During College: Help Your Student Avoid Overspending on Holiday Gifts

On average, Americans will spend $983 for holiday gifts this year. For those pressed for funds, even a fraction of this amount can create a new year filled with the stress of buyer’s remorse, exorbitant credit card bills, and insufficient funds for necessities.

IMG_0205Such problems overwhelm many college students just as a new term begins. Stress is the number one impediment to academic success in college. And the top two reasons why college students drop out are their need to work and earn money, and their inability to pay tuition and fees.

But you, as a parent, can help your student avoid overspending on holiday gifts.

First, manage expectations before the gift exchange. Thoughtful gifts don’t need to cost a lot. Tell your student he need not buy expensive presents. Quietly remind family members he can’t afford to spend a ton and, if your family members share holiday wish lists, lobby for some low-cost items he can afford.

Second, coach you student to establish a realistic gift budget fitting his limited finances, omitting gifts to casual friends, and dedicating a certain amount for each person on his list.

Retail businesses are exceptionally good at separating consumers from their money. IMG_0206So help your student avoid getting hoodwinked by marketing strategies designed to entice more spending than he can afford — constant sales, decoy pricing, loss leaders, loyalty cards, retail credit, etc.

Counsel your student to minimize extra fees — convenience fees, credit card fees, service charges, shipping costs, etc. Paying with cash or a debit card can avoid some of these fees. Comparative shopping can help avoid or diminish others, especially if shopping online.

Encourage him to limit self-gifting — i.e. treating himself to something while shopping for others. Whatever he’d buy can probably go on his holiday wish list.

Urge him to pick up some seasonal work to earn a few bucks that’ll help cover gifts and other holiday expenses.

Advise your student to track holiday spending. It’s helpful to establish a gift budget, but only if he stays within it. Tracking his expenditures, which simply requires a pencil and paper, helps him do this.

Finally, remind your student that spending restraint is critical to a truly happy new year!

College Affordability Solutions can provide other strategies for helping to keep your student’s costs low. Feel free to call (512) 366-5354 or email collegeafford@gmail.com for a no-cost consultation.

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During College: Your Undergraduate Needs a Spending Plan!

Last week’s post discussed how every $100 prepaid within 120 days after her fall Federal Direct Unsubsidized Loan funds are disbursed can reduce an undergraduate’s repayment amount by an additional $175. Urge your student to make such a prepayment. But remember, she shouldn’t prepay loan funds she’ll need.

IMG_9872How can she know what she’ll need? The best way is for you, as a loving parent, to use your real world experience to help her create an effective spending plan (also known as a budget, though many students consider that a dirty word, right up there with terms like diet and pop quiz!).

A great time to do this is when she’s home for Thanksgiving in a few weeks. Here are key components:

  • Time Period: Make the plan for the right time period. That’s at least each academic term but, if your student depends heavily on financial aid, it should probably stretch to when she’ll receive such aid for the next term.
  • Time Increments: Split the plan into weekly or monthly increments and use it to anticipate each increment’s income and expenses, which may vary by week or month.
  • Income: Plug in funds your student will receive — financial aid, take-home pay, money from you or other family members, savings withdrawals, etc.
  • Expenses: Help your student break down what she needs to spend in each increment. The U.S Education Department offers great guidance on what to include in a student’s spending plan and on building a spending plan.
  • Needs versus Wants: It’s hard, but help her separate needs (crucial necessities) from wants (spending on goods and services your student could get through college without).
  • Savings: Coach your student to stash away some money for emergencies; also for predictable future spending — travel between school and home, holiday and other gifts, maybe even spring break.
  • Review and Adjust: Your student’s actual income and outlays since leaving for IMG_9873college can help predict income and expenses for upcoming time increments. Review her fall pay stubs, credit/debit card records, and even paper notes on cash outlays. At the end of each of the next few months, help her compare such records to her plan, then refine her plan as necessary.

An effective spending plan will benefit your student during and after college. Help her learn how to build and execute one. It’ll be some of the best parental support you’ll ever provide.

College Affordability Solutions will help you tailor various strategies for making higher education more affordable. And to make sure the price of our services doesn’t become an impediment to them, they’re all provided at no charge. Call (512) 366-5354 or email collegeafford@gmail.com to access these services.

During College: Strategies for Your College Finance Plan

Your College Finance Plan (CFP) needs strategies for you and you student toIMG_9592 implement before, during, and after college. Let’s look at the “During College” phase.

Research at a major university indicates that, looking back, almost 4 out of every 10 seniors conclude part or all of their student loans weren’t essential for their educations. Therefore, some of these strategies focus on personal money management so students can spend and borrow less of the interest-bearing educational debt that, over time, increases college costs. These include:

IMG_9555Also, the faster your student gets her degree, the less cost and debt she’ll incur. Still, the latest national data show that only 39.8% of undergraduates earn their bachelor’s degrees within 4 years. Here are some strategies that’ll help your student graduate on-time, if not before:

 

Look here for why you need a CFP. You can find summaries of strategies for your plan’s “Before College” phase here. And next Wednesday there’ll be samples of “After College” strategies for your CFP here.
Beginning October 16, check this website every Wednesday for a more detailed account of a strategy you may want to use in your CFP’s before, during, or after college phase.

Before and During College: Help Your Student Avoid Credit Card Traps

There’s nothing inherently wrong with college students having credit cards. In fact, 56% of them posses at least one. But help your student beware of all those offers from banks and other credit card providers at this time of year.

After all, a credit card is an opportunity to rapidly amass high interest debt, and only predatory lenders would push such an opportunity at a naive 18-24 year-old with no regular income. In the words of Bernie Sanders:

What the . . . credit card companies are doing is not really much different from what gangsters and loan sharks do. . . . While bankers . . . don’t break the knee caps of those who can’t pay back, they still are destroying peoples’ lives.

IMG_8287So advise your student to ignore those unsolicited offers. Just the act of applying for multiple cards within a short period can cause her credit rating to take a dive. Instead, advise her to carefully search for and start with a single credit card — one without annual fees and, if study-abroad is in her future, without foreign transaction fees. Adding another credit card later is an option that can actually help build up her credit rating, but only after she’s learned the ropes.

There’s more danger, of course, once your student obtains a credit card. It poses an almost irresistible temptation to a young person facing the pressures of keeping up with more affluent peers in an environment full of spending opportunities.

In short, a credit card makes it far too easy to shell out too much. The credit card IMG_8288provider hopes she’ll do this, because then it gets to add interest and fees that may exceed 20% of whatever’s unpaid by the monthly due date. Her credit rating gets damaged, too. To keep this from happening, the provider figures you’ll cover the unpaid balance for her.

Still, when properly managed, a credit card offers certain benefits — funding for emergencies, small savings if it’s a reward card, a record of purchases. Moreover, if paid in full every month, your student will establish a strong credit score that’ll help her borrow for a car, home, and other big post-college purchases.

Help protect your student from the dangers and reap the benefits described above! Be assertive in coaching her about credit card management both before and after she goes to campus. Make sure her college credit experience is a good one!

Contact College Affordability Solutions at (512) 366-5354 or collegeafford.gmail.com for more information about how students and families can manage college-related expenses well.

Before and During College: A Car on Campus Can Create Colossally Causeless Costs

IMG_8107Most colleges and universities have vast student parking lots, sometimes unpaved areas on the outskirts of campus, generally poorly patrolled and supervised. Apartments near campus may also feature parking lots or nearby on-the-street parking.

The automobiles students bring to college quickly fill such parking places. And what could be more natural? Any young person anticipating the freedom of being on his own will also look forward to the convenience that comes with having a car.

But a vehicle at school also needlessly inflates college-related costs and educational debt. Consider:

  • Parking Fees: One large university near us charges its students as much as $796 per year to park on campus. Increased borrowing to pay this fee for four years at today’s federal college loan interest rates can inflate the total amount repaid by more than $4,000.
  • Maintenance and Upkeep: Gasoline, oil changes, and other auto-related expenses add up as the academic year goes along. Such costs can be deferred, if not skipped altogether, when your student’s car stays at home.
  • Damage and Vandalism: Cars sitting on the street and in remote, under-supervised lots are more prone to damage — from hailstorms, slashed tires, frozen batteries, collisions if others carelessly reverse or cut corners too closely, etc. Sometimes your student may need to pay for a tow job to the nearest repair shop just to get his car working again.

Most campuses are either small enough to cross on foot or have shuttle bus systems that are free to their students. And the municipal transit systems in many college towns also allow students to ride free or at reduced rates.

IMG_8108Your student may ask, how will I ever get home if I don’t have my car? This may be valid. But reasonably-priced bus services and trains often run between your state’s major colleges and large metropolitan areas. And if public transportation isn’t available, your student can probably get a ride straight to your door by offering to share gasoline expenses with a fellow student.

Now if a student commutes from home or to a job at an off-campus location not served by public transportation, a car may be necessary. Otherwise, a vehicle at college is an expensive and unnecessary luxury. So counsel your student to cut his college costs by leaving those wheels at home!

College Affordability Solutions offers guidance on a wide array of strategies to keep higher education costs, and higher education borrowing, as low as possible. Email collegeafford@gmail.com or call (512) 366-5354 for such guidance.

Before College: Prepare Your Freshmen to Manage Those First-Year Finances

Ever noticed college campuses and their surroundings? All those apartments, bookstores, dormitories, shops, and restaurants. They’re run by people called IMG_8045“landlords” and “merchants” — responsible, solid folks who make good friends and neighbors. But, at work, their job is to separate students from their money, and at this they’re exceptionally talented.

Dropping 17-19 year olds amongst these skilled professionals is almost unfair. For all their academic ability and digital literacy, young people on their own for the first time often aren’t savvy about considering, much less comprehending, the consequences of their financial decisions. Result? They can easily become the victims of slick marketing campaigns and peer pressures.

IMG_8046In the short run, this contributes to stress, frantic calls home for more money, skipping meals, borrowing too much, working too much, and even dropping out. In the long run, it’s one reason why 40% of college students don’t get degrees, 45% of college graduates live with their parents two years after commencement, and 50% of college graduates need financial help from their families.

Fortunately, today’s students and parents are generally close, so your students often want your guidance. This allows you to use your experience from decades of managing (and mismanaging) your money to help them avoid mistakes in managing theirs.

They’ve probably learned some things by observing you. Still, there are important matters you should make absolutely sure they understand — through frank discussions before they go to campus, by “just in time” phone counseling while they’re at school, or both. Here are some of these issues:

Budgeting: How and why to map out monthly income and expenses, track spending, routinely review and modify budgets.

Checking Accounts, Credit and Debit Cards: How to write checks and use debit/credit cards. Associated fees. Avoiding impulse purchases. When credit card interest kicks in and when to make credit card payments.

Comparative Shopping: How and why to comparatively shop for everything from checking and savings accounts to credit/debit cards to apartments, books, and clothes.

ID Theft and Scams: Securing their checkbooks and credit/debit cards. Avoiding scams. Protecting their critical personal information. What to do if their ID is stolen.

Saving: Why and how to save, even if only a little for a short time. How to open and manage savings account

Teaching your students about these first-year financial issues can protect them, and you, this year and for years to come!

After College: Use Your Grace Period Wisely

IMG_6400Hey college graduate, did you know they call it “commencement” because so many other things begin once you earn that degree? If you borrowed to pay college costs, your student loan “grace period” is one of those things.

A grace period is something the government gives so you have time to get your finances organized before you must start repaying your federal student loans. For Federal Direct Loans borrowed by students it goes for 6 full months from the day after you stop being enrolled half-time. It runs 9 full months from this date on Federal Perkins Loans.

Notice the reference to full months. For every loan you owe that hasn’t used up its entire 6 or 9 month grace period, you’ll get a full new grace period when you next drop below half-time.

Federal Direct Parent PLUS Loans don’t get grace periods but, working their loan servicers as listed in their National Student Loan Data System (NSLDS) records, parents can defer payment while their students are in school and for 6 months after the students for whom they borrowed drop to less-than-half-time.

A lot happens during your grace period . . .

  • Your loan servicer sends you notices about your first payment due date andIMG_6401 choosing your repayment plan options — stuff you really need to know. So keep your servicer apprised of any changes in your email and mailing addresses. You can find its contact information on NSLDS.
  • You’ll get these notices 60 or more days before your first payment due date. Use those 60 + days to set up a monthly budget including amounts for your loan payments.
  • Interest accumulates on any Federal Direct Unsubsidized Loans you have and, when your grace periods end, outstanding interest is capitalized — added to principal — inflating the amount on which future interest is charged.
  • Payments aren’t required during grace periods, but they’re not prohibited, either. Whenever you can afford to make a payment, send a note with it directing your servicer to apply it first to your outstanding unsubsidized loan interest. Anything left will be used to reduce your loan principal.
  • Institutional, private, and state student loans may or may not have grace periods of varying length. To check this out, review these loans’ promissory notes.

But no matter what loans you have, use your grace period wisely to prepare for making monthly payments on them when that period ends.

Need advice on managing your college debt? College Affordability Solutions has 40 years experience on this subject. Contact us at (512) 366-5354 or collegeafford@gmail.com if we can help you.