Student Financial Literacy

Financial Capability describes your ability to act in your own best interest financially. Building financial capability requires both internal and external factors: 

• developing the knowledge and skills needed to make sound financial decisions, and
• having access to financial services and positive social influences, as well as behavioral strategies to exercise your ability to make choices. 

The Consumer Financial Protection Bureau (CFPB) defines financial well-being “as a state of being wherein you:

• have control over day-to-day, month-to-month finances;
• have the capacity to absorb a financial shock;
• are on track to meet your financial goals; and
• have the financial freedom to make the choices that allow you to enjoy life” (CFPB, Financial Well-being: The Goal of Financial Education, 2015). 

Financial well-being describes a feeling of financial security, the peace of mind you gain by knowing you are in control of your finances–both today and tomorrow. 

Tool Tip: Get your Personal Financial Well-Being Score from the CFPB. 

Debt is the amount of money you have borrowed from a lender with the expectation that you will pay it back. A lender could be a person, a financial institution, a credit card company, an organization, or the U.S. Department of Education. The terms of your repayment plan may include several factors:

• the length of time you may use the money before repaying,
• the type of repayment (monthly installment payments v. lump sum),
• the amount of interest or fees you will pay for the privilege of using the money, and 
• the consequences of late or missed payments, such as paying penalties, defaulting on a loan, repossessing items paid for with the loan, going to a collections agency, and decreasing your credit rating.

We often talk about good debt, meaning debt with fair and reasonable terms for repayment, v. bad debt, such as debt from predatory lenders or debt with extremely high interest rates.

Interest is the charge paid to a lender for borrowing money or the charge that a financial institution pays you for saving or investing with them. This means that you build interest fees on your debt, but you also build interest on your savings. Learning to calculate the impact of interest is key to financial capability. 

If you take out a student loan or credit card debt, you will pay interest as a percentage of the amount of debt you owe. This is the interest rate, often listed as the Annual Percentage Rate (APR).

These rates often “compound,” meaning that they apply not only to the initial amount of the loan but to the loan plus any interest charged or earned before that point. 

Compounded interest means that if you are saving in an account that earns interest, time is on your side. Saving a little now builds into a lot later. If you are paying interest on a loan, the more time it takes to repay, the more money you will owe. You need to manage your payments to ensure that you are paying more than the interest you are charged each month in order to pay down your initial loan amount (your principal). 

Tool Tip: The Federal Student Aid Loan Simulator allows you to plan your repayment strategy. Simulating your repayment long before you complete your degree will help you build financial well-being by helping you understand what you can afford for your housing, your transportation, and your future loan repayment amounts. 

Credit is the amount of money a lender is willing to allow you to borrow to purchase goods or services, based on their confidence that you will repay your debt as promised, with interest. 

Your credit limit, the maximum amount of total loans that lenders are willing to extend to you, is determined by your credit worthiness, the measure of your ability and willingness to repay loans.

Lenders measure your credit worthiness through your credit rating or credit score. This score takes into account your savings, your income, the total amount of debt and potential debt through credit cards you already have.

It also measures your past patterns of behavior in paying bills and loans. Are your payments on time? Every time? Have you ever defaulted on a loan? Those factors help potential lenders to predict whether or not you are likely to repay a loan they may extend to you. 

Monitoring and building your credit score and protecting your good rating contribute to your financial well-being. 

Tool Tip: Federal law entitles you to one free credit report from each of the three credit agencies, each year. Request your credit reports from Experian, Transunion, and Equifax through their joint Annual Credit Report site. 

A loan will go into default if you fail to make payments without being approved for a deferment or forbearance. If you default, it means you failed to make payments according to the terms of your promissory note, the binding legal document you signed at the time you took out your loan.

Once a loan is considered in default, the entire balance (principal, interest, and collection fees) is immediately due and payable. Your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government can all take action to recover the money you owe.

What are the Consequences of Loan Default?

The consequences of default can be severe:

• The entire unpaid balance of your loan and any interest is immediately due and payable.
• You lose eligibility for deferment, forbearance, and repayment plans.
• You lose eligibility for additional federal student aid.
• Your loan account is assigned to a collection agency.
• Your loan will be reported as delinquent to credit bureaus. Your credit score will drop. This will affect your ability to buy a car or house or to get a credit card for many years. 
• Your federal and state taxes may be withheld through a tax offset. This means that the Internal Revenue Service can take your federal and state tax refund to collect any of your defaulted student loan debt.
• Your student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process.
• Your employer (at the request of the federal government) can withhold money from your paycheck and send the money to the government. This process is called wage garnishment.
• The loan holder can take legal action against you, and you may not be able to purchase or sell assets such as real estate.
• Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset.
• It will take years to reestablish your credit and recover from default.

Private loans are made by private organizations such as banks, credit unions, and state-based or state-affiliated organizations, and have terms and conditions that are set by the lender. Federal student loans are made by the government, with terms and conditions that are set by law, and include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered with private loans.

Predatory lenders are a small subset of private loan providers. Such lenders charge interest rates that can be 10 or more times higher than the rates available through federal student loan programs.

Always contact your Office of Financial Aid to share your concerns about meeting your financial obligations before taking on additional debt from a private lender. 

Many USC Upstate students have a long work history prior to entering college, and most plan to work while earning their degree. However, this may be a good time to consider new opportunities and explore on-campus resources to help identify part-time options with higher salaries and more flexible schedules.

Often on-campus employers are more understanding of students’ need to take off extra time during midterms and finals week. USC Upstate’s GROW program is designed with mentoring at the heart of on-campus employment, so you build your resume and portfolio while you pursue your financial goals.

Find both off-campus and on-campus employment opportunities through the Office of Career Management. Their services include the Career Closet to expand your professional wardrobe and the Handshake database of internship and career opportunities. Also check with the Office of Financial Aid to see if you qualify for the Federal Work-Study Program.

The length of time to complete your degree and the cost of completing your degree are closely related. By completing your degree on time, or even early, you reduce the costs of your education.

USC Upstate’s 15 to Finish program helps you stay on track to graduate, by completing 15 credit hours each semester to reach 120 hours within four years. If you know you will withdraw from a course early in the semester, consider replacing it with a course that meets in the second half of the term, or explore a winter term or summer term replacement to complete your four-year degree in four years. 

Mindful spending and saving can help you make the most of your income and decrease the costs of borrowing. Keeping track of your income and expenses now while keeping an eye on the future can ensure that you are sticking to your spending plan. 

Remember that financial well-being is all about balancing your choices today with the future you want to achieve.

• If you put off purchasing your textbook for a month, will your grades drop so low that you put your scholarship in danger? 
• If you purchase a new car now, will you still be able to make the payments once your loans come due in a few years? 

Using online banking accounts for checking and savings or personal budgeting apps can help you keep track of where your money is going. Check for fees building up for out-of-network ATM charges and other small expenses that can add up in the long run. 

Tool Tip: The National Endowment for Financial Education offers several Smart about Money courses to help you plan and take steps to build your financial well-being.

A college degree is a positive step toward fulfilling your career goals, but a new graduate is likely to enter the workforce in an entry-level position. Understanding typical starting salaries in your field can be important to help you plan and budget for living expenses and loan payments after graduation.

Tool Tip: Learn more about South Carolina Occupational Employment and Wage Estimates from the Bureau of Labor Statistics. 

A college degree is a positive step toward fulfilling your career goals, but a new graduate is likely to enter the workforce in an entry-level position. Understanding typical starting salaries in your field can be important to help you plan and budget for living expenses and loan payments after graduation.

Tool Tip: Learn more about South Carolina Occupational Employment and Wage Estimates from the Bureau of Labor Statistics. 

A college degree is a great investment in your future and an excellent way to increase your earning potential, but it can still take some time to find your post-graduation job and get financially settled. It is important to understand your options for repaying your student loans.

By working with your loan servicer to use options like deferment or forbearance, you may be able to avoid late penalties or defaulting on your loan, and you can keep your good credit rating intact for your future goals. 

With a deferment, your student loan payment is suspended for a specified period of time. Interest is not generally charged on subsidized loans but interest will continue to be charged on your unsubsidized and PLUS loans. Forbearance also allows your student loan payment to be suspended for a specified period of time but interest is charged on your subsidized, unsubsidized and PLUS loans. Some forbearances are granted automatically; others are offered only at the discretion of your loan servicer.

Tool Tip: The Office of Federal Student Aid can help you understand more about your loan servicer. 

While deferment and forbearance options may help you meet your needs when your finances are stretched, it is important to continue to make regular payments while you wait for your deferment or forbearance to be approved. In addition, keep track of the impact of these strategies on your future payments. If interest keeps building, delaying payments could increase your total payment by hundreds of dollars.

Whenever possible, maintain regular loan payments. Even if you need to arrange a smaller payment with your loan servicer, regular payments can maintain your positive credit rating. Missing payments altogether will only lead to increased cost and can potentially damage your credit.

Do not hesitate to contact your loan servicer with any questions or repayment concerns, and be sure to keep your contact information up to date so they can reach you as well.

Successful loan repayment experiences often require that you work with your loan servicer to make adjustments and calculate final payments. Your loan servicer also wants you to be successful in repaying your loan. If you make an effort to stay in contact and communicate if any issues arise, it will be easier for your lender to work with you and offer support.