A Tool for Student Loans and Advice for Your Financial Future

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Few financial decisions are more daunting and potentially debilitating than taking out student loans to pay for college, which is one of the first times that most high school students are faced with a serious money-management choice – and it’s a biggie.

Why? It can leave students with a heavy debt burden once they graduate from college. “Kids are 17 years old, having made almost no financial decisions in their lives, and here’s this enormous financial decision to make: borrowing tens of thousands of dollars when they have never borrowed anything and having to deal with all the different nuts and bolts of that. They’re at a perilous moment and ripe for being taken advantage of too,” said Dr. David Musto, a professor of finance at the Wharton School of the University of Pennsylvania, and director of Wharton’s Stevens Center for Innovation in Finance.

Calculating Risk

Dr. Musto and his graduate students and colleagues at Stevens set out in the past few years to do something about it. In April 2024, they launched Finiverse, an app (available at finiverse.org) to help students navigate their college finances. With hands-on coding and consulting help from high school students in Philadelphia, the Finiverse team developed a tool to help students make informed decisions about their education and finances.

The app doesn’t just calculate loan debt, it calculates the risk of taking out the loan, helping students to imagine all the financial paths their lives could take after college when it’s time to pay those loans off. “Thinking about borrowing money to go to college and then paying it off after college are very high-dimensional problems to solve,” notes Professor Musto. “The goal was to build an app to help think through student loan decisions and build in all the things that in the real world will affect the experience of having borrowed money.”

The app (look for the Finiverse Instagram account to launch soon) allows users to explore a multi-verse simulation to see how taking longer to graduate could affect your financial future. It also provides insight into how income-driven repayment plans could save you a lot of money after college. And you are also able to compare the costs of four different colleges at once to assess the impact of grants and scholarships and see the actual difference between the sticker price of schools and the net price that you would actually pay, which could sometimes be far less.

In the end, says Dr. Musto, it is about empowering high school students with financial knowledge in the face of federal student loans that could easily exceed $30,000. “The big picture here is to help people make the decision that is best for them.”

Professor Musto, also the academic director of Wharton Global Youth’s Essentials of Personal Finance course for high school students, has become a deeper champion of financial literacy. With that in mind, he suggests the following four finance hacks – from student loans to credit reports — that high school students should understand before they graduate:

🤑 Know your student loan repayment options. “We have seen that few high school students know anything about income-driven repayment, a federal program that absorbs much of the downside risk of a loan (financial penalties for not paying the loan back on time),” notes Dr. Musto. “It is important to know about it both because they should use the program after college if they are eligible (if their loan payments are large enough relative to their incomes), and also because they should bear this downside protection in mind when deciding whether to take a [financial] risk in their higher-education choice.”

🤑 Contribute enough to your 401k. When you enter the work world, you will likely have the option to contribute to a 401(k), a retirement plan that allows you to contribute a portion of your salary to an investment account. “Many employers make matching contributions to your 401(k),” says Dr. Musto. “For example, if you contribute x% of your salary, your employer will also contribute x% of your salary, up to a limit, like 5%. If the limit is 5%, then you are throwing money away by contributing less than 5%, because then you don’t get as much free money as you can from your employer.”

🤑 Use your credit card wisely. When you buy something using a credit card, you are getting a small loan from a bank or other institution that allows you to borrow money to pay for the goods. If you don’t pay off your credit card loan within the billing cycle, you will have to pay additional interest on top of the original amount you borrowed to make your purchase. “The advice is to not borrow more than you can see for sure you will be able to quickly repay, because otherwise you risk falling into a debt spiral,” cautions Dr. Musto. “The big picture is that it is such a disaster to fall into a debt spiral in bad times that you need to steer a wide course around it in good times, not borrowing except in emergencies, so you can withstand bad times when they hit.”

🤑 Get rent payments added to your credit report. When you are first out on your own, chances are you will pay rent each month to live in an apartment or other type of residence. Keeping up with your payments can help your credit score, which is a number that determines your credit-worthiness, or how likely you are to repay your debts. Your credit report shows your credit history. “You should get your rent payment on your report because a record of making payments on time will feed right into your credit score and your credit access,” suggests Dr. Musto. “There are apps that help you do this (Bilt) and you can also go right to the websites of the credit bureaus (Experian).”

Conversation Starters

Help Dr. Musto develop the Finiverse app. Try it out and let us know what you think in the comment section of this article. What do you like? What would you change?

If you have had to navigate the student-loan landscape, what has been the biggest challenge? What would you like help with?

Do you have access to financial education in high school? Do you feel prepared financially for your future? Why or why not?

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