The cost of college is widely discussed as one of the biggest issues younger generations are facing. It’s forcing people back into their parent’s homes, preventing them from saving for retirement and sucking cash out of their pockets every month. I speak from experience, at one point I had over $85,000 in Student Loan debt myself. Thankfully Mrs. AE didn’t hold it against me! Unfortunately, I also have experience with all 5 of the below Costly Financial Mistakes College Students Make.
5 Costly Financial Mistakes College Students Make
1. Underestimating the impact of Interest
Prior to my student loans, my only experience with interest was the .05% rate I was getting on my dismal savings account balance. Hey! You made a penny this month, it cost us 35 times that to send you this piece of paper though!
Looking back at the amount of interest that accrued for the 6 years I was in school bums me out (I got my masters directly after graduation – it didn’t take me 6 years to get my undergrad 🙂 ). The worst part…….
This stuff is the devil and should be avoided at all costs. There are certain points where accrued interest gets added to your principal balance and starts generating interest itself. The main one being the end of your 6-month deferment after graduation. Please. Find a way to make interest only payments during your college career and save yourself the trouble.
Outside of that, the interest payments on $85,000 are depressing. To the tune of over $5,000 in one year! It will take me about 7 years to pay this debt off, even though I have been making accelerated and extra payments for over 3 years.How’s that sound? Do you want to be burdened with an extra monthly payment for 7 years?
How’s that sound? Do you want to be burdened with an extra monthly payment for 7 years?
Do everything you can to minimize the amount of debt you take away from college.
To summarize Student Loan Interest
- Interest starts accruing interest after capitalization (vicious cycle)
- The default pay back period for Student Loans is 10 years
- Over those ten years, you could have hundreds or even a thousand dollars coming out of your checking account every month
- Interest payments on the life of your loan are significant (could have been up to $30,000 for me). Don’t take them lightly, it is a serious financial commitment.
2. Assuming there is a high paying job waiting for you
As long as I can remember, and I am assuming I am not the only one, I was told that the key to success is to go to college and get a high paying job.
In my brain, I linked the two with some If/Then Logic.
If you go to college then you WILL get a high paying job.
If you go to college you get passed the front door, but it doesn’t put your ass in a seat. There are plenty of people that go months or even years without getting a job in their field after college.
Leads me into the third Financial Mistake College Students Make…..
3. Skipping Networking Events and Career Related Internships
Networking and Internships are hard to quantify financially, but not giving them your attention while going to school is a costly mistake. The last thing you want to do is graduate and be unemployed or underemployed. If you can’t afford to make your Student Loan payments, interest keeps accruing. Remember point 1?
Put the effort in to go to job fairs and on-campus events future employers attend. It might not seem like the most important thing going on, but it just as (if not more so) important than a stellar report card. Relevant work experience is valuable and it can set you apart from the competition.
4. Using Student Loan money for something besides tuition
Ouch. This one still stings.
I used loans for almost ALL my living expenses for 4 years and it was turned out to be fricken expensive! From 30 packs of Keystone Light (puke, I know) to monthly rent. I was taking out just as much for day to day living expenses than I was for tuition.
Thankfully it wasn’t Credit Cards (I did have about $2,500 there as well) but 6.5% interest on your food, rent, and beer is a dangerous game to play. Especially when you aren’t paying down any of the principal and it continues to snowball.
Suck it up and find a part time job to pay for day-to-day living expenses.
5. Not Refinancing Student Loans for a Lower Rate
For 4 Years I paid an extra 2-3% on my Student Loans than I needed to. As soon as you land your first post-college job, start shopping for a lower interest rate.
Just do it! I put it off for too long and finally took a stab and filled out an application on SoFi. It took under an hour and I saved Thousands of dollars with a little bit of legwork.
It’s damn easy – Take action and save yourself some money.
If you haven’t refinanced your Student Loans yet, you can use the below referral link and get a Welcome Bonus from SofI. I may receive compensation if you are approved and accept the loan terms. They are still my student loan servicer and I have 0 complaints to date with their service.
Are there any Costly Financial Mistakes College Students Make that I am missing?