For many people, the college years can be the best time of their lives. Wild parties, freedom from parental restrictions, all-night study marathons and a host of other unforgettable memories are all an integral part of higher education. Unfortunately, costly financial errors also play a central role in the lives of many college students - mistakes that can often take a decade or two to rectify. Here is a list of the five biggest financial blunders that are most commonly committed by those seeking higher learning.
Credit Card Debt
There's a reason why credit card companies give away free soda and other goodies at college campuses across the country. Many college kids are financially illiterate and have not learned responsible spending habits, and the terms of the credit cards that are offered to kids are often among the worst available, with high interest rates and layer upon layer of hidden fees. The real cost of being able to buy things now and pay for them later often doesn't sink in until long after the damage is done, both to their budgets and their credit ratings.
Abuse of Student Loans
Although student loans often offer very favorable terms to student borrowers, those who take out loans to pay for everything can do themselves a serious financial disservice. The total amount of student loan debt in American is now about $1 trillion, which is more than the total credit card debt in this country. The graduating class of 2009 carried an average of nearly $25,000 of student loans. Smart students will at least work part-time while they are in school, and employers like to see graduates who were able to pay for at least a quarter of their education costs themselves. Student borrowers also need to be cognizant of the terms of their loans and keep them from defaulting, which can damage their credit history.
Staying in School Too Long
Although going back to grad school can pay off in many cases, some students choose to stay in school in order to avoid facing the real world. This can substantially increase the amount of debt incurred for education and will only make it harder to deal with post-college life. In most cases, students need to be working towards a degree of some sort while planning ahead for what to do afterwards. Students should never assume that they can just do what they want and then just hope that it all works out for the best; if they have failed to plan, then they have planned to fail.
Not Protecting Their Financial Information
Many students think nothing of sharing their credit cards with their friends and logging onto their financial accounts on unshielded computers at libraries or other public places. This is one of the main reasons why nearly a third of all identity thefts still happen to people between the ages of 18 and 29. Unreliable roommates and other predators are constantly trolling for access to bank accounts and credit cards. Students need to take reasonable measures to ensure that their user IDs, passwords and other information is protected.
Using Retirement Funds to Pay for College
Although parents often face the dilemma of whether to fund their kids' college educations or their own retirement, students should almost never cash in IRAs or other tax-deferred retirement savings in order to pay for college. The opportunity cost can be enormous for this, but college kids often don't understand this and only live for the moment. Not only will cashing in an IRA result in substantial penalties and taxes, it will deprive the student of much-needed funds at a later period in his or her life.
The Bottom Line
These are just some of the major financial errors committed by college students. Other mistakes include paying for a more expensive school than necessary, using student loan debt for non-educational purposes and simply ignoring the advice of others who can help. For more information on how you can avoid these errors, consult your student loan officer or financial advisor.