It’s August, and that means young adults across America are heading off to college. Campuses across the country are welcoming students back in the thousands. Before your student hits the books, have them study up on the following 6 tips for essential college money management.
1) Create and stick to a budget. Figure out your income and create a budget. Be sure to take into account fixed and reoccurring income/expenses. Fixed sources of income could include student loan disbursements, scholarship monies or savings from a summer job. Reoccurring income can include earnings from a part-time campus job, a work-study gig or monthly help from the “bank of mom and dad.” 1
2) Make a list of wants versus needs. When making your budget, make a list of your wants versus needs. Try to spend most, if not all, of your money on needs. Do you need all new textbooks? (Hint: sometimes, used textbooks can contain helpful notes). Do you need cable access to 100+ channels? Do you need to spend $1k + on dorm supplies? You can spend more or wants later when you have extra income.
3) DO NOT USE CREDIT CARDS if at all possible. It’s just too much of a temptation for most students. Luckily, the Credit CARD Act2 prevents credit card approvals for students under 21 unless they have an adult co-signer or proof of sufficient income. If you are extra disciplined and still decide to use a credit card, make sure you can and will pay it off every month. Not just the minimum balance. Avoid relying on credit cards to fund a lifestyle you can’t actually afford.
4) Get by without, without sacrificing fun. Eat the meals provided in your meal package. If you want to eat better on the weekends, invite your parents or cool aunts and uncles up for a visit. If you’re of legal drinking age, try enjoying a (responsible) night with friends at home instead of always going to bars or restaurants, which can be more expensive. Skip the gym membership and use the campus gym. Rather than driving your car on campus, try riding your bike or taking the bus to class. It will give you an opportunity to meet other students during your commute. If you insist on bringing a car to college, leave it parked during the week and save it for weekend trips home.
5) Do not believe everything you hear about forgiveness loans. There are four types of loans that can be forgiven (see below). These are the only ones that qualify and do not require a program participation fee. Do not fall for scams with companies that claim to handle loans in exchange for a large fee. Many of the companies promising loan forgiveness are not legitimate companies or, while legitimate, can’t do what you are paying them for. The four types of loans that qualify for loan forgiveness are:
. Public Service Loan Forgiveness 3
. Teacher Loan Forgiveness 4
. Perkins loan cancellation 5
. Income-driven repayment
6) Carefully consider loan consolidation. Even though loan consolidation may seem like the best way to lower your payment, it may be better to leave loans separated and pay them off one by one. Yes, the payment may be higher but you could save thousands of dollars in interest by not consolidating. 6
As a college student, offers of free money are everywhere and so are the reasons to spend. Contact Financial Plans & Strategies to sit down with your child and one of our advisors for help in creating a college budget strategy, complete with our vault software for budgeting on the fly.
- The Credit Card Accountability Responsibility and Disclosure Act of 2009 extended protection to young consumers in Sections 301 through 305 of the new law. This was a response to years of predatory
behaviourby credit card companies on college campuses. https://www.ftc.gov/sites/default/files/documents/statutes/credit-card-accountability-responsibility-and-disclosure-act-2009-credit-card-act/credit-card-pub-l-111-24_0.pdf
- Post-college volunteering through programs such as AmeriCorps or PeaceCorps also
countas qualifying employment for the PSLF program. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service#qualifying-employment
- According to the U.S. Department of Education, the teacher loan forgiveness program is intended to encourage individuals to enter and continue in the teaching profession. Consideration qualifications include 5 consecutive years of teaching in schools that serve low-income families.https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher