How New College Students Can Set Themselves Up For Financial Success

By Kelly Anne Smith

If you’re reading this, you’re likely a new college student whose parents sent you this article.

But before you roll your eyes and go back to scrolling on Instagram, consider this: What if you could do a few things now to make your financial life easier for the years to come?

Your college years are one of the most pivotal moments of your financial journey. Most of the time, you have a clean slate—few financial obligations, little-to-no debt and the opportunity to start on the right foot.

I didn’t make the most of it. But right now, you have your chance.

Why Should You Care About Money While in College?

Before you write me off as another keyboard warrior in the personal finance sphere, let me tell you a secret: I was in your position a few years ago, and I’ve made (almost) every financial faux pas imaginable.

I’ve maxed out credit cards, overdrawn bank accounts, absolutely wrecked my credit score, signed leases to apartments I could barely afford, and at one point, worked three jobs but had no emergency savings. I think the only mistake I haven’t made is withdrawing from my 401(k) early.

Here are a few things I wish I knew about money when I was a college student. (I promise none of these tips involve cutting lattes out of your routine.)

Be Smart About Your Student Loan Refund

Student loans are becoming necessary to finance your higher education; more than 43 million borrowers collectively hold $1.73 trillion in student loan debt. If you’re joining that crowd, you might be betting on getting a refund check for the leftover amount after your school pays your tuition and fees.

Before you say, “A free check for $3,000? Sign me up!” two things: That’s not free money, and you need to think long and hard about what you’re going to do with it.

I spent my first student loan refund check on clothes and a plane ticket to Africa. Don’t be like me.

Traditional personal finance advice will tell you to send the refund back to your loan servicer so you’re not borrowing more than you need. If your parents are financially supporting you while you’re in school, it’s true it would be wise to put that amount toward your overall balance now to pay off your loans faster and save you money on interest.

But if you’re supporting yourself while attending college, you may want to tuck that money away in a savings account where it’s easily accessible. Having a bit of a cushion can be beneficial during the school year, especially if things don’t go according to plan with your side gig or part-time work.

Federal direct subsidized and unsubsidized federal student loans (usually what undergraduate students take out) currently have a 3.73% interest rate. That’s way lower than what you’d be paying by living off credit each month, considering some credit card interest rates can be as high as 25%.

That student loan money technically isn’t yours—but in an emergency, it’ll cost you less to use it than swiping a credit card.

If you depend on your loan refund to completely cover your living expenses,  you need to make a realistic budget for how much of it you’ll spend each month. Trust me, you can’t just “keep track” of it all in your head.

A simple spreadsheet that itemizes your expenses—from rent and utilities to “fun” money for social events—is adequate enough. If you’re anti-spreadsheet, check out our picks for the best budgeting apps.

Get a Credit Card—But Use It Wisely

Now that you’re transitioning into adulthood, you need a credit card. Not because you need something to dine with friends (leave it at home!), but because you need to start building your credit history and score.

If you’re not familiar with credit scores, here’s a quick synopsis: Your score is a number between 300 and 850 that lenders look at to determine how risky or responsible of a borrower you are when you apply for a credit card or loan. Multiple factors go into a credit score, including payment history, amounts owed, length of credit history, new credit and credit mix.

Having a credit history—and a healthy score—can increase your eligibility for credit cards, auto loans, a mortgage, and even a job.

“I have had multiple graduates tell me about the job they had been offered, only to have the offer retracted once the employer checked their credit score,” says Sonya Lutter, certified financial planner and director of institutional research and education at Herbers & Company. “In each case it wasn’t that the student had bad credit; rather, they had no credit history.”

Opening a credit card is your first step to building your credit. But using it responsibly is how you’ll prevent racking up debt and causing your credit score to tank right out of the gate.

Lutter recommends putting normal expenses, like gas or textbooks, on the card and paying the balance in full immediately. Doing so will allow you to start building credit history with an expense you were already going to have, rather than racking up a balance on food or entertainment expenses over the month and struggling to pay it off after.

There are plenty of card options for college students. Aim to open one with no annual fees, but that offers a rewards feature, such as cash back on purchases. You can find our top picks for student credit cards here.

Stay Away From Memestocks

Fintech apps have made day-trading stocks easier than ever. But just because it’s easy and you might know people your age participating, it doesn’t mean you should start chasing after memestocks on apps like Robinhood (remember the GameStop saga?).

You do not want to invest your financial aid refund check—or rent money, or savings—into memestocks, or even into long-term investments. Before you even think about dipping your toes into the stock market, you should be squared away to pay your living expenses, have an emergency fund and a plan for debt repayment, says Lutter.

If you have those bases covered, it could make sense to start investing—but usually not in short-term allocations.

“College students have a long time horizon and I believe it is critical for them to use that to their advantage,” says Nick Rostykus, a certified financial planner and private wealth advisor at WealthSource. “It’s hard to stay invested when everyone else is trading on today’s headline news, but that’s when you are rewarded the most.”

Long-term investing means you’ve come up with a solid investment plan and have selected diverse asset allocations. Have no idea what any of that means? Read this guide and then contact a financial advisor before you start dumping money into an index fund.

All investing comes with risk—if you’re not comfortable with losing your entire investment, that’s a good sign you’re not quite ready yet to dip into the stock market.

Beware of School-Sponsored Bank Accounts

If your university has an on-campus bank, you might be considering signing up. But you might want to think twice before doing so. University-sponsored bank accounts have garnered attention in recent years due to their high fees.

In 2016, the Consumer Financial Protection Bureau (CFPB) found many of these institutions had features that “lead students to rack up hundreds of dollars in fees per year.” One of the largest was overdraft fees, which is an additional payment charge that occurs when more money is spent than you have available in your account.

The analysis also found that these accounts offered few financial benefits for students—but produced big profits for the banks. There has been some improvement since then, but some banks are still preying on college students.

Instead, find a banking institution that’s fee-free. The best student checking accounts (not associated with a school, but rather offered to students through a bank or credit union) often come with a low or no minimum-deposit amount. Some even offer cash back or the opportunity to earn interest on your balance.

This is the Beginning of Your Financial Journey—It’s Not a Race

The above tips will make you look good on paper. But I think the biggest-kept secret about personal finance that a lot of people don’t know is this: Building a solid financial life is a marathon, not a race.

That means you’re not going to stay on budget every single month. You’re not going to become a millionaire overnight (sorry). And you’re going to have setbacks. A lot of setbacks.

The best thing you can do is continue to arm yourself with knowledge to adapt to any financial situation you come across. The strong foundation you build now will give you the stability you need to tackle your finances for the rest of your life.