The More You Know

Financial literacy begins with building a solid financial vocabulary.  Below are a just few terms to help students better understand financial matters.  Having a healthy vocabulary is your first step to becoming a master of your own finances.

FAFSA

Stands for Free Application for Federal Student Aid.  The FAFSA qualifies students for federal grants, loans, and work-study programs. The federal student aid program uses the FAFSA to distribute $120 billion in student aid each year.

PELL Grant

The Pell Grant program awards up to $6,495 to undergraduates who meet financial need requirements. Recipients do not need to repay the grant.

Direct Subsidized Loan

Direct Subsidized Loans offer subsidized interest rates for undergraduates who meet financial need requirements. The government pays interest on subsidized loans while students attend school.

Direct Unsubsidized Loan

Direct Unsubsidized Loans offer multiple repayment options and do not take financial need into account. Undergraduates and graduate students qualify for these loans.

Parent PLUS Loan

Parents and guardians can take out a Parent PLUS Loan through the federal student loan program to pay for their child’s educational expenses.

Loan Deferment

Loan deferment temporarily pauses payments and interest on a student loan. Borrowers must meet requirements to place their loan in deferment.

Loan Forbearance

Loan forbearance temporarily halts or reduces student loan payments for up to 12 months. Unlike loan deferment, interest continues to accrue on the loan.

Loan Forgiveness

Loan forgiveness programs discharge the remaining balance on a loan for qualified borrowers. Common loan forgiveness programs include public service loan forgiveness and income-driven repayment plans.

Loan Consolidation

Loan consolidation combines several loans into a single loan. Borrowers can consolidate their student loans to eliminate multiple monthly payments and qualify for lower interest rates.

Principal

The principal represents the amount borrowed on a loan. When making loan payments, borrowers pay down the principal plus interest owed on the loan.

Interest

Borrowers must pay interest on their loans. The interest, calculated based on a percentage of the loan, accumulates over time.

APR Annual Percentage Rate

An APR, or annual percentage rate, determines how much interest borrowers pay for their credit card charges. Borrowers who pay their full balance by the due date do not pay interest.

You Are Not Alone

Almost everyone eventually has money issues in college, and financial stress can affect your academic success. Money problems are very stressful and can keep you from concentrating on your studies. Spending too much money may lead you to work more hours than you might otherwise, giving you less time to study. Some students elect to take fewer classes and thus spend longer in college than needed. Worse yet, money problems cause many students to drop out of college entirely.

Like any other skill, the ability to manage your personal finances is something that can be learned, and that has lifelong value. This chapter will discuss several topics related to the development of your financial management abilities, such as:

• setting financial goals,
• considering jobs and making money,
• learning how to spend less and manage a budget, and
• determining how best to finance your college expenses.

Financing College & Looking Ahead

You may already be receiving financial aid or understand what types of financial aid are available. Even if you are not receiving financial aid, you should understand the basics because your financial situation may change, and you may need help paying for college. It is always important to plan for eventualities that may arise. You owe it to yourself to learn about the types of financial aid that you might receive.

Every college has a financial aid office that can give you information about standard financial aid programs. Certain kinds of financial aid, however, such as private scholarships, are not administered by the college, so you may need to do some research. There are three main categories of financial aid:

1. Scholarships and Grants – money or tuition waivers that do NOT need to be repaid
2. Student Loans – money that DOES need to be repaid, usually starting after graduation
3. Work Study – money that is earned for tuition or other expenses

These three types of aid are described in the following sections. Remember that this section only introduces these types of financial aid – be sure to get more information from your college’s financial aid office and the online sources listed in this chapter. Check out the links at the end of this chapter that will take you to various resources for scholarships and grants, student loans, and work study.

Optional Activity #1

Marko with Whiteboard Finance discusses 7 top books for financial success. One of the very best ways to gain control of your finances is to build a successful financial and learn from those who know more than we do. Tune in to  this video for a summary of several helpful books that will help you gain success and financial freedom.

For additional financial tips, consider picking up a copy of the book I Want More Pizza: Real World Money Skills for High School, College and Beyond by Steve Burkholder.

“Every financial decision should be driven by what you value.”   –David Bach

Applying for Financial Aid

For financial aid administered by your college, often only one general application form is required, along with detailed information on your financial situation (and those of your parents or guardians, if you are receiving their support) provided by filling out the FAFSA (Free Application for Federal Student Aid). Virtually all colleges require the FAFSA, including AUM.

Outside loans and scholarships are generally applied for separately. Follow these general rules to ensure you receive any aid for which you are qualified:

1. Apply to your college for financial aid every year, even if you do not receive any financial aid in your first semester/year. Your situation may change, and you want to remain eligible at all times in the future by completing the application(s).
2. Talk to the financial aid office immediately if you (or your family) have any change in your circumstances.
3. Complete your application accurately, fully, and honestly. Financial records are required to verify your data. Pay attention to the deadlines for all applications.
4. Research possible outside financial aid based on other criteria. Many private scholarships or grants are available, for example, for the dependents of employees of certain companies, students pursuing a degree in a certain field, or students of specific ethnic, religious, or geographical backgrounds, etc.
5. Do NOT pay for financial aid information or the FAFSA application. Some online companies try to profit from the anxieties of students about financial aid by promising to find available aid for you for a fee. Legitimate sources of financial aid information are free.

Scholarships & Grants

Scholarships and grants are “free” money – you do NOT have to pay them back, unlike student loans, as long as you continue to meet all eligibility criteria. A scholarship is generally based on merit rather than demonstrated financial need – based on past grades, test scores, achievements, or experiences, including personal qualifications such as athletic ability, skill in the fine and performing arts, community or volunteer experiences, and so on. Do not make the mistake of thinking scholarships only go to students with high grades or GPAs. Many scholarships, for example, honor those with past leadership or community experience or the promise of future activities. Even the grades and test scores needed for academic scholarships are relative: a grade point average (GPA) that does not qualify for a scholarship at one university may earn a scholarship at another. Never assume that you are not qualified for any kind of scholarship or grant.

A grant also does not need to be paid back. Most grants are based on demonstrated financial need. A grant may be offered by the university, a federal or state program, or a private organization or civic group. The largest grant program for college students is the federal government’s Pell Grant program (click HERE for information about Pell Grants).

Student Loans

Many different student loan programs are available for college students. While colleges and universities would welcome the ability to offer full grants to students with financial need, financial aid packages often include a combination of grant and loan money. Ideally, one would like to graduate without having loan balances to repay. However, almost two-thirds of full-time college students need student loans to pay for college. The amount of money students borrow has risen in recent years because tuition and fees have risen faster than inflation. The total amount owed now averages over $20,000 for students at four-year colleges and universities and over $10,000 at two-year colleges.

Unfortunately, this is a reality for many students today. For most, graduating from college while owing money is preferable to not going to college at all. With smart choices about the types of loans and a structured repayment program for your working years after graduation, there is no reason to fear a loan. Making consistent payments towards paying off a student loan will help you establish a healthy line of credit as well. Just remember that the money eventually must be repaid – it is not “free” money even though it may feel that way while you are in school.

All student loans are not the same. Interest terms vary widely, and with most private loans the interest starts building up immediately. The “best” loan generally is a subsidized federal Stafford loan. “Subsidized” in this case means the interest does not begin to accrue on the loan until after graduation. Be sure to talk with the financial aid office first about getting a federal subsidized Stafford loan. In the External Financial Aid Resources box below, you will see a link for a student loan calculator. This tool can help you make wise and informed decisions about taking out student loans.

Work Study Programs

Work study programs are the third type of financial aid. They are administered by colleges and are a common part of the financial aid package for students with financial need. You work for what you earn, but work study programs often have advantages over outside jobs. The university runs the program, and you do not have to spend valuable time job hunting. Work study students usually work on or near campus, and work hours are controlled to avoid interfering with classes and study time. Work study at AUM is administered through the Student Financial Aid office, and you can learn more about it by visiting the AUM Federal Work Study website (click HERE).

At the end of this chapter, you will find several links that will take you to federal, AUM, and other websites with information and resources related to financial aid. In Spring 2021, AUM created a new webpage for financial wellness, and the link for that is in the “Financial Aid & Student Accounts & AUM” box below. Remember that just like choosing your major or looking at possible career paths, you are not alone as you make decisions about how to best use your money and finance your studies. Ask questions. Research possible options. The more you plan now and make wise, informed decisions about your finances, the better off you will be as you move into your career and your life as a young professional.

Make More or Spend Less?

This is a common issue for college students. You begin by setting up a realistic budget and sticking to it. A budget is simply the best way to balance the money that comes in with the money that goes out. For most college students, the only way to increase the “money coming in” side of the budget is to work. Even with financial support that you may receive from your family, financial aid from college, your savings from past jobs, you will still need to work if all your resources do not equal the “money going out” side of the budget. The major theme of this chapter is avoiding debt except when unavoidable to finance your education. Why is that so important? Simply because money problems and debt cause more people to drop out of college than any other single factor.

This chapter includes a discussion of how students can earn money while in college and the benefits of working. Students have a careful balancing act to pull off because working too much can have a negative impact by taking up time you might need for studying. It is crucial, therefore, whenever you think about your own financial situation and the need to work, to also think about how much you need to work – and consider whether you would be happier spending less if that meant you could work less and enjoy your college life and studies more.

Working While in College

Many, if not most, students will work while in college. Whether you work summers only or part-time or full-time all year, work can both have benefits and present challenges. The difference may result as much from the type of job you work as from the number of hours you work.

In addition to helping pay the bills, a job or internship while in school has other benefits, such as:

• Experience for your resume
• Contacts for your later job search and networking
• Employment references for your resume

Work or internship experience related to your future career has significant value. Not all students can find such opportunities in their community, however. A job or volunteering outside your field can have value and say something about you to future employers. Your job may demonstrate that you have initiative, are responsible, are a team player and/or can work independently and can take on financial responsibility. Potential future employers will check your work references, which should always be included in your resume (Chapter 6: Academic & Career Development in College). Having an employer from your college years say you did a good job, were always on time to work, and were honest and responsible in doing your job gives you an advantage over students who graduate without having worked at all.

At the same time, some jobs contribute more to your overall college experience. Remember, you are in college for an education and to gain a wide range of skills – not just for the degree. The best student jobs help you engage more deeply in the college experience, while the wrong kind of jobs can get in the way of that experience.

Here are some factors to consider as you look for a job:

• Who will you be interacting with? Other students, instructors, researchers? Interacting with others in the world of college can broaden your college experience, help motivate you to study, and help you feel part of a shared experience. You may work with or meet people in the future who can refer you to employers in your field. On the other hand, working in a business far from campus, for example, may offer a steady paycheck but can separate you from the academic community and detract from a positive college experience.
• Is the job flexible enough to meet a college student’s needs? Will you be able to change your work hours during final exam week or when a special project is due? A rigid work schedule may cause difficulty at times when you really need to focus on your classes.
• What will you be able to say about your work in your future resume? Does it involve any skills – including people (soft) skills or financial or managerial responsibilities – that your employer can someday praise you for? Will working this job help you get a different, better job next year?

These factors can make a job ideal for college students, but in the real world, many students will have to work less-than-ideal jobs. Working at a fast food restaurant or overnight shipping company may not seem very glamorous or offer the benefits described previously, but it may be the only job available at the present. Do not despair – things can always change. Make the money you need to get by in college but do not become complacent and stop looking for meaningful work. Keep your eyes and ears open for other possibilities. Visit AUM’s Career Development Center or check Handshake (click HERE) for new postings.

Living on a Budget

More people get into financial trouble because they are spending more money than they bring in. While spending may seem like it is a simple matter –– “I need to buy this, I’d like to buy that” –– it is actually very complex. America is a consumer society, and we are bombarded by advertisements promising that we will be happier, more successful, better liked my more people, more physically attractive, and everything else if only we buy. Companies have spent billions of dollars researching how to manipulate our buying behavior. No wonder it is so tough to resist these pressures!

Before you can make an effective budget, you need to look at what you are spending money on now and consider what is essential and what is optional. Essential costs are the big things:

• Room and board or rent/mortgage, utilities, and groceries
• College tuition, fees, textbooks, supplies
• Transportation
• Insurance (health, car, home/renters, etc.)
• Dependent care (if applicable)
• Essential personal items (some clothing, hygiene items, etc.)

Look back at the amounts you wrote in the earlier exercise “Where Does the Money Go?” These things are “optional” expenses – you can adjust your spending on these items as you choose. Many people spend by habit, not really thinking about where their money goes or how quickly their spending adds up. If you knew you were spending more than a thousand dollars a year on coffee you buy every day between classes, would that make you think twice? Or another thousand on fast food lunches rather than taking a couple of minutes in the morning to make lunch? When people start paying attention to where their money goes, most are shocked to see how the totals grow. If you can save money by cutting back on just the little things, how far would that go to making you feel much more confident about your finances?

Following are some general principles for learning to spend less. The Warhawk Wisdom (below) lists specific ways you can try to follow these principles in your daily life.

• Be aware of what you are spending. Keep a record of everything (yes, everything!) you spend for a month. You will see your habits and be able to make a better budget to take control.
• Look for alternatives. If you buy a lot of bottled water, for example, you may feel healthier than if you drink soft drinks for coffee, but you may also be spending a considerable amount of money a year on something that is virtually free. Carry your own refillable water bottle and take advantage of AUM’s water bottle refilling stations that are in every building across campus.
• Plan ahead to avoid impulse spending. If you have a healthy snack in your backpack, it is much easier to not put a dollar in a vending machine when you are hungry on the way to class. It can also help you avoid additional fees at some vending machines that are added to the price of an item when you use a debit or credit card. Make a list before going grocery shopping and stick to it. Shopping without a list usually results in buying all sorts of unneeded (and potentially) expensive things that catch your eye in the store.
• Be smart. Shop around, compare prices, and buy in bulk. Stopping to think a minute before spending is often all it takes!

Warhawk Wisdom:

From freshman year to graduation, many students max out student loans and ignore overall debt management to avoid mental stress. Ignoring your overall debt can lead to spending more than you can afford while leaving you in a difficult financial situation upon graduation. Knowing what your degree costs, knowing your realistic salary range upon graduation, and knowing what you will need to persevere financially will leave you feeling peace about your financial situation. Successful money management begins with honesty. The pathway to success begins with an honest and realistic financial perspective.

Journal Prompts:

1) Who are you now?

• What are your current financial circumstances?
• How much money do you spend in a month?
• How often do you struggle to make ends meet and save a bit of your money for the future?

2) Who would you like to be?

• What good money managing habits do you witness in other friends and family?
• Who do you admire most when it comes to financing and why?
• List two budgeting habits that you are willing to try in college. How will you implement these habits into your life?

3) Who are you becoming?

• Imagine a time when you have all that you want and need.  What would that spending look like monthly?
• What is one thing you can do today to start your journey to financial freedom?
• What successful financial habits do you need to start implementing now to build a better financial future?