|
Personal finance for college students:
How did this happen?
College graduates across America are leaving campuses and heading to the workplace with higher amounts of debt following them. Many of these college graduates spent their four years at college using loans to pay for their educations and credit cards to support their lifestyles, all while taking on more debt to pay for the newest cars and ignoring the importance of saving.
The steady rise of college tuition is partly to blame. The average cost of attending a public four-year university has increased from $10,375 in 2001-02 to $12,796 in 2006-2007. The cost of private four-year institutions has increased from $27,404 to over $30,000 during the same years. What does this mean? For one thing it means more student loans and higher loan amounts. The average amount of federal student loan debt currently averages around $20,000 compared to $7,650 in 1993 according to the National Postsecondary Student Aid Study.
Not only is the amount of debt growing but also the number of students who take on the debt. In 1993, less than half of all college students graduated with debt but by 2004 two-thirds of college students graduated with debt from educational loans. The rise in the number and size of school loans in the past decades is due not only to the rising cost of college but the ease of getting the loans. Most federal education loans require no credit check; they can be deferred until six months after graduation and offer low interest rates. Because of the ease of getting these loans, most students receive more money than is needed for college-related expenses. Loan refund checks can total thousands of dollars for some college students. While many students use their refund checks responsibly by using them to start paying off their college loans or paying for necessities like rent or food there is a high percentage of students who use their loans for the newest computers, the biggest TVs or the best clothing. Approximately two out of every three college graduates start their careers with an average of $20,000 in school loans and that doesnít include credit card debt that students are racking up.
There has long been the clichÈ of the "broke college student" who survives on ramen noodles waiting impatiently for their allowance from home to arrive. For an ever-increasing amount of traditional college students the answer to the problem is their credit card. Itís all about the idea of ìfree money.î All you have to do is swipe your card and worry about it later. An estimated 75 percent of all undergraduates hold at least one credit card, up from 67 percent in 1998, and half (47 percent) of all students who hold credit cards have at least four cards. According to student loan center Nellie Mae, the average credit card debt of all card-using undergraduate students is $2,327 and around 21 percent of seniors with credit cards have credit card debt totaling $3,000 to $6,000.
Thousands of students across the country are accepting them. Besides sending their offers through the mail, the Internet or by phone there are some creditors who are targeting students right on campus. The University of Iowa and Iowa State University both have contracts with Bank of America to market their credit cards on their campuses. The contracts guarantee Bank of America access to the personal information of both students and their parents as well as the access to advertise on campus. One gimmick that the company uses is a chance for their best customers to have lunch with the Iowa football team. While the credit card companies are out trying to get new and promising young customers, what is it that causes college students to use these cards so irresponsibly? A lack of education of personal finance can be to blame. Very few, if any, high schools have courses that focus on preparing teenagers to handle their own finances when they leave home. Many parents donít fully explain finances to their children either. They may try to teach lessons by offering chores in exchange for an allowance or making their children work and make their own money but credit cards can be a conversation all their own.
Because of this, young people are leaving home and living on their own for the first time ever with almost no knowledge of credit cards. The pressures of college can lead them to want things that they cannot afford such as new computers, clothes, furniture and even spring break vacations. Many college students donít have the money for these luxuries and so steps in the credit card. Typically, the students who could not afford the items that they charged in the first place cannot afford to pay off their balances each month so many only pay the minimum payments. This is why statistics show that the average balances on student credit cards raise every year and are at their height at graduation. So, 75 percent of undergraduates holding credit cards with an average balance of $2,327 and two thirds of college students graduating with an average of $20,000 in school loans. All put together the average total debt of college graduates, including both school loans and credit card debt averages upwards of $21,000 according to Nellie Mae. Now that you know how this can happen, learn how you can avoid it. »» – by Natalie Quiles |
