It’s November and the pomp and circumstance of college graduation is but a distant memory for many, but student loan repayment is becoming a reality. The six month “grace period” on federal student loans ends this fall for most grads. If you’re among the fortunate college grads employed in the career field of your choice – and your salary is what you expected, repaying student loans may not be a concern, but if you’re among the many recent college grads who are unemployed or “mal-employed” (in a job that doesn’t require a college degree), your student loans soon may begin affecting your post-college finances.
According to 2011 research from the U.S. Department of Labor*, less than half of last year’s 2.7 million college grads under age 25 had jobs requiring a college degree. What’s more, about 700,000 college grads remained unemployed six months after graduation. These numbers are troubling, especially as student loan re-payment plans are scheduled to begin.
Employed or not, the next 10 to 15 years will include managing monthly payments for those who took out loans. If you’re in this group, it’s up to you to do everything possible to repay that debt and avoid the consequences of defaulting. Here are a few strategies designed to help you through the student loan repayment process.
Step 1: Do all you can to avoid default. Defaulting on a financial obligation can harm your finances in the short and long run. When graduates default on a federal student loan, the total loan balance becomes due immediately. Your credit score also takes a major hit and the government can garnish your wages or seize future tax refunds. Defaulting on a private student loan happens much more quickly and if you obtained the loan with a co-signer (like a parent) they’re also at risk.
If your income doesn’t allow you to cover your monthly student loan payment, do some research to determine if you’re eligible for a deferment. Be proactive. Contact your lender and ask to lower the monthly payment or, if unemployed, ask about interest-only payments for a set period of time. If you have multiple loans, consider loan consolidation with one lender to make the repayment process easier - but consolidate with caution. You shouldn’t consolidate federal loans into a private student loan, or you may lose the repayment options and borrower benefits – like unemployment deferments and loan forgiveness programs – that come with federal loans.
Step 2: Ask for help if you need it. You’re in charge of creating your own financial security, even if you move back home with your parents or accept money from them to help make ends meet as you’re starting out on your own. It’s OK to ask for help. But keep your financial end goals in mind along the way and remember your parents and grandparents have their own financial needs and goals as well.
Step 3: Vigorously pursue all job opportunities. If you’re qualified for a job opening, even if it’s not in the field you studied in college, go for it! You’re on the front-end of your career and obtaining job experience (and a paycheck) is your priority today. You can pursue your career field of choice throughout your lifetime, so don’t limit yourself. Research what industries are expanding and hiring (like technology and green companies) and explore how your education and skills might fit with these organizations. For example if you have a degree in communications, search for jobs where you can apply these skills – even if the industry is unrelated to your educational background.
Step 4: Consider part-time or evening work while searching for a full-time job. Some income is better than no income and having a small, but steady paycheck will help keep bill collectors at bay. If you live with parents, they’ll likely appreciate the effort you make to contribute, too. Part-time work also gives you the opportunity to remain socially connected, gain job experience and network with the working world.
Step 5: Stay sharp. Use your free time to educate yourself about national and global issues that will help you when you land a job interview. Volunteer or sign up for a free class, like a creative writing workshop or basic accounting course. These activities will keep you occupied, help you network and provide additional experience to add to your resume. Hiring managers will notice that, even after graduation, you’ve been deliberate about expanding your horizons and skill level.
Ultimately, your student loan obligation will likely get easier with time. Managing the process – even when it’s a challenge – by being proactive will help you appreciate the degree you earned and paid for all the more.
* U.S Department of Labor, 2011 Current Population Survey
Jose Vicente, CFP®, CLTC is a Financial Advisor and Business Financial Advisor with Ameriprise Financial Services, Inc. in Saddle Brook, NJ. He specializes in fee-based financial planning and asset management strategies and has been in practice for 7 years. To contact him, http://www.ameripriseadvisors.com/jose.x.vicente, (201) 221-2700 ext.2705, 250 Pehle Ave. Ste 500, Saddle Brook, NJ 07663. Ameriprise Financial and its representatives do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2012 Ameriprise Financial, Inc. All rights reserved. File # 144857