My sister and brother both attend college and this week they received their tuition refunds. Since my mother has told us numerous times that paying for college is our responsibility, we’ve tried to get as many grants and scholarships possible.
While I attended college on a mix of financial aid grants and scholarships, so far my siblings have been able to pay without resorting to loans (learning from my mistakes has some benefits).
Whenever I received money while attending school, I was in the habit of saving some of it and spending the rest frivolously. Looking back, I wish I had been more prudent with my money. It would’ve put me in a much better situation and I could’ve taken significantly less loans out.
That being the case, I wanted to share some better ways to use your tuition refund, or any other windfall.
Start or build up your emergency fund
If you haven’t done so already, establishing an emergency fund can be a smart move. Just because you’re in college doesn’t mean you won’t have emergencies. Keep your money in a high yield savings account to help it gain interest while you attend school.
Many college students have low necessary expenses, so even a small tuition refund can be a big help. Each semester, you can grow the fund with your refunds. An added bonus is that, when you graduate, you’ll have a bit of cushion to help you transition to the “real world.”
Pay off your credit card debt
I listed this second because I think an emergency fund is vital. If you’re like me, however, you probably have a couple of credit cards with balances on them. Instead of waiting, use the refund to pay down your debt. I’m all for using the debt snowball method, as knocking out those low balance debts can be a huge boost.
Unless you have a regular source of income and can handle them responsibly, you should then hide your credit cards. If you’re looking to build your credit history, consider setting up a small recurring payment ($40 or less) and pay it off every month.
Invest your money in an IRA
If you’ve saved some money and have no debts, you’re in a very good position. You should consider putting some of your tuition refund away in a Roth IRA. The benefit of a Roth IRA is that, while you pay taxes on the money before you put it in, you can withdraw funds without taxes or penalties once you’ve reached age 59-1/2 and held the funds in the Roth for at least five years.
I don’t think many college student get this much back, but I should mention that the annual contribution limit is $5, 000 ($6, 000 if you’re 50 or older). Since you’ll be starting young, you’ll also gain the advantage of compound interest. Let that compound interest to work in your favor by investing for your long-term future.
Set aside some money for fun
You’ve worked hard, so it’s not a bad idea to splurge a bit. Remember, though, to set a limit and keep it. For example, put aside some money in a savings account for a summer trip. That way you can have a wonderful experience to remember without worrying about debt. It’s really up to you as to what you consider fun.
Any other thoughts?
My view is that you should do whatever you can to establish good habits as early as possible. After you graduate, you’ll be thrilled that you started off on the right foot. If you’re still in college, you should apply for as many scholarships and grants that you can. Sure, it takes some work, but it’s well worth the effort.
For those of you that are out of college, if you could go back, what (if anything) would you change?
All great ideas but I would also add that if applicable get a car or other transportation so that one can work at a part time job/internship during school. While of course a car is a depreciating asset if one is in school and doesn’t have any form of transportation at all and is thus unable to get a job off campus making any kind of substantial money then putting that money towards a car might be a pretty good idea.
@Rosa: That is a good point. Books can be such a hassle, especially if you buy on campus (which is sometimes unavoidable).
@En: Great job on your plan! Graduating without a car payment will give you more breathing room.
Thru 2 years of grad school I pretty much wasted mine. These last two semesters I have done exactly those three things u state in addition to filling my heating oil tank and ordering a half side of beef. The checks to vanguard will be mailed tomorrow for the Roth. And there is still enough left to take a three day vacation with friends. Next semester the car will be paid off bc the interest rate on the loan is about 2% less than the car and I’m paying off my private loans next year so the federal ones can fall neatly under the new repay plan.
I assume your brother and sister are doing this, but as a college staff person we tell our students to keep that money so they can buy books the next semester before all the aid comes in.
When I got a grant in college, I used the “refund” to buy groceries, since my job income was exactly equal to my monthly rent – it sounds like all three of you are doing great!
Good points on putting the money away for savings, not just for emergencies.
@BG: Good question. After your scholarships and grants have paid your tuition, any leftover is sent as a check to you as a tuition refund. That’s how we referred to it in college.
@craig: I mentioned spending the money on something you enjoy, because like you pointed out, life experiences can be a great education. I just know that sometimes people instead use this money for gadgets that bring no real value to their lives.
@Jim: Any monies you have left over after you’ve paid room and board, tuition and fees, books, etc. is given back to you.
So, if your loans, grants, and scholarships total more than what the cost of the semester/year is, you get something back. Yes, it is possible to get more grant and scholarship money than the cost per year. It is definitely possible to get loans in excess of the school cost…
Which takes me back up to my previous comment. Pull extra money, the government pays the interest while you’re in school. After you graduate, pay the money back, and keep the interest.
This doesn’t directly address the question, but…
If the government is willing to give you money and pay the interest while you’re in college, why not take advantage?
If you are already pulling a loan for school, go ahead and pull the maximum amount allowed per year (assuming this is a subsidized loan). Take the extra amount you’ve pulled, put it into a CD, earn interest, and pay back the principal on the loan when you’re done with school. Make a little bit of free money a la the government loans.
Yes, get rid of that credit card debt and don’t replace it.
I also haven’t heard of a “tuition refund” and am curious what that is exactly. I’m assuming its some sort of grant but not clear on why it would be in the form of a refund. Is this specific to a certain state or college?
Sorry if I’m clueless, but what is a college windfall — what is a tuition refund?
When I went to college, I had to pay them, not vice-versa — has something changed?
This is easier said than done and although great advice not easy to put into practice. For example after I graduated I went on a backpacking trip. Sure you could say I could have done a smarter move and put in IRA or high yield account, but the life experience and trip was priceless. If you can put money aside great, but sometimes being young you have other things in mind.
One should note that if he/she doesn’t have taxable income, he’s really not “supposed” to contribute to the Roth.
How about creating a realistic budget that reflects their priorities and includes non-monthly expenses like car repairs, insurance and spring break. This money could be used to seed an accumulation account so that they have money for irregular expenses and don’t have to rely on credit.
Credit and debt are a function of poor planning, unconscious spending, and impulse purchases.
Nice post, thanks for the opportunity to think about what I would have done differently.
I have no idea if this is possible, but what about pre-paying tuition for the next semester…this way you can’t spend it, and it is being used for your eventual goal.
Thoughts?
I believe it was R. Kiosaki, but from a pragmatic stance: “Rich people buy assets, Poor people buy liabilities”.
SO – who cares, buy gold, stocks, houses, guns, jewels… just buy something at a decent price (60 to 70 cents on the dollar of fair market value). And enjoy!
a couple of obvious ones (to me) are set it aside for grad/professional school and save it for a possible non-paid internship. Many fields of work have no-pay or low-pay internships. If you set the money aside to assist with your living expenses you may be able to apply for a great internship that pays nothing that others can’t apply for cause they need money.
Same with grad school. Although its easy to get assistance and work your way through grad school you still give yourself more opportunities if you have money set aside for it.