College is not only supposed to give you the skills you need in a particular field of study, but also the general life skills that you need to survive and thrive. Without good habits, your collegiate financial education can come via the school of hard knocks – through incurring fees and interest charges.
According to a new NerdWallet study, America's college students spend almost $800 million per year on bank and credit card fees through college-sponsored accounts with partnering financial institutions. These fees are generally avoidable through responsible handling of finances.
Students incur typical overdraft fees and late payment fees of around $35 per incident on average. Given that the average college student overdraws a bank account 2.2 times annually, undergraduate students in America rack up over $722 million in overdraft fees alone. That’s nearly three-quarters of a billion dollars!
The study also found that one-third of soon-to-be-graduating students with credit cards have missed a payment date and incurred a late payment fee, adding up to approximately $73 million annually. Combined overdraft and late fees were near $800 million in the past year and are likely to continue on past the $800 million mark before the end of 2017. Throw in interest charges from carrying credit card balances, and the annual cost to students surely passes the $1 billion mark.
Through a 2015 set of guidelines aimed at colleges and universities, the Consumer Financial Protection Bureau (CFPB) has tried to act as an advocate for students. The guidelines were intended to assist schools in selecting partner banks that provide the best financial packages for their students. Progress is slow, as the CFPB's 2016 Student Banking Report found that "many general marketing agreements do not prohibit certain fees account providers may charge students." These fees could include overdrafts, maintenance, and ATM fees on out-of-network devices.
How can you avoid these charges? Overdraft charges can easily be avoided by selecting an account that doesn't charge them, whether or not that account is part of your college's network. Credit unions or online banks may offer you a better alternative.
You can generally set up your account to de-activate "overdraft protection," meaning that banks will reject transactions instead of allowing you to spend beyond your limit and incur a charge for the privilege. Make sure that your account doesn't charge an insufficient funds fee for rejecting the charge – and that you have a second means of paying for important charges.
As to late fees, the only way to avoid them is to make your payments on time. Even if you must carry a balance, you must pay on time to avoid the double penalty of late charges and a drop in your credit score. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. In addition to late fees, many cards for the collegiate market will activate a penalty APR that can approach 30% – imposing a heavy penalty on carrying a balance.
College students can use one advantage they have over older Americans – their love for technology and apps. Gerri Detweiler, Head of Marketing Education for Nav, explains, "You can set up alerts for your bills...use technology to stay on top of your bills, because one late payment can drop your credit score 50, 75, 100 points or more." That same philosophy will keep you from accumulating unnecessary late fees, not to mention interest charges from carrying the balance over to the next month.
The easiest way to avoid banking fees is simple yet difficult – don't spend more than you can afford to pay off at the end of each month, and make sure that all bills are paid on time. This requires budgeting skills. Track your expenses to get a feel for where your money really goes. Incorporate those expenses into a long-term budget, and stick to that budget. It's best to get used to budgeting prior to college before you are faced with college's unique combination of expanded freedom and temptations to blow cash.
College is expensive enough without throwing away money through unnecessary fees. Educate yourself on proper handling of personal finances, and put what you learn into practice. That way, you will have plenty of pizza and beer money when you need it, and your friends will be asking for your secret. Be sure to teach them fiscal responsibility as well – next time, they can buy.
If you are starting from scratch with no credit history, check out MoneyTips' list of credit cards for limited or no credit, which can help you to build a credit history.