Understanding Your Finances: A Guide for College Students

College can be one of the busiest times of your life. You have to juggle multiple classes, living on your own, and maintaining a social life, all while trying to make big life decisions.

But there is one thing you may not have put a lot of thought into yet: your finances. Your overall financial well-being includes many things, such as saving for college, paying for college, finding scholarships and loans, and even developing and improving your credit score. All of these factors will have an impact on your everyday life and your financial future, even if you’re not aware of it.

It’s important that you understand what resources are available to you to help you get through your college experience with a head start on your finances!

How To Save for College

Saving for college can seem overwhelming — there are so many options out there and it’s also probably the biggest expense you’ll have faced so far in your life. So whether or not you’ve had some help getting started, here are a few tips on how to save for college.

When To Start Saving for College

Ideally, the best time to start saving for college is when you are born. Thanks to something called compound interest, periodic investments have the opportunity to earn interest over 18 years — making it much easier to reach your savings goals.

Unfortunately, not all of us have parents that were thinking that far ahead and we might be starting late when it comes to saving. In that case, the best time to start saving is now. While the compounding interest won’t be as beneficial, every bit helps.

How Much To Save for College Each Month

There are a few things that factor into how much you’ll need to save for college each month:

1. Total Amount You Need To Save

Are you planning on attending an expensive Ivy League university or will you go to your local community college? Do you qualify for in-state or out-of-state tuition? Are you planning on taking out a student loan or do you want to be able to get through college debt-free? Do you qualify for any scholarships or grants?

All of this will factor in when determining the total amount you’ll need to save.

2. When You Start Saving

The later you start saving for college, the more you’ll need to save each month.

On the other hand, if you start saving early, don’t forget about inflation! According to SavingForCollege.com, “The cost of a college education roughly triples over any 17-year period from birth to college enrollment.”

3. Projected Earnings

Depending on the way you save your money, the interest you earn will vary. We’ll go through the different saving options below.

Hot Tip: Here’s a great college savings calculator tool to get you started with your estimations.

Different Types of College Savings Accounts

There are many ways to save for college. Here are some of the most common:

1. 529 Plan

529s might be the most traditional way to save for college. This is because 529 accounts offer the potential for tax-free growth and you can make withdrawals tax-free (federal and possibly state and/or local) if used for qualified K-12 and higher education expenses. Also, most 529 plans have a lifetime contribution limit of $350,000+ (depending on your state), giving you a ton of options on when you can invest!

Also, the accounts are treated as your parents’ assets and don’t have to be reported on the Free Application for Federal Student Aid (FAFSA) and thus won’t affect your potential for financial aid when the funds are withdrawn to pay for college.

Most often you’ll hear about the 529 savings plan, but there is also another option called the 529 prepaid tuition plan. This plan allows you to prepay future college costs today —typically by semester or “unit.” On the downside, there are limited options when it comes to which states have this option (and which are accepting new applicants).

2. Coverdell Education Savings Account (ESA)

Similar to a 529 Plan, a Coverdell ESA is also a tax-free method to pay for qualified K-12 expenses as well as higher education expenses. The main difference is in the amount you can contribute annually, which is only $2,000, and income limits also apply.

You’ll also find that any potential financial aid won’t be impacted by a withdrawal from your Coverdell ESA.

3. Traditional Savings Accounts

Whether you put your funds in an actual savings account at a bank, a mutual fund, or into a Roth IRA, there are many “traditional” savings methods to save for college. On the plus side, there is no limit to the amount you can save AND there are unlimited investment options.

On the downside, there are no tax advantages, so you will both pay income tax and capital gains on the amount earned in these accounts.

Hot Tip: The normal 10% early withdrawal penalty on earnings from a Roth IRA is waived when the funds are spent on qualified higher education expenses. 

4. UGMA and UTMA accounts

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) are custodial accounts that allow money that is saved to be spent on anything — mean that it doesn’t have to be used for education. This includes things like cars and computers, so long as the funds are used for your benefit. There is also no limit to the amount that can be saved in these accounts.

On the downside, these accounts are considered your assets and will count as income when withdrawn. This means you will both pay income tax on this amount and it can reduce the amount of financial aid you can qualify for from FAFSA.

How To Pay for College

Once you see the cost of attending college, you’ll probably start looking into options to subsidize or offset these costs. Lucky, there are a lot of options for doing this.

1. File the FAFSA

2. Apply for Scholarships and Grants

We’ll go into more detail below about the different types of grants and scholarships you might be eligible for, but know that billions of dollars are given out each year!

There are tons of options out there available for college students and they don’t have to be repaid like traditional loans — but you have to apply in order to get them!

3. Start Saving Early

We’ve already talked about the benefits of compounding interest. This means that the earlier you start saving, the more money you will earn in interest. It is also easier to split up the cost over many years versus saving all at once.

Whether your family started a 529 plan for you when you were a child, or you are investing in a mutual fund using the money from an after-school job, know that the best time to start saving for college is now!

4. Choose the Best School

The “best” school can mean any number of things. For example, are you hoping to get your common classes out of the way and start at a community or technical college before transferring to a larger university? Maybe your parent works for a college that qualifies you for reduced tuition? These are valid things to consider when choosing the best school.

Work-Study

Work for Your School

Many schools offer free or reduced tuition for employees and staff of the school. In addition, if your parent works for a college, you may be eligible for a full or partial waiver! This is a huge incentive to get an on-campus job!

The terms and conditions will obviously vary by college, so it’s best to contact the financial aid office directly if this is something you are considering.

Attend a “Free-Tuition” Community or Online College

Currently, 19 states, including California, New York, Oregon, Tennessee, and Washington, have implemented programs where many community colleges offer free tuition programs.

While each state’s requirements vary, there are typically minimum requirements, such as completing high school and enrolling in classes full-time. You may also have to commit to staying in the state for a number of years after graduation.

While tuition is covered, there are some things you might still have to pay for, like textbooks, supplies, and room and board.

5. Take Out Student Loans

Federal Student Loans

If you need to borrow to pay for college, prioritize federal loans before private ones. Federal student loans have benefits that private loans don’t, including access to income-driven repayment plans, loan forgiveness programs, deferment, and forbearance.

Private Student Loans

If you don’t qualify for federal student loans, or if you’re still struggling to pay for college even after you’ve reached your federal loan limit, you might need to use private student loans. These loans have low interest rates but fewer protections.

There are a ton of options here, so be sure to compare many different loan terms before you choose a lender. Shop around to find the lender that offers you the lowest interest rate as well as the most generous borrower protections. Be sure to ask about terms like flexible repayment plans or the option to put your loans in forbearance if you’re struggling to make payments after you graduate.

6. Serve Your Country

The U.S. Coast Guard, Air Force, Military, Merchant Marine, and Naval Academies offer free college opportunities to students who serve after college.

In order to get your employer to pay for college, you’ll likely need to be in a field that is in high demand and quickly evolving.

If you aren’t sure if your employer (or potential employer) offers tuition reimbursement, don’t be afraid to reach out to the HR department or your recruiter for more details.

Hot Tip: As a note, up to $5,250 in tuition reimbursement each year is tax-free for both employees and employers!

8. Get Help From Your Family

While you might not feel totally comfortable relying on the bank of mom and dad, having parents who are willing to support your dreams is not something to take lightly. One report from Bloomberg found that parents paid as much as $26,373 on average for their kids’ tuition fees in 2021, which accounted for more than 50% of the average total fee of $50,770.

In a lot of cases, parents will start a savings account as soon as their child is born — or even before they have kids at all. With tuition fees continuing to rise every year (up 2.1% in 2021-22 alone), the need to rely on parents and other guardians is shifting from a handy support system to a necessity.

9. Work While You Study

For those who aren’t fortunate enough to be in a position to get external support, paying for college is a viable option. One report found as many as 43% of full-time U.S. students are employed while in school.

Of the total students in college systems, 39% were paying all of their own expenses, 29% were partially paying for their education, and the remaining 32% weren’t having to pay their own way at all.

While working while you study is definitely a challenge, it does provide you with valuable experience of the professional world. This is something which employers will often look for in graduates, giving you a one-up on the competition as soon as you earn your degree.

Getting College Scholarships and Grants

If you complete the FAFSA, you are automatically considered for state and institutional scholarships, as well as the federal Pell Grant. There are also many other options for both grants and scholarships!

What Is the Difference Between a Grant and a Scholarship?

In general, grants are given based on a financial need, while scholarships are awarded based on merit — whether through your academic achievements, extracurricular activities, projected field of study, etc.

Types of Scholarships

The best way to approach your scholarship search is to think carefully about what you love to do or what you’re great at, and then search for scholarships based on that.

If you have something unique about yourself, such as being a first-generation American, having a learning disability, or being a roller derby MVP, look into scholarships specifically for you! You might be surprised by what you can find.

How To Find the Best Scholarships

As we’ve noted above, when you complete your FAFSA, you’ll automatically be entered for certain scholarships. There are scholarships for everything under the sun, but to get started, here are some great resources for finding scholarships:

Tips for Applying for College Scholarships

1. Check Eligibility Requirements: Each scholarship comes along with a unique set of requirements you’ll have to meet before (like grades, extracurriculars, etc.) and even requirements after (like maintaining a certain GPA). Make sure you’ll eligible AND willing to comply before submitting your application.
2. Check Application Deadlines: Some deadlines are as early as a year before college starts, so you should start researching and applying for scholarships during the summer between your junior and senior years.
3. Assemble Requirements: You’ll typically need to obtain a few things such as your high school transcripts, letters of recommendation, a completed FAFSA, and a résumé. Pulling all of these together beforehand can help you save time on your application process.
4. Write a Compelling Essay: Here’s where you can really make your case. Your essay allows the scholarship’s awards committee to get a sense of who you are as a person. Make it personal and compelling. Here are some tips for writing a killer scholarship essay.
5. Small Awards Add Up: Just because the scholarship won’t cover all of your costs, you should still apply. Any amount helps, especially if you receive multiple scholarships.

Accessible Scholarships in the U.S.

If you’re someone who has a medical condition, you might be able to benefit from a scholarship that is targeted at helping those with accessibility requirements. Some of the best scholarships currently available include:

• AG Bell College Scholarship Program — This merit-based scholarship is available to students who are either deaf or hard of hearing that are looking to study at a mainstream college or university.
• Flora Marie Jenkins Memorial Disability Scholarship — This scholarship has kindly been made available to any students who suffer from a disability. Naturally, there are limited funds available, so you’ll need to write a detailed essay explaining the impact your disability has had on your life.
• Google Lime Scholarship Program — If you want to study a degree in computer science or computer engineering at a Canadian or U.S. college, Google also offers its own scholarship.
• Microsoft DisAbility Scholarship — Perhaps unsurprisingly, given the sponsor of this scholarship, the DisAbility scheme is focused on those looking to pursue an interest in a technology-based degree. It’s available to any high school seniors (even if they’re not from the U.S.) who are looking to attend an American college or university.

These are just a small collection of grants currently available to students. Make sure to research if there are any opportunities available to people with the specific condition you have.

Types of College Grants

Grants are usually offered at the federal, state, and collegiate levels and are typically need-based.

• Federal: These grants are funded by the U.S. government and are available to students attending 4-year colleges, community colleges, and trade schools. The federal government offers 4 types of grant programs through FAFSA.
• State: Each state has different grants, but many states also offer grant programs for traditionally underrepresented groups, such as ethnic minorities, women, and students with disabilities.
• Collegiate: If you don’t qualify for governmental grants, check your college. Collegiate grants are often privately funded and have a more diverse set of requirements.
• Private: Private grants are also available for underrepresented groups such as international students, minorities, and women.

Tips for Applying for College Grants

• Fill Out Your FAFSA: Even if you’re not sure you qualify, apply!
• Fill Out Your College Scholarship Service Profile (CSS) Profile: Your CSS Profile is only used at select schools for institutional aid. Check if your college requires it.

Don’t Forget About Your Credit Score

Credit is something that you should be interested in since it takes into account your entire financial history, especially if you’ve recently taken out student loans! It’s extremely important to set yourself up for a stable financial future and good credit is part of that stability.

Credit is a measurement of your financial trustworthiness. Credit can affect many different aspects of your life, like controlling how much money you can borrow, limiting what interest rates you receive, and even limiting which jobs you can hold.

The earlier you begin to build your credit, the earlier you can take advantage of having good credit. This can save you large amounts of money in the future, which allows you to save more money or spend it on something more important to you.

Hot Tip: Check out our complete guide: What Is Your Credit Score, How Does It Work & Why Is It Important?

How Credit Saves You Money Throughout Your Life

Credit affects things like the interest rates you can get on loans, including mortgages on your house, car loans, and any other loans you may want to get in the future.

One percentage point of an interest rate might not seem like a lot, but take a look at the math. Over a 30-year, $200,000 mortgage, the difference between a 3% and 4% interest rate could save you over $40,000 in interest.

Once you have established your credit, you can acquire additional credit more easily than someone without any credit history.

Established credit translates into lower annual interest rates on your credit cards, which is useful if you don’t pay your balance off each month. Having a higher credit score can also earn you better bonuses and benefits if you are using credit cards to earn points and awards.

How Credit Is Measured

Your credit is measured as a credit score: a number from 300 to 850. You can utilize financial tracking websites like Mint or a number of credit cards that offer a monthly score report as a free part of their service.

But your credit score is only part of the picture. You should also check your credit reports, which give you an entire map of your financial history. These reports include any credit card account you’ve had or currently have, how much debt you had at a given time, and any derogatory marks that may be hurting your credit.

There are 5 categories in total and each has a different weight on your overall score:

• Payment History: a measure of how often you pay on time
• Credit Utilization: a measure of how much of your credit you are using
• Credit History: a measure of how long you’ve had credit
• Types of Credit: a measure of the different types of accounts and your total number of accounts
• Credit Inquiries: a measure of how many new accounts you added or requested recently

Hot Tip: Credit reports can be obtained annually for free through websites like AnnualCreditReport.com.

There are 3 main credit bureaus in the U.S. Experian, TransUnion, and Equifax give potential lenders information about your credit history, including all of your accounts and their own credit score calculation.

While other scores are available, these 3, along with FICO, are the most widely used for determining creditworthiness. Your credit score is calculated and updated on a monthly basis, although it may be recalculated for other reasons.

To help reduce discrimination in credit scores, the U.S. government passed the Fair Credit Reporting Act (FCRA), which helps ensure the fairness, accuracy, and privacy of your credit information.

How To Build Credit

There are many ways to build credit. Here are some of the easiest ways to do so as a college student:

1. Opening Credit Cards

Credit cards get a bad reputation because they can be a very dangerous tool if used incorrectly. However, if used wisely, utilizing a credit card to build credit is both incredibly easy and smart.

If you have a little credit, then you may be able to open a basic credit card. Also known as an unsecured card, many providers offer cards specifically for students for this purpose. However, if you have no credit history, or you’ve already had credit issues, then you can start by opening what is called a secured credit card.

This is a card that you typically pay an annual fee for each year and has a very low spending limit that is tied to a deposit in a bank account. These cards’ main purpose is to help you rebuild your credit.

Hot Tip: For an in-depth look at your best bets, check out our article on the best student credit cards and how to find special card offers, as well as the easiest credit cards to get approved for. 

To build credit with either type of card (secured and unsecured), you simply need to make small purchases using your card, then pay off your balance in full each month.

This is the dangerous part: don’t be tempted to put everything on the card, don’t leave balances on the card, and especially don’t miss or skip payments.

By utilizing credit cards and paying off your balance, you will find your credit score improving within months.

Bottom Line:Responsible use of credit cards helps to build your credit score. This includes paying them off each month or at least making the minimum payment.

2. Student Loans

Student loans are an outstanding way to build credit given that student loans are flexible and can be easily opened while you’re in school.

These loans are easier to get due to the fact that they’re specifically for students trying to build a future for themselves with an education, which typically signals more trustworthiness.

Even if your parents are paying for your schooling, you might consider asking if you can take out the loan in your name and have them pay it off for you so that you can build your credit.

Bottom Line:Paying off your student loans every month is a great way to build your credit score.

3. Paying Off Other Loans

Student loans aren’t the only type of loan that builds credit. In fact, all loans build credit. So if you need a loan for a car, personal project, house, or anything else, then you’ll be building credit.

The issue with these other types of loans is that they rely on credit scores for approval more so than student loans. So if you don’t have any credit, you may have trouble getting these types of loans.

But if you can secure a loan, even a small one, then you will be on your way to building your credit score so that any future borrowing will be easier.

4. With the Help of Parents or Family

This option is a combination of the other options. Your parents or family can help you build credit in a few ways.

First, they can add you to their lines of credit as an authorized user. This is a much easier way to get access to a credit card, and you will build your own credit when using the card. Simply use the card wisely, pay it off each month, and your credit score will improve.

Similarly, your family can cosign loans that would otherwise be difficult for you to obtain. This simply means they are guaranteeing you’ll pay your loan. By doing this, you can obtain a loan and begin building credit by paying it off. Know that using this option is a risk for the cosigner: they are financially responsible if you don’t pay your bills.

5. Paying Bills and Utilities

Bills and utilities are a bit of a mixed bag. While your typical utility and household service companies (electric, gas, cable/internet, cell phones, etc.) can report your payment history, most do not. This is simply because it costs them extra money and gives them extra responsibility in reporting and maintaining these records.

However, by not paying these bills, you open yourself to lowering your credit score. By paying bills on time, you are showing that you’re financially trustworthy. If a utility company happens to report your monthly payments, consider yourself lucky since this will be a positive thing for your credit report!

Bottom Line:Bills may not improve your credit score, but they can hurt it if you don’t pay them off.

Additional Resources

Make sure to check out this handy list of secondary reading materials for more information on managing your finances as a college student:

• Consumer Finance provides more clarity on some of the best ways to fund your college experience
• Education USA provides a handy set of tips for financing your studies
• Top Universities highlights some of the best scholarships for students with disabilities
• U.S. News & World Report assesses some of the best part-time jobs for college students and offers a guide to understanding financial aid

Profiles To Follow for Financial Advice

If you’re someone who gets a lot of their information from social media, be sure to check out these useful Twitter profiles as a source of guidance for saving and managing your money while at college.

• College Xpress — A profile full of campus advice you can really use, as well as a whole other bunch of cool things.
• Get Schooled — This profile helps you get to college, find a job, and succeed in both!
• HBCU Lifestyle — Your 1-stop shop for black college living, from finances to frats and schools to scholarships. 
• MONEY on College — This profile is all about college finances: what college costs, what it gets you, and how to pay for it.
• StraighterLine — This student success and college readiness company helps students save money on their degrees – and helps schools admit and graduate more students.
• Saving for College — A leading source of unbiased information on 529 college savings plans and student loans, this profile has been helping families save and pay for college since 1999.

Bottom Line: The best method to take is to be a constant learner: never stop trying to improve your knowledge of your finances. Ultimately, the more you know regarding your financial options and how they might impact your credit score in the future, the better decisions you can make!

Final Thoughts

College can be the biggest expense you’ve encountered so far in your life, so being knowledgeable about all of the different options available to you in order to finance your college education is incredibly important. We hope this guide has helped prepare you for some of the things you’ll need to think about, as well as thinking about how the choices you can make might impact you and your financial future later on.

These options include merit and need-based options, like scholarships and grants, traditional saving methods (like a 529 plan or savings accounts), student loans, and even employer-funded options. Planning ahead is key to starting your financial future on a positive note.