December 5, 2019
College Graduates Cope with Money
College upperclassmen and recent graduates have a lot on their minds. One thing they don’t always like to think too hard about is money.
But Maggie Germano, a financial coach, encourages them to get things out in the open and talk about it. At a recent personal finance session here at Boston College, she answered students’ questions about their credit ratings, student loans, and how to avoid spending money they do not have.
Here are the five best tips from Germano, a 2009 graduate of the State University of New York in Fredonia. She now lives in Washington D.C.
Pay attention. The first step to getting control of one’s finances is to pay attention to them, she said. Not dealing with credit card bills and student loan statements doesn’t make the problems go away. “The opposite is true: the more you pay attention, the more in control you’ll be,” she said.
Get a credit rating – or fix it. The key is to have a credit card but use it judiciously. Germano advises young adults to get what’s known as a secured credit card with a low spending limit – say $500. Secured credit cards typically require users to put up a cash deposit. To slowly establish a sound credit history, spend no more than 30 percent of the card’s limit and pay it off at the end of each month.
Student loans are hard work. Germano said that, after she graduated, her rent and student loan payments equaled all of her income. She signed up for the federal government’s income-based repayment program. In this program, the government reduces the payments to reflect the low incomes many recent graduates are earning at the start of their careers. Germano said she paid off her $26,000 loan balance off about four years ago.
The secret to not overspending. She learned this trick from a client. Set up two separate checking accounts. One account is for paying monthly bills – rent, Netflix, electricity – and the payments are deducted automatically. For all other spending, use a second account with a debit card and “don’t touch” the money in the first account. Using a debit card for discretionary expenses makes it easy to keep track of how much is left to spend each month – maybe it’s better to walk than take another Uber.
“It’s very human to want new things, be social, and spend money you’ve never had before,” she said. So put “systems into place that will prevent [that] from getting out of control.” …Learn More
September 19, 2019
Many Demands on Middle Class Paychecks
Ask middle-class Americans how they’re doing, and you’ll often get the same answer: there are still too many demands on my paycheck.
Several recent surveys reach this conclusion, even though wages have been rising consistently at a time of low inflation.
Student loans trump 401(k)s. Two top financial priorities are in conflict: student loan payments, which people described as a “burden,” and saving for retirement, which they viewed as “important” in a TIAA-MIT AgeLab survey.
The debt seems to be winning: three out of four adults paying off student loans say they would like to increase how much they save for retirement but can’t do it until their loans are paid off – and that can take years. One woman described her loans as “draining” her finances.
A promising sign on the horizon is that some employers are finding creative ways to help employees pay down college debt, giving them more leeway to save money in their 401(k)s. But these efforts impact a small number of workers, and the amount of debt continues to rise year after year for every age group, from new graduates to baby boomers who helped send their children and grandchildren to college, a Prudential study found.
Buying a house isn’t an option. The good news is that about half of Millennials already own a home. Most of the others want to buy a house but can’t afford it, 20- and 30-somethings told LendEdu in a survey. Their top reasons were student loan and credit card payments and a lack of savings, which is the flip side of having too much debt.
Millennials are also putting off other goals until they get a house – marriage, children, even pets. “It’s quite obvious that this uphill battle” and debt “is having secondary effects,” said LendEdu’s Michael Brown.
Medical debt looms large. Americans borrowed $88 billion last year to pay their hospital, doctor, and lab bills. That debt fell hardest on the 3 million people who owe more than $10,000, according to an estimate by the Gallup polling company and a group of healthcare non-profits. …Learn More
July 25, 2019
1 of 3 in Bankruptcy Have College Debt
One thing bankruptcy won’t fix is college debt, which – in contrast to credit cards – can’t usually be discharged by the courts.
One in three low-income people who have filed for bankruptcy protection from their creditors have student loans and face this predicament, according to LendEdu, a financial website.
The debt relief they can get from the courts is very limited, because the aggregate value of their non-dischargeable college loans is almost equal in value to all of their other debts combined, including credit cards, medical bills, and car loans.
Under these circumstances, a bankruptcy filing “does not sound like a financial restart,” said Mike Brown, a LendEdu blogger.
Although LendEdu analyzed data for low-income bankruptcy filers, the court’s inflexibility around student loans affects a wider swath of college-educated bankruptcy filers.
In the past, individuals were permitted to use bankruptcy to reduce their college loans. But in 1998, Congress eliminated that option unless borrowers could show they were under “undue hardship,” a legal standard that is notoriously difficult to satisfy.
While the legal requirement hasn’t changed since 1998, paying for college has become far more onerous. Americans today owe nearly $1.6 trillion in student debt, which ranks second only to outstanding mortgages. …Learn More
July 16, 2019
Spotlight on Our Research, Aug. 1-2
Topics for this year’s Retirement and Disability Research Consortium meeting include the opioid crisis, retirement wealth inequality over several decades, trends in Social Security’s disability program, and the impacts of payday loans, college debt, and mortgages on household finances.
Researchers from around the country will present their findings at the annual meeting in Washington, D.C. Anyone with an interest in retirement and disability policy is welcome. Registration will be open through Monday, July 29. For those unable to attend, the event will be live-streamed. The agenda lists all of the studies.
Here are a few:
- Why are 401(k)/IRA Balances Substantially Below Potential?
- The Impacts of Payday Loan Use on the Financial Well-being of OASDI and SSI Beneficiaries
- The Causes and Consequences of State Variation in Healthcare Spending for Individuals with Disabilities
- Forecasting Survival by Socioeconomic Status and Implications for Social Security Benefits
- What is the Extent of Opioid Use among Disability Applicants? …
June 6, 2019
Class of 2019: Low Rent Key to Survival
The first and arguably most important decision a new graduate will make is how much to pay for rent.
If it’s too high, the rent – on top of those annoying student loans – will push out other priorities necessary to prevent financial trouble down the road.
Rick Epple, a certified financial planner in Minnesota’s Twin Cities area, counsels his daughter’s friends and clients’ children entering the labor force to keep their rent at around 20 percent of their income.
“Nobody ever talks about what they should spend,” he said. He worries about young adults who pay a third of their income – the standard recommendation – for an apartment. If the rent blows a hole in the budget, paying student loans every month and on time becomes a much bigger challenge.
A paycheck, Epple said, “just goes quick.”
A manageable rental payment also leaves room to prepare for the inevitable unexpected expense – and, yes, retirement. …Learn More
May 23, 2019
Student Loan Payments Linked to 401ks
Abbott employee Harvir Humpal
Student loans or the 401(k)?
Young adults have a tough time finding the money for both. Unless they work for Abbott Laboratories.
Employees who put at least 2 percent of their income toward student loan payments will qualify for Abbott’s
5 percent contribution to their 401(k) account – without the worker having to put his own money into the 401(k).
From the company’s point of view, it’s an innovative recruitment tool – and it worked for Harvir Humpal, a 2018 biomedical engineering graduate of the California Polytechnic State University in San Luis Obispo. He joined Abbott’s northern California office in February.
Humpal said his student loans weighed on him after graduation. “It’s very empowering that Abbott is willing to tackle an issue that’s near to my heart,” said the 24-year-old, who works on medical devices used in heart transplants.
He estimates he will pay off his $60,000 student loans about four years early and save $7,000 in interest – without completely sacrificing his retirement savings.
As the cost of college continues to rise and U.S. student loan balances hit $1.5 trillion, an increase in the number of private and even government employers offering student loan assistance is a response to the growing financial burden. An Abbott survey found that 87 percent of college students and 2019 graduates want to find an employer offering student loan relief.
The magnitude of the problem “forces us to focus on our employees’ greatest needs and how we, as an employer, can help them,” said Mary Moreland, an Abbott vice president of compensation and benefits. …Learn More
March 7, 2019
Graduates’ Pay Ranked for 1,650 Colleges
Decisions about which college to attend or degree to pursue are increasingly driven at least in part by this consideration: will I be able to pay back my student loans?
Countless things determine how much someone earns – smarts, rich or poor parents, high school or graduate degree, being in the right place at the right time. But LendEdu’s new ranking of starting salaries for graduates with bachelor’s degrees from some 1,650 U.S. colleges is essential information, especially when debt is the only option to finance college.
A degree is almost always worth the investment. Georgetown University estimates workers with a bachelor’s degree earn $1 million more over their lifetime than high school graduates. Post-secondary degrees have even bigger payoffs.
The salary rankings turned up some useful and quirky findings. LendEdu, a personal finance website for consumers that sells advertising to financial firms, compiled the salary data for the first five years of employment from payscale.com surveys.
- Ever hear of Harvey Mudd College? The typical recent graduate of this engineering school 40 miles west of Los Angeles earns a bit more ($85,600) than an MIT graduate ($83,600). Harvey Mudd is Silicon Valley’s No. 2 feeder school.
- Graduates overestimate what a degree is worth. The typical college student expects to earn $60,000 but earns only $48,400 in the work world. …