10 money rules for college kids
By now you’ve passed your first exam, pulled a few all-nighters, and figured out where to go to hear free music. But freebies alone a college life does not make. You need money for most things, and it’s pretty easy to find yourself tapped out fast. So it’s time to face the question: “How am I paying for all of this???”
You’ve probably worked out the big stuff: tuition, room, and board. That’s one hefty load itself. The average college grad owes more than $37,000 in student loans. But I’m talking about all the other expenses—who’s paying for those? According to the College Board, students spend an average of $2,000 a year on personal expenses (laundry, cell phone, movies), $1,000 on books, and $1,000 on transportation. That’s $4,000 a year!
The last thing you want to do is add to your ten-ton student loan debt load, so here’s your cheat sheet to keeping costs down.
1. Don’t get a credit card.
Just a few years ago, any college kid could get a credit card. But under the CARD (Credit Card Accountability, Responsibility, and Disclosure) Act, people under 21 can only get a card if they show proof of income or have an over-21 cosigner. But, cosigning comes with consequences: If a payment is missed, both parent and student credit scores take a hit. Not to mention that people spend twice as much when they use a credit card instead of cash, according to a classic MIT study. And, typically, credit cards pay for a lifestyle you can’t actually afford and can get you into trouble. If you think a credit card is needed for emergencies only, I might be convinced. Otherwise, wait until senior year when practice for real life might be a good thing.
2. Get a checking account and a debit card.
I am a cash purist, but since cards are a way of life, this is one card I can get behind. Get a student account that’s attached to your parent’s checking account. This way, your parents can transfer an agreed amount each month and extra money in case of an emergency. Or, open a separate checking account through a credit union or a local bank near school. Just make sure the account does not have fees or require that you keep a minimum amount. And when you get the debit card (which is attached to the checking account), don’t opt in for overdraft protection. It may sound great—if you need more money, they’ll give it to you—but they could charge you as much as $35 per transaction. That means a $2 pack of gum can cost you $37!
3. Be sure you have health insurance.
Many schools require that students are covered. Luckily, young adults can now stay on their parents’ health insurance until age 26. But if you’re going to an out-of-state school, make sure your parents’ insurer doesn’t have any location restrictions. Schools sometimes offer a good plan.
4. Get a job.
Thirty-two percent of students at 4-year colleges work while they’re in school, and 52 percent of those at 2-year colleges do, according to the Bureau of Labor Statistics. I know what you’re thinking: Finding a job isn’t easy. That’s true especially right now. But college kids can tutor, babysit, flip burgers, and wait tables. And working part-time can be good for grades: Kids who work 20 hours a week or less during the school year actually have slightly higher GPAs than those who don’t, according to a 2008 study by Professor Gary R. Pike at Indiana University-Purdue University Indianapolis.
5. Comparison shop for books.
Textbooks cost about $1,000 per year, but you can lower that by being a smart consumer. Skip the university bookstore and try shopping for used books on Textbooks.com, eCampus.com, and, of course, Amazon.com. Or, for books you don’t care to keep, try renting on CampusBookRentals.com. For example, one popular economics textbook was $255 new, $190 used on Amazon, and $100 to rent. (If you’ve already bought your books, try these tips next semester.)
6. Always pay your bills on time.
You check Facebook and Twitter constantly, right? If you check your bank accounts and bills even half as regularly, you’ll be off to a good start. Remember, one late payment can damage your credit score—basically the GPA of your financial life that follows you around and determines your rate on car loans and mortgages, as well as your ability to rent an apartment or even get a job. Request a free copy of your credit report once a year at AnnualCreditReport.com and check it for mistakes. Then, get a free version of your credit score at CreditKarma.com.
7. Just say no… to spring break
No Cancun? Are you kidding? Apparently not: Last year, 40 percent of students went on spring break, according to Student Monitor. But no one mentions their one lasting souvenir: credit card debt. Whining that everyone else is doing it won’t work this time. Forty-nine percent of students stayed home, and many worked instead. It might sound boring right now, but just think: Kids who save the bon voyage for when they actually have income to fund it can sit back and relax on the beach worry-free when the time comes.
8. Stay on the family cell phone plan.
You’ll likely get a better deal by staying on the family plan. But if you need a separate plan, find one that suits your texting or chatting habits. Websites like MyRatePlan.com can help you compare options and see who has the best deal.
9. Don’t rule out public service majors.
Times are tough, but don’t eliminate a major that leads to public service work or a low-paying career just because you’re afraid of owing a lot in student loans. First of all, in this economy, there’s no guarantee that finance, banking, or any traditionally lucrative job is going to pay big. But there are loan payback options for do-gooders. If you choose a career like social work or teaching, you can apply to have your debt erased after 10 years through Public Service Loan Forgiveness. Joining AmeriCorps or the Peace Corps may allow you to defer or cancel some of your loans. For anyone, regardless of career path, income-driven repayment plans allow you to pay back your student loans based on what you make, not what you owe; see IBRinfo.org for details. And for questions about financial aid, scholarships, and loans, head to studentaid.gov.
10. Consider grad school, but don’t bank on it.
You should still fill out the Free Application for Federal Student Aid (FAFSA) in order to qualify for lower-rate federal Direct Loans (aka Stafford loans). If you need more financial aid, apply for a Grad PLUS loan. But remember: Grad school is a serious investment, and you’ll need to evaluate whether it’s worth it. To get an idea of how much a grad degree in your chosen field of interest might be worth, check out the stats from
Georgetown’s Center on Education and the Workforce.
Here’s wishing you all an intellectually stimulating, academically rigorous, emotionally satisfying, and… financially healthy school year!