MONEY College

12 Things We Wish We’d Known When We Were 18

Girl moving off to college
Eric Raptosh Photography—Corbis

Suze Orman and other experts share their financial advice for the Class of 2018. Follow these tips to keep your college experience from becoming a major money mistake.

Prepping for freshman year at college typically includes activities like shopping for dorm essentials, reviewing orientation packets, and Googling your new roommate.

Most students don’t spend a lot of time thinking about how they’ll manage their money in this new phase of their lives.

And yet, what you do in those first few years of parental emancipation can affect you for years—or decades—to come. Students graduated last year with an average $35,200 in college-related debt, including federal, state and private loans, as well as debt owed to family and accumulated via credit cards, according to a Fidelity study. Half of those students said they were surprised by just how much debt they’d accumulated.

To make sure the class of 2018 gets off on the right foot, MONEY gathered sage advice from top financial experts about the lessons they wish they, their kids, or their friends had known before starting school.

1. Limit your loans. “Do not take out more in student loans than what you are projected to earn in your first year after college. If you only expect to make $40,000, you better not take out more than $40,000. The chances of you being able to pay it back is close to nil. If you need to take a private loan, you’re going to a college you can’t afford. Remember, going to an expensive school doesn’t guarantee success. The school never makes you, you make the school.” —Suze Orman, host of The Suze Orman Show and author of The Money Book for the Young, Fabulous & Broke

2. Finish in four. “Many kids are finishing school in five or six years. But every extra year is potentially an extra $30,000 to 40,000 in expenses. Map out your coursework and figure out exactly what you’ll need to do each semester. Be vigilant about sticking to your plan. Try to catch up on any credits by taking classes at a community college over the summer.” —Farnoosh Torabi, author of You’re So Money

3. Study money 101. “Sign up for an economics or personal finance course. This way, when you graduate, you’ll be better equipped to manage money for the rest of your life.” —Brittney Castro, CEO of Financially Wise Women

4. Leave the car at home. “Everyone feels like they need a car, but with the combination of sharing services like Uber, Lyft, Zipcar and public transport, that isn’t always the case. If you’re living in a major metropolitan center or on campus, consider leaving your car behind. It’s much cheaper to use one of these car services than it is to pay for insurance, gas, parking, car maintenance and car payments.” —Daniel Solin, author of The Smartest Money Book You’ll Ever Read

5. Lead rather than follow. “Especially in college, you’re going to be surrounded by people doing dumb things financially. You’ll see people financing their lifestyle with student loans or their parents’ money. Don’t feel bad if you can’t afford the same things as others. I knew a student who was financing his whole college experience with debt and he was always asking people to go shopping with him. If I’d tried to keep pace, I’d have ended up in the same debt-ridden place as him.”—Zac Bissonnette, author of Debt-Free U

6. Find free fun. “You can still do fun things at school, without spending a lot of money. You’re paying an activity fee in your tuition, so you ought to make sure you’re taking full advantage of whatever the school offers for free—be it concerts, trips, lectures. The school I went to provided grants to help students travel abroad and offered free plays and trips through different clubs.” —Farnoosh Torabi

7. Be purposeful with plastic. “The idea that you need to build credit in college is wildly overrated. It’s not a bad idea to build credit, but having built up a bad credit history will hurt you more than having no credit history. You don’t need to feel pressure to get a credit card. You can get by just fine with cash and a debit card; no one is expecting you to have a ton of borrowing history when you’re getting your first apartment anyway.” —Zac Bissonnette

8. Put your budget on autopilot. “Keep track of the money you’re getting in from loans and your parents, as well as your expenses. Use an app like Mint.com, which lets you link your debit and credit cards to your online account to track your spending and easily help you keep on budget.” —Daniel Solin

9. Enlist Mom and Dad. “Check in with your parents once a month and review your spending with them. Talking about this will help you to avoid what I call ‘budget creep,’ where all of a sudden you’re spending $30 a day on food and entertainment. All those little extras add up and you could be spending over a hundred a week… on what?”—Neale Godfrey, chairwoman of Children’s Financial Inc.

10. Protect your stuff. “College students may not think they have a lot of valuable possessions. But think about the value of electronic devices alone, not to mention textbooks, clothes, even that ratty futon. The good news is that renters insurance is typically inexpensive and can protect you from fires, theft and other incidents. The even better news is that students’ stuff may be covered by their parents’ homeowners insurance. Check the policy prior to hitting the books.”—Kara McGuire, author of The Teen Money Manual

11. Establish rules with roomies. “If you’re renting an apartment with friends, be sure everyone and their parents sign the lease. Try to have everyone’s name on the utilities bills as well. Kids will take advantage of other kids, and you don’t want to be the one who is stuck being responsible for everything. If you can’t attach everyone’s names to all the bills, have them prepay. Also, make sure everyone chips in for general expenses like cleaning supplies and toilet paper, so you don’t end up paying for all of that as well.” —Neale Godfrey

12. Share with discretion. “Social networks are a public record. Your future employers will look you up on your social sites and judge you based on what they see. So something that you thought was cute in college could keep you from getting the job. Know that every move you make on those sites could have a direct consequence on your ability to land a job.” —Suze Orman

 

MONEY College

The Important Talk Parents Are Not Having With Their Kids

College tuition jar
Alamy

The new Fidelity College Savings Indicator survey reveals that parents are only on track to pay a third of college tuition—and that they're keeping mum on the topic.

Moms and dads expect their children to pay for more than one-third of college costs—but only 57% of parents actually have that conversation with their kids, according to a new study out by Fidelity today.

The cost of college has more than doubled in the past decade, and parents are having a hard time saving for it, Fidelity’s 8th annual College Savings Indicator study shows. While 64% of parents say they’d like be able to cover their kids total college costs, only 28% are on track to do so.

That jibes with reality: For current students, parents’ income and savings now only cover one-third of college costs on average, according to Sallie Mae’s recently released report How America Pays For College. Kids use 12% of their own savings and income. Loans taken by students and parents account for 22% of the funds, while another 30% comes from grants and scholarships.

Experts urge parents to have a frank conversation well in advance with their children about how much college costs and how much they are expected to contribute, either through summer jobs, their own savings or part-time jobs while in school. “If children know that they are expected to contribute to their college funds, they are more likely to save for it,” says Judith Ward, a senior financial planner at T. Rowe Price.

A T. Rowe Price study released earlier this week found that 58% of kids whose parents frequently talk to them about saving for college put away money for that goal vs. just 23% who don’t talk to their parents about how to pay for school.

There’s also reason to believe that parents shouldn’t feel so bad about not being able to take on the full tab. A national study out last year found that the more money parents pay for their kids’ college educations, the worse their kids tend to perform. In her paper “More Is More or More is Less? Parent Financial Investments During College,” University of California sociology professor Laura Hamilton found that larger contributions from parents are linked to lower grades among students.

Apparently, kids who don’t work or otherwise use their own money to pay for school spend more time on leisure activities and are less focused on studying. It’s not that these kids flunk out, according to Hamilton. She found that students with parental funding often perform well enough to stay in school, but they just dial down their academic efforts.

Given all these findings, parents should feel less pressure pay the full ride for their kids—especially if it means falling behind on other important goals like saving for their own retirement. “Putting your kids on the hook for college costs is better for everyone,” says Ward.

MONEY 101: How much does college actually cost?

MONEY 101: Where should I save for college?

MONEY Ask the Expert

How to Tell if You Can Afford to Have a Baby

Pregnancy test with dollar sign
Sarina Finkelstein (photo illustration)—William Andrew/Getty Images

Q: “I’m a 38-year-old female, who has been focused on paying down student loans, currently at about $58,000 (my initial amount was $98,000). Minimum monthly payments are about $650, but I pay about $1,000 a month. I’ve paid down my loans by living very modestly, and at the expense of saving for retirement or planning a family. But now I’m afraid that if I don’t start having children now, I won’t be able to. Can I afford to start a family?” ‑ S.C., Brooklyn, N.Y.

A: “Having a child is an exciting but scary step, and money can be a big part of that worry,” says financial planner Matt Becker, father of two and founder of the blog Mom and Dad Money. “I wouldn’t dive in without considering the financial consequences, but I also wouldn’t let them scare you off.”

Considering the average cost for a middle-income couple to raise a child for 18 years comes in at just under a quarter of a million dollars, excluding college costs, according to the U.S. Department of Agriculture, you may never feel like having a baby is in the budget. But keep in mind that four million babies are born in the U.S. each year, and most of their parents adjust just fine to the new costs.

Even with your student loan debt, starting a family should be do-able for you, says Becker. You’ll just need to make room for in your budget for baby.

First step, get a handle on how you are currently allocating your income. (Mint.com can help you track your spending.) Then consider how your income might change after the baby, says San Diego financial planner Andrew Russell, who’s also a dad of two. For example, will you or your partner stay home part time or full time? Will you take any unpaid parental leave?

Once you know what your post-baby income will look like, get a rough estimate of the new expenses you will be footing, both one-time (like maternity clothes, hospital costs, car seat, crib) and ongoing (childcare, food and diapers). Becker recommends using Babycenter’s child cost calculator.

You’ll also want to factor in the cost of basic protections like life and disability insurance, which can help ensure your child will still be provided for if a parent dies prematurely or is seriously injured. “These will add to your monthly budget, but are well worth the cost for the financial security they provide,” says Becker.

With your big student loan payments, you may find through this exercise that your future expenses with baby exceed your income. So what next? See if you qualify for any loan forgiveness programs. Also, look for any fat in your budget to cut out—particularly recurring expenses that require a one-time effort to change like switching to a cheaper cell phone plan, cutting cable, or moving to an area with less expensive rents.

“Obviously this is a big life goal with a certain time frame, and if there is not that much room to cut back on spending, then you need to minimize the amount you pay back on loans,” says Russell, who adds that it’s okay for you to dial back to the minimum payment. “The debt is too large for you to take a good chunk out of it in the next few years, so you’re going to have to move forward with it.”

While the lower payment will add to your interest over time, the federal tax deduction on student loan interest—if you qualify—will offset some of the cost. Plus, every time you and/or your partner receive pay raises and bonuses, you can funnel that additional income toward the debt.

Once you’ve figured out your post-baby budget, start living on it—even before you get pregnant, Becker advises. And put the money you would be spending into a savings account. Besides helping you see if you can handle the budget, “this helps you build up a savings cushion that will relieve a lot of the financial anxiety that can come with a growing family,” says Becker. You will need to plump that cushion before the baby’s arrival anyway: With the general rule being to have cash reserves equaling six months of living expenses, you’ll need to make sure your emergency fund now reflects all the new costs you’ll be covering.

Related:

MONEY College

How Families Are Keeping a Lid on College Costs

Even though the price of a degree is steep, a new report finds that Americans are coming up with ways to limit the damage.

Despite the rising sticker price for a college education, American families are keeping higher education spending in check, according to Sallie Mae’s annual study of how students and their parents pay for college. One key reason: families are working hard to keep costs down.

This past academic year, families devoted an average of $20,882 toward a college degree, about the same amount they’ve paid for the past three years, and well below the 2010 high of $24,097.

“Even though we read stories about tuition going up, families are really holding the line on how much they’re spending,” says Sallie Mae’s Sarah Ducich, co-author of How America Pays for College. “They’re just not willing to write a blank check, and they are taking determined steps to make college affordable for them.”

They also relied less on debt. Borrowed funds covered an average of 22% of college costs this year, down from 27% the previous two years and the lowest level in five years. One of the main reasons for that, says Ducich, is that more students, especially low-income ones, were awarded grants and scholarships.

Overall, families are employing a number of cost-cutting measures, with the average family taking five different steps to bring expenses down, the report found. Among the biggest ways to trim education budgets:
  • Enrolling in two-year schools: In 2014 34% of students were enrolled in two-year public colleges, vs. 30% last year. That let them spend $10,060 less than four-year public school students did on average, and $23,843 less on average than their peers at four-year private schools.
  • Shopping by price: Two thirds of families reported eliminating colleges because of high costs. “This cost curve is something we saw jump post-recession, and it’s stayed at this high since,” Ducich says. Another 12% transferred to a less expensive school, up from 9% who did so last year. (For help finding a good education at the right price, check out our new ranking of the best college values.)
  • Changing majors: One in five families admitted to swapping majors to pursue a field that is more marketable, a trend that’s been steadily rising since 2012.
  • Lowering “fun” spending: Two-thirds of students said they cut personal spending to help shoulder college costs, vs. 60% who said the same last year.
  • Staying local: A full 69% of students opted for in-state tuition to save, and more than half chose to live at home or with relatives to cut down on housing bills.

More on how to save on college:

 

MONEY College

Why Your College-Bound Kid Needs to Meet Your Financial Planner

Parents showing jars of money
Jamie Grill—Getty Images

Sheltering children from tough money choices now can lead to unhappiness later on.

When I schedule a meeting with parents to talk about college costs, I always ask if the student will be attending the consultation.

About 80% of the time, the parents say no. Their usual response: “He’s too busy,” or “We would rather not include her.”

That’s a big mistake.

What I do is help estimate the final costs that the parents will be facing, taking into consideration projected financial aid, merit awards and the family’s current resources. Those costs can vary widely, from $5,500 a year to attend a community college while living at home to over $70,000 per year to go to a private college such as New York University.

Students should be involved from the start, so they can understand the financial issues that their parents will be facing. Students need to see the great disparity in cost outcomes among the different colleges on their wish list.

When I meet with the whole family, we can narrow down the types of schools that would be affordable to the parents as well as meet the academic and social needs of the student.

That way, we can avoid a situation in which a high school student, ignorant of any financial implications, pursues whatever college he is interested in. Then, in April of his senior year, when all of the acceptances and awards arrive, his parents review the options and say, “We can’t afford any of these.”

At that point, the only choices are for the student to attend a school he’s not happy with (such as a local college commuter school), or for the parents to go into deep debt in order to finance an education they cannot afford.

So I try my best to convince the parents to invite their student. Perhaps the parents are trying to shield their finances from their children. Eventually, however, the kids will be part of the parent’s estate planning. The earlier the children know about the parent’s financial situation the better. If a family limits the college search to the types of colleges that meet all needs (financial, academic, and social), then the only outcome in senior year will be a happy one for both the parents and the student!

——————————-

Paula Bishop is a certified public accountant and an adviser on financial aid for college. She holds a BS in economics with a major in finance from the Wharton School and an MBA from the University of California at Berkeley. She is a member of the National College Advocacy Group, whose mission is to provide education and resources for college planning professionals, students and families. Her website is www.paulabishop.com.

MONEY First-Time Dad

What Millennials Want That Their Boomer Parents Hate

Luke Tepper
Luke looks around for the inflation that has yet to come Taylor Tepper

It is nine letters long, (not legal weed), and causes investors' blood to boil.

Inflation. We really want some inflation. Now, if possible.

Macroeconomic forces are not top of my mind all the time. A couple of weekends ago, for instance, my wife and I played poker and drank beer on our friend’s rooftop patio. Our son Luke, clad in his new miniature gondolier outfit, crawled between our legs as one person after another told us how cute he was. That night Luke held onto one of my fingers while I gave him his midnight feeding. Later my wife and I slipped into his room for a few moments to watch him sleep.

I can tell you that at no point during our perfect summer day did the word inflation pop into our heads. We went to sleep thinking just how lucky we were to have such a beautiful son, rather than dwelling on the fact that we face an inflationary climate that is hostile to the economics of our new family.

We aren’t strangers to what economists call “headwinds.” Mrs. Tepper and I graduated from the same really expensive private college in 2008, just as the nation was mired in the worst recession in 80 years. We attended college (and later graduate school) as state governments across the country drastically cut higher education spending, which meant higher costs, which meant that we incurred a combined six-figures student loan marker. And entering the job market in the teeth of negative economic growth means we’ll be playing catch-up for years and years.

Given all that we (and Americans, generally) have endured since 2008, it might seem strange that I would ask for higher inflation. When the prices of goods rise quickly, the Federal Reserve is apt to raise interest rates. Higher interest rates make it more expensive to purchase a house, or borrow for anything. Don’t I want to own a house? What’s wrong with me?

For a little bit of context, let’s back up and look at where inflation has been over the past six years. If you look at the core price index for personal consumption expenditures (or core PCE), inflation is rising at an annual rate of 1.5%. In fact ever since Lehman Brothers declared bankruptcy it has barely budged over 2%.

inflation...

Even if you look at a broader inflation metric, like the consumer price index, prices have risen at 2.1% or lower for almost two years.

What does this mean?

For one thing, wage growth has stagnated at around 2% since we left school, and job growth, while picking up lately, has been relatively slow. Weak job creation and small pay increases means that people have less money to spend, which means fewer jobs and the cycle goes round and round.

So more economic growth (spurred on by more borrowing and spending) would help alleviate low wage growth, and help us ramp up our weekly paychecks. But it would also do something else. It would help us pay down our student loan debts.

Super low inflation is bad for people who have debt. Right now Americans owe more than $1.1 trillion in student loan debt. That means people our age are receiving raises that aren’t that high and have to confront a record level of debt before their careers really get going. With so much of our take-home pay earmarked for debt service, no wonder housing isn’t a priority, or affordable, for millennials (or the Teppers).

Of course, this kind of talk scares our parents (and rich people), who own bonds and other assets designed to preserve wealth instead of create it. Having already endured years of low interest rates, they really don’t want their bond portfolio to be hit by an inflation jump.

To which I say, tough. Many boomers entered the job market as the economy was expanding and college was affordable. Their children did not.

Luke has this one toy that he loves. It’s a sort-of picture book for infants consisting of a crinkly material, and he loves nothing more than smashing the thing between his hands and feet. In 17 years, he’ll want a car—and then four years of college.

I realize that the costs of these things will rise—prices always rise. It would just be nice if our salaries rose enough to pay for them.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

 

MONEY Debt

Have You Conquered Debt? Tell Us Your Story

Have you gotten rid of a big IOU on your balance sheet, or at least made significant progress toward that end? MONEY wants to hear your digging-out-of-debt stories, to share with and inspire our readers who might be in similar situations.

Use the confidential form below to tell us about it. What kind of debt did you have, and how much? How did you erase it—or what are you currently doing? What advice do you have for other people in your situation? We’re interested in stories about all kinds of debt, from student loans to credit cards to car loans to mortgages.

Please also let us know where you’re from, what you do for a living, and how old you are. We won’t use your story unless we speak with you first.

TIME Education

Elizabeth Warren Slams Mitch McConnell on Student Loans

Yellen Testifies on Monetary Policy
Senator Elizabeth Warren (Democrat of Massachusetts) listens to testimony from Janet L. Yellen on "The Semiannual Monetary Policy Report to the Congress." on Capitol Hill in Washington on July 15, 2014. Ron Sachs—Corbis

Massachusetts Democrat accuses GOP leader of asking students to “dream a little smaller”

Massachusetts Senator Elizabeth Warren publicly took Senate minority leader Mitch McConnell to task Wednesday on her bill to lower interest rates for government student loans, which failed the Senate last month just two votes shy of breaking a Republican filibuster.

“Last week Mitch McConnell was asked about the student loan bill,” Warren told an obviously friendly crowd of 1,000 young progressives gathered in Washington for the Center for American Progress’s Make Progress Summit. “Mitch McConnell actually suggested that the solution for college affordability is for young people to lower their expectations and become more cost conscious, because he said not everyone needs to go to Yale.”

McConnell made the remarks in a town hall meeting last week, when explaining his support of proprietary education—or for-profit schools—as, he said, it increases competition with traditional colleges:

…I think the best short-term solution is for parents to be very cost-conscious in shopping around for higher education alternatives. Not everybody needs to go to Yale. I don’t know about you guys, but I went to a regular ol’ Kentucky college. And some people would say I’ve done okay.

Warren then asked everyone in the room who had student loans and didn’t go to Yale to raise their hands—and the vast majority did. “His vision for America is that no one reaches higher than they can already afford,” Warren scoffed. “Mitch McConnell may think that the solution to the exploding student loan debt is to dream a little smaller. Well, he is wrong… We are going to build a better country than the one Mitch McConnell envisioned.”

Request for comment from McConnell’s campaign wasn’t immediately answered.

Warren then said the only way to fix the situation was to convince two senators to change their minds, an endeavor she asked the students in the room to help with. Because it’s either change their minds, or elect those that don’t “hire armies of lobbyists and lawyers,” she told the roaring crowd, who gave her an ovation.

The Massachusetts Democrat’s remarks came two weeks after she campaigned for Alison Grimes, McConnell’s Democratic challenger in this November’s elections.

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