Best money bets for college students

A question I get asked often is for advice for college students. One of my Twitter followers, @BeForREAAL, brought the topic up last week:

My thoughts on that question never waiver: the best financial decision college students can make is to avoid graduating with unnecessary debt. The two most important ways to do so is avoid over-borrowing for school (i.e., borrowing for more than tuition, fees and books instead of working to pay for incidentals), and using credit cards for non-essential purchases. The average college student in the 2008-2009 school year had borrowed more than $23,000. That's a lot to have to pay back -- with interest -- in a tough economy where it's hard to find a job.

I opened the question up for my timeline and got some other answers:

Pretty sound, common sense advice. What else would you suggest?

Advice for soon-to-be college grads

If you're a college senior and you watched the video, you're probably not encouraged. When I graduated a decade ago, jobs were plentiful and although the dot-com boom was about to go bust, unemployment never reached anywhere near 10 percent during the 2001 recession.

Students, are you concerned about leaving campus for the last time with the economy and job prospects still in the toilet? At least one reader has two questions that showed she's worried about exactly that:

What's the best way to invest money if you're a student w/ no real job but have leftover money once expenses are taken care of? If you were a student and you got an absurd refund, would you save it all or pay down an undergrad loan?

Both are good questions. After doing a little interviewing I found out that the questioner has about $600 in savings and as of now, no solid job lined up after graduation. If she doesn't find one, she plans on living with her parents while looking for work.

With that little in savings and facing graduation in a tough economy, I'd be adding any extra cash to my savings. I'm not sure how much it costs you to live a month under your parents' roof, but $600 isn't likely to last beyond a month or two. You'll need more cash than you have to weather the storm until you find a job. You can worry about stocks, bonds and mutual funds when you have a job and a serious income.

As for the refund, use the money to pay down the student loan. Remember that the refund is only a check for the difference between what you borrowed for school and the cost of a semester's tuition. It's not free money and ultimately you'll have to pay it back with interest. Better to do that now while your loans are in deferment than in a few months when you'll be paying interest on it -- perhaps without a job.

Should I use a student loan refund to pay off my credit card?

Today a credit card debt question from @miss_mielle on twitter:

There are a lot of personnel changes at my job, so I'm getting back in school ASAP. I've been putting it off to pay off some cc debt but it's gonna take a while and I don't want to wait anymore. A friend of mine suggested taking the max on an edu. loan and paying off my debt with the refund checks. It sounds viable, esp. since my debt isn't extravagant(<$7500). What do you think?
I'm on payment plans on both cards, but they will still take a while, and I'm unable to get some things I REALLY need meanwhile

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First, thanks for the question. I'm glad you're committed to paying off you debt and for being proactive about the situation at your job by seeking more education. (MESSAGE: Learn to feel which way the wind is blowing at your job and never wait for a layoff to be looking for new opportunities!)
Still, I have to challenge some things you said. First, I can't tell what your debt-to-income ratio is because I don't know how much you make but I'm not sure I'd say $7500 on credit cards "isn't extravagant". I had about that much last year and I was stressed as all hell trying to pay it off. True, it might not be as much as may others have, but you're not paying their bills, you're paying yours, right? Can you even remember everything you bought with that $7,500? I say all this not to berate you but to get you to rethink you habits after you've paid this debt off.
As far as the debt payment strategy your friend suggested, I think you need to consider a multitude of factors. On the surface it looks like that would be the simplest thing to do: by paying the credit card debt with your student loan, you're basically consolidating all that debt into one payment. But will that payment be less than you'd pay with a separate student loan and credit card payment? What's the interest rate on the loan compared with the rate you're paying on your card (it's almost certain to be lower than the card rate, but still, check).

Also, are you getting a federal student loan or one from a private lender. Private lender loans tend to come with higher rates and tougher repayment terms than ones given or backed by the US Department of Education.

Lastly, whether you take the larger loan or not, how are you going to make the payments if you're not working (or working less) to accommodate school?

Think about all those things before making a decision.