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).
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).
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, 2001).
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).
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).
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 .html
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 ED 454 785
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This publication was partially prepared with funding from the Office of Educational Research and Improvement, U.S. Department of Education, under contract no. RR-93-00-0036. The opinions expressed here do not necessarily reflect the positions or policies of OERI or the department. Permission is granted to copy and distribute this ERIC-HE Digest.
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