Graduating with a Deficit: An finance expert's advice for when you owe before you earn

• Blaming avocado toast and coffee as to why millennials are unable to save for their long-term goals ignores one of the bigger reasons: they're spending their paychecks on repaying their student loans.
• Turning to a financial professional for concerns about student loan repayment can help students understand the potential effects on their future finances.
• There are several factors in creating a healthy financial future even with student debt, including checking their interest rates, considering ways to save for retirement, and paying loans every month, on time and in full.
• This article is a contributed piece as part of a series called Master your Money.

Student loan debt is often discussed in billions and now trillions of dollars, $1.5 trillion in federal student loan debt, to be specific. Looking back, the cost of my education was relatively inexpensive compared with school costs today – and that's the difference between today's graduates and previous generations.

While I had a small loan to pay back, it was doable – I prioritized and paid it in a short time after I landed my first job.

But today, graduates owe before they earn – and they owe big. Average debt per student is more than $25,000, with grads spending about 25% of their take-home pay on college loan payments. The average payment comes out to about $580 a month, a huge number for many new graduates.

Sure, they've graduated with a degree, but they also graduated with a deficit. Nearly 45 million Americans have student loan debt, according to a 2018 report by the Federal Reserve Bank of New York. It's as though we have 45 million national debts, 45 million folks working incredibly hard just to get back to even.

These numbers have the potential to negatively impact a generation of graduates. As older generations tend to criticize the next, some will blame a penchant for avocado toast or handcrafted lattes on millennials' increasingly gloomy financial situation – but bread and coffee aren't what's holding this demographic back.

Weigh these factors first

There's a lot to consider when it's time to make your own decision about school. Only about 40% of students had considered how college debt might affect their credit score and their debt-to-income ratio, according to a survey about student debt from our company. Also, a majority of grads earning less than $50,000 a year didn't know about income-based loan repayment programs that could lighten their obligations and make their debt more manageable. Graduates we surveyed ignored things like income and earning potential – things that are critical when repaying debt.

While financial literacy and guidance are critical when taking on debt, many students didn't turn to knowledgeable sources for help. Banks were the third source of information when it came to gathering research, after students' parents and the internet. But our findings beg the question – what was discussed in these conversations with lenders? A financial professional (other than someone selling the college loan) can help give students a good look at how the debt may affect their pockets and provide insight into important figures like the debt-to-income ratio, credit score, and potential earnings.

Pinched finances leading to pinched lifestyles

In that same company survey, we queried people who graduated with student debt over the past two decades and found that many curtail spending on vacations, gifts, restaurant meals, and gym memberships. Forty-six percent reported spending less on day-to-day expenses while repaying their college debt. More than half of those we surveyed have maxed out their credit lines, and most have delayed or curtailed long-term savings; 20% aren't setting aside any funds at all.

Skipping a dinner out here and there is good for anyone's budget, but simply being unable to save is problematic. What's more, students can't necessarily count on post-graduation jobs to easily erase these debts. The survey found that only 57% landed full-time salaried jobs after graduation, but a big chunk of that salary must be used to repay the loan.

Getting Back to Even

Our data showed that most folks will spend at least six years paying off their debt. With the cost of today's schooling, I'm sure that's optimistic for a lot of grads, but there are some things to keep in mind when trying to stay on track for repayment.

• Keep at repayment, pay each installment in full and on time. Not only will you pay the debt down, but this will also help your credit score too.
• Make sure you're getting the lowest rate possible. Earlier this year the federal government lowered interest rates, review your loans and ensure you're getting the best rate for which you qualify.
• Check out income-based repayment programs. These allow you to pay based on your income. In some cases, they'll extend the length of time you repay, but see what works best for your budget now.
• Lastly, don't put your long-term financial health in jeopardy. Carve out what you can – however small – for a 401k or another retirement investment.

By seeking out solid information, students and their families can make well-informed decisions on the education they can afford and the debt they can reasonably assume. It may be difficult to avoid taking on at least some student debt, but well-considered choices will help set students on a more stable and successful path after graduation.

Read the original article on Business Insider