Significant Increases in Student Credit Card Debt
This week, President Obama is turning his attention to credit card abuses and senior administration officials are scheduled to meet with credit card industry executives on Thursday.
One area that needs attention is college student credit card debt. A new study just released by Sallie Mae shows that the number of cards, balances and anxiety are increasing while full payments and financial understanding are decreasing.
Here is Sallie Mae's summary from the study, "How Undergraduates Use Their Credit Cards":
"Despite the credit crunch and economic downturn, the study reveals record highs in the percentage of students with credit cards, the number of cards they carry, and their average balance. At the same time, more than half of college students express surprise over how high their credit card bills have reached. One-third of students aren't talking to their parents about responsible credit card use. Three-quarters of students are paying finance charges on a regular basis by borrowing against their credit cards and not paying off their bills in full each month. Others are not budgeting appropriately, thus are paying for some direct education expenses, including tuition, with credit cards instead of using federal student loans and
private education loans which are typically less expensive forms of credit."
Here are statistics from the Sallie Mae study that show why some form of regulation may be a good idea:
* Average amount of debt carried by cardholders is $3,173. It was $2,169 in 2004, a 46% increase.
* 84% have at least one credit card. Up from 76% in 2004. The average number of cards is 4.6. Half have four or more cards.
* Seniors graduated with average credit card debt of more than $4,700, up from $2,900 in 2004. Almost half carry a balance greater than $7,000.
* Only 17% pay off their balance each month. 22% make the minimum payment. 14% pay some cards in full and make only the minimum payments on others. 7% pay less than the minimum payment.
* One-third put tuition on their credit card. Up from 24% in 2004.
* Besides education supplies and books, 84% use credit cards to pay for food, 70% for clothing, 69% for cosmetics.
* 60% were surprised how high their balances had reached, and 40% charged items they knew they couldn't afford.
* 58% got their first card from a direct mail solicitation. Only 17% said parental referral.
"These statistics are concerning, because these students will walk into the 'real world' with a lot of debt from their credit cards and student loans. It is going to take some time and work to pay it all off. They are also learning bad practices with credit cards and not receiving the financial guidance they need," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "They are not only using credit card loans for education needs, but also food, clothing and make-up. Students need to remember they are paying at least a 15% penalty known as the interest rate on these loans. Since so many are just making the minimum payment, it will take them many years and a surprising amount of money to pay off a pizza, a shirt, and some mascara. Students must understand if they can't afford to pay cash now, they can't afford to buy now.
"Members of Congress have introduced legislation that will restrict the marketing and availability of credit cards to college students. However, issuers will strongly fight against this. College students are an important target market because card loyalty starts at a young age. They also consider these loans to be a pretty good risk because parents usually bail out their children," says Hardekopf.
One area that needs attention is college student credit card debt. A new study just released by Sallie Mae shows that the number of cards, balances and anxiety are increasing while full payments and financial understanding are decreasing.
Here is Sallie Mae's summary from the study, "How Undergraduates Use Their Credit Cards":
"Despite the credit crunch and economic downturn, the study reveals record highs in the percentage of students with credit cards, the number of cards they carry, and their average balance. At the same time, more than half of college students express surprise over how high their credit card bills have reached. One-third of students aren't talking to their parents about responsible credit card use. Three-quarters of students are paying finance charges on a regular basis by borrowing against their credit cards and not paying off their bills in full each month. Others are not budgeting appropriately, thus are paying for some direct education expenses, including tuition, with credit cards instead of using federal student loans and
private education loans which are typically less expensive forms of credit."
Here are statistics from the Sallie Mae study that show why some form of regulation may be a good idea:
* Average amount of debt carried by cardholders is $3,173. It was $2,169 in 2004, a 46% increase.
* 84% have at least one credit card. Up from 76% in 2004. The average number of cards is 4.6. Half have four or more cards.
* Seniors graduated with average credit card debt of more than $4,700, up from $2,900 in 2004. Almost half carry a balance greater than $7,000.
* Only 17% pay off their balance each month. 22% make the minimum payment. 14% pay some cards in full and make only the minimum payments on others. 7% pay less than the minimum payment.
* One-third put tuition on their credit card. Up from 24% in 2004.
* Besides education supplies and books, 84% use credit cards to pay for food, 70% for clothing, 69% for cosmetics.
* 60% were surprised how high their balances had reached, and 40% charged items they knew they couldn't afford.
* 58% got their first card from a direct mail solicitation. Only 17% said parental referral.
"These statistics are concerning, because these students will walk into the 'real world' with a lot of debt from their credit cards and student loans. It is going to take some time and work to pay it all off. They are also learning bad practices with credit cards and not receiving the financial guidance they need," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "They are not only using credit card loans for education needs, but also food, clothing and make-up. Students need to remember they are paying at least a 15% penalty known as the interest rate on these loans. Since so many are just making the minimum payment, it will take them many years and a surprising amount of money to pay off a pizza, a shirt, and some mascara. Students must understand if they can't afford to pay cash now, they can't afford to buy now.
"Members of Congress have introduced legislation that will restrict the marketing and availability of credit cards to college students. However, issuers will strongly fight against this. College students are an important target market because card loyalty starts at a young age. They also consider these loans to be a pretty good risk because parents usually bail out their children," says Hardekopf.
