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 calls for attention is college student credit card debt. A new study released by Sallie Mae shows that the number of cards, credit card balances, and anxiety are increasing while full payments and financial understanding are decreasing.
The Sallie Mae summary from the study, “How Undergraduates Use Their Credit Cards” states, “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.”
The Salle Mae study includes the following statistics, which experts say shows the need for certain regulations:
* Average amount of debt carried by cardholders is $3,173. It was $2,169 in 2004, a 46% increase.
* 84% of undergrads have at least one credit card, up from 76% in 2004. The average number of cards is 4.6. Half of this population has four or more cards.
* Average credit card debt for graduating seniors is 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, and 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 they had parental referral.
Because of these concerning statistics, experts say that students walk into the “real world” with significant debt from credit cards and student loans, and are also learning bad practices without critical financial guidance. Experts remind students to remember that they are paying at least a 15% penalty (interest rate) on these loans, and that 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. Credit card issuers are expected to strongly fight against this. Experts say issuers target college students because they consider these loans to be a good risk since parents usually bail out their children, and also since card loyalty starts at a young age.