How can I avoid getting into debt?

How much should I take in student loans?

Should I get a credit card?

How much should I budget for items like food, shelter, and transportation?

What is a credit score, and why should I care?  

According to a Money Matters on Campus Survey1 of 85,000 college students, the vast majority lack the necessary knowledge and skills to make financial decisions.

Less than half had ever taken a financial literacy class, which might explain the following statistics:

  • 59 percent had not checked their checking account balance in the past year
  • 60 percent had not created a budget
  • Of those who had created a budget, 57 percent didn’t use it

This lack of financial knowledge and inability to manage finances creates tremendous stress, leading students to neglect schoolwork, reduce class load, transfer or drop out.  

That’s why the need for college-supported financial education is so great.

Not only do students become educated about a subject that impacts their entire lives and reduces day-to-day stress, but students who feel less stressed about finances are more likely to stay in school and have a higher GPA.2 

Here are five common student money concerns that a college-sponsored financial wellness program can help prevent:

Credit Card Debt

Most traditional students are on their own for the first time.

Armed with a checking account and a debit card, they hit campuses across the country.

Before students even get settled into a good routine, the credit card companies begin to deluge them with tantalizing offers such as no annual fees, 0 percent interest, rewards, and more.

Although a student's time in college is the right time to begin building a credit history, using credit cards incorrectly or signing up for too many cards can damage credit scores and leave students swimming in debt.

The 2016 Experian Graduates and Credit survey3 of college students graduating within six months found:

  • One third said they had made at least one late credit card payment
  • One third said they had maxed out their credit cards
  • One third said they had credit card debt, with an average balance of $2,500

Substantial Student Loan Debt

According to the U.S. Federal Reserve4, 69 percent of 2018 college graduates used student loans, with an average personal debt of almost $30,000 and parental debt of $35,000.

In total, 45 million Americans owe over $1.56 trillion in student loans. 

Most college students feel that student loan debt is inevitable.

Unfortunately, many students take out high student loans for majors that don’t provide higher lifetime earnings or for majors they never complete.

According to the Education Department’s National Center for Education Statistics5, it is not uncommon for college students to change their majors, with over a third changing their major at least once.

College-provided financial literacy programs can teach students how to borrow responsibly, as well as how much to borrow to keep the debt burden affordable.

Programs offer tips such as:

  • Debt at graduation should be equal to or less than the borrower’s annual starting salary
  • Avoid reducing payments or extending payments in order to pay less interest over time
  • Don’t use student loan money to purchase unnecessary items
  • Borrow as little as possible
  • Estimate your income after graduation to determine wise loan limits

Poor Credit

Unfortunately, abusing credit cards and taking on too much student debt can lead to poor credit, which can impact everything from buying a home to insurance rates.

According to the Consumer Federation of America6, only:

  • 70 percent of students know that landlords run a credit check
  • 53 percent of students know that utility companies check credit to determine the deposit needed
  • 68 percent of students know that cell phone companies require a large deposit for those with low credit scores
  • 66 percent of students know that car and home insurance companies base rates and deposits on credit checks
  • 25 percent understand that the cost of a $20,000, 60-month car loan increases by more than $5,000 with low credit 

Additionally, 29 percent of employers7 check an applicant’s credit score before hiring.

However, according to a study by Equifax, only 56 percent of college students know their score. 

Strong financial education can provide students with a clear understanding of credit scores, how they differ from credit history, and how a strong score will help them navigate the world outside of academia. 

Lack of an Emergency Fund

A recent survey by Ascent Student Loans8 states that 60 percent of students are responsible for covering more than half of their education.

With the average four-year public college costing $9,410 per year and a four-year private college costing $32,410 for tuition and fees9 plus room and board, books and supplies, transportation, and personal expenses, students today have a lot of expenses to worry about.

Given this fact, is it important for them to also have an emergency fund? The answer is yes.

A 2018 national survey, Still Hungry and Homeless in College10, found the following:

  • Over one-third of university students surveyed had limited access to food in the past 30 days
  • 36 percent had trouble paying for housing, often leading to moves, in the past year

Now imagine this scenario with an unexpected car repair, higher than normal electric bill, or the need for expensive dental work.

However, only 19 percent of students11 have an emergency fund to deal with such issues.

By providing strong financial education, colleges can help students understand the need for having savings, as well as a plan for starting a monthly savings program.

Lack of a Plan

The fifth student money problem is not having a financial plan.

Without a budget, they cannot keep their finances in order, which often leads to all the other financial issues touched on thus far.

In fact, 64.5 percent of undergraduate students12 run out of money before the semester ends at least once during their college career, with just over half saying it was due to unanticipated expenses.

A realistic budget can prevent students from overspending, help them anticipate expenses and provide a cushion for those inevitable emergencies. 

Financial wellness programs can teach students about budgeting, emergency savings, responsible borrowing, student loans, credit score, and much more.

Choosing a financial literacy platform that appeals to students with gamification, videos and other multimedia content, is proven to increase participation and engagement.

To see how the iGrad Platform improves Financial Wellness for college students, check out our demo video here.

 

 

1 - https://www.luminafoundation.org/files/resources/money-matters-on-campus.pdf

2 - https://www.fidelity.com/about-fidelity/institutional-investment-management/research-finds-the-top-two-sources-of-stress-for-american-worker

3 - https://www.experian.com/blogs/ask-experian/graduates-and-credit/

4 - https://www.federalreserve.gov/releases/g19/current/default.htm

5 - https://nces.ed.gov/pubs2018/2018434.pdf

6 - https://consumerfed.org/wp-content/uploads/2016/06/CFA-VSS-Survey-Results_2016.pdf

7 - https://www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx

8 - https://ascentstudentloans.com/wp-content/uploads/2018/07/Ascent-Student-Loans-Survey-Results-Final.pdf

9 - https://bigfuture.collegeboard.org/pay-for-college/college-costs/college-costs-faqs

10 - https://hope4college.com/wp-content/uploads/2018/09/Wisconsin-HOPE-Lab-Still-Hungry-and-Homeless.pdf

11 - https://lendedu.com/blog/college-students-and-personal-finance-study

12 - https://www.edvisors.com/press/survey-shows-two-thirds-run-out-of-money-03-2016/