School loans are often spoken of as the Boogeyman by college students and media trying to agitate college students into hopelessness. And while the cost of education is going up at a rate that exceeds its earnings potential, the reason most loans get as bad as they do is mismanagement.
Students find themselves using the money in ways they probably shouldn’t. Part of that comes from how they plan for school.
They borrow too much money during their undergraduate years. They pick majors that don’t have enough demand to them for a sustainable income. And then, they make six spending mistakes, which we’re about to discuss here.
If you catch yourself doing any of these things, stop at once. It’s not worth the long-term debt that it’ll put you in. Let’s get started.
1. Investments
The first thing you should never do with your school loans is use them for investment purposes. We know the word “investment” sounds nice. And you should invest your leftover, earned money in something that’ll pay a higher interest rate than a bank. But here’s the problem.
In order for an investment to be worth it, it’s going to have to produce enough percentage-return that it covers the interest that’s accruing on the loan you’re using. What good is it to invest anything at a rate of return of 5 percent per year when you’re just going to have to pay 7 percent on those school loans once you’re out?
There’s also the possibility that you could make the wrong investment choice, thus losing the money you’ve borrowed for your education. This leads to borrowing more money and starts a very vicious cycle.
2. Inventory or Startup Costs
Similar to investments, you don’t want to use your school loans on startup costs or inventory for a side business. Either pay for those with “real money” or save the business ventures for another time. There is simply too much risk, with many startups failing within their first year, to roll the dice with your education money.
3. Bills
This violates the number one rule of borrowing money. Do not borrow more than you need. If you’re going to school and using student loans for tuition, books, and room-and-board, it can mount up in a hurry. Throw cable bills into the mix, and the problem gets worse from there.
4. Charitable Donations
It seems crazy we would put this here, but hear us out. Some students will give to their church or other charity with money they’ve borrowed as living income. Big mistake. They’ll also use the cash in their account to help out family members or friends with living expenses. Unfortunately, there are no guarantees of anyone paying you back when you do this. So leave the charity stuff for when you have actual money.
5. Food and Booze
We get it. College is a time when we like to eat out with friends and party-hardy. But those trips to the liquor store or those $10 meals at tipping restaurants can add up in a hurry. Avoid, avoid, avoid.
6. Road Trips
Spring Break is always a college temptation. And it’s fine if you’ve worked hard enough and saved enough money to tackle the travel expenses. But if you’re pulling from an account that has school loan money in it, stay home!
Top 6 Alternative Funding Sources
Reading all of that and following our advice might seem like a drag. But take heart. There are ways to enjoy the college experience without turning to Old Man Stafford to pay for them. Here are our top six.
6. Part-Time Jobs During the Semester
You’re not going to spend all your time in class or studying. Turn some of that free time into work time. Use it to get a part-time job you can count on. Just don’t overburden yourself with extra hours, especially if it gets in the way of your school performance.
If your part-time job is paying $13 per hour and you’re doing 20 hours a week — a reasonable schedule on a full-time class load — then you’re bringing in an extra $202.80 after taxes (approximately). If the loan is covering school-related stuff, then that’s decent pocket/bills money.
5. Work-Study Programs
Work-study programs are great because you take out two things at once — study time (much-needed) and earnings time (also needed). The downside is they pay less frequently than most part-time jobs (try once per month), and you’ll probably be limited on the number of hours you can work. Pairing it with a part-time job, however, gives you extra cash and time to study while on-the-clock.
4. Generous Relatives
See about hashing out a deal with some of your relatives. Maybe you’re lucky enough for them to just give you money to live on, but if that’s not the case, you still might be able to take advantage of dinners at their house or the occasional odd-job around their house. You also could approach them for a loan on more generous terms if you’re just not the type to take charity.
3. In-Between Jobs
Maybe you don’t work during the school year. That time, you leave all for studying. Well, okay, that’s fine. We get it. But that doesn’t mean you have to leave work out of the equation.
Instead, use the summer an fall breaks to work full-time and build up a nice nest egg for use during the semester. This is where going home for summer or Christmas breaks really comes in handy.
2. Freelance Gigs
Freelance gigs don’t pay a minimum wage and many are like the Wild West, operating free-and-clear from government oversight. But you can make money doing them. Just check for “gigs+[industry/job type]” and see what you come up with. It’s possible to do some gigs here-and-there while on a work-study job and holding down a part-time job. All these things add up for students who are truly driven.
1. Side Hustles
Last but not least is the side hustle. Here’s where you have your own thing that you invest your time and money into. But make sure that’s your money and not the loan money, or else things can get out-of-control pretty quickly. For a list of great side hustles, check out this great piece from Entrepreneur.
Do Not Let School Loans Get the Better of You
Taking out school loans can be intimidating and alluring at the same time. Don’t fear them but don’t get carried away by the large amounts that land in your bank account either. They should be earmarked and reserved for the sole purpose of your education. The more you learn to treat it like a tool instead of income, the better your finances and future will be.
Aric Mitchell's work appears regularly here at 4tests.com and across the web for sites, such as The Inquisitr and Life'd. A former high school teacher, his passion for education has only intensified since leaving the classroom. At 4tests, he hopes to continue passing along words of encouragement and study tips to ensure you leave school ready to face an ever-changing world.
