Congress is cutting it close. A 2007 law that kept federally subsidized Stafford loan interest rates low expires July 1, if Congress doesn’t extend them. Interest rates on some 7.4 million student loans will double from 3.4 to 6.8 percent.
Recent research from Accounting Principals highlights why there should be a sense of urgency for Congress to take action.
“Students are graduating with debt that almost equals their starting salary. Our survey found that on average students with some form of debt owe $27,029 in student loans and $12,742 in other debt (such as credit card debt). However, more than 65 percent of recent grads earned $45,000 or less at their first job after college,” says Jodi Chavez, senior vice president at Accounting Principals. “College grads said that if they knew in college what they know now about the cost of living, nearly a third would have actively pursued more scholarships and financial aid options, pursued a different major that would have led to a job with a higher salary (31 percent), or gotten a job while in college and started saving earlier, (31 percent).”
Less than one in five said they were able to afford the necessities listed on the survey – groceries, rent, cell phone, car and student loan repayment. “It’s unfortunate to see a vast majority of educated young adults unable to afford all of these basis needs. It’s also interesting to learn that men were in much more debt than women. On average, male recent grads owe 28 percent more in student loans than female recent grads ($30,508 vs. $23,892, respectively).
The survey, like countless others, shows that the financial on 20-somethings is so serious that many are failing to launch into adulthood. “Their mounting debt combined with the lackluster economy can put these graduates ad a disadvantage when starting their ‘adult lives’. This is a generation that will start families later, purchase property later, and ultimately, may have to retire later,” says Chavez.
While nearly 80 percent of those polled know the payment dates of their student loans, the amount they owe (73 percent) and their interest rate (71 percent), many are clueless about their student loans. More than half don’t know the implications of defaulting on their loan and 60 percent said they didn’t know the number of payments they have until their loan is completed.
WHAT TO DO NOW?
For those who are still in college, Chavez urges students to think about their college major carefully and to choose professions that are in need of talent such as engineering and IT or corporate finance and accounting. “While a college major does not determine your career path, choosing a major that is aligned with today’s in-demand jobs can give you a leg up in selling your skills to a prospective employer. Being in a growing field also means that you’ll have a better chance of negotiating a higher starting salary to give you the financial footing you need to start life in the real world,” says Chavez. Prior job experience helps strengthen a resume. Make the most of your time time between semesters to take on internships, she says.
For those who have the luxury of having a job, make that paycheck last by taking advantage of the many free, online budgeting tools. “Working Americans spend up to $3,000 on coffee and lunch in a given year! Contribute to that 401(k), even if it’s a small amount. Many companies will offer a match – that’s free money you should not leave on the table.”
If you’re still looking for work, consider a recruiter. A recruiter can help coach you on your interviewing skills, help polish your resume and connect you with the right opportunities. Don’t dismiss the idea of temporary work. Says Chavez, “A smaller paycheck is better than no paycheck, especially if you have student loans to pay. A temporary job can turn into a permanent position.”