College Connect: Tackling student loans and credit

Posted By David Wilhite

By Jimmie Jackson

For a first-time college student, it can be hard to figure everything out financially. You have to fill out the FAFSA in order to be offered scholarship, loan, or grant options. I filled out the FAFSA for my first year of undergrad at the University of Illinois. This was my first time having to know all about interest rates and such. At the time I qualified for subsidized loans that did not collect interest because the government would cover the interest. I also qualified for other loans that did carry interest. There were federal direct subsidized/unsubsidized loans, and there were Parent Plus loans, University loans, etc. Instead of borrowing $4,000 in subsidized loans in my first year, I decided to borrow around $2,500 in subsidized loans and $1,500 in University loans, which are through the university’s loan program. With myself being inexperienced, or just not reading thoroughly, I did not realize that I would pay more interest by splitting up the loans. I got a heads up from one of my high school teachers. She told me to make sure I borrow loans with the lowest interest before anything else. Eventually I took out another subsidized loan to pay off the university loan, which I think had an interest rate of about 6.7 percent.

Fast forward four years later, I decided to enter the world of credit cards. For anyone, credit cards can be a scary thing especially since American credit card debt is the highest it has ever been. It was June 2017, when I decided that I would need a credit card to cover some expenses. The rule of thumb is to only use credit cards for money that you already have. Unfortunately, I needed something fast for plane tickets and such. I applied for a Discover student card and got approved and began using it modestly. Everything was going well until one day I had to use my limit. I knew the possible consequences of this, but went through with it anyway. This was the moment that I learned quickly of the power of credit utilization. At the end of the billing period, I saw my credit score drop by about 100 points on three credit reporting agencies. As you could imagine I went into straight panic mode because credit scores drop faster than they rise. Fortunately, since I paid the full balance by the due date, my score went back up nearly to where it was. Now, I am more conscious of my credit card utilization. After going through this, I learned that credit can be a beautiful thing so long as you use it properly and plan well.

My next financial experience will be loan consolidation. I currently have a handful of small accounts open that I will need to consolidate in the future to make loan payments easier. I have not done this yet just because the process can take some time. Once I finish graduate school at Arizona State University, my goal is to pay off my student loans as quickly as possible. I don’t want to be the guy that is still making payments in his 50s. I think this experience will be my chance to prove to myself how responsible I am with my finances.

 

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