Personal finance and budgeting tips for college students
Millions of Americans are mired in college debt. The Federal Reserve estimates more than $1.7 trillion in student loans owed as of 2021, an increase of more than 90% since 2011. While investing in a college education can create unique opportunities for career advancement and success, decisions about spending made during the college years can impact what happens to an individual after graduation, including purchasing a car or a home or managing credit.
● The average annual cost of college tuition and fees is $35,331.
● The average annual cost of college books and supplies is $1,291.
● The average annual cost of on-campus room and board is $11,303.
● Average additional expenses at four-year institutions can run between $2,733 to $6,022.
Personal finance literacy is critical for individuals to minimize their expenses, save money, and plan for the future. With information and resources about managing personal finances and budgets, you can prepare yourself to become responsible with finances and budgets.
Create a budget
According to a 2019 survey from Everfi, 47% of college students said they weren’t prepared to manage their finances. Creating a budget can help you feel more confident about managing your money.
A budget is a management tool that allows you to balance your income with your expenses over a specified time frame. A budget can be weekly, monthly, or annual, and it can be revisited at any time should circumstances change. However, it’s recommended to create a reasonable budget and stick to it as closely as possible.
Sources of income
You should consider sources of income when creating a budget. Your top priority should be to excel in your studies, but to pay for necessities, you may have to learn how to balance your education with work. Some students can lean on family members for income. Other income options include the following:
● Get a full-time job. Full-time employment is typically around 40 hours a week. This may mean taking a smaller credit load each semester to ensure that you can complete your coursework. However, a full-time job may come with health benefits that enable you to worry less about costs associated with health care.
● Get a part-time job. Part-time employment offers more flexibility. It can take place in a retail store, office building, hospital, or another setting. Although health benefits are typically not offered in this work option, it provides a viable source of income and more time to focus on studies.
● Participate in a work-study program. The school typically sponsors work-study programs, which may be on campus. Roles can include working in the school’s various administrative offices, in the bookstore, or on an athletic team. Off-campus work-study programs can take place in organizations that aren’t part of the school but that support the school in some other way.
● Sell unused items. You may accumulate many items over the years that you no longer use or have a need for in college. Some of these items may have a high value (think a baseball card collection or clothes in very good shape), and you can sell them online on sites like eBay or apps like Poshmark or The RealReal.
The average tuition in the U.S. (nearly $26,000) has nearly tripled in the past two decades, according to the Education Data Initiative. However, you also need to consider expenses other than tuition. For example, you should factor the cost of the following into the budget:
● Transportation to and from school (paying for a car vs. taking public transportation)
● Supplies and books for classes
● Room and board (staying on campus vs. staying off campus)
● Life essentials (clothing, food, medicine)
In the end, sticking to a budget is a large part of personal finance for college students. By knowing when to say no or not now, changing your mindset to spend better, and remembering the rewards of saving more, you can make a budget work.
Budgeting and financial planning resources
You can access the following budgeting and financial planning resources to find tips and strategies to manage your money:
The different types of financial resources that can help you pay for college include grants, scholarships, and loans. Some are financial gifts and some need to be repaid. The most common types of financial aid are grants, scholarships, and loans.
● Grants. Grants are typically based on financial need. They can come from the federal or state government, college, or a private or nonprofit organization. They typically don’t have to be repaid unless they stipulate that you must repay them if you withdraw from school too early. Each year, the U.S. Department of Education’s office of Federal Student Aid provides more than $120 billion in federal aid, including grants, loans, and work-study funds.
● Scholarships. Scholarships are awarded for a wide range of reasons, including excellent academic or athletic performance, merit, and areas of study. A scholarship is a gift and doesn’t need to be repaid. Sources of scholarships include corporations, organizations, government agencies, and the school itself.
● Loans. Loans have to be repaid after graduation. Common loan programs include direct subsidized and unsubsidized loans, subsidized and unsubsidized federal Stafford loans, and PLUS loans. The time frame for repayment varies by the type of loan. Repayment is typically monthly.
Many students are taking out loans to cover their college expenses. According to Student Loan Hero, 69% of the college class of 2019 took out student loans. Student loan debt also means that parents are taking out loans to pay for their children’s education: Student Loan Hero reports that 14% of parents took out federal parent PLUS loans, with an average amount of $37,200.
Additionally, members of the armed forces may be eligible for benefits that help pay for education. The GI Bill provides assistance to veterans, and each branch of the military offers military tuition assistance programs for active duty service members.
Financial aid and sources of income can help pay for college tuition and expenses, but it’s also important to ensure that enough funds exist to pay for the essentials. Here are some personal finance tips for college students for saving costs on food, transportation, and household expenses.
● Write a shopping list. Entering a supermarket aimlessly can lead to overspending. When shopping for food and household items, writing a list can help ensure that you don’t exceed your budget.
● Use coupons. All that’s needed to benefit from coupons is a circular or newspaper and scissors. You can also check out couponing sites for the latest deals.
● Ride a bike. If you live off campus but close enough to the school, consider biking to save money on gas or public transportation while reducing your carbon footprint.
● Carpool. Arrange a car pool with fellow students, splitting the cost of gas with them. This not only saves money but also helps you build a good friendship.
It’s best to be financially prepared for life’s unexpected circumstances. Saving money can help you become financially secure for unplanned expenses, such as a car breakdown, computer crash, or job loss. Saving money can also help because more cash in hand may translate into lower interest and lower fees for major purchases such as a car.
Saving money early to get into the habit is important. Even putting away small amounts right away and consistently over time can lead to financial freedom in the future. Examples of money-saving vehicles are:
● High-interest savings accounts. A high-interest savings account typically pays a higher interest rate than the national average of a standard savings account.
● High-yield checking accounts. A high-yield checking account offers a much higher annual percentage yield (APY) than a standard checking account.
Resources: Advice on saving money
Saving is an important aspect of personal finance for college students. The following resources provide helpful information and advice for saving and finance management:
One of the biggest sources of financial struggles for college students is credit card debt. Sallie Mae reports that students hold an average credit card balance of $1,183. If you can’t pay your monthly balance, it affects your credit score negatively.
The difference between a good credit score and a poor one is that the former provides competitive interest rates for large purchases, such as a home, and the latter means having to pay higher interest rates, potentially hampering one’s ability to get a mortgage. This is why it’s important to use credit responsibly while in college. The goal is to build and maintain a good credit score. According to Equifax, a rating between 670 to 739 is considered a good credit score. Anything below that is either fair or poor.
Credit cards are useful to pay for expenses, but they must be managed properly. Here are some tips:
● Set ground rules. Ground rules include using credit cards along with a solid budget tied to a savings plan, and using the credit card to pay items that you could afford to pay without credit.
● Be careful not to overspend. Pay only for what you need and what’s within your budget. Be sure to not exceed the credit limit because it may negatively impact your score.
● Making timely payments to avoid fees. Never miss a monthly payment. It’s recommended that the balance on the card be paid every month to limit fees. Mobile payments make it easy for college students to automatically pay bills.
Have a debt payoff plan
Paying off debt may be a large part of personal finance for college students. You may have multiple sources of debt after graduation, including credit cards and loans, and you can take steps while in school to minimize the burden of educational debt after college. The following two-pronged strategy can help reduce the impact of educational debt after graduation:
● Take out only the required loans. It may be tempting to apply for loan amounts that exceed your budget. For example, you may take out a loan to cover more than just tuition. Lenders factor in a student’s cost of attendance (COA), which includes living expenses such as housing and groceries. It’s important to note that while loans can help you with taking care of college costs in the short term, they will likely be repaid after graduation — and with interest.
● Make loan payments while still in college, if possible. Technically, you’re not obligated to repay a loan until after graduation. However, it’s worth considering paying down some of the hundreds or even thousands of dollars in student loan interest while in school to reduce the burden after college, if it works with your budget.
When it’s time to start making payments on student loans, individuals have various loan repayment plan options to choose from. Here are some of the most common:
● Standard. Payments are made in fixed amounts over 10 years. Consolidated loans can be paid over a period of 30 years.
● Graduated. An individual makes lower payments in the first few years. About every two years, the monthly payment increases. This plan allows individuals to pay off their loans in 10 years or up to 30 years for consolidation loans.
● Extended, pay-as-you-earn. For borrowers with more than $30,000 in direct loans, this plan offers flexibility for the loan to be repaid over 25 years, in fixed or graduated payments.
● Income-based repayment (IBR) plan. For borrowers with high debt relative to their income, an IBR plan allows monthly payments of 10% or 15% of their total discretionary income.
Resources: College loan information
College loan information websites, such as the following, provide insights on the types of financial aid available and how to find the right one for you:
Sound financial habits, such as budgeting reasonably, reducing expenses, learning to manage credit responsibly, and having a debt payoff plan, can help offset the high cost of college. Moreover, another important aspect of personal finance for college students is that individuals prepare themselves with critical financial skills. You should make sure that personal finance and budgeting become a core part of your college education journey to set yourself up to achieve long-term life goals.