Legislation Alone Won’t Cut Student Spending

In the fall of my junior year at college, I received a most welcome gift in the mail: My first credit card.

Embossed with my fraternity’s name, that piece of plastic was more than a symbol of my impending adulthood – it was a lifesaver for our fraternity’s annual "Passport to Fun" bash. Each room of the sprawling chapter house was decorated to fit the theme of a different exotic destination.

Using my new credit card, my two roommates and I were able to transform our tiny room into Virginia Beach (not the most scenic choice, but a fellow brother hailed from Virginia): a shack built of wood, straw, and chicken wire; 200 pounds of sand on the floor; a small pond stocked with goldfish (a few of which, I’m sad to say, were gulped that night); and a fruit punch reminiscent of a powerful industrial solvent.

I paid for everything; the tab ran about $400. So came my introduction to the world of foolhardy spending and revolving debt.

Judging from Sallie Mae’s latest report on students and their credit-card habits, I wasn’t alone in making ill-considered choices with my powerful new toy. But the problem has grown worse in recent years.

Some of the more shocking nuggets from the Sallie Mae survey:

• The average student had credit-card balances totaling $3,173 in the spring of 2008, when the survey was conducted (months before the economic crisis gained steam). That’s up from $2,169 in 2004, when the last survey was taken.
• Only 17 percent of students said they paid off their balances each month.
• The percentage of seniors with balances of more than $7,000 is now 19 percent, nearly double from 2004.

I was 21 when I got my first card, but today first-time card users tend to be much younger. According to the Sallie report, 39 percent of freshmen arrive on campus already owning a card.  Twenty-three percent of freshmen have at least four cards. The average freshman’s debt is $2,038 – a staggering amount, considering students' earning power, normally significantly reduced during their college years.

Legislation nearing approval in Congress will help put the brakes on student spending. The Senate version would ban students under 21 from owning a card unless they have a co-signer or can prove their ability to pay.

Reform is long overdue, but it’s only the first step toward getting students out of debt. Parents need to get more involved in teaching young people how to build good credit and how to choose the right card. One-third of respondents to the Sallie Mae survey said they had never, or only rarely, discussed credit cards with their parents.

The same tips that advisers give to adult credit-card comparison shoppers goes for students: Avoid cards with annual fees; be wary of introductory APRs and how much they’ll go up; and don’t be seduced by those oh-so-attractive cards with the logo of your school (or fraternity) on them.

And if you do decide to splurge for a social gathering, pay in cash. Because a big credit card purchase can take a lot longer to clean up than a roomful of sand and a few beached goldfish.

Landon Hall
– A freelance writer in Silicon Valley, Landon was a reporter, sports writer and
editor at The Associated Press in
Portland and New York City from 1997-2006.

Tagged as: co-signer, credit card, credit card reform, first credit card, revolving debt, Sallie Mae survey, student debt, student spending

Credit.com offers straightforward tips and advice to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!