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Debt Deal, Stock Market Plunge Affect College Savings


The latest economic downturn is expected to harm the savings of many college student’s families. Influenced by the federal debt crisis and the S&P lowering the credit rating of the United States, the Dow experienced its largest decline last week since the financial crisis started in fall 2008. As investors fear a double dip recession, CNN reports that two groups who will be hard hit by the financial freefall are people close to retirement and parents of college-bound students.

Long-term investors may be able to recover some of their losses as the economy improves again, but families whose children are in college, or about to enroll, should consider moving their college savings from stocks to safer options. “Anyone who is about to send a child to college next year using the money in a 529 fund or other investment should have no more than 20% of their money invested in the stock market, said Stuart Ritter,” the vice president of T. Rowe Price told CNN.

For students on financial aid, recent changes in federal legislation yielded mixed results. The debt agreement reached by the government last week will cut a type of federal loan that is vital to students who plan to go to graduate school. These federal subsidized student loans do not accumulate interest until six months after a student’s graduation. Due to the budget cuts, grad students will now have to take out loans that begin charging interest as soon as they are borrowed. The changes will also cut a credit program that rewards students who make 12 federal loan repayments in a row on time. However, Pell Grants, which help pay tuition for undergrads from low-income backgrounds, will remain intact under the debt deal. The changes will be enacted on July 1, 2012.

The financial slump comes at the heels of an already difficult job market for recent college grads. Last week, the Wall Street Journal asked readers to submit stories of their job-hunting woes and received overwhelming response. Readers reported that the entry-level market was slow, although some cited opportunities in fields such as tech.

How is the economic slump affecting your college plans? Has it influenced your choice of school, major, and/or career?

Tarina is a freshman at Harvard University, where she plans to study English. In addition to serving on the Editorial Board of the Harvard Crimson newspaper, Tarina is involved in Philips Brooks House Association, a community service organization, and Ghungroo, Harvard's annual South Asian dance extravaganza. When she's not buried in pre-med classes or Arabic homework, Tarina likes to indulge in Indian soap operas, try unusual cuisine, and speculate on the meaning of life with her partners in crime, AKA friends. She loves creative writing and administrates a fiction blog as well as an online journalism portfolio, and her highly entertaining mishaps often merit publication on Harvard FML.
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