Why you don’t want to graduate

Today’s college graduates have shelled out more cash to cover school expenses than any generation before them. Still nothing can prepare graduates for the onslaught of costs and obligations they are sure to encounter once they have left the classroom.

Saddled with their outstanding student loans (at graduation the average collegian will have accumulated about $40,000 of loan debt), college graduates will also find a slew of unforeseen expenses, should they fail to bear their financial burdens responsibly.

Graduates have only a six-month grace period before student begin to eat away at their every paycheck.

“Students often are surprised by how soon six months passes, and they have to start paying on the loans they have taken out,” said Sherri Williams, a career counselor at Texas Women’s University. “They should be careful of deferring loan payments, because they continue to accrue interest.”

Williams also advises graduates to note that if they are financially overwhelmed and are forced to declare bankruptcy, all debts will be forgiven except their outstanding student loans.

Collegians usually fall into the habit of deferring many of their expenses to credit cards while in college, and to the delight of the credit card companies because most their revenue comes from customer late fees. Collegians often end up paying excessive fines.

Tahira Hira, founder of Iowa State University’s Family Financial Counseling Clinic noted, “(College Graduates) don’t know diddly-do about interest rates. Add to that the cost and impact of late fees, and a vicious cycle occurs when just the minimum is paid each month.”

According to a study preformed by Education and Training Programs Inc., a non-profit health and human resource development corporation based in East Hartford, Conn., the average college graduate has more than $2,200 of revolving credit card debt, and 20 percent of student credit card holders carry more than $10,000 of revolving debt. What all this translates into is a nightmare for graduates once they begin to finance the essentials for independent living.

The effects of bad credit may come in the form of outrageous security deposits for apartments, higher insurance rates, missed job opportunities and even rejection from graduate schools.

Mallary Tytel, president of ETP said, “You go to rent an apartment, they check a credit report. You go to get a graduate loan, same thing. It’s a very serious issue in terms of the repercussions.”

An utterly stark consequence of poor credit may even manifest itself physically for graduates in debt. “Studies have shown that college students with credit balances of more than $1,000 smoke more, drink more and take more medication for depression than students with less debt,” Tytle said. “They’re also more prone to heart attacks, insomnia and explosive emotions.” Tytle assumes that college graduates with similar credit balances suffer the same physical effects.

Although such effects require medical assistance, a report by the Independent Insurance Agents of America shows that adults from the age 18 to 24 are the most likely to lack health insurance. Only about two out of three are insured, which means millions of graduates are at the mercy of surprise medical expenses that could plunge them further into debt.

Most college students are eligible to be covered by their parents health insurance policy until age 23, but only if they maintain part-time student status. On the other hand, graduates must acquire an independent health insurance policy or search out alternative approaches. Programs such as interim health insurance, offered at a number of graduate schools (under the name COBRA on the web), as well as health coverage through an employer are available to grads.

Another area of financial concern for college graduates is car insurance. Though many were covered by their parents insurance policies throughout college, once thrust into the adult world graduates must endure the shock of what it costs to be youthful.

“They may find that insurance is very expensive,” said Madelyn Flannagan, assistant vice president of research and development for the IIAA. “College grads tend to want to go out and buy new, sophisticated cars. They don’t realize the cost of insuring that car. There are huge increases to move to big cities.”

An important form of car insurance graduates may consider is called gap insurance, which covers the difference between what their car is worth and what they still owe the bank in case the car is stolen or wrecked beyond repair. Also, an indirect form of car insurance — but no less important — is to report any friends, roommates, or family who might be driving their vehicle.

Graduates’ spending habits may have an effect on the amount they pay for insurance each month, especially if they are in debt. But this depends on the state in which they reside. Likewise, credit card companies usually have leeway to raise a graduate’s monthly bill amount or interest rate depending on how much the graduate is paying for car insurance.

The combination of an enlarged gross pay and an influx of bills has the potential to disorient even the most studious of former collegians. Katzanek thinks she may have found solution to the to confusion. “When a graduate goes up in May or June to receive a diploma, there should be a little budget sheet hidden in there.”