College students are putting themselves in financial jeopardy with each swipe of a credit card toward tuition and other direct education expenses, according to study conducted by Sallie Mae, the nation’s leading provider of student loans.
The study, ‘How Undergraduate Students Use Credit Cards: Sallie Mae’s National Study of Usage Rates and Trends, 2009,’ is the fifth conducted since 1998 through Sallie Mae’s affiliate Nellie Mae. The study was released April 13.
According to a Sallie Mae press release, the study seeks to ‘underscore the importance of educating college students about using credit effectively, weighing their spending decisions and considering their source of borrowing.’
Nearly 30 percent of the students surveyed charged tuition on their credit card, a 6 percent increase from the previous study in 2004. In total, 92 percent of students charged textbooks, school supplies and other education expenses. Students estimated charging $2,200 on average, up from $942 in 2004, according to the press release.
Students said a variety of reasons drove them to charge educational expenses, including insufficient savings or financial aid, convenience and underestimation of the total cost of college, Sallie Mae spokeswoman Patricia Christel said.
‘We think this points to the need for students and families to build a comprehensive budget in advance that not only covers tuition but other related expenses,’ she said.
Christel said the excessive charging is especially unsettling, given the current state of the economy.
Boston University finance professor David Weil said students facing financial crises should seek other options before charging because interest rates and penalties for late payments are far higher on credit cards than for other forms of borrowing.
‘Starting down this path while still a student is hazardous, although many underestimate the risks involved,’ he said.
School of Management junior Ariel Dagan said he relies heavily on charging on his credit card.
‘I charge everything on credit, from coffee to books,’ he said.
Dagan said although he has recently tried to charge less because of the recession, his father handles the credit card expenses, so he is not worried about keeping up with payments.
Credit cards, though useful to gain a good credit score, should not be replacing loans because they offer much less flexibility, SMG junior Katie Flannery said.
Flannery charges mostly food and clothing expenses on her credit card in order to gain a good credit score.
However, according to the Sallie Mae study, Flannery is in the minority. Only 17 percent of students said they regularly paid off all of their credit card bills, and 40 percent said they have charged items, despite knowing they do not have the money to pay for them.
‘Most students indicated they wanted more information about smart money management,’ Christel said. ‘Credit history is very important and can affect your ability to qualify for other types of financing.’