Finance Choices
Has anyone seen my twenties?
Premature aging is spreading across the UK and is particularly prevalent amongst recent graduates in the UK who, upon leaving university, are plunged straight into fears about the property ladder, pensions and paying off their student debts. These young people graduate at the age of 21, do not pass go and head straight to 35, worrying about their personal finance investments before finding their feet in life.
These un-twentysomethings lifestyles can generally categorised within two extremes, either not going out at all because they have no money or going out and partying every Friday and Saturday night, because they feel directionless. Groups such as these may not seem particularly worrying, but many graduates are finding that they are working themselves to the bone by taking on two jobs and working seven days a week just to meet their bills. Some young graduates are known to even take on multiple jobs so they can bolster up their salary details for mortgage applications. By doing so, they commit themselves to a loan that can only be repaid through exhaustion.
These characteristics have been assigned to the emergence of the quarter-life crisis, but this epidemic of financial concern tends to be a problem for those who have been through higher education, rather than those who took full time employment straight after leaving school. This represents a worrying trend given the government encouragement for increased school leavers to attend university.
UK graduates find it particularly tough as they are often groomed to believe that they can get good salaries and corporate jobs. Yet many young people leave university only to be hit by the hard reality that the competition is immense and that expectations must be lowered. Some graduates, unable to find work immediately after graduation, get themselves into further debt by taking out career development loans and other forms of commercial borrowing to undertake a further qualification.
Due to the volume of UK graduates on the market, the need to stand out has made life much more competitive. Contacts, professional qualifications, Masters degrees and relevant work experience are now required to help secure a "graduate" career.
Moneynet, a consumer finance website, released a recent report stating that graduates need to check their credit histories when they finish their courses. Richard Brown, the CEO of moneynet warned that graduates could face a credit history nightmare at the end of university due to relocation, late payments and low credit. Moneynet has taken steps to provide publications which can help students and their families finance higher education, but the sheer scale of the student market now dictates that financial problems go beyond a lack of financial planning.
According to Credit Action ( http://www.creditaction.org.uk/debtstats.htm ), a third of prospective students underestimate the cost of university, with 25% of freshers expecting their parents to foot the bill. Both parents and students apparently underestimate the true costs of university ? parents by almost £4,000 and students by over £6,000. A quarter of parents state that they still have adult children living at home and over 14% of parents with adult children have remortgaged their homes or taken out loans to help their children out of the financial quagmire. Student debts and difficulties getting onto the first rung of the housing ladder are given as the main reasons for offspring being unable to leave home. First-time buyers are being required to save harder and for longer to secure their first home, in spite of a supposedly cooling housing market.
It also seems that parents who try to help out their offspring by giving cash to get them out of their financial struggles may be doing more harm than good according to the NatWest. The report shows that those who accepted payouts from their parents were 25% more likely to then go overdrawn in the future than those who didn?t take this form of financial help. Overall a third of young people said their parents had never taught them how to manage their money. If you?re a parent and concerned that your children need help with managing their pocket-money, moneynet offers a family finance guide with a few suggestions. It doesn't offer a magical solution to student debt, but it might provide some help in financial management.
These un-twentysomethings lifestyles can generally categorised within two extremes, either not going out at all because they have no money or going out and partying every Friday and Saturday night, because they feel directionless. Groups such as these may not seem particularly worrying, but many graduates are finding that they are working themselves to the bone by taking on two jobs and working seven days a week just to meet their bills. Some young graduates are known to even take on multiple jobs so they can bolster up their salary details for mortgage applications. By doing so, they commit themselves to a loan that can only be repaid through exhaustion.
These characteristics have been assigned to the emergence of the quarter-life crisis, but this epidemic of financial concern tends to be a problem for those who have been through higher education, rather than those who took full time employment straight after leaving school. This represents a worrying trend given the government encouragement for increased school leavers to attend university.
UK graduates find it particularly tough as they are often groomed to believe that they can get good salaries and corporate jobs. Yet many young people leave university only to be hit by the hard reality that the competition is immense and that expectations must be lowered. Some graduates, unable to find work immediately after graduation, get themselves into further debt by taking out career development loans and other forms of commercial borrowing to undertake a further qualification.
Due to the volume of UK graduates on the market, the need to stand out has made life much more competitive. Contacts, professional qualifications, Masters degrees and relevant work experience are now required to help secure a "graduate" career.
Moneynet, a consumer finance website, released a recent report stating that graduates need to check their credit histories when they finish their courses. Richard Brown, the CEO of moneynet warned that graduates could face a credit history nightmare at the end of university due to relocation, late payments and low credit. Moneynet has taken steps to provide publications which can help students and their families finance higher education, but the sheer scale of the student market now dictates that financial problems go beyond a lack of financial planning.
According to Credit Action ( http://www.creditaction.org.uk/debtstats.htm ), a third of prospective students underestimate the cost of university, with 25% of freshers expecting their parents to foot the bill. Both parents and students apparently underestimate the true costs of university ? parents by almost £4,000 and students by over £6,000. A quarter of parents state that they still have adult children living at home and over 14% of parents with adult children have remortgaged their homes or taken out loans to help their children out of the financial quagmire. Student debts and difficulties getting onto the first rung of the housing ladder are given as the main reasons for offspring being unable to leave home. First-time buyers are being required to save harder and for longer to secure their first home, in spite of a supposedly cooling housing market.
It also seems that parents who try to help out their offspring by giving cash to get them out of their financial struggles may be doing more harm than good according to the NatWest. The report shows that those who accepted payouts from their parents were 25% more likely to then go overdrawn in the future than those who didn?t take this form of financial help. Overall a third of young people said their parents had never taught them how to manage their money. If you?re a parent and concerned that your children need help with managing their pocket-money, moneynet offers a family finance guide with a few suggestions. It doesn't offer a magical solution to student debt, but it might provide some help in financial management.
posted by Bruce Wayne at 8:43 AM
Has anyone seen my twenties?
5 Comments:
Great article Bruce, thanks.
I currently owe about $63K in student loan debt. I am locked in a 8.25% which too high . I have a good FICO score of 688 at last check a year ago but it should be the 700s by now. My question is I am I going to be refinancing mortgage in March. Is it a good idea to roll my student loan debt into my mortgage? Or is it possible to refinance with another student loan consoldation company to get a better interest rate? Any help you can give me is greatly appreciated.
If you have already consolidated your student loans, I think the only reason you could "re-consolidate" would be if you had additional student loans that are not already in your current consolidated loan, such as graduate loans or a spouses loans. Even then, when I consolidated my loans and my husbands, our rates ended up being the weighted average of the rates on our old loans, so if your rate is already locked in (fixed), consolidation may not provide you with any lower interest. The monthly savings advertised by SL consolidators is almost always the result of spreading the loan out over 15-25 years from the standard 10.
If you have had a perfect payment history on your student loans, don't forget to check Sallie Mae's incentives for paying on time. Last I checked they offered .25% off for autopay, and on DH loans they offered 1% off after 4 years of perfect payments. The deal used ot be 2% off, so if you have had your loans for a while, you might qualify for that. Even if you don't find anything it might pay to give them a call to see if you qualify for any incentives or if there is anyway you can lower your rate but keep the loan with them. Since your rate is so high (actually at the highest rate allowed), they might be willing to work with you rather than lose the loan.
If Sallie Mae won't work with you it might be in your best interest to refinance the debt using a mortgage or other laon, but don't forget that keeping the loans as student loans have some benefits that you will lose if you combine them with other debt or refinance outside of the student loan system. Only you can determine if the benefits are of enough value to outweigh higher interest. The main benefits I can remember right now are:
-- available deferrments for hardship, certain voluneer service (PeaceCorp, etc) and other situations that are generally much more generous and easier to get then deferrments by other creditors
-- ability to deduct interest paid on SL from taxable income even if you don't itemize ("above the line deduction") - You can itemize mortgage interest, but this is only useful if you have enough itemized deductions to exceed the standard deduction
-- Student loans are forgiven if you die or are permanently disabled, so they are one less thing to worry about should anything happen to you, especially if you are disabled.
If you have already consolidated your student loans, I think the only reason you could "re-consolidate" would be if you had additional student loans that are not already in your current consolidated loan, such as graduate loans or a spouses loans. Even then, when I consolidated my loans and my husbands, our rates ended up being the weighted average of the rates on our old loans, so if your rate is already locked in (fixed), consolidation may not provide you with any lower interest. The monthly savings advertised by SL consolidators is almost always the result of spreading the loan out over 15-25 years from the standard 10.
If you have had a perfect payment history on your student loans, don't forget to check Sallie Mae's incentives for paying on time. Last I checked they offered .25% off for autopay, and on DH loans they offered 1% off after 4 years of perfect payments. The deal used ot be 2% off, so if you have had your loans for a while, you might qualify for that. Even if you don't find anything it might pay to give them a call to see if you qualify for any incentives or if there is anyway you can lower your rate but keep the loan with them. Since your rate is so high (actually at the highest rate allowed), they might be willing to work with you rather than lose the loan.
If Sallie Mae won't work with you it might be in your best interest to refinance the debt using a mortgage or other laon, but don't forget that keeping the loans as student loans have some benefits that you will lose if you combine them with other debt or refinance outside of the student loan system. Only you can determine if the benefits are of enough value to outweigh higher interest. The main benefits I can remember right now are:
-- available deferrments for hardship, certain voluneer service (PeaceCorp, etc) and other situations that are generally much more generous and easier to get then deferrments by other creditors
-- ability to deduct interest paid on SL from taxable income even if you don't itemize ("above the line deduction") - You can itemize mortgage interest, but this is only useful if you have enough itemized deductions to exceed the standard deduction
-- Student loans are forgiven if you die or are permanently disabled, so they are one less thing to worry about should anything happen to you, especially if you are disabled.
Thank you so much for the great advice. I have already consolidated my student loans back in 1999, hence the super high interest rate. I knew that once I consolidated my student loans with SallieMae that I could not re-consolidate again with the SallieMae. But I apparently I can never re-consolidate my student loans ever again. I am locked in forever.
I have been paying faithfully and never late for the past 4 years. However, I am not making a dent in the principle at all. I do not have any credit card debt. The only debt I have is my mortgage and my student loan. My student loan debt irks me because I cannot decrease my balance at all. It is as if I am throwing a pebble in the ocean trying to fill it up.
I am going to look at the numbers. But thus far deducting the interest paid for the student loans every tax time has not seemed worth while because all of my payments have been going towards the interest which keeps acrueing and the balance keeps growing. This interest rate is killing me. I would increase my student loan payments to go towards the principle but my budget just will not allow it.
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