College is over and you are rightfully proud of your graduate for putting in the effort required to earn that coveted diploma. The odds are that it will help your child get a better job and earn higher income. You have already provided the educational head-start, but now it’s time to give your graduate a financial head-start on life, too. Here are some tips for having the “money talk” with your graduate:
• Calculate monthly student loan payments: Sit down together before the student loan bills start coming in and map out a plan of action. Learn about loan servicers, interest rates, repayment options, loan consolidation, and determine the monthly payment amount. It may be possible to forgive some or all of the federal student loans if your child decides to become a teacher or public servant. This information will help quantify the amount of income needed to meet monthly payment amounts, and may help guide your child’s choice of career.
• Student loans are a serious business: Not making prompt payments could lead to student loan default, which can have serious consequences. President Obama will work with financial institutions to increase education about loan defaults, but you can give your child a head start. The school, the financial institution that made or owns the loan, the loan guarantor, and the federal government can all take action to recover outstanding amounts. This could involve wage garnishment, attachment of federal income tax refunds, or assignment of the debt to any co-signers. Defaulting on a student loan could also affect your child’s ability to obtain other types of credit for a car, home, utilities, or cell phones.
• Be careful of credit card debt: Many young adults are surprised by how quickly credit card debt builds. They think they are only borrowing a little money to tide them over until they get a job, and suddenly find themselves paying hundreds of dollars a month in interest. Make sure your child understands that a credit card should only be used when there is already enough money available to make the payment.
• Start saving now: Most graduates think it is too early to worry about buying a home, paying for their own children’s education, or their retirement. But the best time to start saving is now, so that interest compounds over the long-term to build a nice nest egg or emergency fund. Even a small amount on a regular basis makes a big difference over a long period of time.
• Have health insurance: Your child will be required to have health insurance under the Affordable Care Act. He or she may be eligible to stay on your coverage until the age of 26, could qualify as part of a compensation package, or can shop in one of the health insurance marketplaces.
If you need more information about repaying student loans, or want insights regarding the college financial aid process, contact College Financial Aid Advisors (CFAA).