Keene - Graduating with a diploma ... and debt

Now is the time of year that many college students are graduating with a degree, ambition, idealism -- and a load of debt. Reducing that debt as quickly as possible is critical to helping young adults start their career off on the right financial foot.

More than 60 percent of students graduate with student loans to pay back, according to a report by the State Public Interest Research Groups, which evaluated U.S. Department of Education data. Exactly how much debt depends on which study you read, but it's substantial.

The American Council on Education reports that the average student graduates with about $12,000 in student loan debt. The State Public's Interest Research Group says the average student loan debt ran nearly $17,000 in 2000, and it described 40 percent of those graduate borrowers as having "unmanageable" levels of debt -- defined as more than 8 percent of the borrower's monthly income.

These amounts don't include private college loans or credit card debt. A study by college lender Nellie Mae, for example, says the typical student graduates with four credit cards and $4,778 in debt, and one in five with debts higher than $6,000.

For today's graduates, debts like this couldn't come at a worse time as they face a softer job market, few of the generous sign-up bonuses offered in earlier years, and lower paying entry-level positions.

While this debt may make it challenging for new graduates to pay their rent, car payments and other basic living expenses, its real impact is on the future, say financial planners. Take saving for your own retirement, for example. Young workers have a financial advantage they'll gradually lose the longer they are in the workplace -- time. Time is the Archimedes lever of investing. A dollar invested early in life can grow, through the power of compounding, far larger than the same dollar invested later in life.

Say you join a 401(k) plan at work at age 23 and invest $100 a month for the next 30 years. If the account earns 8 percent a year, you'll earn $201,398 more over those 30 years than if you wait until age 33 to start saving the same $100 a month. But if you're burdened with loans, scraping together that $100 may prove difficult.

The same goes for saving for other personal goals, such as graduate school, marriage or buying your first home. It's not uncommon for debt-laden students to have to turn down lesser-paying but desirable jobs -- perhaps a stint in the Peace Corps, for example -- because they can't afford it.

So what can you do if you're faced with substantial debt? First and foremost, say planners, pay it down as quickly as possible. The longer debt drags out, the more it costs you in interest and the longer it delays your pursuit of other life goals and dreams. For example, if you pay only the minimum monthly payment on a $3,000 credit card bill with 18 percent interest, it will take you over 29 years to pay it off, at a total cost of over $10,000.

Unless you're earning exceptional money right out of school, the only real way to pay more than the minimum is to live below your means. New graduates -- tired of being the poor college student -- typically want to buy a new car, new clothes or go on a dream vacation. This not only doesn't help pay off old college debts, it piles on new debt.

Consider consolidating your student loans. There are pros and cons to this, and rules you should be aware of, so talk to a financial adviser who's familiar with this before committing. Generally, you can consolidate multiple, variable interest-rate loans into a single loan and lock in the interest rate. Interest rates are at historic lows, so now may be a good time. Also, the government is considering doing away with the ability to lock in these low rates.

You also can stretch out the number of years to repay the consolidated loan -- up to 30 years in some cases -- but as in the case of credit cards, you're going to end up paying more in the long run. Keep the repayment period as short as you can manage.

Wm. Gerry Keene III, CFP, RFC, is a Certified Financial Planner practitioner with Keene Financial Group in Cape Girardeau. He is a registered representative offering securities through FFP Securities Inc., member NASD/SIPC, and a registered investment advisory agent offering services through FFP Advisory Services Inc. (1-800-827-1929, 33KEENE 335-3363 or )