Graduates: Get ready for real-life money woes


Days away from graduating and University of Maryland senior Matthew Leedham is embarking on a financial education.

As he waits for a job offer, he's mulling over his $4,000 credit-card debt, a car lease that expires in January and rent in the Washington suburbs that will be at least double the $300 he pays now. On top of that, his parents told him his health insurance expires soon.

His problems will be solved if he gets a sales job with Philip Morris Cos. that will pay him nearly 40 grand and provide a company car, said the 21-year-old sociology major. "Let's pray I get this job."

Colleges will churn out thousands of graduates this month, and for some, like Leedham, the financial realities of the real world are quickly setting in. Some schools try to prepare seniors for this by offering seminars on money management.

College officials and financial experts say these are some of the issues facing new grads and their parents:

Insurance: Once students receive a diploma, they often are dropped from their parents' health insurance policy. Grads need to buy interim coverage for the time between graduation and when health benefits kick in with their new employers, experts said.

Some colleges offer temporary health coverage for graduates, and seniors should check to see if such benefits are available to them, experts said.

New grads also may be eligible to extend their parents' coverage under COBRA for up to 18 months, said Harriett Hankin, an employee benefits consultant in Malvern, Pa."But that's an expensive way to go," Hankin said, adding that grads are better off getting onto an employer's plan quickly.

New grads planning to travel abroad should make sure their health insurance covers them in foreign countries, experts said.

On the job, grads may be offered life and disability insurance. Life is nice, but disability is far more important to young adults who have no one dependent on their income but themselves, Hankin said.

If you're injured and unable to work for a prolonged period, long-term disability insurance often will pay 60 percent to 70 percent of your salary while you're laid up until age 65.

If they haven't done so, students should get their own car insurance policies, said Shaun Eddy, a Columbia financial planner.

Not only will this keep parents' insurance rates from skyrocketing if the child is in an accident, but it will prevent the other driver from going after the party with the deepest pockets - the parents, Eddy said.

The good news for parents is that their auto insurance premiums may be cut by up to two-thirds once a younger, higher-risk driver is off their policy, according to Independent Insurance Agents of America, a trade association.

New grads renting an apartment should also consider renters' insurance to help cover the cost of replacing possessions that are stolen or destroyed, advised Eddy.

Legal matters: New grads and their roommates need to realize that whoever's name is on the lease and utilities is liable for the bills, said Alma Ferro, associate director of the Career Center at the College of Notre Dame of Maryland.

Roommates may want to see if, say, a landlord will allow more than one name on the lease to spread the responsibility, she said.

Graduates with no job, no credit history or a poor record at paying bills may need parents to co-sign a car loan or apartment lease. If parents do this, they will be on the hook if the child reneges on payments.

"I would encourage parents to explore every alternative before co-signing," said Richard Flaherty, president of College Parents of America, a Washington association. "This is a time where you do want the student or new graduate to start establishing himself or herself as financially independent. If you do co-sign, you are holding up that process."

Among the alternatives to co-signing is for the graduate to take public transportation or buy an inexpensive used car instead of taking out a new-car loan, he said. Rather than leasing an apartment, graduates may have to return to the nest and look for work in their hometown.

Taxes: Who gets the tax deduction when young adults are supported by parents part of the year and self-supporting the rest?

Parents providing more than half of a child's cost of living for the year are entitled to take the deduction. "If a parent makes less than $250,000, it is almost always advantageous for the parent to claim the exemption," said Matthew Wagner, an Annapolis accountant.

For example, for parents in the 28 percent tax bracket, the deduction is worth $770 in real dollars compared with $412 for a child who is taxed at the 15 percent rate.

At incomes of $250,000 and above, parents lose the benefits of the exemptions and the child is better off claiming the deduction, he said.

Compensation: Salaries for new graduates this year range in the upper 20s for education and nonprofit jobs to the high 40s for technical work, said Mark Kenyon, program director of the University of Maryland's Career Center.

When negotiating a salary, graduates should compile a list of expenses, including future student loan payments, to figure out how much money they will need, experts said.

Don't forget to factor in benefits when weighing offers. "For a student married and with children, receiving a wonderful health package can offset a lower salary," Kenyon said.

Student loans: About half of college grads leave school with debt. Among those, graduates of public colleges owed on average $11,950 and their counterparts at private schools owed $14,290, according to the American Council on Education. Generally, student loan payments kick in six months after leaving school.

If graduates have extra cash, they should put it toward paying down the loan with the highest interest rate or the one that starts accumulating interest the earliest, recommended Deborah Voso, a Frederick financial planner whose daughter recently graduated from law school with about $45,000 in debt.

Those entering fields where companies are fiercely competing for workers should ask prospective employers if they would help pay student loans, Voso said.

Saving and investing: It's hard for new grads to consider saving with rent, a security deposit, new work clothes and student loans bearing down."It's never too soon to start planning [to save]. Even if it can only be $10," Ferro said.

Financial experts recommend that young workers participate in an employer's 401(k) plan, or a Roth Individual Retirement Account.

You can contact Eileen Ambrose at 410-332-6984 or by e-mail at

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