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Help students find the right financial track

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By Maryellen Garrison

Summer is quickly fading. Soon, thousands of Kentucky’s students will return to college campuses. A young person’s college years are some of the most important years for establishing a plan for future financial success. These can also be some of the most financially challenging years, with many students managing their finances for the first time and the rising costs of higher education putting many students and their parents in debt.
From 2002 to 2012, annual tuition for a four-year, public university rose by an average of 5.2 percent. Student loan debt topped more than one trillion dollars in 2012 and is the second largest category of U.S. consumer debt, trailing only home mortgages. About 60 percent of 2010 college graduates had some form of student loan debt, with the average debt around $25,250 per person, according to the Project on Student Debt, an initiative of the nonprofit Institute for College Access and Success.
While many view a college education as an investment in a better financial future, several factors — including unemployment after graduation, entry-level salaries and family obligations — can make student loan repayments tough for many recent grads. Fortunately, a little research beforehand by students and parents can make student loan decisions and repayments easier.
Parents can remind their children about the differences between wants and needs and encourage them only to take out loans directly related to their college education, such as paying for tuition, books and fees.
Students can research unemployment rates, job availability and starting salaries in their field of interest. This can help give them an idea of a repayment timeframe for their loan.
Students and parents can take out either private or federal loans to pay for college. Private loans will differ by lender, so meeting with the lender to discuss rates, terms and repayment plans is a good idea.
Federal student loans generally offer the best rates and terms. They also do not have to be repaid until students graduate or leave school, as long as they have full-time status. Once the loan comes due, monthly payments are determined by the amount borrowed, interest rate and repayment timeframe. Federal student loans typically have a 10-year repayment plan, but the timeframe can cover a longer period of time if lower monthly payments are needed. However, the longer the repayment timeframe, the more the loan is going to cost in the long term, because the interest increases.
In addition to planning for student loan debt, parents should encourage their children to develop a financial plan for everyday expenses, making sure students understand that school-related expenses come before any items they want. If parents track their child’s first few weeks of spending and review their purchases with them, it can help developing a realistic monthly spending budget.
A local checking account with a bank or credit union will make check cashing, depositing and ATM withdrawals cheaper and easier for students. The student should be aware of any minimum balances, overdraft fees and number of monthly transactions that come with a particular account. Many banks will offer student accounts or accounts with no or low minimum balance requirements. Text or email alerts for low account balances can also be helpful.
Students living off campus often have bills in their names for cable, Internet and utilities. Parents should remind them of the importance of paying bills on time each month. Setting up online bill payment or automatic bill pay will make paying on time easier.
College is often the time when many young people get their first credit card. However, having a credit card may not be the best option for all students, as it can lead to the temptation to overspend and saddle students with additional debt upon graduation.

Educational programs of the Cooperative Extension Service serve all people regardless of race, color, sex, religion, disability or national origin.