Credit cards have gotten harder for college students to get, but debit cards and mobile payment methods fill in the payment gaps.
Credit cards can give college students a convenient way to pay for purchases and a vehicle for building credit. However, college students should keep the following in mind:
- How credit compares to other payment methods
- Whether they are likely to qualify for a credit card
- The impact of rising APRs
- How to choose the right card
- The crushing effect of debt
Armed with the right knowledge, college students can make credit cards work for them.
Different ways to pay as a student
While the Credit CARD Act of 2009 led to a drop in credit card use on college campuses over the past decade, many students have turned to debit and mobile payments to pick up the slack.
In January 2019, Sallie Mae found that mobile payments had surpassed debit cards to become the most prevalent payment method used by college students.
- In fact, 86% of college students used mobile payment methods in 2019, up from 77% in 2016.
- In comparison, 85% used debit cards – the same percentage as in 2016 – and 57% used credit cards, up one percentage point from 56% in 2016.
- Most students – 81% – used cash, while 12% said they used ATM cards and 12% said they used personal checks.
Perhaps the reason students are more likely to carry debit cards than credit cards is that they have easier access to debit cards. The CARD Act requires anyone under 21 who wants their own credit card to have an adult co-signer or show they have enough income to repay credit card debt.
Of students who had debit cards in 2019, 94% had cards linked to their checking or savings account. Six percent carried a prepaid debit card and 11% had both.
Among students who use mobile payment methods:
- PayPal was the most popular in early 2019, with 62% of students using it.
- That was followed by 37% who used Venmo, 22% who used Apple Pay, 18% who used Google Pay, 9% who used Samsung Pay, 7% who used Square Cash and 4% who used Bitcoin or another cryptocurrency.
For student in-store purchases of $20 or less, 49% of students used cash, followed by 47% who used debit, 26% who used a mobile payment method and 21% who used credit.
For in-store purchases greater than $20, a majority of college students – 56% – turned to debit cards, followed by 32% who used credit, 23% who used cash and 21%who used mobile payments.
Debit cards were also the most common type of payment method used when shopping online, chosen by 51% of student respondents. Mobile payments were the second most popular method used online with 38% of students paying for online purchases that way, followed by 31% who used credit and 6% who used cash.
Students and credit
While the CARD Act made it more difficult for college students to access credit, in no way has it eliminated the college market, especially among students concerned with building credit.
- When asked why they got a credit card, 58% of respondents from the Sallie Mae “Majoring in Money” survey said they did so to begin building their credit history.
- That was followed by 30% who said they got a credit card because parents or guardians suggested they do so.
- Twenty-nine percent said they needed an easy way to buy items online, 28% said they needed an alternative to cash and 25% said they were interested in earning rewards.
But college students with credit cards often had to jump through hoops to get them. Among students in 2019, 28% said they had secured credit cards, meaning they required a security deposit equal to the credit line. Likewise, 17% of students reported having a co-signer. A quarter of students said they were authorized users on a parent’s card rather than having an independent card in their own name.
In 2019, college students reported having on average five credit cards and an average balance for the most recent month of $1,423.
Many students are optimistic about their ability to qualify for credit.
Forty-nine percent of college students believed they could qualify for a credit limit of $1,000 or greater in 2019. Seventeen percent of college students said they didn’t know how much credit they would qualify for; 5% said they would not qualify for a credit card.
While many students apply for credit to build their credit history, some are unaware of their credit scores.
In 2019, 24% of students said they didn’t know their FICO score while 19% said they didn’t have one. Of the students who did have a FICO score, 27% reported that it was between 651 and 750; 14% said it was above 750, and 14% said it was below 651.
Many students were also unfamiliar with their credit reports in 2019. Only 46% of college students had viewed their credit reports in 2019 and 19% had never viewed their credit reports. Seventeen percent of college students didn’t know whether they had a credit report.
However, new data shows that the total number of college card accounts and new accounts has declined in the past decade. The Consumer Financial Protection Bureau reports in 2020, 36,230 new credit card accounts were opened, a steep 25% decrease from 2019. Furthermore, the total number of opened accounts was 546,547 at the end of 2020, which is down 12% from 2019 and a stark 73% decrease from 2009.
Rising APRs for student cards
For some college students, a student card is their first experience with credit. Student cards are unsecured credit cards that typically have an initial lower credit limit because they are targeted toward people who have little credit history. Ideally, students can use them responsibly to make purchases, pay the balance and build credit.
While many offer benefits catered toward students such as rewards for good grades, the APRs of student cards rose amid rate hikes that began in December 2015. However, the Fed’s decision to lower the federal funds rate to near-zero amid the coronavirus pandemic in 2020 brought student card APRs down a bit.
The average APR for student credit cards according to CreditCards.com’s Weekly Rate Report was 16.78% in September 2021, up from 16.12% six months prior. And an August 2021 CreditCards.com survey of student credit cards showed the average minimum APR was 16.51% (down from 17.46% in 2019).
Rewards offered by student cards are also improving. Cash back was the most common reward offered by student cards in 2021, according to a CreditCards.com analysis, with eight out of the 10 cards surveyed touting it as a reward.
How students choose and use credit cards
According to Sallie Mae, 35% of college students in 2019 chose one particular credit card over another was because their parent or guardian either used or recommended that card. Next, 34% said the reason was that the card offered the easiest approval.
Other reasons given for choosing a particular card were cash back (32%), the card was connected to their checking account (29%) and they received rewards points (28%).
- When asked why they had multiple credit cards, the largest percentage of students – 46% – said they thought it would help them improve their credit score.
- That was followed by 40% who said they wanted to earn rewards or different rewards and 34% who said they had different cards for various purposes. For example, they might use one for everyday spending and a different one for emergencies.
- Twenty-nine percent said they had multiple cards in order to increase their total credit limit.
Students were also particular about the types of rewards they wanted, with many showing an interest in how their rewards could help them pay down other debts.
In fact, 59% of students in 2019 said they wanted rewards that could be redeemed through the automatic payment on a loan such as a student loan or car loan.
Students in January 2019 were most likely to use their credit cards for online purchases, with 50% saying they do. Also, 31% of students said they used their credit cards at stores where they have a merchant card. Another 23% said they used their credit cards to buy big-ticket items.
Some college students use credit cards to help fund their education costs, according to a separate study by Sallie Mae. In 2021, most students used federal and private student loans to cover education costs, but 8% used credit cards to help finance their education, up slightly from 7% in 2020. The average amount in college costs paid on student credit cards was $1,309 in 2021, down from $2,172 in 2020.
Debt concerns with student credit cards
While many college students use credit cards, some don’t feel comfortable with their money management skills.
- Only slightly more than half – 53%– believed they were prepared to manage money, according to a 2019 study by EVERFI and AIG Retirement Services.
- Only 35% of college students said they had taken a personal finance class in high school, and even among that group, only 55% felt they were prepared to manage money.
When it comes to credit cards, some students worry about the possibility of overspending. Approximately 23% in 2019 either somewhat agreed or strongly agreed that their credit card debt is out of control. On top of that, 22% either somewhat agreed or strongly agreed that they will have some credit card debt for the rest of their lives.
However, not all college students consider credit card debt to be a big deal. Approximately 42% agreed to some extent that they have less anxiety about credit card debt than other types of loans.
Many college students have reported using money and credit responsibly. In 2019:
- Of college students surveyed, 72% said they paid their bills on time.
- However, 55% said they track their spending.
- Next, 28% said they pay off high-interest debts first.
But not all college students used credit cards responsibly. The percentage of students who never paid a credit card bill late decreased from 91% in 2012 to 78% in 2019.
Only 60% in 2019 reported paying their credit card bills in full each month. Among the 40% who carried a balance, 26% said they pay more than the minimum and 11% make minimum payments. Only 1% reported paying less than the minimum and 2% said they weren’t sure how much of their balance they paid.
Among those who carried a balance, the average balance for the previous month was $1,423, while the average balance for the past 12 months was $1,183.
But some students vow to do better. In 2020, 57% of college students said they always make more than the minimum payment on their credit cards. On top of that, 61% said that in the next year they planned to pay their entire bill off each month to avoid interest.
Many students are also grappling with student loan debt. In 2019, the average student loan debt of students who graduated with a bachelor’s degree from a four-year public or private nonprofit college was $28,950.
People who attain graduate degrees tend to owe even more. In 2016, students who completed master’s degrees owed, on average, $66,000, while students who completed professional doctorate degrees owed, on average, $186,000, according to the Department of Education.
Though they are not as easy for college students to get as they used to be, credit cards are still an appealing option for young people looking to build credit and make convenient payments. However, students should be careful to pay their balances in full to avoid starting their financial lives with a lot of debt.
- Sallie Mae and Ipsos, Majoring in Money: How College Students and Other Young Adults Manage Their Finances, 2019
- AIG Retirement Services and EVERFI, “COVID-19 Raises Anxiety Levels for College Students by Presenting Extraordinary Health and Financial Challenges,” November 2020
- CreditCards.com’s Weekly Rate Report
- CreditCards.com 2019 Student Card Survey
- Sallie Mae: How America Pays for College 2021
- AIG Retirement Services and EVERFI, Money Matters on Campus 2019
- The Institute for College Access & Success, Student Debt and the Class of 2019
- U.S. Department of Education, Trends in Student Loan Debt for Graduate School Completers, 2018
- Consumer Financial Protection Bureau, College credit card agreements, 2021