The New Money Rules for Recent Graduates

(from Ron Lieber's Your Money Column, New York Times, 5/8/2010 - read the article direct from the Times here)

Graduation season is a time of oddly mixed emotions for the people finishing college and graduate school. On the one hand, there is pride in a job well done (or relief at simply getting through) and the satisfaction of having finished a long, hard slog. On the other, there is primal fear. Will anyone pay me to do something I’m good at? And will I actually have enough money to live on?

We push our graduates out into the world with little or no financial education; that much has been true for years. Meanwhile, their student loan debt has grown over time, with the median debt for bachelor’s degree recipients who did take out loans hitting $20,000 in 2007-8, according to the College Board’s 2009 Trends in Student Aid study. This year, many graduates are being greeted by an uninterested shrug from employers as they try to pay that all back.

There is some good news this graduation season, though. In four crucial areas — health insurance, banking, credit cards and student loans — there have been enormous shifts in the legislative and regulatory landscape in the last 12 months. These changes should ease some of the pain as new graduates try to establish themselves financially.

So before you leave for your postgraduation road trip (or buy yourself something nice for the first time in four years to celebrate the end of tuition bills), give the points below a quick skim. So much has happened in the last year, you’ve probably missed at least some of it.

HEALTH INSURANCE First, do no harm. A bad accident or illness could be financially catastrophic for you or your family if you don’t have health insurance. Keeping or getting insurance is about to get easier, since the health care bill that President Obama signed in March requires insurance companies that already provide dependent coverage for children to allow unmarried offspring to stay insured on their parents’ plans until they turn 26.

This part of the bill doesn’t go into effect until Sept. 23, and there’s still a lot of uncertainty about exactly who will benefit before or after that date as companies and insurers wait for more clarity from regulators on how to put the new rules into place.

Many insurers, including independent Blue Cross Blue Shield providers and UnitedHealthcare, have announced efforts to allow graduating students who are currently on their parents’ plans to stay there to avoid any gap in coverage. Ask your human resources department or insurance company about this possibility if you are a parent and your graduating child is still on your health insurance plan.

That said, your company may not allow your child to remain on the plan after graduation this year even if the insurance company it works with can make it happen. And even if your employer does allow your child to stay on, it’s not yet clear how much it will cost, though paying a young adult’s premium is about as practical a graduation gift as you’ll find.

What if you’ve been on a student health insurance plan and want to switch to your parents’ plan now? Or what about people who are uninsured and 24 and want to return to their parents’ coverage as soon as possible? You may have to wait until the next open enrollment period for your parents’ plan, according to Brett Lieberman, a Blue Cross Blue Shield spokesman.

Insurance companies may offer short-term or other plans to bridge the gap during the months until then.

Stephen L. Beckley, a consultant who specializes in student health insurance, notes that most graduating college students enrolled in student plans will have coverage through the summer. Call and ask to be sure. Also, some states already have laws similar to (or tougher than) the new federal one.

BANKING AND DEBIT CARDS So you’ll need a checking account. Perhaps you already have one.

What you may have missed, however, is that starting July 1, banks will no longer allow you to spend more money at a store with your debit card (or withdraw more at the A.T.M. machine) than you have in your account unless you’ve given them permission first. The federal government made them do this, since banks were infuriating so many customers by charging them repeated overdraft fees when they overspent.

Let’s assume that you don’t want to opt in to taking your balance below zero and would rather ask the bank to cut you off if you don’t have enough money in your account. If enough people do that, banks will lose lots of fee income and may use that as an excuse to tack monthly fees onto your checking account. The lower the balance in your account (and recent graduates tend to live hand to mouth), the more likely it is that your bank may try to charge you money.

Even if this happens, I’m confident that some institutions will remain free of monthly fees. If there’s a credit union at your college that offers fee-free banking, it may let you keep your account after graduation (check to see how much you’ll pay to withdraw money from other institutions’ A.T.M.’s, though). Or you can search for a new one at findacreditunion.com. Take a look, too, at banks with no branches, like PerkStreet Financial and ING Direct.

CREDIT CARDS The credit card legislation that passed in 2009 contained so many new rules that it went into effect in phases, including a bunch of regulations that began earlier this year. There are too many to list here, though the Federal Reserve has published an excellent plain-English guide that I’ve linked to from this sentence in the online version of the column.

I’m a big fan of the rule requiring card companies to get your permission before they’ll let you spend more than your credit limit (and charge you fees for the privilege). This always struck me as particularly noxious, and in the wake of the new rules, some card companies like American Express have simply stopped charging the fee to people who go over the limit (or cuts them off if the company thinks the spending is getting out hand). This is particularly helpful to younger people who may have lower credit limits and thus breach them more often.

Beth Kobliner, the author of “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” is partial to the new rule requiring better information on the card statement. Now, it must state how long it will take to pay off your balance if you make only the minimum payment that the card company requires. It also must let you know what your monthly payment would be if you want to pay the balance off in three years. “It’s eye-opening for everyone, but particularly for young people who never realized how expensive putting something on the card and paying only the minimum can be,” Ms. Kobliner said.

One word of caution here. There’s another new rule that will make it much more difficult for card companies to put new plastic in the hands of people under the age of 21. As a result, card issuers may chase newly minted graduates that much harder with offers that sound too good to be true. Read your junk mail with caution and skepticism.

STUDENT LOANS Last July, a new program went into effect that can lower monthly payments on federal student loans for people who don’t earn a lot of money. It’s called income-based repayment, and it’s a bit complicated. Essentially, if your income is low enough (depending on your family size), it’s possible that your lender will limit the size of your monthly payments. And after 25 years of payments, the lender may even forgive your remaining loans.

To see if you qualify, use the calculator at ibrinfo.org, a site that a nonprofit organization, the Project on Student Debt, created. The site also has a lot more information about how the program works — and additional information about a program that could forgive federal loan debts after 10 years of repayment for people working in public service jobs.

Still confused? Try checking in with a financial aid officer at your school, even if you’ve already left. “They’re the thankless heroes in this, who really want to help,” said Ramit Sethi, author of “I Will Teach You to Be Rich,” another excellent book for young people trying to learn more about money.

FORWARDING ADDRESS This one’s not new, but it trips enough people that it bears repeating. Your physical address may change in the next few months, perhaps more than once. Or you may start using a new e-mail address or begin getting bills from companies that you haven’t worked with before, both of which can lead to important messages getting caught in a spam folder.

You see where this is heading, right? You can’t pay bills that you don’t see. So let people know where to find you. Mark due dates in your calendar. And make sure you have the ability to pay your credit card and student loan bills online from any computer, wherever it is you may go on your victory tour in the next couple of months. That way, you won’t return to find the kind of damage to your credit history that can set you far back on the path to financial health.