Issue: July 2008
In This Issue:
The headlines say it all these days: Economic Woes; Loan Defaults; Credit Crisis; Skyrocketing Oil Prices—even your sesame seed bagel with cream cheese from the local deli costs more because wheat and grain prices have gone up. If you buy stuff, and most of us are constant consumers, then you are feeling the pinch.
The nation’s increased focus on finances is a good time for you to remember the importance of your own financial fitness. When was the last time you saved money or invested for your college education? If you think those are endeavors better left to Mom and Dad, then think again. Financial education at a young age is one of the keys to success—and an area in which you could probably use a little help. According to the Children’s Financial Network, in a national personal finance survey of 4,000 students taken recently 68% failed. Spending in the U.S. by teens was over $175 billion in 2001 and that is equal to Mexico's exports. Young people spend 98% of money they receive as gifts, allowance and earnings.
Not yet convinced to face your financial future? How about this, also from the Children’s Financial Network: Teens entering college are offered an average of eight credit cards during the first week of school and most continue to carry three of them throughout their student years. Of current students, 45% are in credit card debt. They graduate from their undergraduate programs with an average of $28,000 of debt (loans and credit cards). Some university administrators report that they lose more students to credit card debt than to academic failure.
Read the following articles for some advice to help you down the road to financial fitness
You’ve no doubt heard all about higher-ed sticker shock. Well, it’s true. Here are a few local examples from New Jersey schools: a resident of New Jersey attending Rutgers University (a public state school) and living on campus will pay, on average, $21,504 a year in room and board; a student at Princeton University, a private, four-year school, will pay $47,375 a year for room, board and expenses, and a student at Mercer County Community College will pay $112 per credit hour (if you’re a Mercer resident), plus additional fees (an average of 12 credits per semester). College ranks up there as one of the biggest—and most valuable—investments you’ll make in your lifetime. Chances are, you may need a student loan to help you pay your way. The flashing neon “Caution” light over your loan agreement is that education loans must be repaid with interest. Borrowing now will affect your future lifestyle. Make sure you understand all the student loan programs before you take the loan leap.
Test your student loan knowledge with this Lucky No. 7 Loan Quiz:
1. Before you begin to repay your student loan, the holder/servicer of the loan is required to give you a repayment schedule and information about interest rates, fees, outstanding balance, and repayment options. True or False?
2. You must repay your student loans, even if you don’t complete the academic program or don’t get a job after graduation. True or False?
3. You should always borrow more than you need. True or False?
4. Defaulting on your student loan won’t affect your credit rating. True or False?
5. If you are having trouble repaying your student loans, you have no options and will be saddled with ever- increasing debt. True or False?
6. You may repay your loan in whole or in part, at any time without penalty. True or False?
7. If you have several different student loan payments, make sure to keep good records because you must pay them all separately. True or False?
Answers: 1: True; 2: True; 3: False. Always borrow conservatively; 4: False. If you default on a student loan, your credit rating will be severely affected and you may have trouble getting other loans such as mortgages. You may even have trouble renting an apartment and getting a job; 5: False. If you’re struggling to repay, you may be eligible for deferment (a temporary postponement of your loan) or forbearance (a postponement or reduction in payments); 6: True; 7: False. If you wish to have just one student loan payment, you can apply for a federal consolidation loan.
Each college has its own financial aid policies—how outside scholarships are treated, whether aid awards can be appealed, and so on—information that may or may not appear in materials they send you. Make the most of your next campus visit and schedule an interview with a member of the financial aid staff. Here are five questions from the College Board (http://www.collegeboard.com) to get you started:
Do yourself a favor and learn the benefits of budgeting—NOW! A budget is the most effective tool in your personal finance toolbox because it helps you make the most of the money you earn and save—however little or great. According to Real Money 101, a publication put out by the New Jersey Higher Education Student Assistance Authority, you should begin mapping your budget with the following four categories:
Once you know where you want your money to go, then you need to figure out where it is going each month and how much you’re making. Keep track of all your expenses, writing them down in detail—everything from your car payment to your morning donut and late-afternoon bus fare. Then calculate your total income, including wages and even that monthly mad money from Grandma. Ultimately, you want to subtract your expenses from your income and see how much is left over. Remember, your expenses include money for your bills, money you save, money you invest and money you give away.
Ouch! Do your expenses exceed your income? It’s time to either reduce your spending or increase your income. Otherwise, debt is your only option and the deeper you sink into that, the harder it is to pull yourself out. Good money habits lead to financial freedom.