Having a good grasp on your personal finances during college is a crucial part of your college life and journey. Balancing student loans, daily expenses, social activities, and planning for the future can be extremely overwhelming. This blog post will hopefully provide you with some ideas and frameworks for managing your finances in college and graduating debt free. Getting this right early will help build proper financial habits and set you up for success.

Understanding Student Loans

Student loans are a necessary evil for many college students given the insanely high sticker prices. But they can often become a burden. There are two main types of student loans:

• Federal Student Loans: These loans are funded by the federal government, and usually have lower fixed rate interest rates. They also may offer more flexible repayment plans and are eligible for loan forgiveness programs like the Public Service Loan Forgiveness Program. Another benefit is that they don’t rely on your credit score to determine eligibility. On the other hand, eligibility for federal loans rely on FAFSA, and depending on your family situation you may not qualify. As well, there is often a maximum you can borrow, which may or may not be able to cover the cost of attendance at your school.
• Private Student Loans: These loans are backed by private lenders (usually banks or credit unions), and often have higher interest rates than federal loans. They also have more stringent credit requirements than federal loans, but if you don’t qualify for federal loans or they won’t cover your full cost of attendance, these can be a good option as well.

The bottom line for student loans is that you should try to avoid them if possible, either through earning income yourself or through support from your family, if you are fortunate enough to receive it. However, for many people student loans are unavoidable, so in those cases opt for federal loans first due to their benefits. Be sure to look at the terms of your loan very carefully, particularly the interest rate and whether the interest rate is fixed or variable (meaning it can change).

Creating and Sticking to a Budget

I’m sure you already have a rough idea of what budgeting looks like, but being able to create and stick to one is a fundamental skill that can help you manage your finances throughout college. As the broke college student stereotype goes, most college students have high expenses, namely tuition and room and board, and have relatively small amounts of income. But this doesn’t mean that budgeting is useless or unimportant. The truth is that budgeting can go even further in college.

The easiest way to budget is to keep track of income and expenses. Categorize expenses into different categories, being sure to differentiate between necessities like tuition, rent, and basic groceries versus more discretionary spending like going out, restaurant spending, and other non-essentials. You can help automate this budgeting by using an app like Mint or Empower, which will keep track of all your income and expenses automatically. The main goal is to keep your expenses down and put as much money as possible towards covering college costs and minimizing debt.

Increasing Income through Part Time Jobs

There’s only so much you can do to reduce your expenses in college. On the flip side though, increasing income can help reduce the amount of student loans that you have to take out. Part-time jobs can help provide additional income to cover more of your expenses. Explore opportunities provided by your school, like working at the library or dining hall. In addition, you might have opportunities to do grading for classes or tutor other students, both of which often pay more than other on-campus jobs. If those don’t pan out, you can always look for part time jobs at restaurants or stores in your area.

During the summers, you can do internships and have even more income coming in. Sometimes an unpaid internship is unavoidable and even beneficial, but in most cases the company is taking advantage of you if they aren’t paying you. But if you can find an internship that pays well, you can cover a good chunk of your school year expenses. Oftentimes internships in finance and tech pay the most, but there are many opportunities to both make money and get relevant job experience in the summer. You just need to be diligent and proactive about looking for openings and applying.

Extra Credit: Saving and Investing

If you’re able to cover college expenses and still have some surplus, consider saving and/or investing. Building an emergency fund can help you have peace of mind and resilience during emergencies. Investing be extremely impactful due to the power of compound interest. If you’re more advanced and truly want to maximize your returns, if your interest rates on your loans are low, i.e 5% or less, you can invest your money instead of paying off your loans earlier. Or you can simply let your money grow in a high yield savings account. For example, by putting your money in a high yield savings account like SoFi, you could make 4.5% on your money. You could also choose to invest your money instead and can expect a reasonable return of 6 or 7%. If your student loan interest rate is lower than that, you would come out ahead. There are many benefits though to paying off your loans and being debt free though, particularly relating to peace of mind

Conclusion

Mastering your finances during college is a crucial step towards financial independence. Begin to understand your student loans and create and follow a budget. Consider part-time work and start thinking about how savings and investments can boost your wealth. By doing all these things, you’ll set yourself on the path to financial success even before graduation

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

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