F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N
SPECIAL EDITION
For Young Adults and Teens:
Quick Tips for Managing Your Money
Simple Strategies and Practical Guidance for
Borrowing, Saving, Banking and Avoiding Scams
Also Inside
How to Help Prepare Children
for Financial Independence
Fall 2012
SPECIAL EDITION
For Young Adults and Teens:
Quick Tips for Managing Your Money
Simple Strategies and Practical Guidance for
Borrowing, Saving, Banking and Avoiding Scams
Also Inside
How to Help Prepare Children
for Financial Independence
Fall 2012
2 Fall 2012FDIC Consumer News
A SPECIAL GUIDE FOR YOUNG ADULTS
College or graduate degrees can
provide career options and higher
income, but they also can be expensive.
If you need to borrow for school,
carefully consider your options, keep
the loan amount as low as possible, and
have a clear repayment plan. Here are
strategies to keep in mind.
Obtaining a Student Loan
• First look into your eligibility
for grants and scholarships. Many
students qualify for some aid, so start
by filling out the Free Application for
Federal Student Aid (FAFSA) on the
U.S. Department of Education’s Web
site at www.studentaid.gov. You can
learn more about the FAFSA and grant
opportunities at that same site.
• Know how much you need to
borrow and that you can make the
monthly payments. Your anticipated
costs (tuition, textbooks, housing, food,
transportation) minus your education
savings, family contributions, income
from work-study or a job, scholarships
and/or grants will help determine how
much you may need to borrow. Again,
your goal should be to limit the amount
you borrow, even if you are approved
for a larger loan, because the more you
borrow, the more money you will owe.
Also consider the minimum you will
owe each month to pay off your loans,
including interest, after you graduate
and how it compares to your projected
earnings. To help you project your
future salary in the lines of work
you’re considering, look at the U.S.
Department of Labor’s statistics on
wages in more than 800 occupations
(www.bls.gov/oes). Your monthly
repayment amount also will generally
depend on your interest rate and the
term of your loan, which can vary from
10 years to more than 20 years.
“Even though most student loans won’t
require you to begin monthly payments
until after you graduate — generally six
to nine months later — a student loan
is a serious commitment,” said Matt
Homer, an FDIC Policy Analyst. He
noted, for example, that many adults
who borrowed more than they could
afford to repay have faced serious debt
problems for many years following
their graduation. Unlike some other
loans, federal and private student
loans generally cannot be discharged
through bankruptcy. Borrowers who
fail to pay their student loans could be
referred to debt collection agencies,
experience a drop in their credit score
(which will make credit more expensive
and perhaps make it harder to find a
job), and have a portion of their wages
withheld.
If you need help deciding how much
to borrow, consider speaking with a
specialist at your school (perhaps a
school counselor at your high school
or an admissions or financial aid officer
at your college). A college budget
calculator also can be helpful, and you
can use one from the Department of
Education by going to http://go.usa.
gov/YhFC and clicking on “Manage
Your Spending.”
• Consider federal loans first if you
need to borrow. Experts say that, in
general, federal loans are better than
private student loans, and that you
should only consider private loans if
you’ve reached your borrowing limit
with federal loans. Why? The interest
rates on federal loans are fixed, meaning
they won’t change over time. But the
interest rates on private loans, which
are often significantly higher, could
be either fixed or variable (they can
fluctuate). Federal student loans also
offer more flexible repayment plans
(see the next column) and options to
postpone your loan payments if you are
having financial problems.
When You Are in School
• Set up direct deposit for your
student aid money. Although some
schools or financial institutions may
encourage you to select a certain debit
card or prepaid card for receiving part
of your student loan or other aid (the
part left after your school has subtracted
tuition and fees), carefully weigh all
of your options. School-preferred
products may come with high fees
and inconvenient ATM locations.
Remember that you can always deposit
federal loan proceeds anywhere you
choose.
• Keep track of the total amount
you have borrowed and consider
reducing it, if possible. For example,
if your loan accrues interest while you
are in school, you may be able to make
interest payments while still in school,
and this can reduce the amount owed
later on. You could also repay some of
the principal (the amount borrowed)
before the repayment period officially
begins.
Paying Off Your Loan
• Select your repayment plan.
Federal loans offer a variety of
repayment options and you can
generally change to a different
repayment plan at any time. For
example, one type of loan starts off with
low payment amounts that increase
over time. Another is the “Pay as You
Earn” program that the Department
of Education will soon make available,
in which your monthly payment
amount will be 10 percent of your
“discretionary” income (defined by the
Department’s regulations but generally
what you have left over after paying
key expenses). In addition, it may be
possible to have any remaining balance
forgiven after 20 years of payments. In
contrast, private loans generally require
fixed monthly payments over a period
of time.
With federal loans you also may qualify
for special loan forgiveness benefits if
you pursue certain careers in public
service. Remember, though, that the
longer you take to repay any loan, the
more you pay in interest (although in
some cases you may receive a tax benefit
for the interest you pay).
• Make your loan payments on time.
“Student loans are typically reported
to credit bureaus, so paying on time
can help build a good credit history,
Borrowing Money
If You Need to Borrow for Higher Education
Do your homework and have a repayment plan
A SPECIAL GUIDE FOR YOUNG ADULTS
College or graduate degrees can
provide career options and higher
income, but they also can be expensive.
If you need to borrow for school,
carefully consider your options, keep
the loan amount as low as possible, and
have a clear repayment plan. Here are
strategies to keep in mind.
Obtaining a Student Loan
• First look into your eligibility
for grants and scholarships. Many
students qualify for some aid, so start
by filling out the Free Application for
Federal Student Aid (FAFSA) on the
U.S. Department of Education’s Web
site at www.studentaid.gov. You can
learn more about the FAFSA and grant
opportunities at that same site.
• Know how much you need to
borrow and that you can make the
monthly payments. Your anticipated
costs (tuition, textbooks, housing, food,
transportation) minus your education
savings, family contributions, income
from work-study or a job, scholarships
and/or grants will help determine how
much you may need to borrow. Again,
your goal should be to limit the amount
you borrow, even if you are approved
for a larger loan, because the more you
borrow, the more money you will owe.
Also consider the minimum you will
owe each month to pay off your loans,
including interest, after you graduate
and how it compares to your projected
earnings. To help you project your
future salary in the lines of work
you’re considering, look at the U.S.
Department of Labor’s statistics on
wages in more than 800 occupations
(www.bls.gov/oes). Your monthly
repayment amount also will generally
depend on your interest rate and the
term of your loan, which can vary from
10 years to more than 20 years.
“Even though most student loans won’t
require you to begin monthly payments
until after you graduate — generally six
to nine months later — a student loan
is a serious commitment,” said Matt
Homer, an FDIC Policy Analyst. He
noted, for example, that many adults
who borrowed more than they could
afford to repay have faced serious debt
problems for many years following
their graduation. Unlike some other
loans, federal and private student
loans generally cannot be discharged
through bankruptcy. Borrowers who
fail to pay their student loans could be
referred to debt collection agencies,
experience a drop in their credit score
(which will make credit more expensive
and perhaps make it harder to find a
job), and have a portion of their wages
withheld.
If you need help deciding how much
to borrow, consider speaking with a
specialist at your school (perhaps a
school counselor at your high school
or an admissions or financial aid officer
at your college). A college budget
calculator also can be helpful, and you
can use one from the Department of
Education by going to http://go.usa.
gov/YhFC and clicking on “Manage
Your Spending.”
• Consider federal loans first if you
need to borrow. Experts say that, in
general, federal loans are better than
private student loans, and that you
should only consider private loans if
you’ve reached your borrowing limit
with federal loans. Why? The interest
rates on federal loans are fixed, meaning
they won’t change over time. But the
interest rates on private loans, which
are often significantly higher, could
be either fixed or variable (they can
fluctuate). Federal student loans also
offer more flexible repayment plans
(see the next column) and options to
postpone your loan payments if you are
having financial problems.
When You Are in School
• Set up direct deposit for your
student aid money. Although some
schools or financial institutions may
encourage you to select a certain debit
card or prepaid card for receiving part
of your student loan or other aid (the
part left after your school has subtracted
tuition and fees), carefully weigh all
of your options. School-preferred
products may come with high fees
and inconvenient ATM locations.
Remember that you can always deposit
federal loan proceeds anywhere you
choose.
• Keep track of the total amount
you have borrowed and consider
reducing it, if possible. For example,
if your loan accrues interest while you
are in school, you may be able to make
interest payments while still in school,
and this can reduce the amount owed
later on. You could also repay some of
the principal (the amount borrowed)
before the repayment period officially
begins.
Paying Off Your Loan
• Select your repayment plan.
Federal loans offer a variety of
repayment options and you can
generally change to a different
repayment plan at any time. For
example, one type of loan starts off with
low payment amounts that increase
over time. Another is the “Pay as You
Earn” program that the Department
of Education will soon make available,
in which your monthly payment
amount will be 10 percent of your
“discretionary” income (defined by the
Department’s regulations but generally
what you have left over after paying
key expenses). In addition, it may be
possible to have any remaining balance
forgiven after 20 years of payments. In
contrast, private loans generally require
fixed monthly payments over a period
of time.
With federal loans you also may qualify
for special loan forgiveness benefits if
you pursue certain careers in public
service. Remember, though, that the
longer you take to repay any loan, the
more you pay in interest (although in
some cases you may receive a tax benefit
for the interest you pay).
• Make your loan payments on time.
“Student loans are typically reported
to credit bureaus, so paying on time
can help build a good credit history,
Borrowing Money
If You Need to Borrow for Higher Education
Do your homework and have a repayment plan