Every day thousands of students put themselves into extreme debt. College students owe almost half the nation’s $285 billion credit card debt. The Federal General Accounting Office says students are graduating with an average of $19, 400 in student loans. Average student credit card debt rose from $1,879 in 1998 to $2,748 in 2000, according to the student loan agency Nellie Mae. As college is becoming more critical to finding a well-paying job, tuition continues to increase. Throughout the 1980s and 1990s, college costs rose faster then median income and faster then financial aid. Students are forced to obtain an education on money they do not have.
Adding to the problems, a third of students have four or more credit cards.
Nearly one in four college students owes more then $3,000. What some college students don’t realize is that the financial decisions they make at a young age are going to affect their future. Students look forward to graduation, often intending to purchase a car, a home, or to start a family. In reality, the majority of students are graduating with huge debts.
Greg Pratt, economics instructor at MCC, defined debt in three ways: student loans, credit cards and purchase assets and reasonable debt. “Students don’t understand the true meaning of debt,” said Pratt. However, Pratt does not blame college students’ outrageous debt on irresponsibility or credit card companies. “Students are just spending rationally in their own sense. I am convinced it happens at the age of 10.
Students pick up these spending habits and values from their parents and their environment.”
For the students racking up student loan debts, the federal government carries some of the responsibility for their financial situations. Within the past 20 years the federal government decided they couldn’t (or wouldn’t) pay for students’ education. Therefore, the burden is on the state.
With rising tuition rates to consider, students often have no choice but to resort to credit cards and student loans. According to Pratt, credit card companies are not to blame. “We live in a free market society,” explains Pratt. “Credit card companies are not forcing anyone to actually use their cards, much less to not pay their bill and incur more debt.
Credit card companies are just doing their job, like any other industry. It’s all just another business.” Students should take responsibility for obsessive spending of consumption goods, Pratt suggests.
“If you don‘t have the cash to eat out, then you can’t afford it. So why use a credit card?” This is what Pratt calls reasonable debt. Students believe that spending money on clothes and food is a necessity. Nevertheless, if they are using a credit card, then essentially they do not have the money to spend.
The cycle of credit card debt does not end at college. Making the leap from college to real world without some kind of credit history can seem almost impossible. Pratt offers suggestions to make this transition easier for college students. Finding the lowest interest rates possible, a low or no fee card with a 25-day grace period will aid in avoiding additional charges. Also, students should not spend money unless, and until, they have it.
That means when they have no cash, a credit card does not become a substitute for it. Students should limit irresponsible spending, and should create a budget, using credit cards only for true emergencies. Student loan services should be used as a last resort, after the student has searched for scholarships and considered starting a college fund savings account.