We’re almost in the college graduation season, a wonderful time of celebration. Students will get their diplomas. Most will also receive their student loan repayment information. Their first payment typically comes after a six-month grace period. Time to make a personal finance plan.

Some graduates get the kind of well-paying job that lets them pay off their loans with the standard 10-year repayment schedule or less. Many more graduates live with far greater job and income insecurity. The financial firm Research Affiliates calculates that from January 1990 to mid-2014 the monthly unemployment rate (seasonally adjusted) for workers between ages 20 and 24 averaged 10 percent.

Financial flexibility is critical in the early years. First, job insecurity means young college graduates should focus on building up a rainy-day fund with every paycheck. Even salting away small sums on a regular basis will help defray the cost of job transitions. Better yet, savings is a good habit to instill from the beginning. It will pay off over a lifetime of earnings.

Make it a priority to get rid of credit card debts and similar high-interest consumer loans you may have accumulated in college or in the months following graduation.

If it’s an option, participate in your employer’s retirement savings plan. If your employer doesn’t offer retirement savings, open up a Roth IRA.

You contribute after-tax dollars with a Roth. When you withdraw the money in retirement any investment gain is tax free. I know. That’s at least four decades from now. The big advantage for someone starting out their career with a Roth is if you need money in a pinch you can always take out your contributions without tax or penalty. (Don’t touch any investment gain, however).

Now, factor student loans into the equation. I’m assuming you’ve taken out federal student loans and there is debt repayment flexibility built into the program.

If you end up with job and income instability, it usually makes sense to lower the monthly tab by choosing an extended repayment option, such as the graduated repayment plan and the income-based choice. This will free up cash flow so that you can build up savings, pay off credit card debt, and participate in a retirement savings plan.

Of course, by taking advantage of these options you could increase the overall tab of your loans. But since there is no prepayment penalty with student loans you can always accelerate getting rid of them after a few years when your income improves.


Chris Farrell is senior economics contributor, “Marketplace,” and commentator, Minnesota Public Radio.