College kid considering a payday loan

The Mistake Of Payday Loans In College

More and more often, college students are turning to short term loan solutions to get them by. Their increasing use of payday loans is a big problem and can easily cause them to get into a very real financial mess. Let’s take a look at how big the problem is and ways that college students can avoid it in the first place.

As a college student, money can be tight at times. You get your student loan disbursement and if everything goes well, it lasts until you get your next one or until the summer hits and you get to go home and live off of mom and dad. If you are a little off on your budgeting, you could find yourself in trouble though. What happens, for example, if you are a two hundred dollars short a few weeks before your disbursement. More and more students are making a poor choice.

Payday Loans As A Solution

An alarming number of college students are turning to payday loans as a solution to fill their money gap. It is very tempting after all, the lure of easy money. It is so tempting in fact that, according to CNBC, 1 in every 3 college students will consider a payday loan. But what is a payday loan and is it a good decision for college students with limited income?

Payday loans, by definition are short term loans that are designed to get a borrower by for a few weeks at most. They are usually small dollar loans of several hundred to a thousand dollars. Lenders charge the borrower fees based on the amount borrowed. A typical fee might be somewhere around $15 for every $100 borrowed. So, if $400 were borrowed, the repayment amount would be $460.

On the surface, this does not sound too bad, but then you calculate the APR. Factoring in the very short loan term, you get an actual APR of 400% or higher. Obviously, taking out a student loan is a bad financial choice but easy money can be hard to turn down when a student finds themselves in a bind. Especially when they know that they have money coming in a few weeks.

The problem comes when the student can not repay the loan on time. Their only option is to renew the loan and pay a new set of fees. This can make these already expensive loans, even more so. The student would have to continually renew the loan until they can be paid off. This happens to many people with payday loans and is a reason that so many states have banned them.

Payday Loan Alternatives

What students need to know is that they may have alternatives. Even with little to no credit, if they must borrow, there are probably better choices.

Emergency Tuition Assistance

This is where you should start if you need money. Almost all colleges and universities now offer some sort of emergency tuition assistance. This could be an emergency grant, an emergency student loan or perhaps vouchers.

Your school knows that money problems can prevent students from completing school and they will do everything possible to keep you enrolled.

Student Credit Cards

Another possible solution is a credit card which credit card companies are often more than willing to hand out to students. Bank of America, for example, offers a Cash Rewards Student card. Don’t let the cash back fool you though, interest rates will be high. Still, 24% is far better than 400% in an emergency.

Installment Loans

If qualifying for a student credit card is not possible and a loan is needed, payday loans are still far from the last choice. Many lending companies can help students get loan quotes for loans with longer terms that may be easier on a budget. Terms of 3 months to 3 years are possible, allowing the student much more time to catch up with their finances.

Friends & Family

If you are in school, you can often count on the support of friends and family. In fact, you might be more likely to get a loan from family because you are trying to do something with your life. People love to reward those who are trying to do the right thing with a helping hand. As a student, you should not be afraid to ask friends and family for a few dollars to get you through until your next loan disbursement.

Proper Budgeting, The Best Solution

The best loan solution of all is to never need one. You need to make sure that your loan disbursements get you through until your next one. Here are some tips to help make them last.


First and foremost, you should set a budget. Write down where all of your money is going and how much you spend every month. You can then compare that to how much you are bringing in and see if they sync up. If not, you need to make some cuts. If the occasion ever happens where I need money, I always know that it was a problem with my budget.

Live Frugally

Now is not the time to live the high life, that time will come. Now is the time to be the poor college kid. Doing so will keep you out of trouble. Take advantage of every free activity that there is on campus. This could be free movies, concerts and use of the school gym and sports fields. Also, make full use of your meal pass and never turn down anything that is free.

Get A Job

It would be great to not work at all during school but that might not be your reality. Working just a few hours a week could spare you the pain of being broke and make your money stretch.

Getting a job these days is easier than ever. The current market means that you are in high demand and starting pay rates are high. If you don’t want to work a regimented job, try an app like Uber or Lyft and work whenever you have free time.

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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.