COLLEGE SAVINGS 101

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5 reasons recent college graduates are becoming the boomerang generation
http://www.savingforcollege.com/articles/5-reasons-recent-college-grads-are-becoming-the-boomerang-generation-642

Posted: 2014-07-02

by Kathryn Flynn

As we celebrate our country’s independence this week, many parents of Class of 2014 college graduates are hoping for another sense of freedom. When your child collects his diploma, you’re probably expecting to throw a big party and send him on his way into the real world. Unfortunately, in today’s world most recent graduates are in no hurry to leave the nest. In fact, one in five young adults in their 20’s and early 30’s are still residing with mom and dad. This trend of taking your degree back to your childhood home is why Millennials are being referred to as the “Boomerang Generation”. Here are five factors that we believe are contributing to this effect.

1. Excessive Student Loan Debt

Total U.S. student loan debt has topped $1 trillion. According to the Project on Student Debt, in 2012 seven out of ten graduates left college with student loan debt and the average balance per borrower was $29,400. What’s more, interest rates on subsidized and unsubsidized undergraduate Stafford loans jumped this week to 4.66 percent from 3.86 percent year, increasing borrower monthly payments.

While there are programs in place such as Obama’s Pay As You Earn repayment plan, which caps your monthly payment at 10 percent of your income, many young adults are still unable to get on with their lives. But before they know it, it will be time to start saving for their own children’s education. Perhaps Millennials will have a greater appreciation for 529 college savings plans, which offer tax benefits and can reduce the amount of future borrowing.

529 Savings Versus Loans Calculator

2. Rough Job Market

Young adults have undoubtedly been affected by the recession and challenging job market. While higher-level jobs remain scarce, these college graduates are seeking other types of employment such as bartending and retail jobs. There is also more competition, as baby boomers remain in the workforce longer trying to rebuild retirement savings that were lost during the financial crisis. The number of jobs held by workers over age 55 has increased by 9 percent from 2007-2013, but jobs for Millennials remained at about the same levels.

Grandparents and Saving For College

3. Costs of Health Insurance

According to a recent survey administered by eHealth, 62 percent of those ages 18-25 years old feel that their health insurance premiums cost more than they can comfortably afford. So what’s a jobless Millennial to do? One smart option is to stay on the parents’ plan. Because of the Affordable Care Act, young adults are covered until they turn 26. They might also want to stick close to home to avoid paying high costs of out-of-network doctors.

4. Lack of Down Payment for Mortgage

While it’s common to rent housing during the college years, at some point young adults want to be able to purchase their own home. Even when interest rates and home prices are at all-time lows, young people are still having trouble getting a mortgage. Student loan debt may be considered “good debt” by a lender, but your monthly loan payment amount will still negatively affect your debt-to-income ratio (DTI). Your DTI shows the amount of debt you have compared to your overall income and is used by lenders to determine whether or not you qualify for a loan.

Another reason buying a home right out of college rarely happens is because recent graduates can’t afford a down payment. If a borrower isn’t able to put at least 20 percent down, they will have to pay an additional monthly mortgage insurance payment, averaging about $100 a month, which can easily push the total monthly mortgage payment beyond their budget.

5. Moving Back Home is Becoming the Norm

The number of young adults living at home has doubled since the last decade. What was once considered a sign of failure is now viewed as a responsible financial plan. Yet as Millennials continue to delay their independence, the country’s household formation levels remain low.

Economists are concerned about this limiting the housing market recovery, as well as having an adverse effect on the demand for building supplies, furniture and appliances.

Top Four Savings Essentials for Young Families

As we celebrate our country’s independence this week, many parents of Class of 2014 college graduates are hoping for another sense of freedom. When your child collects his diploma, you’re probably expecting to throw a big party and send him on his way into the real world. Unfortunately, in today’s world most recent graduates are in no hurry to leave the nest. In fact, one in five young adults in their 20’s and early 30’s are still residing with mom and dad. This trend of taking your degree back to your childhood home is why Millennials are being referred to as the “Boomerang Generation”. Here are five factors that we believe are contributing to this effect.

1. Excessive Student Loan Debt

Total U.S. student loan debt has topped $1 trillion. According to the Project on Student Debt, in 2012 seven out of ten graduates left college with student loan debt and the average balance per borrower was $29,400. What’s more, interest rates on subsidized and unsubsidized undergraduate Stafford loans jumped this week to 4.66 percent from 3.86 percent year, increasing borrower monthly payments.

While there are programs in place such as Obama’s Pay As You Earn repayment plan, which caps your monthly payment at 10 percent of your income, many young adults are still unable to get on with their lives. But before they know it, it will be time to start saving for their own children’s education. Perhaps Millennials will have a greater appreciation for 529 college savings plans, which offer tax benefits and can reduce the amount of future borrowing.

529 Savings Versus Loans Calculator

2. Rough Job Market

Young adults have undoubtedly been affected by the recession and challenging job market. While higher-level jobs remain scarce, these college graduates are seeking other types of employment such as bartending and retail jobs. There is also more competition, as baby boomers remain in the workforce longer trying to rebuild retirement savings that were lost during the financial crisis. The number of jobs held by workers over age 55 has increased by 9 percent from 2007-2013, but jobs for Millennials remained at about the same levels.

Grandparents and Saving For College

3. Costs of Health Insurance

According to a recent survey administered by eHealth, 62 percent of those ages 18-25 years old feel that their health insurance premiums cost more than they can comfortably afford. So what’s a jobless Millennial to do? One smart option is to stay on the parents’ plan. Because of the Affordable Care Act, young adults are covered until they turn 26. They might also want to stick close to home to avoid paying high costs of out-of-network doctors.

4. Lack of Down Payment for Mortgage

While it’s common to rent housing during the college years, at some point young adults want to be able to purchase their own home. Even when interest rates and home prices are at all-time lows, young people are still having trouble getting a mortgage. Student loan debt may be considered “good debt” by a lender, but your monthly loan payment amount will still negatively affect your debt-to-income ratio (DTI). Your DTI shows the amount of debt you have compared to your overall income and is used by lenders to determine whether or not you qualify for a loan.

Another reason buying a home right out of college rarely happens is because recent graduates can’t afford a down payment. If a borrower isn’t able to put at least 20 percent down, they will have to pay an additional monthly mortgage insurance payment, averaging about $100 a month, which can easily push the total monthly mortgage payment beyond their budget.

5. Moving Back Home is Becoming the Norm

The number of young adults living at home has doubled since the last decade. What was once considered a sign of failure is now viewed as a responsible financial plan. Yet as Millennials continue to delay their independence, the country’s household formation levels remain low.

Economists are concerned about this limiting the housing market recovery, as well as having an adverse effect on the demand for building supplies, furniture and appliances.

Top Four Savings Essentials for Young Families

 

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