Student Credit Card Debt Rising at an Alarming Rate According to Study

By Michael Killian, CardRatings.com Reporter

Editor's Note: This article is an interview with Dr. Mary Ann Campbell, CFP, an instructor of Personal and Family Finance in the Family and Consumer Sciences Department of the University of Central Arkansas.

A recent national study by Sallie Mae, the nation's leading provider of student loans and administrator of college savings plans, found a rising number of college students using credit cards for tuition. The findings suggest average student credit card debt for direct undergraduate education expenses is $2,200. The study also found that 30% of students put tuition expenses on their credit card, an increase from 24% cited in the last study in 2004. Finally, the study showed that 92% of undergraduate credit card debt included textbooks, school supplies, or other direct education expenses, up from 85% in the previous study.

Dr. Mary Ann Campbell, CFP, is an instructor of Personal and Family Finance in the Family and Consumer Sciences Department of the University of Central Arkansas. Dr. Campbell has a personal Web site at Money Magic. She offered her insight to these student credit card findings.

Mike: One response to the Sallie Mae report suggests that using a credit card is wise because you can earn rewards from a credit card. Any comment?

Mary Ann:Very few of my college students have the credit card wisdom, use experience, or role models to be savvy regarding "reward cards." They are excited to learn about reward cards in class or from Curtis Arnold's book, How You Can Profit From Credit Cards because not many learn about reward cards at home. In fact, they cite they are told to have no credit cards at all because of parents' negative experiences, or they see parents under stress due to credit card debt.

Mike: In 2001, a CBS expose suggested 10% of college students owe $7,000 or more in credit card debt. The Sallie Mae study suggests this trend has now increased. What are your feelings on this issue and should we be doing anything about it?

Mary Ann: I find it increasingly alarming to see the amount of credit card debt many of the college students in my classes are carrying. I see individuals, single mothers, and couples carrying impossible amounts of debt. They retrieve their credit reports from www.annualcreditreport.com and share with me charge offs, late payments, and other major blemishes on their young reports.

On the other hand, I have many students who have no credit, or have a reasonable amount and are not only using it wisely, but are actually saving money while they are in college. I don't quantify them, but perhaps I should to track the trend in a more factual manner.

Mike: How can we improve this situation and is federal legislation needed?

Mary Ann: To me, the most important improvement needed is to immediately cut the exorbitant credit card interest rates now, not in July of 2010. Yes, legislation is needed to halt universal default. The banking industry lobbyists have definitely out muscled the consumer lobbyists. People who are working to pay off their credit cards deserve more fairness as they work to do so.

Mike: Do you have any other comments you would like to add?

Mary Ann: Yes, effective money education has big pay offs for individuals, families, businesses, and our communities and nation as a whole. We need to increase and strengthen a level playing field in the credit card arena coupled with early money education beginning in junior high school.

I personally find this report alarming and am thankful for Dr. Campbell’s insights. When I conducted this interview, Congresswoman Maloney's landmark Credit Cardholders' Bill of Rights had not been voted on by the U.S. House. This legislation, which passed the House today and will be voted on by the Senate soon, may help reverse the negative trend discussed in this article. Among other things, the bill would limit the credit lines of college students without a co-signer, require creditors to obtain proof of income before issuing a student credit card, and require parents to agree in writing to credit line increases on card accounts that they are co-signers on.

Change is happening folks and I for one am optimistic that we are at a turning point. Our students deserve a better future and I think they just might get some assistance soon.

What do you think about student credit cards and student debt in general? Would love to see your comments and questions on our active credit card forum.

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This article was written by Mike Killian, Founder of Learning Credit and Debt Management. Mike has been writing about credit and debt management issues that are of importance to consumers for over 8 years. His articles have been referenced by various members of the media, including MSNBC and The Motley Fool. Mike has also offered debt elimination seminars to businesses and community colleges for many years.

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Student Credit Card Tips for Parents (Part 3)

By Curtis Arnold, CardRatings.com Founder

Editor's Note: This article is the third in a four-part series containing consumer tips for parents of children and young adults.



By the time your children enter high school, it’s crucial that they can separate out the marketing messages related to the incredibly tempting card offers they’re about to get … if they’re not receiving offers already.

Watch out! Card issuers know how much money we spend on our teens – and how much of their own money they spend. High schoolers are still a relatively untapped market (“unserved” in lender lingo), and issuers are going after this market with “prepaid teen cards” -- some of which accept 13-year-olds.

In response, we have to “double-down” on our efforts to teach teens the importance of budgeting and making conscious choices about spending, borrowing, and saving. For help, I recommend:

1. CreditCardNation.com, the site of Dr. Robert D. Manning, author of Credit Card Nation (Basic Books, 2001). Take his financial literacy quiz with your teen, and check out his budget estimator, which offers average salaries for various careers. Play around with the numbers and let your teen try to make ends meet.

2. The Jump$tart Coalition for Personal Financial Literacy, which has an online database for parents and students interested in learning more about personal finance, including credit matters.

Should Your Teenager Get a Credit Card?

I see valid arguments on both sides of this issue. While I’d never advocate a card for every teen, there’s security in knowing that your teen has a back up for emergencies. Also, believe it or not, using a credit card is safer than using cash and offers more consumer protections than a debit card. If your teen's credit card is lost or stolen, chances are, there’ll be zero liability for unauthorized charges. But most important, in my humble opinion, is that your child will have had experience with credit cards and all of their hidden traps … before they’re deluged by the “No credit check, no co-signer or no income!!” offers when they reach college. Ultimately, though, there is no black and white answer on this issue and I think a lot depends on individual circumstances.

There are now many prepaid cards geared to pre-college teens (teens normally aren’t legally allowed to get a credit card in their own name until they’re 18).Visa’s Buxx card, for example, is promoted as being parent-controlled, re-loadable, and a great way to teach budgeting and money management to teens. When it first came on the market in 2001, the Buxx card sparked a great deal of discussion. Now, there are several versions of this type of card, with a variety of enrollment and reloading fees.

Don’t be surprised if you’re soon pressured to get one by your teen! These cards are marketed to them as cool status symbols that make it easier to get the latest “must-have” stuff. The best of them offer online tools designed to help parents teach their youngsters about money, credit, and debt. Some also try to motivate high schoolers to learn more about managing money. Unfortunately, some focus mainly on encouraging teen spending and just give the education component lip service.

Many parents are attracted by the convenience of these cards, which can eliminate much of the need to give cash to their teens – meaning they’ll be spared numerous trips to the ATM and bank. I can also see them being of some benefit to parents who want to modify Elisabeth Donati's advice, and use a card for some of the money being spent THROUGH their kids, not just ON them.

Another plus is that prepaid cards are a lot less risky than typical credit cards, where you’re the one whose credit will take a nose-dive if your child does something irresponsible with your card … like taking out a huge cash advance. With a prepaid card, there’s only so much your teen can spend (the amount that is loaded on the card).

Unfortunately, most prepaid cards come with all sorts of fees that really add up. So while I’m all for teens getting some real experience with plastic before they leave home, the current prepaid teen cards leave much to be desired. I’ll bet better teen cards will be marketed soon, and in the meantime, you have other options that can save on the fees associated with teen cards.

For example, you can get a low-limit credit card, and let your teen be an authorized user. The downside is that your credit rating is the one that will be on the line, because you’ll be the primary account holder. If you’re choose this option, make sure you limit your risk by asking for a very low limit on the card, such as $200 or $300. One upside to this option is that this technique may help your teen start to establish a credit history as some card issuers report authorized users to one or more of the 3 major credit bureaus.

A final option is to get your teen a debit card (aka check card), and give her or her instant access to their own money in their checking account -- not money borrowed from a card issuer. One potential negative drawback is that instant access means a thief can spend all the money in a checking account in minutes, leading to bounced checks, overdraft fees, and a major headache.

If you’re going to allow your kids to use debit cards, make sure to find out the bank’s policies on debit card liability... If your child’s account is exposed to fraudsters, it will typically take hours to straighten things out – including credit reports and scores – even if all the money’s returned and the fees reversed. For additonal help, you can visit our student credit cards section to research the best student cards!

This article was written by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. His new book, How YOU Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line is available now! Order online and receive up to a 32% discount.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Win-Win Credit Card Solutions for the Unbanked or Underbanked and Lenders

By Curtis Arnold, Founder of CardRatings.com


I was honored to speak at this summer’s meeting of the Responsible Credit Roundtable, organized by the Center for Financial Services Innovation. The Center brings credit card industry execs and non-profit leaders together to come up with ways that the public can be better served … without hurting the creditors’ bottom line … of course! Members include major players, such as: Experian, FairIsaac, Wells Fargo, Visa, USBank, National Foundation for Credit Counseling, Federal Reserve of Minneapolis, Take Charge America, and Target.

I spoke about the benefit to lenders in lowering and/or ditching nuisance fees as a revenue source and instead, offering responsible cardholders better incentives. We all have a pocketful of plastic, so the card issuers who dangle the juiciest carrots are the ones that’ll get our business. The cardholder wins by getting cash back, for example, and the lender wins by increasing business.

One of the most interesting win-win situations that I learned about through the Roundtable was a study conducted by Wells Fargo, which sent out a mailing to almost 78,000 randomly selected new college cardholders, offering a 60-minute phone card in exchange for completing an online credit education program. The good news is that the students who completed the program had much better payment records than the control group -- despite using their credit cards more. Moreover, they were less likely to carry a balance. Those who did, had lower balances and paid off more of them. In short, they used their cards more responsibly than the control group, so teaching people about credit early on seems to benefit both the students and the bank.

Despite the fact that only 6.65% of the experimental group completed the online education (this is a very good response rate for a study like this believe it or not), Wells Fargo sees the possibilities in this win-win situation and is now offering online education to all new student accounts. I think that’s great!

These days, the incentive is free song downloads, which I hope will appeal more to college kids than the phone cards. I think they will – which did you prefer way back when -- phoning home or listening to your fav music?!

The Center for Financial Services Innovation is a pretty interesting place, by the way. It develops and distributes research aimed at finding win-win situations for "underbanked" consumers and lenders. The Center is an affiliate of the innovative ShoreBank, which is the country’s first community development and environmental bank. Both of these sites are well worth perusing! Let us know what win-win situations they bring to mind for you!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. Curtis is currently working on publishing a book about credit card usage with Pearson/Prentice Hall- more details forthcoming!

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!