When I was figuring out how to pay for business school back in 2011, I was struck by how high student loan interest rates were and how complex the process was. That experience led me to start a company, CommonBond, that focused on making the student lending experience better. Since then, I’ve learned a lot about financial health from the company’s borrowers and my own experience.
As you graduate and head back into the wild, I’d recommend you tackle a few things now to keep your financial health in order:
First, set up automatic payment (ACH) on your monthly student loan payment. This will give you an interest rate deduction of 0.25% from many lenders. This is easy money and puts quick points on the board.
Second, pull together certain student loan information, including your total principal and interest owed, the date and amount of your first payment, and contact information for your lender and loan servicer. Why do it now? Because the Office of Financial Aid is still only a few steps away and is a great resource for all this information if you don’t have it on hand.
Third, understand your monthly cash flow so that you don’t accidentally run into a tight spot on your loan payments. Calculate how your monthly income after graduation will stack up against your monthly expenses (e.g., rent, utilities, travel and any startup costs of moving – for some, this could mean purchasing a car). Don’t forget to factor in “extras”, such as a matching 401(k) plan, so that you’re considering your true earnings potential when deciding when and how to invest your money and when to pay your debt instead.
Fourth, determine whether it makes sense to consolidate and refinance your student debt at lower rates to reduce your monthly expenses. Refinancing a 10-year, $50,000 loan from a rate of 6.99% to 5.99%, for example, yields over $4,000 in savings. Especially if you’re planning to start a business, start a family, or change jobs, the thousands you’ll save in interest could translate into financial flexibility you wouldn’t have otherwise.
Finally, map out your big-picture earnings and expenditures based on your 3-, 5-, and maybe even 10-year goals. This could help you make better decisions now by prioritizing your investing and savings goals and starting early.
And here’s a tip that not many people know about the student loan process: if you start paying your student loan interest now, instead of waiting for your 6-month grace period to end, you would save more than $2,000 over the life of a 10-year, $50,000 loan borrowed at 7%. Why? Because further interest will not continue to accrue in that time and you won’t face extra costs from capitalized interest.
As you re-enter the real world, I say congratulations! As a Booth MBA, you made an amazing investment in your future, and now you’re taking the next step in making this investment work for you. That’s worth applauding.
David Klein is the CEO and Co-Founder of CommonBond, a student lending platform that provides a better student loan experience through lower rates, exceptional customer service, and a commitment to community. CommonBond is also the first company to bring the “one-for-one” model to education and finance: for every degree fully funded on the company’s platform, CommonBond funds the education of a student in need abroad for a full year.