Are this year’s college grads ready for “real-world” personal-finance challenges?
USA Funds invites class of 2007 to take financial-fitness final exam
INDIANAPOLIS — As members of the class of 2007 prepare to conclude their college days, USA Funds®, the nation’s leading education-loan guarantor, suggests they take one more final exam to assess their personal-financial fitness. Answers to the following four questions will help soon-to-be graduates test their readiness for the financial rigors of “life after college.” The answers are drawn from USA Funds Life Skills®, a financial-literacy program used by more than 500 colleges, universities and career schools to teach their students sound money-management and time-management practices.
Do you know what your starting take-home pay will be?
Graduates will have to live on significantly less than the starting salaries that they negotiated with their first employers. Federal, state and local taxes; contributions to Social Security and Medicare; deductions for employer-provided health insurance, retirement-savings programs and charitable contributions will shrink their paychecks. Soon-to-be graduates should estimate their take-home pay, so they have a better idea of how much income they actually will have available to pay living expenses.
Have you made a budget for life after college?
Students who have been following a budget while in college should simply revise and reprioritize their income and expense categories. For example, room and board, textbook costs and activity fees incurred while in college will be replaced with rent, utilities and groceries; job-related expenses; and entertainment costs following graduation. In developing a budget, graduating students should consider “startup” costs associated with a new job or relocation. These costs may include utility hook-up fees, first and last months’ rent and security deposits on apartments, business attire, furniture and movers.
Have you estimated your student-loan payment?
The monthly payment on $19,300 in student-loan debt, the average for a bachelor’s-degree recipient, according to the National Center for Education Statistics, amounts to approximately $222. Graduating students should use a free online loan-repayment calculator, such as the ones on the USA Funds Web site, to estimate their student-loan payments. Fortunately, graduates with Federal Stafford loans, the most-common federal student loan, will have a grace period of six months before that first payment is due.
What are the options if you can’t afford your student-loan payment?
Graduating students who discover that their estimated student-loan payments will exceed 8 to 10 percent of their gross monthly incomes should explore one of the flexible repayment options. For example, a student who owes $19,300 could stretch payments over 15 years, rather than the standard 10 years, and lower the monthly payment to $172 through loan consolidation. Alternatively, the student could reduce the initial years’ monthly payments to $109 by selecting the graduated-repayment option. The downside is that these options will result in higher total interest costs. Graduates who have not yet landed that first job or who face other financial hardships specified by federal law when that first student-loan payment comes due may qualify to defer their payments by filing the necessary paperwork with their lender. In addition, former students with payment problems may appeal to their lender for forbearance to temporarily delay or reduce their payments. These options are explained in more detail on the USA Funds Web site.
Each year, USA Funds distributes more than 170,000 free copies of USA Funds Life Skills financial-literacy materials to campuses nationwide as part of its commitment to promoting successful student-loan repayment and preventing student-loan default.