Student debt 101: a lesson in fiscal responsibility

Few grads can manage a college education without taking on some student loans. In fact, the average student leaves college with approximately $35,000 of debt.1

Post-college life will also involve the costs of setting up your post-college living arrangements and mounting a job search, which between the right wardrobe, travel and the occasional networking latte can cost a pretty penny. And though it seems like a long time away, it’s also the right time to start laying down a foundation for retirement savings.

Here are a few ways to manage present costs vs. future savings:

Know your grace period

Federal student loans come with a six-month grace period – a period of time before loan payments are due.2 Use that time to line up a job and set up a place to live, so that the big expenses will be behind you once those payments start.

Explore income-based payment plans

Students are defaulted into a standard 10-year repayment plan for federal student loans when they graduate.3 However, there are lots of alternatives, including a graduated plan, which starts with smaller payments that increase over time. But this approach might ultimately exceed the total interest costs of the standard plan so plan accordingly.

Compare the cost of living

Home ownership and rent can both be a major expense, but a roommate can help offset the cost of rent, furniture, utilities, food and more. Consider saving  even more for the long-term by living at home post-graduation. In either scenario, spell out the ground rules on day one, including your household contribution and privacy expectations.

Get some help from the IRS

Did you know that interest on your student loans is tax deductible, as are some job search expenses such as travel, meals and wardrobe? You can deduct up to $2,500 for interest on student loans.4  For more information and strategies, consult a tax professional.

Find a side gig

If your salary doesn’t cover all of your expenses, consider a part-time job or home-based business. Babysitting, dog walking or house-sitting are flexible jobs that can bring in a few extra dollars a month, money you can put toward repaying your loans.

Start early on retirement savings

Take advantage of any employer-sponsored retirement plans as soon as you land your first job. With less income now, it may seem daunting to start saving, but thanks to compounding that money can grow into a significant sum in 40 years. Financial professionals recommend investing around 12 percent of your paycheck, but even small contributions count. At the very least, invest enough to get your company’s match.

As you enter the real world, remember that student loans are just one of the many expenses ahead. Get on the right track from day one by creating a strong financial plan for the years ahead.
 

1“Financial Aid Newsletter.” Edvisors. June 18, 2015. https://www.edvisors.com/newsletter/financial-aid-news-06-18-2015/

2“Understanding Repayment.” Dept. of Education. April 14, 2016. https://studentaid.ed.gov/sa/repay-loans/understand#grace-period

3“Repayment Plans.” Dept. of Education. April 14, 2016. https://studentaid.ed.gov/sa/repay-loans/understand/plans

4“Student Loan Interest Deduction.” IRS. December 30, 2015. https://www.irs.gov/taxtopics/tc456.html