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Budgeting for the college student

Put on the coffee and crack open that book. It's time for another all-nighter. With tedious exams, endless term papers and demanding final semester projects in the forecast, a college student's life can be quite stressful.

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Why add money woes to the list?

The cost of higher education is expensive, and getting more so. The average 2004-2005 tuition plus room and board at a four-year public university is $11,354 and $27,516 at a private school, according to the College Board. Add in textbooks, computers and other school supplies, and the costs really start to mount.

But being a college student doesn't have to leave you penniless -- if you're smart. You can use college as a way to get a degree and educate yourself on the fine art of living within your means. That's right -- you, too, can learn to live on a budget.

If you do it now, while you still have the support of your parents, the financial aid office and sympathetic roommates. Figuring out how to live on a budget after you're up to your eyeballs in debt, struggling with a job and totally alone is much more stressful.

The big, bad budget
The big, bad budget is really neither. Budgeting requires you to put a pen to paper (or fingers to keyboard) to figure out how much money you have, and how much you spend. Before you start filling in projected costs, it's best to chart your expenditures for two or three months, says Jeff Wuorio, author of Got Money? a book on money management for college students.

Working with a sample budget will help you see how to take every expenditure and source of income into consideration. Substitute on-campus housing fees for rent and mortgage if you live on campus. The cost of textbooks and everything else you'll need for school should be included in the budget as well.

Compare your income to your expenses. If you are in the black, there is a surplus of money. If you're in the red, or have a deficit, you'll need to cut back on a few things and/or find another source of income.

Better living through technology?
Getting your budget under control means you need to take a look at how you spend your money. Not know exactly where your money is going is not an uncommon phenomenon: cash machines and credit cards can feel like free money. When it comes to automated teller machines, you should withdraw only what you think you might need, according to Kathleen Jenkins, director of Internet development at Hobsons in Cincinnati, an education publication firm.

The ATM can have another hidden disadvantage: pesky fees. Although you may take out $20 or $40 a pop, many banks add surcharges if you withdraw money from a bank other than your own. Most surcharges are typically $2 for each transaction, but it's not uncommon for some banks to charge upward to $10. Those $2 dollar transaction fees can add up over the course of a year: two of these fees a month add up to $48 by the year's end.

Jenkins suggests limiting your withdrawals to once a week. And, just in case you're tempted to use the card more often, it's a good idea to leave the ATM card at home, she says. If your bank does not have a branch on or near campus, consider switching institutions.

When figuring out your budget, you'll also want to rethink your attachment to another American institution -- the credit card.

That double-edged sword: The credit card
Getting a credit card in college is relatively easy. Many companies offer limited credit lines with high interest rates, and most do not require a minimum income. Credit card companies bombard college campuses because they know that today's students will soon become tomorrow's accountants, doctors and lawyers. The earlier they get students to use the plastic, the better.

"From talking to our students, once they arrive on campus, credit card companies are more than eager to get their business," says Tom Keane, director of financial aid and student employment at Cornell University, Ithaca, N.Y.

Like ATM cards, a Visa, MasterCard or other credit cards may seem like your friend, but they can be anything but if you're not financially disciplined. If used wisely, credit cards can lead to a respectable credit report and make it easier to purchase a home or car after school is over. If used haphazardly, a credit card can also get you into a heap of trouble.

One rule of thumb is to pay off your balance monthly -- an extension of the old adage about not biting off more than you can chew. Just paying the minimum on a credit card balance adds years to your relationship with the bank, and costs you some substantial money.

According to a 2003 analysis by Nellie Mae, one of nation's top 15 education loan originators, the average credit card debt for an undergraduate is $3,262. If you only make the minimum monthly payment of $81, it will take you over 22 years to pay off that amount. (Assuming that you don't charge another thing and the interest rate remains at 18 percent.) Over that 22 years you will pay more interest on the loan than you originally borrowed.

If you're like the average graduate student, you will accumulate a debt of $7,831, according to Nellie Mae. A balance of $7,831 will take 29 years to pay off at a monthly minimum payment of 2.5 percent, and you would pay $11,362 in interest. To figure out the real cost of paying minimums, use this calculator.

Before you sign on the dotted line of your new credit card agreement, find out everything you can about the card -- the interest rate, the grace period and minimum payments -- says Oren Milgram, spokesman for the, a Web site that sells products for college life to students. This calculator will help you determine which card works best for you.

"They should check their statements and pay their bills on time. If they are running into problems, let their creditors know," says Milgram. "They should be familiar with the grace period. Attempt to pay the whole bill at the end of the month." Also, try to reserve the card for emergencies only; Don't use it to pay for that extra pitcher of beer.

To prevent credit card nightmares, Wuorio says students should look into getting a debit card over a credit card. It differs from a credit card in that the money is drawn immediately from your checking account at the time of a purchase. "It's an easier form of discipline," says Wuorio. "If it's not there, you can't possibly use it."

Secondhand chic
Although having a credit card is not a necessity, textbooks are. If you choose used books over new ones, you'll save a few dollars. For example, a new and used psychology textbook for a general psychology course at the University of Indianapolis, in Ind., is $106 and $80, respectively. That's a 25 percent savings.

If you're really strapped for money, or just want to get rid of that old textbook, many bookstores allow you to sell back your books and maybe get yourself closer to being in the black.

You can sell other items that you no longer use, such as furnishings and clothing, too. Here are some other money-saving suggestions:

  • Look for bargains and sales, but only buy what you need.

  • Shop where student discounts are offered.

  • Try to carpool for holiday trips. If you're going home for a weekend, check the message boards in the dorm or at the student center to see if someone is going your way.

  • Check the Net for airline discounts. Book tickets far in advance, since your school schedule isn't likely to change.

Budgeting. It's not fun, and it's not pretty, but it can save you from years of trying to climb out of a financial hole. Why make your post-educational life an uphill battle? Developing good money habits now will pay off big later.

Undergraduate* student credit card debt
Have credit cards96%
Average number of credit cards6
Average amount of credit card debt$3,262

Graduate** student credit card debt
Have credit cards96%
Average number of credit cards6
Average amount of credit card debt$7,831
Have credit card debt between $6,000 -- $15,00040%
Have credit card debt exceeding $15,00015%


-- Updated: May 4, 2005




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