Credit Cards » Credit Card News » College Students and Credit Cards
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 May 14, 2009

Credit Card Debt’s Next Crisis: Student Debts

While the Senate is currently rolling out its Credit CARD (Credit Card Accountability, Responsibility and Disclosure) Act, an act designed to protect private credit cardholders from unfair and deceptive practices of the credit card industry, a new sector is beginning to buckle beneath the burden of excessive debts – students.

Credit Card Debt's Next Crisis: Student DebtsThe continuing crisis has touched all sectors of American economy. Credit companies, looking to gain some ground against losses to defaulted loans and other financial losses, are tightening the noose around student loans. Thus, students are finding it very difficult to finance their continuing education. Students have had to look elsewhere to find some cash to continue schooling, what with the student loans drying up. Their quickest solution – credit cards.

Credit experts are seeing a distressing trend that may lead to another credit industry crash. A former Trans Union credit educator and the current financial expert of Credit.com, Emily Peters recently said that; “We were expecting the findings to be pretty bleak. We’re seeing things dry up in student loan financing.”

The situation is very troubling. Students seem to be turning to their credit cards more and more, from textbooks to school tuition. The number of students relying on credit cards is also increasing, with about nine of ten students using plastic to pay for college.

Sallie Mae, a national financial management program and loans provider for students also released a statement this month saying that the average balance of students on their credit cards are at record levels now.

Students have also not been exempt from interest rate increases, which seem to be the trend of credit companies nowadays. Some have seen their interest rate increase from 9.9% to an astounding 25%. Banks are also decreasing their credit limits as well. Even students with good credit history are not exempt.

Another troubling result from the survey is that out of every five students surveyed, two say that they charge items while knowing that they would not be able to pay for them. Unfortunately, these are often high priority items.

“These are no longer frivolous expenditures, like going to Cabo for spring break. These are actual education costs,” Emily Peters said.

The dropping employment rate is also making the problem worse. Students cannot find any relief from their credit card debts by looking at the job markets. Owing to the massive layoffs that American companies have been doing, the job market is just about saturated with job seekers who have more qualifications and experience to offer than a student just coming out of college.