A game plan for grads struggling with new loan payments

Student-LoansAn improved economy and lower unemployment should reduce the number of recent college graduates who default on the federal student loans they are supposed to start repaying when their six-month grace periods expire – as soon as November for May graduates.

Inevitably, though, some will fall behind even though there is no good reason to do so. Their credit scores will be crippled and they will risk the government garnishing their wages and seizing their tax refunds.

In my latest for Reuters, how new graduates can handle their new loan payments and protect their credit.

At MoneyWatch, the five things you should know about disaster insurance, and the IRS retirement plan contribution limits for 2016.

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Comments

  1. Joy Mortimer says:

    I have a question…my daughter is soon to enter a 2 year dental hygiene program at a tech college. While I have saved to pay for tuition for her as to not graduate with debt, I also want her to have a stake in it all and not goof off and either fail or drop out. Would it be wise to have her take out student loans for school and when she graduates I would pay off loans, if she messes up she will have debt? What options should we look at?

    Joy

    • Liz Weston says:

      There are a few ways to ensure she has skin in the game. One is to pay a portion (say half) and have her pay for the other half through loans, work and/or scholarships. The maximum she could borrow for two years is $12,000–not a great amount of debt to deal with, even if she shouldn’t complete the program (although of course she should do so if at all possible). Or you can offer to pay off the loans if she completes the program but leave the debt for her to deal with if she doesn’t. You should know that the more hours worked, the higher the chance she’ll drop out, but 10 hours or so hours a week should be manageable.