New Haven Register
By: Jim Shelton
July 1, 2012
Hey, graduates, hope you enjoyed that festive cap and gown ceremony. Now it's time for a fiscal reality check, courtesy of Mitchell D. Weiss.
"So many of these kids with student loan debt cannot go on with their lives," says Weiss, a financial expert from the University of Hartford and author of "Life Happens."
"They're so limited in cash they can't get cars. They can't get married. They can't start their lives, and that hurts the national economy," Weiss says.
The looming specter of student loans affects roughly 80 percent of college graduates, he explains. Some of that debt comes from government loans, which carry a lower interest rate, while other loans come from private lenders and often come with crippling interest rates.
On Friday, Congress passed legislation holding interest rates for federal student loans at 3.4 percent. The rates had been set to double over the weekend.
Weiss says it is imperative for today's college graduates to understand what they're up against and plan accordingly.
Weiss advises grads to calculate the percentage of their monthly income that is spent paying off student loans and credit card debt. If that figure is larger than 30 percent, it's red flag time. Likewise, if a young person's debt and rent payment equals more than 55 percent of their monthly income, there is danger ahead.
Weiss says new graduates in that position may need to find additional, part-time work, reduce expenses, or both.
"The key is, get your arms around that budget," he says. "If it means sharing an apartment, share an apartment."
Those dealing with burdensome federal loans should consider applying to have those loans consolidated or lengthened through the Income-Based Repayment Plan (www.ibrinfo.org).
At a basic level, Weiss says, it's essential for graduates to understand their own finances, set a budget and live by it. That's why, when he wrote his personal finance book geared to young people, "Life Happens" (available in online formats for $9.99-$12.99 at lifehappensbook.com), he filled it with the personal anecdotes and splashy graphics that Gen-Y students prefer.
"If you attempt to talk to this generation about retirement plans, they're going to tune you right out," explains Weiss, who left a job in banking to pursue a career in teaching financial literacy. He co-developed the Center for Personal Financial Responsibility at the University of Hartford with finance professor Susan Coleman.
"They can't see themselves ever retiring," Weiss says of Gen- Yers. "Part of it is ego, and part is, they don't believe they'll ever be in that position. They've watched what happened to their own folks and seen how many retirements have been destroyed. But they're optimistic that they can take things as they come."
Weiss urges recent graduates to create a financial timeline to put the next couple of years into focus. They can set goals for themselves -- buying a car, raising money for graduate school, moving out of their old bedroom at their parents' house -- and plan it financially, year by year.
This sort of focus also requires them to take a hard look at every dollar they spend and see where it fits into the larger picture.
Indeed, Weiss doesn't believe in shielding young people from financial realities, including what can happen if their money situation goes south.
As a banker, he's seen the emotional devastation caused when someone's wages are garnished, when creditors apply pressure and when someone goes through personal bankruptcy.
"When you have a problem, get organized as soon as you can, and have a conversation with everyone involved," Weiss says. "They're going to want to see that you're already on a tight budget, with no excess spending and that you've gone to all your lenders for help."
Of course, Weiss is rooting hard for a sunnier financial future. It starts with having the right information.
"They've got to have their Zen moment with the monthly loan payment," he says. "Figure out what that monthly payment is going to be."