College Students & Credit Card Debt: Can’t Afford Graduation

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College Students and Credit Card Debt

Source: web

Millions of college students found their way to their dorm rooms and campus book stores over the past few weeks. As they’re settling in, a new study reveals disturbing new trends for those students and how they view credit card debt. Worse, it could lend to a tough leap into adulthood.

The report, “College on a Credit Card: The Experience of The Middle Class in 2012” had several startling facts, including the realization that 13% of college students who put fees, books and dorm fees onto their credit cards drop out of college with no degree. The reason? Because they needed to go to work full time in order to make the credit card payments that are either their own or that their parents put on their credit cards.

A full 60% of indebted households who had college expenses for a child in the past 3 years report that those expenses contributed to their current credit card debt and more than 70% of indebted households with college expenses for themselves or their spouse in the past 3 years report that the cost of college contributed to their current credit card debt.

The project was a year long effort aimed at uncovering how deep in credit card debt college students and their families truly are. It’s also part of the Demos project, “The Plastic Safety Net”, which was designed to paint a picture of how Americans have changed their views on debt following the passage of many new consumer protection laws.

To say it’s setting up a pattern of difficulties and failures is an understatement.

Young Americans are being put between a rock and hard place, having to choose between insurmountable credit card debt and a college degree,

said Amy Traub, co-author of “Plastic Safety Net” and Senior Policy Analyst at Demos.

It’s up to all of the players – individuals, government and businesses – to make sure our families can afford to send their children to college. But today, both government and businesses are cutting back on that commitment, leaving families to cope through a private safety net that comes with interest and fees.

States are troubled to and as a result, they’re cutting their own budgets, which means the families are shouldering even more of the costs. Tuition is rising in nearly ever state and so is credit card debt and student loans. This means graduating college seniors leave with an average of over $25,000 in student loan debt. That number is expected to rise.

And then the cycle states. Unemployment, higher national debt, rising numbers of families on food stamps – it’s all coming together to form a perfect storm. This isn’t even considering the damage that’s being done to credit scores, which opens up even more realities: higher APR on credit cards, higher interest rates for mortgages – if they’re even able to find financing – and families that are living on less simply can’t shoulder anymore financial burdens.

Another aspect of the survey included low and middle income families. Sixty percent of those households report overwhelming credit card debt as well. Most of those households identify late payments toward student loans as contributing to their low credit score. Lower income households are twice as likely to have a family member drop out of college to assist with covering the credit card payments than their counterparts that come from higher income earning families. Even those households with no credit card debt say they’re concerned it could be a problem in “the near future”. They also say a growing lack of confidence in the economy is adding to those fears.

The report concludes,

In the wake of declining incomes, rising college costs, and reductions in need-based financial aid, it’s likely that students and their families will continue to use a mix of credit cards and student loans to pay for college in even greater numbers and larger amounts. Our survey findings indicate that for too many students and their families, paying for college on credit too often comes with significant risk.

The question is what are families doing to offset those fears and growing costs? Is there truly no way out? One woman who participated in the poll said, “I found it hard to disagree with my son who was contemplating dropping out of college his first year because he said it was too financially hard for his dad and me. I always wanted my kids to have a college education, something their father and I don’t have. It’s a terrible feeling knowing they’re smart enough, but that money might actually be what prevents them from securing their degrees.”

If you’ve found yourself with those same concerns or have experienced high credit card debt as a result of pursuing your college education, how did you handle it? Were you able to finish school? Let us know your thoughts – we’d like to hear from our readers. Leave us a comment below, visit our Facebook page and be sure to follow us on Twitter, too.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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