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College Prep 101

Lessons in Credit Cards and Financial Loans

One hundred one things to ponder – and get done! As college approaches, parents are overwhelmed with a plethora of to-dos, as well as jaw-dropping costs. What’s the best way to pay? Should we look into a loan? Should my college student get a credit card? And should there be limits?

Good questions all, but no matter the answers, you might as well face this fact: Credit card offers in your child’s name are going to fill your mailbox. If you agree a credit card is needed, get actively involved in the selection of the card and terms. Don’t necessarily take what is offered. Read the fine print. Shop around, and be wary of cards that have a grace period of less than 28 days. The interest rates are usually lower for a short period of time, but then may climb to heights exceeding 29 percent.

Realistically, a $300 monthly limit is the max needed for an on-campus student’s incidental expenses. Anything over that amount invites him to overspend. Consider a secured card from your local bank where the amount of credit is held in a savings account. This keeps the rate lower and helps your teen establish credit in a responsible way. He’ll have to think about the $500 credit as real money versus being removed from the consequences of overspending. Position it by telling him that the card provides a monthly budget for incidentals and if he runs out before month’s end, he’ll have to work it out on his own. Swiping the card has an effect, positive or negative, and this way he’ll gain experience working with a budget. Allowing him to make decisions – and even minor mistakes now and then – teaches him about using credit cards without major consequences later.

College loans are another area where parents should take an active role. Too often additional money is borrowed to fund a college lifestyle and not just an education. When a loan is taken purely for an education, I view it as a business investment. Starting a business typically requires capital outlay. Once the business is turning a profit, the equity begins to develop. Students invest in their education via loans and typically, when they graduate, receive higher paying jobs. Just make sure the loans are classified as true student loans. Also check out the loan’s built-in features, such as the ability to defer payments if needed until after graduation and loan forgiveness if, tragically, the student dies before the loan is satisfied.

Student loans carry a much lower rate for unsecured debt than traditional unsecured debt. Allowing your young adult to claim himself on his own tax return may make available financial aid that your income would eliminate. It’s also smart to engage the school counselor, who has resources for available grants, scholarships and other opportunities that can minimize the need to borrow funds.

College should be a time of growth and responsibility for children in a variety of aspects. It is imperative that parents keep a close watch on all the financial opportunities that will flood their student’s life. After all, we are our children’s best offense and defense.

Angie Fritter has worked in the finance industry for 22 years. She is President of The Fritter Group and a mother of one.

Angie Z. Shay has worked in the financial services industry for more than 22 years. She is president of THE PATH Financial Strategies, LLC. Angie Shay is a financial adviser with Eagle Strategies LLC, a Registered Investment Adviser and an indirect wholly owned subsidiary of New York Life Insurance Company. THE PATH Financial Strategies, LLC is not owned or operated by Eagle Strategies or its affiliates. Neither THE PATH Financial Strategies, LLC or Angie Z. Shay provide tax or legal advice.
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