One of the biggest fears associated with pursuing a college degree — for both students and parents — is getting overwhelmed by student loans. But learning how to properly manage income and debt can help students take ownership of their education and begin stewarding their finances wisely.
Learn about your loans
Zach Bruketta, financial aid director at New Orleans Baptist Theological Seminary, advises students to “do what you can to learn how your loan works first.
“Learn the difference between principal amount and interest rate. Be mindful that when you take out a loan, interest is going to compound on that loan. You’re paying something outside of what you actually borrowed,” he said.
Many students take out loans without realizing how quickly interest can add up, especially after graduation. Ideally, you should spend time educating yourself on these financial principles before you take out any student loans. Being well informed will help you better structure your loans and tailor them to fit your academic goals and career plans. It will also allow you to plan ahead and begin budgeting in order to pay off your student debt in a timely manner.
A great resource for learning about your loans is the “Federal Student Aid” website. It offers insight into the different types of student loans, and it helps students make responsible investments in their education.
One valuable tip included there is to “think about how the amount of your loans will affect your future finances and how much you can afford to repay. Your student loan payments should be only a small percentage of your salary after you graduate, so it’s important not to borrow more than you need for your school-related expenses.”
Prioritize paying off your loans
Once you take out student loans, paying them off promptly should be a top priority. “The longer you hold onto [student debt], the more money you’ll pay in the long run,” Bruketta cautioned.
He recommends students prioritize paying off their debt when budgeting for expenses, even if it means “making some sacrifices for a time.” This may look like sitting down and assessing your spending patterns in order to find areas you can cut back on for a season.
“If there’s an extra source of income or unexpected gifts that you receive, I would say loan debt would be on the highest priority list for where that might go,” he said.
Paying off debt responsibly may feel restrictive in the moment, but it’s absolutely an investment worth making. Establishing a healthy financial foundation and working toward being debt-free can afford you invaluable opportunities in your personal and professional life, as well as in your ministry and the Kingdom commitments you’re able to make.
“Jesus was not silent about how we steward the gifts and the talents and the treasures that we have,” Bruketta said. “And so I would say don’t overlook or neglect to bring those things to the Lord,” especially by praying for His wisdom and provision in your finances.
Spend responsibly
School loans aren’t the only source of debt students might encounter during their college career.
When budgeting for college, you have to consider the best way to handle out-of-pocket expenses. Many students decide to pick up their first credit cards when they start their education, sometimes with the express goal of building healthy credit. Unfortunately, many students fail to educate themselves on the ins and outs of credit usage beforehand, leading to unforeseen expenses and a credit rating left worse for wear.
In 2023, a U.S. News & World Report survey found that 52.7% of college students polled owned a credit card in their own name. Of those students, only around 20% were able to use their credit cards without accumulating debt.
Just like student loans, credit card debt accrues interest over time. The longer you take to pay back your debt, the steeper that cost will grow. Carrying over a balance on your credit card from month to month also lowers your credit score, so college students interested in building credit must be prepared for the responsibility of paying off their credit card balance in full each month.
Manage credit wisely
It also matters how much you spend. According to the Consumer Financial Protection Bureau, “Credit scoring models look at how close you are to being ‘maxed out.’” Ideally, they say your credit usage should stay below 30% of your total credit limit.
Students with credit cards should be careful to create a budget and track their spending to ensure they keep their balance low and pay it off each month. In the event a balance is carried over from one month to the next, financial advisors say it is best to stop using that credit card until it is paid in full.
It’s important for students to remember that managing their student loan debt and staying up to date on payments will also help them build a healthy credit score. So for some, it’s best to simply wait on getting a credit card if possible.
With or without credit, it tends to be most vital for students to focus on finding one or more part-time jobs in order to pay for out-of-pocket expenses. Sometimes, simply gaining work experience and budgeting carefully are the biggest investments you can make toward your future.
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