For new or soon-to-be graduates, figuring out the balance between earning a decent living, managing education-related debt, and covering other living expenses is not an easy task. This is due in part to the rising debt load college graduates face upon leaving school, with the average student loan balance creeping up past $27,000.
Most graduates with this amount of debt pay an average of $351 per month toward their student loans, but those with higher debt balances may face steeper monthly minimums. In addition to mounting college debt, recent graduates face two other obstacles in their early financial lives: rising rents and stagnant salaries.
Recent graduates face greater rents in metropolitan areas where the highest paying job prospects tend to be as compared to other areas. But even when a solid compensation package is received, the starting salary for graduates is $50,390, according to a Korn Ferry's Hay Group study.
Beginning salaries are even lower for those in certain career fields, giving some graduates serious concerns about how they will cover high rent and expenses each month with the burden of student loan debt. Here are a few tips to help you successfully juggle both your rent payments and student loans.
College graduates should take the time to consider their cash-flow each month in order to successfully manage student loan payments along with rent and other expenses. Cash-flow simply means evaluating the money coming in versus the money going out, most often in the form of a budget. Creating a budget, either through the old-school methods of spreadsheets or journals or with the help of digital platforms, is necessary to understand how affordable one apartment is versus the next based on current income. Budgeting also lays the foundation for how much you can realistically pay toward student loan debt.
Don't be intimidated by the budgeting process, although it sounds a little daunting to begin. Embracing a budget as a way to reach financial stability and eventually, financial freedom, is one of the smartest steps you can take early in your earning years. Start with listing out all sources of income and then subtract known expenses, including student loans and rent payments.
From the remaining amount, take away other required costs, such as a car payment, utilities, or commuting expenses. Finally, add up costs like groceries, dining out, and travel and take that total out of the mix. Be sure to pay close attention to the bottom line numbers each month to ensure there is enough to pay both required and desired expenses over time.
After building a budget, you might realize that covering living expenses along with student loan debt would put you in the negative each month. If this is the case, refinancing student loans may be a viable option. Refinancing is the process of paying off one or more student loans with a single private loan, with the benefit of a lower interest rate or a more flexible repayment term. Lowering the cost of borrowing through a reduced interest rate can help make student loans more manageable month to month. Similarly, extending repayment so that the required monthly payment is smaller can be a lifesaver for cash-strapped grads.
It can be tough to refinance your student loans for a lower payment or reduced interest rate if you do not yet have a strong credit history. The good news is that rent payments can help you build credit over time — as long as they are reported (which doesn't automatically happen). Some landlords report on-time rent payments to the three major credit reporting agencies, boosting a renter's credit score and building a history of on-time payment. If a landlord does not report these payments, renters can take matters into their own hands by signing up for a service like RentTrack. With several months of on-time rent payments, you should have a better chance of getting approved for a student loan refinance to help ease your financial stress each month.
Managing student loan debt, rent, and other living expenses on a recent graduate's salary can be a challenge, but there are strategies to lend a financial hand. Just be sure to start with a budget first, and have a strong understanding of their cash-flow each month. And don't forget to consider your options for restructuring student loan debt to make it more affordable, either through a lower rate or reduced monthly payments.
Getting credit for on-time rent payments is also beneficial in building a foundation of financial responsibility in the eyes of future lenders, which ultimately paves the way for more manageable student loan payments. Use these tips to make it easier to take care of necessities each month without missing a beat on student loan payment requirements or rent.