For those planning to start college in the near future, knowing how to manage your finances responsibly is a must. With a focus on financial literacy for students at the forefront, you may be able to get more out of your college experience while minimizing debt.
What Is Financial Literacy?
The Office of Federal Student Aid defines financial literacy as “the understanding that includes how to earn, manage, and invest money [that] has a critical impact on students’ ability to make smart choices.”
In other words, being financially literate means being able to make confident decisions about how to earn, budget, save, and manage your money in a way that empowers you to meet your long-term goals.
Importance of Financial Literacy for Students
Having a strong sense of financial literacy is beneficial for anyone, but it is perhaps especially important for college students who might be out on their own for the first time.
How Financial Literacy for Students May Differ From General Financial Education
Compared to more general financial responsibility, financial literacy for college students may focus on budgeting and minimizing student debt. When students embark on their college journeys, they may be living independently for the first time. Some may receive financial help from their families, whereas others might be entirely on their own. Adult learners may be able to utilize college savings funds they have been building over time, or they may need to rely entirely on student loans.
Regardless, this is a critical time to make informed financial decisions. For example, students need to understand the ins and outs of student loans and other financial aid options as a means of minimizing their debt. In addition, learning how to create and adhere to a budget while in college may set students up for long-term financial security and well-being.
Student Loans — Borrowing Responsibly and Repayment Awareness
According to the Education Data Initiative, the average student loan debt now hovers around $42,673 per student in the United States. This includes both private and federal loans.
With a better grasp of the different types of student loan options available, their repayment plans, and other important loan terms, students may be in a better position to borrow responsibly.
Types of Student Loans (Federal vs. Private)
In general, student loans are broken down into two categories: federal and private.
Federal loans may be subsidized (no interest accrues while the student is in school) or unsubsidized (interest begins to accumulate as soon as funds are disbursed). Some examples of federal student loan types include:
- Direct subsidized loans
- Direct unsubsidized loans
- Direct PLUS loans
Meanwhile, private loans are offered by third parties — including banks, credit unions, and schools. Whereas federal student loan rates are typically fixed, private loan interest rates may be fixed or variable, and terms may differ greatly from one lender to the next.
Understanding Repayment Options
Before taking out any student loans, it is essential to understand not just the terms (including the interest rate) of the loan but also the repayment requirements. Federal student loans are offered with numerous repayment plan options, ranging from fixed to income-driven plans. The repayment terms on a private loan, on the other hand, may vary widely.
Students should always be careful to understand the repayment terms of any loan before they borrow, including:
- When they need to start making repayments.
- Whether interest accrues on the loan during college or is deferred.
- What kinds of repayment plan options (if any) are available.
Planning Ahead to Minimize Debt Burden
While it is certainly not uncommon to borrow money for school, students should plan carefully to avoid borrowing more than they are comfortably able to afford paying back after graduation.
To do this, take time researching the average entry-level salary for your chosen field. This may give you a better idea of what kind of income you could be working with when it comes time to start repaying your loans. When borrowing, you might also consider opting for federal loans first, as these tend to have lower and fixed interest rates. Only after you have exhausted your federal loan options may you wish to explore private loans.
Budgeting Basics — Tracking Income and Expenses
Another key financial literacy skill for college students is simply knowing how to create and stick to a simple budget.
How to Create a Simple Student Budget
More specifically, a budget should focus on the amount of money brought in each month (whether from a job, student loans, or a combination of both) minus total monthly expenses. To determine your monthly expenses, it may be helpful to write down a list of recurring costs (including bills) and variable expenses (such as dining and entertainment).
Ideally, when all your bills are paid, you want to have at least a little money left to save each month. If not, then it may be time to re-evaluate your spending.
Identifying Needs vs. Wants
Need to make your dollars stretch a little further? Start by distinguishing your needs versus wants in your monthly expenses. Needs are requirements for your basic health and well-being, such as a roof over your head and groceries. Wants, on the other hand, are things you could probably do without (like a monthly streaming service subscription or daily morning coffee run). Knowing how to separate needs from wants, may allow you to budget more effectively.
Importance of Saving and Emergency Funds
Having enough money to cover your monthly expenses may help you from falling into debt, but if possible, aim to also save up around six months’ worth of expenses in an emergency fund. This way, if you end up with an unexpected expense (like a car repair or broken laptop), you are prepared to shoulder the burden without taking out additional loans.
Savings Accounts vs. Other Short-Term Options
Putting your money in a savings account may yield some additional interest earnings throughout the year, but higher-yield options — such as certificates of deposit and money market accounts — may help you get more out of your money. Take time to explore your options and determine which may be best for your financial needs and goals.
Understanding Credit Cards and Interest Rates
If you plan to open a credit card while in college, knowing how to use your card responsibly could save you from a lifetime of debt and interest.
The Impact of Interest Rates and Fees
First, be aware of what you are signing up for when you open a credit card. Even low introductory rates (including 0% APR offers) might expire, which could leave you facing hefty interest charges on unpaid balances. Many credit cards may require you to pay an annual fee, too, so it might be worth exploring student-friendly options that come without one.
Managing Your Credit Score and Factors That Influence It
Of course, the responsible use of credit cards while in college could help you build a healthy credit score. To optimize your credit score, however, it is crucial to understand the numerous factors that may influence it, including:
- Payment history on credit cards and other open accounts.
- Credit utilization (the percentage of credit used compared to credit available).
- The length of your credit history.
Financial Tools and Resources Available to Students
There is plenty to keep in mind when it comes to spending (and saving) responsibly as a college student. Fortunately, there are also various tools and resources to support you in your quest to build financial literacy.
Online Budgeting Apps and Loan Calculators
Free budgeting apps and loan calculators could help you gain a greater understanding of where your money is going each month, where you might be able to save, and what to expect when it comes to paying back your student loans. For federal student loans, this student loan repayment calculator may be particularly useful.
Campus Resources Such as Financial Aid Offices and Workshops
Many colleges have their own offices of financial aid and student support services that offer a range of financial literacy resources. From student borrowing workshops to dedicated financial aid advising, these services could help you more smoothly navigate paying for college.
Federal and Nonprofit Resources for Financial Education
Additional resources, such as the Financial Literacy Resource Director and the National Endowment for Financial Education, may be useful for students looking to enhance their financial literacy and make more informed spending decisions.
Peer Groups and Mentorship for Financial Literacy
Check with your college to see whether they offer peer mentoring programs on campus for financial literacy. Sometimes, these are offered through student support services to help students navigate the challenges of living independently.
Financial Literacy Challenges Students May Face
College students may face obstacles when it comes to sharpening their financial literacy skills. Being aware of these common obstacles ahead of time, though, you could take proactive measures to avoid financial mistakes while in school.
Misunderstanding Loan Terms and Repayment Plans
One common mistake college students make is failing to understand the terms of their student loans. They may not realize, for instance, that their unsubsidized student loans are accumulating interest while they are in school — and (worse yet) that this interest is capitalizing each year that it goes unpaid. By taking the time to read through the terms before signing off on a loan, you may be able to avoid these kinds of financial missteps.
Overspending on Credit Without Understanding Interest
The allure of opening up credit cards to help with college expenses may be strong, but it is imperative for students to understand that these cards often come with hefty interest rates. In turn, that $100 credit card charge could quickly turn into a $150 (or higher) repayment when interest is taken into account.
As a general rule, it is best to get into the habit of charging to your credit card only what you could afford to pay back in full at the end of each month.
Struggling to Balance Academic Costs With Daily Living Expenses
According to the Education Data Initiative, the average cost of college in the U.S. is now around $38,000 per year. It is no wonder, then, that many students struggle with balancing their academic expenses with daily costs of living, such as food and rent/board. This is where knowing how to create (and adhere to) a strict budget could make a difference, empowering students to carefully allocate their money where it matters most.
Lack of Early Education About Financial Topics
Unfortunately, some college students lack basic financial literacy skills simply because they were not taught them at an early age. In fact, in a 2024 personal finance survey known as the P-Fin Index, financial literacy rates hovered around just 50% — marking a 2% drop since the 2022 study.
Financial Literacy Tips for Students
Ready to take some notes? Below are a few more practical tips for improving your own financial literacy and independence as a college student.
Compare Prices and Use Student Discounts to Stretch Your Budget
Before making a major purchase, do your homework and shop around. You might be surprised at how much money you could save with a little discount shopping. Remember, too, that your student ID may earn you special discounts at some retailers — so take advantage of this benefit where you are able.
Automate Bill Payments to Avoid Late Fees
Remembering to pay your monthly bills (on top of meeting all your academic deadlines and due dates) may be overwhelming as a new college student. The good news is that you may be able to simplify the process by setting your recurring bills up for automatic monthly payments. Going this route not only saves you the hassle of remembering to pay bills; it might even save you a late fee or two.
Track Subscriptions and Cancel What You Do Not Use
Subscription services are everywhere you look these days. From streaming platforms to monthly meal deliveries and everything in between, those seemingly minor expenses add up quickly. Now is an optimal time to take inventory of your monthly subscriptions and cancel the ones you no longer use or need. (Even if you free up just $20 per month in canceled subscriptions, that adds up to $240 per year.)
Explore Part-Time Work or Side Gigs for Extra Income
While finding creative ways to cut down on spending as a college student is important, you might still find yourself needing to bring in additional income in order to make ends meet. If this is the case, consider exploring part-time jobs or side gigs that allow you to earn extra income while in school without taking too much time away from your studies.
Post University Has Financial Literacy Resources for Students
During the exciting yet sometimes-daunting transition to college life, Post University offers a wide range of financial literacy resources for our students, including guidance for responsible borrowing and student loan repayment planning. Get in touch to learn more, explore our many program offerings, or start your online application today.
Thank you for reading! The purpose of this blog is to provide general information to the reader, and as such, this information may not directly relate to programs offered by Post University.
Please note jobs and/or career outcomes highlighted in this blog do not reflect jobs or career outcomes expected from enrolling in or graduating from any Post program.