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College is expensive and you want to graduate with the
least amount of debt possible, which is why setting and sticking to a budget
is so important. How successful you are in staying true to your budget will
affect the amount of debt you have after graduation.
Even though you may set a budget when you enter school, that
doesn't mean your budget won't change each year. It is important that you
occasionally review your budget and make any necessary changes.
Preparing a budget
Before you begin preparing your budget, you will need to
find out what the average living and curriculum expenses are at your school,
the deadlines for tuition and other payments, and the
length of the academic year. The Financial Aid Office is the best place
to get this information.
The following categories of expenses will give you an idea
of what the standard student needs to budget for.
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Tuition and fees
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Books and supplies
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Housing and food
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Transportation
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Health insurance
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Personal and miscellaneous
Additionally, the following items are expenses that cannot
be funded with federal assistance.
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Car payments
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Debt incurred before college
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Relocation expenses
Very few lenders allow automobiles to be paid for with funds from a private education loan. Students entering college, and especially graduate students
who may not be able to work, may need to have an additional funding source to cover this
type of expense before starting school.
Debt management
A critical part of budgeting your finances is debt management.
As you continue through your college education, you will most likely have
multiple loans with varying terms through one or more lenders. It is very
important in managing debt that you keep copies of all loan documents and
organize them in a way that enables you to locate them quickly if you need them.
Each loan will have several important documents, which you are entitled to keep copies of;
Loan Application and Promissory Note or Credit Agreement
Although usually combined in the same document, the Application may be separate from the Promissory Note or Credit Agreement. For Federal Stafford loans,
the Free Application for Federal Student Aid (FAFSA) serves as the application and the borrower will sign a Master
Promissory Note (MPN) that may encompass multiple loans made over a period of up to ten years.
Disclosure statement
Includes the terms of the loan
Repayment schedule
You will receive this once your loan enters repayment
Additionally, you should keep a copy of any document you receive that discusses the following key issues.
Your rights and responsibilities
The lender is required to notify you of your rights and responsibilities as a debtor
Deferment periods
During certain periods of time defined by your lender, such as while you are enrolled in school,
you may be able to defer all or a portion of your monthly payments.
Deferment may also impact the interest and any fees accrued on your loan.
Forbearance periods
Similar to deferment, a forbearance may be available during periods of financial hardship,
in order to allow you to postpone all or a portion of your loan
payments. However, as with deferment, a forbearance will likely impact the manner in which interest
and fees accrue on your loan. Check with your lender for stipulations on
entering forbearance periods.
Your loan being sold to another lender
Your originating lender may sell your loan to another lender.
If so, you will be notified of the sale,
and any change in where or by whom your loan is serviced.
Remember, what you
borrow today will affect your future debt level and possibly what career
choice you make, so manage your debt appropriately. Use debt management to
control your debt level and keep track of how your student loan repayment
period is going to affect your overall financial plan.
When borrowing student loans, it is your responsibility to
stay in contact with your lenders. You are responsible for notifying your
lender of the following things:
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If you graduate or leave school
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If you are entering or completing an authorized deferment period
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If your name or address changes
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If you cannot meet your loan obligations
Open communication with your lender is vital to debt
management. Keep your lenders informed of anything that will affect your
relationship with them.
Loan summary worksheet 1
Loan summary worksheet 2
Loan repayment calculator
Transitioning to graduate or professional school
Many students find they are unable to work and manage their
academics while in graduate or professional school. Whether you were required to
live on a budget during your undergraduate schooling or not, you most likely
will need to adhere to a strict budget while in your graduate years. Most
students depend on financial aid to meet a large part of their expenses as a
graduate or professional student. If you are planning to attend graduate school
keep this in mind through your undergraduate years and try to keep your student
loan balance as minimal as possible.
The following are several key practices that will help you avoid
debt and live on a budget.
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Make sure you know where your money goes. Document how much you spend and what you
spend it on. Tracking your spending will make it less likely for you to
spend money on frivolous things. A cup of coffee may only be a dollar,
but one cup everyday over a few months really adds up.
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Plan for larger expenses that occur once or twice a year such as licensing fees
and insurance payments.
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When considering a purchase, be sure to calculate the cost of maintenance and any unexpected
expenses that go along with owning the item, in addition to the monthly
payment.
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Set
aside money for an emergency fund so you can quickly take care of
unexpected expenses.
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Don't make impulse purchases. When you visit the grocery store, go with a list and only get
the items on the list. Don't visit shops where you will be tempted to
impulse buy and, if you are tempted, sleep on it. Typically, if you walk
away and think about it overnight you won't want it in the morning.
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Avoid using credit. It is smart to start building your credit, but do so wisely.
If you have a credit card, only charge what you can pay off the next month, carry it with you and only take it
when you know you will need it.
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When you receive unexpected income, use it wisely. Use the rule of thirds. Save
one-third, use one-third for bills, and spend one-third.
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Save anything you can, even if it is only $5 a week.
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Ask yourself if you really need something before you buy it, and if you are getting it at the lowest possible price.
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