New Research Shows College Seniors with Average Credit Card Debt of $4,100

I have listed the key findings of this report, which was last completed by Nellie Mae in 2004. 

Key findings: 

• In this time of credit crunch and economic downturn, college students are relying on credit cards more than ever before. Nearly every indicator measured in spring 2008 showed an increase in credit card usage since the last study was conducted in fall 2004.
  • Eighty-four percent of undergraduates had at least one credit card, up from 76 percent in 2004, the last time the study was conducted. The average number of cards has grown to 4.6, and half of college students had four or more cards.
  • Undergraduates are carrying record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004’s $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.

• By year in college, credit card usage and debt also is increasing across all categories—credit card ownership, average balance, median balance, those carrying any balance, and those carrying high balances.
  • Since 2004, students who arrived on campus as freshmen with a credit card already in-hand have increased from 23 percent to 39 percent.
  • In spring of 2008, only 15 percent of freshmen had a zero balance, down dramatically from 69 percent in the fall of 2004. The median debt freshmen carried was $939, nearly triple the $373 in 2004.
  • Seniors graduated with an average credit card debt of more than $4,100, up from $2,900 almost four years ago. Close to one-fifth of seniors carried balances greater than $7,000.

• Nine in 10 undergraduates reported paying for direct education expenses with credit cards—and the average amount they charged more than doubled since the last study.
  • Ninety-two percent of undergraduate credit cardholders charged textbooks, school supplies, or other direct education expenses, up from 85 percent when the study was last conducted, in 2004.
  • Nearly one-third (30%) put tuition on their credit card, an increase from 24 percent in the previous study.
  • Students who used credit cards to pay for direct education expenses estimated charging $2,200, more than double 2004’s average of $942.
  • The most common education expenses charged were textbooks (76%), school supplies (75%), and commuter costs (54%).
  • Food (84%), clothing (70%), and cosmetics (69%) ranked at the top of other expenses charged.

• Many college students seem to use credit cards to live beyond their means—not just for convenience—and more than three-quarters incurred finance charges by carrying a monthly balance.
  • Sixty percent experienced surprise at how high their balance had reached, and 40 percent said they have charged items knowing they didn’t have the money to pay the bill.
  • Only 17 percent said they regularly paid off all cards each month, and another 1 percent had parents, a spouse, or other family members paying the bill. The remaining 82 percent carried balances and thus incurred finance charges each month.

• One-third of students rarely or never discussed credit card use with parents, and nearly all undergraduates would like more information on financial management topics.
  • Two-thirds of survey respondents said they had frequently or sometimes discussed credit card use with their parents. The remaining one-third who had never or only rarely discussed credit cards with parents were more likely to pay for tuition with a credit card and were more likely to be surprised at their credit card balance when they received the invoice.
  • Eighty-four percent of undergraduates indicated they needed more education on financial management topics. In fact, 64 percent would have liked to receive information in high school and 40 percent as college freshmen.

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A few random thoughts:

• While the average debt figures of $3,173 can seem jarring, it seems to be driven higher by the outliers as the median figure is almost 50% less at $1,645.  So, roughly half of borrowers have debt higher than $1,645 and half are greater than that figure. 
• This credit card habit starts early, with almost 40% of students arriving on campus with credit cards. 
  
  • Students recognize their need for more education on this topic, with almost 2/3 recognizing that such courses should begin in high school.
    • 1/3 of students rarely or never discussed this topic with their parents. 
• More students seem to be accumulating debt sooner, with only 15% of freshmen carrying a zero balance vs. 69% five years ago.  
  • Overall, 82% carry balances and the ensuing finance charges.  
• Over 90% used credit cards to pay direct education expenses with the amount they charge for these items doubling since the last survey. 

On the same day this study was released, news that the committee overseeing TARP funds is looking into recent changes that banks have instituted with their credit products.  According to the Wall Street Journal: 

Last week, for example, Bank of America Corp. told some customers that interest rates on their credit cards will nearly double to about 14%. The Charlotte, N.C., bank, which got $45 billion in capital from the U.S. government, also is imposing fees of least $10 on a wide range of credit-card transactions.

While breaking our addiction to credit may be difficult, there are some early signs that behaviors are changing.  According to the Federal Reserve:

Revolving consumer credit, which includes credit cards, fell 9.7% in February from a year ago, the biggest decline since 1978.

In addition the banks may save college students from themselves as this Chicago Tribune article noted that credit card companies are cutting back credit to all but their most creditworthy borrowers: 

But on CardRatings.com, which tracks credit card offers, only five cards now are promoted in the "student" category. "We typically have triple that amount," said site founder Curtis Arnold.

In addition, the article cited another example:

Consider American Express: The company no longer lists its Blue for Students card on its Web site, as it does with the other credit cards it offers. You have to type "student" in the search bar to find it.

Will students change their behavior too?  Let's heed their call for help and bolster financial literacy training in high schools. 

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[Brian]

The question you asked,"Will students change their behavior too?" can only be answered with a simple "wait and see". I totally agree that money management and financial knowledge does need to be taught (on a somewhat limited basis) in high school but the majority of this training needs to begin at the household level.

Household budgeting, small child loans, allowences, etc., need to come from within the insight of the parents knowledge and experience. There is no stronger teacher than one who has gone through these types of financial matters. Training in school will help, but the major contributor has to be good ol' mom and dad.

Thanks, keep the discussions coming.