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Graduates Struggling to Repay College Debt Burden

At first glance, a college degree may seem like a good investment for your future. Indeed, studies suggest that higher education enables individuals to significantly improve their earning capacity. But the question is, how far does it go in providing good value for money? In recent years, some graduates have come to the conclusion that a college degree is not worth the time, effort, and resources you put into it.

Graduates of for-profit universities have found that their debt load makes it impossible for them to earn a decent living. Around 53% of these graduates carry around $30,500 or more when they leave the university. Meanwhile, 24% of students from private nonprofit schools and 12% of those from public colleges carry similar debt loads.

As if their debt problems aren’t enough, it is compounded by the tough job market. The graduates of 2008 faced a job market in ruins after the financial crisis and recession. At this point, their main concern isn’t how they can repay their loans but if they can even get a job at all. According to Sandy Baum and Patricia Steele of the College Board, “Too many students are borrowing more than they are likely to be able to manage.”

The study from College Board also revealed that, in terms of numbers, blacks are most likely to borrow; 27% have a debt of $30,500 up. Among the whites, the figure stands at 16% while it is at 14% for Hispanics. Asians tend to borrow least as only 9% of them have this burden.

Given this figure, financial policies need to be strengthened to let students borrow only what they can realistically repay. In addition, it is important to help students become financially literate before they undertake any borrowing for postsecondary education. Their expectations should be based more on facts, not just hope.

More Irresistible Credit Card Perks – But You Actually Pay for Them

As banks gear up for a tougher year ahead, they are making credit card deals more irresistible for consumers. In general, this is in reaction to stricter lending laws that make it more difficult for firms to profit from gullible and debt-laden clients. Some card issuers actually offer free travel vouchers, access to airport lounges, and the option to transfer reward points to other hotel and airline loyalty programs. Meanwhile, several issuers doubled and even tripled the points you can get for purchases.

At first glance, these perks may appear free or complimentary. But as always, you should expect to ultimately pay for them. Banks used to profit mainly from the interest rates charged to consumers. These days, more revenue will be derived from merchant charges and annual fees that were historically kept at a low range.

Robert Hammer who runs an advisory firm based in Thousand Oaks, California estimates that fees range from $75 to $495 compared to its range of $20 to $40 (1995-2005). Take the example of Barclay’s PLC, its Visa Black “carbon card” has an annual fee of $495 though it comes with a 24-hr concierge service.

These developments are not always bad for consumers. A lot depends on their buying cycles, purchasing pattern, and their lifestyle. Value also depends greatly on perception. For instance, a customer who loves to travel will definitely look more favorably on air miles compared to a rebate feature. In general though, credit card experts will advise you to avoid reward cards since it typically has higher interest rates.

If you can pay off your debt before its due date then you can benefit great. Otherwise, the finance charge and interest you need to pay will outweigh the retail value of the “reward” you get. Not all banks are joining the bandwagon. Charles Schwab Corp. has discontinued its First Invest Credit Card which provided 2% cash back to new clients. Expect this to be more of an exception than the rule. Most issuers are ramping up their marketing campaign in order to attract loyalty and more customers.

Assessing the Middle Class

While the economy is seeing some progress towards recovery, average Americans continue to be affected by the recession last year. In general, living standards have dropped to below the thresholds that exemplify middle-class lifestyle. Among the different metric used by economists include income, property value, home size, cars, medical expenses, college savings, vacation, and retirement savings. If you’re curious to know how you’re faring compared to other families, below is a lowdown:

Income – middle-class families (two-parent households) have a household income that range from $51,000 to $123,000. The median income is placed at $81,000 as of 2008. This figure is believed to have fallen by 5 to 7 percent due to the financial crisis. The median income of a single-parent household with two children is at $25,000

Property Value – the typical home of a two-parent American household is worth $231,000. Costs have basically more than doubled during the past decade. But while property values had steadily increased since 1990s, the trend is now reversing due to the housing bust.

Home Size – one factor that contributed to the increase in housing costs was bigger home size. The median size of a regular single-family home rose by 40% from 1979 to 2007. Right now, most houses are about 2,300 square feet. This is fast changing because families are downsizing their homes and lifestyle.

Medical Expenses – according to the study conducted by a team commissioned by Vice President Joe Biden, two-parent families spend $5,100 on average on health insurance including non-covered expenses. Healthcare costs have risen astronomically since 1990 and it may continue to rise in the near future.

Cars – the middle-class is typified by cars and mobility. Mist families spend $12,400 a year for their two sedans or other car equivalents. The recession has dampened their passion for cars so car sales dropped down by 40 percent.

College Savings – most families set aside $4,100 for the college education of their two children. Whenever possible, they save more for the college fund. In the past, financial aid accounted for the rest of the expenses. With most states facing budget problems though, school fees are bound to go up.

Vacation – another metric on the quality of life is the amount of vacation families have. A usual vacation costs around $3,000 a week for a family of four. Those who can afford a bit more spend around $6,100 for a two-week vacation.

Retirement Spending – another important consideration for middle-class families is retirement savings. In general, most people put aside $2,600 annually in preparation for retirement. This is 3.2 percent of a family’s income. It is problematic that a significant number of families don’t hit this goal due to stock market losses and other financial fluctuations.

Personal Finance Tips for Fresh Graduates

Fresh graduates will face one of the most competitive career landscapes in decades. While there is work to go around, the prospect of career growth, promotions, and salary increase seems dim in many industries. Some businesses are optimistic. However, for recent graduates, it is important to be on the safe side. Those who are new to the work force are most at risk of lay-offs and job cuts. Below are some personal finance tips that make sense for your situation:

Write Down Your Specific Goals

Simply writing down your goals will increase your chances of fulfilling them. There is a phenomenon known as the “mere measurement effect”. A research study wherein people were phoned and asked if they were going to the precincts reveals that if they answer yes, there is a higher probability that they really will attend. When more details were asked such as how they will go and what time they planned to vote were asked, the likelihood further increases. So write what your goals are right now, tell your friends about it, and make it happen.

Shop Wisely, Don’t Spend More than Necessary

It is a proven fact that people spend more when they earn more. For example, if they changed jobs and suddenly got a salary of $10,000 this month, it doesn’t matter that they previously subsisted on $3,000. They will make their lifestyles will drastically change immediately. There’s nothing wrong with rewarding and pampering yourself, just don’t overdo it especially if you’re a fresh graduate. That same job might be gone in an instant.

Stop Comparing Incomes

Wealth is truly a state of mind. The perception of wealth is relative. For example, a survey conducted by Harvard in 1995 asked students if they prefer to live in an area where they earn $50,000 while the average was $25,000 as opposed to an area where they earn $100,000 when the rest are earning $200,000. A huge majority said that they will settle for the former. They would rather earn $50,000 than $100,000 as long as others are earning less than they do. Income is just a small barometer of success. It is important to be comfortable in your own skin and pursue excellence where you are.

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