Photo (cc) by Beraldo Leal
Stacy Johnson answers readers’ questions every Friday. Have a question?
Q. My only child will graduate from college in less than three months, and she seems a lot less worried about that than I am. She’s a finance major with a 4.0 grade point average, which should help her find a job. But the economy is so bad right now, I’m not sure what her salary and benefits will be. And she has a lot of student loans to start paying back right away, plus some credit card debt. What should she be doing now to prepare for the Real World? And what should this fretful mom be doing? – Anna in Florida
Don’t fret, Mom. At least she’s graduating with perfect grades and a career that could take her places. Generally speaking, your daughter and her fellow graduates will make less than their pre-recession peers – but finance majors actually got a tiny bump in salaries this year, according to statistics. Here are the specifics for you: 2010 Grads Seeing Lower Salaries.
More troubling is that your daughter will graduate with debt. But don’t worry too much, at least about the student loans – she probably won’t have to start making payments until 6 months after graduation. And if she finds herself unemployed or “under-employed”, there are new rules governing student loans that might take some of the pressure off.
One example: most type of student loans taken out by the student – not the parent – are eligible for what’s called income-based repayment. That includes Stafford, Grad Plus, Federal Consolidation (if they don’t include any Parent Plus loans) and Perkins loans if consolidated to a FEEL or Direct Loan program.
If she qualifies, her monthly payments will be capped at 15% of her income. The income-based repayment plan will also forgive any remaining debt after 25 years of qualifying payments. To learn more about that plan, visit this page of Sallie Mae’s website. There are also programs for graduated repayment (payments start small, then increase over time) and extended payment (repay loans over up to 25 years rather than the normal 10.) In short, there are lots of people sharing the same circumstances as your daughter, and there are a lot of student loan programs to accommodate them.
As soon as she gets a job, her focus should definitely be on paying off her credit card debt – there are a lot fewer programs available to help with that, and the interest rate she’s paying is probably far in excess of the rate on her student loans.
For some recent stories we’ve done concerning college grads and money, check out Money Advice for Recent Grads and the video Tips to Help Recent Grads Build Credit. If she learns this stuff now and follows that advice later, she’ll be on her way to debt-free living.
Finally, remember that the law changed this year and you can keep your daughter on your health insurance until she’s 26. So if she does have trouble finding work right away, you can keep her covered: check out A Healthy Gift for the Class of 2010.
Good luck to you and your daughter!
Q. The big news these days is all about the Bush tax cuts. Will the Democrats win and get rid of some of the cuts? Will the Republicans win and keep all of them? But all I really care about is me and my family. My wife and I make just under $100,000 a year. My younger brother makes $34,000 a year. What should we be hoping for? I know one thing: I can’t afford higher taxes. I still owe the IRS back taxes! – Jerome in Vermont
We broke down this very topic back in July, because I knew a big political battle was brewing. Check out “Uncle Sam Could Hike Taxes by Allowing Bush Tax Breaks to Expire.” We’re also planning on doing an update shortly.
Basically, you, your wife and your brother won’t have much to worry about – at least in the most likely scenario. Odds are good that the Bush tax cuts will live on through the end of the year – their scheduled expiration date. Right now, the only real argument is whether to extend the cuts to those the government considers “rich”: people who have taxable income exceeding $200,000 single, $250,000 for a joint return. Both political parties want to preserve today’s lower taxes for everyone else: with the economy so weak, this is no time to raise taxes.
As far as the back taxes, settle them! Here are “9 Tips to Help.”