Being Prepared for the Unique Financial Challenges Recent Graduates Face

Strong sentiments abound nowadays proclaiming the prohibitive costs of a college education. We have even seen a former US secretary of education arguing that most college educations are not worth their price. However, statistics bear out that the investment graduating students have made in their education typically return a very high earnings on their investments over their lifetimes. We do note, however, that not all majors are created equal, and a very few even pay no more than a two-year associate’s degree in the same subject. Still, the lifetime value of the average four-year college degree is nearly twice than that of a high school diploma alone.

Girl-Attending-Graduation-Ceremony

Unique Challenges

That said, recent college graduates face both exciting opportunities and frustrating challenges. On the exciting side, you are faced with the thrill of choosing where you would like to end up geographically. Additionally, this is often the time of life when choices regarding long-term relationships and parenting begin to come into play.

The financial challenges, however, can hit hard and in rapid succession during this period.

Income

First, there is the question of income. Finding a job that matches your interests, your education, your desired lifestyle and your income expectations is anything but easy. Even landing interviews can be tough sometimes. However, in the end, the average starting salary for the graduating college class of 2017 was nearly $50,000. That is very close to the US’s median household annual income of $56,000. Things may seem tough, but as a group, you are doing pretty darn well!

Just remember that the rule of thumb for finding a job is this: it will generally take a month for every $10,000 of annual income you expect to earn. So, if you are looking for a $50,000/year position, it may very well take five months to land. This rule varies, not surprisingly, by job category, geography, and time (in the depths of the recession, it almost doubled).

Even after you get that job offer, remember that you have to work for usually two weeks or more before the end of your first pay period, after which you have to wait another two to ten days to actually receive your paycheck.

During that entire time, it is certainly tempting to live on credit, being confident that you will eventually secure the perfect job and earn more than enough money to cover your expenses and repay your debts. The reality is that too many of our recent graduates rack up ten to twenty thousand dollars of credit card debt, furniture store loans, and electronic store accounts on such assumptions. Even at a good income level, that could take five to ten years to repay, along with another $2,000 to $5,000 of interest.

Ideas to consider: I once lead a financial education workshop with an NFL quarterback who shared with the high school students the best financial advice he had ever received. He described how the other backup quarterback on the team had recommended, in spite of his mid-six-figure salary, that he continue to live like he was in college for at least the first four years in the league. For him and for you recent graduates, that means avoiding the temptations to buy a new car, move into an upscale apartment, eat out for lunch or dinner every day, buy season tickets to your favorite sports team, equip yourself with top-of-the-line recreational gear, accrue thousands on your credit card through travel, etc.

Budget

You will, no doubt, have been taught throughout your lives that you should live within your means. Well, great news: about 80% of you are living within your means. The not-so-good news? Living “within” your means actually means that you are living paycheck-to-paycheck, which 40% of you are doing month after month. Only 40% of our population is adding to their savings or investments regularly, with the remaining 20% going into debt further and further each month.

Ideas to consider: Whether you create a traditional budget that specifies exactly how much money you have to spend in a variety of categories, or whether you use our Money Pie budget to simply assign a certain percentage of your income to one of six spending categories, budgets are really just spending plans. Whichever form you choose, choose it and use it. If you are not planning (budgeting) your expenses, you are forfeiting control of your money.

Debt

Then, of course, there is the matter of student loan debt. When I began my financial education career back in 2004, the average four-year college graduate had just over $17,000 in student loans. Each year since, that amount has gone up by more than $1,000. The above-referenced class of 2017 had average student loan debts totaling more than $37,000 (www.forbes.com/sites/zackfriedman/2017/02/21/student-loan-debt-statistics-2017/#1e7c8ff05dab). That is an average increase of over 6% annually.

After leaving school, you have a grace period of six months, although in practice, the sixth month is when your first bill is sent out, after which you usually have another month to make your first payment.

Ideas to consider: Because a large percentage of your monthly student loan payments, especially early on, will go toward covering just the loan interest, consider starting your repayment as soon as you have income. Do not wait for the end of your grace period to begin making payments, especially if you secure a job pretty quickly. Also, do not fall for the false sense of financial security that extending your repayment plan out to 20 or 25 years might give you. Yes, your monthly payment will be less, but your total repayment will possibly double. Finally, if you do struggle finding employment, contact your loan service provider immediately in order to ask them for help qualifying you for an income-based repayment plan.

Healthcare

Chances are, you are used to being healthy, but you are not used to being responsible for your healthcare costs. Now that you are finding full-time employment, you will likely have individual health insurance coverage through your employer. Get to know and understand relevant terms, such as a Claim, a Deductible, a Premium, an Explanation of Benefits, a Copay, a Flex Account, your Coinsurance, and Out-of-Pocket Limits. Here’s a good resource: www.bls.gov/ncs/ebs/sp/healthterms.pdf.

Do not ignore your medical debts. If you do not pay them on time, whether they originated at a hospital, at a dental office, or with the physical therapist, your unpaid account will likely go to collections within a matter of three to six months, impacting your credit and, therefore, your ability to get a home loan, to qualify for certain jobs, to get affordable car insurance, and even to get into certain apartments.

Debt Reduction Services Solutions

If you or someone you love and care about has recently graduated from college, consider taking advantage of our free webinars to brush up on or polish off your financial skills and knowledge. Topics include savings, household budgeting, establishing a financial vision, shopping and spending strategies, spending personalities, as well as relationships and money. Additionally, if you have attempted to work out a more affordable repayment plan with your student loan service providers but feel like you are not getting the answers you need, please consider our student loan counseling service.

Links/Resources

  1. American Education Services
  2. Federal Loan Servicing
  3. Federal Student Aid repayment options (US Department of Education)
  4. IRS Tax Benefits for Education
  5. Sallie Mae
  6. SALT Money Financial Education (by American Student Assistance)
  7. Student loan servicers list
  8. US Department of Education

Debt Reduction Services Programs:

  1. Bankruptcy Certificate Counseling and Education
  2. Debt Management and Budget Counseling
  3. Free webinars
  4. Student Loan Counseling

Articles:

  1. Forbes: Priceless Financial Advice for Recent Graduates
  2. Time: New College Grads Could Be Looking at the Highest Starting Salaries Ever
  3. Work It: What Are the Hardest Challenges Facing College Graduates?

Books:

  1. Cary Siegel: Why Didn’t They Teach Me This in School? 99 Personal Money Management Principles to Live By
  2. Kimberly Palmer: Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back
  3. Todd Christensen: Everyday Money for Everyday People

Credit Reports (Free):

  1. AnnualCreditReport.com

Educational Credit Score (Free, but not used by lenders)

  1. Credit.com
  2. CreditKarma.com
  3. CreditSesame.com
  4. My.Bankrate.com
  5. NerdWallet.com
  6. Quizzle.com