🧭 Overview
🧠 One-sentence thesis
Paying for college requires careful budgeting of both college-specific costs (tuition, fees, books) and monthly living expenses, prioritizing aid that doesn't require repayment and using federal loans over expensive private loans when borrowing is necessary.
📌 Key points (3–5)
- College costs extend beyond tuition: fees, books, supplies, equipment, housing materials, and miscellaneous items all add up and must be planned for.
- Budgeting has two parts: college expenses (tuition, fees, books) paid 2–3 times per year, and monthly living expenses (fixed, variable, and periodic).
- Three expense types: fixed expenses (hardest to change, like rent), variable expenses (most flexible, like food), and periodic expenses (annual or seasonal, like car registration).
- Common confusion: federal loans vs. private loans—federal loans have lower fixed interest rates, no credit checks (except PLUS), and better repayment terms; private loans have higher variable rates and require credit checks.
- Prioritize non-repayment sources: scholarships, grants, savings, and work-study should be maximized before taking any loans.
💰 Understanding the full cost of college
💵 Beyond tuition: hidden expenses
College costs include much more than tuition and housing:
- Fees: activity fees, parking, and other charges (check Student Accounts website for current prices).
- Books and supplies: surprisingly expensive—national average was $1,000 per year in 2006–2007; includes workbooks, software, pens, pencils, USB drives, notebooks, paper.
- Equipment and housing materials: computers, calculators, printers, microwaves, refrigerators, toasters, bedding.
- Miscellaneous: clothes, cell phones, entertainment.
Example: A student budgets for tuition but forgets that textbooks with required software can cost hundreds of dollars per course, creating a shortfall.
🗣️ Family financial planning
- Speak openly with your family about who will pay which expenses.
- Make a clear determination of responsibility now and for the future.
- This is a 4–6 year investment of time, intellect, and finances.
📊 Creating a college expenses budget
📋 Semester-by-semester planning
The excerpt provides a worksheet approach:
- List semester expenses: tuition, fees, books, parking.
- List resources: scholarships, grants, student loans, veterans benefits, money from parents/relatives, employment income, other.
- Subtract total expenses from total resources:
- Negative number → need additional funds.
- Positive number → divide by 4 (months in semester) to find surplus for monthly living expenses.
The first step toward managing your money is to create a realistic budget, followed by minimizing expenses and borrowing wisely.
🔍 Why this matters
- College expenses and financial aid resources make up only half of total costs.
- You still need to estimate monthly living expenses to understand how money is spent each month.
🏠 Budgeting for monthly living expenses
📝 The three expense categories
| Category | Definition | Flexibility |
|---|
| Fixed expenses | Same each month (rent, car payments, childcare, credit card payments, savings) | Most difficult to change |
| Variable expenses | Occur each month but amounts vary (food, clothing, utilities) | Greatest degree of flexibility |
| Periodic expenses | Occur annually, semi-annually, quarterly, or seasonally (car registration, maintenance, gifts, taxes, insurance) | Moderate flexibility |
📈 Tracking and documenting
The excerpt emphasizes:
The first rule of budgeting is to track and document your monthly expenses.
Steps:
- Gather receipts, credit card bills, online statements, and financial records from the past month.
- If records are incomplete, record all expenditures for the next several weeks.
- Transfer daily totals to a "Record of Weekly Expenditures" worksheet.
- Complete the worksheet after at least 30 days of data.
The grand total shows how much money you spend or should set aside each month.
⚖️ Comparing income to expenditures
- Include "take-home pay" (earnings after taxes) and any other income.
- Subtract total monthly expenditures from monthly income.
- Positive number → surplus income, living within your means.
- Negative number → expenses exceed income, need to cut back.
Don't confuse: A positive number doesn't mean you have extra money to spend freely; it may be needed for periodic expenses or emergencies.
✂️ Balancing your budget
🔧 Three options when expenses exceed income
- Increase monthly income.
- Decrease monthly expenses.
- Combine increasing income and decreasing expenses.
As a college student, earning higher income may not be feasible, so focus on decreasing expenses.
🛠️ Decreasing fixed vs. variable expenses
- Fixed expenses: fewer opportunities, but rent, car payments, and cell phone bills may be reduced through comparison shopping (takes time and may result in additional charges).
- Variable expenses: easiest and quickest solution; review with the intent of reducing totals in some categories rather than eliminating entire categories.
Example: If you need to cut $200 and spend $100/month on cable TV, reduce it by $50. Keep looking for similar small adjustments until you've reduced expenses by $200.
💡 Tips for trimming unnecessary expenses
The excerpt provides detailed tips across categories:
Shopping:
- Don't shop when hungry or bored.
- Take advantage of sales, but don't buy items you don't need or poor quality items.
- Don't buy on impulse.
- Compare unit prices; buy generic or store brands.
- Use coupons and rebates; make a list and stick to it.
Food:
- Plan meals and shop with a list.
- Buy fruits and vegetables in season.
- Pack lunches and snacks instead of buying them.
- Use cheaper cuts of meat; be careful with prepared foods (faster but more expensive).
- Eat out less.
Transportation:
- Use public transportation when possible; ask about reduced fares.
- Have regular vehicle maintenance to avoid costly repairs.
- Consider buying a used vehicle in good shape.
- Use the lowest octane gas recommended by your manufacturer.
Entertainment:
- Attend free events at UTA and in the community.
- Rent a movie or go to a matinee instead of paying full price.
- Visit the library for free books, materials, and events.
Phone services:
- Comparison shop for the best cell phone plan.
- Make calls when rates are lowest or free.
- Get rid of services you don't use often.
Housing:
- Adjust thermostats when no one is home.
- Lower water heater to 120 degrees.
- Look into energy-saving devices.
- Learn to make repairs yourself.
📊 Budget allocation guidelines
The excerpt mentions a model budget allocation chart showing average percentages families spend on certain categories:
- The amount you spend in each category will vary by person and income level.
- The less you earn, the greater the percentage you will spend on basic expenditures.
🗂️ Managing cash flow
📅 Three methods for managing income and expenses
Even with enough money to cover all expenses, it can be difficult to pay bills on time if due dates don't coincide with paydays. The excerpt describes three tools:
💌 Envelope method
- Useful if you pay bills with cash each month.
- Make an envelope for each expense category (rent, utilities, food, etc.).
- Label with purpose, amount needed, and due date.
- When you receive income, divide it into amounts to cover the expenses listed on the envelope.
- Pay bills as soon as you receive them so you won't be tempted to spend the money on something else.
- For larger expenses (rent, car payments), you can write a check and place it in the envelope until payment is due.
- Any excess income can be applied toward next month's expenses, other expenditures, or placed into savings/emergency fund.
📆 Calendar method
- Utilizes a monthly calendar.
- Record income receipt dates and expense due dates on the calendar.
- Use two different color pens when recording this information.
- Gives a visual representation of when you get paid versus when bills are due.
- Any excess income can be applied to next month's expenses, other expenditures, or placed into savings/emergency fund.
💻 Personal financial management software
- Helps organize income and expenses electronically.
- Produces reports and graphs that compare data over any time period.
- Categorizes spending to assist with tax preparation.
- Many products available; sample several to find one that meets your needs.
- Consider: Does it allow online banking, bill payment, split bills/expenses, and other important features?
- Evaluate whether you have the time and expertise to use the features.
📈 Monitoring your progress
- A workable budget can take 6 months to a year to develop.
- Each week, record and document income and expenses for that month, then evaluate.
- If you consistently overspend in a category (e.g., eating out), change the projected amount for that line.
A purpose of a budget is to help you recognize what you can and cannot afford.
If you never have enough money at the end of the month, consider bigger changes:
- Compare what you spend in categories with suggested percentages in the budget allocation guidelines.
- Example: If spending 35% on your car, could you trade for a less expensive, used, more fuel-efficient model?
- If not, consider increasing income with an additional job, more hours, or a salary increase.
✅ Benefits of a realistic budget
A realistic budget will help you:
- Live within your income.
- Spend your money wisely.
- Reach your financial goals.
- Prepare for financial emergencies.
- Develop intelligent money management habits.
🎓 Student loans and financial aid
🎯 Prioritizing sources of aid
Try to rely on sources that do not require repayment first:
- Scholarships
- Personal savings
- Summer work income
- Prepaid or 529 savings plans
Like many students, you may not be able to cover all expenses through these resources alone and must depend on federal government, institutional, and state aid.
📋 Types of federal student aid
Students receive over $83 million yearly in federal student aid. To qualify:
- Must be a U.S. citizen or eligible non-citizen with a valid Social Security number.
- Must maintain satisfactory academic progress once in school.
Federal student aid comes in three forms:
- Grants: money that does not have to be repaid; many students qualify based on demonstrated financial need.
- Work-Study: students work while simultaneously paying for college expenses.
- Loans: money is borrowed and must be repaid with interest.
📊 Hierarchy of aid sources
The excerpt provides a clear hierarchy:
| Priority | Type | Repayment |
|---|
| Highest priority | Scholarships and grants; savings and work-study earnings | Do not have to repay |
| Middle priority | Federal loans | Cheapest loans |
| Lowest priority | Private educational loans, home equity loans, credit cards | Expensive loans |
As you plan for college, it is important to maximize sources of aid that do not require repayment.
🆚 Federal loans vs. private loans
It is wise to closely compare before making a decision. Federal loans have lower fixed interest rates, reasonable repayment options, no repayment penalties, and no credit checks (excluding PLUS loans).
Private loans are considerably more expensive because they have higher, variable interest rates that increase with your repayment amount. Many private lenders aggressively market themselves through TV, radio, and on-campus solicitations.
| Feature | Federal Student Loans | Private Student Loans |
|---|
| Repayment start | After you graduate, leave school, or change to less than full-time | Many require payments while still in school |
| Interest rate | Fixed, typically 4–6% for subsidized and unsubsidized Stafford Loans for undergraduates; almost always lower than private loans and much lower than credit cards | Variable rates, can be greater than 18% |
| Subsidized option | Students with greater financial need might qualify; government pays interest while enrolled at least half-time | Not subsidized; no one pays the interest but you |
| Credit check | Not needed (except for PLUS Loans); helps establish good credit record | Requires an established credit record; cost depends on your credit score |
| Co-signer | Not needed | May need a co-signer to get the best deal |
| Help available | Free help at 1-800-4-FED-AID | Need to find out if free help is available |
| Tax deductibility | Some interest is tax deductible | Interest may not be tax deductible |
| Consolidation | Can be consolidated into Direct or FFEL Consolidation programs with favorable repayment plans | Cannot be consolidated into federal program; only into private bank loan if available |
Don't confuse: Federal loans and private loans may both be called "student loans," but their terms, costs, and protections are vastly different.
📝 Applying for federal aid: FAFSA
To apply for a federal student loan, complete the Free Application for Federal Student Aid (FAFSA):
- Determines eligibility for federal grants, work-study, and state and institutional aid.
- Opens October 1st each year.
- Complete the application soon after it opens; state and institutional aid awards are granted on a first-come, first-serve basis.
Have these documents available (if applicable):
- Your Social Security Number
- Your driver's license (if you have one)
- Your W-2 forms and other records of income
- Your (and your spouse's, if married) Federal Income Tax Return
- Your parents' Federal Income Tax Return (if you are a dependent)
- Your untaxed business records
- Your alien registration or permanent resident card (if not a U.S. citizen)
Important tip: Even if you don't plan to take any federal student loans, complete the FAFSA anyway. Some scholarship applications may require that students show financial need based on their FAFSA. And your plans may change—you may decide to take federal aid mid-year.
💸 Understanding interest rates
Interest is "a percentage of the original loan amount (the principle) that is added to the total repayment amount"—essentially, a charge for borrowing money.
Not all federal loans are equal:
- Unsubsidized loans: interest (your responsibility to pay) accrues from the time you receive the loan. You can repay the interest while attending school or allow it to accrue and be added to the principle balance, making it far more expensive.
- Subsidized loans: the federal government pays the interest on the loan while you are still attending college.
Example: If you have an unsubsidized loan and don't pay interest while in school, the interest accumulates and is added to the principal, meaning you'll pay interest on the interest (compounding).
💳 Using credit wisely
⚠️ The credit card trap
As a first-year freshman, you may not have a credit card, but you may graduate with at least one. A little careless spending over the next four years can accumulate to a mound of debt before reaching graduation.
It can be tempting to fill the gap between income and expenses with credit card purchases. However:
- Expenses do not disappear once charged to your credit card.
- You will end up paying the actual purchase charges plus interest.
- Expenses can mount up quickly with the ease of using plastic.
🛡️ Best practices for credit cards
- Limit yourself to one major card and reserve it for emergencies only.
- Before using the card, discern whether you really need the item(s) or service(s).
- Consider whether you will be able to pay off the monthly balance in full.
- Failing to pay off the monthly balance results in interest charges—essentially giving money to the credit card companies.
The terms and conditions of credit card agreements can be tricky and should be treated with caution. Credit card companies are in the business of making profits through high variable interest rates.
📜 Credit CARD Act of 2009
President Obama enacted credit card reform laws known as the Credit Card Accountability, Responsibility, and Disclosure Act. The legislation was created to prevent banks from using unfair measures to extract high interest rates from consumers. Changes that went into effect in 2010:
- Credit card companies must give cardholders a 45-day notice of any interest hike.
- If a cardholder triggers a higher interest rate because their bill is 60 days late, the previous rate must be reinstated after six months of on-time payments.
- A ban on double-cycle billing (the calculation of interest over two billing cycles).
- People under age 21 must prove their income, have a co-signer, or pass a financial literacy course to get a credit card.
- Credit card companies cannot charge over-limit fees unless the cardholder has consented to exceeding their credit limit.
🔍 What to consider when applying for a credit card
Although discouraged, if you find it necessary to apply for a credit card, consider:
- Annual Percentage Rate (APR): the interest rate, the percentage you will be charged on the unpaid balance. Shop for the lowest APR because a higher APR results in a higher monthly payment.
- Default Rate: the new interest rate you will be charged if you miss a minimum payment, pay with a check that bounces, exceed your credit limit, or submit a late payment.
- Credit Limit: (the excerpt cuts off here, but this refers to the maximum amount you can charge).
Don't confuse: APR (the regular interest rate) and default rate (the penalty interest rate triggered by late or missed payments).