these promises can seem promising. Unfortunately, scams may offer impossible promises like immediate loan forgiveness or may trick student loan borrowers into disclosing personal information.

Types of Student Loan Scams

Student loan scams can take many forms. Be wary of scams that come in the form of unsolicited calls, texts, or emails.

Student Loan Forgiveness Scam Calls

If you receive an unsolicited call asking you for information about your student loans, pay close attention. Some calls may present opportunities to cancel student loan debt. In general, any call offering a fast solution to pay off your student loans is a scam. The U.S. Department of Education offers legitimate forgiveness programs and opportunities to lower your student loan payments, all of which can be accessed at no cost to borrowers directly through their loan servicers.

The Federal Trade Commission (FTC) has a sample of what these calls might sound like, so you can be prepared.

Student Loan Forgiveness Text Scam

Texting is another avenue for scammers to contact student loan borrowers. These communications might include the need to “act immediately” or tout enrollment for debt relief is taking place on a first-come first-served in order to inspire a false sense of urgency.

Text scams are newer on the scamming spectrum, so consumers may not be expecting them. Instead of responding to the message, call your student loan servicer on the number listed on their website. In general, most student loan servicers will not conduct business via text messages.

Spotting Student Loan Scams

When it comes to student loan scams, the short rule of thumb is that anything that sounds too good to be true, probably is. For example, if a company claims that with an up-front fee that your loans will automatically be forgiven, it is a scam. No program exists where loans are “automatically” forgiven for a fee.

If you have a feeling that you might be getting scammed, do a thorough internet search for the company. More than likely, someone else has been in contact with, and possibly taken advantage of by, this company.

The problem with relying on an internet search to look for a scam? Not every scam will have been identified through an internet search, as they change their names and phone numbers often to avoid the background research a consumer might conduct. Here are a few common techniques used by student loan scammers.

Upfront Cost & Fees

Any student loan company offering to help you for an upfront fee is a scam. According to the FTC, it is illegal for companies to charge you before providing assistance. And importantly, borrowers can get help directly from their student loan servicer or Department of Education at no cost.

Immediate Student Loan Forgiveness

Another huge red flag — organizations offering to provide immediate or complete student loan forgiveness. Most government loan forgiveness programs require a record of qualifying payments and or employment certifications depending on the program.

Requesting Passwords

Broadly speaking, legitimate companies won’t ask you to verify personal details out of the blue. If you receive a call, email, or text asking you to disclose your passwords or any other sensitive personal information, think twice before responding. Sharing personal details could allow scammers to access your loan information, or other important accounts.

Avoiding Student Loan Scams

Attention to detail and diligence in communication can help you avoid some common student loan scams. Here are eight student loan scams to avoid.

1. A Promise of Immediate Forgiveness

Beware of any promise that seems too good to be true. Student loan forgiveness takes time, period. A company can only help you fill out paperwork for a forgiveness program; they cannot forgive your loans.

2. A Request for an Upfront Fee

Many scams rely on obtaining an upfront fee for something that either cannot be done (immediate loan forgiveness) or something that can be done for free, online (apply for a loan forgiveness program). You should only agree to payment once the company has completed the service in question.

3. Private Loan Refinancing

In general, only federal loans are eligible for loan forgiveness programs. Be cautious of any company that tells you that they can get your private loans forgiven. Private loans don’t typically offer forgiveness programs.

4. A Phone Call

Many scams start with a student loan forgiveness call. The Department of Education, who directs federal loan forgiveness programs, will never call you. If they need to correspond with you, they will by mail.

5. A Request to Pay Them and Not Your Lender

No company will ever make your student loan payments for you. You can pay them for a service, sure. But it is unwise to make your student loan payments to anyone except for who you owe.

6. A Request to Stop Making Student Loan Payments

No legit company will ever recommend you stop making your loan payments. A company working in your best interest will advise you to make all of your payments on the correct repayment plan so that you’re sure to qualify for any applicable loan forgiveness programs.

7. Asking for Your FSA ID

No one should ever ask for your Federal Student Aid ID. Your FSA ID allows you to log onto the government website where borrowers manage their federal student loans.

8. Official-Looking Insignias

Fraudsters do a good job of making their websites, seals, and paperwork look like official government branding. Just because something looks official does not mean it is official, so do your research.

Reporting Student Loan Scams

If you encounter any student loan scams, you can have a few different options for reporting them. You can report scams to the Department of Education through the Federal Student Aid website .

You can also report the business conducting the student loan scam to the Consumer Financial Protection Bureau . Anyone who has been contacted by what they believe to be a scam can also report it to the
FTC .

Looking for Safe Private Student Loans?

Not everyone qualifies for loan forgiveness. Others may not actually find that it makes the most sense for their own personal financial situation. (This may be especially true for loan forgiveness programs that require you to pay taxes on the forgiven balance, such as income-driven repayment.)

Those looking for a safe borrowing option may want to consider SoFi. Private student loans from SoFi have no fees and are available to undergraduate, graduate, and professional students, or their parents.

The Takeaway

Student loan scams rely on the borrower’s lack of understanding on how their loans, and loan forgiveness program works. Pay attention to texts, emails, or phone calls that over-promise on their ability to lower your monthly payments or have loans forgiven, as these are generally indicators that there is a scam, or other unfavorable business going on. If you have any doubt, contact your loan servicer directly to avoid falling into a scammer’s trap.

No matter what path you take with your student loans, always be sure to do adequate research. It’s hard to scam someone that understands their loans, and their options for repaying them.

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.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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If you’re reading this, you’ve probably already decided that you are going to buy life insurance. Smart move: Life insurance will, in the case of your untimely death, protect your loved ones. If you keep up with your monthly premiums, your beneficiaries will receive a lump sum payment that will help them replace the money you would have otherwise earned. Expenses like your mortgage, a child’s education, monthly utilities and more need to be factored in.

Wondering how to do the math? Let us help you out with some simple methods for calculating that amount of coverage that will give you peace of mind.

How to Manually Calculate How Much Life Insurance You Need

Here’s a great way to get started: Take out a piece of paper or open a document on a computer and start making lists. In one list, you are going to look at all the financial obligations that lie ahead. In another, you’ll consider all the assets you have that could be used to fund these expenses for your loved ones if you were not around.

For the financial obligations ahead, make sure you come up with a figure that includes:

•   Your income over the term of the insurance policy.

•   Daily living expenses (food, utilities, medical care) if you don’t think the income in the line above would cover that sufficiently.

•   Your mortgage. If this is covered by your income, you don’t need to add this, but if not, you want to make sure your loved ones can pay this loan off over the years.

•   Any other debts. Do you have a chunk of credit card debt? Student loans? Those will need paying. Also think about end-of-life costs. Grim as it may be, you don’t want loved ones struggling to pay for funeral costs. These are not insignificant. In 2021, the cost of a funeral and burial was typically almost $8,000. In addition to that, there may be additional costs for gravestones, an obituary, and the like.

•   Tuition. Think about how many children you have or plan to have. The current annual cost for an in-state student at a public 4-year institution is $25,615; for a private university, that number rises to $53,949. Don’t forget to account for inflation, too.

•   Childcare if applicable. Think about whether your income alone would cover this, or if more funds would be needed to pay for these costs.

Add these costs up, and those are your life insurance needs. But now, let’s look at assets that might go towards paying these costs were you not alive. Include the following:

•   Savings. What do you have in savings (include your retirement accounts if you believe your loved ones would tap into those versus keeping them aside)? Also look at any investment accounts you may own.

•   Other insurance policies. You may already have some insurance. Just keep in mind if it is something you have via a group life insurance policy at work, it will probably end if and when you change jobs.

•   College funds. If you already have, say, a 529 account that will help pay for your children’s higher education, add that to the assets list.

To find out how much insurance you need, take the first number (your financial obligations to be covered) and subtract from it the assets you have (the second number). Ta-da: You now have a number that you’d like your life insurance policy to at least equal.

3 Ways to Quickly Estimate Your Life Insurance Needs

Not everyone wants to do the math above, we get it. Here are a few other ways that may be a better match for you when it comes to estimating how much life insurance you need.

1. The DIME Formula

The DIME formula — an acronym that stands for debts, income, mortgage, and education — is a time-tested way to determine the right amount of life insurance to buy. Here’s how it works:

Debts Add them up, including car loans, student loans, personal loans, credit card balances (even if it’s a cringe-worthy number you plan on whittling down, you’ve got to include it), and so forth. Include everything except mortgage payments — because that’s the “M” portion of this formula — and add them up. What’s the total?

Income The goal of having a life insurance policy is to replace income that was coming in but would stop because of the death of the policy holder. Multiply your income and the potential number of years you want covered by life insurance.

Mortgage If you’re a homeowner, what balance remains on your home loan? If you are considering buying a home, what size mortgage would you get?

Educational costs If you have or are planning to have kids, estimate how much tuition would cost for each and determine the total needed to fund higher education.

Add up these D, I, M, and E amounts, and that’s how much life insurance coverage you need. Worth noting: This technique doesn’t recognize any assets you might have, so it might tend to have you buy more life insurance than you need.

2. Use an Online Calculator

Sometimes it’s easier to use a digital tool that holds your hand through calculations like these. If you love clicking your way to answers, try a life insurance calculator to help streamline the process. Many are available online.

3. Try the Multiplication Trick

Some people like to use a formula to figure out how much life insurance they should get. Typically, this says to take your income, multiply it by a number (usually 10, but sometimes much lower or higher) and bingo! That’s the amount. Prevailing wisdom, though, is that this can be a very inaccurate figure. And it certainly doesn’t take into account the subtleties of your situation, whether that means you have to pay whopping student loans from grad school, alimony, caregiving expenses for a parent, or another expense. So while you may hear about this shortcut, it’s not considered reliable.

Who Needs Life Insurance?

Many people would benefit from life insurance, and most Americans do have a policy. Buying life insurance protects your dependents in the event of your dying; it provides a lump sum payment that can keep them financially afloat.

If, however, you are a person without dependents or any shared debt (such as being a co-signer with your parents for a student loan or with a partner on a mortgage), then you may not need to buy a policy. But for those who do have people depending on their earning power, life insurance can be a wise buy.

Many people get a policy when they are anticipating the major “adulting” milestones of marriage or parenthood. It’s likely to be particularly important if you are the primary earner in your marriage. If tragedy were to strike and you died, your spouse could be hard-pressed to maintain their standard of living and pay the bills. The rule of thumb is that the sooner you get insurance, the better. Rates go up as you age.

Next Step: Buying Life Insurance

Once you know how much life insurance you need, it’s almost time to start shopping. Almost. Let’s take a quick look at the two main types of life insurance, term life versus whole life insurance — and the key differences between them.

Although they share the same goal of protecting families financially when a tragic loss occurs, the elements of the policies, how much they cost, their terms, and more can be quite different.

Term Life Insurance

As the name suggests, this kind of policy lasts for a certain period of time, or term. The policy is taken out for a designated dollar amount, usually with fixed premium payments — and, if the policy holder dies during that time frame, then designated beneficiaries can receive the payout they’re due. This can work well for people who think that, at the end of the term, they’ll have saved enough money that they no longer need income replacement. Or, they may believe that beneficiaries will have gained financial independence by the time the policy ends.

Whole Life Insurance

This option offers coverage for your “whole life” as the name suggests, and is a popular choice among the different kinds of permanent, or lifelong, insurance policies. Payments are typically higher, perhaps as much as five to 15 times more than the same amount of coverage as a term life policy, but part of this whole life premium is a contribution to the policy’s cash value account. This savings vehicle can grow and may be borrowed against if needed.

Choosing Term or Whole Life Insurance

If affordability is especially important, then term life insurance can make more sense. Term life may also be the right choice if coverage is only needed for a certain period of time, perhaps while money is still owed on a mortgage or young adult children are in college.

Another reason why some people may choose term insurance is because they take the difference between that premium and what they’d pay for a whole life premium, and then invest those dollars in another way.

That said, some people prefer the ongoing coverage of whole insurance and the peace of mind it can bring. Others may like watching their cash account grow. It’s a personal decision; only you can judge which kind of life insurance best suits your specific needs.

The Takeaway

Buying life insurance is an important step. It secures the financial future of your loved ones who rely on you and your income. Figuring out just how much life insurance you need is a necessary part of the process that can feel complicated. Fortunately, there are a number of different ways to get a solid estimate for that figure. The ideas we’ve shared not only help you do just that, they may also give you a deeper understanding of you and your family’s financial future.

Let SoFi Help Protect You

Once you have a rough idea of how much life insurance you’d like to buy, why not consider what SoFi is offering: affordable term life insurance in partnership with Ladder. Applicants can receive a quote in just a few minutes for policies that range from $100,000 to $8 million. It’s quick and easy to set up a policy, and the coverage amount and associated premiums can be adjusted at any time with just a couple of clicks. No hassles.

Rates are competitive with Ladder and, because the agents do not work on commission, there are no fees. Plus there are no medical exams required for qualifying applicants buying $3 million or less in coverage.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

SOPT20010

Cryptocurrency is a fast-moving space with new technologies and names arising on a daily basis. One of the largest and more polarizing subjects in the space is Ripple XRP, a private-company-founded platform and cryptocurrency launched in 2012. It has gained notoriety for its unique founding, structure, and operations.

Ardent supporters back its real-world adoption and growth potential. Dissenters contend that because of many of these same factors, it’s philosophically misaligned with cryptocurrency ideals and fundamentals.

Despite these contentions, Ripple XRP has grown to become a household name in cryptocurrency. Here’s everything you need to know about this cryptocurrency, and how to invest in it.

What Is Ripple?

Ripple is both a currency-exchange system designed to allow fast and low-cost transactions, and a cryptocurrency in its own right. Ripple’s primary goal is to connect financial institutions, payment providers, and digital asset exchanges to provide faster and cheaper global payments.

Created in 2012 by Jed McCaleb and Chris Larsen, Ripple is perhaps better known for its open-source, peer-to-peer decentralized platform, RippleNet, which enables money to be transferred globally in any fiat or cryptocurrency denomination between financial institutions.

Ripple makes some improvements on common shortfalls associated with traditional banks. Transactions on the Ripple Network are settled in seconds even under the regular stress of millions of transactions. Compare this to banks’ wire transfers which typically can take days to weeks to complete and can cost anywhere from $15 to $30 or more if sending or receiving internationally. Fees on Ripple vary based on the transaction size but overall are minimal, with the minimum cost for a standard transaction at 0.00001 XRP.

Whereas top cryptocurrencies like Bitcoin, Ethereum, and Litecoin are designed to be used primarily by individuals, Ripple’s system is designed to be adopted by banks, funds, and institutions.

What Is XRP?

XRP is the currency issued and managed by Ripple (though users can also create their own currency on the platform). Ripple began selling XRP in 2012 to fund company operations, allowing its users to buy cryptocurrency, though it has taken a backseat to the company’s primary objective of developing RippleNet.

Throughout Ripple’s lifespan, leadership has reframed how XRP fits into the company’s business model, originally proclaiming it as the fuel on which its borderless payments technology runs, and later as a more efficient medium of exchange than Bitcoin.

XRP tokens represent the transfer of value across the Ripple network and can be traded on the open cryptocurrency market by anyone. Unlike Bitcoin’s popular store-of-value narrative use-case, XRP is primarily used for payments and borderless currency exchange. While Ripple’s centralized infrastructure concerns some in the cryptocurrency space, its fast transaction speeds, low transaction costs, and low energy usage provide superior performance as a medium of exchange compared to many blockchain-based cryptocurrencies.

(Need a crash course on crypto before you can read any further? Check out our guide to cryptocurrency.)

What is the XRP Price?

At the time of reporting, the XRP price is $0.474494. It’s all-time high was $3.8419 in January 2018. It went as low as $.0041 in November 2015.

How Does Ripple Work?

There are two main technologies to be aware of when it comes to Ripple and XRP. Specifically, the XRP ledger (XRPL) and the Ripple Protocol Consensus Algorithm (RPCA). Here’s how they work.

XRP Ledger (XRPL)

RippleNet is built on top of its own blockchain-like distributed ledger database, XRP Ledger (XRPL), which stores accounting information of network participants and matches exchanges among multiple currency pairs. The transaction ledger is maintained by a committee of validators who act like miners and full-node operators to reach consensus in three to five seconds—versus Bitcoin’s 10 minutes. Because there are no miners competing to confirm transactions for block rewards, validators verify transactions for no monetary reward.

Anyone can become an XRP validator, but in order to gain trust and be used by others on the network, validators must make Ripple’s unique node list (UNL), deeming them a trusted Ripple validator. These centralized validators are critical to prevent double-spending and censorship of transactions. There are only 35 active XRP validators; six are run by Ripple.

Ripple Protocol Consensus Algorithm (RPCA)

XRP’s design is predicated on speed and cost, as opposed to decentralization. Unlike different types of cryptocurrency like Bitcoin and Ethereum, which are built on the blockchain and validated by miners through the Proof of Work consensus mechanism, Ripple confirms transactions through its own consensus mechanism, the Ripple Protocol Consensus Algorithm (RPCA).

By avoiding Proof of Work’s energy-intensive mining, Ripple transactions require less energy than Bitcoin or Ethereum, are confirmed faster, and cost less. However, this speed is ultimately achieved because of XRP’s centralized infrastructure, which some argue makes the network less secure, censorship-resistant, and permissionless than open-source blockchain networks.

Ripple Cryptocurrency Token Supply

Unlike many other cryptocurrencies, XRP is not mined. The token’s entire supply was created when the network first launched in 2012 and Ripple executives intermittently tap into an escrow to release segments of the supply to sell on the open market.

In other words, unlike Bitcoin’s decentralized economy, XRP’s supply and issuance is centralized and governed by a few authorities. Because the total supply already exists, no more will be created into existence, thus making XRP fixed in quantity and not inflationary.

As of January 2021, only 45 billion XRP tokens are in circulation, out of the maximum total 100 billion. Due to the vast circulating supply, XRP has had one of the largest market caps of any cryptocurrency, even briefly eclipsing that of Ethereum’s second-largest cap late in the 2017-2018 bull market.

Ripple Crypto and Regulatory Trouble

In late 2020, Ripple became the target of an SEC investigation . The regulatory body determined that Ripple Labs Inc. and two of its executives, Co-Founder Chris Larsen and CEO Bradley Garlinghouse, had raised over $1.3 billion through an “unregistered, ongoing digital asset securities offering” to finance the company’s operations. Consistent with recent cryptocurrency rules set by the SEC, Ripple’s leaders were charged with unlawful issuance of securities in the form of sales of its XRP token, raising questions about compliance with cryptocurrency taxes.

The XRP price crashed amid the fallout, from over $0.60 to under $0.30, as prominent crypto exchanges began delisting the token and Ripple executives, including Founder Jed McCaleb, sold off personal XRP holdings worth millions.

Is Ripple a Good Investment?

Though XRP has been impacted by Ripple’s legal blow, XRP is an independent token that can and does function somewhat outside of Ripple’s business model. The crash in price and soured fundamental outlook may not paint a bright picture of XRP as an investment to some. Whether XRP recovers and continues to evolve with the rest of the crypto herd remains to be seen, but as investors look for value in undervalued assets, it doesn’t hurt to do further research and form an educated conclusion.

Pros and Cons of Ripple XRP

Because Ripple is different in some ways from other cryptocurrencies, it makes sense to review its perceived pros and cons before making any investing decisions.

Pros of Ripple XRP

•  Fast speeds
•  Low fees
•  Interest/tentative adoption by financial institutions

Cons of Ripple XRP

•  Centralized infrastructure, governance, issuance
•  Corruptible validators
•  Unsupported by many exchanges

How to Invest in XRP

To start investing in Ripple, you first need to join a crypto exchange. Signing up for an account could include different verification processes, depending on the exchange. Once you’re signed up, you’re ready to trade or buy Ripple XRP. You can trade any current crypto you own, or you can buy a major cryptocurrency like Bitcoin or Ethereum and then use that to buy Ripple XRP.

The Takeaway

Ripple XRP is a global digital payments system that sacrifices decentralization for performance. The network and technology is owned and at least partly run by Ripple, the private company, which controls the underlying infrastructure, supply, and some of the limited network validators. While Ripple strays from the conventional decentralization model adopted by leading cryptos Bitcoin and Ethereum, it conforms to some degree through its own specially — designed infrastructure.

Although Ripple’s primary goal is providing a borderless payments and currency exchange gateway for financial institutions, its native cryptocurrency XRP has taken on a life of its own and is actively traded and analyzed by investors. With high-ranking metrics such as fast and inexpensive transactions, some investors argue XRP is a strong competitor to large cryptocurrency blockchains such as Bitcoin and Ethereum. Conversely, Ripple XRP’s centralization has been a major philosophical and security concern for others — including US regulatory bodies.

Cryptocurrency is an exciting new technology that’s disrupting money as we know it. With SoFi Invest®, members can trade some of the most popular cryptocurrencies, like Bitcoin, Ethereum, Cardano, Dogecoin, and Litecoin.