Most students have been increasingly using credit cards to take care of their day-to-day expenses as well as their education. This has become a bare necessity due to the rising cost of education.
Credit cards are basically loans and they charge an interest for usage of the card. Hence paying a higher rate of interest on the educational expenses amounts to overpaying for college education and one must be cautious while using these credit cards.
However, students are quite experienced when it comes to using the credit card. Sallie Mae had reported in 2009, that 92% of undergrads had charged direct costs on their textbooks and tuition. Students also seem to be experienced in mounting debts. As per the report, at least 20% of the seniors were carrying credit card balances that were more than $7,000. To add to this, they had $24,000 in educational loans and graduates on an average were almost $30,000 in debt.
The spiraling debt could be dangerous as the interest rates on student credit cards could begin at 20% and go up drastically with every missed or late payment. These are payments that are normally due each month with no deferment, forgiveness, or forbearance. This results in the students slipping into debts quite easily and thereby destroying their credit ratings as well as their ability to avail credit to take care of their basic needs such as buying a car or an apartment.
After the Credit Card Act of 2009, card companies were restricted from marketing their products on college campuses and applicants below 21 years of age had to get a co-signatory or have proof of income to prove that they are capable of making payments.
However, in the present economy it is not easy to just restrict access to credit cards. There are many contraindications, and to avail credit you should have first established credit and to for that you must have access to credit. If you build credit during the student days, it would be easier to avail loans in the future. If you have good credit, securing the first car loan or renting out that first apartment will become that much easier.
However, if you have bad credit, you will create obstructions with regard to anything that needs a background check, which includes getting a professional license or securing employment as well. Hence, students must only use credit cards if they can pay their monthly bills in full without carrying forward balances.