Budgeting for your student loans

Starting college in the fall? How will you pay for college? Don’t forget to take your most important personal document with you: your budget.

Don’t have a budget? You think you don’t need a budget because you don’t have a job yet, right? Not true!

You will have a college bill to pay and some personal expenses. Where is that money coming from? No matter the source, you need to learn to handle your money to maximize its benefit to you. To some people, budget sounds like a dirty word because it brings up images of depriving yourself of fun. That’s why I prefer the term “spending plan” because that is what a budget really is. It is a tool to show you where your money goes. Having a spending plan will help you borrow as little as possible.

Why is that important? Remember, borrowing (even student loans at a reasonable interest rate) is spending money you won’t even earn until many years into the future.

Let’s get started with your college spending plan.

First you need to list all your sources of income including:
• Grants and scholarships
• Money from parents
• Part-time job (We will leave student loans out of the mix for now.)

Next you need to list your college expenses:
• Tuition and Fees
• Room and Board

Do your grants and scholarships cover your bill? Can your family help? If not, you may need to borrow student loans to meet these costs to pay for college. Your financial aid award notice probably included federal student loans such as Perkins or Stafford Direct Student Loans. You may also have been offered an Unsubsidized Stafford Direct Student Loan. Keep in mind that unsubsidized means interest accrues as your responsibility right from the time the money is disbursed. This means that by the time you graduate the actual amount of money you owe is considerably more than what you actually borrowed. It’s smart to pay some of the interest while in school if you can and any amount will help. Once you graduate, interest will capitalize, which means they begin charging interest on interest, so your debt grows quickly.

Before agreeing to take loans try to cut your expenses as much as possible — maybe choose a less expensive dorm room or cheaper meal plan. Remember, you don’t have to take the entire loan(s) that is offered. You can reduce the amount to cover exactly what you need. Getting a refund from student loans may sound great now, but it just means you are more in debt for the future. If you do borrow more to get a refund, remember, that refund is meant to cover expenses for four to five months of the semester, so don’t spend it all at once. You should periodically check your federal student loan balances on the National Student Loan Data System (NSLDS). Then take the amount you have borrowed so far and run calculations on any of the reputable student loan calculators. to see what kind of payments you can expect so you aren’t surprised.

Now let’s take a look at your out of pocket expenses:
• Books and supplies
• Cell phone bill (if applicable)
• Other bills (such as credit cards or car payments)
• Personal expenses (haircuts, shampoo, soap, etc.)
• Fun money (movies, concerts, etc.)

Do you have enough income to meet your expenses — do you need a part time job? Of course you can probably borrow student loans to cover at least a portion of these expenses, but remember what you are really doing is postponing paying these expenses until later — with interest! That's not the best way to pay for college. So try to trim your expenses as much as you can. Learn all you can about developing good money management habits now — you will reap the rewards for years to come.

Written by Anne Barton, AFC, regional director for business development for the National Student Loan Program (nslp.org).

 Brought to you by SUNY Oswego