This article is part of a series called Graduating? which focuses on personal finance advice for fresh college grads. This particular article is a guest post written by Miranda Marquit.

With the federal government getting stingier with financial aid programs, and with education costs rising, it is no surprise that many people have to turn to private institutions for some of their college costs. This is especially true if your higher education includes school beyond a four-year degree. The costs are higher, and the financial aid is even scarcer. Not surprisingly, most college grads now have three sets of debt: credit card, government student loans and private students. Here are some tips for repaying your private student loans:

Pay private student loans off before you pay off government student loans.

You’ve probably noticed that your private student loans have a higher interest rate than your federal loans. And most private student loan rates are variable to boot. Right now that’s not such a big deal, with interest rates falling, but that could change in another year or two. Federal loans can be consolidated to low fixed rates through special programs. Much of the time private student loans do not get that same special treatment. Indeed, private student loans are often treated as consumer debt by many lending institutions.

If you’ve got your credit card debt paid off, move on to the private student loans. The sooner you pay them off, the better.

Pay more than the minimum each month.

The cardinal rule of debt reduction is to pay more than the minimum each month. If you have paid off your credit card debt, take all the money you’ve been using for that purpose and transfer it to help you pay down your private student loans. If you want to be extra clear about where the money should go, write two separate checks. Fill out one regularly, with the minimum payment, and fill out another with the extra amount. In the memo area write, “Apply to principal.” This will make it perfectly clear that you want the extra payment to got toward reducing your overall debt. This will also help you save on interest costs, since interest charges are figured using the size of the principal balance.

Start as soon as possible.

Most private student loans have the same six-month grace period that you find on other student loans. However, just because you aren’t making payments doesn’t mean interest isn’t accruing. In fact, interest has been accruing the entire life of the loan. And many private loans will capitalize the interest at the end. This means that they add up all the interest charges, and then add them to the principal balance. You end up paying interest on your interest charges.

If you can afford it, make interest payments as you go along to avoid having it capitalized at the end of your schooling. If you don’t need the six months grace period after you graduate, start making loan repayments immediately. You’ll get done faster, and pay less overall. My husband is not actually done with school yet, but we’re repaying his private student loans right now. We figure that the sooner we pay off the loans, the less we’ll owe over all — especially since none of the interest is being capitalized.

Repaying student loan debt can be a daunting task. You can save money in interest charges if you make a plan and get started as soon as you can.

Miranda Marquit edits information on debt consolidation for DestroyDebt.com. She is also a personal finance writer for AllBusiness.com and her work has appeared on The Huffington Post.

Photo by manmadepants

This article is part of a series called Graduating? which focuses on personal finance advice for fresh college grads. Today’s article is about federal student loan repayment – if you have private loans, hold tight, the next article will be about those!

Freedom has arrived, and the last thing you want to think about right now is the shackles of having to repay your student loans. But if you take a few minutes right now to work out a plan of attack, you could save yourself thousands of dollars in interest payments!

Know Thy Enemies

If you’re anything like me, loan signing back in freshman year was all a blur. Perkins? Stafford? PLUS? Subsidized? Unsubsidized? Whatever! Where do I sign?

The very first thing you need to do is figure out what type(s) of student loans you have, and how much. Your school will probably send you an email telling you that you need to complete an “exit interview” for each of your federal student loans. The exit interview is extremely important – basically, it will give you all the information you need on how much you owe, who you pay it to, and the different “repayment plans” available to you. It will also tell you the date you can expect to receive your first bill.

PLUS Loans

Here’s something you shouldn’t really have to worry about. PLUS Loans are loans given to parents of dependent students – that is, if you have one, it’s a loan that your parents took out to pay for your education, and it’s their responsibility to pay it back. Just make sure you talk to your parents, and make sure that they know to be prepared for the bill!

Perkins Loans

Perkins loans are the sweet, awesome student loans. Well, as awesome as a loan can be, anyway. The interest rate is only 5%, and they have a 9 month grace period. (A grace period is the amount of time after you graduate before they start billing you for repayment of the loan.)

Stafford Loans

Stafford Loans have a six month grace period, and the interest rates are a little screwy. That’s because there are two types of Stafford Loans: Subsidized, and Unsubsidized. (If you’re unlucky and poor like me, you have both). Subsidized loans are interest free while you’re in school, Unsubsidized are not. The interest on Unsubsidized Stafford Loans piles up and up and up while you’re in school, and then “capitalizes” when you start repayment after the six month grace period. Capitalizing means they throw it in with your principal balance, and then all the interest after that is charged on that whole thing. Goodie.

Like I said, the interest rates on Stafford Loans are really complicated, so if you have them, you should hop on over to FinAid.org and read their explanation of Stafford Loan rates (about halfway down the page).

Batten Down the Hatches!

In your exit interview, you’ll be asked to choose a repayment plan. For Stafford, these come in four flavors: Standard, Extended, Graduated, and Income Contingent. (Seems that they’ve run out of Rocky Road.) Perkins Loans only have the Standard option.

Standard

Almost always your best best. You pay the same amount each month (at least $50) until you’ve paid off you loan in full. You have up to 10 years to fully repay the loan. This is clean and simple, and you pay the least interest out of any of the plans.

Extended

If you have more than $30,000 in loan debt, you can get the extended plan, which gives you 25 years to pay. Your monthly payments will be lower than the standard plan, but you’ll pay mountains more in interest. Ew.

Graduated

In the graduated plan, your payments start out small and increase every two years. The idea is that you’ll be able to afford higher payments as your income increases over time. You pay more interest with this plan than the standard plan because your little payments in the beginning will not reduce your balance very much.

Income Contingent

Basically, with this plan, they take your income each year, and determine how much you can afford to pay. This is pretty complicated, and since they use the previous year’s income to calculate it, you could get into some trouble if you experience a sudden drop in income. Also, you have to submit that income paperwork every year (fun!).

What should you pick? I think I’ve made it pretty clear that I have a love affair with the Standard plan. But you know yourself and your needs, so you be the judge. You can switch repayment plans once per year, so this isn’t a decision that will be set in stone.

Ready, Aim, Fire!

Your exit interview(s) should tell you what your payments will be. At this point, you might want to kick back and say “Time to kick back, wait for the grace period to end, and then start making those payments.” But wait! That’s what everyone does, and that’s not what will save you thousands of dollars in interest.

The payment they tell you is just a minimum payment – you’re allowed to pay more than that without a penalty. A good way to save on interest is to throw some extra money into each payment, and get the loan paid off faster.

YouCanDealWithIt.com offers up reasons why you want to start making payments before your grace period is up:

If you have a subsidized loan, making a payment in “grace” will benefit you BECAUSE, on a subsidized loan the government pays the interest during your grace period and any payments you make will be applied directly to the principal balance of your student loan. This lowers the total amount of interest you’ll have to pay over the life of the loan.

If your loan is unsubsidized, it will continue to accrue interest during your grace period. If you make payments while in “grace” you reduce or eliminate interest capitalized (added to your principal), reducing the total amount of interest paid over the life of the loan.

They even offer a nifty calculator to see how much money you could save making payments during your grace period. I ran it for the $30,000 in Stafford Loans that I have, and if I pay just $100 a month during my grace period, I will save myself three payments, and $588 in interest. Since my loan payments will be about $350, that’s a 75% return on my money! WOOHOO!

Bonuses

Depending on your loans, you might get bonuses for doing certain things. If you make on-time payments for a year or two, you might get something like 1/2 a percent knocked off your interest rate. This could also be offered to you if you set up your payments to be automatically deducted from your bank account.

A word of warning: don’t sign up for automatic payments unless you’re reasonably sure that you can keep track of that and make sure the money is there every month. If you end up paying fees when they try to take money that isn’t there, that could cancel out your bonus savings.

I hope this quick guide to repayment has been helpful. If money is really tight and you can’t take advantage of these money-saving tips yet, the most important thing is just to make sure you can make your minimum payments each month when they come due. This is really important to avoid late fees or worse: a wrecked credit history.

Student Loan Repayment Resources:
FinAid.org: Repayment Plans Guide
Federal Student Aid Calculators
Student Aid on the Web: Repaying Your Loans

Photo by obo-obolina

This article is part of a series called Graduating? which focuses on personal finance advice for fresh college grads.

Ewwwwwww… taxes! Too bad for those of us living in the U.S. of A. – we have to hand over a portion of our paycheck to Uncle Sam. But when Human Resources at your new job hands you a W4 form, do you know what to do with it?

W4 – That Tax Form

A W4 form is simply a way of indicating how much of your paycheck you’d like your employer to take out for taxes. Of course, your ideal answer is “NONE!” But that won’t do you much good – the government will take their due when you file your tax return next year, and you’ll be charged a penalty for not withholding enough. Say it with me: “Paying a penalty sucks.”

So, since you don’t want to underpay, you have two options left: overpay (and get a refund check when you file), or pay just the right amount.

Personal finance experts say that you should go for paying just the right amount, because if you overpay, you’re giving an interest-free loan to the government. That makes sense, but I disagree. I think there are several reasons a fresh college grad should overpay:

1. Getting a tax refund is better than having to pay. It’s a greater hardship for most of us to have to pay something we weren’t expecting, than to give a small interest-free loan to the government. (Why you should be happy to get a tax refund, not guilty)
2. Many of us are involved with freelance work or entrepreneurship in addition to a regular job. Since taxes usually are not withheld for these activities, it’s a good idea to have extra withheld from our day jobs to make up for it.
3. You won’t really have an idea of whether you’re withholding too much, or not enough, until you’ve done it for a few years and seen what happens when you file your taxes. Best to over-withhold the first few years of your career, and then adjust it down.
4. If you’re smart, you can use a tax refund as an automatic savings. When you get the check, put it straight into a high yield savings account or a retirement account.

How to Calculate Your Withholding

When you’re handed a W4 at your new place of employment, the standard reaction is to look at Human Resources and say “Uh, what do I put down?” And then you’ll receive a wishy-washy answer that doesn’t help at all, like “Well, that depends on what you want.”

Instead, go in prepared. The IRS has a tax withholding calculator to figure out how many “exemptions” you want to claim on your W4. You can adjust the number it gives you up or down – a lower number means they will withhold MORE, and a higher number means they will withhold LESS.

Part-Year Method

One more thing that’s mucho important if you’re starting a job in the middle of the year. The W4 doesn’t take into account how much of the year you’ll be working a certain job. Say you start a job with a $45,000/year salary. You employer will end up withholding an amount relative to a $45,000 salary, but you’ll only be making about $22,500 that year, since you started in the middle. That means your employer will take out double what they should!

The best thing to do in this case is to get your employer to agree to withholding using the part-year method. The instructions for requesting part-year withholding (from the IRS website):

How to apply for the part-year method.   You must ask in writing that your employer use this method. The request must state all three of the following.

• The date of your last day of work for any prior employer during the current calendar year.

• That you do not expect to be employed more than 245 days during the current calendar year.

• That you use the calendar year as your tax year.

Sounds like a pain, but just type up a quick request, sign it, and take it into work with you.

Taxes really aren’t so bad, and if you over-withhold, you get to jump in the air and yell “YIPPEE!” when the refund check comes! (What? I know I’m not the only one who does that!)

Photo by Paul Keleher

This article is part of a series called Graduating? which focuses on personal finance advice for fresh college grads.

Hurray! You’ve been offered a job! TAKE IT! TAKE IT!

Or, you could slow down a bit there, cowboy. Not all job offers are created equal. It would be nice if every job offer gave you a bottom line number, making them easy to compare. But of course, they don’t. And if you just use the salary as if it were the end-all-be-all score, you could be turning down thousands of dollars in benefits.

Evaluating benefits is so confusing and not fun that it was the #1 topic people asked me to break down for them in this series. Fair enough – I’ll try and make this is as easy as possible.

Benefits?

The hardest part about benefits is that there are so many possible variables. It becomes difficult to compare apples to oranges; in fact, a lot of benefits don’t even fall into the same categories, so it’s more like comparing apples to hammers. Consider this list of possible benefits from CollegeGrad.com:

• Medical Insurance
• Dental Insurance
• Vision/Eye Care Insurance
• Life Insurance
• Accidental Death Insurance
• Business Travel Insurance
• Disability Insurance
• Vacation
• Holidays
• Sick/Personal Days
• 401(k) Plans
• Pension Plans
• Profit Sharing
• Stock Options/Restricted Shares/ESOPs
• Tuition Reimbursement
• Health Clubs
• Dependent Care
• Employee Assistance Programs
• Overtime/Travel Premiums/Comp Time
• Parking Reimbursement
• Commuting Cost Reimbursement
• Expense Reimbursement
• Mobile Phone Reimbursement

Egads! I didn’t actually make it all the way through that list until I had to type it out, so if you did, you deserve a gold star. Almost no job will offer you all, or even most, of these. And some of them are just straight-forward perks. When comparing offers, estimate the financial gain of any straight-forward perks and add it to your salary.

First of all, look at the benefits offered to you and rule out the ones that just don’t apply. If you don’t have any kids, and aren’t planning to for a while, child care shouldn’t affect your decision much.

However, don’t rule out things like disability insurance. You might look at it now and think “What are the chances I’ll become disabled?” But what you really need to ask yourself is “How screwed would I be if I became disabled and couldn’t work?” If your job doesn’t offer disability insurance, you should probably look into purchasing some on your own.

Healthy, Wealth, and Wise

Health insurance seems to really trip people up. First of all, let’s get this out of the way: you need it. Just because you’re young and healthy now doesn’t make you invincible. If an employer doesn’t offer any at all, you’ll have to pay for your own. Subtract a substantial portion of the salary from any job offer that doesn’t include health insurance.

Some employers will offer you tasty free health insurance, where they cover the entire cost for you. More likely though, an employer will just pay a portion of the monthly cost, and leave the rest up to you. Find out how much you’ll have to pay monthly, multiply it by 12, and subtract it from the annual salary.

This may also apply to all the other forms of insurance from the list above, if they’re offered. Life insurance and accidental death insurance are nice if they’re free, but don’t pay for them unless you have dependents.

Flexible Spending What?

A great benefit that’s often overlooked is the Flexible Spending Account (FSA). Like a 401(k) (we’ll get to those in a minute), it’s something that you have to opt-in to and contribute a portion of your salary. However, it’s still pretty awesome.

Basically, you can legally hide some of your money away from Uncle Sam. Money in a FSA is never taxed. When you make certain purchases, you can get a reimbursement from this wonderful untaxed account. Things that are eligible for reimbursement usually include the out-of-pocket costs associated with health care – that is, co-pays, deductibles, and prescription medications. Child care and glasses may also be eligible.

One drawback: if you don’t use all the money in the account by the end of the year, what’s left disappears. Do your best to estimate the expenses that you’ll use from the account over a year, and contribute just that amount.

Tax savings can be tricky to calculate, so unless you’re getting a really sweet six-figure salary offer, use this rule of thumb: take the amount that you think you should contribute to a FSA, and multiply it by 0.25 (25%). For example, if you contribute $800, 25% of that is $200. Add that to the salary of jobs that offer FSAs. $200 might not sound like much, but hey, it’s free money, and you should count it.

401(k) 403(b) OMGWTFBBQ

The big kahuna: retirement benefits. These come under a slew of different number-letter combinations, but most of them are extremely similar, so I’ll just stick with the term 401(k) for this. But this info also applies to 403(b)s and 457s (but not to 747s, as those are jet planes).

Most of the time, 401(k)s are free money. You contribute a portion of your paycheck, and your employer matches it. They’ll try and make it confusing by saving that they match “50% of up to 6%.” Uh, what? That means that for every dollar you contribute, they’ll add in 50 cents, but if you contribute more than 6% of your salary, they’ll only do it for that first 6%.

More math time! First, figure out how much of your salary they’ll match (that “up to 6%” part). So if you’re offered $40,000, 6% is $2400. Then find out if it’s a 50% or a 100% match, or whatever. 100% of $2400 is $2400 (I’m sure you needed me to tell you that.) Whatever the number is, add that into your salary.

Big point here: this math only matters if you actually contribute to your 401(k) once you take the job. DO IT! If there’s a match, and you don’t contribute, you are literally saying “I don’t want free money, thanks.”

Pulling It All Together

This sounds rather simplistic, but once you’ve figured out all of the additions and subtractions that matter to you for each job offer, just apply them to the salary offer. Now you can compare apples to hammers – a little better, at least.

Just don’t forget that the number isn’t the end-all-be-all for evaluating a job offer. Things like company atmosphere, coworkers, your future boss, and whether or not you believe you’ll enjoy the work really do matter.

Further Reading:
Calculate Your Benefits’ Worth to Evaluate the Offer
Employee Benefits Questions to Ask

This article is part of a series called Graduating? which focuses on personal finance advice for fresh college grads.

Your exams are done! You’ve received your shiny (and very expensive) piece of paper – the one that tells the world you’ve got a head full of knowledge and a bright future ahead of you.

Time to get a job. The one that will start your career.

1) Clean up your act.

Guess what? The internet is the internet, and nothing is private. So clean up your social networking pages. Prospective employers DO check Facebook and Myspace, and they DO Google for your name. Maybe you’re lucky and have an extremely common name, but you should still Google yourself and see what comes up. And don’t assume that just because you’ve marked your profiles as private doesn’t mean they can’t be seen.

This is step number one, because you want your online image cleaned up before anyone looks for you! I know it might feel like you’re censoring yourself, but that’s a decision you have to make based on the industry you’re applying for. Think like an employer and look over your profile – what jumps out at you as a red flag for irresponsible, unethical, or lewd? Take it out.

2) Resume it up.

You’d be hard pressed to find someone who hates writing her resume as much as I do. Seriously. But I found a pretty handy guide on writing your resume, which I suggest you read through while you polish (or start!) your resume.

3) Think small, think local.

Big companies that you know the name of have a big draw, but don’t forget the little guys. Most of America is run by small businesses. Many city newspapers have their classified listed online now, so check the listings and Craigslist for the areas you want to live in.

4) Be persistent.

Send out your resume to a lot of companies – but be sure to follow up, especially with the ones that really excite you. Most advice on writing cover letters instructs you to write that you’ll call within a week. Do it. Hone all of you efforts into one goal: getting the interview.

5) Be frugal.

It might seem like you have to spend a lot to bridge the gap between graduation and your first job. But be smart about it. If you don’t have a job yet, move back home with your parents while you search (if you can). If you have to spend some money that you don’t have, credit cards may be the answer. BUT keep your spending really, really low. You don’t need the nicest suit in the city for your job interview, you just need one that’s clean and fits you well.

Even if you do have some money tucked away to bridge the gap, be smart with it. Just because you’ve got some cash on hand doesn’t mean these rules don’t apply to you! The more of your stash that you can hold on to, the better off you’ll be.

Some more resources to check out:
CBCampus’ Articles on Job Hunting
FastWeb on Job Searching

The next Graduating? topic will be preparing for taxes and evaluating benefits as you decide which job offer to accept!

Photo by thinkpanama