For those who graduated from college in May with student loans, November is payback time.
College graduates have a six-month grace period for making their first payment for subsidized and unsubsidized federal Direct and Stafford loans, which means the day of reckoning for May grads will arrive within a week or two if it hasn't already happened.
"They are probably scared and sweating, especially if they don't have a good job that will make them able to make that payment," said Stephen Talbott, a Cleveland-based author of the e-book "How Much Should I Borrow for College?"
"This is where push comes to shove," he said. "This is where college grads begin asking themselves, 'Is that investment in their degree going to pay off?' The reality is there are significant numbers of graduates who are still working at McDonald's."
Student loan debt is among the top financial burdens that recent college graduates face as they struggle to get their careers off the ground and their financial lives on track.
Graduates fresh out of college often have security deposits to pay on new apartments. They also may need to furnish an apartment, put together a business wardrobe and get a car. Student loan payments on top of everything else puts their already stressed budget under even more pressure.
Mark Kantrowitz, senior vice president and publisher of Las Vegas-based Edvisors.com, which publishes websites about planning and paying for college, said borrowers who miss a payment on their student loans are most likely to miss the first one.
"Many students forget about their loans because it's been six months without hearing anything about it," Mr. Kantrowitz said. "They may have even moved and not updated lenders with their new address. Their parents may be receiving the bill and it may take extra time for them to forward the bill to the student."
He said the first payment is due even if a statement or coupon book doesn't show up. The graduate should make a note on the calendar of when payments begin and contact the lender if they need more information.
Not having a job presents challenges, but there are options for dealing with that. One of them is an unemployment deferment. The other is an economic hardship deferment.
"You must apply for them," Mr. Kantrowitz said. "They are not automatic.
"Interest can continue to accrue during the deferment, so a deferment is not always ideal for a long-term financial difficulty. So if you have a job and it doesn't pay enough to cover the loan payment, you should look into income-based repayment and pay-as-you-earn repayment."
These repayment plans base a graduate's monthly payment on a percentage of discretionary income as opposed to the amount owed.
Discretionary income is the amount by which a graduate's adjusted gross income exceeds 150 percent of the poverty line. Poverty line for a family of one this year is $11,490, and 150 percent of that amount is $17,235. That means if someone's gross income is $25,000, discretionary income is $25,000 minus $17,235, which comes out to $7,765. Divide $7,765 by 12 to determine monthly discretionary income -- $647.
Under income-based repayment, the monthly payment is 15 percent of discretionary income, which would be $97 a month in this example. Under the pay-as-you-earn repayment option, the monthly payment is 10 percent of discretionary income, which is $65 a month in this example.
Tim Grant: email@example.com or 412-263-1591.