By Howard Freedman
President Financial Aid Consulting
Managing your money probably began early in your life. It may have started by getting an allowance, gifts or working around your neighborhood. In all likelihood you spent it as quickly as you got and college was too far in the future to even think about. That is all behind you as managing your money has been taken to a much higher level.
By now, you understand that a college education is a great investment that can open many windows of opportunity. A college education is an investment that delivers long-term value that does not end after you receive a degree. On the other hand, a concert ticket is an expense since it delivers no residual value other than a memory.
• BE REALISTIC. Most families do not have the money for college and have to rely on borrowing to pay for it. This approach works when loans are available yet significantly more expensive than if they saved more money for college. For example, if they borrowed $10,000 at a 6 percent interest rate, you will pay about $18,000 over 10 years. The $8,000 premium may not be worth it if you do not earn a high salary after you graduate.
• FINANCIAL AID. Review your financial aid package with your parents and agree on the amounts you will each pay. Remember that this process will occur each year as costs escalate. Calculate four years of out-of-pocket costs, accumulated interest and how much you will have to pay after you graduate. This is the time to decide if it the additional cost justifies the value of the education at that college.
• REAL COST. The financial aid award letter will describe the total cost of attendance less the financial aid. Costs related to health and insurance and other fees should be questioned, as they may not be required. Understand that unmet includes direct costs (paid to the college) and indirect costs (paid to a third party) such as for travel and supplies. Also be sure that the colleges are aware of any changes in family financial circumstances such as a job loss that may impact your financial need.
• LOANS. The U.S Department of Education offers Stafford and Perkins loans. These do not require a credit worthy co-signor and are relatively easy to get. A parent PLUS loan is a parent loan offered by the U.S. Department of Education to credit worthy parents that are responsible for repayment. There are also alternative loans that are generally more expensive and require co-signors. Each loan should have a deferred repayment option or a way to pay interest only.
• REVIEW SPENDING. Belt tightening and soul searching will help you to decide how to cut expenses by reviewing family income and spending habits. There may be options to reduce the costs of cell phones, clothing, auto expenses and insurance, vacations, gifts, credit card debt and so on.
• BEWARE CREDIT CARDS. While in college you jay have one of the most dangerous weapons in your wallet-your credit card. The best ways to manage credit cards are to use them as a last resort. Each credit card has a spending limit and fees associated with minimum and late repayments. Making a minimum payment will protect you against an expensive late fee yet interest accumulates until the balance is paid. Pay it online before the deadline.
• DEBIT CARDS. Debit cards are also convenient tools to access money when needed. It is best to establish a bank account at home to access while you are in college. Be sure to access an ATM or use debit cards offered by your college to monitor your budget against actual expenses.
• CONTROL SPENDING. Always look for ways to lower your expenses and how to earn more money. Look for campus jobs and explore becoming an RA if you live on campus. This will reduce your living costs and generate income. If you don’t live on campus, look for affordable housing and ways to share expenses. Be sure to have a parent review the lease to verify if you are bound to pay for 9 or 12 months.