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The Tom Joyner Show
Money Mondays

June 12, 2017

Bank Fees Hitting College Students Hard
Mellody Hobson on the Tom Joyner Morning Show - Money Mondays
Managing finances can be a hard lesson for college students to learn, but Mellody points out that overdraft and late fees are avoidable with some thought and planning.
A new study is out that will give parents of college students another thing to think about. What does it tell us, Mellody?

If parents of college students, or college-bound students, did not have enough to think about financially – be it paying tuition or dealing with student loans– a new study from NerdWallet found that college students waste nearly $800 million dollars per year on bank and credit card fees alone, Tom.

Nearly $800 million a year on fees? How does that happen?

That’s right, Tom. The NerdWallet study found that America’s 11 million full time college students get hit with more than $795 million in fees each year. And the problem is very avoidable, because they are mostly overdraft fees. Around 85 percent of American undergrads have a checking account, and on average each one of them overdrafts more than twice a year, costing them $35 every time they do, and totaling to over $722 million. On top of that, around 1 in 3 college students have paid a credit card bill late, spurring more charges that also average around $35, adding up to about $73 million. Together, checking account and credit cards are costing the average student up to $1,016 in fees and interest over four years of college.

That is just amazing. Are there ripple effects from these costs?

While not a direct result of the fees, one thing that this study points to is that bad habits developed in college can linger far beyond your time on campus. For the 1 in 3 students who have made a late payment on credit cards, those missed payments will affect your credit, and stay on your credit report for a long time. And on top of that, credit cards are charging interest on the balance, which can be high for first-time card holders.

What can parents and students do to avoid these fees?

The first thing that everyone should do – student or adult alike – is to create a budget. If you know how much money you are working with, and you make a plan to allocate your money appropriately, whether it be each month or each week, you will be starting off on the right foot.

When it comes to overdraft fees, the obvious solution is to not overdraft your account. You can avoid this by getting low-balance text alerts or emails to give you a warning that you are running low on funds. You can also decide you do not want overdraft protection. Overdraft coverage is simply a credit line provided by the bank to pay for items when your account does not have sufficient funds. The bank then charges you an overdraft fee. Because federal rule requires this service to be opt-in, not opt-out, you can decline coverage. In this case, your card will be declined when you try to buy something or make an ATM withdrawal without enough money. But be careful. Some banks will hit you with an insufficient funds charge in this situation, so you want to make sure you inquire about that.

Do all banks have overdraft fees and charges?

Great question! No, not all banks have these charges. Some simply do not have them, and others cap charges at a certain amount. If you are comfortable with not having a bank brand, NerdWallet suggests parent and students explore the options of online banks, which can be less expensive and more forgiving than banks with a physical presence.

What about credit cards. What is the best way to approach this for college students?

The best way for parents to handle it is not to give a college student a credit card, especially if they have not had one before college. And students should not sign up for them in college. NerdWallet cites an Experian study that found soon-to-be graduates had an average of $2,573 in credit card debt. However, if the goal is to build a credit score and have a card in the event of emergencies, the best way to go about it is to either use the card for certain monthly expenses, like a phone bill, and pay it every month, or to use a secured card that is backed by a cash deposit. Both options allow for you to build a credit history. But whatever you do, do not run up your credit card balance and make minimum payments or late payments. That is a recipe both for high late fees, and low credit scores.

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