As a recent or soon-to-be college graduate, there's a good chance that you or someone you know has considered AmeriCorps or Peace Corps for that first post-college job. Figuring out what kind of job you'd like and are qualified for is no easy task, and taking a job with such low pay when you have the option of making at least twice as much is no small decision when it comes to your finances. Read on as we cover the benefits and drawbacks of taking on this job.(To decide between job offers, see Trying On Potential Employers and Taking The Lead In The Interview Dance.)
Both AmeriCorps and Peace Corps are federal volunteer programs that connect benevolent citizens with public agencies, nonprofits, faith-based and community organizations doing work that can range from basic healthcare to business development in either domestic or foreign locations. Volunteers receive a living stipend (designed to cover just the necessities) along with free health insurance (with some restrictions). In 2010, full-time, year-long positions with AmeriCorps generally paid between $983 and $1,967 a month. Peace Corps living stipends vary by location and allows you to live in a similar fashion to the people in the community you will be serving. Additional differences between the programs are summarized below.
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If you're thinking about AmeriCorps or Peace Corps, here are some of the monetary aspects of the choice that you should evaluate before making your decision:
In some places, the AmeriCorps stipend will easily cover rent, utilities and groceries with money to spare. On the other hand, if the position you're looking at is in a city with a high cost of living like Los Angeles or New York, you might want to look elsewhere - unless your parents are planning to support you for the year. There's no use going into debt to be in AmeriCorps when there are plenty of ways you can make the world a better place for others without making it a financially worse place for yourself.
That said, if location is key for you, be creative in finding ways to make it work. Get in touch with local programs and current participants to see how folks are able to get by on lower incomes. Some AmeriCorps alumni may be willing to let current members room with them for free.
If participating in AmeriCorps is more important to you than living in a specific place, there are plenty of positions in cities with a low cost of living and rural areas where you can get by just fine, and probably even save a little money each month. Just use the AmeriCorps website to search for positions by location.
For Peace Corps, your assignment is chosen for you and the pay is based on your location, so you really can't factor location into the financial aspect of your decision. To learn more about their locations, see the Peace Corps website.
- Future Educational Plans
This aspect of the decision also mainly applies to AmeriCorps since Peace Corps does not offer an educational award (although the Peace Corps website suggests that participating in its program can help you get into grad school). The Segal AmeriCorps Education Award for completing a year of full-time service is equivalent to the maximum value of the Pell Grant for the award year in which the term of service was funded. For 2010, that amount is $5,350. Some schools will match your award. If you are interested in attending any of these schools, a double educational reward combined with your cost of living stipend starts to make AmeriCorps pay and benefits look much more reasonable and make attending grad school significantly more affordable. Note that the award must be used within seven years, and that you can actually earn two awards by completing two terms of service.
With participation in either program, you'll still be poor enough upon completion to qualify for plenty of financial aid (assuming that you don't have a trust fund or other large amount of cash socked away). If you worked at a traditional salaried job, you might be able to save more, but when it came time to apply for financial aid for grad school, you'd be expected to fork a lot of that savings over to pay for school, making your higher salary somewhat of a wash. Of course, putting any extra savings toward your education will lower the amount that you need to borrow and thus the interest you'll have to pay. (To read more about paying for your education, see Pay For A College Education With Retirement Funds and Invest In Yourself With A College Education.)
- Future Career Plans
In addition to putting that youthful idealism into action, participating in AmeriCorps or Peace Corps may help you break into a field you would otherwise be unqualified for. Also, both of these programs are federal programs, which means that upon completion of service, all Peace Corps volunteers, as well as AmeriCorps volunteers in the VISTA program, have an advantage in securing future employment with the federal government. Peace Corps offers additional job placement services as well, and can improve your future job prospects in that you are likely to learn another language while serving, which can open up additional opportunities and provide bigger paychecks. Both programs can provide excellent networking opportunities.
- Money Management Skills
For most people, it takes dedicated frugality to get by on a small living stipend. If you can't do this and don't have anyone else supporting you, stay away - it's not worth going into credit card debt to participate in one of these programs. On the other hand, if you learn how to get by on very little when you're learning to manage your own money for the first time, you're likely to develop good frugal habits that will be an asset to you throughout your life. (Learn how to stick to a budget in The Indiana Jones Guide to Getting Ahead, Credit, Debit And Charge: Sizing Up The Cards In Your Wallet and The Beauty Of Budgeting.)
Unfortunately, the small living stipend paid to AmeriCorps volunteers is taxable, and so is the education award (the latter is taxable in the year that you actually use it, so make sure to research this issue thoroughly to avoid losing a large chunk of the award to taxes). According to AmeriCorps, there are tax credits like the Hope Scholarship Credit, the Lifelong Learning Credit and the Taxpayer Relief Act of 1997 that may be able to ease the sting. Also, if you're participating in loan forbearance (or postponing loan payments), you should know that any interest relief paid by your program will also be taxable. Likewise, the $6,000 Peace Corps award is taxable. Fortunately, with the small amount of money you'll be making, your tax bill probably won't be significant, but you should be aware that the financial benefits of the programs do not come tax free and that you may need to do some strategizing to minimize your tax hit.
Because of the power of compound interest, getting an early start on retirement savings can have a surprisingly significant effect on your net worth down the line. By participating in low-paying programs like AmeriCorps and Peace Corps, you will be giving up not just the money you could be putting into an IRA or 401(k) today, but all the additional returns you would earn on that money if you put it away today instead of waiting another year or two to start saving. (To learn more about saving for retirement, see Retirement Savings Tips For 18- To 24-Year-Olds.)
You should also consider credit card debt when deciding whether to apply to one of these programs. If you have to go into credit card debt to get by while you're volunteering, what is meant to be an overwhelmingly positive experience can become very stressful and very detrimental to your financial health for years to come. If you already have credit card debt from college that you won't be able to pay off with your program's low pay, you may want to pursue a higher paying job to pay off the debt first. High interest rates can quickly turn small or manageable credit card debts into monstrous ones, and high balances and unpaid bills will do untold damage to your credit score, jeopardizing your chances of getting a good loan later on when you're ready to buy a home. (Keep reading on this subject in The Importance of Your Credit Rating and Understanding Credit Card Interest.)
Many recently graduated college students are already used to living on next to nothing and figure an extra year won't hurt. For some, making $900 a month might even mean a significant increase in quality of life. In either case, it will be easier to take a low paying job when you're already used to making nothing than it will be to go back a few years down the road when you've gotten used to a comfortable salary and may have incurred major financial obligations like a mortgage or children.
- Student Loans
If you have federal student loans, you may be able to postpone your monthly payments while you're serving. During forbearance, interest continues to accumulate on your loans. However, your program may be able to provide relief from this interest (though any relief will be taxable). You can also use your $5,350 educational award to repay qualified student loans.
Putting the award toward loans will increase the value of the award in that it will also reduce the amount of interest you'll pay on your loans. If loans are an issue for you, put extra effort into securing a position in the AmeriCorps VISTA program, which currently has more student loan benefits than the other AmeriCorps programs. The Peace Corps also offers loan deferment on federal loans and partial cancellation of Perkins loans. Both programs state that some commercial lenders also allow forbearance during your term of service, so be sure to check with your provider.
The Bottom Line
It's important to be honest with yourself about your spending habits and financial situation before taking on such a low paying job when you have the option of making significantly more. The real motivation for participating in either program won't be financial, of course, but to make sure you get the most out of your program and aren't allayed by money troubles, consider the numbers before signing on. Despite the low pay, AmeriCorps and Peace Corps can have significant benefits if your situation is right and you do some careful planning beforehand.
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