The 7 Biggest Money Mistakes Every College Student Should Avoid

Ah, the college years. They’re a magical time of freedom, self-exploration and screwing up. While it’s OK to make mistakes (we won’t judge), there are some you should try to avoid, especially when it comes to money.

So whether you’re heading to college for the first time or returning for grad school, watch out for these mistakes that could cost you big time.

Mistake 1: Choosing a school for the wrong reasons.

Before you fall too deeply in love with a particular school’s football team or Greek life, take a step back and make sure you know your college budget. One of the biggest mistakes students make is shopping for colleges before fully understanding their ability to pay.

“By shopping for schools first, the decision is made emotionally, rather than rationally,” said Dejan Ilijevski, president of investment advisory firm Sabela Capital Markets. “Subsequently, when choosing a school regardless of finances, it’s much easier to take the next step and fill the cost gaps with student loans.”

According to Ilijevski, shopping for a school should be the last step after fully understanding all financial resources available for college, such as savings accounts, 529 plans, each parent’s cash flow and savings, etc.

Next, determine how much in student loans makes sense to fill in any gaps. “A general rule of thumb is to take out no more than the expected yearly salary of the college major,” said Ilijevski. This way, you can choose a college that’s rewarding personally and won’t tie you up in too much debt.

Mistake 2: Not treating scholarship-hunting like a full-time job.

There are billions of dollars in federal financial aid out there, much of which is awarded on a first-come, first-served basis. But according to Sean C. Gillespie, a financial planner at Redeployment Wealth Strategies, a significant amount goes unawarded each year because there aren’t any qualified applicants. In fact, high school grads left as much as $3.6 billion on the table in 2022.

Filling out the Free Application for Federal Student Aid, or FAFSA, is a good place to start since it’s required to access federal aid options. You can start filing on Oct. 1 for the 2023-24 school year using last year’s tax information.

However, there are thousands more private scholarship and grant opportunities, and you should spend as much time as possible hunting them down. “If you think there’s even a remote chance you’d qualify for one scholarship or another ― apply,” said Gillespie.

Don’t think it’s worth your time? One teen, who eventually founded scholarship search engine Scholly, was able to win an astounding $1.3 million in scholarships by spending all his free time searching and applying for them.

Mistake 3: Borrowing more than you need.

Just because you are offered a certain amount in student loans doesn’t mean you need to accept it. It might be tempting to take on a few extra thousand when it’s offered, but spending student loan money on nonessentials can have a major long-term impact.

For instance, consider that the average Class of 2017 grad who took out student loans graduated with $39,400 in debt. Let’s say you graduated with that amount too, and stuck with the standard repayment plan at an interest rate of 5.05 percent. You’d have to shell out $419 per month over the next 10 years. Plus, you’d spend an extra $10,816 in interest over the life of the loan.

“Borrow enough to cover your tuition and fees,” said Bob Collins, head of financial aid for online college Western Governors University. “If you need money for living expenses, be frugal and borrow wisely. Borrowing more than you need is never a good idea.”

Mistake 4: Taking more than four years to graduate.

When we talk about earning a bachelor’s degree, it’s implied that it takes four years. But if you switch majors or take on a particularly tough course load, it can be tempting to stretch your undergraduate career out over five or even six years instead.

In fact, just 62.3 percent of full-time students at four-year institutions graduate within six years, according to the National Student Clearinghouse Research Center. The downside is that those who take longer often end up deeper in debt, draining their parents’ savings or even dropping out.

It’s important to consider both the extra cost of those additional semesters and the opportunity cost of not working in your desired profession during that time, according to Charlie Bolognino, a certified financial planner and owner of Side-by-Side Financial Planning.

“That one-two punch of financial impact may surprise you,” Bolognino said. “Do all you can to graduate on time ― or even early. If it helps, set up an incentive for yourself for finishing college in four years, such as a celebratory vacation after graduation.”

Mistake 5: Picking or sticking with the wrong degree.

Whether due to external pressure or simply rushing into a decision, “picking or continuing with a degree that is wrong for you can be one of the biggest money mistakes college students can make,” said Jennifer McDermott, consumer advocate for consumer savings site Finder.com.

In fact, a study conducted by Finder revealed that nearly 2 in 5 Americans don’t think their college degree was worth the money. That’s an estimated 60.96 million people, many of whom are likely saddled with debt for something they’re not even using in their profession.

“Before entering college or grad school, ensure you evaluate all options and talk to career counselors,” McDermott said. “If you realize mid-study that you’ve made the wrong choice, remember it’s not too late to make a change.”

Mistake 6: Messing up your credit.

Your reputation is a lot easier to maintain than it is to repair, and that holds true in the financial world as well. College is a perfect time to build good credit, but there are lots of opportunities for things to go wrong, too.

“It is very easy for a student ― who has low income now but expects high income in the near future ― to wind up in credit card trouble,” said David W. Shotwell, a certified financial planner with Shotwell Rutter Baer. “That can have a ripple effect throughout their financial lives once they graduate.”

But going into debt isn’t the only way to screw up your credit; you might accidentally harm your credit score by not using credit at all. The key is to find the right balance of using it sparingly and responsibly. If you do, you’ll be well ahead of your peers when you graduate.

Mistake 7: Letting your spending get out of control.

For many students, “budget” is a four-letter word. Now that you’re finally living on your own, away from your parents’ control and exploring your newfound freedom, the last thing you want is to place restrictions on yourself.

But budgeting doesn’t have to suck. It’s really about knowing where your money is going ― and making sure it’s going where you need it.

Shotwell said it’s a good idea to get used to following a budget when your income is relatively low and finances are tight. “This discipline will help keep you out of financial trouble during school, but should also then carry over to your professional, post-graduate life when those first big paychecks will make you feel temporarily rich,” he said.

There are dozens of tools available to make tracking your spending easier, such as You Need A Budget, TillerHQ, Mint or even old-fashioned pencil and paper. “The method isn’t as important as the practice,” said Shotwell.