Your postgraduate degree was an investment in your future, but the student loan debt that comes with it can feel paralyzing. These five tips will help you get a handle on your finances and achieve your dreams sooner.
1. Put things in perspective.
More than 44 million borrowers in the U.S. hold more than $1.5 trillion in student loan debt. Roughly a quarter of graduate students with outstanding student loan debt owe $100,000 or more, according to the Pew Research Center. The Federal Reserve Board of Washington, D.C., has linked the increase in student loan debt to a decrease in homeownership rates during the first five years after exiting school. If you are struggling with student loan debt, you are not alone--but it is time to act.
2. Explore refinancing.
Refinancing is when you work with a private lender to obtain a new loan to pay off one or more existing loans. James Herbert, Head of Student Loan Refinancing at First Republic, notes that many graduates don't realize this is an option that "can help them achieve their goals sooner by paying down debt faster, and often at a lower cost when they take advantage of lower interest rates."
Refinancing your federal and/or private loans also allows you to choose the monthly payment that is right for you given your career and goals by adjusting the length of loan. Additionally, by combining your loans into a single personal loan, you gain the benefit of one monthly payment from one lender. You can manage these payments through auto-debit, thereby reducing the mental burden of remembering multiple payment dates and account information. However, a refinanced loan does not include the same special benefits, such as forgiveness, forbearance or income-based repayment. A financial professional can help you determine if refinancing makes sense by talking with you about your goals, existing loans, potential new loan and financial situation.
"What's more, graduates who have refinanced their student loans with First Republic may qualify for lower mortgage rates if they decide to purchase a home with us," says Herbert. Theresa Nguyen, a pharmacist, purchased her first home in 2016 after working with a First Republic banker to refinance her student loans. "Refinancing helped me buy my first home sooner," she explains.
3. Create a payment strategy.
American Consumer Credit Counseling (ACCC), a nonprofit credit counseling agency, urges graduates to understand the nuances of their loans and their payment schedule. Paying off high-interest debt will increase cash flow so you can save more and improve your borrowing power. If you have multiple loans, consider making larger, more frequent payments to your largest loan first so you can reduce your balance and interest charges--and whatever you do, don't default.
"Staying on top of your payments has a direct impact on your credit score," notes Gigi Garza, managing director and relationship manager for First Republic. "By working with a personal banker now to develop a customized financial strategy, graduates gain confidence in knowing that their banker is keeping an eye on their finances while they focus on life."
4. Set your budget.
Creating a budget--a financial plan that will help you understand your monthly expenses, bills, and short- and long-term goals--can help you more effectively manage your money and determine how much income you can devote to repaying your student loans. To create a budget, the U.S. Department of Education recommends tracking your income and expenses for a few months to understand how much you spend each month and where that money goes. A variety of budgeting apps--from Mint to PocketGuard--are also available to give you a big picture view of how you're spending your funds. Once you've evaluated your spending, look for areas where you can cut back, using those found savings to pay off debt and for other purposes, like investing in your retirement.
5. Connect with a banker.
If developing a loan repayment strategy and setting a budget feels daunting, turn to a personal banker. "A personal banker who has experience working with people just like you can help provide advice and access to financial products and services tailored for you," says Garza.
Millennials (or anyone else, for that matter) should not wait to start this relationship, nor should they feel like they can't put money away because they have debt. "First Republic's personal bankers not only know you by name, they are committed to understanding your personal and professional aspirations and will help you balance your short- and long-term financial goals with your student loan obligations," adds Herbert.
Nguyen stresses the importance of achieving a level of rapport and open communication with your personal banker. Throughout her student loan refinancing process, Nguyen felt comfortable asking her banker questions. "She was accommodating and helped me out by answering all my questions via email, phone or text," says Nguyen.
Keep moving forward
You invested in your education for good reason. Now it's time to take on your next milestone by finding a banking partner who can work with you to develop a strategy to lessen your financial burdens. Do so, and you could find yourself spending less time worrying about your finances and more time focused on achieving your career and life goals.
The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. First Republic does not provide tax or legal advice.
2018 First Republic Bank