College degrees generally increase the chances of finding jobs and earning higher salaries. That’s certainly no secret. And a degree is getting more valuable: Many employers have raised the educational requirements for many positions.
However, pursuing a college degree isn’t a cheap endeavor. Nearly 70% of parents and students expect to pay $75,000 for a 4-year degree. Plus, most full-time students can’t work to pay for college anymore.
So how are college students paying for essential purchases? Are they incurring debt, and, if so, what type? Are they being financially responsible or spending money they don’t have? “Majoring in Money: How American College Students Manage Their Finances,” is a new national report that examines the financial behavior of students.
Some selected excerpts:
Paying for purchases: cash or credit card?
While students use an assortment of payment options, cash is still king:
||Possess debit cards
||Use mobile pay
||Have credit cards
5 major types of debt
68% of students have some type of debt; these are the top 5:
Credit card considerations
Students who have credit cards list a variety of reasons:
||Parents or guardians suggested they get a card
||Need an easy way to shop online
||Want to make purchases without carrying cash
||Need a way to access emergency funds
||Are interested in earning rewards
Typical monthly credit card payment
Fortunately, most students pay more than the minimum monthly amount:
||Pay in full
||Pay more than the minimum
||Pay the minimum
||Pay less than the minimum
Credit card concerns
When asked whether they worry that their credit card debt is out of control:
||Neither agree nor disagree
Attention to credit health
While 77% of students pay their debts on time, significantly fewer students are taking proactive steps to manage their money:
||Avoid incurring fees by never overdrafting their accounts
||Pay off higher interest rate debt first
||Have an emergency fund
||Invest savings to earn higher rates
College student spending trends
GoodCall spoke with two financial experts about the report’s findings. While most college students use cash or debit cards, more than half also have a credit card. Brendan Coughlin, president of Consumer Lending at Citizens Bank in Providence, RI, tells GoodCall, “We usually advise students to use a debit card as it allows you to only spend what you have.”
And Coughlin notes that there are many ways for students to stay in control of their finances. “You should sign up for overdraft protection in case you overspend; also, online and mobile banking will allow you to manage your money anytime and in any place so you can transfer money, check balances, pay bills and set up alerts – even if it’s from the library at 2 a.m.”
Being in control may ultimately determine financial success or failure. According to Steve Azoury, owner of Azoury Financial in Troy, MI, “Self-control usually dictates one’s life; credit availability is a tool but can be abused if not used correctly.”
Azoury notes that credit does build a history of responsibility, and if the credit-card holders pay their bills on time, this creates the type of history they’ll need when they’re ready to purchase cars or homes or take advantage of business opportunities.
But Azoury also warns that failing to make credit card payments in a timely manner can have a negative effect—and not just on the borrower’s credit history. “It will also affect your frame of mind: Debt causes problems in every facet of your life, including personal, careers and relationships.”
In addition, Azoury advises college students to proceed cautiously when choosing a credit card. ”These credit card companies can be very exploitive in offering ‘free’ miles and discounts while creating a culture of high debt and anxiety that can ruin your life.”
Coughlin agrees that students must exercise caution and restraint with credit cards. “A credit card can be helpful if you end up in an emergency situation; it can also be helpful when you don’t have all the necessary cash for a major purchase upfront.” But, he recommends that students only charge what they can afford to pay off each month.
The student loan effect
The major challenge for college students is student loan debt, according to Coughlin, and he says its effects can be felt even after students have graduated and established careers. “Part of this comes from not fully understanding what they are committing to when they sign up for student loans, so it is critical that students consider the return on investment of their education before they jump in.”
As a result of this debt, Coughlin says, “Most graduates are ‘successfully struggling’ to get by – their payments are forcing tough life choices and saving choices, but they are getting by.”
However, with discipline, most graduates can start a modest savings plan right after graduation, Coughlin says. “It is important to get into a routine, even if you are only saving $25 a month.” Over time, he explains, the student loan amount will decrease, and the income level should increase, allowing a savings increase as well.
He recommends another option, “If you have student loan debt, one of the first things you should look at is whether you might be able to save money by refinancing your student loans.”