How to have a life after college and repay your student loans

How to have a life after college and repay your student loans

Getting started on your own post-college is a turning point in many students’ lives. Big decisions like choosing a career and where to live loom large. For those who have taken on debt, student loan repayment begins approximately 2 months after graduation (though lenders differ in this requirement), and repayment may add even more stress. There are some simple things that you should do to get yourself off on the right footing after college.


Do

Do create a baseline budget for yourself

This may be rough at first, but it will help you understand how much salary that you will need to meet your obligations. Start with 20% of your income going to savings, 80% divided between rent or mortgage, loan repayments, transportation expenses including auto insurance, medical insurance, utilities, food and clothing. Don’t forget to budget some amount each month for personal expenses: $5 per week to $500, everyone needs a little allowance.

Do your homework

Sound familiar? Will your desired career path begin with a position that will cover your expenses? If not, research forbearance (postponing the start of payments) and forgiveness (the cancelation of the debt) programs. A good place to start is the Federal Student Aid Office, part of the U.S. Department of Education.

Do understand positions that promise forgiveness

These are generally teaching and public service positions. "Any employment with a federal, state or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC)," according to the U.S. Office of Education's federal student aid website.

Do consider an Income-based repayment plan

Most students should at least consider this option, which uses a sliding scale for monthly payments depending on your income. By taking advantage of this option, you can pay more on your student loan, depending on how much you’re making. This can make repayment faster when you get a job that pays more.

Do remember student loan debt usually has very low interest rates

Interest rate should be one factor in determining which debt to pay down first. Often, the higher the rate, the sooner one should pay that debt. If you have a credit card that has an 18 percent interest rate, but your student loan is only 12 percent, then you should normally pay the credit card first.


Don't

Do not neglect researching your loans

Have a hard look at exactly how much you owe and the terms that your loan servicer is expecting you to honor. By being realistic about how much you owe, you can approach paying back your student loans in a reasonable manner. Don’t forget to look at your interest rate and what type of repayment plan you qualify for.

Do not stop paying your student loans

Don’t stop paying your loans, even if you have applied for forgiveness or forbearance, until you have approval to do so. Doing so can negatively affect your credit score, making future credit borrowing difficult if not impossible.

Do not assume anything about your job

Don’t assume that any position that includes student loan forbearance as a perk is correct for your career path. Forbearance means that you’re not paying off that debt, and can be a negative mark on your credit, and at the very least it means that your debt is not getting paid off. Remember that you’re going to have to pay your student loan sooner or later, and forbearance means less money paid on your principal and interest.

Do not overlook public sector jobs

Public service can be very rewarding and transition to the private sector may not be difficult. Taking a job helping others is a great way to show future employers that you care, and that you’re a concerned citizen. This can pay you back in ways that private sector jobs simply can’t.

Do not assume paying off the highest loan balance first is right

In some cases, the esteem from “knocking out” the lower balances can be motivating. This motivation can then be used to focus on those loans with higher interest rates or principals. The small amount of money used for those small loans should then be added to the payment of the larger loans, making those payments larger, and thus the length of the loan shorter. This is often the best way to tackle a large number of loans in a realistic manner.


Summary
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With a little careful planning and budgeting, recent college graduates can get started on the right foot. Depending on your long-term goals, being open to a public sector position may help wipe out the entirely. However you choose to proceed, communication with the lender throughout the process is key.


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Keith Klein, CFP®, ChFC®, CLU®, CASL®Registered Financial Advisor

After more than 15 years as a financial service advisor, Keith Klein CFP®, ChFC®, CLU®, CASL® reached his own Turning Pointe and founded Turning Pointe Wealth Management. It had become clear that the best way for Keith to provide unbiased soluti...

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