Student debt threatens future financial stability
Prajwal Sharma
Issue date: 4/7/05 Section: Indepth
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"Both of my brothers had a lot of credit card debt in college, so my parents insisted that I don't get a credit card," she said. "I will not have a penny in credit card debt when I graduate, which is awesome. There are so many interests to pay off."
These interests come in the form of a finance charge - which could be as high as 20 percent on the unpaid portion of the student's bill each month - the annual fee, the cash advance fee and the late payment fee, according to the College Board Web site, which primarily focuses on preparing high school students to enter college.
More than 83 percent of college students have at least one credit card, according to the HSH Associates Web site, which publishes the country's consumer loan information.
Freshmen have the lowest rate of card possession among undergraduate students - about 54 percent of freshmen have a credit card. The percentage of students who have at least one credit card, however, increases to 92 percent sophomore year, according to the HSH Associates Web site.
Sophomore Hristo Pepelanov said he decided to get a credit card his sophomore year because he needed to have some money available at all times. He applied for a student credit card with a maximum spending limit of $1,000 from U.S. Bank, he said.
"It's helpful sometimes, but it's a burden most of the times because you have to check dates and pay off in time," he said. "Sometimes I have been down to $700 in debt, and I end up paying a lot of interest."
Pepelanov said his parents know the situation he is in and don't ask him to do away with his credit cards. In fact, he said he is considering applying for another credit card in the near future.
"I know the interests are high, but I need the money," he said. "I don't know in how much debt I will be when I graduate."
Pepelanov has an on-campus job that pays him about $300 every month. However, he said he still pays a good portion of his fees with his credit card.
"It's not enough for anything," he said.
Ninety-six percent of graduate students carry an average of six credit cards, and the average student total credit card balance is $2,347. Graduating students have an average of $20,402 in combined education loan and credit card balances. Sixteen percent or $3,262 of that debt for final-year undergraduate students is from credit cards, according to the HSH Associates Web site.
The four main reasons college students have credit card problems are the extension of unaffordable credit card lines, increasing education-related expenses, peer pressure to spend and financial naiveté, according to Robert Manning's book "Credit Card Nation."
Senior Erin Willis said she first had a credit card with a $500 spending limit, but she soon applied for another one with a $3,000 spending limit. She now has about $2,000 in credit card debt and frequently has been paying interest, she said.
"I have lost count of the number of times I have paid late payment fees," she said.
Willis said her credit card debts increased four-fold after she made a trip to Louisiana with her friends.
"At one point, I had about $500 [in debt], which wasn't so bad," she said. "In New Orleans, pretty much everything went on my credit card."
Willis said she has been trying to keep her spending under control for some time now. However, she said saving becomes a problem when she takes her credit card everywhere with her.
"You don't know anything with [credit cards]," she said. "Once you use them, you never stop."
Credit cards still can be useful to students although they should be sure to use them for the right reasons, Willis said.
"It's really better not to use [them] when you go shopping," she said.
Some ways to avoid difficult financial situations are using debit cards instead of credit cards, reading credit card applications carefully, using credit cards only when certain to repay debts, avoiding impulse shopping, saving credit cards only for an emergency and paying bills in time to keep charges at a minimum, according to the College Board Web site.
Willis said she thinks not all students need credit cards.
"You should really sit down and think," she said. "See if you really need it. If all you are putting on your credit card are DVD purchases, you probably don't need it."