June 2011 Archives

For students, the post-college months can be some of the most awkward in life. Expectations are high for an instant career and adult life. But reality? Maybe months at home looking for a job.

As a parent, it's not an easy time for you, either. The kid you tearfully packed off to college a few thousand dollars ago is now back on your couch, in your fridge, and keeping you up at night.

So parents, what's your post-college role? If you're ready for the nest to be empty again—and not sure how to go about it—here are some thoughts:

Raise expectations. This isn't high school anymore. Your live-in graduate should be taking on some adult-level responsibilities around the house: lawn-mowing, cleaning, laundry, running errands. Another adult around the house should mean less work for all, not more.

Set some timelines. There's no need to be harsh, but if your grad doesn't seem to have a sense of urgency about finding a full-time job and getting out on their own, you can help create one. It's not like you have to put them on the street in six months, but you can start setting deadlines for financial dependence. For example, they have to take on her own cell phone payments in three months, car insurance payments in six months. Try to keep the conversation positive—you're not cutting them off, just gradually steering them toward independence that they'll enjoy.

Remind them you're not a roommate. Let's face it: The hours a 20-something keeps can be hard on parents. They're used to coming and going at any time of night. You're used to worrying about them. If you can't sleep for worrying when they don't come home, have them call or text. That's simple courtesy among fellow adults (and one little annoyance that will disappear for both of you when they're out on their own).

Understand their emotions. If your grad seems moody or down, remember the limbo they're in can be disconcerting. Eighteen years after my graduation, I can acutely remember how hard that first year out of college was. I wanted independence but was struggling to get there. All the confidence I had in college was diminished in the face of the real world. Remember to lend your grad emotional support, even as you guide them toward independence.

Parents, if your college grad has moved back home, let us know how it's going! Got any insights to share?

Through my years working in college admissions and student lending, I've heard many experts talk about financial education for children and young adults. Each expert seems to have their own method for parents to teach their kids about money.

Some take the tough love, old school approach: You want something? You buy it with your own money. Some push a more philosophical approach, telling kids to divide their money into three categories of "spend, save, and give." But most agree it's best to start talking to your kids about money management as soon as possible.

Different methods work for different families—there's no one right way for all parents and all situations—so here are some of my favorite tips for you to consider that might work for you:

• Look in the mirror. Can you honestly say that you manage your money well? Getting your own financial house in order is the best way to teach by example. Do you have a savings account? What about a college savings account? Do bills get paid on time and in full? Do creditors ever call the house? Children take cues from you on how you spend and save money. They're listening and watching and most likely will end up modeling your behavior.
• Use day-to-day situations. Especially for younger kids, it's helpful to explain situations as they come up. Turn off lights (Why? To lower the energy bill.). Putting gas into your vehicle, do you pay with cash (immediate payment) or a credit card (delayed payment)? How much will it take to rent a cabin this summer, and how will you save for it? The list is endless. Take a moment to share with your child the choices that have to be made on where and when and how to spend money.
• Keep it simple. Using age appropriate examples are key to the process. If you find yourself looking at glazed eyes, it might be time to go more elementary. No kid wants to hear about adjustable-rate mortgages.
• Understand your influence. It's easy to blame television, the internet, and their peers. We are a consumerist culture. Making good financial decisions isn't always easy. Children look up to responsible adults. By reinforcing good behaviors you can overcome the other distractions.
• No is OK. Sometimes you need to say no. No is an opportunity to explain your money values. For example, "It's too expensive," "You need to save for it on your own," or "Is this something you need or is this something you want because the difference is important."
• Be consistent. Parents need to work together to be consistent on how they handle money and financial education around children.

Teaching children to be money savvy is a lifelong process. Working on it when they are young can be worth the investment. I hope I'm right because somebody needs to take care of me when I'm an old man!

What do you think? Do you have any tips for teaching your kids about managing money? Share them with us!

Editor's Note: In our next few posts, we're talking to all the parents out there. Whether you've got a child who's planning for college, finishing college, or learning money management, these posts are for you! (—Barbara)

Years ago, it was common for students to plan and pay for college on their own. Twenty-plus years ago, I handled both aspects myself, as did most of my friends.

Today, parents like me are often more involved with the process. When it was time for my step-daughter to head off to college, her dad and I were very involved in both planning and paying for her education.

What about you? Answer our poll and let us know what part you play in planning and paying for college.

Last week Barbara shared this article with me, and I have to say, it made my jaw drop.

In a nutshell, a new study is showing that young adults are feeling empowered by their credit card and education debt. The study reveals that the more credit card and education debt held by these 18-27 year olds, the higher their self-esteem and the more they felt in-control of their lives. The kicker? These feelings were the strongest among those in the lowest economic class.

I'm surprised because I felt the exact opposite way in college. I was getting by on a patchwork of loans, grants, scholarships, and work-study. "In-control" was hardly how I would have described my feelings—slightly panicked and wholly focused on finishing in four years is more like it. I had no credit card debt to speak of (which wasn't uncommon in the early 1990s).

And I have to say, back then most of my friends who were borrowing money for college felt the same way I did.

Another interesting finding is that the oldest of those in the study (age 28-34) were the only ones who were beginning to show some stress about their debt levels. Again, this is the opposite of how things went for me. By my late 20s, I was feeling very relaxed and confident about my ability to pay off my loans. I was starting to see the light at the end of the tunnel by then, and my earning power was increasing.

So, what gives? What do you think about this study? Can you relate?

We've just talked about the differences between fixed interest rates and variable interest rates. So when you're deciding which type of rate to go with, what does it all boil down to?

Your choice.

There are benefits to both types of interest rate, so in the end what really matters is how comfortable you are with each of the options. Let's run through a couple scenarios that may help you better understand which is a better fit for you…

How would you feel if:

• You took a fixed interest rate loan and variable interest rates went higher than your rate?
• You took a variable interest rate loan and your rate stayed lower than the fixed interest rate you could have chosen?
• You took a fixed interest rate loan and variable interest rates stayed lower than your rate?
• You took a variable interest rate loan and your rate went higher than the fixed interest rate you could have chosen?

Clearly the first two are better scenarios than the second two. The point is that either way you go there is a risk that the alternate situation will happen.

Sometimes the numbers can really help solidify your opinion. Here's the mathy part: Take these two borrowers who each need to borrow $10,000 for college. Borrower A chooses a fixed interest rate loan at 10%. Borrower B chooses a variable interest rate loan that starts at 6% (a Prime Rate of 5% plus a 1% margin). For my example I'm using a 10 year repayment period and assuming the students paid off any interest that accrued while they were in school (smart borrowers!).

There are a couple things to remember in these examples: First, the history of Prime Rate is something you want to take into consideration. In the examples above, I used changes based on what we’ve seen the past few years. I used a small change with .25% and a larger change with 1%.

However, you should note that there are points in history where the Prime Rate has jumped higher than our examples (it was over 20% at one point in the 1980s), but the average for the past 15 years is 7.3%. Second, remember that the rate may not fluctuate so consistently like in the examples—it might go up, then down, then up again. I just wanted to give you something tangible to ponder.

Fixed or variable is one choice that really depends on your own need for stability and willingness to take risk. Not everyone is the same in those two categories, so there's not a general recommendation on which is better.

Have questions about fixed or variable interest rates? Ask us! We're here to help.

When you're shopping for a student loan you need to consider a lot of elements—like repayment term, deferment options, disbursement, etc.—but usually the biggest factor is interest rate.

The interest rate is essentially the cost of the loan. It's a percentage that lenders charge customers when they borrow money. Depending on the type of loan, that percentage may be fixed (and remain the same over the life of the loan) or variable (and change over the life of the loan based on the changes in an index rate).

Wells Fargo offers both options on some of our private student loans. Each option has its own advantages, so ultimately it's what makes the most sense for you that matters. Let's look at the differences and chart it out:

Okay, so those are the basics. If you want to get an idea of what the fixed interest rate range is in comparison to the variable interest rate range, check out the rates by product.

I'm going to dive a bit deeper in my next post, so stay tuned! In the meantime, what questions do you have about the differences?

Remember how I talked about career evaluation a while back? Well it's kept me thinking about evaluation and getting to know yourself and your potential.

Go figure, my gal, Kerri Miller, talked with some folks just last week about aptitude testing. And that got the noodle cooking even more. If you have a second, please take a listen to some of the folks who call in with both positive and negative experiences with aptitude testing.

Aptitude is really more about what you're good at—think inherent talents. Here's the definition (according to a right click and "Look up" in Microsoft Word):

1. Potential to acquire skill – A natural tendency to do something well, especially one that can be further developed
2. Quickness in learning – Quickness and ease in learning

These are the things that you're able to build upon and take with you from one job to another. Remember: You'll probably change jobs, places of employment and maybe even careers many times throughout your lives.

I've learned a couple of my own transferable skills through a bit of trial and error in the workforce. But I've also had the chance to define my strengths through the Clifton StrengthsFinder™. It gives you your top five themes.

One of my strengths I use in this part of my job is Developer®. I love having conversations with you about managing your money and paying off debt. And it makes me so happy when you all take the initiative to understand your situation and take control of your finances! Collective Waaah hooo for the group!

When you know what your strengths are, the next step is generally to think about how they can combine with the things you are passionate about. That's the ideal combination: Something you're good at combined with something you are passionate about. (Like possibly helping people and developing money smarts! )

So let me ask: Have any of you explored or actually taken any aptitude tests?

When you're fresh out of high school or college, folks are usually pretty eager to reminisce and give you their two cents—there are even a few pennies that should be kept to themselves, right, college grads?

Well after five years here at the Student LoanDown, we've heard lots of stories from recent grads—both from high school and college—that have given us some perspective on what's important once you have that piece of paper. So a few of us would like to give you some unsolicited words of wisdom, some thought provoking, some practical. Take 'em or leave 'em.

High School Graduates: As much as you want to relax and enjoy your last summer before college, be sure to carve out some time to mentally prepare for college. Use these few months to take on some of the responsibility you'll have on campus: Think time management, budgeting, and accountability.
College Graduates: Don't get frustrated. Reality rarely matches up with your post-college plan. Take a deep breath and try to learn from your situation. And just to perpetuate clichéd advice, I'll end with a quote from Joseph Campbell: "We must be willing to let go of the life we planned so as to have the life that is waiting for us."

High School Graduates: Take some time to reflect on your high school career. For most students starting college means a clean slate. Continue to reinforce your strengths and recognize where you can do better.
College Graduates: Your first job is about gaining experience, not money. Once you have gained some credibility and skill the pay and benefits will come. And, if it sounds too good to be true ... it is.

High School Graduates: You're one step closer to adulthood! Whether or not you're headed to college, use this time to think about what you want your life to be about, write it down, and make it happen. Try to gain some experience and talk to people who do whatever it is you want to pursue. Remember you can do whatever you put your mind to!
College Graduates: Be proud of your accomplishment but don't be satisfied. Continue to push yourself to make your life what you want it to be and make learning a lifelong pursuit.

High School Graduates: Be proactive. Try to test out of as many college courses as possible and set a plan to maximize your time on campus.
College Graduates: Seek a mentor or two to guide you during a post-college internship or job. That will help you learn and grow in your position and set up a path for your career.

Any readers out there have any advice to share?

When you get to the end of high school, you've probably spent days, weeks, even months contemplating your next move. Which is...?

Whether you're moving out or just moving to the basement, make sure you don't leave yourself unprotected. Here are some things to think about:

What happens if you get sick? Mom might not be around to bring you soup and ginger ale, but your family's health insurance plan probably covers you until age 26 under the recent health care reform regardless of if you are a full-time student or not. Be sure to check your parent's policy for details. Personally, I took advantage of the health care plans offered by the U of M and the University of St. Thomas while attending grad school and travel insurance while in transit between countries.

Staying at home? In the Indian culture, children are actually expected to stay at home while attending school so for me it wasn't even an issue. You may have to follow your parents' rules, but you can also take advantage of their homeowners policy, which will cover your personal belongings, no matter your age. Some policies may limit the amount of coverage on certain items (e.g., your high-tech stereo or state of the art computer system) so check with your parents to see if there are any such limits.

Moving out? Whether you'll be solo in a new apartment, sharing a house with three roommates, or a dorm with hundreds of co-eds, you'll want to protect your stuff with a renters insurance policy. This also covers you from being liable in the event someone is injured at your place and you're now responsible for their medical costs.

How are you getting to class? Now, if you drive your parents' car (lucky you!) then you're also eligible to remain on their auto insurance policy. But let's talk about that new car you got for graduation. ( You did get one, didn't you?) Most insurance companies will require you to buy your own policy, even if you still live at home. What's even worse is that drivers under the age of 25 pay higher premiums because they're in a higher risk category. But study hard and you may be eligible for discounts of up to 10 percent if you have a GPA of 3.0 or higher.

Or just do what I did: Take the bus.