Navigating the banking and financing choices can be especially tricky for college students coming right out of high school. People who are new to the world of finance may feel they have limited options. The following are just a few options.
1. Use a Student ID Debit Card
Many schools make use of Higher One’s financial services to manage refund checks. It does provide your funds in a quick, relatively easy to access place, but it is important to pay close attention to their fee schedule. The fees associated with Higher One can be avoided with relative ease, as long as you are making purchases with the card rather than withdrawing cash and making sure you are using it as a credit rather than a debit card.
2. Direct Deposit
An alternative to Higher One’s banking services is simply having the amount deposited into a different bank account. Even if your school uses Higher One to manage refund checks, you are not required to open a bank account with them. It’s important to be aware of any bank’s fees and policies, and sticking your refund in a bank you’re familiar with can make things simple. Making use of a savings account with a decent yield can also help offset any accruing interest
3. Give It Back to the Lender
With both the student debt and default rate on the rise, it is very important to carefully consider your actual financial needs. Remember, the money you get in a refund is not actually your money, it’s money you’re borrowing from the government. If you default on paying it back, they’re taking it out of your paycheck. It can be very easy to rationalize taking out the maximum amount you are offered, but even with relatively low interest rates, the sheer volume of money student loans usually turn out to be means the capitalized and accumulated interest will seriously add up over the course of the loan.
4. Subsidized vs Unsubsidized Loans
Usually you will be offered two separate types of student loans each semester, subsidized and unsubsidized. Subsidized means that the federal government will pay any accrued interest while you are in school. An unsubsidized loan will continue to accumulate interest during your enrollment. Because of this, you should strongly consider only taking subsidized loans whenever you can manage it. The interest alone with unsubsidized loans during your enrollment can become a significant amount of money, especially if you are attending a high-tuition school.
5. Pay Off Previous Year’s Loans
This is a tricky combination of two and three; financial expenses can differ from year to year, so keep track of how much you have to borrow between school years, and at what interest rate. For example, if your loan for your first year had a higher interest rate than for your second year, you could pay back some of the loan that had the higher interest rate and ultimately pay less over the loan’s lifetime.
The most important thing to remember when considering what to do with your loan refund is what the interest rate is and how much you’re going to owe each month once repayment starts. There are payment calculators and finance tools available to help students navigate repayment.