The lucky class of 2022

Members of the college class of 2022 may not consider themselves lucky. After all, COVID-19 robbed many of them of the complete college experience. Perhaps their reward for the start and stop of in-person/ remote/hybrid education is to graduate in one of the hottest job markets in decades.

Job openings remain high, the unemployment rate is low and, according to a National Association of Colleges and Employers (NACE) survey, employers expect a projected hiring increase of 26.6% for new graduates, compared to a year ago.

Compared to those who have the unfortunate timing of graduating into a recession (ask the class of 2020 about their ill-fated timing), the class of 2022 are indeed lucky, with an average starting salary of $55,260. (Computer science majors will do better, with a projected average salary age of $75,900, while humanities will clock in with an average of $50,681.) Those starting numbers make the conversation about repayment of student loans a bit easier to swallow.

Education experts have long advised that student loan borrowers attempt to graduate with a total debt balance that is lower than a graduate’s first year salary. By the numbers, the situation looks better, on average, than it has in the past.

According to the Education Data Initiative, the average federal student loan debt balance is $37,014 and, including private loan debt, it increases to be $40,904. Of course, average is just average and with total student loans outstanding at $1.76 trillion, there are much higher loan balances.

Meanwhile, with federal student loan payments on pause since March 2020 and due to restart on Sept. 1, many recent and soon-to-be graduates are hoping that the Biden administration announces plans about student loan cancellation.

It is highly unlikely that there will be a wholesale erasure of debt, but there are whispers that there could be partial forgiveness, likely some amount in the range of $10,000 to $20,000 for low- and middle-income borrowers who earn less than $125,000 a year. Early discussions have been focused on undergraduate debt, but that could change, especially for students who use their degrees for careers in public service (such as teachers).

Until there is a formal announcement from the White House, it would be wise for student borrowers to prepare to make payments. In fact, regardless of whether you are graduating with debt or not, now is the time to create a financial plan of action, starting with a simple cash flow. Surveys from the CFP Board and Intuit have found that about 60-65% of adults don’t track expenses, but this task can be the key to controlling your financial life.

Start with salary — and don’t forget to reduce it to reflect taxes to Uncle Sam and your state of residence. Your take-home income will determine how much money you can afford to allocate to your expenses, like rent, food, commuting costs, utilities and, of course, your debt.

Prioritize outstanding debt by creating a list of each loan (student, credit card, auto) and include details like the interest rates associated with the loans, monthly payment amounts due and lender contact information. When creating the cash flow, give priority to paying down the highest interest loans and then work your way down to the lower interest ones. Automate debt payments to avoid penalties.

Whether you are carrying debt or not, use your cash flow to help fund an emergency reserve fund of six to 12 months of living expenses and to contribute to a retirement account, especially if you work for a company that provides a match. Doing so early will likely make you feel even luckier down the road.