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WHAT: BookRenter.com

WHERE: Santa Clara, CA

WHEN: 2008

HOW: For many students, life after graduation means facing a mountain of student loan debt. When considering all of the costs associated with college – beyond tuition and into the cost of computers and textbooks – that debt can rack up, and amount to a significant setback. Mehdi Maghsoodnia saw this problem, and made it his goal to develop a solution. “In a public community college, you can end up paying more for textbooks than you do for the course credits,” says Maghsoodnia. “Why can’t it be more affordable for students? We have to make it affordable, accessible and effective.”

With a background in working with entrepreneurs at a business ventures firm, Maghsoodnia had been looking into a variety of business options to find where he wanted to take a leap. Realizing his passion for making education accessible, he began to develop a business plan much like that of NetFlix. Investing $20,000 into a large purchase of used textbooks, Maghsoodnia started small – offering rentals locally to students in California. Students visit the website and place a rental order for the textbooks they’ll need throughout the semester. The books, which range in price from about $10 to over $200, are rented at a fraction of their cost – much like airline seats, the rental price is set according to the book’s supply and demand. Once a book is returned, it’s checked for quality, and is either re-shelved or donated to impoverished communities in need of textbooks.

“Within the first year, we reached over a million dollars in revenue,” he says, and after expanding to serving students nationwide, they’ve seen growth of approximately 400% each year. “In a business like this one, it doesn’t take a great deal of money to get started. But as you grow, it requires more capital,” Maghsoodnia explains. With new editions of books being released, it’s important to keep inventory up to date – a process that is helped by a software system that tracks nearly a million titles they have in their inventory, and notifies them when their stock is out of date. Keeping books in stock and cash on hand are issues the company has faced several times since their launch — but Maghsoodnia explains that those points are the ones that keep him excited and aware of his successes.

Today, the company is investing its profit back into the company as they see consistent growth. However, Maghsoodnia hopes to reach profitability within the next few years, and maintain their high levels of customer satisfaction. “People have returned books with notes tucked into them, thanking us for helping them save the money they needed to pay off their car loan or tuition – it’s great to see that impact firsthand.” Recently, they launched a program that allows students to open their own BookRenter.com store. They serve as a BookRenter representative for their sorority or their campus, pointing students to their “store” – and for every dollar of revenue, the student earns eight cents. “This helps students earn money on their own,” says Mahgsoodnia, “and has served well for us in expanding to more campuses across the country.”

HIS ADVICE: “You have to know yourself really well,” says Maghsoodnia. “Are you the type of person open to taking risks and enjoying them? You have to be comfortable with risk, change, and moving on a dime. If you’re that kind of person—just go for it.”

Another provision, though, was a huge game changer for college students: In order to get a credit card under age 21, you have to prove you have the income to make the payments, or get a co-signer.

This, I think, is good, for a lot of reasons. In years past, we’ve seen campuses crammed with credit card lenders, offering t-shirts and snacks and movie tickets to anyone who passed along their personal information or signed up for a card. There wasn’t a whole lot of education involved, and as a result, students were graduating with an average of $4,138 in credit card debt. Not good.

But not building a credit history isn’t good either, and to do that, you need to borrow money responsibly. College is a good time to start. So what’s the solution?

First of all, I don’t think it’s a good idea to co-sign on a loan or credit card for anyone, for any reason. When you co-sign on a loan or credit card, you’re putting your credit on the line. If the person you’re signing for – in this case, your son or daughter – slips up by paying late, missing payments altogether, or defaulting, your score is going down the tubes right along with theirs. And in some states, creditors can collect the unpaid debt from you without first trying to collect from the borrower, which means that in addition to a bruised credit score, you could be stuck with the balance – as well as late fees and collection costs. Federal Trade Commission studies have shown that when co-signed loans go into default, three out of four co-signers end up paying the loan.

In this case, if you want to help your student start building a credit history this coming semester, and he or she doesn’t qualify for a card on their own, your best bet is adding them as an authorized user on your card. From that position, they’ll get their own card, which will go on their credit file. The charges will come on one bill, however, so you’ll be able to collect the money and make sure the payment gets in on time each month. You can also monitor his or her spending, if you’d like, or, with some cards, set the credit limit lower to keep things in check. Keeping the coupon book in your hands means you get to protect your credit, and give your kids the opportunity to build theirs.

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My father in law gave us 10,000 dollars as a gift. What should we put it in? Maybe a CD? I also want to start a college fund, but I don’t want to pay a penalty if my daughter doesn’t go to college, or wants to go to a trade school. – Mary, New Jersey

Mary,

That all depends what the money is for. Usually, when you have a large sum of money, you’ll want to choose to either save it or invest it – unless you have a large amount of debt to pay off at high interest rates – then, you might want to put it towards paying down some of those bills. It can help you alleviate some of the monthly pressure, too, that happens when you have high-interest debt.

A CD can be a good option if you think you’ll use the money in the short-term – say within the next three to five years. If you have plans to put a down payment on a home or a car, or are looking to make another big purchase, you don’t want to risk losing principal.   You probably won’t earn much – according to BankRate.com, interest rates on a 1-year CD are averaging around .69% nationally – so either keep your money very short-term (say 6 months to a year) so you can reinvest when interest rates jump or look into the adjustable CD from ally bank.

If it’s for your child’s college fund, I’d put it in a 529 college savings plan (go to savingforcollege.com to find the best one for you). The great thing about 529 Plans is that they can be used for traditional colleges and universities, as well as for trade schools. And if you have more than one child, and one chooses not to go to college, you can put that money toward your other child’s education. For more tips on choosing a 529 plan, check out the article I wrote a couple of weeks ago here on my blog.

Next, check your emergency fund. I suggest having three to six months of living expenses in a savings account to use in the case of a financial emergency. Setting up and maintaining that emergency cushion is important. You should take a look at what you spend, roughly, each month on your housing, transportation, debts, and general living expenses, and if you don’t have at least a few months’ worth in a savings account, allocate some of that $10,000 there.

If you’re saving for longer-term goals, like retirement, then it’s okay to invest it in something a little more risky — like a stock market index fund — knowing you’ll eventually get more growth but you may have to ride the ups and downs of the market before you do. “Putting money away toward retirement is always a good move,” says Diedra Fulton, a Dallas-area fee-only certified financial planner. “Contribute the maximum amount to a ROTH IRA for 2010, if eligible, based on income,” she adds, “which is $5000 annually if you’re under 50, and $6000 if you’re 50 this year and older.”

If you’re well funded in each of these areas, and still have some leftover cash, have a little fun! “Consider using a small portion for taking an unplanned trip, splurging on a personal reward, or addressing some other ‘luxury’ you had not anticipated incurring expenses for,” says Fulton. Unless you’re in a dire financial situation, it’s okay to spend a little.

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But at some point before you drop your freshman off, I encourage you to sit down, together, and make a budget. Whether she’s getting a job, you’re providing her with spending cash, or a combination of the two, you want to make sure that the well hasn’t run dry come October. Here’s a crash course in how to do it, as well as some sample budgets and a worksheet to get you started.Leave things a bit fluid. Before we go through the steps of coming up with that budget, I want to be clear about one thing – for all to go smoothly, you both need to be flexible here. Neither of you know what to expect, so setting a strict limit in each category – groceries, entertainment, laundry – just won’t work. Instead, you need to set a reasonable limit on the total amount she can spend, based on how much she’s bringing in –  from you, a part-time job, scholarships or grants. Add all of those up, throw in any savings she’s accumulated over the summer, and you’ll have a nice framework for your budget.

Estimate fixed expenses. Some of these are easy – if she’s going to have the same car, you know how much her car insurance  or payments will cost. If she’s living off campus, you can add rent and utilities in here. A cell phone payment and any other monthly bills will be tacked on as well. Other school-related costs, like books, campus room and board, and tuition, should come out of the money you’ve saved for college, loans, or scholarships.  You can use a worksheet like this one to tally up her individual expenses, and here’s a sample budget for an entire semester, to guide you:

Tally up flexible expenses. These are things like the aforementioned laundry, entertainment and groceries, but also clothing, toiletries, food outside of her meal plan, gas and other transportation costs. Basically anything that will vary from month to month. The best way to get a handle on these is by calling your school’s financial aid office – often they will have a sample budget or list of common expenses for incoming students that can help you make these estimations.

Break it down into months. I find budgets much easier to manage in small pieces, because you’re allowed to start over before you get too out of control. If she has a chunk of money for an entire semester, it’s easy to blow it all in the first month – especially as a first-year college student, away from home for the first time. But if instead, she gets a set amount each month, if the first month goes awry, she’s able to start over the next month and learn from her mistake.  You can take this even further, breaking months into weeks, as well – sample budgets for both are below:

Set up a system of organization. My advice is to keep the bulk of her money for the semester in a savings account, and set up automatic transfers at the beginning of each month (or week, if you decided to go that direction). That way, the cash in savings will earn a little interest – not much, mind you, but every little bit helps – and she’ll be giving herself a paycheck. If she gets an actual paycheck, from a part-time job, she can deposit that in savings and then pay herself from the pot.

Lastly, be careful of those ATM fees, which can really throw a wrench in any budget. Encourage her to only use in-network ATMs, or, if that’s not possible, to make one trip to the ATM each week for all of her cash (do a little research – she should keep her money at a bank that is convenient, with a couple locations and ATMs in the college’s town or city).