Student loans, debt prove to be challenging

College is usually the first time freshmen are faced with the challenge of managing their own finances.

As freshmen, students are confronted with the possibilities of taking out loans, getting credit cards and managing day-to-day finances. This can be a challenge and can affect students later in life if they are not properly informed.

Students start building their credit score freshman year and continue to build it throughout their life. Poor financial decisions made in college could prove to be troublesome down the road.

College students are monitored by credit reporting agencies, which calculate a person’s credit score. Once a year, students are entitled to receive a credit report from each of the three credit agencies — Experian, TransUnion and Equifax — at no cost.

The most popular credit score is a FICO score, which all students have and is based on students’ credit reports. More information on FICO scores can be found at www.myfico.com/crediteducation/whatsinyourscore.aspx.

A common misconception is that a student needs a credit card to build good credit. Paying bills on time and limiting debt are also good ways to earn a good credit score.

When it comes to personal finance, people can be classified into two categories: spenders and savers. UCF professor Paul Gregg, who teaches numerous finance classes including personal finance and investments, does not recommend credit cards for spenders. Gregg said a debit card is a much better way to go.

Using credit cards is not the only way to get in debt, taking out student loans can lead to debt as well.

Many students rely on student loans in order to earn a degree. With student loan debt drastically increasing in the past decade, President Barack Obama’s administration is looking to inform students of the amount of debt they will be in after earning their degree.

The White House recently came out with a form called “Know Before You Owe.” In the form they have a shopping sheet that helps students know how much school is going to cost and how much debt they will incur after graduation. The shopping sheet can be found at collegecost.ed.gov/shopping_sheet.pdf.

This sheet also includes the average loan default rate, the school’s graduation rate and information on the monthly loan payments. This gives students more information on their financial investment in their education and can help students decide if they are making the right decisions.

The purpose of the Know Before You Owe form is to help students know exactly how much debt they are getting into and how long it would take to pay it back.

To learn more about Know Before You Owe, visit www.consumerfinance.gov/students/knowbeforeyouowe/about/.

Students may be faced with subsidized and unsubsidized loans. A subsidized loan is given on a financial basis and interests aren’t charged before the payments of the loan start. On the other hand, an unsubsidized loan charges interest from the time the money is first loaned and it remains that way until the loan is paid off.

When buying a home, the bank looks at income to determine the amount of money a person can borrow. Even though a student’s major can have a large impact on their future income, major has no impact on student loan consideration.

“The ability to repay a student loan is a function of how much money you make, and too many students end up borrowing too much money relative to the income they earn after graduation. This means there is less money available to service car loans and home mortgages, leading to an economic drain on your resources for years,” Gregg said.

Gregg said that students should “limit their student debt load at graduation to no more than one half of your starting salary.”

Student loans affect students in the long run, but in the short run students are faced with the decisions of day-to-day finances.

Gregg said in order for students to manage day-to-day finances they must first develop a budget and plan monthly spending.

To help students, the UCF College of Business website has a module called “Cash Course.” This section was specifically designed to inform students on different ways money could be managed. Some of the topics include financial basics, paying for college, college life, world of work and economic survival tips. The Cash Course can be found at www.cashcourse.org/ucf.

As a parent of college students, Gregg said “I tried to teach my children to save money, and to manage their spending within their means. This requires setting an example, and teaching children the fundamentals of good money management.”

Student loans are not the only way to pay for college, scholarships are available too.

Paula Sweat, mother of freshman Alexandria Sweat, a biomedical sciences preprofessional major, has some concerns about her daughter’s scholarships and day-to-day finances. Sweat says her daughter currently has Florida Prepaid for tuition and three other scholarships, one of them being Bright Futures, to help her attend UCF. But it hasn’t been an easy road. She has had a lot of questions accompanied by confusion and frustration.

“We’ve had some questions about understanding how the [scholarship] payments work. What we don’t know is when they [become] available. With Bright Futures we had to get online to see that she even got it. There was no notification to us; we had sought it out ourselves so that was a little bit frustrating,” Paula Sweat said.

With more and more students seeking college degrees, scholarship amounts are becoming smaller and smaller. Some students comply with all the requirements in academics, testing and community service and still don’t get the full scholarship they were hoping to get.

“They [Bright Futures] even tell us in the parent orientation they can pull that at any time. As a student, she is counting on it and we as parents are counting on it, too,” Paula Sweat said.