March 30, 2007

Georgetown teaches financial basics

Posted in Private Loans, Saving for College, Stafford Loans, The Financial Aid Process at 12:08 PM by Joe From Boston

Here’s a great article for for young people still in school – parents will probably want to share this with them. You can read the entire Washington Post article online here.
Money’s On the Line During These Classes – Colleges Teach Financial Basics
By Susan Kinzie

Heather O’Brien graduates from Georgetown University this spring with an education in biology, in English, in history. She leaves with a newfound conviction that she should work in the ministry. And with about $63,000 in debt.

“When I got here,” she said, “finances were the last thing on my mind. I was on my own for the first time, in a new place. It was very exciting — and it seemed like college would last forever.”

Now, she’s taking one last set of classes. It’s a sort of Real World 101, a crash course in money: Georgetown is offering a series of financial literacy workshops for seniors, covering such topics as loan repayment and consolidation, spending, credit cards, taxes and benefits.

The professors and other financial experts leading the classes all say the same thing: If only I’d known this when I was your age.

“These are lessons best learned young,” said adjunct business professor Michael Ryan, “when there’s not a lot on the line.”

Now some schools are adding courses on financial basics. Beginning this academic year in Virginia, for example, public universities are required to offer some financial literacy training, said Barry Simmons, Virginia Tech’s director of scholarships and financial aid. The school designed an optional online class, covering budgeting, credit cards and other basics for freshmen. The University of Virginia has a pilot program, too.

Financial companies offer occasional courses on campus, and some have pitched in on the Georgetown classes. The added focus comes as scrutiny on universities’ relationships with lenders increases and as Congress moves to ease the burden on students

“We get the sense that students don’t really understand how money works,” said Greg Pasqua, a senior at Georgetown who heads the student-run credit union and helped organize the seminars. “People do things that aren’t very intelligent with their money. Overdraw accounts six times on $2 purchases, and get hit with six fees for buying bubble gum. Or get reported to Equifax because you didn’t pay your loan on time, and you’re like, ‘I’ll get it next time.’ ”

Ryan said, “It’s amazing what some students don’t know — that 30 to 40 percent of their proceeds will be taxed away . . . Even basic things like 401(k)s,” or whether they should put money into the pretax retirement savings accounts.

At two recent workshops at Georgetown, students interrupted to ask, “What is a 401(k), anyway?”

So professors and other experts sorted through the unfamiliar names and the jargon, explained the types of benefit choices they’ll be expected to make, how to figure out what their monthly loan payments and take-home pay will be, how to invest in their 20s.

It’s not difficult stuff. It’s just — who has time to think about credit scores and interest rates when there’s so much else going on?

Until a car loan or a lease is turned down because of a bad credit score, or late fees pile up.

When O’Brien was a high school senior in Texas, she was offered a full scholarship to another school. But she loved Georgetown; when she visited, someone told her that everyone there has been given many gifts and that they should think about how to give back.

So she didn’t pay too much attention to the details of the loans she was taking out. “When I was a freshman, I was like, ‘Loans, great! I don’t have to pay them back ’til I stop going to school — cool.’ ”

…”It wasn’t until senior year, when I had to pay my own rent and pay utilities, that I really understood what $60,000 was,” she said, referring to her tuition debt.

This year, too, she started setting rules for herself. “I eat lunch on campus once a week and pack my lunch the other days.” And she limits her online purchases to $20 a month. She opened a separate account for her rent money so she’s not tempted to dip into it.

The classes have already changed her mind-set, she said. She learned about interest rates and credit scores. “I have had a couple of late payments that dinged me. I just thought, ‘Oh, one day late, not a big deal.’ ” But in the class she learned that could cost major benefits. “If you go three years [paying] on time, you could have a 3 percent decrease in the interest rate — which is amazing.”