Once have changed out of the robe, the hat is on the ground, and the celebration is over the sense of achievement can suddenly turn to anxiety as you are faced with the first major crossroads in your life. The unknown future and the burden of student loans can weigh heavily on a person during this time. So what is the plan after graduation?
Luckily being a college graduate gives you a leg up. Having a degree is almost a prerequisite for any job now. College graduates with just a Bachelor’s degree on average earn almost $25,000 more a year than those with just a high school diploma and people with an advanced degree earn almost $25,000 more than that. Once you find yourself with a job and start getting paid getting on a budget is the most important thing you can do.
So what should be on my budget?
All of your monthly living expenses: Home or apartment, utilities, car payment, credit cards, insurance, food, entertainment, student loans, savings ect. If you don’t have enough each month to put money away in savings then you will probably have to cut back on entertainment or find ways to lower your other bills. Living pay check to pay check can be very dangerous, especially in a volatile economy.
So I have a savings and have money left over each month. Do I work to pay off my student loans or go ahead and start saving for retirement?
This is fairly common question and there is no easy answer. While it’s always good to pay off your debt and the high principal of student loans can be frightening and seem never ending it is also very important to start saving for retirement as soon as you can. The good news for most student loans is the extremely low interest you end up paying on them versus conventional debt. If your interest rate is under 5% it might be best to just make the minimum payments on the debt and put your extra funds towards retirement. Also if your work matches your 401k contributions you should always take advantage. Free money is free money and in no other case will you be guaranteed an immediate 100% return on your investment. If, on the other hand, your student loan debt has a higher interest rate for whatever reason or you have been paying on the debt for years and you don’t see any movement on the principal then you may need to start aggressively attacking the payments. Most people don’t know but if your student loans have been federally backed and you haven’t paid them off by retirement the government can withhold your social security and disability benefits until the debts are paid back in full.
Planning for the future is always a juggling act and with unknown variables such as job loss, pregnancies, medical emergencies the best you can do is budget the best can, save for the future, and pay off as soon as possible.