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You’re A College Graduate, Now What?

CESI Debt Solutions Provides Financial Advice for Unemployed Young Professionals

 

RALEIGH, N.C. – Feb. 11, 2010 – The financial forecast for the college class of 2010 is dismal. Most college graduates will have significant debt by the time they receive their diplomas, and they are entering a tight job market with unemployment reaching 9.7 percent in January.
“Many college graduates are starting their adult life in a financial hole,” said Neil Ellington, executive vice president, CESI Debt Solutions. “They have significant student loan and credit card debt from college, and they don’t have an income to begin paying off their debts.”
Ellington suggests that all college seniors sit down with parents or a financial advisor to put together a financial plan for life after college. Below are some tips for graduates facing the biggest financial challenge – no job.
 

Budget blues

“Many new graduates will wonder how they can write a budget if they don’t have a steady job,” said Ellington. “I tell them they need to write out a budget more than anyone else because most of them don’t have a financial cushion, a rainy day fund or any money to waste.”
Ellington suggests graduates make a list of all of their expenses such as car payments, phone, insurance, student loan payments and gas.
“After you add up your expenses, it’s time to think about what you can cut,” he said. “Do you really need unlimited texting on your phone plan? Can you drop the gym membership? How much are you spending on music downloads and entertainment?”
The next step, according to Ellington, is to start thinking about ways to make enough money to cover expenses. Many newly minted grads find themselves continuing to babysit, work in retail stores, and wait tables as they look for their first “real job.” Other ideas for making money while job hunting are offering services like cleaning houses, doing laundry, grocery shopping and dog walking to your parents’ friends and neighbors.
“A friend of mine’s daughter started a business handling household needs for busy career couples and families,” said Ellington. “She picked kids up from school, ran errands and ironed. She made enough money to stay afloat financially until she got a teaching job. Now she continues to help a few families in the summer.”
Also consider selling all of the stuff you no longer need – backpacks, old electronics, clothes and books – to make extra money.
Don’t forget the checks for graduation gifts.
“Your grandmother will be pleased to learn you are making responsible decisions when she receives your thank you note saying you put the money toward your car payment or a new job interview suit,” said Ellington.
 

Boomerang kids

With limited incomes, many new grads will move back home until they can find enough money to strike out on their own.
“No parent would say it’s ideal to have their 20-something return from college to live under their roof,” said Ellington. “Unfortunately, some young people have no choice.”
Ellington recommends that graduates and parents determine a reasonable amount of time for graduates to earn enough money to move into a rental property or purchase a place of their own.
“Children don’t want to live with their parents indefinitely – that arrangement will not make anyone happy,” he said. “Moving out and having the responsibility of monthly bills forces you to make smart decisions with your money.”
Some parents will request that grown children pay rent for living in their home. Others ask the graduate to pay rent, but actually put that money in a savings account so there is a nest-egg when the child moves out.
 

Debt is a four-letter word

“As soon as you have a regular pay check, start paying off college debt,” said Ellington.
College students who graduated in 2008 carried an average of $23,200 in student loan debt, according to the Project on Student Debt. It’s likely that this year’s graduates will have even more.
“Sadly, I have worked with clients who were still paying off their student loans when it was time to send their own kids to college,” said Ellington. “That’s not a position you want to find yourself in.”
Because graduates are faced with so many expenses as they try to establish an adult life, it’s easy to be lured into a “buy now, pay later” mentality of using credit cards.
“As you start out in the working world, you don’t want to rack up debt that could prevent you from getting a mortgage or a car loan down the road,” said Ellington. “If you choose to pay with plastic, pay off your credit card balance each month so you aren’t paying interest.”
Ellington also said that charge cards can be a good alternative to credit cards because they require you to pay off your balance each month.
“Charge cards are certainly better than credit cards, but cash is king if you want to stick to a budget,” said Ellington. “Take out the cash you know you can spend, and when it’s gone, you have to stop spending.”

Worst case scenario

“Health insurance absolutely must be included in your post graduation budget,” said Ellington. “Forgoing health insurance puts you one car accident or serious illness away from financial ruin. You must plan for the worst case scenario.”
Without having health insurance through an employer, it can be difficult for a recent graduate to afford the expense.
Here are some options Ellington recommends for graduates:
 
  • Know your rights – Check to make sure you are – in fact – no longer eligible to stay on your parents’ plan. The regulations differ from state to state, and some states allow parents to carry dependent children up to age 26 with certain restrictions. New Jersey has the highest limit at age 30. Your state’s insurance commissioner can provide this information and the Kaiser Family Foundation Web site also posts information on dependent coverage.
  • Research individual plans – Even if your parents can’t keep you on their plan, call their insurance company, let them know that your parents are customers, and ask what your options are for an individual plan. Shop around with other insurance companies to see who can offer you the best deal.
  • Consider COBRA –You can pay to stay on your parents’ insurance plan through COBRA laws. “COBRA can be expensive, but since you are only paying your premium, not the premium for the whole family, it might not be as pricey as you think,” said Ellington.
  • Short-term plans – These plans can work for new graduates who have a job, but need to wait a few months until they are eligible for their employer’s health benefits. “Short-term plans are less expensive and a good quick fix if you need coverage for six months,” said Ellington. “They are not the best solution for long-term coverage, because you are treated as a new client every six months, giving the insurance company the opportunity to refuse you when you reapply.”
  • Catastrophic coverage – As the name suggests, this coverage is intended for emergencies. The cost of buying catastrophic coverage can be lower than other options, but the deductibles are high – ranging from $500 to $5,000 – and they usually do not cover regular doctor visits and prescriptions. “This can be a good option for young, healthy people, but you need to make sure you have the money in the bank to pay the deductible if an accident happens,” said Ellington.
Ellington says young adults should also consider renter’s insurance if their belongings are not covered under a homeowner’s policy.
“Yes, I realize that renter’s insurance is another expense,” he said. “But imagine the cost of replacing your laptop, mobile phone and jewelry if someone breaks into your home or apartment.”
 

Welcome to the Real World

“There are a lot of aspects of being a new college graduate that are tough, and financial issues certainly are not the least of those,” said Ellington.
After four years of pre-paid meals, on-campus gyms and free Wi-Fi, the real world can be a shock to the wallet.
Ellington added, “If you can keep from getting deeper into debt, plan for health issues and other unknowns by buying insurance, and get creative about earning money so you can support yourself, I would say you are on your way to a successful financial life.”

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