The Perfect College Graduation Gift

Good advice isn't worth much if it is impossible to follow through on. And a lot of well-intentioned financial advice aimed at young adults is nonetheless incredibly impractical. Exhibit A: Start to save early for retirement. It's indeed flawless advice in the abstract, but when you're twenty-something, struggling to gain a career foothold with an entry-level job (if you're lucky) and you've got $20,000 or more in student loan debt, let's just say retirement planning is not exactly front and center. Finding the free cash to sock away for retirement seems a bit beside the point when you're wondering how to pay the rent and make the student loan payment. So my nominee for the best gift you can give your kid, grandkid, niece, or nephew is to help them with repaying their college loans.

According to the College Board , nearly three quarters of 2008 graduates from a private four-year college left school with student loan debt. More than one in five of those grads had a loan balance of more than $40,0000 and another 14 percent faced loan tabs of between $30,000 and $40,000.

Those high debt levels could have broad economic repercussions beyond personal retirement savings. First-time homebuyers are a key piece of the housing picture. To the extent debt-laden young adults can't manage to start saving for a down payment, or fail the standard debt-to-income qualifying tests for a mortgage because of student debt, the overall housing market is going to suffer.

Gift a Student Loan Payment...or Two....or Three..or...
Seems to me that if you're really looking to help your new grad have a successful launch into the real world, helping out with student loan payments is the perfect gift. Not just a one-off, but how about birthdays, Christmas etc? That's the idea behind a new website, Lily's List, where grads can set up a gift registry for repaying their student loans. Friends, family, and benevolent strangers can gift the money to the account, and the payment goes directly to paying off the student's loans. You pay a little ($15 a year for the student and a $2.75 processing fee charged to the giver for each gift) to have the third-party handle the mechanics; that's not much to pay for the convenience and automation. Or you can work out your own system with your child to help them speed up their loan payments.

And come next tax season be sure to remind any recent grads you know that they can claim up to a $2,500 federal tax deduction for student loan interest payments. No itemizing necessary. To claim the deduction the borrower must have adjusted gross income below $70,000 ($145,000 if married). If that triggers a refund, that's just more money a newly minted grad will have toward paying down the debt, so they can start focusing on other financial goals faster, including saving for retirement.

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