Extension Educator, Consumer Economics
For families with college students, the countdown to moving-in day is getting very close! With the rising costs of college and student loan debt, college requires more financial planning than ever. The economic data is clear that people with a college degree, compared to a high school degree, are more likely to have higher salaries and less likely to be unemployed. However, research is beginning to indicate that the long-term impact of student loan debt may be greater than previously considered. A recently released study from the Gallup-Purdue Index, found "Relatively recent college graduates -- those who earned their degree from 2000 to 2014 -- who have more than $50,000 in student debt are significantly less likely to be thriving financially and physically than their counterparts without loans."
Clearly we'd all like today's college students to graduate with as little student loan debt as possible. How can that happen? One way is to keep expenses low. Young adults often don't realize how much costs can add up over time. An extra $25 of expenses a week over a year adds up to $1300; 4 years of schooling and a student may owe an extra $5200 in student loans. If a student takes 10 years to pay back this student loan, they would need to pay back $7,181 to cover the additional $1981 of interest costs. Moral of the story: keep costs down as much as possible!
To see how small changes in costs can lead to large changes in student loan debt repayment amounts, visit FinAid's Student Loan Calculator at http://www.finaid.org/calculators/loanpayments.phtml. Real numbers can be motivating.
An extra $25 of expenses may be a low estimate of how
much flexibility a student may have in their spending. Encourage young adults
to especially keep fixed costs such as rent, phone contracts and car loans
down. Once these contracts are in place,
it's hard to cut back on expenses.
One excellent financial strategy to use during times of transition – such as living on your own for the first time – is to track your expenses. By keeping track of all your spending, you can really see where your money is going. To track expenses, jot down spending once a day or as money is spent – using a cell phone is an easy way to do this or keep receipts or write it on paper. The method doesn't matter but the strategy is tried and true! University of Illinois Extension's Financial Wellness for College Students program offers several financial tools, such as a tracking expenses form and a downloadable Excel budget sheet, at http://web.extension.illinois.edu/financialwellness/resources.cfm. Tracking expenses can also help family conversations about how much money is needed during the college year.
What do young people do? They move: from home to college dorm, from one apartment to the next apartment, to the summer job, home again, to the next rental place, and so it goes! And in the process, stuff accumulates and stuff gets lost.
One of the best financial tools for young adults is a simple, plastic file box. It's a place to keep financial papers that they may need to find -- like their social security card when it's time to start a new job. The file box stores other essential items such as rental leases so that they can confirm what they agreed to do and what the landlord agreed to provide. Too often students lose their security deposits because they're not clear about their rental terms. Other important documents to store include: financial account information and checks; insurance information; job applications and resumes; income taxes filed and documents needed for this year's taxes; passports and more.
A small file box approximately 8 inches deep seems to work well: it fits in a suitcase, easily slides onto a bookcase shelf, and travels securely.
Off to college is an exciting adventure! Time spent on financial planning can help the year go smoothly and reduce the burden of student loan repayment after graduation. Conversations between family members can help clarify financial expectations. Soon all the college students will have moved into their new residences; have that financial planning conversation today.