56% of college seniors have four or more credit cards.

Let that sink in for a moment.

At first, this statistic baffled and confused me. With two credit cards, I feel like an oddity amongst the people I know. I’m a college senior, but I can only think of a handful of my friend that even have one credit card, let alone four!

But then it hit me – I have a biased point of view. My school does not allow credit card companies to set up tables on campus. There’s no one here hawking out free T-shirts, Frisbees or candy bars in exchange for all of your personal information.

This is purely anecdotal, but from what I’ve seen, not allowing credit card companies on campus severely cuts down on the number of credit cards that students have. It also cuts down on the number of students that get into debilitating credit card debt while in school.

An advisor at one major university says that more students drop out due to problems with credit card debt than academic disqualification. Dr. Robert Manning, a professor at my school and author of the book Credit Card Nation, says that between 7 and 10 percent of college students will drop out of school because of credit problems.

But at my school, this is pretty unheard of. When I dropped out due to a combination of credit card debt, student loans, and unhappiness in my major, people were shocked. Many people had never heard of someone leaving RIT because of money problem. In fact, it was so odd, the school magazine wrote a cover story about me dropping out!

So why do other schools allow credit card tables on campus? Simple answer: money. The credit card companies pay the school to be there – sometimes big bucks for big schools.

College students who accept cards from on-campus marketers are likely to be more indebted than those who obtain cards through other means, yet they are also likely to believe that the card issuers are more reputable because they have been screened by the college.

– http://www.the-american-interest.com/ai2/article.cfm?Id=458&MId=20

I can tell you why that is – students who seek out credit cards off-campus (usually by applying online) know what we’re doing. We seek out a credit card with a better idea of what it is, why we need it, and how to use it responsibly. A student who applies for a credit card in exchange for a piece of swag is much less likely to know and understand that they are signing up for a monthly loan with a high interest rate.

There are two sides of the coin here:

On one side, I strongly urge universities to join my school in banning credit card companies from campus. Your students will be better for it, and your retention rates will increase. 

On the other side, students need to educate and prepare themselves. I’ve never been an advocate of “credit cards are evil” – I liken them to guns, actually. Many people can responsibly own and use them, but it’s possible for them to do a lot of damage in the hands of someone irresponsible or uneducated about their use.

Don’t shoot yourself in the foot – learn about responsible credit card use, and get your free Frisbee elsewhere.

Twice since establishing my emergency fund last August, I’ve drained it (or nearly drained it). First to fix my car when the anti-lock brakes, break pads, alignment, and tires were shot, and then again a few weeks ago when my tax bill came due. Both times, I was extremely glad to have my emergency fund on hand!

Obviously I think an emergency fund is important for me – you can tell just from the fact that I have one and have used it. But is it really just as important for my fellow college students?

Yes.

If you own any object that you have come to rely on, but would be costly to replace or repair, then you need an emergency fund. Nearly every college student I know has a car or a computer – most have both. But very few of them could cover the cost of a major repair without feeling the pain. And while some people are currently saving up for their next computer, most of them would be screwed if their current computer gave out and they had to replace it today.

Wouldn’t you like to be smarter than that? Wouldn’t it be nice to have some cushion against catastrophe?

Sure, you might have your parents to lean on in times of crisis. Then again, you might not. What happens if one of your parents loses their job, and then your car breaks down? Or maybe your parents will decide that replacing a broken computer is your responsibility now that you’re at school. These things may not happen, but the ability (or willingness) of your parents to bail you out is not guaranteed.

Not to mention that showing some financial responsibility is the best way to convince your parents to help you out! My parents offered to pay for half of my car repair back in November, since they knew I could pay for the other half. By showing willingness to take responsibility for my car, I impressed my parents enough to get some additional help from them.

And setting up an emergency fund can really be quite painless.

Make it automatic. Figure out how much a month you can give up and have it automatically moved from your checking account to savings every month (this is easy to set up online at most banks). Even if you can only put aside a small amount (like $10 a month) it will add up. And it’s a good start, anyway – you can always increase the amount per month later.

I keep my emergency fund in a high yield savings account at ING Direct. I used a $250 student loan refund to start the account, and got a $25 bonus. You can too, using one of my ING referral links. If you decide to go that route, I suggest you start your emergency fund in your regular bank savings account, until you’ve saved up the $250 to start an ING account, and get the $25 bonus.

Define what constitutes an emergency.

I’m not going to tell you exactly what you should do with your money, but your emergency fund will serve you better if you set up some rules for it. Most personal finance books say that an emergency fund shouldn’t be for car or computer repairs – that you should anticipate these expenses and set up separate funds for them. But while I’m still in college, I find it easier just to have an all-encompassing emergency fund, and allow myself to use it for these expenses, as long as they’re necessary. Once I’m out of school and have greater income, I’ll start separate a repairs fund.

But “necessary” still doesn’t include things like say… spring break in Cancun. Rather, an emergency fund should be for if you end up stuck in the airport trying to come back from Cancun, and you suddenly need to buy an emergency ticket to get home. If you drain the fund for the trip itself, you won’t have the fund to help you if an actual emergency occurs!

The best emergency fund is one that you never have to use.

Part of your emergency “fund” should be the smart handling of objects you can’t live without. Pick up an external hard drive (or some blank DVDs) and make backups of the files on your computer. Take good care of your car – get the oil changed when you should and get it checked out regularly.

I know this is some common sense-y stuff, but the hard part is remembering to do it. When you’re in crisis mode, dealing with a dozen project deadlines and club activities and an on-campus job and… everything else… preventative stuff takes a back burner. The best thing to do is pick an hour a week, and set it aside for taking care of things that are important – but not urgent – like preventative maintenance.

Start your emergency fund now, and you’ll be miles ahead of the game.

The best part is that you’ll have that emergency fund started already when you graduate. Sure, you’ll probably need to expand it for your new, post-graduate lifestyle, but you’ll already be two steps ahead of everyone else. Most people don’t realize until years after college that they need an emergency fund, and once they do, most people still don’t make one. You’ll already know you need one, and have one started!

I know you’ll be thanking me for this later!

The following is a guest post by Tisha Kulak. Tisha is a writer for www.creditorweb.com, where she writes about student credit cards and responsible credit card use.

Credit cards and college students often go hand in hand. Emergency preparedness is a key factor in acquiring a credit card, especially in the case of a college freshman leaving home for the first time.

There is obviously a big learning curve starting out as a newbie to the college campus life. Getting orientated and situated can be a frustrating experience in the first few weeks. This is especially true when everyone else is also in a mad rush to get books and supplies they find the need once classes have begun. For students who can no longer rely on Mom and Dad to be right there with them, it is a wise choice to have a credit card in the event of such emergencies.

Credit cards, like college, are a huge responsibility. Both are also responsibilities that should not be taken lightly. Going off to college is an exciting time of perhaps new-found independence. Without a strict set of guidelines, credit cards can often be misused for non-related emergencies. Any person who is authorized to use a credit card should have full understanding that there are repercussions involved in making purchases. Students, who are now free to make most of their own decisions, need to fully understand that each of those decisions could potentially affect the rest of their lives. Credit cards are a perfect example of this.

Racking up thousands of dollars in credit card debt is not the way you want to start off your financial future. Purchases should be done only in emergency situations in order to keep your payments low and prevent additional fees and interest being tacked on. Impulse spending is the last thing you want to do with a credit card. Sure it seems to be free now, but there is no doubt you will be paying for it for a long time to come.

In addition to paying your bills in a timely manner, controlling your spending, and establishing a budget, it is also imperative that, as holder of the credit card, there is a responsibility to protect your information and keep your cards safe from other people. When first starting a new semester, odds are good that a whole new group of people will be hanging around. Keep credit cards in your possession at all times and never, ever give out credit card numbers to anyone.

It is also good practice even before leaving home that you catalogue the credit company’s name, address, contact phone number, and your account number and leave the list safe with your parents – in case your cards are stolen or misused illegally. You should also do this with all of your banking information and other important documents that could be potentially hazardous if it found its way into the wrong hands.

Credit cards are a big responsibility for anyone. College students already have a lot of new things to experience and learn. Being prepared and utilizing credit cards wisely will help jumpstart the building of a strong financial foundation as well as experience in making smart choices for the future.

* * * *

Stephanie says: I firmly believe in the ability of a college student to handle a credit card wisely, but we often see that just doesn’t happen. My advice to every college student who applies is this: remember exactly what that little piece of plastic is when you use it: a loan.

I’d be graduating this May – if I hadn’t taken time off last year – and so many of my friends are seniors, frantically working on their theses or job hunting or filling out applications for graduate school. And while the jokes are flying around (Marge Simpson: “Don’t make fun of grad students, they made a poor life choice!”), grad school is a serious choice that may not be so easy to make.

In fact, yesterday I received an email from a friend of mine:

Here’s a finance question for you.
Two fold.
One: Should I go to grad school? It requires getting about $100,000 in loans.
Two: If I go to said graduate school, what loans do you recommend?

It’s also about time I got to thinking about what I should do after graduation, so this is a pretty timely question.

Common sense tells us that more school = higher salaries. But we have to be leery of falling into the trap of thinking that more school is ALWAYS going to be better – after all, I’m still not entirely sure that going to film school was a great idea.

A report by the College Board titled “Education Pays: The Benefits of Higher Education for Individuals and Society” [PDF] lists the median salaries for different degree holders. A Bachelor’s degree can get around $49,900 a year, while a Master’s Degree bumps it up to $59,500. A professional degree has a whopping median of $95,700.

But it’s important to keep in mind that those numbers are medians, meaning that half of degree holders earn more than that, but the other half earn less. A higher degree is no guarantee of increased earnings, although it is a good indicator.

Kiplinger.com has a great article called The Back-to-School Decision, with some insights on how to go about deciding whether grad school is a smart bet. The first piece of advice: examine your motivation. The article offers up some examples of good, bad, and middle-ground motivations:

• Your firm won’t promote you to the position you want unless you have an advanced degree: right reason.
• You’re waiting for the job market to improve: wrong reason.
• You want to pursue a different field of study: maybe the right reason.
• You want to buy time because you aren’t sure what you want to do with your life or you don’t feel ready for the working world: wrong reason.

If you’re considering grad school for any of the wrong reasons, hold off and spend some time working first. The most important takeaway here? You can always go back to school later.

But come on, you guys aren’t asking me because you want hear any of that – you’re here to find out the answer to the money question. Is grad school a good idea financially?

Loans: Ya Gotta Pay Em Back

What it all comes down to, from the hard numbers side, is whether you’re going to be able to comfortably make the payments on your grad school loans. The first, most important, thing here is to look at your whole picture – that is, the total of your grad and undergrad loans. They may seem different to you now, but you’ve got to pay them all back, so use the whole number when you calculate.

A study conducted by student loan lender Nellie May (College on Credit: How Borrowers Perceive their Education Debt [PDF]) found that stress about student loan repayment was directly related to the percentage of monthly income that borrowers were required to pay toward their loans. That sentence was kinda a mouthful, so let me put it bluntly: The more you have to pay back per month, the more stressed out you will be.

Borrowers who have to pay less than 7% of their monthly income toward student loans generally do not feel stressed about their debt. Those who pay 7-11% of their monthly gross income feel a mild amount of stress. People who pay 12-16% report feeling overwhelmed by their debt, and those paying 17%+… well, you can pretty much guess that they’re going out of their minds.

There’s a great Loan Repayment Calculator over at FinAid that can tell you what income you’ll need to be making in order to keep your loan payments less than 10% of your monthly gross income.

If you run my friend’s estimate of $100,000 in loans through the calculator, you’ll find that she’ll need a yearly salary of at least $138,096 in order to keep her loan payments under 10% of her monthly gross. This means that every year she doesn’t make at least that much, she’ll be feeling the pain of her loans in a very big way.

And that’s assuming she doesn’t have any undergraduate debt, which is something I’m simply not sure of.

Not All Doom and Gloom

I hate feeling like I’m the bad guy, pointing out the big numbers involved in borrowing to go to grad school. So, I want to end on the high note here: finding free money to help pay for school, to help cut down on the amount of loans you need, is what will make up the difference.

The Kiplinger’s article suggests checking out the three “ships”: Assistanships, Fellowships, and Scholarships. If these aren’t enough to bring the amount you need to borrow down to an acceptable level, you may have to hold off for a little while. (Yes, this is that “you can always go back to school later” thing.)

However, if the “ships” do bring your necessary debt down enough, then you can start shopping for loans. Kiplinger’s also has a great article on Paying for Grad School that describes the federal loans available to you – always, always, always exhaust the federal loans before getting private loans!

If the numbers are too high, and it looks like grad school isn’t for you right now… don’t lose hope yet – during your job search, try and find work with an employer that offers tuition reimbursement benefits. Getting your employer to foot part of the bill can also make a huge difference, and the extra work experience might give you a leg up in the application process!

The Takeaway

More than anything, I would just like to see people stop and think and run the numbers before diving into grad school. Just like I dove headfirst into film school, thinking that I would just pay for it however was necessary and it would all be fine and dandy… that didn’t work out too well for me, and it seems like the stakes are even higher with a graduate degree.

Just run the numbers – please? Do it for me, but more importantly – do it for yourself. No one is going to pay back those loans but future-you. And believe me, there’s no one you want pissed off at you less than future-you!