Financial Issues For College Age Students (part 1)

The economy is a huge machine. In some ways, it feels quite organic. However, as a high school or college student, it is easy to be oblivious to these issues. For high school seniors and college students, the financial aid issues are the most pressing right now.

Its important for these students and their parents to be aware of the financial issues that are really facing them. Personal finance is often not just about the present and near term, but also about planning for the future. Below, I will outline the major issues that should be top of mind when planning for financial security as a college student.

I have been writing about the student loan issues and financial aid issues on this website for quite some time (The Student Loan Market, Family Financial Aid Contributions). This is for a few different reasons, each of which should give you some insight as to why it is not only current, but critical for college age students.

1. I feel like this is one of the most under-represented parts of the personal finance arena. School counselors and financial aid representatives are there to help students and parents fill out papers, but not really help them figure out what is best for them financially. Students and parents must do that for themselves.

This affects a huge number of people in the United States. More and more people have college degrees and student loans. We’ve come to a point where having a college degree in many cases is expected, even for basic jobs. In addition, the costs of college have increased to the point where for most students, loans are the rule, not the exception. Simply for these reasons, this requires serious attention and self-education by students and parents.

2. I personally took out a large number of student loans to go to college. While I believe that it was a good decision, I think that I could have been a more savvy consumer and handled the debt better. Many students are the same now as I was nearly 10 years ago when I started going to college. Student loans have not changed much. The process is similar. What has changed is the cost of college. And with higher balances, compound interest is even worse. The dramatic increases make this issue even more critical since more and more debt is being created, which makes this a personal issue for me.

3. In addition to increasing costs and a bigger need for education, other global factors are facing college-age students in the United States as well. All of these factors must be kept in mind during college and also after graduation:

A. It is likely that social benefits like Medicare and Social Security will be either gone or significantly reduced by the time current college students retire. Therefore those costs will need to be accumulated during the working years.

B. The costs of these overall loans in terms of work are higher since people are not able to demand the same amazing salaries that they could in the 80s and 90s. This is due largely to globalization and modernization of other countries in Europe and Asia. This can put more pressure and drives down salaries in the United States. Some argue that the retirement of the baby boomers will create more opportunities for young workers, but I feel that this remains to be seen as many retirement age workers will continue working at least part-time.

C. Oil continues to increase in price. Inflationary pressures continue. This trend will only increase. Even if you disagree with the idea of Peak Oil, (the idea that there will come a time where the oil that we can extract from the earth will take more energy than the oil itself can create), inflation itself will continue. And with the recent drop in interest rates in the United States, we can look forward to higher inflation in the near future.

Although much of the news seems bad, there are two major consolations for students. The first is time. With time comes the ability to get investments working for you and also to plan for the inevitable future. Furthermore, the free-market is powerful. And provided that there is not too much intervention, things will generally work themselves out. But to learn what you should be thinking about as a student, check out part 2.