College Students and Money: Discretionary spending adds up

This is the fourth in a series this week about financial issues faced by students in college and trade schools. Yesterday’s post discussed discretionary spending. Today we share an example that can help students as they consider how much they will spend on discretionary items.

Suppose Student A and Student B are financially identical, except Student A spends $450 a month on discretionary spending and Student B spends $150 a month. Student A spends $300/month more on discretionary expenses through four years of college (I’m including summers too, since most students continue having discretionary spending through the summer). When four years are over, suppose Student B has total student loan balance of $20,000. Since they were identical except for discretionary spending, that means Student A’s total student loan debt will be $34,400, or $14,400 more than Student B.

The current interest rate on federal student loans is 3.73% per year. Let’s suppose they repay their loans using the standard 10-year repayment plan, although there are other plans available with longer repayment terms and lower monthly payments. On the 10-year plan, Student B will pay $200/month. Student A, on the other hand, will pay $345/month. 

As fresh college graduates, will Student A be ready to deal with a monthly loan payment of $345, instead of a payment of $200? That extra $145 student loan payment is the consequence of their extra college spending; extra spending during college limits their options in the future. Understanding the consequences of their actions helps students make informed decisions they can live with in the long run.

What’s the “right” decision on discretionary spending? Only the student can decide. I have heard of college juniors and seniors who look back on their spending in their first one or two years of school and regret it. Of course there may be others who look back at how little they spent and wish they had let themselves have a little more fun.

When considering how much total educational debt you are willing to accumulate, consider two rules:

  • Borrow as little as you can. This is in bold, because I think of this as the “golden rule” about student debt. This rule applies in virtually every situation, and is above any other rules.
  • Avoid borrowing more (total) than your expected first year’s salary. This is a commonly accepted “rule of thumb.” Example: if you hope to start out as a civil engineer making $60,000, then $60,000 should be the MAXIMUM you are willing to borrow for your education.
    Notice: this doesn’t mean you should go ahead and spend extra because “you can afford” to borrow $60,000. The golden rule is above all other rules – no matter what, it is wise to borrow as little as you can.

Tomorrow – the last in our series “College Students and Money.” Do you think the subject of credit cards will come up?

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

College Students and Money: Be Smart about Student Loans

This is the second in a series. Yesterday’s post offered guidance on effective ways for parents to talk to their young adult children about school-related financial issues.

Most college students use student loans to help pay for their education. There are still some families (including moderate-income families) whose children complete college without any loans — through a combination of money saved up over the years, plus scholarships and earnings from a job — but that is not the norm. So if you are expecting to rely on student loans, you are pretty typical.

While student loans create valuable opportunities, they can contribute to problems if they feel like “easy money.” It seems easy to some students: just sign the paper, and the money is yours. It is years later (or even decades later), as they repay the loans, when some students understand that loans are far from “easy money.” Students start out a step ahead if they recognize that reality from the get-go.

Two key strategies exist for reducing the “payback pain” of student loans:

  • borrow less – as little as you can
  • Choose your loans wisely. (Yes, you have choices — shop around!)
    Here are some tips to get you started with that.

In general, Federal Student Loans are the most desirable type – low fixed interest rates, and a range of repayment options. Best of all are Federal subsidized student loans, available to some students based on need. Subsidized means the government pays the interest for you for as long as you are a student (more than half time); that’s a huge bonus. Example: a student who borrows $5,000/year for 4 years with a subsidized loan will have a starting loan balance of $20,000 when they graduate. By contrast, if that was an unsubsidized loan, interest would accrue even while they are still in school. If the interest rate is 4%, their starting loan balance when they graduate would be $22,081, because of the interest charged for those four years of borrowing.

A student’s eligibility for Federal Student Loans, and the maximum amount they can borrow, is determined by their financial aid application (FAFSA), and is part of their financial aid offer from the school, which may also include scholarships and grants. When students need to borrow more than they are eligible for in Federal loans, that is where the shopping around comes in.

Private student loans are offered by private lenders. In general, interest rates are likely to be higher than Federal loans, and the rates are usually variable. You might start out with a low interest rate, but if prevailing interest rates rise, the rate on your loan will probably go up, as well. In some cases, borrowers with excellent credit histories and ability to repay may be offered lower interest rates. A typical student, with little to no credit history, will likely need a co-signer. All of these variables point to the reasons why it is valuable to shop around for student loans. Checking a minimum of three lenders is always recommended.

A third option for families to consider is the Parent PLUS Loan. These are available only to biological or adoptive parents of dependent students; students must be enrolled in school at least half-time. The parents must be credit eligible, although there is a process through the Department of Education by which parents can be approved even with poor credit histories, depending on the reasons or extenuating circumstances contributing to that poor credit score. Parents are responsible for repayment; that means parents must consider their entire financial picture, including their age and retirement plans, the needs of other children, and their ability to maintain satisfactory lifestyle while repaying a loan. These are Federal Loans, administered through the Dept of Education.

As with any important consumer decision, it is critical to use reliable information. Many of the best sources of information are provided by the United States government, beginning with the umbrella website The Consumer Financial Protection Bureau (CFPB) also offers numerous resources to help with decision-making, including a simple one-page guide to student loans and a very helpful student loan web page. Additionally, another one-page tool helps students make informed choices about bank accounts.

The CFPB offers another comprehensive planning tool titled: Your Financial Path to Graduation. The tool is easy to use, and takes a student step by step through a fairly complete look at the sources of money they have available to cover their college expenses, AND a personalized look at what they can expect those expenses to be. It helps students and families consider various options, and gives them a forecast of what their situation might be by the time they graduate, including what their total debt levels might be and what starting salary they might reasonably expect. I tested it out with a hypothetical student situation, and I thought it could be very helpful – I encourage you to try it!

This is the second in a series this week on student financial readiness for college. Next up: discretionary expenses.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Money Guidance via Podcast


Targeting those in college or planning for college, the U.S. Consumer Financial Protection Bureau recently launched a podcast called Financial inTuition. The six episodes currently available are divided into two categories: three episodes focused on student loans, and three on basic money management skills with a focus on issues faced by students.

Each episode includes an interview with either an expert or a consumer with first-hand experience. It’s always helpful to learn from other people’s experience!

The podcast is available free wherever you get your podcasts, OR directly from the CFPB website. It is part of a broader set of resources targeting students and young adults on topics like paying for college (including information about student loans and the GI Bill), and money management information for economically-vulnerable consumers (which includes most young adults just starting out) on topics like building credit access and finding money to save. They also provide materials for both youth educators and adult educators.

Check out these resources for yourself OR share them with someone you care about!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

There’s Still Time to Ask for Mortgage Help

COVID-19 has reduced the incomes of SO many Iowans, making basic survival harder. If you are worried about protecting your home if you are unable to make your mortgage payments, you may have options – but you won’t know unless you ask! Watch this video from the Consumer Financial Protection Bureau for the facts you need to know about mortgage forbearance.

Woman standing in lobby with text "COVID-19 Mortgage Relief: 4 Things to Know"

The CARES Act requires that consumers be offered at least 180 days “forbearance” if their mortgage is backed by a federal agency (FHA, VA, USDA, Fannie Mae, or Freddie Mac). Many lenders are also making forbearance available for privately-backed loans. You will eventually need to make up for the missed payments, but you will have some time to catch up. Beware of any housing relief offers that require you to pay a fee up front – those are likely scams.

For more information about housing relief options, visit For help sorting through your options on a wide range of financial issues, request an individual consultation with one of our ISU Extension family finance specialists.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Pandemic-Induced Goals?

The current period of job loss and reduced income has affected people in different ways. The result? Different households face different financial challenges at this point. Whatever your situation, now is s a good time to assess your financial situation, evaluate your priorities, and take steps to improve your situation as necessary. If you’d like some help, your local ISU Extension financial educator is available to work with you, providing free, non-commercial information and a sounding board as you make your plans.

  1. Some of you have been living with seriously reduced income – and still are. Your task has been to find every possible way to reduce your expenses and/or find new income and make use of new resources, including public assistance if you qualify. You must communicate with all of your creditors, but avoid making promises you cannot keep. If returning to something like normal looks unlikely, you may need to consider major lifestyle changes.
  2. Some of you lost income for a while, but are now back to an income you can live on. It is likely that you got behind on bills, built up credit card debt, and/or depleted your savings during your crisis. Strong focus on repaying those debts and building up emergency savings will get you ready in case of an unexpected expense or another loss of income. Careful examination of your spending choices will help you regain equilibrium and then build a strong cushion.
  3. Others of you had stable income, but have realized that if you did lose income, you would be in a very difficult spot. Facing the reality that you lack basic financial security can motivate you to build up savings and pay down debt. Start by cutting your living expenses so that your regular monthly expenses are 10-25% less than your income. Putting the extra funds toward savings and expedited debt payment will build you a cushion that will bring peace of mind and make your life easier if/when hardship strikes.
  4. Still others have stable income, and have felt secure that even if you did have a cutback, you would be okay. In your case there is no obvious need for change, but it’s wise to maintain control of your finances through good planning. You may wish to build an even stronger savings cushion, after seeing others struggle with lost income for six months or longer. As you build savings, seek out accounts that pay slightly higher interest while still providing ready access to your funds.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Debt? Make A Plan

The financial impact of COVID-19 has many people worrying about paying back borrowed money and wondering where to start. If you’d like help after reviewing the steps below, Iowa State University Extension Family Finance Specialists across the state are available for educational consultations that are free and confidential.

To get started, take 3 steps to manage your debt.

First, understand your debts. Make a chart or a list showing each debt, with who you owe, the amount you owe (including interest), and projected payoff date (if available). Having this clear view of your total debt picture will help you plan your approach.

Second, consider what the consequences are if you do not pay on time. In most cases, late payment or failure to pay will hurt your credit score. But in some cases, the consequences are more serious: for example, you may lose a service, such as water or electricity; or your vehicle may be repossessed. Considering the consequences will help you decide which bills to prioritize. NOTE: eventually it will be important to repay all your debts, but in the short term, it is advisable to prioritize those that are essential to your family’s well-being or to keep your job.

Third, plan a payment strategy that works best for you. After prioritizing the bills that are critical to your family’s well-being, you still may have several other debts to address – which of those should you pay first? You should, of course, keep paying the agreed-upon monthly payments if possible, but if you have extra money to put toward your debts, where should you start? Some people start by attacking the debt with the lowest balance – they are motivated by the idea of completely wiping out a debt so they have fewer bills to think about. You will actually save the most money by first focusing on the bill with the highest interest rate. To explore debt repayment options, check out PowerPay, a free and non-commercial debt calculator sponsored by Utah State University Extension.

Taking control of your debts starts with three steps: understanding it, being aware of consequences of not paying debt, and having a plan to reduce debts. It’s not easy to become debt-free, but for most consumers it can be accomplished with hard work and dedication. Be sure to contact your local ISU Extension financial educator if you’d like some assistance with sorting through your options.

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts

Juggle—Stop—and Slide Expenses

Juggle—Stop—and Slide your personal expenses throughthis COVID-19 global pandemic using tools, actions and strategies to protect your family.

Juggle– Put money you would have normally spent for things (e.g., personal care, commuting costs and child care) toward other essential bills. Rework your budget and reallocate money you are not currently spending.  We shifted money not spent on gas and eating out. Those dollars are now budgeted for extra costs for an unplanned internet upgrade. Consider online budget tools like this one from the University of Wisconsin.

Stop- Take immediate action to stop all excess spending. Ask: “How can we reduce spending?”

  • Substitute a less costly item
  • Conserve resources and avoid waste
  • Cooperate with others by trading or sharing resources
  • Save money if we do it ourselves
  • Do without

These ideas and more are available at the University of Minnesota’s “Strategies for Spending Less” page. You’ll find other resources on ISU Extension’s Finding Answers Now page

Slide- Take advantage of Covid19 Special offers and slide a portion of the bill forward.

Our mobile phone carrier will not charge a late fee or terminate service through June 30. To qualify due to hardship a short online form is required.   Iowa utility providers (i.e. energy and water) may provide relief payment options, assistance programs, and low-cost steps for customers according to the Iowa Utility Board.

Free and confidential consultations with ISU Extension financial educators are available to all Iowa residents. We can provide tools and information to help you revise budgets, prioritize spending and link to community resources. 

Find your local Extension educator or contact Iowa Concern 800-447-1985 for information. Consider our free booklet: “Planning to $tay Ahead”  English and Spanish

Carol Ehlers

Guest Blogger: Carol Ehlers,
Human Sciences Specialist in Family Finance

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts

An Ounce of Prevention

I shouldn’t be surprised by the increased number of bogus offerings, threats and scare-tactics arriving in my inbox, mailbox and phone. Scammers are offering everything from face masks to toilet paper and expedited deposits of the stimulus payments. Identity theft and related scams often spike during times of crisis. So…desperate times require extra diligence on our part, to protect our identity and our hard earned money.

The three national credit-reporting companies, Experian, Equifax and TransUnion, are offering free weekly online credit reports through April 2021. By requesting a free credit report at, an individual will get a report from all three companies with the single application.

By establishing a “myEquifax” account at  or by calling 866.349.5191, individuals can receive six free credit reports every twelve months from Equifax, through December 2026…that is in addition to the one free report that can be obtained each year from all credit reporting companies at

While checking your credit report is an important habit, there are other things individuals can do to protect their identity and improve their score.

  1. Pay all your bills on time if possible. It may get difficult with layoffs and furloughs, but try to make at least your minimum debt payments by their due date every month to avoid hurting your credit score.
  2. Contact your lenders for help and ask about hardship options as soon as possible—ideally before you miss a payment. Lenders may be able to temporarily lower your interest rate or payment amount, or pause your payments for a period of time. Lenders may also be able to place your loans in deferment or forbearance, which would eliminate payments for a time; as a result, there would be no late payments to report to the credit bureaus. Under the CARES Act, when a consumer contacts their creditor before falling behind in payments, and reaches an agreement with the creditor to a modified payment plan (reduced payments or forbearance), then the creditor may not report late or missed payments to the credit reporting company as long as the consumer follows the agreement. That protection for the consumer lasts until the later of July 26, 2020 OR 120 days after the COVID-19 national emergency declaration ends.
  3. Check your credit regularly and make sure the information is accurate. You can identify any potentially fraudulent activity and respond to it before it damages your credit.
  4. Dispute inaccurate information immediately. Remember that disputes need to be made with each credit bureau where the disputed information appears.
  5. Contact your service providers. If you do not think you can pay your utility, cell phone, cable or other monthly bills, reach out to your providers to see if they offer flexible payment options during this time.
  6. Be extra vigilant about protecting your identity. If you fear identity theft may occur or has occurred in your name, you can also place a free security freeze on your credit file so lenders cannot gain access to it. This prevents people from applying for credit in your name. You can lift the freeze at any time, for free.
  7. Seek financial management help. The Iowa Concern Hotline (800.447.1985) can put you in touch with a financial consultant who will provide confidential information and discussion, free of charge.
  8. For those with investment or retirement accounts, U.S. market fluctuations could cause significant concern. Before you make any rushed decisions with your investments, consult a reputable investment professional who can look at the details of your situation and provide personalized financial guidance on what actions, if any, you should consider at this time. Not sure where to start? The professionals at the firm holding your investments or with your employer’s retirement plan can be a first contact for analysis of your situation.
  9. Make a budget and plan ahead. If you think current conditions may affect your income or finances, consider tightening your budget to help make sure you have enough funds to cover your expenses.

For more information about free help and guidance during these difficult times, check out

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts

How student loan borrowers can benefit from COVID-19 relief

The CARES Act suspends payments on federal student loans. Consumers hit hard by the effects of the COVID-19 pandemic can find some help, thanks to new legislation passed by Congress. Those who can benefit include some student loan borrowers.

The federal CARES (Coronavirus Aid, Relief, and Economic Security) Act suspends payments on federal student loans until Sept. 30. The Iowa Attorney General’s Office and Iowa College Aid are spreading the word about benefits for borrowers. “The economic pain caused by this pandemic is devastating for many,” Attorney General Tom Miller said. “I want to ensure borrowers and employers are aware of these benefits.” Miller also urges private lenders and creditors not part of the CARES Act to provide a reprieve for distressed borrowers.   “We’re all in this together,” Miller said. “Let’s reach out, be compassionate and treat each other right.”

If you are paying off student loans, here’s what you need to know: Not all loans qualify. The suspension mandated in the CARES Act is only for loans held by the U.S. Department of Education. It does not cover FFELP (Federal Family Education Loan Program) loans or Perkins loans held by private lenders, nor does it cover private loans. However, some private lenders might provide these benefits on a voluntary basis. If you’re not sure whether you qualify, contact your loan servicer. If you don’t know who your loan servicer is, you can look it up at Federal Student Aid,

If your loan does qualify, you don’t need to do anything. Your payments will automatically stop from March 13 through Sept. 30. Interest is suspended, too. No interest will accrue on your loan until Sept. 30, so your outstanding loan balance won’t grow while your payments are suspended. So is collection on defaulted loans.

If you’re in default, your wages will not be garnished until Sept. 30. You can still pay if you want to. If you choose to continue paying off your loans during the suspension, your monthly payments will be the same as before the suspension. You won’t lose eligibility for loan forgiveness.

If you’re in a public service loan forgiveness program or an income-driven plan that requires a certain number of consecutive payments, this period of suspension will not count as an interruption. You will still be responsible for your loan. After Sept. 30, you will be responsible for paying on your loan once again. The amount will not be reduced. If you’re an employer, you can contribute up to $5,250 toward each worker’s student debt through Dec. 31 on a tax-free basis.

Keep in mind that guidance on student loan suspension is subject to change. You can find recent news and current updates at Federal Student Aid,

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts

Managing Personal Finances in Tough Times

Audio Blog

Concerned about your finances during these uncertain times, but not sure where to start? ISU Extension and Outreach invites you to get in touch with one of our Human Sciences financial educators. They can help walk through ideas and options to revise a budget, prioritize bills, pay down debt, connect with community resources to stretch reduced incomes, and other personal finance topics—totally free of charge.

Our 11 financial educators are listed below with the counties they serve and are available to talk with anyone in Iowa. Because Extension and Outreach staff are currently working from home, please send an email. They will get back to you during regular business hours within 48 hours. You also can leave a phone message at Extension and Outreach’s toll-free Iowa Concern Hotline (800-447-1985) to have someone get back to you.

Contact an ISU Extension and Outreach Financial Educator

Central Iowa – Kalyn Cody  [Dallas, Madison, Polk, Warren]

North Central Iowa – Barb Wollan  [Boone, Hamilton, Hardin, Humboldt, Marshall, Story, Webster, Wright]

Northern Iowa – Brenda Schmitt  [Cerro Gordo, Emmet, Floyd, Franklin, Hancock, Kossuth, Mitchell, Palo Alto, Winnebago, Worth]

Northwest Iowa – Jan Monahan   [Clay, Dickinson, Lyon, Monona, O’Brien, Osceola, Plymouth, Sioux, Woodbury]

West Central Iowa – Carol Ehlers  [Audubon, Buena Vista, Calhoun, Carroll, Cherokee, Crawford, Greene, Guthrie, Ida, Pocahontas, Sac, Shelby]

Southwest Iowa – Sandra McKinnon  [Adams, Adair, Cass, Clarke, Decatur, Fremont, Harrison, Mills, Montgomery, Page, Pottawattamie, Ringgold, Taylor, Union]

Southern Iowa – Joyce Lash  [Appanoose, Davis, Jasper, Jefferson, Lucas, Mahaska, Marion, Monroe, Poweshiek, Van Buren, Wapello, Wayne]

Southeast Iowa – Mary Weinand  [Des Moines, Henry, Iowa, Johnson, Keokuk, Lee, Louisa, Washington]

East Central Iowa – Phyllis Zalenski  [Benton, Delaware, Dubuque, Jackson, Jones, Linn]

Eastern Iowa – Casey Codner  [Cedar, Clinton, Muscatine, Scott]

Northeast Iowa – Jeannette Mukayisire  [Allamakee, Black Hawk, Bremer, Buchanan, Butler, Chickasaw, Clayton, Fayette, Grundy, Howard, Tama, Winneshiek]

The information provided is educational in nature to help you make your own informed decisions and is not intended to substitute for professional advice or serve as an endorsement of any financial product or service.  Consult with licensed professionals prior to implementing any of the information provided to determine the course of action is best for you.

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts


Subscribe to “MoneyTip$”

Enter your email address:

Delivered by FeedBurner