Navigating Financial Challenges in College: Budgeting, Scholarships, and Student Loans
College costs are a constant source of tension and stress for students. Monetary hardships are one of the most common reasons we worry about our future. With the massive college expenses it’s understandable that this is even worse when pursuing higher education.
It’s critical to understand several things about what can make college more financially stressful or make your financial pressures a little easier during college.
Budgeting
Budgeting is a crucial skill to have as a student and, in general, as an adult. It’s the act of understanding how much money you have coming into you so that you can better control and plan the flow of money going out. Budgeting is a good thing to do for all students, whether they’re on a scholarship or student loans, to ensure they don’t get caught in a crunch with no money. There are a handful of methods to leverage budgeting to help manage your cash flow, including:
- Spreadsheets and tracking
- Save those receipts, or get comfortable with your online banking system to understand your spending and where. Using an online budgeting spreadsheet to help you know deficits and spending can help you track and predict spending so you can control it.
- Understand credit and terms before accepting any credit or loans
- Buy used textbooks and find open educational resources (OERs)
- Work whenever you can to balance the money going out and coming in
- Be aware of fun spending
- Check for optional fees in your tuition
Scholarships
What are Scholarships?
Scholarships are a certain amount of money awarded to a student to use for their educational finances. The most important thing to know about them is that you don’t have to pay them back and that’s the big exciting point for many and the thing that makes scholarships so desirable. They can be one-time grants or renewable so that more money comes in every year or term.
Scholarships can be awarded based on a range of criteria, depending on what institution is putting together the funds, although they’re most often based on need (inability to pay for education otherwise) or merit (academic or extracurricular achievements).
What You Need to Know about Scholarships
There are Limited Spaces Available
Scholarships are understandably one of the most desired forms of financial aid as they don’t need to be paid back. Alongside the fact that there are only so many scholarships out there this makes scholarships few and far between. The spots for scholarships fill up quickly so anyone looking to get a scholarship should do so very far in advance to give themselves the best chance of qualifying and snagging a spot.
They Can Have Strict Demands and Criteria to Keep Them
Qualifying for a scholarship is like preparing for a very prestigious job. No institution will just give money away without making you prove that you deserve it first. So make sure you’re aware of the criteria for getting a scholarship.
Simply getting the scholarship isn’t the only part of having one
Scholarships can have criteria for holding onto the scholarship, especially for renewable scholarships.
Scholarships Can Be Rescinded
One of the least talked-about facts about scholarships is that they can be taken away. So losing scholarships can happen, and understanding why that happens can help you prevent it.
Reasons you could lose a scholarship include the following:
- Not meeting the required GPA
- Using the money for unapproved purposes
- Switching your major
- Serious wrongdoing (like underage drinking, substance abuse, plagiarism, or other trouble with the law)
- Switching colleges
- Lying on your resume
- Not having enough credits
- Money for the scholarship disappears
Student Loans
What are Student Loans?
You’ve secured a student loan if you’re borrowing money from the government or from a private lender like a bank to pay for your education. But student loans require payment back later along with interest that stacks up over time. This makes them very different from scholarships.
Current estimates are that 43.5 million Americans have federal student loans, making this one of the most common kinds of financial assistance given to students.
How Do Student Loans Work
These loans are unique in that they’re usually flexible. You can use them for a range of things. These include things ranging from tuition and housing to books and other fees. So depending on what you’re looking for you can apply through the federal Free Application for Federal Student Aid (FAFSA) form or to private institutions. Either way you sign a promissory note. This commits you to paying it back plus interest.
Interest accrues over time so the longer you need to repay the loan the more interest you’ll owe. Interest also compounds, which means that the interest is calculated on the initial amount borrowed plus the extra interest accrued.
For example, you borrow $35,000, the average amount borrowed, at a rate of 4.99%. After the first compound period (monthly or yearly), $1746.5 is added. Then, 4.99% is calculated off $36,746.5, adding another $1833 to bring your total to $38,579. Finally, another compound period rolls around, adding $1925.
Monthly compounding is how in just three short months, your $35,000 loan turns into $40,500 in student loans. This is why getting a loan at a rate and amount you’re sure you can afford before it spirals out of control is imperative.
What You Should Know about Student Loans
Aim for Federal Loans Before Private Loans
Federal loans have a few benefits that private loans don’t have. These include income-driven repayment plans and forgiveness that private loans don’t have. You also don’t need to have a credit history to qualify for federal loans, which can be handy for those just starting out in life.
Federal loans come in two kinds. First, subsidized loans don’t build interest while you’re in school, whereas unsubsidized loans grow interest while you’re in school.
Interest Compounds Quick
We covered this a little bit already, but it bears repeating. The interest on student loans compounds quicker than you’ll ever imagine and can get out of control quickly. Using a student loan calculator can help give you a clear idea of how fast it can grow and what you’ll need to pay to pay it off. Some we like include these ones from Smart Asset or Money Mentors.
