As your child nears the end of their college career, the path to financial wellness becomes much more unique to their specific circumstances. Some may choose instant career paths, possibly move farther away, or maybe even start planning a family right away.
For others, internships or part-time work may buy time for more decision making, or they may take advantage of one last summer rent-free in your house. Regardless of the direction graduation leads them, graduates will face many of the overall demands once the tassel crosses to the other side of the cap.
PAYING FOR COLLEGE AFTER YOU GRADUATE
Loan repayment won’t begin until a set term after graduation. The grace period is also in effect if you leave school without graduating or drop below part-time student status. Generally, a grace period is six months, but it can go as long as nine months. In certain circumstances, you may be able to appeal for more time. If you can’t pay for whatever reason, it’s better to look at deferment or forgiveness options versus appealing a grace period.
It’s important to note that the grace period is only until payments are due—more often than not, interest will still accrue during that time. Payments won’t be due, but that doesn’t mean you can’t start paying.
The sooner you can start making payments back on the student loans, the easier it will be when they are actually due. In part, because your balance will be less, but also because the habit will already exist of paying that bill.
Loan Deferment and Forbearance
In the event you cannot pay a loan, you may be eligible for deferment or forbearance. These are only allowed in certain conditions that preclude payments from being possible.
In some cases, this can be lack of employment or adequate employment that would give you the means to repay the loan. In a period of deferment or forbearance, payments would be entirely postponed or just lessened, depending on circumstance.
Certain types of loans will not accrue interest in a deferment period, but it’s important to understand the terms and conditions of your specific loan before you make any decisions about which path is right for you.
Loan forgiveness is sort of the “In Case of Emergency, Break Glass” option of student loan repayment. Even then, the numbers of people granted this are incredibly low. Hundreds of thousands of cases are denied for people who thought all along they’d apply for loan forgiveness.
The circumstances surrounding loan forgiveness are very specific and unique, so it shouldn’t be considered a viable back-up plan to paying off any student loans. The most common is certain eligible teachers who can apply for loan forgiveness if they work in low income education districts.
Income-driven forgiveness, meaning you don’t make enough to pay back your loans, is the other common program. However, it’s not as simple as making a loan disappear.
Typically, it means smaller payments for a longer term, and whatever is remaining after that term can be forgiven if the situation hasn’t changed. Meaning if you are able to only make incremental income-driven payments for possibly as long as 25 years, then you may be eligible to apply for this type of forgiveness.
Consolidating loans is a smart option for anyone trying to make payments on high interest or multiple loans. Many students take out loans from multiple sources. These can be different lenders or different types of loans, like a subsidized or unsubsidized loan; or a private or federal loan.
With multiple loans at multiple interest rates and terms, the process can suddenly become more complicated or frustrating than it needs to be. In these cases, loan consolidation is a viable option to lessen some of the stress.
A common option is consolidating your federal loans with private loans under a private lender; the two cannot be consolidated under the federal umbrella, however, so you will lose any federal perks—forgiveness options, deferment, multiple loan repayment options and more.
There are many online loan consolidation programs that will combine all your loans into one place from one lender at one (often lower) interest rate. You can also go to a financial institution that you trust and ask about personal loan options to apply those funds towards paying off student loans.
Saving for the next step
At any point in this process, it would be smart to call on the experts. Financial Advisors aren’t just for the rich and famous, but can actually help your child set a foundation for a stable financial future.
Just out of college may seem young to start thinking about retirement, but the sooner you start saving the greater the payoff—and not just a few bucks, either. The difference between starting at in your twenties versus your thirties could mean several hundred thousand dollars.
As the saying goes, “strike while the iron is hot.” As you and your child are looking at the enormous undertaking of what it means to pay back debt, that’s a great opportunity to start planning for a financial future that will hopefully mean less debt down the road.
College has become such an influential part of our society that it can be easy to forget that it’s not the finish line—it’s the starting line. By accomplishing this first big goal, you have set yourself or your child up for a world of opportunity and potential.
Set the repayment plan into motion, but don’t hesitate to set a new goal. Whether that’s a deadline for repayment, a certain job or title, a new car, a house or a dream vacation—welcome your new college graduate to the world of adulthood by helping them see the great potential in front of them.
From here, anything can be on the horizon!