Money-Saving Tips for New Grads With Student Loans

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Money-Saving Tips for New Grads With Student Loans

Kathryn Glass
FOXBusiness

May is typically that happy time of year when college grads everywhere shed the cap and gown for a suit and prepare to start their professional careers.

But this year, graduation is a little more stressful for college seniors everywhere. Fewer graduates have jobs lined up, and most undergraduates have close to $20,000 in student loan debt when they leave college, which means the six-month grace period between the end of college and the date when student loans need to start being repaid is going to seem shorter than ever for many grads.

Combine the weak job market with the sudden burden of new financial drains on income that many grads face, and paying off those student loans can seem like the last thing a borrower needs to worry about. But making those loans a priority now will prevent a lot of headaches later.

Here are a few tips from some student loan experts to help new grads land on their financial feet.

Find Out How Much You Owe
As soon as the graduation festivities die down, Rebecca Schreiber, a fee-only certified financial planner that specializes in helping clients under 35, said new grads should assess their financial situation and determine how much they actually owe after college.

“A lot of students, if they’re like me, signed whatever the [financial] aid department put in front of them and a lot of people have no idea what they owe,” Schreiber said.

Schreiber also suggests grads pull all three of their credit reports if they’ve checked one before to make certain that all three have the correct address on file and to verify they don’t have any unauthorized entries or lines of credit open.

Once the amount of debt owed is established, Schreiber says grads should take steps to set up a budget so they know how much they will have to earn in order to meet the minimum payment levels on the loans. Sometimes this means taking a job that is not exactly what you want to meet your debt obligations.

“You’ve gotta find income,” Schreiber said. “You need to show not only lenders but potential employers that you’ve got a handle on things in your personal life -- and employers look at credit scores.”

Even though members of the class of 2009 may not get their dream jobs right after graduation, it is important that they get jobs that allow them to stay on top of their debts and start building strong credit histories.

Grads can also put some of that graduation money to good use by making a few payments during that six-month grace period after college before you have to set up your payment plan, and students that have loans that accumulate interest while attending school should try and pay the interest while they are still in school.

“Even if it’s $30 or $40 a month tacked onto the loan, if you can divert that number in college you’ll cut down on the sticker shock and will save you a couple thousand and a lot of the things that you would have spend the money on you won’t remember,” said Ken Clark, a certified financial planner and a college savings guide with About.com.

Pay More than the Minimum
Clark also advises grads to be proactive and try to pay more than what’s required, because any payment that’s above the minimum monthly requirement can really help lower their debt burdens over the long haul.

Clark estimates that a student with a $20,000 loan at 6.6% interest would end up paying $27,463 if he paid the standard $228 a month for 10 years. If that same student tacks on an additional $50 to each payment, the loan will be paid off in just 8 years, with a total cost of just $25,655. That’s a savings to the student of almost $2,000.

Consolidation
Although it is sometimes overrated, loan consolidation, which creates a weighted average of a student’s interest rates, is also something new grads should consider. Experts say wait until July when the new rates are set, since they’re likely to be lower than the current rates. Clark said parents who took out PLUS loans should definitely consider consolidating.

“Some people [with PLUS loans] are getting an 8.5% rate, and the maximum rate under a consolidation is 8.25%,” said Clark, “So if you go from 8.5% to 8.25%, it’s probably going to save you $1,000 over the long haul.”

Look Into Loan Forgiveness Programs
Grads who have loans in excess of $20,000 should also consider loan forgiveness programs. Nurses, teachers, engineers and other in-demand fields may be able to have an employer pay back their loans if they agree to work in an area for several years where there is a need for their expertise.

New legislation also goes into effect in July of this year that will launch the Income-Based Repayment [IBR] program, which will cap some borrowers’ student loan payments to a low percentage of their income, and offers student loan forgiveness to people who work in public service jobs, including jobs in nonprofit and government, for more than 10 years. The new legislation sounds promising, but not everyone qualifies and these programs won’t necessarily pay back everything you owe just because you work in public service.

“Over 50% of the money people use for college comes from student loans, but not all of that money comes from federal student loans and private loans for students are not subject to this particular program -- so it won’t cover everything,” said Felicia Caldwell Gopaul, a certified financial planner and spokesperson for College Funding Resource, a Web site that offers college funding information to students and parents.

Look into Little Savings Programs
There are also free programs such as UPromise, a company that runs several 529 college-fund programs nationwide. UPromise allows you to set up an account and register your credit cards with that account so participating retailers can contribute small amounts of money to your account when you shop in their stores. That money can be used to pay down Sallie Mae student loans.

Another small money-saving program that many private lenders offer is an interest rate reduction -- usually a reduction of about 0.25 percentage points -- when recent graduates pay their loans on time for six months. Federal student loan rates are also typically reduced by the same amount when students set up automatic payment plans that withdraw directly from a checking or savings account.

“These are cool little random things you can do,” Clark said. “But add them all up you might save a couple thousand bucks.”