Frequently Asked Questions

How would you define being financially literate?  What does that term encompass for a college student?

Financial literacy is being educated in financial responsibility, and being financially aware.. This means understanding loans whether they be personal, auto, education or a mortgage; credit cards and credit ratings and how those affect your future ability to get a car or a house; balancing a checkbook; and now it will need to include making wiser consumer decisions.

Tell me about some of the most common mistakes you see/hear about from college students when it comes to finances.

The most common mistakes are procrastination, updating information, finalizing details and probably the most common mistake of all is creating and sticking to a budget.

What mindsets do you think might contribute to those mistakes?  What myths or misconceptions do you think students might have?

Part of this comes with youth and inexperience, and the simple fact that dealing with finances is not as fun as hanging out with your friends.  Many adults feel the same way about dealing with finances so you can’t blame students for their natural aversion to these issues, but these are still important matters students must undertake with care and attention.

What advice would you give to the student who thinks, “I’m poor now, but I’ll have plenty of money when I graduate.  I’ll just pay it back then”?

There is actually some truth to this statement and it’s not that far off from being accurate.  Taking out an educational loan can be part of the student’s investment in their education and their future.  A college degree will appreciate as time goes on, and as a student gains more and more experience, their pay will increase.

However, students should be prudent with all loans. Students are advised to create a worksheet to determine just how much they will need to take out in loans to not only help them pay their university charges but also whatever they may need for their living expenses.

Students should also always keep in mind that life can change direction on dime.  At 18 or 20 you may have plans to be a corporate attorney making hundreds of thousands of dollars a year, then find you have a passion for social work or pro bono litigation.  All three of these are great career paths, but students should bear in mind that their earning potential can change. Consequently, accruing the smallest amount possible in loans is a wise choice.

“I’ve got tons of income—student loans, financial aid, a high credit limit, parental support.  I don’t have to think about money!”

If past economic crises have taught us anything it is that nothing is for certain.  The wealthiest person can be living large one month, and bankrupt the next.

If you have a great deal of money, count yourself blessed that you are in a unique situation to plan a solid financial foundation.  Save.  Limit your loan usage.  If you don’t need it, don’t buy it, but if you do need it, buy with the money you have—not money you borrowed. 

Everyone starts off with a clean slate when it comes to credit—neither good nor bad.  You build your credit with the financial choices you make.  It doesn’t take much to go from a great credit score to becoming a leper in the eyes of lenders.  In fact, one late or missed payment can have a drastic effect on your score.

“All student loans are the same—and if they’re offering to loan me that much, I should take it.  Easy money!”

All loans are not the same.  Not by a long shot. 

Federal education loans are still the best loans out there for students.  They do not require a credit-worthy co-signer, they are backed by the federal government, and they have some of the most favorable rates you can find.  In the world of alternative education loans, each lender will offer different interest rates, repayment options, interest rate reduction incentives, origination fees, processing feed, etc.  It’s best to start with lenders with which you are comfortable.  From there you compare their loan options to each other and find the one that works best for you both presently and for the future.

Looking at a loan as easy money is a trap.  Easy money is almost always the money that will cost you the most.  Students need to remember that it’s not free money.  It’s a loan.  Someone is letting you use “their money,” and you can rest assured that they will be calling on you to get it back with some extra (interest) just for the privilege of having used “their money.”

I can keep track of my spending in my head…but there's another overdraft notice…

No one can do this.. Even if you could, why would you want to?. This is usually just an excuse for not keeping a registry.. Usually overdraft fees these days are a result of two prime culprits: debit card over-usage and recurring online purchasing.  Using a debit card and purchasing online services and publications is not a bad thing.  It’s just the reality of our new world.  Everything is electronic.  However, keeping a check registry with you at all times and for all purchases would save you a lot of worry and grief.

You actually need to feel the pain of giving your money away.  You need to see your bank balance dwindle before your eyes so you can appreciate your purchase.  You ask yourself “Do I really need this?,” “Maybe I can get it next month when I have more money,” “You know I’m only going to use this a couple of times anyway, then it will get buried in my closet.”  Not having the stress of overdrafts is a great thing and frees your mind to concentrate on other things in your life.  You don’t have to be rice for money not to be an issue or a concern; you just have to be wise.

But saving is hard, especially when there’s so much going on.  How am I supposed to save and make the most of my college experience?

It is hard to save while in college because most college students live month to month on finite budgets. But here is a suggestion that can help you save and make the most of your college experience: work as much as you can in the summer and save as much of that money as you can.

If finances are an issue, going home for the summer allows you an opportunity to have your room, food, and living expenses covered.  You can take the summer to work, save, and limit your expenditures.  Divide what you have saved by nine months to use during the academic year.  Now, not only have you saved some money, but you have added some more work experience to your resume and prospective future employers will be impressed.

In some cases, attending summer classes is also financially beneficial.  Take advantage of the discounted summer tuition rates and possibly accelerate your degree plan and graduate a little early.

The credit card booth is right here, and they’re going to give me a card! I’ll look at the paperwork and interest rates later…

RUN! Don’t look back! RUN! If you are not pulling in an income (or are pulling in limited income), you have no business even talking to a credit card company.  If your parents want to set up a credit account, then that’s fine.  They can help you be responsible with it.  However, getting a credit card on your own while you are a college student with limited or no income is simply a bad idea and will end up costing you more in the long run – that TV on sale at Wal-Mart for $200 could end up costing $400 or even more!  Six months later, you could easily be struggling to make payments and your credit has crashed and burned. 

You can buy an expensive HDTV and Blu-Ray Player and be the entertainment hub of your hall, but you will be paying for it for months if not years later.

The credit card limit means spend all the way up to that point, right?

Your credit score considers many factors, but one that is not well known is the amount of your credit limit that you use.  Yes, that means if you have a $1,000 credit limit and you have used $800 of it, then you have a knock on your credit score.  Large credit limits are great for just-in-case situations, acts of God, the unforeseeable unfortunate mishap, etc.  They are not for shopping sprees. 

Use only what you need and not a penny more, and pay it off each month.  If you can’t pay it off by the next month, you don’t’ need to be charging it.  Also, try not to charge your groceries, restaurant bill, or fast food.  You don’t want to be paying interest on food you’ve long ago digested.

Does it matter if I’m late making payments?

Another part of your credit score includes making payments on time.  While missing a payment is far worse, being late is a big knock against your credit, as well.  No matter how well you do after that, it stays on your credit report for months if not years.  This is another reason to avoid credit cards and unnecessary loans.  Until you fully grasp the impact they have on your life, you should stay clear of them.

Any other mistakes you’ve seen?

Living “high on the hog,” as they say, students will borrow up to their Cost of Attendance, which they certainly can do, to help with their living expenses.  However, some students choose to live in the more lavish apartments with higher rent, eat out often, and spend more money than they should on weekends.  Suddenly, that extra money they had for the fall semester is gone.  They lose their scholarship or grant and can’t get their loan increased.  Therefore, students don’t get back as much in the spring as they had in the fall, and they don’t know how they are going to pay their rent for the semester.

If you have a credit balance, use it sparingly and save as much of it as you can.  You can use it to create a small savings account for yourself to use for living expenses throughout your college years, or you can send some of it to your lender to reduce your loan debt.

How can students become smart financial planners?  How can they be proactive about their finances?  Any suggested reading materials?  Other resources?

Baylor’s Student Financial Foundations is a great place to start.  We not only provide information on debt management, but our website www.baylor.edu/sff offers online resources that students, alumni, faculty, staff, and parents can access from anywhere.  On our site, students can create an account in “iGrad” and access tons of tools like calculators for estimating financial costs and a Loan Snapshot where you can upload your federal loans.  There are also a number of game and videos that will help you avoid those nasty spending pitfalls.. For additional one-on-one expertise, connecting with a financial aid counselor is an excellent way to get the details fo your awards and to help you manage your loans.

 

Here are some other tips:

Students need to sign up to view their free credit scores.  There are several, but FreeCreditReport.com is one of the more prominent ones.

Students should keep track of their credit score, stay up-to-date with their credit cards and loans, make on-time payments, keep a check registry even for debit card and online purchases, and communicate with their credit card companies and/or lenders if they run into any difficulties making a payment.