My college student graduated. Now what?

Jason Piper |
Congratulations, your student has graduated from college! This is a significant milestone, and it's a time for both celebration and a thoughtful review of your family's finances. Here are key financial things to consider and actions to take as a parent when your child graduates from college:
 
I. Re-evaluate Your Financial Support and Boundaries:
  1. Shift Financial Responsibility:
    • Define New Expectations: Have an open and honest conversation with your child about their financial independence. Clearly outline what you will and will not continue to pay for. This might include gradually transitioning off your cell phone plan, car insurance, or other recurring expenses.
    • Create a Gradual Plan: If you've been providing significant support (e.g., rent, groceries, credit card bills), consider a phased approach to reducing it. For example, "I'll cover your rent for the first three months, then you'll take over 25% each month until you're fully responsible."
    • Encourage Budgeting: Ensure your child has a realistic budget based on their post-college income and expenses. Offer guidance, but empower them to manage their own money.
    • "Tough Love" if Necessary: While you want to help, avoid enabling habits that hinder their financial independence. Your own retirement security should be a priority.
  2. Parent PLUS Loans (if applicable):
    • Understand Repayment: If you took out Parent PLUS loans, repayment typically begins after the loan is fully disbursed. However, you can request a 6-month deferment after your child graduates or drops below half-time enrollment. Be aware, interest will accrue during this deferment, so you might consider paying it.
    • Explore Repayment Options: Parent PLUS loan borrowers are generally eligible for Standard, Graduated, and Extended Repayment Plans. To access income-driven repayment (specifically Income-Contingent Repayment or ICR), you must first consolidate the Parent PLUS loans into a Direct Consolidation Loan.
    • Discuss with Your Child: While you are legally responsible for Parent PLUS loans, discuss with your child if they plan to contribute to or take over payments. This is a personal decision for each family.
II. Adjust Your Own Financial Planning:
  1. Reallocate College Savings (e.g., 529 Plans):
    • Unused Funds: If there are remaining funds in a 529 plan after your child graduates, you have several options:
      • Future Education: Save them for potential graduate school, another child's education, or even your own.
      • Beneficiary Change: Change the beneficiary to another qualified family member (e.g., another child, grandchild, or even yourself).
      • Withdrawal (Non-Qualified): You can withdraw funds for non-qualified expenses, but earnings will be subject to income tax and a 10% penalty.
      • New Roth IRA Rollover Option (2024+): Under the SECURE Act 2.0, effective 2024, you can roll over up to $35,000 from a 529 plan to a Roth IRA for the 529 beneficiary, subject to annual Roth IRA contribution limits and the 529 account being open for at least 15 years. This can be a great way to jumpstart your child's retirement savings.
    • Keep Records: Maintain meticulous records of all 529 contributions and distributions for tax purposes.
  2. Boost Your Retirement Savings:
    • With college expenses potentially behind you, this is an opportunity to give your own retirement savings a boost. Increase contributions to your 401(k), 403(b), IRA, or other retirement accounts.
    • Consider catching up contributions if you're older than 50.
  3. Refocus on Your Financial Goals:
    • Revisit Your Budget: Adjust your personal budget to reflect the end of college payments. Identify new "found money" that can be redirected towards your goals.
    • Pay Down Your Debt: Use any extra cash flow to pay down your own high-interest debt (e.g., credit cards, personal loans, Parent PLUS loans).
    • Replenish Your Emergency Fund: If college expenses dipped into your emergency savings, make it a priority to rebuild it to 3-6 months of living expenses.
    • Other Goals: Now might be the time to save for that home renovation, dream vacation, or other personal aspirations.
  4. Review Your Estate Plan:
    • Power of Attorney/Healthcare Proxy: Since your student is now an independent adult, they should have their own Power of Attorney and healthcare proxy documents in place. While you may have had these for them while they were minors, these documents ensure that someone (which could still be you) can make financial and medical decisions if they are incapacitated.
    • Wills: Encourage your child to consider a basic will, especially if they have any assets or specific wishes.
III. Guide Your Child Towards Financial Independence:
  1. Encourage Emergency Fund Creation: Stress the importance of building their own emergency fund (3-6 months of living expenses) from their first paycheck. This will prevent them from needing to rely on you for unexpected expenses.
  2. Promote Retirement Savings:
    • Employer Match: Strongly encourage them to contribute at least enough to their employer's 401(k) or 403(b) to get the full company match – it's 100% return on their investment!
    • Roth IRA: If eligible, a Roth IRA is an excellent option for young graduates due to tax-free withdrawals in retirement. Even if you "gift" them the money for the contribution, they must have earned income to justify the contribution.
  3. Health Insurance:
    • ACA Coverage: Your child can typically remain on your health insurance plan until age 26, regardless of their student status, marital status, or financial dependency.
    • Employer Coverage: If they get a job that offers health benefits, evaluate if their employer's plan is a better fit (cost, coverage, network).
    • Marketplace Plans: If they "age out" of your plan or don't have employer coverage, they can explore options on the Affordable Care Act (ACA) marketplace.
    • COBRA: This is an option to temporarily continue coverage from your plan, but it's usually very expensive as you pay the full premium.
  4. Credit Building:
    • Responsible Credit Card Use: If they don't have credit cards yet, guide them on opening one and using it responsibly (paying the full balance every month, keeping utilization low).
    • Monitor Credit Score: Encourage them to regularly check their credit report and score.
  5. Budgeting and Money Management Skills: Continue to be a resource for budgeting, saving strategies, and investing questions. Share your financial wisdom and experiences.
By strategically addressing these financial aspects, you can ensure a smoother transition for your college graduate into independent adulthood while also shoring up your own financial future.

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