Last in a series on college kids and money, based on an interview with Stephen Seaward, an expert in financial education. Find part one here, part two here and part three here.
Debt from student loans and credit cards is the biggest part of what gets college kids into financial troubles they may not shake for decades. Yet this debt doesn't just magically appear, and it doesn't have to get out of hand.
The core problem is most students' poor skills when it comes to debt management, which is not taught in high school and usually not taught well at home. "So there's a lot of irresponsible spending that goes on," says Stephen Seaward, director of career development at St. Joseph's College in West Hartford, CT. "Kids are using credit cards to fund entertainment. They are taking out student loans to buy cars. I see students walking around campus with an iPhone. Do they really need an iPhone?"
Not surprisingly, in Seaward's view (and that of many money experts) the top money mistakes that college students make are:
- Abusing student loans Before applying figure out what you could afford if no loans were available. That might be enough to attend a state university or community college, which is worth considering. In any event, borrow only the difference. That will keep you from tacking on "extra" loan money for an unnecessary upgrade in housing, wheels or technology.
- Running up credit card debt This is the most expensive kind of borrowing out there. Making minimum payments is like paying double for everything. "Some students put tuition on a credit card," Seaward says. "That's insane." An exception may be when you charge tuition on a rewards card -- but only if you pay in full when the bill comes.
- Not having a 10-year plan "Begin college with the end in mind," Seaward says. On day one, calculate how long you will be in school and how much you'll borrow each year. Total that figure and add accrued interest. Now calculate your monthly payments over the 10-year payback period. "Ask yourself what you need to do to accelerate the payments if possible, or at minimum to stay on track," Seaward says. "People don't do that but they really should."
- Not having budget Even if you work while in college or receive money from home it's easy to outspend your resources. Look at your expenses for an entire semester and divide by 17 to determine your weekly "allowance." Keep receipts so you can go back and see where your money has gone and make adjustments.
- Eating off campus You have a meal plan. Use it.
- Working too many hours A part-time job is fine. But being a student is your first priority. You need to study, be involved in extra curricular activities and sleep. Too many hours at a job will drain you, and if you end up having to extend your education by a semester your job will have been a bad investment.
- Missing tax credits and deductions Most student loan interest is deductible. There is a deduction for tuition and fees, and don't forget about the American Opportunity credit and Lifetime Learning credit.
- Lending money to new "friends" This is just a bad idea. You don't know them that well and next semester they may drop out and disappear.
- Destroying your credit score Missing credit card payments and other negative marks stay on your credit history for seven years and hurt your credit score.
- Sharing personal information A third of identify theft victims are between the ages of 18-29 and college students are especially vulnerable because of the communal nature of dorm life and their extensive use of online resources. Take steps to guard your identity.
- Being pressured into spending money Don't fall into a crowd with more disposable income than you have. The temptation to use plastic and keep up appearances may be too great.
- Avoiding money classes Majoring in the arts or medicine is no excuse for skipping personal finance and economics classes. Take at least one and see what this stuff is all about.
In this series:
Â· Part One: How One College Turned the Student-Debt Tide
Â· Part Two: How College Debt Limits Career Options
Â· Part Three: 3 Surprising Ways Debt Diminishes Campus Life
More on MoneyWatch:
Â· 8 Ways to Wipe Out Your Student Debt
Â· Student Loans: How They Changed One Life for Decades
Â· Student Loans: How They Changed Another Life for Decades
Â· Student Loans? First Pass This Test
Â· College: The Flawed Case Against Getting a Degree
Â· The Top Reason Kids Don't Learn Money at School
Â· Teaching Kids About Money, What We're Up Against