Financial Focus: Congratulations, you’ve graduated! Ready to pay your student loan?

Anthony profileCongratulations, you’ve graduated! Ready to pay your student loan?
By Anthony Rivieccio, MBA,PFA

Has your son or daughter graduated college? Are you a Grad? How about your friends? Graduation is an exciting time where all your hard work and hours of studying have come to fruition in the form of a degree.

But, now comes the reality of student loan payments! Ready for the real world graduates?

More than 40 million Americans are repaying more than $1.2 trillion in outstanding student loan debt, according to the federal government.

Most loans come with grace periods — a span of time before you must begin making monthly loan payments — of six to nine months, depending on the type of loan.

NOW is the time to refamiliarize yourself with your loans so that you don’t miss any payments and incur late fees.

Make a list of your loans, including the amount owed, the name of the lender or servicer, and the date the first payment is due.

If you are unsure about the details of your federal loans — whether it’s the most common type of student loan or made and backed by the federal government — you can look them up on the Department of Education’s National Student Loan Data System. For details of loans from private lenders, the Consumer Financial Protection Bureau suggests that you contact your school’s financial aid office or review your credit report.

You can have payments automatically debited from your bank account.

Automatic payments help ensure that you pay on time, avoiding potential late fees. Also, interest rate discounts are often available if you sign up for automatic debits.

Here are some answers to questions about student loan repayment that I hope can help:

■ Should I start making payments before the grace period ends?

Making payments right away is sometimes tough to do, since after graduation you may need money for moving expenses, security deposits, and a new wardrobe for the working world. But with some loans, like federal unsubsidized loans, interest accrues during the grace period and is added to the principal when you officially start repayment. So if you can afford it, it makes sense to start payments as soon as possible.

■ Should I consolidate multiple student loans?

Combining federal loans into a new single loan may make managing your debt easier since you will have just one payment to make.

There are other caveats, however. The formula used to set the new rate slightly increases the cost of the loans. When the loans are pooled you cannot target extra payments to pay down the loan with the highest rate first.

If you have private loans, you may want to wait a few years after graduation before seeking to consolidate them. Such loans take your credit score into account and young adults without much of a credit history tend to have lower scores. If you work for a while and build a solid credit history, you may get a better rate when you consolidate.

■ What if I can’t afford my student loan payments?

If you have federal loans, you may be eligible for repayment options that lower your monthly payment to one that is more affordable and relative to your income.

Private loans typically offer fewer options but you can still contact your loan servicer. Some lenders may allow extended repayment plans which lower monthly payments but lengthen the term of the loan or graduated plans, which start out with lower monthly payments that increase over time.

If you are considering applying for an alternative repayment plan, start the process earlier rather than later. It can take time to have the new plan approved, so you don’t want to wait until your payments are imminent.

Anthony Rivieccio is the founder & the CEO of The Financial Advisors Group, celebrating their 18th year as a fee only financial planning firm specializing in solving one’s financial problems. Anthony, a recognized financial expert since 1986, has been featured by many national and local media including: Klipingers Personal Finance, The New York Post, News12 The Bronx, Bloomberg News Radio, Bronxnet Channel 67 TV, The Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Bronx News and The Bronx Chronicle.

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