Money Moves for Recent Grads: UT Austin Professor Michael Sury

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This advice is part of a series InvestorPlace.com has compiled, inviting academics from across the U.S. to share their thoughts on aspects of finance that new graduates should know. Their thoughts have been presented with little to no editing. Today’s entry comes to us from Senior Finance Lecturer Michael Sury, of the University of Texas McCombs School of Business, who spoke with InvestorPlace via email about financial advice for recent graduates.

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One of the most important things that new graduates should consider doing is coming up with a financial plan. In the beginning, this plan can be as simple as coming up with a budget. But it should also include considering what their income and job prospects look like, what their spending patterns are, and what they would like to set aside for emergency purposes.

New graduates should make sure they understand exactly how their student loans are structured. Some are subsidized federal loans, others are unsubsidized federal loans, and yet others are private loans. Each category has various provisions related to the accrual of interest while in school, grace periods after school, and possible deferments.

For example, subsidized federal loans do not accrue interest while in school, offer grace periods of up to a half a year before payments are due, and the potential for deferments on an exception basis (e.g., unemployment). New graduates should make sure they clearly understand whether their loans are federal or private; and whether their federal loans are subsidized or unsubsidized. Most federal loan borrowers are also contracted under the “standard repayment plan,” but there are some alternatives that may allow new graduates to restructure those payments, including percentageof-income and capped payment programs.

Borrowers should contact their loan services to see if they qualify for such plans. Borrowers should not, however, confuse minimizing their monthly payments with saving money. Minimizing payments is not the same as minimizing interest. The interest accrues, and if payments are inappropriately lowered, it simply kicks the can down the road and will make the ultimate bill much larger.

As importantly, it is critical for new graduates to begin monitoring their credit and managing their finances such that they avoid missing payment due dates or going delinquent. Since many students and new graduates do not have lengthy credit histories, mistakes at this stage can have a devastating impact on their credit scores.

This can have implications for getting credit down the line, which may affect their ability to get a car, purchase a home, or even get a job. Students should take advantage of automatic payment and EFT plans which may be available through their loan servicer or through their commercial bank.

The coronavirus pandemic has underscored the importance of having emergency funds in place. Many financial planners suggest building a “rainy-day” savings account equivalent to at least 3 months of spending money. This may seem like a daunting task at first, but by creating a plan and setting aside a certain amount each month, it should be possible to reach this savings level within a reasonable period of time.

You can read the next installment of “Money Moves for Recent Grads” here, and find the entire collection here.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/money-moves-for-recent-grads-ut-austin-professor-michael-sury/.

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