A Financial Education: Student Finance and Why #FinHealthMatters
It’s hard to believe, but it’s now been nearly 15 years since I graduated high school. At that time, I was getting ready to ship off to Northern Arizona University and, more importantly, live outside of my parent’s home for the first time. These developments convinced me that I would be taking a big step into the world of adulthood and getting a taste of that “real world” I had heard so much about. Of course, living in a dorm and enjoying a pre-paid meal plan didn’t exactly represent the financial realities I would actually encounter in the years that followed my time at college. The truth is I would struggle with my finances for years to come.
Fast forward to today and it’s clear there’s a problem when it comes to students and their finances. Beyond the lack of personal finance preparedness, the on-going student debt crisis has taken a toll on a generation of graduates. So what can be done? Let’s take a look at the student loan issue, what students should know about their overall finances, and why #FinHealthMatters.
The Student Loan Issue
In recent years, one of the top issues that financial observers and political candidates alike have taken an interest in is the amount of debt that graduating students find themselves saddled with. The majority of this debt can be attributed to student loans, which many utilize to pay for their tuition, books, and other living expenses while in school. According to Student Loan Hero, the average graduate in 2016 owed more than $37,000 and Americans now hold an estimated $1.48 trillion in student debt. As a result, 83% of those aged 22 to 35 say their education debt is to blame for them not yet buying a home while 90% say they’d commit to working for a company if they offered some kind of student loan repayment assistance.
With the frightening stats that consistently emerge about how certain educational loans are crippling students’ financial lives, it’s no wonder that student debt has been a hot topic — with some groups and lawmakers even calling for student debts to be canceled, citing the economic benefits such a move could have. In many of these discussions, educational lenders have been vilified for their role in the crisis, sometimes rightfully and sometimes not. Because of this, I wanted to talk to someone in the educational lending space about student finance and their role in it.
Benjamin Breitbart, Vice President of TFC Tuition Financing, told me his company partners with various schools in order to allow them to offer their students financing. As he explained, “We primarily work with non-traditional students, so we’re trying to open up the education system to students of all economic backgrounds.” As part of that goal, Breitbart says TFC makes a point to work with students after they graduate, noting, “It can take a couple months for them to find a job to get their feet on the ground. So what we can do is to partner with the school to recommend deferment of payments or refinance the loan to a different payment amount so that it matches the economic situation of the student.”
In terms of what he’d recommend to students dealing with their own education debt, Breitbart said, “Work with whoever is handling your loan to make sure that, once you have a better idea of what your financial situation is after graduation, to make sure you can make as large of a monthly payment as possible so that you can save on interest.” Of course, in some cases, that may be easier said than done — especially if students aren’t well-versed in the basic tenets of personal finance. That’s why Breitbart says the company is currently developing a financial responsibility course that institutions can present as a way to teach students about various personal finance topics, including credit, budgeting, retirement savings, investing, and more. “We’re working on a program so that our students can not only fully understand what’s involved with the loans they have but also have the financial literacy to enhance their long-term financial well-being,” he said
Overall, while educational loans can be a financial burden, they can also teach students important lessons about money. Sadly, these can often be hard lessons and, to be sure, some students can be taken advantage of by certain lenders. That said, as Breitbart notes, having a basic understanding of personal finance issues can go a long way in helping to protect students, their money, and their financial futures.
What Students Should Know About Their Finances
College is often seen simultaneously as a time of education and experimentation, milestones and mistakes. Personally, a lot of the bad financial habits I developed happened in college when my financial responsibilities were low and any money I made went right through my pocket. At the same time, I actually had it a lot better than most, with my parents covering my tuition, having a part-time job of my own, and avoiding credit cards during my brief stint at university. Because of this, I can only imagine what it’s like for students who need to take on debt in order to afford their education who, similar to me at the time, haven’t yet learned what personal finance and financial responsibility are all about.
This got me thinking about what I think that all college students (and probably even younger) should know:
Always have a buffer
Like I mentioned, when I would get paychecks from that part-time job, they’d almost immediately be spent on fast food, CDs (yes, I’m old), and various other impulse buys. Without a budget in a place or the forethought to even keep up on my bills, this recklessness frequently resulted in overdraft fees, which would then eat into my next paycheck. Moreover, if there was ever an unexpected expense, I was hosed.
That’s why I think students should work to develop at least a buffer in their account, if not a full-on emergency fund. With a number of apps available to help you set money aside seamlessly and painlessly, building this buffer is now easier than ever. I see this as a great first step in helping students manage their finances.
Just because you have it doesn’t mean you should spend it
On a similar note, the idea of maintaining long-term savings was pretty much foreign to me in my college years — and the idea of living below my means never even crossed my mind. Alas, both of these would prove important later in life and I wish I got a hold on them much sooner. In the case of student loans, living below your means can come in handy for two reasons: 1) it’s a reminder that you don’t need to spend your full loan amount if you don’t have to, as you’ll just need to pay it back later and 2) getting into the habit of underspending your income will make it easier to accommodate your student loan payments after graduation.
Interest can be your friend or your enemy
Lastly, one big misconception students may have about their loan debt involves interest. For example, while a recent graduate might declare that they have $20,000 in student loan debt, they’ll likely end up paying far more than that in the long run. This reality has actually become the source of a frustration meme, with former students showing how much they’ve paid towards their student loans (a lot) versus how much they still owe in principal (not much less). That’s why it’s important that students properly understand the terms of their loan ahead of time and make efforts to reduce their interest whenever possible.
On the other end of the spectrum, interest can be a great thing when it comes to your savings. Not only can students help chip away at their debt after graduation by saving up during their school years but they should also be conscious that paying off their student debts won’t be their only financial priority once they enter the workforce. As I’ve said plenty of times before on this site, young people should start considering their retirement savings as early as possible since compounding interest and other factors can play a major role in helping them retire comfortably down the line. Sure, it may be strange to go straight from thinking about college to thinking about retirement, but that’s just the way it is.
How Students Can Lower Their Debt Load
In addition to those basic lessons of personal finance, there are also some ways students may be able to help reduce the amount of debt they’re forced to take on. This, in turn, will help them set a better course for their financial futures and avoid some of the money pains many of their elders have encountered. Here are a few ideas students looking to enter higher education might consider:
Saving ahead of time
Perhaps one of the most obvious solutions to avoiding taking on student debt is also one that may not be an option for all families: saving up ahead of time. With a large portion of Americans reporting working paycheck to paycheck, it can be difficult for parents and students to set money aside for higher education. However, by setting aside small amounts of cash as early as possible and placing them in higher-yield savings accounts, these compounding contributions can help make a dent in student debt before it even happens.
Another commonly-cited solution to reducing student debt is to obtain scholarships. Again, this plan may not be available to all students, although the number of scholarships currently offered to prospective students may surprise you. That’s actually what led Christopher Gray to develop the app Scholly. Although his application partially gained notoriety after Gray’s appearance on ABC’s Shark Tank instigated a blow-up between the show’s panel of millionaires and billionaires, the intent of Scholly is to help individuals find and apply for various scholarships. Granted, even if students do qualify for some of these scholarships, covering the full amount of tuition, room, board, and other expenses is a different story. Still, once again, every little bit can help in this regard.
Community colleges and trade schools
When most people think of higher education, they’re likely referring to four-year universities. However, these schools aren’t the only education options on the market, nor are they the most affordable. In fact, some students could save a significant amount of money by completing some of their general education requirements at community colleges before transferring to a university to obtain their bachelor’s degree. Alternatively, for students interested in some professions, attending a trade school may also prove to be a more cost-effective option and get them into their career at a faster pace.
In either case, students will want to ensure that these plans actually fit into their overall educational goals. For example, while some community college credits may be accepted by a university, different schools have different standards and policies. Therefore, you’ll want to do your research to see if such a plan could help save you money or not.
Education reimbursement programs
Finally, while taking on a job while pursuing a college degree can always be helpful to your financial situation, these benefits can increase exponentially with educational reimbursement programs. Bascially, some employers will offer their employees incentive to continue their education by providing some level of financial support that can be used for tuition and other expenses. In fact, the popularity of these programs has been increasing, with The Walt Disney Company recently announcing a major expansion of their current education reimbursement program. While this is just one example of a large company looking to offer their workers some help with their college careers, there are many more businesses of varying sizes who are looking to attract workers by offering them assistance with their college careers. As a result, seeking out such companies can be a great way for students to not only assist their finances during school but also potentially have a foot in the door towards obtaining a real career after they graduate.
There’s no question that student loan debt has been a major problem for the Millennial generation and beyond. These impacts are not only felt on a personal level but can extend to the economy at large. While much has been made about the loans themselves, it’s also important to focus on what students should be learning about personal finance and why #FinHealthMatters. Ultimately, if we fail to give today’s students a proper financial education, the current student debt crisis is only sure to repeat itself.
Also published on Medium.