College is that period of limbo where you’re not a kid anymore but it feels like you’re not quite an adult. Many college students live on campus in a dorm, and they’re eating food in the dining hall; or, they live at home in their childhood bedroom with a parent supplying the meals. Even though you haven’t been fully immersed into the adult world, you’re an adult and should begin to prepare yourself financially for life after college, even if you haven’t even gone yet.
In the U.S., student loan debt has reached an all-time high of $1.5 trillion with the average student owing $37,172. Student loans can be a great help when it comes to affording skyrocketing tuition, but it doesn’t have to be your go-to solution for affording a higher education. Student loan companies make it easy for parents and students to secure funding. Can’t afford to pay? Don’t worry! You don’t have to start paying until six months after you’ve graduated, and you can take 10 years to pay! Is that timeline still too aggressive? Fine, take 20 years!
It’s easy to fall into the student debt pit and put it out of your mind; after all, you won’t have to worry about paying for it for a long time. The truth, though, is that students and their families are taking on so much debt that they may begin to wonder if it’s all worth it.
Unfortunately, you may have to take out some student loans as a supplement to what you’ve managed to save, but if you make a plan before you go to college, you can keep the borrowing to a minimum and start your life as a full-fledged grown-up with little or no debt.
1. Make a Financial Plan
Include all the money that you’ve saved, any contributions your parents can make, scholarships, grants, tuition, room and meal plan, cost of books, etc. When you know how much you need each month, come up with a reasonable budget. If you’re eating most of your meals at the dining hall, food spending is much more predictable; just add in a little for goodies that you can’t get there. Be sure to include a little extra for entertainment such as a movie or other night out now and then.
Many schools will allow you pay your bill as an installment loan divided by the number of months in your school year. This is different from a traditional student loan because it’s paid off by the end of the year. If you’re able to swing it, paying for college this way will leave you debt-free when you graduate.
If these payments are too large, you may have to go with a traditional student loan. However, with a clear picture of your finances and a budget that you can stick to, you won’t have to borrow as much.
2. Start an Emergency Fund
In your budget, include an amount, no matter how small, to put into an emergency fund. You never know when an emergency may pop up. Vehicle repairs, unexpected medical bills, or added fees can catch you unprepared and force you to rely upon credit cards. Put the emergency fund in a separate account to keep you from dipping into in for non-emergencies. Setting up an automatic deposit from another bank account means you’ll never forget to do it.
3. Get a Part-time Job
The sooner you can start saving for college, the fewer student loans you’ll have to get. In high school, put away a percentage of your paycheck each week (not 0!) for college. Before college begins, start your job search for a job while you’re in school. Apply for work-study if you qualify, and if you don’t, find out how to apply for non-work-study jobs on campus. Often, jobs are offered to the students in the work-study program first and are later opened up to everyone. Start sending your resume to businesses near campus and follow up with phone calls. Most businesses around colleges rely on students to fill their staff, so having an interview lined up for the first week of school will put you ahead of the pack.
4. Join a Credit Union
Credit unions typically have lower fees and are more customer-oriented than traditional banks are. They usually offer higher interest rates on savings accounts as well.
5. Build Your Credit
It may seem counterintuitive to start using a credit card when you’re trying to avoid debt, but when you graduate, you’ll be doing things that’ll most likely involve using credit, such as buying a car or leasing an apartment. Before you even start college, you’ll be inundated with credit card offers. Consider them carefully. They may offer low rates only to raise them through the roof after the introductory period is over. Your best bet may be to have your parents co-sign for a credit card if they’re willing to do so and have good credit, which may give you a better interest rate.
Getting into credit card debt is easy to do. Only make purchases that you can pay off immediately, and don’t use credit for emergencies. After all, that’s why you set up an emergency fund!
While these five steps should begin before college, you should continue to do them during college. Budgeting is an important life skill that’ll help keep you financially independent throughout your life. Always include your savings as part of your spending plan; as your life grows, so should your emergency fund. In college, it was probably enough to have a few hundred dollars to cover emergencies, but when you have an apartment to pay for, utilities, and other living expenses, you should have at least six months’ worth of your salary set aside in case of illness or job loss.
For many, their first foray into investing comes with a 401(k) with their first job, but this doesn’t have to be the case. Once your emergency account is fully funded, take the money you were putting into it and put it into an investment fund.
When you’ve graduated and landed that first job, it’ll be tempting to start spending that paycheck, but be cautious. Your everyday expenses are one thing, but you’ll also likely have to start paying off any student loans you took, typically starting six months after graduation. Create a new budget and stick to it. By developing good financial habits before and during college, and keeping loans to a minimum, you can have a secure financial life and meet your future goals.