Millions of college students graduate each year. It is the time when students wear broad smiles on their faces with degrees in their hands. It is one of the biggest achievements of their life that they feel proud to hang up on their walls, to let their relatives and the home comers to see.
However, that moment of glory is short-lived as the sudden realization falls in; the repayment of the student loans which have been amassed during the educational ‘joy-ride’. Hence, often times after graduation plans need to be short-cut.
It is the time when students enter into the practical world and face the bitter realities of life, after spending considerable time into fun and entertainment.
However, not everything is as bad as it seems. Let’s understand the current debt situation and how college ‘grads’ can work their way around it.
Understanding the debt issue:
Student Debt
Students loans are the monetary allowances granted to the college students for meeting their college expenses. After the end of the college life, it gets necessary for the graduate to return back the given loan to the Government, the loan lending body.
Over the time, ‘student debt’, has emerged as an important debate topic. A lot is and can be heard about it and, has become quite a normal practice in the society.
The student debt levels have spiraled out wildly during the past few years. The organizations are hence devising the new policies to take a control over the grant of the loans. Sources in US claim that student debt loans have surpassed the $1 trillion mark. It comes as no surprise that the student debt crisis is an important matter, which demands immediate attention.
Money Management
When it comes to managing finances, most college graduates are not good at it! Given the party lifestyle at colleges, no wonder many graduates fail at this important characteristic of living; that is managing your expenses!
However, there are several ways, through which the college graduates can control their financial cash flows to reduce the crippling debt burden.
Money Basics
Read up the texts that teach various financial management techniques. Various books are available in the market to help the college graduates to exercise the management control over their monetary income. Even after spending considerable time in college, graduates can develop strategies, which are beneficial to save up money.
Budgeting
Chalk out a budget plan after the income tax. Calculate the essential needs such as rent, utilities, and several other expenses. Cut down spending on the unnecessary items. Then come up with a certain consistent amount from your income that can be contributed towards repayment. Remember consistent discipline is a great virtue!
Don’t Get a Job, Get the Jobs
Finding work may or may not be difficult for the college graduates. It depends mostly on the state of the job market. College graduates should start looking for jobs immediately. College students are young and energetic; hence, they should utilize the extra energy and take overtime jobs. Getting a two-day job can be a source for you to save the income to pay for your loan!
Open a ROTH IRA/ROTH 401(K)
Opening up a ROTH IRA or ROTH 401(K) can be highly beneficial to you, due to its various features. They are highly important for the college graduates, after they have found the job. ROTH helps greatly in saving and keeping more. The money invested in ROTH IRA and 401(K) is taxed already, with increase over the time, until retirement. Furthermore, withdrawals made from ROTH IRA and ROTH 401(K) are not tax-penalized. Hence, the college graduates are advised to invest in stocks and mutual funds.
Invest in Index Fund
Index funds are a good pick to invest money. College graduates should stick to longer term low index funds. Index funds are either in Exchange Traded Funds (ETF’s) or mutual funds, which track indexes such as S&P 500. Index funds can help college students in investing in the most profitable manner for their money to grow.
Invest in the Stock Market
Investing in the stock market can be an easy option. Many college graduates are usually familiar with this financial instrument. College students should get themselves familiar with the workings of the stock market; understand the trends in the market, make themselves aware of potential opportunities and possible dips in the market. Investments should be in a diversified portfolio to make sure that risk is minimized. Stock markets can help college students in disciplining them in money management, as it constantly requires them to be on their toes 24/7.
The Current Situation in America
Well, it is not a pretty that is for sure. A study conducted of 750-college graduates’ show that the average student faces around $35,200 in college-debt. This includes student loans, increasing credit card bills, money owed to family members and other financial means. Sources such as the Consumer Financial Protection Bureau claims that the current student debt levels have reached a new milestone – crossing the $1.2 Trillion mark. This puts student loans just below mortgage debt levels on the ranking of the highest consumer debt balances.
The consequences of such a huge debt balance are massive. The US government backs many of these loans through banks such as Sallie Mae and the department of Education. If students default on their loans, the taxpayer will face the ultimate burden of this whole credit bubble.
Dr. Sadaf Ajmal
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