Money Management inGraduate School

Ramona Mellott Dean, Graduate College Northern Arizona University

Education Pays

An investment in college still makes plenty of sense.

Session ObjectivesUnderstand the current

state of borrowing among graduate

students

Recent federal changes to interest

rates

Inspire you to budget and save

Learn about Credit Management

Money Management Tips

• 66% of college seniors who graduated in 2011 had student loan debt

• Average loan debt of $26,600; one fifth of this debt is in private loans

• Debt loads vary by college and states

• Tough job market makes it difficult to pay back loans

• Unemployment rate of young college graduates in 2011 was 8.8%;

37.8% had jobs that did not require a bachelor’s degree

• Factors influencing debt levels: changes in college costs, economic recession, tuition increases related to state budget cuts

Information for this slide extracted from the Project on Student Debt, The Class of 2011 (The Institute for College Access and Success, October 2012)

Background

Graduate Student Debt

•57% of graduate students incurred debt in 2007-08 as opposed to 49% in 1999-2000•Master’s students borrow at greater rates than doctoral students•Many changes to the loans available to graduate students•Graduate students are more likely to bring their undergraduate debt with them to graduate school•Underrepresented minority students borrow at higher rate than white students

Source: Stewart, D. (2012, September). Keeping your perspective in times of change: The Graduate Dean kaleidoscope. GradEdge, 1 (7), 1-4.

Percentage of Students in 2007-2008 receiving different types of financial aid (Average Amount) by Degree status

2007-2008 Assistantships Loans (Any type) Grants

Master's 11(9,700) 44 (15,600) 40 (6,500)

Doctoral 47 (15,400) 32 (20,300) 54 (12,200)

First 8.3 (7,600) 79 (31,400) 41 (8,500) Professionals

Other (Post-Bac, 2.9 (7,600) 23.6 (12,300) 29 (3,100) Non-degree, Grad Certificate)

Data derived from online report published by US Dept. of Education in january 2011

Quick PollWho considers budgeting important?

Who is currently on a budget?

Budgeting For Success• Create a budget in three easy steps: – Track how you spend your money (all expenses)  – Identify all sources of income (including your student loans) – Set your budget with your true financial picture in mind ● Do what you can to hold down your discretionary expenses

• Reevaluate budget goals yearly, and make readjustments as needed

• Use tools available to help you track your spending and preparing a budget plan – http://www.cashcourse.org/nau

Create a spending plan

Determine your income and expenses

Create your spending plan

Choose an online tool to track

Review your plan

Adjust your plan (if needed)

Fixed Costs vs. Discretionary Expenses

● Tuition● Fees● Rent● Car insurance Fixed

Costs:

Needs

Wants

● Type of cell phone● Fine Dining● Cable● Vacations, spring break● Designer clothes● Latest technology

● Haircuts● Utilities● Laundry● Gas● Groceries

Money Leakage

• Small expenses add up over time. – Dinner out every Saturday night: 

$1,664 per year –One tall Starbucks coffee per weekday:

$910 per year

–Wendy’s #2 Classic Double® with Cheese Combo + tax twice a week:

$587 per year

Budgeting Considerations

• Borrowing less can have a BIG impact on your budget.

Loan balance: $21,900 Loan interest rate: 6.8 percent Loan term: 20 years

Minimum monthly loan payment: $167.17

Number of payments: 240 Cumulative payments: $40,121.49

Total interest paid: $18,221.49

• Who knows how to get a FREE copy of their credit report every 12 months?

• Anyone familiar with credit cards?

Quick Poll

Credit Card Debt

• Class of 2013 credit card debt was $3000 http://money.cnn.com/2013/05/17/pf/college/student-debt/i ndex.html• Check the interest on store credit cards, unless you plan to pay it off as soon as it is due• Watch for payment due dates, avoid late fees• Curb impulse buying• Charge only those items that you can pay off in full when you receive your credit card bill.

Credit Report FactsThere are some basic facts that everyone should know about credit reports.

– Is a record of your credit payment history

– Shows the amount you borrowed in credit cards and loans

– Illustrates the timeliness of payment

– Contains identifying information

– Used to determine creditworthiness

How to Get a Credit Report

It is easy to get a copy of your credit report from a consumer-reporting agency. Equifax www.equifax.com Experian www.experian.com Trans Union www.transunion.com  Sesame http://www.creditsesame.com/  One free report from each agency every 12 months: www.annualcreditreport.com

Impact on Interest Rates

• How much can your FICO score impact the interest you pay on a consumer loan?

A LOT!!!

Interest Rate Example—Credit Cards

Jennifer  

• Credit score: 750

• Interest rate: 9.90%

• Annual interest: $792

• Lifetime interest: $39,600

Joseph

• Credit score: 650 

• Interest rate: 19.90% Annual

interest: $1,592

• Lifetime interest: $79,600

• Joseph’s penalty: $40,000

Interest Rate Example—CarLoans

Jennifer

• Credit score: 750 

• Interest rate: 5.00%

• Monthly payment: $377

• Interest cost/loan: $2,646

• Lifetime interest: $21,166

Joseph  • Credit score: 650 

• Interest rate: 8.00%

• Monthly payment: $406

• Interest cost/loan: $4,332 

• Lifetime interest: $34,653

 

• Joseph’s penalty: $13,487

Interest Rate Example—Mortgage

Jennifer 

• Credit score: 750

• Interest rate: 5.50%

• Monthly payment:

$1,987

• Total interest: $174,760

Joseph 

• Credit score: 650 

• Interest rate: 7.375%

• Monthly payment: $2,417

• Total interest: $243,020

 

• Joseph’s penalty: $68,261

Lifetime Penalty for Joseph’s Credit Score?

$298,704

Money Management Tips for Graduate Students• Minimize educational debt. Borrow for your needs (not wants).

• Use a tool to track your income and expenses and develop a budget plan.

– http://www.cashcourse.org/nau

• To determine income to debt ratio upon graduation

– Visit the department of labor website to determine income for your chosen profession

● http://www.bls.gov/ooh /

– Calculate amount of personal debt to income using this calculator

● http://www.csgnetwork.com/personaldebt2incomeratiocalc.htm l 

• Easier to live on less as a “student” than as a “professional”

• Maintain only one or two major credit cards and use it wisely. Pay off your balances each month.

• Save a little each month for a rainy day.

• Review your expenses each don’t miss a due date and have to pay late fees.

• Add to your calendar due dates for tuition and fees, scholarship applications and other bills.

• Review the list of suggestions provided by Mia Ryneal, a doctoral student in Politics and International Affairs.

Remember, good financial management skills will benefit you not only through your grad program but will create good habits for a lifetime.

Sources

• U.S. Department of Education. (n.d.). Federal Student Aid. Author. Retrieved July 11, 2013, from http://studentaid.ed.gov • U.S Department of Education. (2011, January). Trends in Student Financing of Graduate and First-Professional Education: Selected Years 1995–96 to 2007–08. Retrieved, July 11, 2013, http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2011217 • The Institute for College Access and Success. (n.d.). The Project of Student Debt. Author. Retrieved August 15, 2013. http://projectonstudentdebt.org/recent_grads.vp.html • Stewart, D. (2012, September). Keeping your perspective in times of change: The Graduate Dean kaleidoscope. GradEdge, 1 (7), 1-4.

Web Tools:

● Financial management tool: http://www.cashcourse.org/nau

● Information on salaries by occupation: http://www.bls.gov/ooh/

● Personal Debt to Income Ratio Calculator:

http://www.csgnetwork.com/personaldebt2incomeratiocalc.html

● Information on student loan solutions: http://www.asa.org/