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Date May 29, 2009

College Students and Credit Cards

According to a recent study, college students comprise one of the many groups of cardholders that have been hit the hardest by credit card debt.

College Students and Credit CardsAccording to a survey by Sallie Mae, a lender focusing on student borrowers, this April of 2009, college students on the average own four credit cards or more. Most college cardholders are also not very good at keeping up with their monthly payments. A majority of college cardholders regularly get hit by large monthly finance charges because they can’t pay their monthly credit card bills, according to the survey.

Most worrying of all is the steep rise in the median credit card debt amount of freshmen college students. Whereas the median amount was at $373 during 2004, now it is at $939. This means that even while they are still starting out in college, students are already getting buried in debt. If they are not able to recover, these college students will most likely carry large debts once they graduate. This could be a heavy burden for them, especially when they are just starting out with their careers.

College students are often one of the most active consumers that credit cards have. Although most of them rarely charge big ticket items, smaller purchases do add up to become large debts. The availability of student loans has also recently dried up, forcing many students to use their credit cards for many college expenses. Credit cards are also readily available for college students. They also offer many attractive incentives and freebies. Some credit cards even have arrangements with a few colleges for marketing purposes.

Many observers see that the lack of essential financial education among college students is the root cause of the problem. College students are also not the only sector of the overall population of credit cardholders who need some financial education, judging by what recently happened with the economy.

Using credit cards is not problematic, per se. It only becomes a problem when cardholders do not keep up with their monthly payments. There are many reasons why this may happen. One of the most common is cardholders charging items on their credit cards without really considering if they can pay them off or not when the monthly bill comes.

Because of the bad press that credit cards are getting, some people are turning to debit cards. However, debit cards also have pitfalls. One of the worst pertains to overdraft charges. Overdraft charges happen only with debit cards that include overdraft protection, usually debit cards connected with credit cards. Banks charge $34 on the average for debit card overdrafts.

Date April 14, 2009

Reports Show More Students Paying Loans With Credit

Reston, VA – There are now more concerns for student finances than ever before. Sallie Mae Servicing is reporting that more students are using credit to make their regular tuition payments for school. Last year, around 30% of those in college were using credit for tuition, a large jump from years prior.

The average amount being charged for expenses directly related to higher education is around $2,200 being charged on plastic. Not only is the increase in usage become a huge concern, it is also worrying to realize that the average student has 4.6 credit cards and over half of students attending college have 4 or more active credit card accounts.

What is of most concern is the collateral damage to students who are getting in over their head in debt during their college years, with an inability to pay off such debts during or shortly after college, thus leaving credit damage a big reality for most students. Right now, the average credit card balance carried by a college student in the United States is around $3,200, which ranks higher than during any other year.

The result of the decision to charge tuition and college expenses on credit is that students could end up paying double for their college degree than if they used other methods, such as financial aid, to pay for their schooling due to the additional finance charges and penalties for late or missed payments.

Credit card use during a college career can make or break a new graduate’s financial future and alternative methods for paying for college are recommended. While it may be increasingly difficult to afford a higher education, students should be encouraged to avoid carrying credit card balances from month to month and invest time into finding alterative methods to finance their degree, their school supplies, and the required educational textbooks.

Other issues the study uncovered is that 60% of college students were surprised at how high their credit card balances actually were, with another 40% saying they charged their card for items they knew they did not have the cash to pay off the bill. Only 17% of student surveyed said they regularly pay off their balances in full. 1% admitted to having others such as a spouse, parent, or other family member footing the credit card bill, leaving 82% carrying month-to-month balances that accrued interest charges.

The report was conducted by Sallie Mae to bring to light the importance of keeping college students informed on the importance of keeping credit card balances low and the educational aspect of using credit wisely. For more information on the full results of the full study, visit Sallie Mae’s website.