U.S. college students shell out more than $795 million a year on bank and credit card fees, according to a new report. That’s money that could be better spent on tuition and books.
About 85 percent of undergrads have a checking account, yet that doesn’t mean they are banking wisely. The average college student overdrafts more than twice a year, according to personal finance site NerdWallet, and coughs up $35 in fees each time.
With more than 11 million full-time undergrads as of 2016, that’s potentially more than $722 million wasted annually in overdraft fees alone.
In addition, about one-third of college students have also paid a credit card bill late. With late-payment fees on student cards similarly averaging $35 a pop, that’s another $73 million out the window, the report said.
And in most cases, these fees are entirely avoidable — even for students who haven’t taken Accounting 101.
For starters, no one should spend more than what’s in his or her bank account. Signing up for low-balance text alerts helps account holders avoid overdraft fees. Or, if bank customers opt out of overdraft coverage, their cards will likely be rejected if they try to make a purchase or ATM withdrawal and don’t have enough cash in their accounts to cover it. (However, in that case they could be hit with a nonsufficient funds fee, so customers should be sure to check their bank’s terms when opening an account.)
Alternatively, pennywise students can choose a bank that caps fees or doesn’t charge them at all. Liz Weston, NerdWallet columnist and author of “Your Credit Score,” recommends looking into an online-only bank, which can be less expensive and more forgiving than the brick-and-mortar branch on campus.
As for credit cards, Weston advises students to aim to keep charges to a minimum, even though it’s a slippery slope.
“Credit cards can be super convenient but you get one for emergencies, and then emergencies tend to be pizza on a Friday night,” she said.
“Credit cards can be super convenient but you get one for emergencies and then emergencies tend to be pizza on a Friday night.”
For those students with their very first card, charging more than can be paid off every month is considered one of the most expensive ways to borrow — the average interest rate on student cards is 18.64 percent, according to NerdWallet.
Also, what you spend compared to your total credit available, known as your credit utilization ratio, counts for a big chunk of your credit score. So paying off charges quickly and keeping a balance low can help students save on interest and boost their scores.
Alex Matjanec, co-founder of bank comparison site MyBankTracker, recommends students limit their card use to day-to-day transactions or two to three set expenses a month and set up auto payment through a checking account to protect themselves from missed payments and late fees.
He also suggests that students look beyond their campus bank’s offerings and research and compare the best credit card options online.