3 Big Money Mistakes You Should Avoid in College
Investing in a college degree should carry the often-cited disclosure: “past performance is not indicative of future returns.” With rising tuition prices and a sluggish labor market, a college education is no longer an automatic windfall to a better life. In addition to majoring in a field that will hopefully lead to a decent-paying job after graduation, students need to pass several financial tests.
The initial price tag of attending college is only the beginning. Over the course of several years, students are faced with financial challenges that can spiral out of control if ignored. In order to gain a better understanding of these challenges, MagnifyMoney, an organization that aims to educate consumers about personal finance, recently noted the worst financial mistakes to make while attending college.
1. Skipping financial aid
Not educating yourself about financial aid opportunities is one of the most common and worst mistakes you can make in the college process. According to the Institute for College Access and Success, 65 percent of students who are planning to attend college do not name grants as a source of financial aid, while 72 percent fail to name scholarships.
Making matters worse, many students do not even file a Free Application for Federal Student Aid (FAFSA), the form used by the government to determine your Expected Family Contribution by conducting a need analysis based on financial information you provide. Twenty-nine percent of low-income dependent students and 39 percent of low-income independent students say they did not file a FAFSA because they believed they could afford to pay.
However, there is no harm in at least filing the FAFSA, and benefits include more money to help pay for college. The deadline for filing the FAFSA varies across different schools, but it should be done as soon as the form becomes available, right after January 1 each year, in order to maximize your financial aid opportunities. You can estimate financial information on the form such as income before your taxes are complete, and file a revision once you know the exact information. If you have questions, don’t be afraid to ask your college’s financial aid office or your high school counselor if you’re not quite in college yet.
2. Not managing debt wisely
Between credit cards and student loans, college is a time when many people start using debt on a regular basis. If this debt is abused, it can snowball to more painful problems later in life. On the other hand, if you start managing your debt wisely in college, it builds a good foundation for debt management after graduation. MoneyMagnify provides the following example of a student abusing her first credit card.
“My mother actually signed me up for my first credit card,” says Jeet Singh, a junior majoring in geology. “She told me that it’s only for emergencies, nothing more. But, I figured a few small purchases here and there wouldn’t hurt.” Unfortunately, those small purchases quickly added up to $7,000, placing a heavy debt burden on Jeet and her mother.
Student loans can be worse than credit cards if used incorrectly. Unlike most other types of debt, student loans are not typically dischargeable through bankruptcy. This prolongs the longevity of student debt. Between 2005 and 2013, the total amount of outstanding federal student debt among seniors 65 and older grew from $2.8 billion to $18.2 billion, according to the Government Accountability Office. From 2002 through 2013, the number of individuals whose Social Security benefits were offset to pay student loan debt increased about five-fold from about 31,000 to 155,000.
Since 2008, total student loan debt in America has surged by 84 percent to almost $1.2 trillion, according to a recent report from Experian. Student loans are now more popular than home equity loans/lines of credit, credit cards, and automotive loans.
3. Staying in college too long
Pulling a Van Wilder and staying in college for the better part of the decade to have fun is a dangerous strategy, especially if you’ve committed the previous two mistakes on this list. It takes careful planning to graduate college within four years, and even then surprises can occur that result in an extra year or two of unexpected tuition bills.
MagnifyMoney highlights Sangee Kumar, an accounting major that needed an extra year due to a heavy course load. “I knew that I needed 150 credits to become a CPA, but I thought that I could do it in four years,” Kumar says. Instead, he needed an extra year to keep his GPA above 3.5. “Financially, I didn’t plan on it. I mean, tuition rises every year, now I have to find the extra money to pay for the remaining two semesters.”
Since it’s not uncommon to need more than four years to obtain a college degree due to life surprises, changing majors, or even difficulty in completing required coursework at the available times offered, students should financially prepare for a longer stay ahead of time. College 529 plans, work-study programs, part-time jobs, A+ program, financial aid, grants, scholarships, and loans can all help offset the financial burden of obtaining a degree.
Follow Eric on Twitter @Mr_Eric_WSCS
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