Managing Your Funds

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How much do you owe in credit card debt and tuition debt? If you answered “too much”, then you’re not alone. According to the Salie Mae Project on Student debt, the estimated undergraduate senior student tuition debt is $24,000 and the average credit card debt for graduating seniors is $4100.  College students need to educate themselves on loans and credit so they can stay out of debt and build a foundation for a stronger financial future.

 

Almost everyone in college has a credit card. A study by Sallie Mae showed that an astonishing 84% of undergraduates own a credit card and over 50% of students own more than 4 credit cards. Credit cards allow you to make a purchase, keep a balance on the credit card and then pay off the credit card balance at the end of the month. You can pay the balance off in full or make a minimum payment and pay off your debt partially each month. The dangers of using credit cards lie in the finance fees.  Finance fees are interest payments you must make if your debt is not paid off in full. Companies entice students with low introductory interest rates, sometimes even 0%, but after a couple of months, the interest rate could rocket upwards to 25%.

 

Students have to simultaneously deal with another headache, college tuition. Most people don’t have $32,790 lying around the house, the average tuition with room and board for a 4 year college according to the National Data for Education Statistics. For those who don’t have that kind of money, you’re going to need loans. The process of getting loans starts by filling out the Free Application for Federal Student Aid (FAFSA).  The purpose of the FAFSA is to determine the student’s financial needs and to give out the appropriate financial aid package. Once the application is processed, the student will receive a personalized financial package with a variety of loans.

 

There are different of types of loans and they each differentiate in their repayment periods and interest rates. Loans are available to students as well as parents. Let’s take at the loans available:

 

  • The Pell Grant and Perkins loans are given by the government to students with exceptional financial needs. The Pell grant is like a scholarship and doesn’t need to be repaid. The Perkins loan is low interest loan that accrues interest during school and payment on the loan starts nine months after graduation.

 

  • The Stafford subsidized and Stafford unsubsidized loans are given out to students and differ in interest responsibilities. The interest on subsidized loans is paid off by the government while the student is in school. The interest on the unsubsidized loan is the responsibility of the borrower and accrues during school. Payment on the loans starts six months after graduation.

 

  • Parents of students may be eligible to take out an Parent Plus Loan which can cover the entire cost of tuition. Interest accumulates 60 days after funds have been dispersed.

 

Earning your credit score

 

College students read thousands of pages, listen to hundreds of lectures and study for countless hours to earn good grades in school. Your credit score is just as important as the grades you earn in school, your credit score is like a report card for your finances. A good credit score can ensure success in the future; a bad credit score can anchor you down. “The better the credit score, the higher likelihood of lower interest rates on credit cards and loans, easily renting a house or apartment and getting the job of your choice,” says Gabe Albarian, a financial expert and author of the book Financial Swagger.

 

Your credit score is a number between 300 and 850 and is a tool used by lenders to determine your responsibility as a borrower.  A lender can reject loan applications and charge high interest credit card rates to borrowers with low credit scores. Two big components of your credit score are payment history and credit history. Your payment history takes into account how frequently the borrower misses payment on loans and credit card bills. The length of credit history factors in how long your credit accounts have been open.

 

To increase the credit history portion of your credit score, pick wisely when choosing your first credit card. You want to keep this card as long as possible. “My rule of thumb is to never close your first credit card unless there are unavoidable hikes in the interest fees or hidden fees” says Albarian. Your first credit card should ideally have a low interest rate, a budgeted spending limit and a rewards program that you will frequently utilize. “I often recommend getting a credit card that you know you will utilize for the rest of your life with rewards that you will use for the rest of your life. Get a spending limit that you know you can pay off either at the end of each month or you can pay off within a few months… Choose a card with low interest rate so when you can’t make monthly payments in full at the end of each month, the finance fees that will be charged will be low” says Albarian.

 

Managing and paying off your debts

 

Managing and paying off your debts can be an overwhelming and daunting task. It is vital to being cautious and to avoid common mistakes. Making payments and paying off your loans will increase your credit score and will make future borrowing easier by decreasing your interest rates.  We got great tips from Hussain Ahmad, the director of financial aid at NYIT and previously mentioned Gabe Albarian, author of the book Financial Swagger. Here are some tips below on managing and paying off your debts:

 

Skip the fees! The simplest advice is often the best. Don’t miss any payment! A lot of unneeded debt is the result of forgetfulness. Forgetting to make the minimum payment on your credit card can be painful. You can get charged late fees up to $45 for not making the minimum payment. Missing payment on student loans can be harsh too. You can get charged a 20% late fee on the missed month balance. We talked to Mr. Ahmad and he gave great advice.  “Do not miss any payment, just continue to pay your loans, if you have hardships, if you economic difficulty or any other situation, you should always contact your lender or servicer and ask them what your options are.” A useful tool for managing your loans is website for the National Student Loan Data System (NSLDS) and can be visited at http://www.nslds.ed.gov/nslds_SA/. This government website has the simple interface where students can access and manage their loans.

 

Don’t over-borrow! A credit card does not mean a free shopping spree! Mr. Albarian recommends using your credit card only in emergency situations. “Credit Cards are best used for emergency situations or unique transactions where the cash available in your wallet doesn’t cover the transaction value.” Overspending initially can lead to major credit card debt and may take years to get out. Getting out of debt isn’t easy but it is necessary. “Stop spending on the credit card, period… stop making charges on the card and make a feasible plan to get back on track” says Albarian.

 

Even in taking out loans, you can overspend. Your financial aid package may cover more than the cost of tuition. Taking these extra loans may cause excessive interest fees. “My recommendation is to not borrow money if you don’t need to. Anything you borrow, you have to repay. Sometimes students don’t realize and they borrow the maximum. It’s always best for the students to borrow as minimum as possible to cover the cost of tuition, supplies and etcetera…” says Ahmad.

 

Pay off debts in the right order! Students today have multiple credit cards and in order to get out of debt faster, you have to pay off the credit cards in the right order. “pay off the one with the highest interest rate or largest balance due first and then move on to the next in sequential order ” says Albarian. There is also a proper way to pay off your student loans.  Since unsubsidized loans accrue interest during school, it imperative to pay these loans off first. Loans with higher balances and higher interest rates should be the focus of paying off loans. “My advice would be that student must off their unsubsidized loans off first…in the unsubsidized loan, interest will accrue from the very first disbursement of the loan…my advice is pay of the unsubsidized loan first and then tackle the subsidized loan” says Ahmad.

 

Free money!-scholarships and rewards

 

What’s better than going to college and earning a degree? How about going to college for a reduced rate and maybe even for free! You can earn scholarships and grants that don’t need to be repaid! A lot of government grants are awarded on a “first come, first serve” basis, so it is best to fill out the FAFSA as soon as the application date is opened. NYIT is also there to help it’s students. The NYIT financial aid office, http://www.nyit.edu/financial_aid/scholarships/, has listed many different NYIT, government and private scholarships. From here, you can find scholarship search engines like fastweb.com and the Scholarship Research Network.

 

Getting free money is also possible by the credit card you choose. Credit cards offer different types of rewards which include cash back rewards, airline miles and points you can redeem for items. To compare the different types of rewards, visit bankrate.com. This site lets you differentiate between credit cards based on interest rates and also rewards.

 

Seek Guidance

 

Do you need help with you loans? If you have any questions, troubles or concerns regarding you loans, the financial aid office is ready to assist. “Even if you graduated from NYIT, you can always contact the financial aid office and get education on default management, like how to manage your loans, how to pay off your loans and things of that sort,” Mr. Ahmad. “We can always provide guidance on this. Our financial aid office is always open and we have friendly staff members that can help you out.”

 

The financial aid office can be emailed at finaid@nyit.edu and reached at 516-686-7680. Their website has great information and can be found at http://www.nyit.edu/financial_aid. There are many useful tools on the website including the financial glossary, information on the different types of loans, loan policies, types of aid as well as a student financial aid estimator.

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