November 7, 2017
Taking a year off prior to the start of college is not a new notion. “Gap years” are extremely common in Europe, and have gained immense popularity within the U.S. too. The reasons for taking a year off before school can be personal, financial, or sometimes both. Some of the benefits of a gap year include:
- Taking time to explore interests
- Recharging after high school
- Learning a new skill
- Gaining work experience
- Saving money for college
- Time to research financial aid and student loan options
- Being financially prepared for college
Even though most people overlook them, it’s important to consider various financial aspects during your year off. Here are five tips to keep in mind for a gap year that financially prepares you for college:
- Consider Finding Work
Most gap years tend to incorporate an element of travel. Thankfully, finding work doesn’t mean that you need to give up on this. Many countries offer the option of doing paid work while on a tourist visa. This is otherwise known as a “working holiday.”
Doing a paid internship is another way to get some supplemental income. Internships and volunteer work that doesn’t offer remuneration sometimes offer other perks, like covering the cost of accommodation or providing food through the duration of your internship. All of these options are great ways of saving money, thereby not dipping into your college fund to fund your gap year.
Additionally, working or interning allows you to gain insight into what your life might be like once you graduate. You will gain a better understanding of your strengths and weaknesses within the workplace, as well as your likes and dislikes, preparing you for a more meaningful college experience. When you are back home, taking up a minimum wage job is not a bad idea. In fact, minimum wage can go far, contrary to what people think.
Working full-time at the federal minimum wage of $7.25 for a year will earn you around $15,000. If you are still able to live at home or get support from your parents, that can be a major chunk of student loan debt you can avoid upfront. Many states have higher minimum wages than the federal standard, which means your earning potential is even higher.This change can have a dramatic influence on the lifestyle you can live during and after school, maybe even enabling you to take out a smaller student loan in the first place.
- Look into Student Loan Options
A gap year is the perfect time to look into potential student loan options to fund your college education. At first, student loans might seem quite straightforward, but as you dig in, you’ll realize that there are many different options to choose from.
Whether you opt for federal or private loans, each category has various types of loans with different terms of repayment. Adequate research is necessary to make sure you choose loan options that suit you the most. Use some time during your gap year to look into how much you will need to borrow.
It’s important to calculate your own student loan needs for yourself, so as to have a firm understanding of your requirements and budget plan. The first step to doing so is assessing your annual costs. These include tuition and fees, housing and living expenses, books and supplies you may need, and more. Then, determine how much money you have to spend towards these costs based on your savings, family contributions and income. Once you’ve determined your annual costs (tuition and fees, housing and living expenses, books and supplies etc.), you will be able to gauge how much funding you need.
If your family is helping you out or you have some savings, deduct this amount from your total annual costs to determine your funding gap. Using a student loan calculator is a great way to get started, and broadly determine the loans you will need.
- Research Financial Aid
Just because your school has allowed you to defer admission doesn’t mean financial aid does the same. Eligibility for federal student aid is determined on a yearly basis, which means you will need to stay on top of FAFSA and institutional aid deadlines, and re-apply for aid while on your gap year.2 It’s important to be aware of dates and financial aid policies, so that you don’t miss out on deadlines, subsequently jeopardizing your college education.
Another thing to keep in mind about financial aid is that certain merit-based scholarships might not transfer over to the following year, even if your school allows for a deferral. In these cases, you will need to evaluate how much these scholarships mean to you (and whether you can risk potentially not having them when you start your education), when deciding whether to take a year off before school starts. Obviously, if you have made the decision to take a gap year in school itself, you probably won’t apply to schools in your senior year. This means you will apply for admissions as well as aid for the first time during your gap year itself, which in turn could mean a higher annual cost in case tuition and fees rise.
- Learn to Manage Personal Finances
Many people use a gap year to learn a new skill or develop an already existing skill. This could mean absolutely anything – from learning a new language or learning to code, to gaining certification in sports coaching/instruction.
However, one of the skills people often overlook is personal finance management. Learning how to manage your money is worthwhile both for your college years and post-graduation, especially if you are taking out student loans. There are many free online courses that teach you how to manage your money. Investing a part of your gap in learning how to budget, balance your accounts, save for emergencies and plan for the future will help you no matter what career path you choose.
If you are planning to take out student loans to fund your college education, it’s also a good idea to learn about refinancing and consolidation options.
- Save For the Future
Gap years can be expensive – with all the traveling, signing up for classes and more, they can often leave a gaping hole in your pocket. While it’s important to gain valuable life experiences on your year off, be sure to spend frugally. Sometimes, choosing cheaper alternatives when it comes to flights or accommodation may require a little more effort on your part, but the money you’ll save by tweaking your lifestyle minimally is definitely worth it.
Save wherever you can, and resist the urge to carelessly spend money just because you have it. Gap years are a time when students try to “find themselves”, often using this excuse to justify spending money on things that later prove to be unnecessary. Make sure you keep your long-term goals in mind, and don’t give in to temptation when it comes to your finances.
If you do plan to take a year off before school, be certain to consider these financial tips. Badly planned gap years often break the bank. However, being mindful about your choices and managing your money wisely during your year off can easily make for a financially sound and extremely rewarding experience.
Please note that the information provided on this website is provided on a general basis and may not apply to your own specific individual needs, goals, financial position, experience, etc. LendKey does not guarantee that the information provided on any third-party website that LendKey offers a hyperlink to is up-to-date and accurate at the time you access it, and LendKey does not guarantee that information provided on such external websites (and this website) is best-suited for your particular circumstances. Therefore, you may want to consult with an expert (financial adviser, school financial aid office, etc.) before making financial decisions that may be discussed on this website.
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