You Graduated College! Now What?
A Recent Graduate Wake up Call
It is the 1.5 trillion dollar question that every recent graduate has swimming in their mind almost every day: What am I going to do after I graduate from college?
Inquiring college students ask their parents, friends, professors, and career counselors to help them answer that mesmerizing question that is filled with anxiety and confusion. Here are some fun facts, Americans own more than 1.5 trillion dollars in student loan debt on average. That is the same amount as the question. Also, there are 44.2 million Americans with student loan debt, according to the Federal Reserve.
OK, those were not fun: They are actually depressing facts, but those facts are the truth nonetheless. To all the college students who are worried about their financial situation and future, you are not alone.
I myself am one of 44.2 million Americans that are trapped in the chains of financial bondage. However, that does not mean that we are going to give up on this challenge. Even though I am not a financial advisor or a money guru, one thing about me just like everyone else, I hate loans. The reason why I share a loathing passion for loans with you is that we have one thing in common, we want financial freedom. And we are going to reclaim it back.
Of course, actions speak louder than words. We need a strategy to get out of this mess. A plan for action to get rid of the distressing debt that diminishes our destiny to greatness, so let’s get right into it.
Let’s start with the basics first, the conventional financial options. There are a variety of ways that we can make a plan for financial freedom.
According to a Credit Donkey article, there are nine pathways to financial freedom. The first pathway is income-driven repayment plans with forgiveness, the second pathway is looking for loan forgiveness programs, state assistance programs, consolidating federal loans, refinancing your federal and private loans, asking for employer reimbursement, finding a repayment plan that works for you, thinking outside the box, and the final pathway is saving your money. Let’s dig into each option in detail.
1. Income-Driven Repayment Plans with Forgiveness
There are four income-driven repayment plans with forgiveness. There is the income-based repayment, the “pay as you earn” option (PAYE), the revised pay as you earn (REPAYE), and income contingent repayment (ICR).
Three out of the four options are designed so the borrower pays ten percent from their income and the balance from the loans are wiped out after 20 years of payment. The ICR requires the borrower to pay 20 percent from their income or get involved in a 12-year fixed payment. “The repayment period for ICR is 25 years. After that, your remaining loan balance is forgiven (if there’s anything left). Keep in mind that any forgiven debt under ICR is considered to be taxable income. That means even if you do achieve loan forgiveness, you could be facing a steep tax bill in a quarter of a century,” according to Credit Donkey.
In my opinion, this is the ideal plan for the individuals who do not want to work for the government or non-profit organizations. This brings us to the next option which is applying for loan forgiveness programs.
2. Loan Forgiveness Programs
President John F. Kennedy’s famous quote, “Ask not what your country can do for you, but what you can do for your country.” This speaks volumes to individuals that can benefit from public service because there are plans and opportunities for financial autonomy. These programs are linked to public service and this is a popular option for the people who want to make an impact on a local, state or federal level. Credit Donkey stated that working for public service can be a benefit when people apply for the Public Service Loan Forgiveness program (PSLF). The major benefit of this option is that balance can disappear after 10 years of payments. The occupations that can benefit from this program are government and non-profit positions, teachers, nurses, doctors, childcare providers, and joining the military.
3. State Assistance Programs
Speaking of public service, there are state assistance programs in 2018 in most of the states in the United States. According to College Investor, aside from Alabama, Connecticut, Utah, West Virginia, which are the four out of the fifty states with no student loan forgiveness programs. As you can see, there are no excuses to get a plan for action and learn the importance of long-term investments.
4. Consolidating Federal Loans
Another pathway is consolidating federal loans. This applies to federal student loans—sorry private loan borrowers. According to Credit Donkey, there are three benefits from this option. It combines several loans into one big loan payment, extends the term to make your payments more affordable, and possibly lowers interest rate than some loans with higher rates.
5. Refinancing Federal and Private Loans
Refinancing your federal and private loans is another option that we can do to reduce the financial stress. Before considering refinancing the loans, there are a couple of factors that need to be in order. Credit Donkey says that the three factors to keep in mind are the following. The first one is your credit has improved since graduation; that way, you can get a better interest rate. Second, if you are not eligible for any forgiveness programs, you may be able to qualify for refinancing. Once you refinance a federal loan, you will no longer be eligible. Finally, you are confident that you can make the monthly payments. Also, the rate of interest, the amount of the monthly payments, term, and agreements are all significant to the end goal: financial freedom, according to Credit Donkey.
6. Employer Reimbursement
Now when it comes to employer reimbursement, it depends on the company that you are working at the moment. For example, according to Credit Donkey, “employees at Fidelity may receive up to $2,000 per year towards their student debt. They may be eligible to receive a total of $10,000 throughout their career. This might not eliminate your debt, but it's $10,000 less than you must pay!” This can be beneficial to people that have under $50,000 worth of debt sitting at your kitchen table.
7. Finding a Repayment Plan That Works for You
Finding a repayment plan that works for you is important to determine the strategy of tackling down the mountain of debt. There are two options that are being used after graduation, which is the graduated repayment plan and the extended repayment. The graduate repayment plan is a 10-year plan where payments start low and eventually increase over time by 20 percent every two years, according to Credit Donkey. The extended repayment option speaks for itself, it extends up to 25 years. Credit Donkey says the payments were low, but interest on the loans will increase over time.
8. Thinking Outside the Box
As far as thinking outside the box is concerned, tax returns, commissions, sign-on bonuses, and annual bonuses can save us a lot of financial stress. Also, Credit Donkey offers a website to borrowers that is the GoFundMe of student loans. This web resource is known as LoanGifting allows donors to apply money to your student loan balance.
9. Saving Your Money
The last and obvious piece of advice is about saving your money. Budgeting your money for the basic necessities and put a little money to the side and that can pile up eventually that can put a dent in the student loans. Credit Donkey says, “Again, you knock the principal down, which means less interest. The more you do this, the easier it is to knock your loans down.”