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By Hoffman, Michael J. R.; McKenzie, Karen S. et al. | The CPA Journal, September 2008 | Go to article overview

Paper or Plastic?


Hoffman, Michael J. R., McKenzie, Karen S., Paris, Susan, The CPA Journal


CPAs Can Educate College Students on Responsible Credit Card Use

The growing credit crisis in the United States may be centered on homeowners and lenders, but in tough financial times, no group can afford to be financially illiterate. Although most college students do not hold a mortgage, many possess significant debt in the form of student loans and credit cards. Nellie Mae Corporation, a major provider of student loans, has conducted several studies on student credit card debt. A 2005 study found that one-third of undergraduate students had a credit card balance in excess of $2,000 ("Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends," www.nelliemae.com/pdf/ccstudy_2005.pdf). A 2006 study of graduate students found that credit card debt continued to grow throughout graduate school. Between the first and fourth years of graduate school, average credit card balances increased by 77% ("Graduate Students and Credit Cards-Fall 2006: An Analysis of Usage Rates and Trends," www.nelliemae.com/pdf/ccstudy_2006.pdf). Although college students are highly solicited by credit card companies, many are not adequately educated on the responsible use of credit cards. For a list of useful websites promoting financial literacy, see the Exhibit.

The habits that students develop in college, for better or worse, are very likely to continue into their career-building years. Unfortunately, one of the poor habits developed by many college students is over-reliance on credit card spending. Starting a career with a large debt burden is an obvious problem. Few students leave college with a plan for paying off their debt. Many students also do not realize that with a bad credit rating, finding a job or renting an apartment could prove difficult. Six months after graduation, when student loan payments begin, the financial stress increases. Furthermore, unlike many accounting majors, some students may graduate without financially rewarding career prospects, making default or even bankruptcy more likely.

CPAs have the opportunity to make a significant contribution in addressing the credit crisis through broader outreach on college campuses. Financial literacy and education programs not only help students manage their debt, but also provide many benefits to CPAs.

College Students and Credit Card Use

A college student does not have to look far for an opportunity to open a credit card account. Campus bookstore shopping bags often include advertising inserts or actual applications. Kiosks and tables are common sights in campus student centers, at sports venues, and at popular spots off campus. Credit card companies consider the college student a credit risk worth pursuing. According to the United College Marketing Services (UCMS), a leading college credit card marketer, the average college student receives 25 to 50 card solicitations per semester (ucms.com/college-credit-card-statistics. htm).

Nellie Mac's most recent survey of undergraduate students found that 76% of undergraduates have at least one credit card, ranging from 46% for freshmen to 91% for seniors, with an average balance of $2,169. Nellie Mae's 2002 report found that students' overall debt increased from $3,150 for freshmen to $20,402 for seniors ("Undergraduate Students and Credit Cards: An Analysis of Usage Rates and Trends," www.nelliemae.com/pdf/ccstudy_ 2001.pdf). During the college years, credit card balances more than doubled, from $1,533 to $3,262, for freshmen and seniors, respectively.

The extent to which college students use student loans to pay credit card debt was addressed by Robert Manning, a professor at the Rochester Institute of Technology, in his testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs ("The Importance of Financial Literacy Among College Students," September 5, 2002, banking.senate.gov/02_09hrg/090502). Reporting on a study conducted at George Mason University, Manning stated that about 45% of undergraduates had student loans. …

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