4/23/2013 2:42 PM ET|
Worst money mistakes in college
These 5 common financial blunders can have repercussions for many years after graduation.
For many people, the college years can be the best time of their lives. Wild parties, freedom from parental restrictions, all-night study marathons and a host of other unforgettable memories are an integral part of higher education.
Unfortunately, costly financial errors also play a central role in the lives of many college students -- mistakes that can often take a decade or two to rectify. Here are the five biggest financial blunders that are most commonly committed by those seeking higher learning.
Credit card debt
There's a reason why credit card companies give away free soda and other goodies at college campuses across the country. Many college kids are financially illiterate and have not learned responsible spending habits, and the terms of the credit cards that are offered to kids are often among the worst available, with high interest rates and layer upon layer of hidden fees. The real cost of being able to buy things now and pay for them later often doesn't sink in until long after the damage is done, both to their budgets and their credit ratings.
Abuse of student loans
Although student loans often offer very favorable terms to student borrowers, those who take out loans to pay for everything can do themselves a serious financial disservice. The total amount of student loan debt in American is now about $1 trillion, which is more than the total credit card debt in this country. The graduating class of 2009 carried an average of nearly $25,000 of student loans.
Smart students will at least work part-time while they are in school, and employers like to see graduates who were able to pay for at least a quarter of their education costs themselves. Student borrowers also need to understand the terms of their loans and keep them from defaulting, which can damage their credit history.
Staying in school too long
Although going to graduate school can pay off in many cases, some students choose to stay in school to avoid facing the real world. This can substantially increase the amount of debt incurred for education and will only make it harder to deal with post-college life. In most cases, students need to be working toward a degree of some sort while planning for what to do afterward.
Students should never assume that they can do what they want and then just hope that it all works out for the best; if they have failed to plan, they have planned to fail.
Not protecting financial information
Many students think nothing of sharing their credit cards with their friends and logging onto their financial accounts on unshielded computers at libraries or other public places. This is one of the main reasons why nearly a third of all identity thefts happen to people between 18 and 29. Unreliable roommates and other predators are constantly trolling for access to bank accounts and credit cards. Students need to take reasonable measures to ensure that their user IDs, passwords and other information is protected.
Using retirement funds to pay for college
Although parents often face the dilemma of whether to fund their kids' college education or their own retirement, students should almost never cash in IRAs or other tax-deferred retirement savings to pay for college. The opportunity cost can be enormous for this, but college kids often don't understand this and only live for the moment. Not only will cashing in an IRA result in substantial penalties and taxes, it will deprive the student of much-needed funds later in life.
The bottom line
These are just some of the major financial errors committed by college students. Other mistakes include paying for a more expensive school than necessary, using student loan debt for non-educational purposes and ignoring the advice of others who can help. For more information on how you can avoid these errors, consult your student loan officer or financial adviser.
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While College education is important, it is affordable Tuition wise but not Room and Board including other expenses. Room and Board costs roughly $12,000 - $15,000 which college/ institutional grants and scholarships do not cover. Meaning the Student Loans and family will have to cover the balance.
Best choose a local college (community college for 2 years) then transfer to the preferred college for
your BA/BS degree and work up towards your Masters Degree. Live at home those 2 first years and save money, then move onwards. It'll make a huge difference. Many High Schools have programs funded by their state, like in NY State has Liberty Partnership Program and Say Yes to Education which reduces cost of tuition. Always apply for scholarships, get your High School Guidance Counselor and/or Career Advisor or your favorite Teacher to help you. If you can keep your grades above a "B " / 80 and take AP / College prep classes if possible. Honor classes are good but will not get you the College credit for them like Advanced Placement classes. It is possible to get into a good college without passing the SAT / ACT. But that is not a good way to go. Best to study and prepare for your SAT. Get above 1500 for okay school and about 1800 plus score for high end colleges. This will help you get a Academic - Merit Scholarship offered from the college or it's Presidential scholarship. College is affordable and important for obtaining a good job with family supportive wages. The bad news is cost of Room and Board so you will have to pay off that debt, so recommended to stay at home first 2 years so you don't have that hugh bill of Room and Board. Avoid using Credit Cards and please get a part time job. Stay away from junk food, don't over eat, exercise, get involved with clubs and learn time management and budget spending. After college and getting a job, you'll have more time for fun and money to do things. 6 years is short compared to the next 40 you'll have in the working world. Start relying on yourself. Mom and Dad won't be around forever or bail you out.
My daughter will graduate High School class of 2013. She worked for 2 years at Best Buy and saved $6,000 which is paying her way to study abroad in Florence, Italy. I don't have the money and she's working to pay her way through college. Great grades in H.S. , work, save money, plan things, apply for scholarships, volunteering, involved with community and people will get you places.
Poor families like mine below $17k for family of 4 (was about $32k annual 2 adults working until the Great Recession hit in 2008. Low Income is $25k to $45k, Middle Class is $46k - $99,000, the wealthy are those above $100k and super rich are $250k plus), your children can make a better life as my daughter intends to do as long as you support / back them up in their decisions and help the best you can. Even without money, all the other things you do for your children does make a difference.
Eight years ago when my son went to orientation over the summer, one of the things the college required the new students to take was a one day course on credit cards. Of course I had already taught him to budget but a bit of reinforcement is a good thing. It's really up to the parents to teach their child about credit cards and how not to get sucked in.
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