Credit card debt on college campuses: causes, consequences, and solutions

College Student Journal, Sept, 2002 by Jill M. Norvilitis, Phillip Santa Maria

Multiple Causes Exist for Credit Card Debt

Regardless of the origin of the card, the reasons for falling into debt are only partially understood. For some students, credit cards may be their only means to pay for their education. The TERI (1998) study reported that 19 percent of students have charged their tuition and fees, but one-third of those with balances of over $1,000 have charged tuition. If the balance is not paid in full, this is, in essence, an 18 percent loan. Charging tuition, then, may be part of an escalating pattern for some students in financial trouble.

Other students may get into debt because of the assumption that they will easily get out of debt upon graduation from college. Somers and Cofer (1998) reported that graduate students, although concerned about their debt, viewed it as necessary for paying bills and staying in school. Unfortunately, this belief that debt will be quickly repaid can be misguided. As Warwick and Mansfield (2000) point out, today's college students have grown up in a culture saturated with credit cards, but may view credit as something abstract or equivalent to earnings. These rather cavalier attitudes may be related to the fact that 71 percent in their study had no idea what interest rate they were paying.

It is not just knowledge of interest rates that students are lacking. In the 1999 Youth and Money [American Savings Education Council (ASEC), 1999] survey, two-thirds of students reported that they should know more about money management. Indeed, students without debt consistently underestimated the length of time it will take to repay money with interest (Lewis & van Venrooij, 1995). Further, in one study of high school seniors, only a quarter knew that interest accrues on the day of a purchase when accounts are not paid in full monthly [Brobeck, 1990, as cited in National Institute for Consumer Education (NICE), 1996]. Students already shouldering debt actually overestimate the length of time it takes to repay money (Lewis & van Venrooij, 1995), suggesting that they feel burdened by debt. Further, Eskilson and Wiley (1999) report that undergraduates are very optimistic about their future earning potential and that this optimism is unrelated to current school performance. That is, students with lower grades, who are less likely to obtain top jobs after graduation, are as optimistic about the future as students with higher grades. Thus, students may both underestimate the length of time it will take to repay debt and overestimate their ability to pay off debt before they choose to assume debt.

Lack of knowledge is likely due to a lack of education about personal finances. Almost all students--94 percent--report that they are likely to ask their parents questions about finances (ASEC, 1999). However, 30 percent also say that their parents have not discussed such issues as setting financial goals or the importance of savings with them. Students also aren't learning about money in school. Although 62 percent of students reported that they had been offered a personal finance class, only a third of those offered a class actually took it (ASEC, 1999).