Academic journal article College Student Journal

College Students and Credit Card Use: An Analysis of Financially At-Risk Students

Academic journal article College Student Journal

College Students and Credit Card Use: An Analysis of Financially At-Risk Students

Article excerpt

Researchers and educators are increasingly interested in how college students finance their education, as students are relying on student loans and credit cards more than ever before. Using a sample of 1,244 students, the present study analyzes the credit card habits and purchase patterns of college students, differentiating those that are considered financially at-risk (FAR) from those who are not financially at-risk (NFAR). Results of a series of independent sample t-tests suggest that FAR students use their cards with greater frequency for a variety of different purchases (both necessities and non-necessities). FAR students also engage in less responsible behaviors based on a measure of credit card use. These findings provide insights into how FAR students become FAR, and may suggest avenues for more targeted intervention in the future.

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College students are relying on student loans and credit card debt more than ever before. A variety of forces are impacting their reliance including tightening credit, a sluggish economy, and the continuing rise in the price of college. For example, recent information from The College Board (2009) shows that for private not-for-profit colleges, the weighted average cost of tuition, fees, and room and board has risen to $35,636. At public four-year colleges, the inflation-adjusted average tuition and fees for in-state students has increased 35% since 2001; the largest increase for any five year period since data began to be collected 30 years ago (College Board, 2009). To pay for the escalating cost of college, students are required to carry greater amounts of debt. In 2009, two-thirds of college students borrowed to pay for college, carrying an average debt load of $23,186 by the time of graduation (Chaker, 2009). These numbers are in striking comparison to only over a decade earlier when 58% of students borrowed to pay for college, with a far lower debt load of $13,172 (Chaker, 2009). To acquire an education today, the end result is that many undergraduates find themselves stuck in a "debt to diploma" system (Draut, 2005).

The related pressures of credit card debt intensify the consequences of student loan borrowing and may compromise students' ability to complete their degree. College students today have grown up in a world of plastic, seeing credit as a way of life. According to Sallie Mae's National Study of Usage Rates and Trends (2009), 84% of undergraduates have a credit card, and the average number of cards carried per cardholder is 4.6. In addition, the average undergraduate carries over three thousand dollars in credit card debt, the highest level since the company began collecting data in 1998 (Sallie Mae, 2009). Credit card debt levels of this magnitude suggest that many college students use credit cards as a source of "short-term revolving credit," being called "installment users" (Danes and Hira, 1990, p. 225). Previous research has identified different types of credit-card users: convenience users and installment users (Mathews and Slocum, 1969; Slocum and Mathews, 1970; Mansfield, Pinto, and Parente, 2003). Convenience users utilize the credit card as a substitute for cash and pay the balance in full each month (Danes and Hira, 1990; Mansfield et al., 2003). Installment users carry a monthly balance and range from mild debtors to serious debtors (Lea, Webley, and Walker, 1995; Pinto, Mansfield, and Parente, 2004).

There is a downside to using credit cards as a source of installment debt. Student credit card debts and student loans often consume all the disposable income of many young graduates just starting in the work force. Financial experts estimate that nearly half of all students who graduate from college have an "unmanageable debt burden" with repayments exceeding 8% of their monthly income (Zaff, 2004). According to Draut (2005), "The rise in credit card debt combined with massive student loan debt means that 25 cents of every dollar of income goes to paying off debt . …

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