Common Student Financial Misconceptions

Avoid These Financial Misconceptions

Student loans, budgeting, and paying off debt can leave students, recent graduates, and their parents feeling lost. Can you appeal for more financial aid? Should you open a credit card? What repayment options can borrowers use?

Making smart financial decisions in college sets students up for success after graduation. In this guide, we explain some of the most common financial misconceptions to help students make informed choices about their spending, savings, and borrowing.


Why Are Misconceptions so Common?

Financial topics confuse many people, especially complex topics like investing and paying off debt. Most college students receive little financial education and do not know where to find straightforward, accurate financial advice.

Part of the problem comes from the financial system’s structure. Companies make money by offering services that people can do for themselves. Marketing tactics might make filing taxes seem complicated, requiring a service like TurboTax to avoid an audit. But many college students can use free services to file taxes or file on their own.

College students deal with complex financial issues like taking out student loans, often at a young age. Lenders, including the federal student loan program and private banks, may not offer the clearest information. General advice might not apply for students’ specific circumstances, and as a result, they fall for financial misconceptions.

What Are Some Common Financial Misconceptions?



College students should avoid credit cards, toss out their budget, and sign up for the campus meal plan. These and other common financial misconceptions can hurt a student’s financial health for years or even decades after graduation. In this section, we take on student misconceptions about finances.

You need good grades to get a scholarship
While some scholarships take academic merit into account, many award funds to students without a high GPA. In addition, most grants consider financial need alone. Rather than ruling out scholarships because of a low GPA, students should research their financial aid options and apply for scholarships and grants.
Scholarships are enough to cover the cost of college
In the 2018-19 academic year, undergraduates received an average of $13,700 per year in grant and scholarship money. However, the net price of college exceeded $18,000 per year, with an even higher price of nearly $27,000 for private schools. Scholarships likely will not cover the entire cost of college.
Your financial aid package is final
College financial aid offices inform students of their financial aid package, but this number is not final. In fact, students can appeal their financial aid package. First, students can resubmit their FAFSA if their income or information changes. Students can also request more or less financial aid directly through their school.
Students do not need a budget
Budgeting helps college students avoid debt and create good financial habits. Even students without much income should set a budget and stick to it. Setting aside money for college costs, living expenses, entertainment, and food makes it easier for college students to save money, take out fewer student loans, and enter the workforce with strong financial footing.
Credit cards are a bad decision
Most people open their first credit card around age 20. Establishing credit early helps college students meet their future financial goals, including qualifying for loans or a mortgage. Plan to pay off the balance in full each month to increase your credit score and avoid interest. College students can research credit card options to find the best fit for their circumstances.
You need a lot of money to invest
Investing early helps college students harness the power of compound interest. Even putting $100 in a retirement account can make a big difference after several decades of growth. For example, CNBC calculated that saving $100 per month starting at age 20 can lead to $160,000 by retirement age. Setting aside money for long-term priorities also creates good habits for life after graduation.
You need to make a lot to save money
College students might assume they lack the resources to save money. However, setting aside only $10 each week will mean adding over $500 to your savings at the end of the year. Students should prioritize creating an emergency fund to cover unexpected expenses, even if they do not make much income.
Campus meal plans are worth it
Campus meal plans offer convenience, but they come at a high price. Break down the cost of a meal plan, and students pay more than $10 per meal at some schools. However, the Bureau of Labor Statistics estimates a single person needs $11 per day in food. Crunch the numbers before signing up for the meal plan and consider more affordable alternatives.
You can save money by transferring to a cheaper college
More than one in three college students transfer schools at some point during their education. But a college transfer does not always mean lower bills, even when students choose a cheaper college. In addition to tuition rates, students considering a transfer should factor in fees, textbooks, living expenses, and the cost of moving or registering at a new school.
You can pay off student loans if you get a job
In 2020, the average student loan debt exceeded $37,000 per borrower. The average college graduate makes around $50,000 per year, so landing a job does not mean you can automatically afford to pay off your loans. Most borrowers pay around $400 per month on their student loan and it still takes 20 years to fully pay off their debt.
If you cannot pay off your student loans, you can use student loan forgiveness
Student loan forgiveness plans do not automatically eliminate loans. Instead, many plans forgive the remaining balance on the loan after the borrower makes 10 or more years of payments. Some loan forgiveness programs even require 20-25 years of payments. Federal loans offer temporary relief to help borrowers make payments.
If you cannot pay off your student loans, bankruptcy is a good idea
Filing bankruptcy will not automatically eliminate student loans, and it will negatively affect your credit score for years. Instead of bankruptcy, consider repayment options such as an income-based repayment plan. Federal loans also offer deferment and forbearance options to temporarily halt student loan payments.
Consolidating your student loans will get you a better interest rate
Student loan consolidation combines multiple loans into one loan with a single monthly payment. Consolidating your loans can lock in a lower interest rate but that depends on timing. If interest rates decreased between the time you took out the loan and when you consolidated, you can get a better interest rate. However, if interest rates increase you could end up with a higher interest rate.
Teacher Loan Forgiveness and Public Service Loan Forgiveness is guaranteed for any qualifying individual
Federal loan forgiveness programs do not offer a loan elimination guarantee, even for people who qualify. After joining the public service loan forgiveness program, for example, borrowers must make 120 qualifying loan payments. A missed payment or paying less than the full amount will not count toward loan forgiveness.
You cannot afford graduate school
Graduate tuition can easily cost tens of thousands of dollars each year. However, graduate students qualify for financial aid to make their graduate degree more affordable. Many colleges also offer graduate assistantships or fellowships that come with a tuition waiver and stipend. Before ruling out graduate school, research financial aid and institutional support.

Question to Ask to Avoid Common Financial Misconceptions


  • Can I appeal my financial aid package?

    Yes. Students can appeal their financial aid package by resubmitting their FAFSA to update their income or appealing with their college financial aid office.


  • Are campus meal plans worth it?

    Students typically spend $4,500 for an eight-month campus meal plan. However, single people typically spend less than $4,000 per year on food. So, campus meal plans cost more for convenience.


  • Should I consolidate my student loans?

    Consolidating student loans means one monthly payment instead of multiple payments. Borrowers may also qualify for a lower interest rate by consolidating their loans.


  • Do I need a credit card in college?

    Opening a credit card in college helps students establish their credit history and build a strong credit score. However, credit card holders should plan to pay their balance in full every month to avoid interest charges or fees.


Portrait of Genevieve Carlton

Genevieve Carlton

Genevieve Carlton holds a Ph.D. in history from Northwestern University and earned tenure as a history professor at the University of Louisville. An award-winning historian and writer, Genevieve has published multiple scholarly articles and a book with the University of Chicago Press. She currently works as a freelance writer and consultant.

See more articles by Genevieve

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