The 13 Most Common Money Mistakes College Students Make & How to Avoid Them

Keystone Financial Group |

College is a great time to learn to balance financial obligations and set short and long-term financial goals. It is only natural to make mistakes when learning how to manage money for the first time, but the important thing is what college students are learning from their mistakes.

It is possible for college students to avoid the most common financial mistakes by creating good habits and avoiding bad money habits so they can achieve financial success in the future.

Students who are starting college or returning for grad school should look out for the below-mentioned money mistakes and take steps to avoid them.

1. Misusing student loans

This may be one of the most common money mistakes college students make. The average 25-34-year-old today has $32,707 in student loans.1

While many students do need to borrow for today's high cost of college, sometimes, students receive more loan funding than they actually need, and they take the funds and then use that money elsewhere. For example, U.S. News reported that many students used student loans to fulfill their "Wants." They reported, "Some undergrads use excess financial aid money to purchase cars and finance expensive trips."

Students should not waste loan money on non-educational items. A student loan is not an asset; it's a liability. Students have to pay interest on every dollar they receive as a student loan. On top of that, interest rates may change over time. So, students should take out as little money as is required for tuition, dorm fees, and textbooks.

2. Ignoring student loan repayment terms

College students must take care to fully understand the repayment terms of student loans before accepting them. They should know when the repayment period will start, what the monthly payments will be, and how much interest will accrue or be charged. Missed student loan payments is one of the most common financial mistakes that can damage credit scores. Missing payments will be added to the student's credit report and could lead to loan default.

The loan repayment period for Federal student loans starts after a six-month grace period following graduation. Federal student loans may also provide income-driven repayment plans, depending on the student's financial situation after graduation.

Private student loans are exempt from several federal loan requirements and may have varying terms. Students should be very careful when taking these loans, and must negotiate repayment terms with the lender.

3. Accumulating high credit card debt

College students, especially Gen Z, are increasing prone to incurring credit card debt. TransUnion reported that in 2021, this age group of students showed an increase in their overall credit card debt, with the average debt amount climbing from $1,522 to $1,616. The American Bank Association also reports that over 70% of college graduates begin their careers with an average of $29,000 in student debt.

Students may improve their credit scores by using credit cards. But using a credit card isn't a big deal; paying off the credit card balance is. Credit  isn't "free money". The more you spend, the more you have to repay. Missed payments on credit cards can generate interest, penalties, and late fees which can in turn, increase debt liability.

Unfortunately, students are often offered high-interest-rate credit cards and may not understand what they are getting into. So, they should always discuss it with their parents before applying for one. If a student makes a mistake and accumulates too much high-interest debt to manage, they may want to seek help from a third party debt consolidation company to consolidate credit card debts, which may be able to help eliminate debts without affecting their credit history and score.

4. Becoming the victim of identity theft or other fraud

Unfortunately, college students are frequently victimized by con artists and fraudsters. Even student loan fraud has increased significantly in recent years, largely due to social media exposure, sharing gadgets, using unsecured networks, and other features of the digital age.2

Here are a few tips to help keep your information safe:

  • Avoid using unsecured public wi-fi connections whenever dealing with any type of financial or personal matter. This is one of the most common reasons that students face data breaches and identity theft. Always use a private internet connection rather than using a wi-fi connection inside a restaurant or cafe. And always pay bills through secured gateways like VISA or Mastercard.
  • Avoid borrowing money from payday lenders or pawn shops. These places are often rife with scammers who can steal personal data.
  • Refrain from posting sensitive, personal info on social media profiles, such as Facebook, Snapchat, TikTok, or others. Sharing personal data in social media posts could help fraudsters to access banking or credit card details.
  • Scammers may also use special skimming devices at ATMs and gas pumps. College students should be careful while making transactions in those places.
  • Sign up for e-statements to track bank account transactions. If you receive any hard copy statements, you should shred them before disposing of them.
  • Request a free credit report periodically and review any changes to make sure reported accounts are legit.
  • Watch out for “phishing” emails, and avoid clicking any suspicious links received in emails or text messages.
  • Keep your ID, driver's license, and wallet safe, and don't carry Social Security cards or other highly personal documents unless required.

5. Selecting the wrong side hustle

Many students work part-time jobs to earn money. They can't do the regular 9 to 5 job during college. So, a side hustle is the prime source of their income. Doing retail jobs may give them some additional cash to pay credit card balances and save for emergency funds. However, working too much may affect their regular classes and grades, so it is important to learn to balance time and energy and select the right type of side hustle to complement his or her studies without detracting from the college experience.

Here are a few examples:

Students with good merits may be able to teach in high school or college academic success centers. A good, qualified tutor may earn $20+ per hour.

Students may also work with local healthcare providers. Or, they may join social work organizations and provide services to consumer communication.

They can also do college student field internships, some of which not only pay well but also offer academic credit.

6. Overspending and overdrafting checking accounts

One of the biggest money mistakes college students make is overspending. Spending more than they have and creating an overdraft balance in a checking account can hurt a young adult's credit and negatively impact their financial future.

Every college student should create a spending plan every month and follow a solid budgeting strategy to track their monthly expenses. This will make it easier to cut back on unnecessary spending and save money.

Students can also use online banking apps to track their spending. These apps can also be helpful for parents to supervise their student's financial activity.

7. Not discriminating between "Needs" and "Wants"

Living within their means is important for college students - as well as adults. The problem is that some students haven't yet learned to separate their "Wants" from their "Needs." They often spend money on unnecessary items that they want but don't need.

To resolve this issue, students need to understand both aspects. They should prioritize "needs" more than "wants," listing all of the necessary things first and spending accordingly. If they have any surplus from their monthly budget, then they can plan what to do with it. For example, they could use that money to pay off credit card debt, save into an emergency fund, or spend on a dinner at a nice restaurant.

Having a clear concept of wants vs needs helps college students avoid impulse buying and overspending.

8. Not saving for emergencies

Students usually think about the costs and expenses they face today. Most college students don't yet have the life experience to think about financial problems that might arise in the future.

There are plenty of things that can pop up in life and create unexpected expenses. That's why creating an emergency savings fund is necessary. Students should make it a point to open an emergency savings account and save whatever amount they can. A solid emergency fund provides both a safety cushion and peace of mind.

9. Not saving for retirement

While retirement may seem eons away to most college students, the earlier you start saving for retirement, the better! Students who can start investing in retirement savings in their early 20s will maximize their long-term investment with the help of compound interest. Early contributions can grow substantially by retirement age.

Some financial experts suggest that students should invest 15% of their income into retirement savings. After college, when they get into a full-time job, young employees may want to sign up for their company-offered retirement plans and match the employer's contribution for automated retirement savings.

10. Avoiding buying insurance

College students often ignore buying proper insurance, feeling that there's no need - especially if they already have an emergency fund. This is a very common financial mistake.

Even young people have accidents and other medical emergencies that may be very expensive. Proper insurance coverage - health, dental, eye, renters, homeowners, disability, life, and other insurance coverage as needed - can help to manage unexpected emergency expenses and protect policyholders - of any age - from financial losses.

11. Making poor investment decisions

Most students do not have a lot of income to invest, so they should make careful and responsible choices when they begin investing.

Students should learn the pros and cons of different investment options. For college students, there are many low-cost investments available. For example - Stocks and Exchange-Traded Funds (ETFs), mutual funds, peer-to-peer lending, etc.

Before investing, students must calculate the probable risks. They should research and plan their investment strategies carefully. Lastly, they should not use their emergency funds for investing. It is wise to use only surplus money for investing at this stage of life.

12. Not applying for scholarships

Scholarships can help take a big bite out of college costs. Even just a few small scholarships per year can add up and may help cover college fees, textbooks, and other expenses - all on a tax-free basis.

Many colleges and educational institutions - as well as numerous private sources - offer multiple scholarships, and students can apply for many of these each year of college - not just the first year on campus. Applying for scholarships should be an ongoing activity throughout the college years.

13. Wasting free opportunities

Did you know that college students can qualify for multiple freebies and discounts just for being a student? For example, students may be able to get discounts for things such as on-campus gym memberships, public transportation, books, and more. To be eligible for the freebies and discounts, they just have to show their student IDs.

Lastly, college students should be sure fill out the Free Application for Federal Student Aid (FAFSA) every year of college to qualify for potential financial aid opportunities as well as the most favorable student loans.

Bottom Line:

Making mistakes is a part of life. Mistakes are also a part of becoming an adult! That said, students would be smart to consult their parents, teachers, and older peers when it comes to financial matters, and take advantage of the wisdom of those who have more experience in this area.

By observing and learning from the money mistakes their friends and family have made, young adults may be able to avoid the worst mistakes and put themselves on a better financial path for the future.


Guest Post Provided By:

Lyle Solomon
Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing.
He has been a member of the California State Bar since 2003.
He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the
Oak View Law Group in California as a principal attorney.







The information presented here is for educational purposes only and is not a solicitation for the purchase of any financial product. The statements and opinions expressed are those of the author and may not represent the opinions of Keystone Financial Group. All information is believed to be from reliable sources; however, presenting financial professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.