How the financial landscape has changed for students and recent graduates

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Courtesy of distanceeducation.org.

As a recent college graduate, the employment landscape looks bleak. Unemployment is still high, and recent graduates are still competing with out-of-work grads from last year or the year before for the entry-level jobs that are available—often for low pay or no benefits. But things aren’t as bad as they used to be. Here are a few ways the financial landscape has changed this year—to the benefit of recent graduates.

Health Insurance

In the past, new graduates had to scramble for coverage as they graduated out of their parents’ coverage and their school’s policies. Starting this year, however, health insurance companies that already cover dependent children will be required to allow unmarried children—even those who don’t live with their parents—to stay on their parents’ plans until the age of 26.

There are a few caveats, however. This is a new law—and it’s tough to predict how it will be enforced and obeyed in the market. In addition, some employers may not permit children to stay on their parents’ plans—even if the insurance companies themselves allow it. It’s also hard to say how much premiums will wind up costing for new graduates on their parents’ plans. Still, the option of coverage is there—making the situation for recent grad health insurance better than it was before.

Student Finances

Income-Based Repayment

In July of 2009, the Income Based Repayment program went into effect. This program effectively limits the size of your monthly payments to under 15% of your monthly income if you make below a certain threshold amount—which varies depending on a range of factors, including the size of your family, number of dependents, and so on.

It doesn’t give student loan relief to everybody, but this program could be crucial to graduates who’ve had a hard time finding a job—or one that will allow them to afford their regular minimum loan payments. After 25 years of regular payments, you may even be eligible for loan forgiveness. In addition, if you work in the public service sector, you could get your loans forgiven after 10 years.

After 2014, this program becomes even better for college graduates. For federal loans given after that year, students who qualify for Income-Based Repayment will have their monthly loan payments capped at 10% of their income—and will be eligible for loan forgiveness after 20 years.

Federal Student Loans

In spring of 2010, Congress passed some significant legislation affecting the way federal student loans are funded. Under the new laws, banks no longer administer federal loans that are guaranteed by the government—and essentially can’t profit from acting as the middleman in delivering these loans. The law went into effect this summer, but should make interest rates lower and free up more money for college students—rather than banks. In addition, the new rules raised individual grant accounts and overall funds available for Pell grants and other federal assistance programs. They should also make getting a loan easier—as students no longer have to get a bank’s promissory note to apply for Stafford loans.

The lower interest rates in effect as a result of these changes may be substantial. Already, the cost of Stafford loans is down—with interest rates of 4.5 percent in 2010-2011, down from 5.6 the year before, after a student graduates.

Pell grants

Pell grants aren’t loans. They’re essentially free money you don’t have to pay back—given by the federal government to students from the most financially needy families. Starting in 2010-2011, the number of Pell grants available for more families due to some relaxation of eligibility regulations. In addition, the maximum amount of money awarded through the Pell Grant program will increase to $5,500, with more increases lined up for subsequent years.

The financial landscape is still not ideal for recent grads. Making the situation worse is that we still send our new graduates out into the world with very little financial education—leaving them to manage sky-high student debt, navigate new financial assistance rules, and deal with other financial burdens on their own. But with these new regulations, hopefully recent graduates will have an easier time meeting their financial obligations—even in a difficult job market.

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