The phrase "live like a student" is more than a catch-phrase. It is a way of thinking and often means adjusting your lifestyle. If you are a non-traditional student, it may include leaving a job and an income to return to school. As a traditional-aged student, it may be adjusting to living within your means rather than your parents' income.
Financial aid is intended to assist you in meeting educational costs – those costs billed and not billed by UC. And often the aid offered can be heavy on loans. Financial aid was never intended to cover all of a student's costs. Additionally, students with spouses and dependents should note that aid typically does not provide enough for family expenses.
Credit Cards & Loans: Debt, Not Income
It can be easy to view – consciously or unconsciously – credit cards and loans as income. They both provide funding that gives you immediate access to needs (things you absolutely have to have like food and rent when you have no other living options) and wants (items that feel like needs but are much more discretionary in the long run like the latest cell phone, movie ticket or meal out).
But unlike income which is earned, it is so easy to forget that the swipe of the credit card or the refund check each term is an advance against a future paycheck. By spending more money now, you will have less available when you are in repayment later. It is easy to put off the inevitable, but the debt can add up quickly. And most students will take on additional debt (a car loan, a house payment, or bills now covered by others like medical coverage) when they are in their initial jobs as well.
Very quickly, even with a good paycheck, a recent graduate can find themselves with new payments to cover as well as payments toward accumulated credit card or student loan debt. The balancing act can be difficult, and reducing costs or reliance on cards or loans to cover costs now will make post-college years far easier to manage.
At the same time, there are instances where making payments over time is appropriate for larger purchases. The key is not letting the total amount on credit cards or in student loans exceed what you feel you can reasonably repay over a specific timeframe. Extending your payment schedule may make payments more manageable, but it just allows your creditors to collect more interest on you.
Do you have discretionary spending? Are there costs you can reduce to make your financial life more simple now and in the future? It is far easier to reduce expenses than increase income.
When you make purchases for discretionary items, do those purchases become more habit than treat? Are you using loan refunds or credit cards to cover the costs? How could things be different by reducing some of your discretionary spending just $5 a day? How much more would you realize in saving if this was saving your loan indebtedness? Consider simple changes like packing your lunch, making your own coffee, or using a refillable water bottle. While you can treat yourself on occasion, some discretionary spending can easily become routine.
Saving as little as $5 a day can add up in savings quickly.
- Total weekly cost (weekdays only): $25
- Total yearly cost: $1,300
- Total cost over a 4-year degree: $5,200
- Interest rate on a student loan: Up to 8.25%; 4% used for this example
- Repayment period: 120 months (10 years)
- Estimated monthly payment: $53
- Total payments saved by giving up $25 per week: $6,318
- Total interest avoided on the $5,200: $1,118
This example assumes a subsidized loan that has no interest accumulation while in school. While current interest rates may be lower or higher than the 4% used in the example, you can see how the money adds up quickly.
Imagine if you cut out discretionary spending of larger amounts. Do you need cable TV? Can you adjust your thermostat in your apartment to save on utilities? Do you need or even use all the options on your cell phone plan?
Borrowing for your education can be a valuable investment in your future as you are raising your income potential. But using your loan refunds to purchase many of the same budget items (food, gas, rent) that will re-occur when you are in repayment is less financially sound.
Look for ways to reduce your costs. Do not underestimate the value of being frugal, of cutting your spending, and borrowing smaller loan amounts. Living more like a student now will allow you to live out your dreams in the future less hampered by financial strife.
Reducing Loan Reliance & Debt
One of the best ways to reduce loan reliance is to consider what is being funded by your loan. Are you meeting a new cost because you are a student or is it a recurring cost?
New costs for being a student typically are tuition and book costs.
While room and board may be new to you, they are not directly related to being a student. Even if you have not had these costs before because you lived with your parents, room and board costs are likely ongoing costs you will now assume based on where you are in life. You will not take out loans in the future to pay your rent or your meals. Is it the best financial plan to do so now? Look to cover these life costs while a student in a manner similar to that following graduation. Doing so will lessen debt, make more of your sacrifices now rather than later, and set you on a good path of financial planning and budgeting.
You have the ability to take out loans to cover many costs while a student. But reducing loan borrowing will have a direct impact on your loan repayment (both in monthly amounts to be paid and perhaps in the length of the loan repayment period).
Just because you have been offered loans at maximum eligibility does not mean you need to accept the full loan amount. Think about your annual borrowing and how you might borrow less.
Anything you can do to meet expenses out-of-pocket through earnings or non-loan financial aid can reduce reliance on loans, your loan debt, and future repayments.
Create a Budget
Sometimes it can be just that simple.
Plan a budget and work to stay within your expenses. It is always easier to reduce expenses than increase income. Look at your budget routinely and set it for a reasonable period. Make adjustments as needed to stay on target. When you save extra on a given month, don't be quick to spend it. Save for the rainy day when you have unanticipated costs like a car repair.
You are likely responsible for key financial costs for the first time. Sometimes it can surprise you how much even simple choices can cost. But you will also be surprised at how much you can save and stay within a budget by making some simple choices to reduce unnecessary or less important expenses.