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SoFi Loan Referral Bonus

In the world of student loan consolidation and refinancing, SoFi is the company with the premium. After you maximize grants, scholarships and other free financial aid, you may find you have remaining costs. If you need to borrow…

In the world of student loan consolidation and refinancing, SoFi is the company with the premium. After you maximize grants, scholarships and other free financial aid, you may find you have remaining costs. If you need to borrow, SoFi student loan loans may best fit your needs.

These premium perks include interest rates as low as 2.20%, job placement resources, and $100 referral bonus for new customers who sign up! SoFi is a great way for alumni to consolidate or refinance their student loans at a lower rate.  Like other peer to peer and social lending products, accredited investors are able to invest in your student loan.  

Types of loans
See also: Loan guarantee
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or house) as collateral.

A mortgage loan is a very common type of loan, used by many individuals to purchase residential property. The lender, usually a financial institution, is given security – a lien on the title to the property – until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

Similarly, a loan taken out to buy a car may be secured by the car. The duration of the loan is much shorter – often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. In a direct auto loan, a bank lends the money directly to a consumer. In an indirect auto loan, a car dealership (or a connected company) acts as an intermediary between the bank or financial institution and the consumer.

Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:

credit card debt
personal loans
bank overdrafts
credit facilities or lines of credit
corporate bonds (may be secured or unsecured)
peer-to-peer lending
The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

Interest rates on unsecured loans are nearly always higher than for secured loans because an unsecured lender's options for recourse against the borrower in the event of default are severely limited, subjecting the lender to higher risk compared to that encountered for a secured loan. An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible.

Demand loans are short-term loans[1] that typically do not have fixed dates for repayment. Instead, demand loans carry a floating interest rate which varies according to the prime lending rate or other defined contract terms. Demand loans can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.

A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In the context of college loans in the United States, it refers to a loan on which no interest is accrued while a student remains enrolled in education.[2]

A concessional loan, sometimes called a "soft loan", is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods or a combination of both.[3] Such loans may be made by foreign governments to developing countries or may be offered to employees of lending institutions as an employee benefit (sometimes called a perk).

Target markets
Loans can also be subcategorized according to whether the debtor is an individual person (consumer) or a business.

See also: Credit (finance) § Consumer credit
Common personal loans include mortgage loans, car loans, home equity lines of credit, credit cards, installment loans and payday loans. The credit score of the borrower is a major component in and underwriting and interest rates (APR) of these loans. The monthly payments of personal loans can be decreased by selecting longer payment terms, but overall interest paid increases as well.[4].

Main article: Business loan
Loans to businesses are similar to the above, but also include commercial mortgages and corporate bonds. Underwriting is not based upon credit score but rather credit rating.

Loan payment
The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value over time.[5]

The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is:

{\displaystyle P=L\cdot {\frac {c\,(1+c)^{n}}{(1+c)^{n}-1}}} P=L\cdot {\frac {c\,(1+c)^{n}}{(1+c)^{n}-1}}
For more information see Compound interest#Monthly amortized loan or mortgage payments.

Abuses in lending
Predatory lending is one form of abuse in the granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her; subprime mortgage-lending[6] and payday-lending[7] are two examples,where the moneylender is not authorized or regulated, the lender could be considered a loan shark.

Usury is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organizations of lending at usurious interest rates and making money out of frivolous "extra charges".[8]

Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

United States taxes
Most of the basic rules governing how loans are handled for tax purposes in the United States are codified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations – another set of rules that interpret the Internal Revenue Code).[9]:111

1. A loan is not gross income to the borrower.[9]:111 Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.[9]:111[10]

2. The lender may not deduct (from own gross income) the amount of the loan.[9]:111 The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment).[9]:111 Deductions are not typically available when an outlay serves to create a new or different asset.[9]:111

3. The amount paid to satisfy the loan obligation is not deductible (from own gross income) by the borrower.[9]:111

4. Repayment of the loan is not gross income to the lender.[9]:111 In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender.[9]:111

5. Interest paid to the lender is included in the lender’s gross income.[9]:111[11] Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender.[9]:111 Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest.[9]:112

6. Interest paid to the lender may be deductible by the borrower.[9]:111 In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible.[9]:111The major exception here is interest paid on a home mortgage.[9]:111

Income from discharge of indebtedness
Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness.[9]:111[12] Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists "Income from Discharge of Indebtedness" in Section 61(a)(12) as a source of gross income.

Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this is treated the same way as if Y gave X $50,000.

For a more detailed description of the "discharge of indebtedness", look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code.[13][14]

Tertiary student places in Australia are usually funded through the HECS-HELP scheme. This funding is in the form of loans that are not normal debts. They are repaid over time via a supplementary tax, using a sliding scale based on taxable income. As a consequence, loan repayments are only made when the former student has income to support the repayments. Discounts are available for early repayment. The scheme is available to citizens and permanent humanitarian visa holders. Means-tested scholarships for living expenses are also available. Special assistance is available to indigenous students.[1]

There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.[2]

The province of British Columbia allows the Insurance Corporation of British Columbia to withhold issuance or renewal of driver's license to those with delinquent student loan repayments or child support payments or unpaid court fines.[3]

Main article: Student loans in France
Main article: Student loans in Germany
New Zealand
Main article: Student loans in New Zealand
New Zealand provides student loans and allowances to tertiary students who satisfy the funding criteria. Full-time students can claim loans for both fees and living costs while part-time students can only claim training institution fees. While the borrower is a resident of New Zealand, no interest is charged on the loan. Loans are repaid when the borrower starts working and has income above the minimum threshold, once this occurs employers will deduct the student loan repayments from the salary at a fixed 12c in the dollar rate and these are collected by the New Zealand tax authority.

The Indian government has launched a website, vidyalakshmi, for students seeking educational loans and five banks including SBI, IDBI Bank and Bank of India have integrated their system with the portal. Vidya Lakshmi was launched on the occasion of Independence Day i.e. 15th August, 2015 for the benefit of students seeking educational loans. [4]Although the Indian government offers free compulsory education for children up to 14 years, getting a quality education from a private college is extremely expensive. Eventually, to manage the higher education expense, the students take up loans offered by the banks, microfinance organizations, and the P2P solutions. [5]

South Korea
Main article: Student loans in South Korea
South Korea's student loans are managed by the Korea Student Aid Foundation (KOSAF) which was established in May 2009. According to the governmental philosophy that Korea's future depends on talent development and no student should quit studying due to financial reasons, they help students grow into talents that serve the nation and society as members of Korea.[6] Through the management of Korea's national scholarship programs, student loan programs, and talent development programs, KOSAF offers customized student aid services and student loan program is one of their major tasks.[7][unreliable source]

United Kingdom
Main article: Student loans in the United Kingdom
Student loans in the United Kingdom are primarily provided by the state-owned Student Loans Company. Interest begins to accumulate on each loan payment as soon as the student receives it, but repayment is not required until the start of the next tax year after the student completes (or abandons) their education.[8]

Since 1998, repayments have been collected by HMRC via the tax system, and are calculated based on the borrower's current level of income. If the borrower's income is below a certain threshold (£15,000 per tax year for 2011/2012, £21,000 per tax year for 2012/2013), no repayments are required, though interest continues to accumulate.

Loans are cancelled if the borrower dies or becomes permanently unable to work. Depending on when the loan was taken out and which part of the UK the borrower is from, they may also be cancelled after a certain period of time usually after 30 years, or when the borrower reaches a certain age.

Student loans taken out between 1990 and 1998, in the introductory phase of the UK government's phasing in of student loans, were not subsequently collected through the tax system in following years. The onus was (and still is) on the loan holder to prove their income falls below an annually calculated threshold set by the government if they wish to defer payment of their loan. A portfolio of early student loans from the 1990s was sold, by The Department for Business, Innovation and Skills in 2013. Erudio, a company financially backed by CarVal and Arrow Global was established to process applications for deferment and to manage accounts, following its successful purchasing bid of the loan portfolio in 2013.

There are complaints that graduates who have fully repaid their loans are still having £300 a month taken from their accounts and cannot get this stopped.[9]

United States
Main article: Student loans in the United States
In the United States, there are two types of student loans: federal loans sponsored by the federal government and private student loans,[10][11] which broadly includes state-affiliated nonprofits and institutional loans provided by schools.[12] The overwhelming majority of student loans are federal loans.[10] Federal loans can be "subsidized" or "unsubsidized." Interest does not accrue on subsidized loans while the students are in school. Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities. Whereas interest for most business investments is tax deductible, Student loan interest is generally not deductible. Critics contend that tax disadvantages to investments in education contribute to a shortage of educated labor, inefficiency, and slower economic growth.[13][14]

Prior to 2010, federal loans were also divided into direct loans (which are originated and funded by the federal government) and guaranteed loans, originated and held by private lenders but guaranteed by the government. The guaranteed lending program was eliminated in 2010 because of a widespread perception that the government guarantees boosted student lending companies' profits but did not benefit students by reducing student loan costs.[10][15]

Federal student loans are less expensive than private student loans. However, the federal student lending program still generates billions of dollars in profit for the government each year, because the interest payments exceed the government's own borrowing costs, loan losses, and administrative costs. Losses on student loans are extremely low, even when students default, in part because these loans cannot be discharged in bankruptcy unless repaying the loan would create an "undue hardship" for the student borrower and his or her dependents.[10][16] In 2005, the bankruptcy laws were changed so that private educational loans also could not be readily discharged. Supporters of this change claimed that it would reduce student loan interest rates; critics said it would increase the lenders' profit.

Income-Based Repayment
The Income-Based Repayment (IBR) plan is an alternative to paying back federal student loans, which allows the borrowers to pay back loans based on how much they make, and not based how much money is actually owed.[17] Income-based repayment is a federal program and is not available for private loans.[18]

IBR plans generally cap loan payments at 10 percent of the student borrower's income. Deferred interest accrues, and the balance owed grows. However, after a certain number of years, the balance of the loan is forgiven. This period is 10 years if the student borrower works in the public sector (government or a nonprofit) and 25 years if the student works at a for-profit. Debt forgiveness is treated as taxable income, but can be excluded as taxable under certain circumstances, like bankruptcy and insolvency.[19][20]

Scholars have criticized IBR plans on the grounds that they create moral hazard and suffer from adverse selection. That is, IBR and PAYE encourages students to borrow as much as possible for as long as possible and largely for personal (indirect) expenses (not tuition and fees), particularly at the graduate level where there is no limit on borrowing (up to $138,500 in Staffords plus unlimited Graduate plus loans) and steer those who could have obtained high-wage jobs to take low wage jobs with good benefits and minimal work hours to reduce their loan payments, thereby driving up the cost of the IBR program. And, if IBR programs are optional, only students who have the highest debts relative to wages will opt into the program. For example, due to formula to qualify, the vast majority of students with debts exceeding $100,000 will qualify even if earning at or near the median salary, thus they have no incentive to borrow responsibly. Historically, a number of IBR programs have collapsed because of these problems.[10][21]

Most college students in the United States qualify for federal student loans.[22] Students can borrow the same amount of money, at the same price, regardless of their own income or their parents' incomes, regardless of their expected future income, and regardless of their credit history. Only students who have defaulted on federal student loans or have been convicted of drug offenses, and have not completed a rehabilitation program, are excluded.

The amount students can borrow each year depends on their education level (undergraduate or graduate), and their status as dependent or independent. Undergraduates are eligible for subsidized loans, with no interest while the student is in school. Graduate students can borrow more per year.[10][15] (Graduate and professional schools are expensive and less aid of other types is available.)

Private lenders use different underwriting criteria, including credit rating, income level, parents' income level, and other financial considerations. Students only borrow from private lenders when they exhaust the maximum borrowing limits under federal loans. Several scholars have advocated eliminating the borrowing limit on federal loans and enabling students to borrow according to their needs (tuition plus living expenses) and thereby eliminating high-cost private loans.[10][15]

Federal student loan interest rates are established by Congress and listed in § 20 U.S.C. § 1087E(b). Because the interest rates are established by Congress, interest rates are a political decision. The federal student loan program currently (2010) runs a multibillion-dollar "negative subsidy", or profit, for the federal government. Loans to graduate and professional students are especially profitable because of high interest rates and low default rates.[23] Some scholars have suggested that federal student loan interest rates should be tailored to particular courses of study and reflect the riskiness of those different courses of study. They have also suggested that the program should be run at cost, or below cost, because of the benefits an educated workforce provides to society—lower burdens on public services, lower health costs, higher wages and tax revenues, lower unemployment.[10][24][25]

Repayment typically begins anywhere from six to twelve months after a student leaves school, regardless of whether or not they complete their degree program. Usually repayment begins if course load drops to half time or less.

With federal student loans the student may have multiple options for extending the repayment period, but though an extension of the loan term will reduce the monthly payment, it will also increase the amount of total interest paid on the principle balance during the life of the loan (the unpaid interest and any penalties become capitalized, i.e. added to the loan balance). Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income-sensitive repayment plans and hardship deferments.

The Master Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract.

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