Credit Card Usage and Debt among College and University
Students. ERIC Digest.
by Holub, Tamara
Since the late 1990s, lawmakers, college officials, consumer advocacy
groups, and higher education practitioners, have become increasingly concerned
about the rising use of credit cards among college students. A recent study
has shown that both the number of students owning a credit card as well
as the amount of credit card debt held by students has risen in the last
couple of years (Nellie Mae, 2000). Since eighteen year-olds in most states
are eligible for a card without parental consent or employment, many have
been concerned that students will use credit unwisely because of their
financial inexperience and suffer the long-term consequences of carrying
high debt (U.S. General Accounting Office, 2001, June, p. 1).
NELLIE MAE AND TERI/IHEP SURVEYS
In 1998, The Education Resources Institute (TERI) and The Institute
for Higher Education Policy (IHEP) conducted a survey about credit card
usage among college students by using a stratified random sampling method.
The majority of the students surveyed were undergraduates. This report
found that almost two-thirds of the students owned at least one credit
card and one in five of those students had four or more credit cards (The
Education Resources Institute, 1998, June, p. 9). The majority of students
(82%) surveyed reported an average balance of $1,000 or less (The Education
Resources Institute, 1998, June, p. 11). In 2000, Nellie Mae, a prominent
lender of educational loans, examined credit card ownership among undergraduate
and graduate students who were applying for credit-based loans with Nellie
Mae. Their survey found that 78% of undergraduates (aged 18-25) have at
least one credit card. Ninety-five percent of the graduate students surveyed
had at least one card. Undergraduates carried an average balance of $2,748
while graduate students carried an average balance of $4,776. Nellie Mae
also found that of the 78% of undergraduates with a card; 32% have four
or more cards; 13% have credit card debt between $3000-$7000; and 9% have
credit card debt greater than $7,000 (Nellie Mae, 2000).
THE ADVANTAGES AND RISKS OF CREDIT CARD OWNERSHIP AMONG STUIDENTS
A study conducted by the U.S. General Accounting Office in 2001 found
that most college administrators viewed credit card usage by students as
something positive. (U.S. General Accounting Office, 2001, June, p. 2)
They cited the advantages of using a credit card for establishing credit,
medical or family-related emergencies, making travel arrangements and reservations,
payment conveniences such as shopping by telephone and the Internet, and
cash less transactions (U.S. General Accounting Office, 2001, June, pp.
3, 9). Indeed, the TERI/IHEP report showed that 77% of students used their
credit card for routine personal expenses and 67% of students used it for
occasional or emergency expenses (The Education Resources Institute, 1998,
June, p. 10). The survey also reported that most students used their credit
cards responsibly. Many students, 59%, pay off their balances right away.
Of the 41% who carry a balance, 81% pay more than the minimum balance due
every month (The Education Resources Institute, 1998, June, p. 11).
However, the disadvantages of owning a credit card can outweigh the
advantages, especially for students who have student loans and credit card
debt and/or students that charge tuition and fees. The TERI/IHEP survey
showed that many students are using their credit cards to pay for education-related
expenses such as tuition and fees (12%) and books and supplies (57%). (The
Education Resources Institute, 1998, June, p. 10). One in five respondents
charged tuition and fees at some time; of these students, 57% paid the
balance immediately, and 43% carried over the balance (The Education Resources
Institute, 1998, June, p. 12).
The TERI/IHEP survey found a connection between student loan debt and
the ownership of credit cards - 33% of the respondents reported having
at least one credit card and student loans (The Education Resources Institute,
1998, June, p. 17). Loan recipients were also more likely to carry over
credit card balance than non-recipients (The Education Resources Institute,
1998, June, p. 17). The U.S. General Accounting Office survey reports that
the average undergraduate student loan debt upon graduation is $19,400
(U.S. General Accounting Office, 2001, June, p. 3). Students who have not
adequately planned for their financial future may be unable to handle payments
for credit cards, student loans, and living expenses after college. Excessive
debt and inability to pay can lead to damaging credit reports that can
inhibit future plans such as buying a car or renting an apartment. A poor
credit record or high debt can impede a student's chance of finding a job
after graduation or result in higher rates for car loans or mortgages.
(The State of Iowa, 2000) In extreme cases, high debt levels could lead
to personal bankruptcy (U.S. General Accounting Office, 2001, June, p.14).
Besides financial considerations, there are academic and psychological
risks associated with students accumulating high debt. According to Iowa
Attorney General Tom Miller, an increasing number of students are accumulating
high credit card debt with serious long-term consequences (The State of
Iowa, 2000). One of those consequences, according to an Indiana University
administrator, is an increase in student dropouts due to unmanageable credit
card debt (The State of Iowa, 2000). Mr. Miller also argues that excessive
debt can lead to psychological problems such as stress, and in extreme
cases even suicide. Highly publicized cases of students who committed suicide
apparently due to the anxiety related to their unmanageable credit card
debt have forced lawmakers, consumer groups, and colleges to take a closer
look at this issue. (See Hoover, 2001; Loyal, 2002).
CREDIT CARD SOLICITATION ON CAMPUS
Credit card solicitation on college and university campuses is a common
occurrence. The TERI/IHEP study found that 24% of students applied for
a card through a campus representative or advertisement. Students also
reported applying through the mail (37%) or at a business (36%) (The Education
Resources Institute, 1998, June, p. 30).
Some campuses restrict solicitation in some way while state laws mandate
other college solicitation policies (U.S. General Accounting Office, 2001,
June, pp. 25-26). Meanwhile, numerous colleges and universities form multi-million
dollar partnerships with credit issuers, which encourages students to apply
for credit. (see Hoover, 2001; Loyal, 2002; Pinto, Parente & Palmer,
Officials and students have complained that issuers do not significantly
inform students about important credit terms such as available interest
rates or penalties that are written in disclosure statements. In response,
some colleges require credit card issuers to hand out additional materials
about credit terms to students. (U.S. General Accounting Office, 2001,
June, p. 28).
COLLEGE POLICIES THAT PREVENT STUDENT DIFFICULTIES WITH CREDIT CARDS
William Stanford, the director of financial aid at Lehigh University
recommends that campuses inform students as soon as possible about how
to use credit responsibly. Additionally, he advises campuses to control
solicitations, curtail bookstore promotions, establish a working relationship
with the nearest Consumer Credit Counseling Services office (call 800-388-2227
for the nearest location), offer workshops during freshman orientation,
provide information via the campus website, communicate with senior class
members, inform residence hall counselors, and discourage the use of credit
cards for making tuition payments (Stanford, 1999, pp. 15-17).
STATE LAWS LIMITING CREDIT CARD SOLICITATION AT HIGHER EDUCATION
Between 1999 and May 2001, at least 24 states enacted legislation to
either study the effects of credit cards on college students or to limit
credit card solicitation at higher education institutions. Legislators
were influenced by parents of college students, student groups, and by
negative media portrayals of credit card solicitation on campuses. (U.S.
General Accounting Office, 2001, June, p. 53). For a complete list of this
state legislation, see Appendix II of the U.S. General Accounting Office's
report, "Consumer Finance: College Students and Credit Cards" (U.S. General
Accounting Office, 2001, June, pp. 53-66).
The Education Resources Institute, The Institute for Higher Education
Policy (1998, June). Credit Risk or Credit Worthy? College Students and
Credit Cards. A National Survey. ED 421 069
Hoover, E. (2001, June 15). The Lure of Easy Credit Leaves More Students
Struggling with Debt [Electronic version]. The Chronicle of Higher Education,
pp. A35-A36. EJ 629 655
Hoover, E. (2002, January 23). ACLU Asks Nevada College to Stop Selling
Student Data to Credit-Card Companies [Electronic version]. The Chronicle
of Higher Education.
Loyal, T. (2002, March/April). Don't Leave College Without It. Mother
Jones. Retrieved April 23, 2002 from http://www.motherjones.com/magazine/MA02/creditcards.html
Nellie Mae (2002). Credit Card Usage Continues among College Students.
Retrieved April 16, 2002 from the Nellie Mae web site: http://www.nelliemae.com/library/cc_use.html
Pinto, M.B., Parente, D.H., & Palmer, T.S. (2001, January/February).
College Student Performance and Credit Card Usage. Journal of College Student
Development, pp. 49-58. EJ 624 498
Stanford, W.E. (1999, March/April). Dealing with Student Credit Card
Debt. About Campus, pp. 12-17. EJ 600 836
The State of Iowa, Attorney General's Office (2000). Iowa Attorney General
Consumer Advisories. Credit Cards on Student Income: Proceed with Caution
- and Shop with Care! Retrieved April 18, 2002 from the State of Iowa official
web site: http:// www.state.ia.us/government/ag/consumer/advisories/student_creditcard
U.S. General Accounting Office (2001, June). Consumer Finance: College
Students and Credit Cards. Retrieved April 16, 2002 from the U.S. General
Accounting Office web site: http://www.gao.gov/new.items/d01773.pdf%20ED