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Borrowing

 

By Andrew Branch
Technician, North Carolina State U.

(UWire)—A young Best Buy customer picked up two CDs and went up to the cashier. He gave her a credit card. It was declined. He gave her a second credit card. Again, it was declined. He gave her a third and a fourth. Only the fifth went through.

This extreme scenario, which N.C. State U. lecturer Ed Weems recounted, is all too relatable to college students. The average student graduates with $4,000 in credit card debt and almost $20,000 in student loans, according to PNC Bank and the N.C. State Office of Scholarships and Financial Aid.

Consumer Reports recorded that student loans have recently surpassed credit cards as the largest source of debt in the U.S. and it's likely to reach $1 trillion this year, meaning 2011 seniors will hold the largest average debt to date for college students.

"A lot of people have it in their head that, 'It's OK if I borrow a lot of money because I'm going to get a degree, and I am going to make a lot of money,'" Kathryn Zellmer, collections specialist at the University Cashier's Office, said. "Let me tell you how many engineers call me and tell me, 'I thought that if I got an engineering degree from N.C. State I'd be set for life.'"

With the struggling economy and job scarcity, students who borrow are having more trouble paying off their debts. Yet with University tuition more than doubling since fall 2001, more students are turning to loans for school: from 13 percent of undergraduates in 2001 to more than 47 percent in 2011, according to University Planning and Analysis reports.

2011 seniors will hold the largest average debt to date for college students. Rachel Cruze, public speaker on finances and face of best-selling author Dave Ramsey's youth-finance product line, said there is concern for the toll the mounting debt and interest takes on students' futures.

"Your income is your number one wealth building tool," Cruze said, "And if it's tied up with monthly payments because you're in debt, it's going to be a lot more difficult to become wealthy."

The economy is not the only issue. Cruze and Zellmer point to lifestyle and wrong assumptions about money as major contributors as well.

"[Students] live their lives in the moment and don't think about how the four years they are in college can affect the next 40 years of their life," Cruze said.

To get on solid financial footing, Melissa Hart, personal finance professor in the College of Management, suggests everyone fill out the Free Application for Federal Student Aid form because, if nothing comes of it, only a couple hours will be lost.

Hart also said to borrow no more than your first year's salary after graduation in your chosen field. In other words, don't borrow more than your field will help you pay back. Cruze also said she recommends the hundreds of scholarships, both publicly and privately funded, that take only a few hours to apply for.

Maria Brown, associate director at the Cashier's Office, said there are options to fit your needs. There is a monthly payment plan that allows students to pay what they can afford and lessen the amount of loans required.

"If you can afford a couple hundred dollars a month, get that much in loans and then do a monthly payment plan," Brown said. "Over four years, those little payments you've made will have added up."

Cruze, however, said she recommended eliminating debt altogether.

"There are plenty of jobs that college students can do to make money in order to pay for school," Cruze said. "You might have to make sacrifices in order to pay cash for school, but it will be worth it when you're 30 and all of your friends are still paying for college."

Zellmer said she believes that eliminating debt isn't practical for those putting themselves through college, certainly not without sacrificing the coveted four-year college and dorm experience. However, especially if a student is undecided on a major, Zellmer said there are plenty of options.

"There is nothing wrong with going to a community college first and dipping your feet in exactly what you want to do and how you want to spend your money," she said. "After all, your degree is still from N.C. State."

Other ways to avoid debt are things students don't usually think about at their age: budgets and emergency funds.



Learn about federal student aid.

Find scholarships to help with college costs.

"Write your income at the top of the page and then write down all your expenses—rent, groceries, utilities, books, eating out—and total them at the bottom," Cruze said. "If your income is greater than your expenses and you live within your budget, you will be on the right track. If your expenses are greater than your income then you need to look at cutting some of your expenses or increasing your income."

Hart said this is an easy way to avoid the scenario of having $20 or $30 in your pocket, it disappearing and you not knowing where it went. Credit card management becomes even more logical.

"Pay your card off every month on time," Weems said. "If you can't afford to pay it off this month, don't buy it."

Creating room in your budget isn't necessarily as hard as it may seem. Many students think their iPhone is a necessity, according to Brown, when a simple $10 per month pay-as-you-go phone will suffice. Hart pointed out that a night on the town would not go under the "food" budget entry.

Cruze said she suggests an emergency fund of at least $500 to cover that unexpected doctor's appointment, a plane ride home or a blown tire.

The overarching, simplest step to avoid unnecessary debt is to research, think through, and be deliberate about financial decisions, according to Cruze.

"Even though you're in college, you still need to think about how your decisions will affect you later in life," Cruze said.

"Talk to anyone who has graduated and they'll probably tell you the same thing. If you are able to graduate from college with no debt and a job, you'll be well on your way to being a potential millionaire."

Published July 28, 2011

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