An Analysis of the Current Status of Student Debt: Implications for Helping Vulnerable Students Manage Debt

ABSTRACT Too many students are having serious problems with credit card debt. This debt can lead to the student's dropping out of school in the worst case; however, even when the students stay in school, they begin their careers saddled with excessive debt. Over half of today's college students own one or more credit cards, and the more credit cards students own, the greater the likelihood that they will have serious debt problems. Our survey of over 4,000 students indicated that as students progress through college, they acquire more credit cards and debt; furthermore, our survey indicated that students who work 10 or more hours per week are more likely to report debt problems than those students who work less than 10 hours per week. Married students report the fewest debt problems while divorced students report more debt problems than single or married students. Students should be educated, the earlier the better, on how to make wise financial decisions. This article reports the findings of a survey of over 4,000 college students from Arkansas, California, and Ohio. The results indicate which factors or characteristics are related to significant debt problems, and recommendations are made for helping students avoid making unwise financial decisions. INTRODUCTION One of the most natural transitions for students arriving at college is to obtain a credit card. Offers for easy-to-obtain credit cards flood many campuses each year, and credit card companies often used free items (e.g., t-shirts, ball caps) to attract student customers. Indeed, credit card offers are so numerous that some colleges have begun to ban or at least limit the presence of credit card companies on campus (Waggoner, 2005). Yet, according to a recent article in the Wall Street Journal (July 18, 2006), students are still obtaining credit cards with more than one-half of the students carrying at least one credit card that is directly billed to them. In fact, Manning and Kirshak (2005) write that among today's undergraduate, four-year college students, about 75-80% have their own universal bank credit card. Clearly, credit cards provide students with a convenient way to make purchases, particularly when the students are low on cash, perhaps while waiting on their allowance from home for the fortunate few, or waiting on their paychecks or their student loans to arrive ("Majority of College Students," 2006). This convenience, however, can lead to serious consequences for the students who are not well-informed about the proper use of credit cards; unfortunately, according to a recent survey, this includes the majority of students. Braunsberger, Lucas, and Roach (2005) studied college students' ability to evaluate and choose the credit card offer that best fit their particular needs. As a result of their study, Braunsberger, Lucas, and Roach concluded that college students "possess a fairly low level of knowledge of credit cards and thus are not very well equipped to make educated choices concerning such cards (p. 237). This lack of knowledge about credit cards and debt makes students vulnerable and can lead to debt problems that include being delinquent in payments or not paying at all. Angela Lyons (2004) references a study by Staten and Barron (2002) that compared credit card accounts opened as a result of marketing to college students on campus with those opened as a result of traditional marketing to 18-24 year olds and to those 25 years old and older. The comparison revealed that those opened as a result of marketing to students had a higher rate of delinquent payments and were more likely to result in charge-offs to the credit card companies than the other two groups. Students' lack of knowledge of credit cards, poor choices, and failure to make payments in a timely fashion (or at all) may lead to the students' having to drop out of school. John Simpson, a university administrator in Indiana, has been widely quoted for his comments in a Chicago Tribune article in 1998 in which he lamented the problems students have with credit cards and stated that "we lose more students to credit card debt than to academic failure. …