September 2006 Archives

Barbara

Send a comment to Barbara

My favorite time of day used to be getting my mail. When I was a freshman in college it seemed as though my mother had enlisted her entire address book to send me mail. There were fun cards and letters, and I always got a weekly envelope with newspaper clippings  from mom.

Now that I’ve entered the "real world," getting my mail has lost its luster. I still have the same anticipation when I lift the lid of my mailbox, but what lies inside is usually a letdown. Among the 0% financing offers (asterisk usually included) and special introductory APRs, there they are—utility bill, trash bill, phone bill, credit card bill. The only bill I like to see is my precious little kitten, Bill.

When you start earning a steady income, it is difficult to remember that most of your paycheck is already spoken for. Budgeting is a big deal when you are in college but an even bigger deal during your first years in the workforce. Instead of buying the things I want. I’m trying to save for the things I need (do you hear my parents' voices in your head, too?).

What seems to be the easy answer is lying next to the bills—another credit card. Usually, quick solutions are never the best solutions. And that is definitely the case when it comes to this situation. While I could apply for those credit cards thinking it would ease the weight of my finances, I know it would eventually catch up with me and I'd be paying even more in the long run.

Even though it's hard, I've succumbed to the idea that I'm living like I'm still in college  for the next few years. Then, my cushion of savings can help with the occasional want, like those season tickets to musicals—I've managed to stop weeping about not being able to afford them.

How do you budget for your needs while sneaking in a couple of wants?

Staci

University officials say that their decision was motivated by convenience for students and their families. International students especially struggle with unreliable wire transfers, so credit card payment provides another option.

Since I work for Wells Fargo, I know that there are many education funding choices out there. And everyone needs to do what’s best for his or her own financial situation. So while credit cards are certainly an option, students should still seek out “free money” in the form of scholarships or grants. They also should consider applying for student loans, which may have lower interest rates or more flexible payment plans (like postponing payments until you’re done with school).

Even though I don’t have any tuition to pay at this point in my life, I’m always interested in finding out what students and parents think. So, let's hear it: How do you feel about putting college on a credit card?

Pam

I spend about 10 hours a week trying to come up with fun, exciting, captivating new ways (although there is really nothing new anymore) to talk with students about being smart with credit cards.

Yes, I do have a life ... but not only is it my job to promote financial education, it's my passion. When I read the latest research or see in the morning paper that today's students are spending over $175 billion using credit cards, I freak! I realize that we as a society have become too dependent on plastic to live day to day. So, it seems everyone can use a few pointers on "credit card smarts."

Have you even thought about how you use credit cards? I only have one (I live for those United frequent flyers miles), but my mom has 28 credit cards—yup, 28 of them! She has one for every department store at the mall. She actually believes she saved money by opening a new credit account at each store because she got 10% off her first purchase—YIKES.

I asked her if she knew all these open credit accounts impacted her credit report. You can guess what her reply was ... She had no idea. My next question: "What is your interest rate on each of those cards?" Her reply: "I have no idea." She showed me 11 credit card statements—fortunately, all had zero balances—but the APR(annual percentage rate) ranged from 18% to 27%. When I walked her through the cost of using these cards I thought I'd lose her—CPR needed any minute. Although it took a few more conversations, she has now closed 17 of these accounts—not all, but a terrific start. Definitely an "A" for effort.

This was not an easy conversation for us to have, but we both learned a few things:

• Credit cards are easy to get—but not good for your financial health.
• Shop around for your credit card—compare interest rates.
• One credit card is plenty.
• 10% off your first purchase or a free T-shirt does not make a good credit choice.

Many of you may just be getting started with credit cards, but you may already find yourself experiencing some "questionable credit card" experiences. How do you determine when to use your credit card?

Barbara

When you get to campus in the fall, the credit card offers aren't far behind you. In some cases, they might beat you to the Student Union.

The first credit card I got I was coaxed into. A fraternity on campus was using credit card applications as a fund-raiser for their chapter. As a freshman I didn't know much about credit scores  or credit reports , and—being the kind soul that I am—I decided to sign up. I never used the card. The account just sat open with a high limit, severely lowering my credit score.

Beware the credit card application! They'll be all over—at local restaurants offering a free meal if you sign up, in the Student Union giving out free T-shirts, and even in front of your dorm being manned by your new friends. Don't sign on for a free gimmick. If you really need a credit card, think it over and decide what your best option is after researching .

Staci

Once I graduated from college, it took me awhile to come up with a game plan. But since I didn’t have any student loan debt (see my earlier confession), and because my mother let me stay with her rent-free for a few months (thanks, Mom!), I could take some time to figure it out.

Finally, after watching all of my friends go off to medical school, law school, graduate school, and management training programs, I decided to put one of my degrees—the one in government and international affairs—to good use. In the fall of 1993, I moved from South Dakota to Washington, D.C., and took an entry-level staff assistant position with a U.S. Senator.

The job paid all of $19,000 per year.

Oh, and I was basically a receptionist—at least to start.

But I was lucky. I could afford to take an idealistic public service job because I didn’t have a mountain of debt looming over me. Other staffers on the Hill weren’t that fortunate, and they were the ones who taught me how to make weeknight meals out of lobbyists’ receptions (seriously). And several of the interns in our office—midway through their Ivy League educations—were already talking about what they owed.

Sure, that $19,000 annual salary wasn’t exactly the high life, especially in a city with a high cost of living. But I budgeted. Learned to clip coupons. Relied on public transportation. Lived with multiple roommates. Saved enough for a two-month European backpacking excursion, which was an education in and of itself.

For those of you who have debt, how are you managing? Or aren’t you?

Caroline

The following is an actual conversation that took place between me and my stepdaughter the other day:

Daughter(calling from campus): "I need you to put some money in my checking account. I just paid for my books.GUESS how much they cost?"

Me(hopefully): "Umm … $300?"

Daughter: "I WISH! Guess again!"

Me(slightly concerned): "$400?"

Daughter: "NO! Higher!"

Me(bordering on alarmed): "$500?"

Daughter: "$573.19! And I didn’t even get the recommended books!"

Me(baffled): "You didn’t even get the books you were supposed to?"

Daughter(patiently): "No, there are required books AND recommended books. I only got the required books. I still have to buy recommended books."

Me (afraid to ask how many "recommended" books remain on the list): "OK, I’ll transfer $580 in your account right now."

So it wasn’t exactly as compelling as a 9-1-1 call, but I’ll bet more than a few of you can relate. College is obviously more expensive than it used to be. I just didn’t realize books had followed suit. I probably paid $200 at most for a semester’s worth of books when I was in college.

To look on the bright side, there were a couple things working in our favor in this little scenario. First, online banking makes it really, really easy to transfer money into her account these days—probably too easy sometimes! (While this is extremely convenient for her, there is a trade-off: We can also easily see every transaction from her account, so we know just what she’s spending on gas, clothes, fast food, etc.)

The other piece of happy news is that we could handle the expense because we’d taken out a Federal PLUS Loan to help pay for her tuition.

For parents who went to college in the 1970s and ‘80s, you might not be familiar with the Federal PLUS Loan—it was introduced in 1981 as a way for parents to help their dependent undergraduate students pay for college.

Back then, many students could still cover the cost of tuition, fees, books, etc. with just a Federal Stafford Loan. But today, with tuition costs so high, students often will borrow as much as they can through the Stafford Loan program and still find themselves short.

So, over the last 10 to 15 years, more and more parents have been looking to the Federal PLUS Loan to help out. The PLUS loan is government-guaranteed and has a fixed interest rate that’s a little higher than the Stafford loan, but still reasonable.

It’s worked out nicely for us as a way to help cover tuition costs—and amazingly pricey books—without having to tap into our savings.

How about you? Have you run into any unexpected expenses this school year? Are you using a PLUS loan to help pay your college costs?

Staci

OK, since I’m talking to you about student loans, I’d better come clean. Deep breath. Here goes:

I didn’t borrow any money for college.

I know, I know. But hear me out.

When I was a high school junior, I met with my guidance counselor to discuss my plans for college. He said that because of my family’s income, I’d never qualify for financial aid. I was 16; I believed him. And I didn’t apply.

During my first week of college , I went to an orientation session with several girls from my freshman dorm. We had to confirm our class schedules, meet our advisors, and get our ID photos taken. The last stop was financial aid. The financial aid rep looked at me incredulously when I told her that I didn’t have any, confirmed that my semester bill was paid in full, and then waved me on to the exit while all of my new friends went to their financial aid seminar.

At the end of my sophomore year, one of my professors asked me if I’d work in the campus writing center as a tutor, a dream job for any English major(PDF) . But there was a catch: Because the job was part of the Federal Work-Study Program, I’d need to complete the FAFSA , the Free Application for Federal Student Aid.

I was crushed, because I was convinced I wouldn’t qualify. But I completed the FAFSA anyway.

When I received my school’s financial aid award letter, I’d not only been granted the Work-Study but an unsubsidized Federal Stafford Loan as well. That’s because my high school guidance counselor had misguided me—not all financial aid is need-based(PDF) . And there was something else in that award letter: an English scholarship from my school. Free money I never would have received if I hadn’t applied for financial aid in the first place.

I accepted the Work-Study and the scholarship but not the loan (remember, I’m confessing here). Actually, you don’t have to accept everything you’re offered in an award letter—just take only what you need.

So tell me: Has applying for financial aid been worth your while? Have you experienced anything unexpected in the process, either good or bad?

Staci

You may be wondering: What's The Student LoanDown?

Well, it's your place in the blogosphere to talk about borrowing money for college—brought to you by Wells Fargo.

Sure, I can hear you already: "Wells Fargo? What's a big financial services company like that trying to sell me now?"

We're here to share our experiences with student loans, the financial aid process, and debt management. And we're hoping that you'll do the same. After all, we've got some knowledge that you might need—and we're pretty sure that you have some insight to share.

As we say in the corporate world, it's a win-win!  :-)

Barbara

Personal Health, American Indian History, Constitutional Law—all are classes I’m not taking. But my roommate is. He recently registered for fall semester classes. As I was helping him organize when he should take what, I got just a lil’ bit sad.

No more do I have to worry about 15-page term papers I’ve put off. I won’t stress about a comprehensive final in a class that I’m only taking because it’s required to graduate. And the need for note cards outlining every case in my Criminal Law book  is gone.

As horrible as it sounds, I think I’m going to miss college. So I’ve decided to go back to school—vicariously, that is. That’s why I’m here. To relive all the fabulous memories of college, dish out advice, and hopefully help you understand the lingo of student loans (which I maintain should be offered as a 400-level foreign language course).

So remember, you’re doing me a favor. Tell me what’s going on at school, and keep me in touch with the college world. Sometimes I need a break from the corporate world!