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Extension > Family > Financial Capability > Basic Financial Education > Youth and Money > Student Resources > Student Resources for College Students and Young Adults > Credit Strategies for College Students

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Student Resources for College Students and Young Adults

Credit Strategies for College Students

Shirley J. Anderson-Porisch, Extension Educator — Family Resource Management

2009; reviewed February 2014 by author.

College students have access to credit. A 2009 Sallie Mae® research study showed that 84% of college students had at least one credit card. On average, college students have more than four credit cards.

College students use credit. Study data showed that nearly 33% use a credit card for paying tuition and more than 90% use it for textbooks, supplies, or other education expenses.

College students have credit card debt. The study showed the higher the college grade level, the higher the credit card debt. On average, graduating seniors had a $4000+ credit card balance.

Unfortunately, most of these data showed an increase over data collected in a similar 2004 study. SallieMae suggests the importance of helping students understand the effective use of credit.

It starts with a basic understanding of credit — any form of credit means taking out a loan!

Reality for some college students is that income and/or financial aid often arrives after school payments are due. As a result, payments are often made using another form of loan — a credit card. When the income or aid did arrive, was money used for paying the credit card balance? This study suggests that it likely was not. Many students reported surprise at how easily their credit balances grew, but less than 20% said they paid off the balance each month.

Aside from these college student data, it is important to consider the advantages of a credit card. A card can be convenient; flexible; widely accepted; useful in an emergency; protected if stolen; used as a management tool and as leverage for other resources if one’s past use of credit is positive. The disadvantages include that it usually costs money; may limit cash flow if there are too many monthly payments; can be too easy to use; can reward the impulse for instant gratification; and if over-used, may create serious financial challenge. Anyone choosing to use a credit card needs to understand the advantages and disadvantages to make their best choice.

Most financial professionals will suggest that college students choose to have no more than one multi-purpose credit card, accepted in many places, with a low interest rate and no annual fee. A student’s financial institution — where they keep their checking and savings accounts — is a good place to get their first credit card.

Any college student will do well with their credit card spending if they

Student Loan Consolidation

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

Student loan debt is a major financial issue for many. Those graduating from post-secondary training may be thinking about the upcoming loan payments and whether they should consider consolidating.

Federal student loan consolidation allows you to combine one or more federal student loans into a new loan. Private loans can be consolidated but they cannot be consolidated with federal loans. With consolidation, you will have one lender and one monthly bill, making it easier to manage.

You can no longer consolidate federal student loans while you are enrolled in school. You can, however, consolidate any loans that are currently in your grace period, which is six months from the date you graduated, in repayment or deferment. The optimal time to be looking into consolidation is soon after graduation.

If the student loans are from private lenders, they may have a consolidation option available, too. However, be sure to note if they charge origination fees to process the loan. These could be substantial so make sure the benefit of consolidation doesn’t outweigh this cost!

Find out more about federal student loan consolidation at https://studentaid.ed.gov/sa/repay-loans/consolidation. Another of good information source about dealing with debt is Legal Aid. Review the fact sheet on Student Loan Problems at www.lawhelpmn.org/issues/consumer-and-debt/student-loans-and-mortgage-loans/.

Student loan debt shouldn’t be ignored. It needs to be paid or dealt with because there are long-term consequences.

Sources

Federal Direct Consolidation Loans Information Center. (n.d.). Website. Washington, D.C.: Federal Student Aid (FSA) — United States Department of Education.

LawHelpMN.org. (2001-2013). Student loans: Legal information. New York: Pro Bono Net.

Co-Signing for Student Loan Debt

Rosemary K. Heins, Extension Educator — Family Resource Management

Reviewed June 2013 by the author.

According to a 2012 research report called "Grading Student Loans"’ from the Federal Reserve of New York, total student loan debt in the US now surpasses the total credit card balance and total auto loan balance. Even more troubling is data that shows almost 5% of the delinquent student loans are for people over 60.

Senior citizens still owing student loans could be those who went back to school later in life or they may have be loving parents or grandparents who co-signed a loan. Is co-signing a loan a good idea?

Before co-signing, think twice. Remember, if darling child or grandchild doesn’t pay the debt, you are stuck with the debt.

Be sure you can afford to pay the loan. Find out what the payment schedule would be for the loan if you end up paying. If the loan is not paid, you can be sued and your credit rating could be damaged.

Even if you’re not asked to repay the debt, your liability for the loan may keep you from getting other credit. Creditors consider the co-signed loan as one of your obligations.

Ask the lender to calculate the amount of money you might owe. They aren’t required to do this but many will. Or use an online debt repayment calculator. The Federal Reserve website has an easy to use credit calculator.

Student loans are a necessary tool for many to get post-secondary education. If you are asked to co-sign for a student loan or any loan, understand what potential effect it will have on your own pocketbook.

Sources

Brown, M., Haughwout, A., Lee, D., Mabutas, M., & van der Klaauw, W. (2012, March 5). Grading student loans. New York: Federal Reserve Bank of New York.

Board of Governors of the Federal Reserve System. (2010, November 10). Credit card repayment calculator. Washington, D.C.: Board of Governors of the Federal Reserve System.

Making wise choices with credit is part of spending planning — the habit will insure a lifetime of financial well-being!

Source

Sallie Mae®. (2009). How undergraduate students use credit cards.

Related Resources

Co-Signing for Student Loan Debt — If you are asked to co-sign for a student loan or any loan, understand what potential effect it will have on your own pocketbook. Transcript and audio (1:51)

Student Loan Consolidation — With consolidation, you will have one lender and one monthly bill, making it easier to manage. Transcript and audio (1:50)
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