College Students: Binge Debtors?
Diploma in Exchange for DebtMany college students imagine how they will feel when they walk out of their final exam, prepared to snag that diploma and breathe a sigh of relief. Oh, and maybe finally get some sleep. However, for many students this hope quickly turns to despair when faced with mounting debts they cannot afford. As if tackling student loans post-grad isn’t stressful enough, contemporary college students are also burdened with thousands of dollars worth of credit card debt.
So why the hike in student credit card debt? Even as tuition and fees continue to rise, many lenders are pulling back on private student loans, making it harder for some students to afford college. Though federal student loans are still easy to obtain, recent legislation has cut banks from the middleman position. This means that private lenders can no longer fund their loans via banks, and are thus tightening the criteria by which future students may obtain loans.
One USA Today article that correlates rising student credit card debt with rising tuition and fees states, “The amount of debt of the average college student holding 1 credit card after college has risen from approximately $2,169 in 2004 to $4,138 in 2008.” When financial aid doesn’t cover the cost of living, unknowing students often turn to credit cards. It is estimated that today’s college graduates have around 41% more credit card debt than graduates did just four years ago. A large chunk of America’s young adults are simply strapped, with few resources left to tap.
Loaded with Loans and Nowhere to GoSuch figures only continue to rise. Many indebted students don’t even make it to graduation as the demands of their debt force them to drop out. In an increasingly competitive job market, those who are forced to drop out due to debt face even taller challenges when searching for a job.
Allan Collinge, author of The Student Loan Scam, writes, “It’s quite typical that a borrower who has trouble with student loans also has significant credit card debt, and is entering the toughest job market in recent years.” In fact, a survey by the National Association of Colleges and Employers finds that only 20% of 2009 college grads have been hired to jobs for which they’ve applied. Couple this with rising numbers of students graduating with more than $7,000 or more of credit card debt, and the financial picture of 20-30 somethings will continue to remain bleak.
College Students are a Credit Card Company’s DreamCredit Card companies do not play the fool when profiting off of university students. Various factors specific to this time of life generally make students incredibly vulnerable. Everything from crazy schedules to general lack of knowledge allows credit card companies to set a snare for the college population.
First, college students have so many things on their minds that it can be difficult to remember to pay bills on time. Though this is true of any age group, college students are unique because they generally do not have much experience juggling the pressures of school while handling their own finances for the first time. If a consumer makes even one late payment on a credit card, this is usually ground for the credit card company to hike interest rates and impose penalty fees.
Further, most students do not understand that making only the minimum payment will trap them into paying on an original balance for years. Yet, statistics show that only 15% of college students pay their bill in full each month. To make this already grim situation worse, statistics also show that 9 in 10 students use plastic to pay for school expenses. This wouldn’t be such a costly mistake if the bills were paid in full each month. However, making merely the minimum payment will leave these students paying off those books and supplies for years to come. Learning from experience is valuable, but in the case of credit cards it sure is costly.
More than Book KnowledgeExcessive credit card debt among college students points to lack of crucial knowledge in two main areas: personal factors that lead to overspending and general financial wherewithal. Significant lifestyle change, along with the time demands of college courses can lead to increased stress, anxiety, depression, eating disorders, and a host of other psychological issues.
Studies show that perceived financial well-being appears to be related to overall psychological well-being. Recent findings from a 2008 University of Minnesota study conclude that debt and stress are tied to a variety of adverse health indicators. These factors were as diverse as ‘excess television viewing, overweight/obesity, lack of exercise, skipping breakfast, eating fast food, lack of weight control, body dissatisfaction, binge drinking, substance abuse, and violence.’ It seems that the many challenges of college life serve as barriers to a well-balanced life, including healthy finances among students.
In addition to increased knowledge of oneself, such as limits and ways to eliminate stress, college students need better financial knowledge in general. Lack of knowledge of how late fees and minimum payments work contribute to the growth of credit card debt ‘cancer.’ Students are largely misinformed about how credit works. Sheri Detweiler, education advisor for debt counselors of America says, “Students figure, ‘I’ll live like I want now and then when I get a job it will be easy to pay it back,’ though often it’s not.” “When students fall behind by only making the minimum payments, it can often take up to 12 years just to pay back a balance of $1,000 at an annual 18% interest rate,” says Detweiler.
Students who reason that they will sort out their finances after college while continuing to make poor decisions in college are in for a rude awakening. Many students will end up paying on both student loans and credit cards while often relocating and searching for employment in a difficult job market. Students need to set goals about the amount of debt they can safely leave school with, and stick to these parameters.
Students will be all the wiser, and have much more peace of mind, if they choose to tackle financial issues early on. Knowledge needs to transcend the classroom to real life if college students expect to get ahead after graduation.