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The Financial Needs of College Students

Rohit Subramaniam served as Filene's Research Intern in the summer of 2023 and worked on various research projects. He is a student at NYU Stern School of Business and worked on the following piece for Filene detailing the student perspective how credit unions can better understand and serve the needs of college students.
  • Rohit Subramaniam Student at NYU Stern School of Business

Higher Education Costs and Lack of Personal Finance Knowledge

With another school year underway, families across the U.S. are once again grappling with the costs of higher education. How to pay for a college education has become a critical financial decision for many. Parents may dream of sending their children off to the best college possible, but with the overall price of a college education increasing every year, some can’t afford to do so. Research from CNBC and Acorns shows that 53% of parents don’t have any money saved for their kids’ future. Then, even if parents are able to afford the cost of tuition and send their children to school, another problem arises: indirect expenses.

There are lots of indirect expenses associated with college, which can make up half or more of the total cost depending on the school. These can include expenses like school supplies/books, food beyond the meal plan, transportation, club/organization dues, professional attire (during job recruitment), and much more. This is a prevalent problem, as nearly 80 percent of students say they encountered an indirect expense at least once in the last school year. These expenses can be so taxing that almost 2 in 5 college students are worried they won’t have enough money to cover their school expenses through the end of the semester, with just as many also worried they wouldn’t be able to afford a major unexpected expense. Further exacerbating the problem, as we learned through conversations with current students, is a lack of information around basic personal finance, from when to best use credit cards to investing.

Affording Tuition

In interviews, it’s clear there are a variety of options to help students and their families afford tuition, but they are often very local, and the programs themselves can be hard to find and fragmented. Many of these programs are specific to a particular university and may be difficult to qualify for, although some are easily accessible and can be used by families to safely and intelligently save for children’s education.

One such plan, the 529 “qualified tuition plan,” is a state-sponsored plan that enables parents to set aside money early on for their child’s higher education. Some plans, known as prepaid 529 plans, enable parents to purchase tax-free tuition credits that are applicable to certain schools/universities within a particular state (usually the state school of that state). These credits are only applicable to this particular school or set of schools and allow parents to lock in credits at the current price of education, rather than falling victim to rising tuition. 20-year-old John Davis, a third-year student at the University of Texas, stated that his parents followed such an approach when they began purchasing UT Austin tuition credits as soon as he was born. Davis’s tuition is now 100% covered, and he will be graduating debt-free.

Other plans, known as savings 529 plans, are purely tax-free investment vehicles, much like Roth IRAs, where parents can deposit money into an investment fund managed by the state. Money can be withdrawn from this account if it is going toward an education-related expense, whether it be for higher education expenses like tuition, room & board, a meal plan, and school-related technology, or even for tuition expenses associated with K-12 education.

However, despite it being one of the most accessible college savings vehicles, only 30% of American families used a college savings plan to pay for college in 2023. One possible explanation for this low number is an information gap. For example, Davis’s family only found out about their specific 529 plan through a personal financial advisor. With only 35% of American families working with financial advisors, there is a clear opportunity to make sure that benefits offered by plans such as the 529 are accessible and known by all.

Affording Indirect Costs and Planning for the Future

Once students get to college, there are numerous hidden costs associated with being a college student.

One such hidden cost is that of living expenses.

Many college students plan to live in an on-campus dorm during their first year of school, but very few stay on-campus for all 4 years. Living on-campus isn’t cheap. According to the College Board, the average annual cost of room & board at public universities in 2021 was $11,950, with this number increasing to $13,620 for private universities.

Likely in an effort to save money, most students—87 percent—live off-campus. However, when students move off-campus, they take on other indirect expenses such as utilities, groceries, furniture, and miscellaneous fees, which can mean living off-campus is just as expensive as living in a dorm, if not more. And it’s not just students who struggle to budget when it comes to off-campus living. Nearly 60 percent of colleges significantly underestimate or overestimate off-campus living costs, according to research by the Wisconsin HOPE Lab, meaning students often have no idea what they’re getting themselves into when they move off-campus.

20-year-old Jane Miller, a current junior at the University of Houston, experienced this exact scenario when she decided to move off-campus at the end of her freshman year. While she initially thought everything would be cheaper (rent was cheaper than on-campus housing), she soon realized that in addition to rent, she was paying for utilities, groceries (since she no longer had a meal plan), and dealing with unanticipated maintenance costs, all of which made living off-campus just as expensive as living on-campus.

There are other considerations too. Moving into cheaper off-campus housing can involve moving into a more dangerous neighborhood or a lower quality apartment. Miller recalled her experience with a host of bug and maintenance issues that soured her overall off-campus experience and led to her paying a fortune in maintenance fees.

In addition to maintenance costs, students living in certain rental markets can also expect to pay exorbitant unexpected fees upon moving out of the dorms. Students at New York University, located in downtown Manhattan, reported that they often had to pay large amounts of money in broker fees after signing their lease, usually around 15% of total annual rent. This is a massive amount of money many college students are unaware of when they decide to move off-campus.

The cost of transportation can be another significant expense for students.

While many students do walk to their classes, transportation is still needed for many, especially those who live off campus. For students who attend schools in cities, it is not uncommon to take some form of public transportation, typically the subway or the bus. While some schools, such as the University of Wisconsin – Madison, provide a bus or metro pass to all students with their tuition, this is not the case at every school. Students may also elect to use ridesharing apps such as Uber, Lyft, or Zipcar if public transportation is not a viable option. Geography and health safety concerns can also play a role in driving up transportation costs. Mary Johnson, a current junior at the University of Wisconsin – Madison, recalled spending up to $300 per month on various forms of transportation during the winter months during her first and second years in Madison, as it was often too cold to walk.

Other significant indirect expenses include books, school supplies, and food.

Between 2006 and 2016, the average cost of textbooks has increased by about 88%, with students spending hundreds of dollars on books per semester. Johnson reported spending as much as $600 per semester on textbooks for her coursework. Technology can also be a significant expense, as students purchase tablets and laptops to supplement their learning. Finally, the average student spends on average $410 a month eating off-campus. While this is comparable to the cost of an on-campus meal plan, there are additional considerations here as well. For example, during exams, students reported ordering food in more frequently, thereby increasing their food expenditures.

So, what does this all mean?

Overall, there is a clear opportunity for more guidance and education for students around the indirect/miscellaneous expenses associated with college. Helping students create and maintain monthly budgets is crucial. Students should be familiar with personal finance concepts such as credit, saving, debt, investing, and more to ensure they remain financially healthy throughout their tenure at college and beyond. For example, many college students are unsure about whether they should be using a debit card or credit card to pay for living expenses. Some students elect to use a credit card to pay for almost everything they buy to build up their personal credit score and gather points and cash-back rewards. One the other hand, other students prefer to use a debit card from their primary provider to avoid any risk of accumulating credit card debt and only spending the money they earn.

What can credit unions do?

First, there is a critical opportunity for credit unions to support college students by working closely with families. Families, not just students, need help saving and planning for college, and the sooner this happens, the better. If families save just a little bit of money every year in a savings account, whether it’s a 529 or not, many will have the power they need to financially support a higher education for their children by the time they turn 18. Financial institutions can be more proactive in publicizing effective and efficient ways to save money for college. By becoming a family’s primary financial institution, credit unions also stand to benefit by increasing their member base through intergenerational loyalty. A lot of kids bank where their parents do—loyalty matters. By helping parents find ways to afford higher education costs, credit unions are opening the door to having future generations set up accounts there as well—perhaps when it comes time for the kids to go to college.

There is an additional opportunity for credit unions to engage college students by offering basic budgeting/financial education. Credit unions can engage with both current and prospective college students by setting up presentations at high schools and colleges. Financial advice may be difficult to find, especially for young adults, so reaching out to students in the local community may be a great way to promote financial literacy among youth. At the same time, it is also important for credit unions to consider the needs of non-traditional students—international students, community college students, returning students—as they promote community financial literacy efforts. Many non-traditional students are likely to have very specific financial questions and be looking for support in navigating them.

Credit unions are uniquely positioned to provide the answers and support that families, as well as current and future college students, are looking for. The narrative around affording a higher education often revolves around student loans, and while understanding the loan landscape is critical, it is far from the only support college students and their families need.

Disclaimer: The names used in this blog post are fake to help protect the personal identities of our interviewees.

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