This week on the IU MoneySmarts podcast 'How Not to Move Back in With Your Parents' former-intern Alex and I talk about the ever controversial topic of student loans. This time we are not talking about getting or not getting them, but how you can prepare for the future while you are using student loans. Phil Schuman, Director of Financial Literacy joins us and provides his expert opinion. Listen to the segment below, courtesy of IU MoneySmarts.
Goal: To get as good of an education as you can while taking out as few student loans as possible. Is this achievable? Absolutely. Is this achievable if you are already in school? Yes! Alex, who is over halfway through school said he felt it was 'too late' for him. This isn't true. So much of your student loans go toward your living expenses, not your actual education. Up to 51% of tuition could be for non-tuition related expenses (like housing, food, fees). You may still need student loans but there is merit in evaluating your expenses and living a frugal life now. You will thank yourself in 10 years. I want you to not see your student loans as something you can 'live off of.' When at all possible, avoid taking out extra loans for non-tuition related expenses.
Then there is the student loan refund check. Sounds awesome right? Everyone loves a refund. But not this kind, this is a bad refund. While it would be easy to go out and buy a bike or spend it on weekend away with friends, just remember, you will be paying for it for the next 30 years. It's simply not worth it. Return the check. If you find money at the gym or on the street you should try and return it right? You should say yes because the money isn't yours. This student refund check is also not your money, so return it. Think of it as your first adult financial decision. It's a tough one, but it can set you up for making good financial decisions in the future.
When you do graduate always remember that the student loan payment is coming. You may get a few months of a break, but don't get too excited. I recommend subtracting your student loan payment from your take home pay immediately and then budgeting with what income is left after that.