A newly released New York Federal Reserve analysis sheds some insight on factors that may determine if student loan borrowers are more or less likely to default on their loans.
According to Fed data, 28% of students who left college between 2010 and 2011 defaulted on their student loans within five years. That’s significantly higher than the students who left school five years earlier, between 2005 and 2006, of which only 19% defaulted within five years.
Defaulting on a student loan is big deal. Not only will someone who defaults on a student loan need to deal with collections calls, but a default can seriously harm a borrower’s credit rating, making it difficult to qualify for a personal loan or other large credit purchases like a new home.
The New York Fed’s analysis highlights factors that could determine default rates years after students leave school. They range from things a student can’t necessarily control — family background and how selective the college they attended was — to things students may have a little more control over, like the degree and major they pursue.
The data show students in these categories are more likely to default on their student loans between ages 20-33:
Dropped out before earning a degree.
Enrolled in an associate’s degree program.
Majored in arts and humanities.
Attended a for-profit institution, community college or nonselective college.
Came from a low-income family.
A few of the factors relate to things a student has some control over, like the kind of school chosen and the degree pursued. Another big factor, family background, depends more heavily on chance.
Here’s what the Fed found about how the factors influence default rates.
For-profit, public, or nonprofit?
If a student attended a private for-profit two-year institution, their chances of default were highest of all — just above 3% were in default at age 22, shooting up to 42% by age 33. Students at private four-year for-profits weren’t far behind, with a default rate of
38.8% by age 33.
On the other hand, students were much less likely to struggle to repay their student loans at nonprofit institutions, both public and private. Private nonprofit four-year student had the lowest default rate at 17.2%. They were followed by students who attended public nonprofit four-year institutions.
Selective vs. nonselective
The Fed’s analysis found students who attended colleges that were more selective or competitive defaulted at lower rates that those who attended less-selective colleges. The analysis used Barron’s Profile of American Colleges to classify colleges into selective and nonselective based on competitiveness.
Graduate versus dropout
Whether or not a borrower graduated was the second-strongest predictor of default among borrowers, according to the Fed analysis. Overall, students who dropped out had higher rates of default versus borrowers who graduated no matter what kind of degree they attempted. The analysis notes that may be attributed to the fact graduates are more likely to find more gainful employment that would give them the ability to pay off their loans after earning a degree.
Associate versus bachelor’s degree
No matter what kind of college a graduate attended, students in a two-year degree programs had higher default rates than their peers who enrolled in a four-year college, according to the New York Fed analysis.
But the gap between default rates of two-year and four-year students was widest among students who attended public schools — 21.4% to 36.5%, respectively— a difference of more than 15 percentage points
STEM versus arts and humanities
Students who majored in arts and humanities defaulted on their loans at the highest rates — 26.3% at nonselective schools, 14.6% at selective schools— while STEM majors at selective schools (12%) and business students at selective schools (11.5%) defaulted at the lowest rates. Overall, default rates among students who majored in business or a vocational programs were closer to STEM students than to arts and humanities majors.
Arts and humanities majors defaulted at higher rates regardless of the college’s selectivity, but if students majored in STEM, business or a vocational program, selectivity may have factored in more. By age 33, the default gap between students who chose a best-performing major and a worst-performing major was three percentage points at selective colleges, while at nonselective schools the gap was eight percentage points.
Advantaged vs nonadvantaged
The Fed’s analysis took a look into defaulters’ income and family background, too. The analysis looked at the average income for the ZIP code area at a borrower’s youngest available age based on available loan data. The analysis defined students who came from households earning below the mean income based on ZIP code as nonadvantaged, and students from households earning above the mean income.
The analysis found borrowers who came from less-advantaged backgrounds based on income had higher default rates no matter what type of college they attended.
Taking both a borrower’s background and college into consideration, the widest gap in default rates observed in the analysis were among advantaged students who attended private nonprofit colleges (13% of whom defaulted by age 33) and nonadvantaged students who attended private for profit colleges (42.1% of whom defaulted by age 33).
Congress is working around the clock to get a new tax bill to President Trump’s desk before the year is out. In addition to a host of tax cuts, both the Senate and House GOP tax plans include several proposals that could make saving and paying for higher education more costly for families. Considering Americans hold a collective $1.36 trillion in student loan debt and 11.2 percent of that balance is either delinquent or in default that’s not-so-good news for millions of Americans.
Both plans include proposed ideas that could impact how students and families finance higher education. The House plan, for instance, includes proposed provisions that would affect the benefits parents, students and school employees like graduate students receive, which could ultimately impact the price students pay.
In a Nov. 6 letter to the House Ways and Means Committee opposing the provisions, the American Council on Education and 50 other higher education associations states that “the committee’s summary of the bill showed that its provisions would increase the cost to students attending college by more than $65 billion between 2018 and 2027.” They reaffirmed their opposition in a Nov.15 letter.
The council and other higher education associations weren’t satisfied with the Senate’s version of the Tax Cuts and Jobs Act, either. In a Nov. 14 letter, the council says it’s pleased the Senate bill retains some student benefits eliminated in the House version, but remains concerned about other positions that it says would ultimately make attaining a college education more expensive and “erode the financial stability of public and private, two-year and four-year colleges and universities.”
Where are the bills now?
The House version of the Tax Cuts and Jobs Act passed by a 227-205 vote on Nov. 16, just before the chamber’s Thanksgiving holiday. No Democrats backed the bill.
The Senate’s bill is still in the revision stage before the Senate Committee on Finance. The proposal still has to be finalized and approved by the committee, then passed by the Senate to move on. The two chambers would need to hash out many differences between the proposed tax plans before sending legislation to the president’s desk.
In its plan, the Senate committee says the goal of tax reform in relation to education is to simplify education tax benefits. MagnifyMoney took a look at a few of the major proposed changes to the tax code that would impact college affordability most.
Streamline tax credits
The House tax bill proposes to repeal the Hope Scholarship Credit and Lifetime Learning Credit while slightly expanding the American Opportunity Tax Credit. The new American Opportunity Tax Credit (AOTC) would credit the first $2,000 of higher education expenses (like tuition, fees and course materials) and offer a 25 percent tax credit for the next $2,000 of higher education expenses. That’s the same as it is now, with one addition: The new AOTC also offers a maximum $500 credit for fifth-year students.
The bigger change is the elimination of the other credits. Currently, if students don’t elect the American Opportunity Tax Credit, they can instead claim the Hope Scholarship Credit for expenses up to $1,500 credit applied to tuition and fees during the first two years of education; or, they may choose the Lifetime Learning Credit that awards up to 20 percent of the first $10,000 of qualified education expenses for an unlimited number of years.
Basically, in creating the new American Opportunity Tax Credit, the House bill eliminates the tax benefit for nontraditional, part-time, or graduate students who may spend longer than five years in the pursuit of a higher-ed degree. According to the Joint Committee on Taxation, consolidating the AOTC would increase tax revenue by $17.5 billion from 2018 to 2027, and increase spending by $0.2 billion over the same period.
The Senate bill does not change any of these credits.
Make tuition reductions taxable
The House bill proposes eliminating a tax exclusion for qualified tuition reductions, which allows college and university employees who receive discounted tuition to omit the reduction from their taxable income.
A repeal would generally increase the taxable income for many campus employees. Most notably, eliminating the exclusion would negatively impact graduate students students who, under the House’s proposed tax bill, would have any waived tuition added to their taxable income.
Many graduate students receive a stipend in exchange for work done for the university, like teaching courses or working on research projects. The stipend offsets student’s overall cost of attendance and may be worth tens of thousands of dollars. As part of the package, many students see all or part of their tuition waived.
Students already pay taxes on the stipend. Under the House tax plan, students would have to report the waived tuition as income, too, although they never actually see the funds. Since a year’s worth of a graduate education can cost tens of thousands of dollars, the addition could move the student up into higher tax brackets and significantly increase the amount of income tax they have to pay.
The Senate bill doesn’t alter the exclusion.
Eliminate the student loan interest deduction
Under the House tax bill, students who made payments on their federal or private student loans during the tax year would no longer be able to deduct interest they paid on the loans.
Current tax code allows those repaying student loans to deduct up to $2,500 of student loan interest paid each year. To claim the deduction, a taxpayer cannot earn more than $80,000 ($160,00 for married couples filing jointly). The deduction is reduced based on income for earners above $65,000, up to an $80,000 limit. (The phaseout is between $130,000 and $160,000 who are married and filing joint returns.)
Nearly 12 million Americans were spared paying an average $1,068 when they were credited with the deduction in 2014, according to the Center for American Progress, an independent nonpartisan policy institute. If a student turns to student loans or other expensive borrowing options to make up for the deduction, he or she could experience more financial strain after graduation.
The Senate tax bill retains the student loan interest deduction.
Repeal the tax exclusion for employer-provided educational assistance
Some employers provide workers educational assistance to help deflect the cost of earning a degree or completing continuing education courses at the undergraduate or graduate level. Currently, Americans receiving such assistance are able to exclude up to $5,250 of it from their taxable income.
Under the House tax plan, the education-related funds employees receive would be taxed as income, increasing the amount some would pay in taxes if they enroll in such a program.
A spokesperson for American Student Assistance says if the final tax bill includes the repeal, it may point to a bleak future for the spread of student loan repayment assistance benefits, currently offered by only 4 percent of American companies.
Take care not to confuse education assistance with another, growing employer benefit: student loan repayment assistance. The student loan repayment benefit is new and structured differently from company to company, but generally, it grants some employees money to help repay their student loans.
The Senate plan does not repeal the employer-provided educational assistance exclusion.
If you went to a private college 36 years ago, you would have paid only $3,617 each year for college, according to the College Board. Today, you’d pay $33,479. That kind of price tag is enough to make you wonder whether college is worth the cost. One way to find out is to consider the return on investment of your degree.
Top 7 States Where College Is Worth the Cost
Student Loan Hero (SLH) crunched the numbers to figure out the ROI of college degrees across all 50 states. As the organization found out, where you live has a big impact on the value of your degree. For this survey, SLH compared the average salary of a worker with a high school diploma to that of a college graduate five years after graduation. It also looked at the cost of college in each state. The average graduate sees an ROI on their college degree of 52%. For students in these seven states, the returns were even greater. Here are the states where college gives you the most bang for your buck.
Earning your degree could give you a 102% five-year ROI in California.
Workers with a high school diploma make an average of about $27,963, whereas those with a bachelor’s bring in an average of $56,010. Thanks to this major boost, college grads make back the cost of college in just 2.5 years.
A bachelor’s degree in Arizona will set you back an average of about $52,524, but you’ll make back that investment within 2.5 years. Plus, you’ll enjoy an average yearly salary of $48,159 after five years. Compared to just a high school degree, you’ll see a 79% pay bump.
Georgia residents enjoy average salaries of $49,989 five years out of college. That’s 90% more than Georgians with a high school diploma, who make closer to $26,000. As a Georgia resident, a bachelor’s degree could nearly double your income.
College is also a worthwhile investment for people in the Lone Star State. The cost of a bachelor’s degree is a little high at $57,121, but Texans make that investment back in just 2.3 years. Five years after graduation, you could be making an average of $51,701 per year. If you didn’t go to college, your salary would be closer to the average $27,232.
Arkansas college grads see a 71% increase in pay after five years compared to workers with a high school diploma. Graduates make an average salary of $44,101, whereas workers who didn’t go to college make an average of $25,767.
Although Arkansas residents must pay $41,629 for college, they break even in just 2.3 years. Plus, Arkansas grads see an impressive 120% ROI on their college education after half a decade.
2. New Mexico
New Mexico students also enjoy a high ROI on their college degrees. In fact, the average grad sees a return of 151%. Wages for college grads are actually on the low side compared to other states. After five years, grads make an average of $43,257.
But compared to workers without a college degree, these grads see an average pay bump of $17,510. Plus, they don’t have to take on a lot of debt for college, since a bachelor’s degree costs just $34,945. Most college grads break even on their educational investment within two years.
Wyoming tops the list of states where college degrees have the highest ROI. Wyoming graduates make an average salary of $45,519. They make over $13,000 more per year than people without a college degree.
Students in Wyoming also see low costs for college credits. The average student pays just $22,422 for their degree. Within a few years, Wyoming grads see a whopping 203% return on their college education.
Consider ROI When Choosing a College
A college education isn’t just about investments and returns, of course. But with the high cost of tuition these days, you can’t afford not to think about ROI. Before taking on too much student debt, make sure to consider where you live, as well as other important factors.
Take location into account. The state you live in can have a big impact on both the cost of college and your future income. If colleges in your area are too expensive, you might consider attending school elsewhere (just remember to take into account any tuition differences if you don’t have residency in a state). If you’ve already graduated, you could move to reduce your cost of living.
Choose a lucrative major. Consider how your choice of major will impact your future earnings. Those who study engineering, for example, might start with higher salaries upon graduating than someone who studies psychology.
Set specific career goals. College involves a lot of exploration, but you should also think about what kind of work you’re good at and enjoy. By setting attainable career goals and working toward them, you can make the most of your college education.
Don’t forget about graduate school. If your future career requires a graduate degree, you’ll need to spend more money for further education. Instead of taking on too much debt for your undergrad, make room in your budget for future schooling.
Learn about student loan repayment and refinancing. Even if you don’t know what your future job will be or where you’ll live, you can calculate your future student loan payments to ensure they’re reasonable. Plus, you can learn how refinancing after college can save you money on interest.
A college education is an investment in yourself and your future. When choosing a school, make sure to consider where you’ll live and what you’ll do. If you can be flexible about location, moving to a different state could be the best decision for your finances.
According to CollegeBoard, the cost of tuition, fees, and room and board has gone up about 162 percent at private nonprofit four-year colleges since 1971 when adjusted for inflation. Public schools have seen an increase of 142 percent in in-state tuition, fees, and room and board over the same time period.
College is an expensive endeavor, yet we know that those who hold bachelor’s degrees make an average of $1 million more over the course of their lives than those who do not. Higher education is still worth investing in, even if prices have increased astronomically.
Today we’ll look at how to evaluate the costs of college and how to get your education funded.
When you first look at the cost of tuition and fees, room and board, and meal plans, most colleges appear oppressively expensive. Appearances are sometimes deceiving. The first number most people find is the advertised sticker price, and it isn’t what you end up shelling out for your education.
The number you actually end up paying — the net price — is usually lower for most students. Net price is how much the school charges minus the amount of financial aid you are awarded.
Net price vs. sticker price
If you already know how much financial aid you will be receiving, you can subtract that number from your school’s sticker price. The difference will be your net price.
The numbers they produce will be estimates only, and are not guaranteed.
Some calculators base all calculations on in-state tuition. If you’re an out-of-state student, be mindful that your costs may be higher unless explicitly stated otherwise.
Some calculators base their numbers on financial aid opportunities available to first-year students. There is usually more funding for freshmen, so you can expect the subsequent three years to be more expensive.
Nonprofit vs. for-profit schools
Nonprofit schools tend to cost a good deal less than for-profit institutions. And, when you look at the net price of for-profit schools, they can cost even more than private nonprofit schools.
This is because for-profit schools offer less institutional aid — or financial aid through the college itself. Instead, they rely heavily on federal financial aid for the funding of their students’ education.
As a result, students who attend for-profit schools generally wind up with far more student loan debt after graduation. With 59 percent of students enrolled in a certificate or associate’s degree program, average student borrowing per year was at $6,179 for the 2011-12 school year compared to an average of just $953 at comparable public, nonprofit two-year institutions, according to a recent analysis by the Brookings Institution.
Because of this, the bulk of their advertising efforts are focused on low-income students who qualify for maximum federal financial aid. These students should be careful to weigh net prices at nonprofit institutions before agreeing to attend a for-profit school based on the sticker price.
Nonprofit institutions will offer more scholarships and grants, reducing the number of loans — and therefore debt — they have to take on.
Public vs. private school tuition
The sticker price on a public college is undoubtedly lower than that of private institutions. However, many private schools have large endowments providing substantial student aid at the institutional level. This aid is often extended to middle-income families even if they don’t qualify for a large amount of aid through federal programs.
For example, Cornell University offers significant grants to students from families with under $60,000 in annual income as long as their assets are under $100,000. In an example generated by the university, a traditional student from a household with $51,000 in annual income can qualify for over $64,000 in institutional grants — even when they hold personal assets of $3,000.
In this example, the student’s net price is a whopping $3,450 for one year at an Ivy League university.
What college expenses should I be prepared for?
Part II: How to Pay for College
There are several different ways to find money for college expenses. If you stay on top of financial aid application deadlines and have a high GPA and high test scores, you can easily shave tens of thousands of dollars off your cost of attendance.
In this section, we’ll cover the most common sources of college funding.
The Free Application for Federal Student Aid (FAFSA) is the single most important document you will likely fill out as a college student.
Because without the FAFSA, you won’t be able to access the majority of the best financial aid options we are going to cover in this guide. Those include:
Federal student loans
Direct PLUS Loans for parents
Not only will the FAFSA tell you how much aid you are eligible for through the federal government, but it is also a required step to getting institutional financial aid from your college or university.
How to fill out the FAFSA
It’s important to note that you do not have to pay to file the FAFSA. It is entirely free.
Go to https://fafsa.gov/ to create a Federal Student Aid account and start your application.
Important: You must fill out a FAFSA every year that you attend college.
The Expected Family Contribution (EFC) is how much the federal government determines you or your parents should be able to contribute to your education costs. This number is then used to figure out how much aid the government is willing to extend to you.
For example, to qualify for a full Pell Grant in the 2017-18 school year, your family’s expected family contribution can’t be higher than $5,328.
It should be noted that students interested in FSEOG Grants and Perkins Loans should apply as soon as possible, as these funds are doled out on a first-come, first-served basis and actually do run out.
Student Loans: Explained
The final form of aid distributed by the federal government is student loans. You will know which federal student loans you qualify for after you fill out your FAFSA.
Because student loans will have to be repaid with interest, they should only be pursued after you have exhausted all grant, scholarship and work-study options.
Types of federal student loans
As an undergraduate student, there are a variety of federal student loans you may be offered.
Important: You should be absolutely sure that you have maxed out your federal student loan eligibility before turning to private loans. Federal student debt often has better rates than private loans and a range of flexible repayment options.
Private student loans
If federal student loans aren’t enough, you can turn to private student loans as a last resort for college financing. These loans from banks, credit unions and online marketplace lenders do not have the same generous repayment programs, though some may have deferment options in some situations, such as unemployment.
Private loans come with variable or fixed interest rates. At this moment in time, interest rates are low. If you take out a variable interest rate loan, the rate is likely to go up over the course of your loan. Fixed interest rates start higher, but remain stable throughout the course of your repayment.
Should I get a co-signer?
If you haven’t yet established credit, you will likely need a co-signer in order to qualify for private student loans. If you’re a nontraditional student and have a less-than-stellar credit history, you’ll likely also benefit from having a co-signer.
If you have a good credit score, you can skip the co-signer. But if you do need some help, look for loan options with a co-signer release. This lets the co-signer off the hook after a certain period of time — generally once your payment history has allowed you to establish a better credit history yourself.
How much should I borrow?
You don’t want to borrow more than you can reasonably afford to pay back. Certain professions that require extensive education, like doctors and lawyers, will have considerably more student loan debt than other professions.
However, some professions, such as teaching, may require a master’s degree in some regions. Four years of undergrad plus grad school isn’t cheap, but a teacher’s entry salary typically doesn’t make up for all of your education expenses.
In these situations, talk to professionals in the field you want to enter to find a reasonable expectation for entry salary and potential salary growth over the course of a career. While using online sources to find this information is great, it’s not going to replace the regional knowledge of a professional working in the field.
You can then plug that number into CollegeBoard’s Student Loan Calculator, along with how much money you intend to borrow. It will analyze and tell you if your monthly payments will exceed 10 to 15 percent of your monthly income — which is generally considered to be the absolute maximum you should allot to student loan payments.
If you take out federal student loans, you may be able to borrow more as most loan options allow you to pay based on your income level. Just be careful not to bury yourself in debt — you don’t want to be paying student loans into your seventies.
You won’t find scholarships on the FAFSA, but they’re a great alternative to student loans. When you are awarded a scholarship, you receive free money for school that you never have to pay back.
Merit-based vs. need-based scholarships
While the majority of grants are need-based, the majority of scholarships are merit-based. There may be maximum income levels or priority given to those in dire financial straits, but for most scholarships, you’re going to have to do a little bit of work beyond filling out an application.
Most scholarships will require you to maintain a certain GPA, though standards vary wildly. Almost all scholarships will require some type of essay. Traditionally, this is done in written format, but in 2017 some scholarship essays can be done via multimedia such as video.
If your family’s income doesn’t help you establish a strong financial need, don’t lose hope. There are plenty of scholarships out there that have no financial requirements and are completely based on your essay — on rare occasion, they won’t even ask about grades.
Recurring vs. one-time scholarships
Most scholarships only last one semester or one school year. However, there are some you can apply for that will cover your entire tenure as an undergrad. Keep in mind that these options are likely to require you to maintain a certain GPA throughout your studies.
How do I find scholarships?
The first place you can look is your financial aid office. Many schools have endowments not just for grants but for scholarships as well.
After you have exhausted scholarship options at your school, look in places such as:
Professional organizations in the field you want to enter
Professional organizations or unions your parents may belong to
National student organizations related to your major
Potential future employers — especially if they’re a larger company
Within the community you grew up in
Organizations based on your ethnicity or heritage
Organizations related to any extracurricular activities or hobbies
You can look for scholarships on major search engines, like Fastweb, CollegeBoard and Scholarships.com, but you’ll find a ton of competition. If you can look for scholarships focused on what makes you unique, you’re likely to find a dramatically smaller applicant pool, boosting your chances of winning an award.
How soon should I start applying?
Start applying for scholarships as soon as possible. It is possible to fund your education this way in its entirety, though you will have to fill out a lot of applications and write a lot of essays. The sooner you get started, the better.
Each scholarship has a window, which is typically opened annually or once a semester, in which you can file an application. While high school sophomores will be able to apply for some scholarships, opportunities really start opening up in your junior year.
Grants are money you never have to pay back unless you drop out of school or in some other way violate the terms of agreement. In undergraduate studies, they are typically need-based.
In order to qualify for federal grant programs, you must fill out the FAFSA and meet eligibility requirements. There are four types of federal grants:
Federal Pell Grants are distributed based on income-eligibility only. They can be granted to full-time, three-quarter-time, half-time or less-than-half-time students.
For the 2017-18 school year, the maximum Pell Grant awards are:
$5,920 for full-time students
$4,440 for three-quarter-time students
$2,960 for half-time students
$1,480 for less-than-half-time students
These awards are distributed in two parts over two semesters.
During the summer of 2017, Summer Pell Grants were awarded for the first time since 2011. These grants gave you an additional 50 percent of the full award to spend on summer studies — particularly helpful to community college students whose course of study typically runs through the summer.
The 2017 expansion was part of a budget deal passed by Congress in May affecting only one school year. Whether Summer Pell Grants will be available for the 2018-19 school year or any other future years still remains up in the air. Legislation for the permanent reinstatement of Summer Pell Grants was introduced in the Senate in April, but received no vote.
Federal Supplemental Educational Opportunity Grants
The maximum award is between $100 and $4,000, depending on your personal financial situation.
Iraq and Afghanistan Service Grants
If you lost a parent while they were serving in the military in Iraq or Afghanistan post-9/11, you may be able to get a full Pell Grant regardless of your family income through the Iraq and Afghanistan Service Grant.
In order to qualify, you must:
Meet all Pell Grant requirements save EFC requirements.
Have lost your parent before the age of 24 — or while you were enrolled in college at least part time at the time of your parent or guardian’s death.
Over the next couple of years, the maximum award for this grant will be reduced thanks to budget sequestration. If your grant is distributed prior to Oct. 1, 2017, you will receive a maximum award of $5,511.52.
If your grant is distributed between Oct. 1, 2017, and Oct. 1, 2018, you will receive a maximum award of $5,529.28.
If you are planning on becoming a teacher, you may be interested in a Teacher Education Assistance for College and Higher Education (TEACH) Grant. In order to qualify, you must be enrolled in a TEACH-eligible program. Not all schools participate, and the ones that do determine which of their programs qualify for TEACH Grants, so be sure to sit down with your financial aid counselor to determine your potential eligibility.
When you accept a TEACH Grant, you are agreeing to serve four out of your first eight years in the workforce in a high-need specialization in a low-income area. You can also meet this obligation by teaching at a Bureau of Indian Education school.
Your college or university may also issue need-based grants. While your EFC is not likely to be measured in the same way, a FAFSA application is still required in order to be considered.
Some colleges, though typically not Ivy League schools, will offer merit-based grants, as well. Your grades will be a factor here.
Work-study programs are another form of aid that will not be accessible unless you complete your FAFSA.
Many schools participate in federally backed work-study programs for students with a financial need. You are assigned a set amount of hours dependent on your financial need. You may find yourself working for the school, in a community service role, or in a field relevant to your course of study.
Work-study programs pay at least minimum wage and pay at least once per month. You can choose to receive a monthly paycheck or have your pay directly counted against any money you may owe the school.
Your eligibility for work-study will be determined by your FAFSA application.
529 college savings plans
529 accounts are tax-advantaged accounts to help you save for future college expenses. Contributions go in after you’ve paid taxes on your income. That money is invested and grows tax-free — as long as you spend the money on qualified educational expenses.
Types of 529 accounts
Not all 529 accounts are created equal. They are issued by state, and each state has specific rules on how their 529 accounts can be used. However, many states will let you purchase their 529 accounts even if you are not a state resident.
There are two basic kinds of 529 accounts.
College Savings Plans
The College Savings Plan structure allows your money to grow in traditional investments as made available by your state. You can use this money to pay for school at almost any U.S. institution — and even some schools abroad.
When you take money out, it will be based on the real dollar value your investments have grown to. For example, if you have $20,000 in your account, you would be able to take $20,000 out. If school cost $25,000, you would still have to find $5,000 to fund the additional tuition and fees not covered by your 529.
Utah’s 529 plan is a College Savings Plan, and commonly cited as one of the best in the nation.
Prepaid Tuition Plans
Prepaid Tuition Plans allow you to save for tomorrow’s college at today’s rates. There may be different tiers of saving for different types of schools.
One thing to be careful of with Prepaid Tuition Plans is that if you save at the state school level, and your child ends up not wanting to attend a state school when they graduate from high school, you could run into some funding problems. Pennsylvania allows you to change your investment tier at any time, but this is a potential point of friction you should consider at the outset of your 529 decision.
You will also notice that price per credit is quite high for Ivy League schools. As discussed earlier with the example of Cornell, Ivy League schools tend to have extensive grants. If you’re making a median income, saving in this manner may reduce your child’s future institutional aid, costing you more money than you would have had to pay without the dramatic savings.
What can I use my 529 account for?
You can only use the money in your 529 account for qualified educational expenses. If you use the money for anything else, you will have to pay taxes on the withdrawal.
Qualified educational expenses include:
Tuition and fees*
Room and board — though you must be enrolled at least half-time to claim this expense
Technology required for school — including internet access
Required equipment and materials as dictated by your professor
*Some Prepaid Tuition Plans cover tuition and fees only.
How to make a 529 withdrawal
Most programs allow you to make a withdrawal online or via postal mail. Your 529 account issuer will not keep records of how that money was spent. Producing documentation to show that the money was spent on educational expenses falls squarely on your shoulders.
If you have a high enough income level, your child may not qualify for need-based financial aid. Saving in a 529 plan is a generous investment in their future given that they won’t have as many funding opportunities available to them.
Because you are investing, your money is likely to grow — and grow federally tax-free at that. This means you won’t have to save as much in a College Savings Plan in order to meet your goals.
Cons of 529 accounts:
The amount you have saved could reduce institutional aid — especially if you open the account in your child’s name. Open the account in your name and list your child as a beneficiary instead.
When saving in a Prepaid Tuition Plan, do your best to ensure you’re saving at a level your child will actually be able to use. If they don’t end up going to school in state, you could hit a bump in the road if you’ve been saving at state school tuition levels.
Because you are investing, there’s no guarantee of growth. You could conceivably lose money in a 529 account.
Through a combination of federal and private loans, there’s really no set limit on how much you can borrow. You should figure out how much you want to borrow, though, after realistically examining your potential future earnings.
To figure out if your college degree is worth the cost, you need to figure out the net price of your education and your expected salary. A good tool to figure this out is College Reality Check.
Funded by the Bill & Melinda Gates Foundation, College Reality Check helps you estimate the net price of your school based on a number of different factors. Then it shows you how much you can expect to make upon graduation.
Technically, you’re only allowed to spend federal student loans on educational expenses. These can include:
Tuition and fees.
Room and board
Books, supplies and equipment
Transportation while at school
Dependent child care expenses
No one will be monitoring your bank account. However, if you end up having the money to go on shopping sprees after you’ve paid for all of the above expenses, you’re probably borrowing too much. Consider returning the money rather than paying interest on it after you graduate.
Check your loan agreement with non-federal lenders for specific restrictions on private student loans.
Most of the time, no, you do not. However, some colleges and universities require their traditional freshmen to live on campus. Even these stipulations can sometimes be worked around if you are commuting from your parents’ home.
If at all possible, yes. Make an effort to make at least interest-only payments. This will keep interest from accruing while you’re in school and deferment, which costs you more money in the long run.
The only time it doesn’t matter as much is when you have Direct Subsidized Loans — which will not accrue interest while you’re in school. Even then, making principal payments early isn’t a bad thing if you can swing it.
If you miss one payment on your federal student loans, you will have to make it up before 90 days — otherwise you get reported to the credit bureaus.
If you miss several payments on your Direct Loans and don’t make payments for 270 days, you will be in default, which puts you at risk of not only being reported to the credit bureaus but also losing all benefits of federal student loans like income-driven repayment options. You could also end up in court.
Consequences for Perkins Loans and private student loans depend on the agreement you sign prior to disbursement, but they can report you to the credit bureaus as soon as you are 30 days late with a payment.
Your kid doesn’t want to stay in the dorms, so now what? In today’s real estate market, finding a place to live can cost a fortune. From negotiating tactics to gaining a leg up over the competition, real estate experts share 11 ways to save on your kids’ new pad.
How to Get Started
Where is the best place to look for off-campus housing? Sean Conlon, Real Estate mogul and host of CNBC’s The Deed: Chicago, recommends checking with your campus housing office first. “They will have information for nearby landlords that are looking for college students to rent out their units,” he said. He also said that most schools will display postings for apartments for rent and recommendations from past students on the best places to live in the campus housing office.
Use websites to conduct additional research. Paul Morris, realtor and co-author of Wealth Can’t Wait recommends sites like Zillow, Craigslist and Padmapper (a search engine that uses Craigslist data) in addition to local Facebook groups and popular local sites. He said, “It is critical to use the ‘alerts’ function for each of these online resources because most often they provide a text or email whenever there is a new post meeting your criteria.” He added that some of the local sites are private but will usually grant access if you request it.
Location, Location, Location
When determining where to look, Xavier Izquierdo, a real estate investor in the Los Angeles area suggests familiarizing yourself with the market rental rates in specific pockets close the campus, as even a three to four block difference can save you a few hundred dollars per month. He said, “Look at proximity to campus. Is there a campus shuttle, local bus or is it an easy bike ride or walk? Does the campus security patrol the area? Are there free rides from campus to your apartment late at night? Or, if you have a car, ask if a parking space is included.”
Victoria Shtainer, residential real estate expert at Compass, a real estate firm with listings in several cities in the US, suggests considering a new development. “These buildings might offer more incentives – free rent, gift card upon lease execution, etc. than other buildings, as they are looking to pull tenants in,” she said.
Morris suggests doing some local reconnaissance, if logistically possible. “Even though most rentals will be listed on the major services, it’s not true of every rental,” he said. “Stop by grocery stores, community centers, and other places where small landlords post openings. This can be time-intensive, but also can be where most of the ‘deals’ are found. He also suggested that you tell everyone you know that you are looking. “Maybe there is an available apartment next door to a friend and it has not been listed yet.”
Don’t Go at it Alone
Chad Kehoe, Co-Founder and CEO of Leaseful, a leasing platform, advises using a broker to help with your search. “Not only will they be able to show you a plethora of places, but they can also help you negotiate rent with the landlord – they want to lease the apartment just as bad as you do!” he said.
You will pay a fee when using a broker, but sometimes that fee can be negotiated. Allen Brewington, a broker with Triplemint, a real estate brokerage site, said, “When negotiating with a listing broker charging a 15% fee, show them how qualified you are by discussing the financials of your guarantor and then request a reduction in the broker’s fee. If you can assure them a quick, easy deal they may go for it.”
Compare Short Term vs. Long Term Rates
Brewington advised staying away from short-term rentals, as they tend to be more expensive. “Even if you are in school only for the fall and spring semester, it may be cheaper to rent an apartment for a full twelve months,” he said. “If your landlord lets you sublease the months you are not there, all the better.”
Another money-saving trick is to pay upfront — if you can afford it. Shtainer said, “Try to pay for the entire year of rent upfront…this is a very good tactic to give you leverage when negotiating the rent!”
Buy vs. Rent
It may sound a bit extreme, but an alternative to renting is buying. Shtainer said that parents should consider purchasing a unit for the duration of college, and perhaps longer if the student plans to stick around. “The student can pay the mortgage as the monthly ‘rent’ and contribute toward building equity in the property,” she said.
If you do happen to rent for a full year or purchase a property, consider leasing for the months you don’t need the place if it’s allowed.
Ask the Right Questions
When you meet with the broker or landlord, arm yourself with a list of questions that will help you find the place that is right for you. Ask whether it’s furnished, if Wi-Fi, trash collection and utilities are included, etc. Izquierdo said, “Finding a furnished apartment and having utilities included may be a little more on a monthly basis, but comparing this to buying furniture and putting deposits with utility companies to establish service needs to be considered when comparing total move-in and monthly costs.”
Make a Good Impression
Because competition can be stiff and apartments can go quickly, Morris suggests making sure you stand out as a solid candidate. Also, be prepared to commit on the spot if you find the place that’s right for you. “You should have a way to put the deposit down immediately-whether by check, or popular cash-substitutes like Paypal and Venmo,” he said. “Additionally, you should pull your own credit report and have a copy available. Great credit will open doors. If your credit is not perfect, be prepared to offer more in terms of a security deposit.” (Before apartment hunting, see where your credit stands with a free credit report snapshot from Credit.com). He also recommended writing a short statement about why you would make a great tenant, highlighting your strengths and even including references from former landlords, coaches or professors.
Refer a Friend
If you are looking at an apartment in a large housing complex, inquire about referral bonuses for bringing in tenants for the following school year. Kehoe said, “Big student apartment complexes usually have some sort of promotion to bring in new tenants. For example, the apartment buildings will sometimes offer the first month’s rent free as a signing bonus, or might have a referral program you could join where you and a friend can get discounts off of rent for signing a lease.”
Timing Is Everything
Most college students are looking for apartments towards the end of summer for the fall semester. If you happen to be looking mid-year or well in advance of the school year, this could be to your advantage. Brewington said, “For those looking to increase negotiating power, try to get off the summer search cycle. Look for an apartment in late September or October, after living somewhere temporarily for the first couple of months.”
Time to Move
When you’re working out your budget, don’t forget to factor in moving costs. Real estate expert, Ken Snee, said, “Many people underestimate the cost to move and the sticker shock can be overwhelming. It could be thousands of dollars with the moving truck handling and travel fees, packing services, and mover’s insurance.” Using sites like Unpakt, that let you compare the cost of movers and even book your move online can save you time and money.
Plan Ahead for Next Year
As soon as you get the sense that your student may want to live elsewhere next year, Izquierdo suggests looking now. He said, “Many locations are pre-leasing up to one year in advance. This will save time and money and it will give you the best chance at your desired locations.”
As many as 40 percent of college-bound students never make to campus their freshman year thanks to a phenomenon called “Summer Melt.” The term was coined by researcher Karen Arnold in 2009 to describe what happens when high school seniors get accepted into postsecondary institutions but still fail to enroll.
Students susceptible to summer melt, many of whom are often low-income and first generation college students, may get stuck on one or more of the steps required to complete enrollment. These steps can be as simple as filling out housing applications, taking placement tests and attending summer orientation — but the most common culprit behind summer melt is the financial aid process.
Making a mistake on the Free Application for Federal Student Aid, or FAFSA, or missing important financial aid deadlines could mean little or no scholarship or grant money for at-risk low-income students, who may not be able to attend attend school without the aid.
Here are a few steps students and their families can take to make sure they don’t fall prey to summer melt.
Reach out to school counselors and nonprofits for help
Dejah Morales, 19, could easily have fallen into the summer melt trap. As a first generation college student, the East Boston, Mass. teen told MagnifyMoney she wasn’t sure how to navigate the college matriculation process. But rather than giving up, she sought help from nonprofit organizations with experts on hand to guide her.
“I wanted to go find help because I knew all of the paperwork that is filled out needs to be done correctly because it affects how much [money] you get for financial aid and anything that has to do with you living on campus,” Morales said.
She started by contacting her high school college admissions counselor, who turned her on to a program offered by Bottom Line, a Boston, Mass.-based nonprofit that helps low-income and first-generation students get through the college application process and provides additional support when students are in school. Bottom Line made sure she correctly completed the application process in order to become a student. The nonprofit also has offices in Chicago, New York City, and Worcester, Mass.
When it came to sorting outout the nitty-gritty details of securing financial aid, Dejah turned again to her high school’s resources. All Boston-area high schools are staffed with a counselor from uAspire, a nonprofit that helps college-bound students get the information and resources they need to complete the college admissions and financial aid process.
“Submitting your actual [income verification] paperwork to the school was the hard part. And then having to get my parents tax information was always a struggle especially my dad since he wasn’t living with me,” says Morales. The uAspire counselor assisted her through the entire process.
Even if your school doesn’t have dedicated college counselors on staff, there are many free programs dedicated to helping students navigate the college financial aid process. Check out national non-profits like the College Goal Sunday Program hosted by the National College Action Network, or Reach4Succes. Also, students and families can contact their school counselor’s office for access to local resources.
Know your national AND state FAFSA deadlines — and submit your forms early
What’s more, federal grants and scholarships — ‘free’ money for school that you don’t have to pay back — are typically doled out on a first come, first serve basis. That means the later you wait to submit the FAFSA application, the less likely those funds will be available to you — even if you qualify for the aid.
There are two deadlines to keep in mind: the national FAFSA deadline and your state FAFSA deadlines.
State FAFSA Deadlines:
Your state may have set a different FAFSA submission deadline to qualify for state-specific aid. Check here to find your state’s deadline.
Get your parents on board early
Joe Orsolini, CFP and founder of College Aid Planners, says the majority of financial aid issues he sees occur just weeks before the fall semester begins are a result of parents not getting involved early on. Even small mistakes, like entering an incorrect social security number or miscalculating a parent’s income, could mean delays in receiving aid.
“The parents never really sat down with the kid and asked, ‘Hey. where is the rest of this money coming from?’” says Orsolini.
You’ll need to have important documents like your parent’s taxes and income from the past two years and your social security number on hand to complete the FAFSA form. Those can be difficult to get hold of when you don’t live with one or both your parents or if your parents don’t fully understand what they are being asked to provide.
Easy mistakes that can throw off your FAFSA submission
Incomplete e-signature. The FAFSA can also trip you up on seemingly-easy steps, like providing an e-signature. If you don’t provide the e-signature correctly, or think you hit ‘submit’ but didn’t, you may waste valuable time waiting for an email that won’t come until you sign the form properly.
Missing mistakes on your Student Aid Report. About two weeks after you submit the form, you should receive a Student Aid Report which gives you basic information about your eligibility for federal student aid along with your Expected Family Contribution – what your family is expected to pay. The SAR also includes a four-digit Data Release Number (DRN), which you’ll need to allow your school to change certain information on your FAFSA.The SAR also lists your responses to the questions on your FAFSA, so be sure to review it and correct any mistakes.
Income verification notifications. After you receive your SAR, check to see if you’ve been flagged for ‘income verification’ as about 1/3 of students are required to verify their parent’s income with additional proof to complete the FAFSA process. The government usually follows up on students who are more likely to qualify for the federal Pell grant or other grant-based aid, Page says. If flagged for income verification, you’ll have to submit verification to each school you apply to, and the schools may have different paperwork and processes.
Missing deadlines in e-mail. When you create and submit the FAFSA, you give the Education Department your email address. The Education Department will email you, so you need to check the inbox of the email address you provided for correspondence. Create your FAFSA account using an email account you check regularly. Turn on your email notifications on your devices so you won’t miss any emails reminding you to submit your FAFSA form or letting you know if something went wrong somewhere in the process.
Formally accept your financial aid awards
After submitting your FAFSA, you will receive a student aid award letter from your college. But your work isn’t done there. You’ll have to sign online to officially accept the aid (student loans, grants, work-study programs, etc). Typically, that will be facilitated through your college’s website.
If you applied for federal work-study, this is when you’ll decide if accepting it is best for your circumstances. Work with a financial aid counselor at the college if you need help weighing the pros and cons of accepting or denying any aid you’ve been offered.
Don’t forget to sign your Master Promissory Note. In order to receive federal student loans, you must sign a Master Promissory Note. The MPN is a legal document you must sign saying you promise to repay your loan(s) and any accrued interest and fees to the U.S. Department of Education. If you miss this final step, you won’t actually get any of the federal loans you’ve been assigned.
Log into your school’s student portal ASAP
Income freshman likely have access to a student portal provided by their college or university. There, you’ll likely find a checklist of important steps to complete before you can officially enroll.
The list may include important financial aid actions like accepting grants and scholarships or signing your Master Promissory Note.
Contact your school’s financial aid counselors early
If you’re not sure what your next steps should be in the financial aid process, you should reach out to the school you’re planning to attend. Call or send an email to the financial aid or admissions offices at your school if you are concerned about receiving the aid you need or get stuck completing all of the steps in the process.
The chatbot ‘nudged’ students to remind them of things they needed to do, like signing their MPN, or accepting scholarships, but it could also respond to students’ questions or help them get in contact with a human if asked or if it couldn’t answer the question.
“We saw our melt rate drop from 18% to 14%,” says Scott Burke, the school’s’ Associate Vice President and Director of Undergraduate Admissions. “That was 300 more students in our freshman class in fall 2016 than in fall 2015.”
Don’t forget your high school resources
Like Morales, high school seniors can still ask their high school counselors for help after they’ve graduated. Don’t hesitate to reach out with questions you may have about your transcripts or other parts of the financial aid process.
High school counselors, like Morales’ uAspire counselor, are usually equipped to answer many of the questions you may have about the financial aid process or with the FAFSA, but they may not be able to answer more college-specific questions. For example, your high school counselor could help you navigate your way through Loan Entrance Counseling, but may not be able to explain the process you need to go through to accept any awarded scholarships or grants from the university.
If a high school counselor can’t answer your questions, they generally direct you to the proper entity or person who can.
Student loan debt is a huge burden for millions of Americans, representing the second largest form of consumer debt in the country. A large monthly student loan payment can make it difficult to afford your other living expenses. Luckily, there are many ways to make that monthly payment more affordable.
Here are 11 ways to lower your monthly student loan payment.
1. Income-driven Repayment Plans
Federal borrowers with insufficient income should consider an income-driven repayment plan, which lowers your monthly payment based on your income and family size. There are several income-driven repayment plans, including the Revised Pay As our Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR) and Income-Contingent Repayment Plan (ICR).
Each plan is different, but they all reduce your payments to a set percentage of your discretionary income. You can work directly with your loan servicer to determine which plan is right for you.
2. Loan Consolidation
If you have multiple federal loans, a direct consolidation loan will combine them and allow you to make a single monthly payment. Consolidation can also extend your repayment period up to 30 years, reducing your monthly obligation. Keep in mind that this would increase the amount of money you pay in the long run.
3. Pay Ahead of Time
If you’re still enrolled in school or you just graduated, it could be beneficial to start paying on your loan now. Many federal student loans do not accrue interest until the grace period after graduation expires. If you start making small payments now, you’ll reduce the principal of your loan and the overall interest you’ll pay.
4. Employer Student Loan Repayment Assistance
Many government employers have offered loan repayment assistance for some time, but even private companies are getting in on the game to attract millennial workers. Before you jump at a job offer from an employer with a student loan assistance program, you’ll want to check the details to see if the program actually reduces your monthly payment.
“About 4% of employers are now offering employer-paid student loan repayment assistance,” said Mark Kantrowitz, Publisher and VP of Strategy at Cappex.com. “However, the employer payments are almost always in addition to the borrower’s payments and the borrower may be required to make at least the standard monthly payment. So, the main impact is on shortening the repayment term, not in reducing the monthly payment amount. “
5. Graduated Repayment Plans
Graduated repayment plans will temporarily reduce your monthly payments, increasing them every two years. This is a good choice if you currently can’t afford your payments but have confidence that your income will steadily increase over the next ten years.
Graduated repayment “starts off with very low payments, just above interest-only, and increases the monthly payment every two years. No payment will be more than three times any other payment,” said Kantrowitz.
6. Extended Repayment Plans
Extended repayment plans increase the lifetime of your loan up to 25 years. This will drastically lower your monthly payment if you’re currently on a ten-year payment plan. You will end up paying much more over the life of the loan.
Refinancing your federal loans with a private lender can help you get a better interest rate, which could lower your monthly payment and save a lot over the life of your loan. For this option, you’ll need good credit. To see where your credit stands, you can check two of your scores for free on Credit.com.
You’ll also want financial stability. That’s because private lenders don’t offer income-driven repayment plans, deferment or forbearance and many other options available to federal borrowers. If you fall on hard times with a private loan, you’ll have fewer tools at your disposal.
8. Roll Your Loan into Your Mortgage
If you have a home with some available equity, you could roll your student loan into your home equity line of credit (HELOC). This can reduce your interest rate, but will likely require good credit.
9. Automatic Payments
Many lenders offer payment or interest reduction as an incentive to sign up for automatic payments. Check with your loan servicer to find out if they offer this option.
If you’re desperate to reduce your payment, deferment or forbearance can pause or significantly reduce your monthly payments for a limited amount of time. Deferment also pauses interest, while loans in forbearance will continue to accrue interest.
You must work directly with your loan servicer to apply for deferment or forbearance. Qualifying circumstances may include financial hardship, unemployment or military deployment.
[DISCLOSURE: Cards from our partners are mentioned below.]
Waking up early to rush to class is never fun, and having to commute to school doesn’t make mornings any easier. Whether you live 15 minutes from campus or more than an hour away, every minute and mile counts. Being a few minutes late can ruin your performance on an exam, and having to drive a few extra miles can wreck your wallet.
While the first rings of an alarm clock might never get less jarring, having a credit card made for commuters can ease your mind during your morning commute. All of these cards offer great perks as well as gas-focused rewards that’ll turn every commute into an opportunity to rack up cash. (It’s a good idea to check your credit before applying for a new card. You can check two of your scores for free on Credit.com.)
Rewards: 6% cash back on up to $6,000 in annual spending at supermarkets, 3% cash back at gas stations and select department stores and 1% cash back on everything else. Signup Bonus: $150 statement credit after spending $1,000 on your new card within the first 3 months. Annual Fee: $0 intro annual fee for the first year of Card Membership, then a $95 annual fee. Annual Percentage Rate (APR): Variable 13.99% to 24.99%. Why We Picked It: The rewards are focused on gas and groceries, plus the APR can be low depending on your credit. For College Commuters: You’ll save on gas in the long run, and buying snacks for your afternoon commute is more appetizing when you realize how much cash back you earn. Drawbacks: If you constantly frequent gas stations, you may prefer a card with slightly better rewards on gas.
Rewards: 5% cash back on gas purchases, 3% cash back on groceries and 1% cash back on everything else. Signup Bonus: $100 Statement Credit when you spend $1,500 in first 90 days. Annual Fee: None APR: 0% intro APR on balance transfers for a year, and then variable 9.74% to 17.99%. Why We Picked It: This card features unlimited rewards and a solid APR, alongside 1% cash back on everything. For College Commuters: If you have a long commute that requires a lot of gas, this is a great card for racking up gas rewards. Drawbacks: You have to become a member of the Pentagon Federal Credit Union.
3. BankAmericard Cash Rewards
Rewards: 3% cash back on gas, 2% at grocery stores and 1% on everything else. These rewards are capped at $2,500. Signup Bonus: $150 cash rewards bonus online after spending $500 on purchases in the first 90 days of your account opening. Annual Fee: None APR: 0% APR for a year on purchases, and on balance transfers made within 60 days of opening your account. After that, variable APR of 13.99% to 23.99% will apply. Why We Picked It: Your rewards never expire and they’re capped at a decent level if you’re not a large spender. For College Commuters: If you have a shorter commute or very fuel efficient car, this card is for you because it has decent rewards up to a certain point. Drawbacks: If you drive very often you might use up your rewards quickly.
Rewards: 3% cash back on gas, 2% on groceries and 1% back on everything else. Signup Bonus: Earn 20,000 bonus points if you use your card to make $1,000 in purchases in the first 3 months. Annual Fee: None APR: 0% APR for 12 months on purchases and balance transfers. After that, variable APR will be 13.99% to 25.99%. Why We Picked It: Your points last five years and there’s no annual fee. For College Commuters: You can trade your points for cash, which is perfect for buying snacks, car chargers and more for your commute. Or, if your car breaks down during a drive, you can use your points for a rental car. Drawbacks: The points eventually expire and the APR is on the higher side.
Rewards: 4% cash back on eligible gas purchases up to $7,000 per year. Earn 3% cash back on restaurants and travel, 2% back on Costco purchases and 1% cash back on everything else. Signup Bonus: None Annual Fee: $0 (you will need a paid Costco membership) APR: 0% APR on purchases for seven months, after that, variable 16.24% APR Why We Picked It: The rewards are excellent and heavily focus on gas. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.) For College Commuters: This card is great for those who are near a Costco during their commute and often get their gas there. Drawbacks: This card is only available to those with an active Costco membership.
6. Marathon Credit Card by Visa
Rewards: Receive $0.25 rebate per each gallon of gas you purchase when you charge at least $1,000 that month, $0.15 rebate per gallon if you spend at least $500 that month and $0.05 rebate per gallon if you spend less than $500. Signup Bonus: Receive up to $0.50 per gallon for the first 90 days. Annual Fee: None APR: For purchases, 25.99%, 21.99%, or 17.99% when you open your account, based on your creditworthiness. For, balance transfers and cash advances, 26.99%. Why We Picked It: This credit card focuses on gas and features great rewards. For College Commuters: Living in the Midwest or Southeast has its perks if you have Marathon gas stations nearby. Whether you’re buying gas frequently for a long commute or only buying it occasionally, you’re still earning rewards. Drawbacks: The APR for this card is really high. The rebates can only be redeemed as $25 Marathon cash cards that expire after 24 months. This card is only worth it if you frequently go to Marathon for gas.
At publishing time, the Blue Cash Preferred® Card from American Express, PenFed Platinum Rewards Visa Signature® Card, Wells Fargo Propel American Express® Card and Costco Anywhere Visa® Card are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
College is a great time for financially responsible students to start learning to use credit cards. Credit cards can enable students to make purchases, build credit and even earn rewards. But credit cards can be a confusing concept for a first-timer.
Here are eleven things all college students should know about their first credit card.
1. It Can Help Build Your Credit …
Credit cards are important credit building tools, as card activity is typically reported to credit bureaus and included on your credit report. Over time, credit cards can help you establish an excellent credit score. Excellent credit can help you secure loans, land better interest rates and even reduce common monthly payments.
2. … If You Use It Correctly
Credit cards only help your credit when they’re used wisely — irresponsible use can severely damage your credit. To successfully build your credit, you’ll need to start and stick to smart credit card practices. These include making payments on time, maintaining a low balance and keeping accounts open over time.
3. It Isn’t Free
The credit limit on your credit card isn’t a budget for your next spending spree. Any purchase you make on your credit card will accrue interest if isn’t paid off in time. Plus, credit cards charge additional fees, which may include annual fees, foreign transaction fees and late payment penalties. Pay close attention to the annual percentage rate (APR) and fees for any credit card you’re considering.
4. Missed Payments Have Consequences
If you miss a payment or make a late payment, your credit card issuer may charge you a late payment fee. You might get slapped with a penalty APR that’s much higher than the interest rate you signed up for. That missed payment could even land on your credit report and bring down your credit score for up to seven years.
5. There Are Options if You Have No Credit
If you have no credit history, you can still qualify for certain types of credit cards. One of the best options is a secured credit card, which requires a security deposit upfront but then works just like a traditional credit card. You could also have a trusted family member add you as an authorized user to their credit card account.
6. You Should Pay More Than the Minimum
While it’s tempting to only pay the bare minimum each month, it’s wise to pay a little more. Minimum payments won’t significantly reduce your balance, and you may wind up paying a lot in interest over time. To completely avoid interest, you should pay off your balance in full each month. This means you shouldn’t charge more than you can afford to pay.
7. Applications Can Harm Your Score
When you apply for a credit card, the ensuing credit check (known as a hard inquiry) may land on your credit report. Hard inquiries can ding your credit score a few points but aren’t damaging in the long term. There is a risk in submitting too many applications over a long period of time, so you should try to limit your credit card shopping to a two-week period.
8. Use Rewards Wisely
Many credit cards earn rewards, such as cash back or travel points, as you spend. These rewards can be extremely valuable, but only if you use your card correctly. For instance, cash back cards are less valuable if you carry a balance month-to-month, as interest will eat into the profitability of your card. The way you redeem rewards also varies from card to card, so you’ll want to pick a card that actually provides rewards you’ll use.
9. Not All Cards Are Created Equal
Some credit cards are specifically designed for college students and offer security features, rewards and programs that benefit the fledgling credit card user. Take a look at student-focused credit cards, as they may be more accessible to you and have student-friendly policies. Some of these cards have certain requirements when it comes to credit scores. Before applying for any new cards, it’s wise to check if you will qualify by reviewing your credit scores. You can check two credit scores for free on Credit.com.
10. It Doesn’t Have to Be Exclusive
Your credit card will help build credit whether or not you use it religiously, so don’t feel obligated to use it for everything. You can keep it in case of emergencies or for the occasional purchase.
11. There Are Security Benefits
Credit cards offer a number of security benefits over cash and debit cards. They aren’t tied to your bank account, and you’ll never be responsible for more than $50 if your credit card is stolen. Plus, credit card companies often offer additional security features and monitor your account for suspicious activity.
College students already have a lot on their mind — career paths, majors, student loans, grades — but should credit be on that list? In college, your credit score is probably far in the back of your mind, if it’s there at all. But If you want to really get ahead and start post-grad life off on the right foot, consider starting to build credit in college. When you’re still in college, credit is often deemed a “future problem.” It’s a distant thing for real adults looking to buy houses. That’s all true, but it also plays a big role in anyone’s life, even college students.
Length of credit history is 15% of your credit score, which is a pretty big factor. The longer you have credit history, the higher your credit score is likely to be. It’s possible to build a good credit score in a year or two, but it can take years to build an excellent credit score. Starting early and being diligent can help you build credit history before you need to seriously worry about your credit score.
Choosing a Home
Many landlords require good credit to rent an apartment. Landlords use credit scores to predict whether tenants will make rent payments on time. Without a credit score, you’ll have to work extra hard to prove your trustworthiness and financial stability. Having a low credit score can lead to rejection or even a higher security deposit. It can also be easier to get a lease when you’ve got a few years of positive credit history under your belt.
Credit scores may be even more important when buying a home. The higher your score, the more likely you are to qualify for a mortgage and the better the terms you’ll receive. Kelan Kline, half of the personal finance blogging duo behind The Savvy Couple, can attest. He and his wife built their credit in college and at 23 years old, they bought a house. “The craziest part is I had just got my job and had no paycheck to show my income,” Kline said. “They used our credit scores and my job acceptance letter showing the income I would receive to get pre-qualified.” For the Klines, good credit scores made all of difference and they can make a huge difference for anyone entering the housing market.
In most states, potential employers can check your credit report and even factor it into whether or not to hire. Having a good credit report is an indicator that you’re dependable. It can also be something that differentiates you from other candidates. While not every employer will check, it could potentially happen and it’s best to make sure your report is free of errors when applying to jobs.
Making Student Loan Decisions
If you plan on potentially refinancing student loans, it’ll be more difficult to do so without a solid credit score. Refinancing can help you lower the rates of your loans and potentially help you speed up the repayment process.
Saving on Insurance
At a certain point you’ll have to move off of your parent’s insurance plan and, when you do so, it’s in your best interest to have a good credit score. When your credit score is higher, you’re viewed as less of a risk to insurance companies, giving you lower premiums. This even applies to car insurance — many U.S. car insurance companies use credit scores to help determine risk.
Getting a Car
If you’re hoping to buy or rent a car down the line, having a good credit score is crucial. While you can likely find an auto loan regardless of how low your credit score is, a better credit score means a better interest rate and more options to choose from.
Starting a Business
When you build credit in college, you’re setting yourself on solid ground for future endeavors. If you’re a young entrepreneur or aspiring business owner, it can really pay off. If you need a business loan to launch your first business, you’ll need to have a decent credit score to qualify.
Even if your near future doesn’t immediately require an amazing credit score, starting now is a smart decision. Lenders and employers use your credit score as a sign of financial stability and reliability. In any situation — loans, rentals, employment or otherwise — it’s a valuable asset to have.
There’s good news for any college student who’s looking to embark on the credit building journey. There are plenty of ways for new users to build credit in college from being an authorized user to using a secured card. Building credit doesn’t have to be expensive and you can check two of your credit scores for free on Credit.com to keep track of your progress.