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St. Cloud State University
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Debt problems haunt students
By Adam Johnson
Published:
Monday, October 6, 2003
Media Credit: Ryan Henry
Fourth-year student Derek St. Louis makes a withdrawal from a TCF Express ATM at Tom Thumb. Money and ongoing credit debt is a problem for many college students.
Paying for textbooks with your Visa: $350.
Buying a new foosball table with your MasterCard: $275.
Graduating from college debt free: Priceless.
Unfortunately, it probably won't happen. According to a new study conducted by loan provider Nellie Mae, the average college student leaves school with $18,900 in debt. That statistic is up a staggering 66 percent from five years ago.
"When I was 19, I wanted to get a cell phone but I had no credit," third-year student Mike Larson said. "So I got a card as a way to establish a credit record."
Larson found the card's $500 limit easily manageable, so when offers for more pre-approved cards came in the mail, he like many other students, seized the opportunity for more credit.
"I figured it was a good idea to get another card because I didn't have much money and I was fine with the one I had," Larson said.
Three years later, Larson finds himself $3,000 in credit card debt between four different cards. He makes regular payments and has almost never been behind. But still, the balances constantly yo-yo back to his credit limit, because once he starts getting his balance down, there is a constant temptation to charge it up again.
"Once I went over my credit limit, the company raised it from $1,000 to $1,500 and I thought great," Larson said.
Nellie Mae found that the reason 31 percent of college seniors have $3,000-$7,000 in credit card debt is that companies are notorious for raising the limit on their cards.
Jory Baer, a debt collector for JC Christensen & Associates, encourages students starting out in the credit world to set limits for themselves right away.
"If you get a credit card and they offer you a credit limit, call them up and tell them to cap that limit," Baer said.
He explained that increasing limit often leads to debt that spirals out of control.
Most companies offer a "student card" designed for those without credit. The cards are designed to feature low limits and introductory interest rates, and while they can help students acquire credit fast, they often prey upon the naivet� and desperation of those who use them.
"One of the main markets for credit card companies is students," Baer said. "They know you don't have the $300 you need to buy books every semester."
Thus, after its initial trial period is over, most student cards boast exceedingly high interest rates, often at a rate at or above 20 percent. These cards just add yet another expense to the many bills college students face.
In addition to his four credit cards, Larson has to worry about his rent, his phone bill, his cable/internet bill and his electric bill and that's before any school expenses are accounted for.
More major factors in causing excessive debt are the types of things students buy with their cards. A growing number of students are now charging tuition costs to a credit card in addition to their student loans. Studies found that the average student who had used credit cards to help pay their tuition left college with debt more than twice that of those students who hadn't.
"You only want to put on your card what you can handle paying for soon," Larson said.
And it's not only major purchases that drive the bills so high. Many students put smaller purchases on plastic, such as pizza and beer.
"Don't be buying food on credit," Baer said. "When you start paying for necessities with a credit card, you know you need to cut back."
In the end, both Baer and Larson believe that getting involved in the credit system is beneficial and acts as a useful tool that will come in handy later in life.
However, they also stress the need for caution and a healthy amount of discretion in determining how to deal with and how to keep control of your finances.
"If you're going to do it, just don't get swallowed up," Larson said. "Save your debt for your house and car."
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