Seniors, listen up! (And if you’re not a senior, don’t tune out just yet.) With the end of senior year comes the reality of graduation and entering the real world. Entering the real world typically means finding a job, moving out and understanding personal finances. Though the reality of the real world may look different now than it has in the past during this unprecedented global pandemic, nonetheless, it is still important for graduating seniors to understand their personal finances to prepare for whatever life throws their way. If you’re not a graduating senior, these tips will still set you up for success. The earlier you start to understand your finances, the easier it becomes to manage them down the road.
One first major expense and personal finance experience for many graduating seniors is Student Loan Debt. For this post, we will focus on Federal Student Loan Debt, as many tips related to Private Student Loans can vary by lender. Though not all students have Federal Student Loan Debt, those who do are obligated to begin paying back their loan debt starting six months after graduation. This is called the six-month grace period. During this time, graduates are not obligated to make payments, however, interest will continue to accrue on interest bearing loans.
There are two types of Federal Student Loans: Direct Subsidized loans, and Direct Unsubsidized loans. Direct Subsidized loans are available to undergraduates who demonstrate financial need, whereas Direct Unsubsidized loans are available to undergraduate, graduate, and professional students who do not need to demonstrate financial need. One major difference between these two types of loans are the interest they bear. Interest is not charged on Direct Subsidized loans while the student is enrolled at least part-time, compared to Direct Unsubsidized loans where interest is charged during all periods.
Before thinking about paying off Student Loan Debt, it is important for students to understand their debt obligations, what types of loans they have, and how much they should expect to pay back. One way to do so is by completing Federal Loan Exit Counseling. Federal Loan Exit Counseling is available on StudentAid.gov, and includes learning about your loan service provider, understanding your loans, review of repayment plans and lessons on avoiding default. In addition to being a graduation requirement for seniors who have Federal Student Loan Debt, studies show that completing Exit Counseling decreases the default rate on student loans.
Once you fully understand your debt obligations, you can explore managing and paying off your debt. Though you are not required to make payments until the end of the six-month grace period, it is important to plan during that time so you are appropriately saving for the upcoming, fixed expense in your budget. To prepare for paying off your Student Loan Debt, make a budget! Know your income and expenses, and how much extra income you have to put towards your debt. Knowing how much of your income you can devote towards paying back your loans will allow you to decide what a reasonable amount for monthly repayment will be. Make sure you include your loan repayment in your budget each month, as it will be considered a fixed-expense until you pay off the loan entirely. Setting up automatic payments through your loan service provider may be helpful to ensure your payments are always on time.
As you make payments on your student loan, your balance and the amount of interest you accrue will drop. Over the life of your loan, the interest you pay will decline each month, because the total loan, the principal, will decline as you make payments. Don’t feel obligated to pay more than your monthly payment. However, if you can offer an extra twenty-five, fifty, or even one-hundred dollars more during one month, it will help to decrease the life of your loan, and the amount of interest that will accrue overall.
Understanding student loans, especially managing Student Loan Debt, can be overwhelming and intimidating. Many students have not interacted with their loans since they first committed to coming to Syracuse, or they may not even realize they have student loans. But, there is good news! If you are looking to master your personal finances, understand your Student Loan Debt, or complete Loan Exit Counseling, the Office of Financial Literacy is available to help. Check out the Office of Financial Literacy website and make an appointment with a staff member today!
Written by Melissa Marchetti ’20, Maxwell School of Citizenship and Public Affairs, Smart Money Coach