By: Andrew O’Donnell, intern for the U.S. Department of Education’s Office of Federal Student Aid
As someone currently attending community college, I can tell you firsthand about many of its benefits. Not only is community college significantly cheaper than four-year institutions and often much closer to home, it’s also a great place to begin your postsecondary education if you’re someone like me who was unsure of a specific program of study to pursue right after graduating from high school.
In addition to considering community college, it’s beneficial to weigh all of your options before deciding what college to attend. The U.S. Department of Education’s College Scorecard is a tool that provides data to prospective college students and their families about the costs of different colleges. This resource can be used not only to compare the costs of different institutions, but also to compare other metrics of a college such as its graduation rate, the post-college earnings of graduates, and more. The College Scorecard is a great tool for current and prospective students to make well-informed financial and academic decisions about their postsecondary education options.
Unfortunately, not all these options are taught during high school. The Council for Economic Education’s recent 2022 – Survey of the States study found that only 23 states require students to take a course in personal finance to graduate. This seems to directly conflict with the need for financial education for prospective college students who are faced with a wide array of important financial decisions, such as deciding where they will go to college and how they will pay for it.
The following 5 steps will put you on track to succeed financially throughout not just college but also life after school.
Create a Budget
Regardless of your current financial situation, creating a budget and sticking to it lets you control where your money goes instead of wondering where it went. A budget is a guide that helps you track and organize your cash inflows and outflows. Your budget should account for your personal financial goals, which may include paying bills, saving, giving to others, treating yourself, and much more. Get started by using Federal Student Aid’s simple guide to creating a budget and check out their brief video on budgeting to further your understanding.
Start an Emergency Fund
It can be difficult to prepare for all of life’s surprises. That’s why when the unexpected happens, an emergency fund can turn what could have been a financial crisis into a mere inconvenience. An emergency fund is a cash reserve that’s set aside specifically for financial emergencies or unplanned expenses. Losing a job, needing a car repair, or experiencing a medical emergency are all realistic examples of what you could use an emergency fund for. The Financial Industry Regulatory Authority’s guide to starting an emergency fund recommends that your emergency fund is made up of roughly 3-6 months’ worth of living expenses. Make sure you keep these funds somewhere where they can be easily accessed, but also where you won’t be tempted to use them for non-emergencies! Having this financial safety net gives you peace of mind and helps protect you from having to incur debt when an unexpected expense or emergency arises.
Fill Out the FAFSA Form and Apply for Scholarships
The Free Application for Federal Student Aid, better known by the acronym FAFSA, is a form completed by both current and prospective college students to identify their eligibility for federal aid. Filling out the FAFSA every year is a great way to determine if you are eligible to receive financial aid that can help you pay for college. The first “F” in FAFSA stands for free! It costs you nothing to fill out this form every year, and you may have to fill it out to be eligible for certain scholarships at your college anyway. Be sure to fill out the FAFSA annually. However, the FAFSA isn’t the only resource available that you can use to help pay for college. Scholarships are a form of financial aid that don’t have to be repaid! Scholarships can be offered on the basis of a variety of criteria, which can include academic merit, athletic skill, inclusion and diversity, and financial need. Scholarships can also differ drastically in terms of their amount. Be sure to check your college’s website or call their financial aid office to learn about the various scholarships that they may offer and apply for as many as you qualify for. For more information on scholarships, check out Federal Student Aid’s page on everything you need to know about scholarships.
Start Building Credit and Know Your Credit Score
A credit score is an indication of how “creditworthy” you are, which is a metric used to represent how likely you are to repay a loan on time. Your credit score is important because it directly affects your ability to finance large purchases like a house or car, your eligibility to obtain lower interest rates, as well as your potential to receive housing and insurance discounts associated with a high credit score. Most credit scores range from 300 – 850 and the higher the score, the better your chances are of being approved for a loan and obtaining a favorable rate. Some of the factors that contribute to the calculation of your credit score include your bill-paying history, your amount of debt, and the amount of credit you’re using. You can find more details about how your credit score is calculated from the Consumer Finance Protection Bureau here. Also get a free copy of your credit report. Repaying student loans and having a credit card you pay off on time every month are both great ways to positively impact your credit score. However, be very cautious about your credit card use because failing to pay off your credit card bill on time will harm your credit score and likely result in you being charged with extremely high interest rates on your payments!
Start Planning for Retirement
For many college students, saving for retirement may be an afterthought because it’s so far off. Despite the fact that most college students won’t retire for several decades, now is the best time to start saving in order to ensure a successful retirement. Explore all the options you have when it comes to different retirement savings accounts and choose the one that fits you best. By beginning to save now, you can benefit from the power of compound interest, the process by which your savings grow exponentially, or at a continually increasing rate. Take advantage of your youth and start saving early!
Many of the financial decisions that you make during college will have a lifelong impact, which is why it’s important to become financially-literate. Continuing your education beyond high school should open new doors and provide you with new opportunities, not burden you with financial regrets. Wise financial decision-making now can lead to a prosperous financial future and help give you the upper hand when it comes to financial success.
Andrew O’Donnell is an intern for the U.S. Department of Education’s Office of Federal Student Aid. He is passionate about the field of personal finance and will be pursuing a bachelor degree in finance at a four-year institution after graduating from Carroll Community College with an associate degree in business administration.