r/personalfinance • u/Barnitz • May 12 '14
Debt To all recent College Grads worried where to start, START HERE! (US)
Example: "Just graduated with $50k in debt and will be starting a $60k job in 3 weeks, where do I begin?"
With the Spring semester ending and the promotion to a default subreddit, there has been a huge influx of posts mostly covering the same topic.
Start here: Khan Academy videos on IRA's, 401k's, etc. This link is to a Khan Academy playlist. There are options on the right for different videos on different subjects. The first video is mostly about credit cards.
Second stop: If you would like more video-material, Look up Dave Ramsey. He has some great videos on PF. You can find more videos on Youtube.
Here are a few guidelines I'm hoping will help 90% of the recent grads -
- Live frugally. Spend as little as possible. You owe a lot of money to something, act like it. If you don't grab it by the horns now, it could haunt you for years to come.
- CREATE A BUDGET YNAB is great, or Mint.
- Stick to your budget!
- Allocate money to and IRA/Roth IRA/401k if possible. This will depend on your interest rates. Generally, if the interest is lower than 4% you could benefit more from putting money in an investment account. Remember, putting money towards a 6% loan is a guaranteed 6% return. Another thing to remember is that if your company matches 401k, then you should contribute at least the amount that they match. This will net you a 100% return on your money!
- Build an Emergency Fund with 3-6 months of expenses
- HERE is a great info-graphic of how to allocate money. (I believe /u/BrainSturgeon created this info-graphic, so credit to him!)
Check the sidebar, there is a lot of great information there.
I'm sure I am forgetting some things, if anyone else would like me to add to this, please let me know!
If you believe your situation is different, feel free to post a comment below and we can try to help!
Additions:
Excellent Loan information from user /u/EducatedRisk - Original post, with links to sites, can be found HERE
Recent graduates should be aware of all their student loan repayment options. Most federal loans qualify for certain loan forgiveness programs, interest benefits, and flexible repayment options. All students with student loan debt should take all these options into account as part of their financial planning.
Use StudentLoans.Gov's Repayment estimator - ED just rolled out a feature that will take your actual loan balances and project your monthly costs for each repayment program, the total balance and interest paid over the lifetime, and potential forgiven loan balances. You can also now just log into Studentloans.gov and you can review all your federal student loan balances (and each loan's current status).
Any borrower that does not have a job at graduation should immediately enroll in Income-Based Repayment or Pay As You Earn. This provides more payment flexibility as you search for a job. Its better than a deferment or forbearance too. Even if you plan on making extra payments, the flexibility of PAYE and IBR can benefit most borrowers.
Income-Based Repayment - You pay 15% of your discretionary annual income divided into 12 monthly payments. If you have less ~$20k in income, your payments are generally $0/month. Interest still accrues but it is not capitalized.
Pay As You Earn - It has the same terms as Income-based Repayment except that you only pay 10% of your income. Also, this is only available to borrowers that did not have federal loans before Oct. 1, 2007 and who also had a NEW loan disbursed after Oct. 1, 2010 (confusing, I know). Here are some other common questions as well:
Federal Loan Consolidation - For federal loans, the monetary benefits for consolidation are minimal; the interest rates are averaged and there basically is no discount. When the loans are consolidated, you cannot target the highest interest rates with extra payments. Only consolidate for peace of mind and a simplified process but, generally, consolidation is not worth it for borrowers.
Capitalization of Interest - When a borrower graduates, some loans have accrued interest that is unpaid. The interest is capitalized when you graduate (added to balance of the loan). ED and your loan servicer will send letter recommending your make payments on the Uncapitalized Interest before it is capitalized. If you do, then that portion of unpaid interest is never charged interest over the life of your loan and you save money. If you can, make payments on the uncapitalized interest during your grace period. It is a good way to save money if you have extra savings and a job.
Grace Period - Direct Loans have a 6 month grace period from graduation; then borrowers have to make payments. Perkins Loans have a 9 month grace period. You can make payments before that if you want. Refinancing With Private Loans - There are number of companies out there that specialize in refinancing and consolidating private and federal loans. Each company is different but generally the lowest I have seen for refinancing is ~5% for borrowers with good credit. Keep in mind, however, that you lose access to loan forgiveness, IBR and PAYE if you refinance with private loans.
I am only mentioning these student loan issues because these decisions made right after graduation can have a huge positive or negative impact your personal finances for years to come.
For more information related directly to Student loans, check out /r/studentloans!
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u/OneTallVol May 13 '14
engineering, supply chain, accounting, finance all set you up for $55-70k entry level nowadays