Although college graduates leave their institutions of higher learning with a diploma in hand, often many are lacking in personal finance know-how.
Even worse, college students often don’t know what they’re lacking in knowledge when it comes to money. In 2015, 57% of college students rated their financial skills as either good or excellent, according to a survey from the American Institute of CPAs. Yet, only 39% of those college students surveyed had a monthly budget. And, almost half said that their bank account balance had dipped below $100.
The post-graduation period can be a crucial time for establishing smart money habits that can pay off over a lifetime. A student financial planner — or a financial advisor for college students who have recently graduated — can offer invaluable advice during this unique transitional period when it comes to making financial decisions.
How a financial advisor can help a college graduate
A financial planner’s role is to help guide clients toward their best possible financial outcome. If you’re a recent college grad, a financial planner can help you work through many financial firsts you may be facing. These can range from managing a higher income to tackling student debt, as well as planning and saving for the future.
We talked to some financial planners to see how they help college graduates get a head start on their finances. Here’s what they had to say.
Get on the right path from the start
The months and even years right after college are a critical time in your financial life. That’s because “bad money habits are not yet established,” said Brett Walters, a certified financial planner (CFP) and founder of Trident Financial Planning based in Nashville, Tenn.
Making mistakes and figuring out your finances through trial and error can be messy and painful. But a financial planner can help you get it right from the start. “Making a small positive impact can yield tremendous results given the long time horizon,” Walters said.
“Most financial decisions that will have a lasting impact 30-40 years down the road occur when you’re in your 20s [like] buying a home, getting married, starting a business, investing for retirement,” said Stephen Alred, Jr., a wealth advisor in Atlanta.
That’s where a financial planner comes in. “It is important to have a financial accountability partner to help steer you away from bad decisions and towards ones that align with your life’s goals,” Alred said.
Make a plan to pay off student debt
For college students and recent graduates seeking the help of a financial planner, one of their most common goals is to figure out how to effectively tackle student loans.
“Millennials are saddled with more education debt than any generation before,” said Mel O, a CFP with Hot Moon Financial in Las Vegas. “It is important to get together a strategy of how to start tackling that debt.”
With today’s student debt outpacing graduates’ earnings, many will find their student loans unaffordable. This is why knowing your financial options is so important.
“Student loans can be incredibly complex,” said Matt Hylland, a financial planner with Hylland Capital Management. “Should you refinance? Are there forgiveness options or special payment plans available? Is your loan forgiveness taxable?”
A financial planner can help you find the answers and figure out the most advantageous student loan repayment plan for you.
Create a post-college budget
Graduates may have a higher income to budget with after college than they did as students. However, they will also face new costs, from paying for new housing and other expenses to repaying student debts. Yet, many college students don’t budget their finances and regularly have extremely low bank account balances. That’s not a recipe for sound financial management after college.
Additionally, with a higher income, college graduates may have to battle the impulse to spend it. “With the new income, there is a temptation to go out and spend money on cars, apartments, cellphone plans, etc.,” said Joseph Orsolini, a CFP with College Aid Planners.
Orsolini pointed out that for instance, many graduates will get all of the above things, which will add to their fixed monthly expenses. Yet, they don’t realize that their student loan payments will start six months are they graduate and the grace period ends. “It is difficult to add in a student loan payment when most of your paycheck is covering fixed expenses,” Orsolini said.
Getting a financial planner’s assistance to create a budget can help you create a spending plan that’s both realistic for today’s needs as well as helpful for planning and saving for the future.
Prioritize financial goals
Part of creating a smart budget is knowing what you’re working towards. Deciding on your most important financial goals can help you more efficiently prioritize your dollars to achieving them.
Walters said the top questions he gets from recent college graduates are how to decide whether to put retirement, student debts, saving for a home or other financial goals first. “Not everyone’s answer is the same,” Walters said. “Each individual’s situation is unique and many factors will influence what is the best for them.”
According to Walters, this is why it’s important to start meeting with a financial planner as early as possible. “[T]hey can help provide peace of mind by providing you with a sense of direction of what is best based on your individual circumstances,” he said.
Start saving for retirement and investing
Another common task that financial planners can help new graduates with is saving for retirement. Getting an early start on retirement savings can have tremendous payoffs later. A financial planner can help ensure your investments are optimized for the greatest returns.
If you’re working your first job and dealing with retirement savings accounts for the first time, you’ll probably go with the default 401(k) plan and contribution options. However, going with a default 401(k) allocation may not be the best option for you.
“For a recent college grad who was never taught the ins and outs of investing in 401(k)s or asset allocation, this is not a decision to make on a whim,” Hylland said.
A financial planner, however, knows all about retirement savings accounts and investment strategies. He or she can help you choose investments that balance your levels of risk and return.
Choosing a financial planner for the first time
The benefits of getting a financial planner as a recent college graduate can be well worth the investment. But make sure you do some research to find a qualified financial planner with affordable, transparent fees.
“I agree wholeheartedly that college grads desperately need financial advice,” said Robert Wilson, a financial advisor with Wilson Insight. “They just need to make sure that they get it from the right source.”
A fee-only planner is usually the place to start. These financial planners typically charge a flat rate for advice and don’t have a payment structure that incentivizes them to push financial products that may not be beneficial to you.
Also consider avoiding financial planners that won’t meet your financial needs. Many financial advisors focus on providing investment advice, but that isn’t what recent college graduates necessarily need the most.
“[Instead], they need to speak with an advisor that will help them create a system that gets their finances in order,” Wilson said. “Especially since many of them have no experience managing money and were definitely not taught how to do so in school.”
Where to find affordable financial advice
If you are like many recent college graduates starting work for the first time, hiring and paying a financial planner might not be your first priority as you balance paying rent, covering the necessities and starting to repay your student loans. Depending on your first job, you might not be able to afford a financial planner.
However, it is possible to get free or low-cost financial advice. Assistance is available from credit counseling agencies such as the National Foundation for Credit Counseling or American Consumer Credit Counseling. In addition, Financial Planning Association (FPA) chapters around the country provide free financial planning knowledge and guidance from certified financial planners. You can go check the FPA site for links to local chapters that will provide information on resources available in your area. And if you specifically need help figuring out how to repay your student loans, you can search online for organizations that offer free assistance with that task.
As you get started with your post-college life, remember that you could benefit from the help of a financial planner to set a budget, begin to save for the future and, perhaps most importantly, begin to repay your student loans. Starting to plan early means having the money later to buy a home, raise a family and eventually retire.
Peter Fleming contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of December 1, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 11/13/2020 student loan refinancing rates range from 1.97% to 8.54% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.