With the recession deepening and tuition skyrocketing, college students are looking to their credit cards and amassing debt at record levels, according to a study by Sallie Mae.
|More students turning to plastic|
|College students are relying more on credit cards: Average balances are climbing while the number of students who pay off their balances is plummeting.|
With the recession deepening and tuition skyrocketing, college students are looking to their credit cards and amassing debt at record levels.
According to a study released April 13 by leading student loan company Sallie Mae, 84 percent of undergraduates have a credit card, which is up from 76 percent in 2004 and 67 percent in 1998, and half of all college students have four or more cards. The average credit card debt undergraduates carried in 2008 was $3,173, the highest since the study began in 1998.
The No. 1 reason college students got a credit card was because they didn’t have enough “savings or financial aid to cover all the costs,” according to the study titled “How Undergradute Students Use Credit Cards.” A likely cause: College tuition and fees have increased 439 percent over the past 25 years. Median family income has risen just 147 percent, according to a study by the National Center for Public Policy & Higher Education.
However, students aren’t using their cards to pay for tuition and books alone. Of the 92 percent of undergraduates who have charged a college-related expense, only 30 percent charged tuition, and only 17 percent charged room and board. The most commonly charged school-related item was textbooks; the most commonly charged nonschool-related item was food.
“Too many students are at risk of overpaying for college by pulling out credit cards to pay for textbooks or even part of their tuition bill, instead of using less expensive financial aid to cover these items,” said Marie O’Malley, director of consumer research for Sallie Mae and author of the study, to the Washington Post.
As students charge more , fewer carry zero balances. In 2004, 69 percent of freshman reported having a zero balance. But in 2008, only 15 percent of freshman claimed the same. Also, the median debt a freshman carried was $939, which nearly tripled the 2004 amount of $373. Seniors graduated with an average debt of more than $4,100, and close to one-fifth of them have a balance of more than $7,000.
About one-third of undergraduates said they had never or rarely discussed credit cards with their parents, so it’s no surprise that almost all undergraduates, or 84 percent, said they needed more education on financial management.
Sallie Mae conducted the study by randomly sending a survey to undergraduates, ages 18 to 24, who had applied for credit-based alternative and private loans in March 2008. It resulted in a sample of 1,200 students, and a margin of error of plus or minus 4 percentage points.
See related: 6 tips for college students considering 1st credit card, Why students pay for college with a credit card, and how to avoid it, Campus credit card regulation brewing … again