Anyone who has been to college knows the importance of being frugal and making every dollar count. College students in 2016 owe more than a trillion dollars to loan companies. In 2015 payments were about $350 a month on average for those between the ages of 20 and 30. Unfortunately, going to school full time leaves few opportunities for earning a substantial salary. Even after graduation, job prospects can be dimmer than expected, leaving graduates scrambling for jobs they are overqualified for.
Under the weight of this financial burden, college-goers have begun dipping into their student loan money to fund a variety of things during their time in school. The trouble with this behavior is that it locks students in a cycle of debt — using borrowed money to pay the bills and skim by. Once wrapped up in this vicious cycle, some students find out too late that they could have made smarter decisions. To exacerbate the issue, many campuses don’t have comprehensive student loan counseling for all students, leaving many completely clueless until their grace period ends.
A study by Student Loan Hero paints a picture of what non-educational expenses students tend to use their student loan money on. The most common response was books, followed by monthly bills, then car expenses, clothing and accessories, restaurants, vacations, and, lastly, even alcohol and drugs. And while yes, borrowing from Peter to pay Paul is a reasonable fix for the time being, it’s ultimately a band-aid solution that can end in even more debt. While the vast majority of students use their loan money only on school supplies, or at least only on necessary bills, those that frivolously spend on fun may regret it down the road.
The Institute for College Access and Success reported an increase in 2015 in the number of private loans being taken out by students, hinting at the fact that the standard federal student loans are no longer cutting it. This borrowing style can quickly become a slippery slope in which students are requesting larger sums of money to fund more comfortable lifestyles. In addition, private loans tend to have higher interest rates and less flexible repayment options. Loans with rates as high as 13% (and some even higher) can easily destroy the credit of students who can’t make payments fast enough to keep up with accrued interest. But we all know free money is hard to turn down, especially when you’re a student who is burning the candle at both ends with little or no income to show for it.
The act of enrolling in college is still thought of as a gamble, especially in the wake of the recent economic crisis which left thousands without jobs. But despite financial uncertainty, about 47% of respondents to Student Loan Hero’s survey were confident that their degrees would pay off. 38% reported that they weren’t quite sure yet, and another 14% said no, their college degree was not worth the price. With an average of $37,137 in loan debt, the class of 2016 has their work cut out for them.
But it’s not all gloom for those that want a degree in modern times. There are several things students can do to avoid falling into a debt spiral.
Save money ahead of time.
Of course, the most effective option is to start saving right away, even if you’ve begun to accumulate some debt from past schooling. Check into bank interest rates and find a savings account that offers cash back for simply having money in the account. See a comparison based on your location.
Look into additional grant and scholarship options.
Many students are eligible for standard grants, but there are lesser-know grants and scholarships that are available to students in particular situations. For example, there are grants for students with certain majors. Learn about additional grant opportunities.
If you’re unsure whether you are paying the right amount on your loans, try this student loan calculator. If you’re still in school, this will also help you predict what kind of payments you should expect in the future.
Live more like a Minimalist.
It may benefit you to adopt a more minimalistic lifestyle, at least temporarily. This doesn’t mean you have to be deprived of your basic needs. It simply means cutting back on things that are costly, yet provide you with little value. Learn more about minimalism and how it can free up cash that you didn’t even know you had.
Students who keep track of what they spend and where are much less likely to waste or spend irresponsibly. With a budgeting app, you can see what percentage of your money goes where in order to see what changes you need to make. Choose between these budgeting apps for college students.
Featured photo credit: Roger Blackwell (CC BY 2.0 license) via flickr.com