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The Recession Hits Campus: College Students and Credit Card Debt

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The cost of college has spiraled upward, in spite—and in some cases because—of the deep recession. Tuition increases at public universities have outpaced those at private universities, and some states are so strapped for cash that they have been charging students hundreds of dollars in “surcharges” until the financial outlook improves. Many students have been forced to finance their education the way so many Americans finance their lives: on credit.

Students carry more cards than ever. The likelihood that an undergrad has at least one credit card (1 in 1.19 [84 percent]) is the same as the odds a woman owns running shoes. But why stop at just one? The odds an undergrad has four or more credit cards in his or her wallet are 1 in 2.

Students also have record-high balances. Between 1998 and 2008, college students’ average credit card balance increased more than one-and-a-half times, from $1,879 to $3,173. In 2008, it was as common (1 in 4.76) for an undergrad to have a credit card balance totaling between $3,000 and $7,000 as for a man to sleep in shorts or a T-shirt.

Those numbers make for uncomfortable slumber, no matter what a student wears to bed. Forty-five percent of students report high levels of payment anxiety, perhaps because almost that many (40 percent) report charging items they know they cannot afford. Moreover, more than half of students don’t keep track of how much each swipe is worth—leaving 60 percent to be shocked at the tally on their credit card bill.

Still, it’s worth noting that college students are generally more responsible than they are reckless. A student is more than twice as likely to pay off a card’s full balance every month than they are to pay less than the minimum balance every month (1 in 5.88 vs. 1 in 14.29). And 1 in 2.63 students always carries a balance but still makes more than the minimum payment each month. And most of the charges are school-related. Ninety-two percent of undergraduate credit card holders use their cards to charge textbooks, school supplies, or other direct education expenses.

Most students—84 percent—say they would like more instruction in financial management, which would include how to manage their credit. As it stands now, much of that information comes from the card issuers themselves, who secure multimillion dollar marketing contracts with universities in exchange for a presence on campus. As the recession has hit university endowments and private college enrollment has dipped, few schools have had an incentive to reject this stream of revenue.

Nevertheless, recent legislation has changed some of the rules. In May 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act, which limits how many cards persons under the age of twenty-one can open independent of their parents and also requires card issuers and universities to disclose their student marketing and distribution agreements.

When it comes to students in the red and the black, a little more transparency might minimize their risk.

Originally published on Book of Odds


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