The results are troubling for economists. In a country riddled with consumer debt — the next generation of American consumers, college students, seem to be following in their parents’ footsteps, falling deeper and deeper into debt.
A 2012 multi-college survey of mostly business students indicated 70 percent of American undergraduates and 96 percent of graduate students presently hold personal credit cards. More than 90 percent of them carry a monthly balance.
Much to the surprise of survey analysts, five out of six of those students were reportedly not aware of their credit card terms and conditions, in spite of signing an agreement with a bank or credit card company. According to the survey, 75 percent of these students did not know what their late payment charge would be and 70 percent were unaware of the over-balance fee.
With student educational loan debt already reaching the $1 trillion dollar mark this year, the addition of credit card debt deeply concerns financial analysts.
It’s one thing to be financing college textbooks or course hours to be paid off monthly, they say, but it’s another to pay interest using a credit card for everyday consumables, such as coffee, gasoline and late night pizza.
Curbing Student Credit Card Debt
In 2009, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act went into effect in an attempt to reduce student debt by limiting the marketing of credit cards on or near a college campus. Companies were also prohibited from enticing students to apply for credit through the use of gifts, such as pizza, hats and T-shirts closer than 1,000 feet on campus.
While the law prevented credit card issuers from obtaining student addresses for people under the age of 21 without customer request, students still received pre-screened offers as the result of colleges sharing addresses with credit card companies. As a result, 58 percent of college students who responded to a study indicated they received a credit card company solicitation.
In an attempt to continue to curb the long-term financial repercussions of credit card debt for young people, a law was passed in 2011 which states people under 21 must have consent from a parent to obtain a credit card if they cannot prove an income, which excludes a great number of college students as the new rules require the signature of a parent.
Effects of Credit Card Debt
According to Sallie Mae, it is estimated the average college student graduates with more than $4,000 in credit card debt. This amount, in addition to the typical student loan debt which increased to $25,000 in 2010, will make it more challenging for college graduates entering the real world.
Economists fear what the debt load will mean in the long term as these young people search for jobs and try to balance everyday living expenses while paying off old credit card balances. In addition, such a debt load might make it more difficult to obtain a mortgage as a first-time buyer.
As a result, such a financial obligation at such a young age may also alter the timing of many rites of passage, such as marriage, home ownership and children, a change which ultimately may affect the economy over time.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].