Aug
03
2023
Unrealized Gains & Losses, Explained
An unrealized gain or loss is the change in market value of an asset from its purchase price, before it is sold.
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SoFi
Student Loan Consolidation and Refinancing
Aug
02
2023
How to Trade ETFs: A Guide for Retail Investors
Trading ETFs is, in many ways, similar to trading stocks or other securities, and can be done on most stock-trading platforms or brokerages. And while conventional wisdom suggests investors are limited in what they can do with an exchange-traded fund (ETF), an investor can almost certainly buy into a fund based on portfolio needs.
But investors have different goals and strategies, and that may include trading or otherwise buying and selling ETFs frequently. Trading ETFs is fairly simple, though, and investors would do well to know how to trade ETFs.
What Is an ETF (Exchange-Traded Fund)?
An exchange-traded fund is a popular investment vehicle that enables investors to buy a group of stocks in one bundle, thus promoting investment diversity and efficiency. They’re widely available, usually through major investment fund companies.
ETFs aren’t mutual funds, although they originate from the same fund investment family. The primary differences between the two is that mutual funds are usually more expensive than exchange traded funds.
Another benefit of ETFs is that whereas mutual funds can only be traded after the end of the market day, ETFs can be traded during open market sessions at any point in the day. ETFs have become wildly popular, too, over the years.
💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.
Different Types of ETFs
ETFs come in a variety of different types, including the following:
• Stock ETFs: This type of ETF is composed of various equity (stock) investments.
• Bond ETFs: Bond funds hold different types of bond vehicles, like U.S. Treasury bonds, utility bonds, and municipal bonds.
• Commodities: Commodity ETFs are popular with investors who want gold, silver, copper, oil, and other common global commodities.
• International ETFs: Global-based ETFs usually include country-specific funds, like an Asia ETF or a Europe ETF, which are made up of companies based in the country featured in the ETF.
• Emerging market ETFs: This type of ETF is composed of stocks from up-and-coming global economies like Indonesia and Argentina.
• Sector ETF: A sector ETF focused on an economic sector, like manufacturing, health care, climate change/green companies, and semiconductors, among others.
Recommended: Tips on How to Choose The Right ETF
4 Reasons to Consider Trading ETFs
Trading ETFs offers the same advantages (and risks) associated with trading common stocks. These features and benefits are at the top of the list.
1. ETFs Provide Liquidity
In a multi-trillion dollar market, there is likely no shortage of investors looking to buy and sell ETFs. By and large, the bigger the market, the more liquidity it provides, and the easier it is to move in and out of positions.
2. There are Different Investment Options
With ETFs widely available in categories like stocks, bonds, commodities, and more recently, green industries and others, ETF traders have plenty of investment options.
3. ETFs Offer Portfolio Diversity
Investment specialists often extol the virtue of a diverse portfolio, i.e. one made up of both conservative and more aggressive investments that can balance one another and help reduce risk. With so many classes of ETFs available, it’s relatively easy to build an ETF trading portfolio that has different asset classes included.
4. ETFs Are Relatively Inexpensive to Trade
Exchange-traded funds are typically inexpensive to buy — the average fee for buying an ETF is just under 0.20 percent of the total asset purchased. Some brokerage platforms may offer commission-free ETFs.
What Are the Risks of Trading ETFs?
The main risk associated with trading ETFs is the same as with trading stocks — you could lose money. While shedding cash is always a threat when trading any security, the liquidity associated with exchange-traded funds makes it relatively easy to sell out of a position if needed. A candid conversation with a financial advisor may help investors deal with ETF investment trading risks.
How to Trade ETFs
Just as you can trade stocks, you can trade ETFs, too, by taking these steps.
Step 1. Choose a Trading Platform
Traditionally, investors trade stocks through a brokerage house or via an online broker more recently, on alternative trading platforms where investors can buy partial shares of a stock. As with most things in life, it’s generally a good idea to look around, kick some proverbial tires, and choose a broker with the best ETF trading services for you.
Investors can choose from different categories of ETF trading accounts, ranging from standard trading accounts with basic trading services to retirement accounts, specialty accounts, or managed portfolio accounts that offer portfolios managed by professional money managers.
Step 2. Select an ETF Trading Strategy
The path to successful ETF trading flows through good, sound portfolio construction and management.
That starts with leveraging two forms of investment strategy — technical or fundamental analysis.
• Technical analysis: This investment strategy leverages statistical trading data that can help predict market flows and make prudent ETF trading decisions. Technical analysis uses data in the form of asset prices, trading volume, and past performance to measure the potential effectiveness of a particular ETF.
• Fundamental analysis: This type of portfolio analysis takes a broader look at an ETF, based upon economic, market, and if necessary, sector conditions.
Fundamental analysis and technical analysis can be merged to build a trading consensus, typically with the help of an experienced money manager.
Any trading strategy used to build ETF assets will also depend on the investor’s unique investment needs and goals, and will likely focus on specific ETF portfolio diversification and management. For example, a retiree may trade more bond ETFs to help preserve capital, while a young millennial may engage in more stock-based ETF portfolio activity to help accumulate assets for the long haul.
Step 3. Make the Trade
Executing ETF trades is fairly straightforward for retail investors. It may be best to consider starting out with small positional trading, so that any rookie mistakes would be smaller ones, with fewer risks for one’s portfolio.
Here are two trading mechanisms that can get you up and running as an ETF trader:
• Market order. With market order trading, you buy or sell an ETF right now at the current share price, based on the bid and the ask — the price attached to a purchase or a sale of a security. A bid signifies the highest price another investor will pay for your ETF and the ask is the lowest price an ETF owner will sell fund shares. The difference between the two is known as the trading “spread.”
A word of caution on market trades. ETFs tend to have wider trading spreads than sticks, which could complicate you’re getting the ETF shares at the price you want. Share trading spreads of 10% are not uncommon when trading ETFs.
• Limit trade orders. An ETF limit order enables you to dictate terms on an ETF purchase or sale. With a limit order, you can set the top price you’ll pay for an ETF and the lowest price you’ll allow when selling an ETF.
For investors who have qualms about buying or selling an ETF at a fixed price, limit orders can be a viable option, as they allow the investor to set the terms for a trade and walk away from an ETF trade if those terms aren’t met.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
The Takeaway
Historically, exchange traded funds have been used primarily as passive, “buy and sell investments.” But as asset trading grows more exotic in the digital age, trading ETFs has become increasingly popular. It’s fairly simple to trade ETFs, too, as most investors simply need access to an online trading platform or brokerage.
As with any investment, though, there are risks to consider. While ETFs can be a great starting point for many investors, they’re not entirely safe investments, and investors should do their research before buying shares of any specific ETF, as they would with any other type of security.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Photo credit: iStock/PeopleImages
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0723067
Aug
01
2023
What Is Book Value Per Share (BVPS)?
One of the most popular and trusted forms of fundamental analysis is Book Value Per Share (BVPS), or a company’s “book value.” Book value per share is an accounting metric that calculates the per-share value of a company’s equity.
The book value per share of an undervalued stock is higher than its current market price, so book value per share can help investors appraise a stock price.
Knowing what book value per share is, how to calculate it, and how it differs from other calculations, can add yet another tool to an investor’s tool chest.
What Is Book Value Per Share?
Book Value per Share (BVPS) is the ratio of a company’s equity available to common shareholders to the number of outstanding company shares. This ratio calculates the minimum value of a company’s equity and determines a firm’s book value, or Net Asset Value (NAV), on a per-share basis. In other words, it defines the accounting value (i.e. book value) of a share of a company’s publicly-traded stock.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Book Value Per Share vs Market Value Per Share
The Book Value Per Share provides information about how the value of a company’s stock compares to the current Market Value Per Share (MVPS), or current stock price. For example, if the BVPS is greater than the MVPS, the company’s stock market may be undervaluing a company’s stock.
The market value per share is forward-looking, since it’s based on what investors think a company should be worth, while book value per share is an accounting measure that uses historical data.
Recommended: Intrinsic Value vs Market Value, Explained
What Does Book Value Per Share Tell You?
Commonly used by stock investors and analysts, the Book Value Per Share (BVPS) metric looks at a company’s stock price to determine whether it’s undervalued compared to the stock’s current market price. An undervalued stock will have a BVPS higher than its current stock price.
If the company’s BVPS increases, investors may consider the stock more valuable, and the stock’s price may increase. On the other hand, a declining book value per share could indicate that the stock’s price may decline, and some investors might consider that a signal to sell the stock.
Book Value Per Share also theoretically reflects what shareholders would receive in a company liquidation after all its assets were sold and all of its liabilities paid. However, because assets would hypothetically sell at market value instead of historical asset values, this may not be an entirely accurate measurement.
If a company’s share prices dip below its BVPS, the company can potentially be vulnerable to a takeover by a corporate raider who could buy the company and liquidate its assets risk-free. Conversely, a negative book value indicates that a company’s liabilities exceed its assets, making its financial condition “balance sheet insolvent.”
Book Value Per Share solely includes common stockholders’ equity and does not include preferred stockholders’ equity. This is because preferred stockholders are ranked differently than common stockholders in the event the company is liquidated. If a corporate raider intends to liquidate a company’s assets, the preferred stockholders with a higher claim on assets and earnings than common shareholders are paid first and that amount gets deducted from the final shareholders’ equity distributed among common stockholders.
How to Calculate Book Value Per Share
An investor can apply BVPS to a stock by analyzing the company’s balance sheet. Specifically, an investor will need total asset value, cost of acquiring an asset, and accumulated depreciation of corporate assets which helps provide the most accurate BVPS figure.
Whereas some price models and fundamental analyses are complex, calculating book value per share is fairly straightforward. At its core, it’s subtracting a company’s preferred stock from shareholder equity and dividing that sum by the average amount of outstanding shares.
Book Value Per Share = (Shareholders’ Equity – Preferred Equity) / Total Outstanding Common Shares
Shareholders’ Equity = Total equity of all shareholders.
Total Outstanding Common Shares = Company’s stock currently held by all shareholders, including blocks held by institutional investors and restricted shares owned by preferred stockholders. This number may fluctuate wildly over time.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Example of Book Value Per Share
Company X has $10 million of shareholder’s equity, of which $1 million are preferred stocks and an average of 3 million shares outstanding. With this information, the BVPS would be calculated as follows:
BVPS = ($10,000,000 – $1,000,000) / 3,000,000
BVPS = $9,000,000 / 3,000,000
BVPS = $3.00
How to Increase Book Value Per Share
A company can increase its book value per share in two ways.
Repurchase Common Stocks
A common way of increasing BVPS is for companies to buy back common stocks from shareholders. This reduces the stock’s outstanding shares and decreases the amount by which the total stockholders’ equity is divided. For example, in the above example, Company X could repurchase 500,000 shares to reduce its outstanding shares from 3,000,000 to 2,500,000.
The above scenario would be revised as follows:
BVPS = ($10,000,000 – $1,000,000) / 2,500,000
BVPS = $9,000,000 / 2,000,000
BVPS = $4.50
By repurchasing 1,000,000 common shares from the company’s shareholders, the BVPS increased from $3.00 to $4.50.
Increase Assets and Reduce Liabilities
Rather than buying more of its own stock, a company can use profits to accumulate additional assets or reduce its current liabilities. For example, a company can use profits to either purchase more company assets, pay off debts, or both. These methods would increase the common equity available to shareholders, and hence, raise the BVPS.
The Takeaway
There are many methods that investors can use to evaluate the value of a company. By leveraging useful and insightful formulas such as a company’s Book Value Per Share, investors can determine a company’s value relative to its current market price. While it has limitations, the BVPS can identify companies that are undervalued (or overvalued) according to core fundamental principles, and it’s a relatively straightforward calculation that even beginner investors can use.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Photo credit: iStock/Tempura
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0623008
Aug
01
2023
What Is Gross Spread?
The term “gross spread” refers to an important element of the initial public offering (IPO) process: Gross spread is the money underwriters earn for their role in taking a company public.
When a company IPOs, or “goes public,” it releases its shares onto a public stock exchange, an undertaking that demands a tremendous amount of work behind the scenes. That work involves bankers, analysts, underwriters, and numerous others. All of that work must be compensated, which is where the gross spread — also called the underwriting spread — comes into play.
How Gross Spread Works
The gross spread refers to the cut of the money that is paid to the underwriters for their role in taking a company public. In effect, it’s sort of like a commission paid to the IPO underwriting team. But the underwriting spread isn’t a flat fee, but a spread in the sense that it represents a share price differential.
Underwriters
Underwriters are common players in many facets of the financial industry. It’s common to find underwriters working on mortgages, as well as insurance policies.
When it comes to IPOs, underwriters or underwriting firms work with a private company to take them public, acting as risk-assessors, effectively, in exchange for the underwriters spread. Their job is to evaluate risk and charge a price for doing so.
Recommended: What Is the IPO Process?
The Role of Underwriters in the IPO Process
These IPO underwriters generally work for an investment bank and shepherd the company through the IPO process, ensuring that the company covers all of its regulatory bases.
The underwriters also reach out to a swath of investors to gauge interest in a company’s forthcoming IPO, and use the feedback they receive to set an IPO price — this is a key part of the process of determining the valuation of an IPO.
In order to generate compensation for all this work, the underwriters typically buy an entire IPO issue and resell the shares, keeping the profits for themselves. So, the underwriters set the IPO price, buy the shares, and — assuming the shares increase in value once they become publicly available — the underwriters generate a profit from reselling them, the same way you would selling the shares of an ordinary stock that had risen in value.
For companies that are going public, the benefit is that they’re essentially guaranteed to raise money from the IPO by selling the shares to the underwriters. The underwriters then sell the shares to buyers they have lined up at a higher price in order to turn a profit. That difference in price (and profit) is the gross spread.
For the mathematically minded, the gross spread — basically the IPO underwriting fee — would be equal to the sale price of the shares sold by the underwriter, minus the price of the shares it paid for the shares.
💡Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.
Gross Spread & Underwriting Costs
The gross spread, for most IPOs, can range between 2% and 8% of the IPO’s offering price — it depends on the specifics of the IPO. There can be many variables that ultimately dictate what the gross spread ends up being.
The gross spread also comprises a few different components, which are divided up by members of the underwriter group or firm: The management fee, underwriting fee, and concession. The underwriters typically split the gross spread, overall, as such: 20% for the management fee, 20% for the underwriting fee, and 60% for the concession. More on each below:
Management fee
The management fee, or manager’s fee, is the amount paid to the leader or manager of the investment bank providing underwriting services. This fee essentially amounts to a commission for managing and facilitating the entire process. It’s also sometimes called a “structuring fee.”
Underwriting fee
The IPO underwriting fee is similar to the management fee in that it is collected by and paid to the underwriters for performing their services. Again, this is more or less a commission that is taken as a percentage of the overall gross spread and divided up by the underwriting teams.
Concession
The concession, or selling concession, is generally the compensation underwriters get for managing the IPO process for a company. So, in this sense, the concession is a part of the gross spread during the IPO process and is, effectively, the profits earned by selling shares when the process is complete. It’s divided up between the underwriters proportionately depending on the number of shares the underwriter sells.
💡Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.
Examples of Gross Spread
Here’s an example of how gross spread may look in the real world:
Company X is planning to IPO, and its shares are valued at $30 each. The underwriters working with Company X on its IPO purchase the full slate of shares prior to the IPO, and then go off and sell the shares at $32 each to investors and the general public.
In this case, the gross spread would be equal to the difference between what the underwriters paid Company X for the shares, and what they then sold the shares for to the public — $32 – $30 = $2.
Or, to express it as a ratio, the gross spread is 6.7%. More on the ratio calculation below.
Gross Spread Ratio
As mentioned, the gross spread can be expressed or calculated as a ratio. Using the figures above, we’d be looking to figure out what percentage $2 is (the gross spread) of $30 (the share price sold to the underwriters).
So, to calculate the ratio, you’d simply divide the gross spread by the share price — $2 divided by $30. The calculation would look like this:
$2 ÷ $30 = 0.0666
The figure we get is approximately 6.7%. Also note that the higher the ratio, the more money the underwriters (or investment bank serving as the underwriter) receives at the end of the process.
IPO Investing With SoFi
Though the gross spread, or underwriters spread, is not a well-known aspect of the IPO process, it’s relatively straightforward. Underwriters, who shepherd a company through the IPO process, ultimately buy the initial shares from the company at one price, and sell them to the public at the IPO at a higher price. The spread between the two is considered the gross spread, or the compensation the underwriting team earns for all their work.
Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.
FAQ
What is meant by the underwriting spread?
The underwriting spread is another term for the gross spread. Underwriters pay issuers, or an issuing company, for a company’s shares prior to the IPO. The underwriting firm then turns around and sells shares to investors. The difference (expressed as a dollar amount) that the underwriter pays the issuer and that it receives back from selling the shares during an IPO is the underwriting spread.
What are gross proceeds in an IPO?
Gross proceeds, in relation to an IPO, refers to the total aggregate amount of money raised during the public offering. This is all of the money raised by investors during the IPO.
What is a typical underwriting spread?
As underwriting spreads are usually expressed as dollar amounts, the typical underwriting spread can vary depending on several variables in the IPO process — including share price, share volume, etc. But in general, it can amount to between 3.5% and 7% of gross proceeds during an IPO.
Photo credit: iStock/bankrx
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
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.
SOIN0623082
Aug
01
2023
How to Pay For Online College
More and more people are considering degrees from accredited schools with “distance learning” options. These prospective students might be wondering how much these colleges cost compared to in-person options, how credible these online degrees are, what steps should be taken to apply to them, and whether there are options for student loans or financial aid.
The short answer: online degrees are increasingly credible, competitively priced, have a similar application process as in-person colleges, and can be paid for with a wide range of financial aid, federal student loans, and even private student loan options. In fact, some might even pay you to attend.
A Little Bit About Distance Learning
Online college falls under the umbrella of “distance learning”—a form of education conducted outside the traditional in-person classroom and facilitated with the use of several different tools and technologies. Many distance learning programs allow students to complete courses in an “asynchronous” format, aka at their own pace and on their own schedule.
Some online colleges also incorporate “synchronous” learning methods like virtual classrooms and video conferencing for meeting during a designated class time. Depending on which format a student chooses, they can create their own online learning experience as part of their college education.
How Credible Are Online Degrees?
In previous decades, the jury may have been mixed on whether online degrees were considered as credible as their in-person counterparts. But with the advancement of global technology and the onset of digital transformation, online colleges have become more widely recognized as institutions of high-quality education.
According to Northeastern University’s Online Education survey, 61% of HR leaders believe online college credentials are equally credible as those completed in-person. This included both degrees and certificates.
How Much Does The Average Online College Cost?
According to the U.S. News & World Report, the average cost of tuition for an online bachelor’s degree program is $40,491. For in-state students attending public online colleges, the average cost for a bachelor’s degree is $38,496. For out-of-state students, the cost is $54,183. And online bachelor’s degrees from private colleges cost an average of $60,593.
This, of course, is simply the average. In some cases, online college can cost even more than in-person programs. And, in other cases, online colleges can actually pay students to attend (more on that below).
How Do I Apply For Online College?
The process of applying to an online college is similar to that of a traditional in-person college or university. Depending on which school the prospective student chooses, there should be detailed application and enrollment instructions on the website.
Each college will have its own unique admissions policies and application instructions, with some adhering to set application deadlines and others offering “rolling admissions” where students can apply at any time.
Researching deadlines and requirements in advance can be a prudent way to approach the online college application process and provide exactly what the admissions team wants.
Are There No-Cost Online Colleges?
Yes. There are a few colleges and universities that offer tuition-free online classes with a variety of work study programs, scholarships, and other forms of financial aid. A few of those institutions include:
• Alice Lloyd College
• Arizona State University
• Barclay College
• Brown University
• City College of San Francisco
• College of the Ozarks
• Community College of Rhode Island
• Curtis Institute of Music
• Deep Springs College
• Louisiana Free Tuition
How Do I Pay For College If I Have No Money?
There are several ways to pay for college, even if the applicant has little-to-no means of funding:
• Applying for scholarships is one way to pay for online college without having any money. There are several resources available for prospective college students seeking scholarships and, unlike student loans, repayment is not required.
• Financial aid helps prospective students secure funds for online college in the form of grants, scholarships, work-study programs, and federal student loans.
• Getting an extra gig could be a great way to accumulate some extra cash to subsidize online college costs.
• Prospective students can see if they qualify for a private student loan online. Once they’ve applied for a student loan for online college, there are many different student loan repayment options to help them tackle the tuition debt on their own terms.
Are There Student Loans For Online Schools?
When online education first began, student loans weren’t offered by the government to cover their costs. But today, federal student loans are offered for online colleges that are accredited by the US Department of Education. Contacting the university’s financial aid office prior to enrollment is the best way to check on eligibility.
Outside of federal student loans, private student loans are another way to potentially pay for online college. With private student loans, each lender will have their own eligibility requirements, terms and conditions, and borrowers must agree to these parameters and complete on-time payments to avoid any fees or penalties associated with account delinquency. Still, there are several smart ways to pay off student loans as well as student loan refinancing options if the loan’s interest rates are unreasonably high.
What About Online Colleges That Accept FAFSA?
If you’re wondering, does FAFSA® cover online classes?, the answer is yes. The Free Application for Federal Student Aid (FAFSA) allows prospective students to apply for financial aid for online classes much like they would an in-person university. All they have to do is fill out the form online, print and mail a paper copy, or request a paper copy be sent by mail and returned.
What Types of Federal Student Loans are Available For Online College?
Prospective students might consider consulting with their online college’s financial aid office before deciding which type of federal student loan to apply for, but many students opt for one of the following types of Federal Direct student loans:
• Federal Direct Subsidized loans help students who qualify for financial need and are attending traditional four year colleges or universities, community colleges, or technical schools. The federal government will pay the loan’s interest while the borrower is in school, during the six-month grace period after graduation, and in the event of student loan deferment.
• Federal Direct Unsubsidized loans help undergraduate, graduate, and professional school students cover college costs without requiring a demonstration of financial need. However, borrowers are responsible for paying back all the interest accrued on the loan from the time they start attending college onward (although they aren’t required to start making payments until after they graduate).
• Direct PLUS loans are unsubsidized loans issued for graduate or professional students as well as parents of undergraduate students who are helping them pay for college.
• Direct Consolidation loans are a way to combine different federal student loans into one single loan so the borrower can commit to one monthly payment under one loan servicer.
How Can I Get Private Student Loans?
For prospective students seeking an alternative to federally-backed student loans, a private student loan is another way to pay for online college. Depending on the lender, there are several options for interest rates, terms, conditions. And in certain circumstances where borrowers have difficulty paying back the private student loan, negotiations might be made with the lender for deferment, forbearance and even refinancing.
With SoFi Private Student Loans, paying for online college just got a whole lot more convenient. Qualifying borrowers can get competitive rates, apply easily online, find flexible repayment options, avoid pesky fees, and get exclusive members-only rate discounts.
The Takeaway
Online college is a form of distance education that allows students to engage in self-regulated learning and acquire a degree outside the traditional in-person university setting. Degrees from online college degrees are considered increasingly credible by employers and HR leaders.
There are several student loan and financial aid options for online college attendees, including federally-backed student loans, financial aid, scholarships, work-study programs, grants and private student loans.
SoFi Private Student Loans help people pay for school with a simple online application process, no hidden fees, exclusive rate discounts and flexible repayment options that fit their budget.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
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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.
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