Student economics 101
Stick around a college campus long enough and you’ll inevitably hear complaints about the rising cost of tuition, textbooks and even gas prices. While these costs are reminders of basic supply and demand, the painful reality is that as college students we are graduating with greater debt, oftentimes due to poor decisions.
The classic college student-debt story begins with “easy” credit card debt. After companies lure us with T-shirts, beach towels and novelties to apply for credit cards, we enter the seemingly endless cycle of payments. According to an online credit card calculator provided by cardweb.com, making a 4 percent payment on a balance of $5,000 at an interest rate of 15 percent would take 11 years to pay off. These cards that allow us to live beyond our means now mean serious consequences for years to come.
I am still amazed that with all the technological advances in money-tracking software, PDAs and other tools, we still don’t create budgets for ourselves. A budget is an easy way to realistically determine “needs” versus “wants.”
For example, despite our loathing of tuition and textbook increases, we simply have to pay them if we want to complete our educational goals. No doubt the state, the school administration and the textbook companies realized this a long time ago. Add in your living and transportation costs and the “needs” of your budgetary puzzle are largely accounted for.
Juxtaposed with our needs is a category of “wants.” As a recent column in The Daily Texan pointed out (and feel free to replace coffee with whatever daily craving you desire) that $3-a-day gourmet coffee habit swells to a cost of $1,080 a year. These recurring, minimal expenses often go unnoticed until considered cumulatively. Another culprit you may not be thinking about is those ATM transactions where we initially withdraw $20 for a $5 lunch only to wonder later where the rest of the money was spent. A little fiscal discipline in these areas can lead to better personal finances in the future.
Perhaps some of the propensity to amass such student debt is due to the fact that many students assume that as college graduates they will be paid more. As reported in February by the Sun-Sentinel, the average full-time worker in 2003 with a degree earned nearly $50,000, 62 percent more than the average full-time worker without a degree. This grass-is-greener-on-the-other-side mentality must be balanced with the realization that the labor market is a volatile piece of our national economy. Globalization for example, no matter your ideological bias, will continue to vastly change the job market of tomorrow.
Some of the blame for student debt can also rest with our parents’ financial behavior. According to a recent USA Today article, “Consumer debt is at a record high. The savings rate is at a 25-year low. And personal bankruptcies hit a record in 2004.” This sort of example hardly instills a sense of fiscal discipline, and yet the consequences of our parent’s actions are far-reaching. In this Congressional year, the recently passed bankruptcy bill and even the debate over Social Security reform reflect challenges to personal spending habits.
While student debt may feel like a doomsday spiral with no end, there are things that can be done to put us on better financial footing. Student loan rates have recently seen some of their lowest levels in years. As overall interest rates increase, so will student loan rates. Consolidation of student loans is a good way to get a handle on debt, and as Helen Huntley of the St. Petersburg Times writes, “The best rates go to borrowers in the six-month grace period after leaving school.” Also, while fewer credit cards are the best option, paying down those cards with higher interest rates will lead to a faster escape from debt.
Following some of these steps can help to ensure that memories of our college years are not marked by financially irresponsible decisions that prevent us from achieving the American dream of home ownership and financial independence.
Aaron Hill is a juniormajoring in email@example.com