Students Realize Credit Cards Can Be Detrimental to Financial Future
Seventy-eight percent of undergraduate students nationwide have a credit history and have credit cards while they are in college.
According to a 2000 survey by Nellie Mae, a national provider of higher education loans for students and parents, these students have an average credit card debt of $2,748. Carlesha Dixon is close to fitting into that category.
All of her three major credit cards are close to the limit. Even though Dixon's parents help her out sometimes financially and she received a scholarship to come to Southern Illinois University-Carbondale, the freshman applied for two of the cards since she has been at SIUC.
"I think I will have the money, and then I have to turn in the bills," said Dixon, an English major from Chicago.
Credit card debt is one major financial problem students obtain during their time at college, especially during the holidays. But students have different expenses that can add up and complicate their financial situation, particularly at a time when going to school itself is at an all-time high.
Abhishek Verma, a sophomore in electrical engineering, said he could receive a cheaper college education in his hometown of New Delhi, India, than in the United States.
"I could get the same education here for $15,000 as I could for $1,000 in terms of dollars back home," Verma said.
He is transferring to another university soon, partly because of his financial situation while attending college in Illinois. Verma said aside from tuition itself, he lives off campus and pays a lot for his rent and bills.
"I pay about $400 a month, and what I don't spend on that also goes to bills," he said. His father helps him with his schooling fees and expenses, but he can see how many students have trouble adjusting to different expenses at universities.
"I can see how parents can give their kids $1,000 and they are expected to spend it on everything," Verma said. "They are not used to having a budget."
Mark Hoaglund keeps a fairly tight budget. Living independently at age 25, he knows not to have major credit cards and instead simply uses his check card to pay for items in an emergency. But he said with his late night studies and for easy convenience, his largest expense is dining out.
"I order [food] out every night," said Hoaglund, a senior in mathematics and computer science from Clifton. "I spend about $7 or $8 every time and I eat a lot."
Rachel Hooker, a freshman in accounting from Herrin, faces large expenses similar to Hoaglund, such as food and gas money for her SUV. But she is also worried about the loans she will have to pay once she graduates.
"I am not looking forward to that expense," Hooker said. Most college students agree with Hooker, especially since the interest on some student loans has increased slightly during the last two fiscal years.
According to a September 2002 article in the Chronicle of Higher Education, for the first time in a decade, the rate at which borrowers defaulted on student loans rose slightly in the 2000 fiscal year, to 5.9 percent from 5.6 percent the year before.
Institutions with high chronic default rates may be banned from receiving federal student aid and five colleges had default rates that endangered their participation in at least one of the federal student-aid programs at their schools. Those colleges included American Business College in Puerto Rico, Capps College in Mobile, Ala., Interboro Institute in New York City, Aims Academy in Dallas and Metro Technical Institute in Oak Park, Mich.
Institutions with default rates of more than 40 percent in one year or 25 percent or more for three consecutive years may be dropped from one or more of the federal aid programs, according to the article.
A representative from Ameridebt, a nationwide debt consolidation service, who preferred to remain anonymous, said among those customers volunteering, personal information loans were among one expense younger customers had.
She said the service could not minimize the interest or the payment of the student loan, but the service could lump the payments with other common expenses such as credit card debt for a simple monthly bill.
"This is a great for them to remember to pay one bill and not remember a bunch of small bills," she said. "And it is a good way to build some good credit history."
Chris Labyk, assistant director of the Wellness Center, has learned of the debt issues from counseling SIUC students with financial problems as well as from her own daughters.
She said that particularly with credit card applications, students need to remember debt does not go away.
"You have to pay back debt," Labyk said. "Other things people get trapped into are zero percent interest when signing up for credit cards. That interest is eventually due on the full amount."
She said college students also suffer from peer pressure from friends to spend money as well as their own spending impulses.
"A lot of students eat out or go out with friends," Labyk said. "Some people spend money when they get bored or are depressed, but it is a temporary feel.
"But it is all about time management and realizing you need to balance it all."
She said students who balance their finances while in college and while they are away from home will do better with their money once they graduate. Although Dixon's major financial problems involve the learning experiences of "plastic," she said students all have expenses they need to learn how to budget once they get away from home. And the most important lesson to learn is one of responsibility.
"Don't expect your parents to always be there, well financially anyways," Dixon said.
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