College students failing to make the financial grades

By MARC STEWART

Director of Sponsored Content

Coeur d’Alene Press

Taylor Pangallo is like a lot of college freshmen wandering the North Idaho College campus this fall.

Bright-eyed, optimistic and fiscally unaware.

“I am not really sure what kind of loan I have,” Pangallo said when asked if she has a federally subsidized loan or an unsubsidized loan. “I don’t know what the payment is, but I have confidence I am going to pay it off.”

She is one of about 1,000 NIC freshmen with big plans for success. However, many of them are failing before the first paper is written or the first test taken. College freshmen too often make bad decisions beyond student loans that will haunt them for years after they graduate, said P1FCU President and CEO Chris Loseth.

“What seems like a good idea at the time may come back to hurt you either financially or socially as you look for future jobs and a career after college,” Loseth said. “No one wants to start their career with exorbitant debt or a tarnished image.

This report card isn’t one to take home to mom and dad. The average student loan debt in the United States is more than $35,000. College graduates often have low credit scores, unpaid bills sent to collection agencies, and high interest credit cards. The fact is, most kids are getting an “F” in personal finance.

“Financial literacy is a must in this day and age,” Loseth said. “The multitude of businesses offering payday lending, title loans, instant cash, something for nothing, and opportunities to engage in many forms of gambling are not focused on consumer protection, rather, they are focused on corporate profit. Consumer awareness of all these economic traps is paramount for economic survival.”

And there are plenty of predators waiting to pounce on unsuspecting students, said Darin Hayes, a local financial advisor. Credit card providers target college students who have little or no income, Hayes said. It’s often the first step down the wrong path.

“They use credit cards to buy things that they may or may not need,” he said. “They’re making the minimum payments and it can snowball quickly. It plays out when people go to buy a house or a car. They have gotten them into a bad situation, but by then it’s too late.”

Loseth encouraged “wise” credit card use by saying, “Only charge what you can afford to pay when the bill arrives. Have a budget and track what you spend on your credit card, then pay it off monthly.”

Alex Browning is living on his own for the first time and he describes buying groceries as a “little weird.” When it comes to money, Browning said he’s fortunate to not have any student loans, but he did get a credit card. Unfortunately, he couldn’t recall important specifics about the card. “Not really,” he said when asked if he knew the interest rate.

His friend Jason Haynes said he felt prepared to handle adult responsibilities like budgeting and balancing his checkbook. However, Haynes underestimated how long it would take to get into an apartment and was forced to sleep in his pickup temporarily.

“I am on scholarships, but I got a student loan as a cushion,” he said.

Those “cushions” can make for very hard landings, said Hayes, the financial advisor.

“They don’t get a sense that they have to pay it back,” Hayes said. “They don’t do the math and nobody does the math for them.”

In 2014, nearly 60 percent of all NIC students received student loans (2,237) and of those loans, 99 percent were delivered through federal loan programs. Interest on subsidized federal loans doesn’t start accruing until after a student stops attending classes. In comparison, unsubsidized federal loans accrue interest the minute they're distributed. Repayment is scheduled to begin six months after a student stops attending. However, there are ways to defer those payments.

Students have resources to help them navigate uncharted financial waters. North Idaho College points students to www.saltmoney.org, a nonprofit that offers classes about money management, investments, and educational planning.

“We have partnered with SALT to offer our current and former students financial literacy resources,” said NIC Director of Financial Aid Stephanie House. “This is a service NIC pays for, but is free to our students.”

Two thousand NIC students are registered with the SALT program, but the college doesn’t have a breakdown of how many students take advantage of financial education classes.

Many local financial institutions, including P1FCU, offer workshops, counseling and budget tools to help college students. Loseth recommends a spending plan, a budget blueprint, and tracking spending as important and useful tools.

The U.S. Department of Education requires students to go through an entrance counseling session before student loans are disbursed. House said the Department of Education also offers financial literacy counseling which goes more in depth about what happens once a student graduates. Both of those counseling sessions are available at www.studentloans.gov.

“The Financial Aid Office staff has the opportunity to talk with the students on a regular basis and when given the chance, we caution them against taking out more loan money than is actually needed,” said House. “We try to remind them that while getting this large amount of money now seems like a good idea, this is money they have to pay back in the future. Student loans are not to be taken lightly, unpaid student loans can cause students to have wages garnished and tax returns intercepted, not to mention be ineligible to renew professional licenses.”

Unfortunately, not many students follow that advice. Americans have $1.5 trillion in student loan debt and it’s growing. Economic experts are wringing their hands. Politicians are mentioning it on the campaign trail.

“It’s all about the debt,” said Hayes. “I realize they don’t have the choice to borrow, but too often they end up taking a large amount of debt relative to their chosen career and future income. They don’t realize it’s not sustainable.”

Students Haynes, Browning and Pangallo said many of their peers are irresponsible with money. They were receptive to getting more financial education.

“Definitely, there needs to be more education,” said Pangallo. “I wish we had that.”

Many people learn the hard way. The consequences of missed payments, overdrafts and late fees add up quickly. Students fail to understand the penalties are harsh.

“That 4.9% teaser rate can go to 17.99% interest overnight,” Hayes said.

While there is no one size fits all solution to becoming financially wise, Hayes recommends college freshmen write a financial journal to track their spending and debts. Writing down every expense is a good way to see where the money is spent. It also establishes goals and is a companion to a budget.

“We should be focusing our efforts on education instead of figuring out forgiveness because eventually the taxpayer picks up the tab,” Hayes said. “Learning how to manage money doesn’t seem to be a top priority for people. It’s one of the most important life skills a person can have.”

For more information click here.

***

Marc Stewart can be reached at mstewart@cdapress.com or 208-664-8176, ext. 2011.