Up to their necks: college students and debt

In 1999, Joe Simms, a junior at Auburn University, received a pre-approved credit card in… In 1999, Joe Simms, a junior at Auburn University, received a pre-approved credit card in the mail. Thinking that he would use it only for emergencies, he applied for the card.

“I figured I’d be responsible. I wasn’t worried at the time,” Simms said.

Three months later, when his bank account ran out, he began charging everything and racked up a large debt.

Simms, a May 2001 graduate, is still paying off his card. He pays $45 to $100 a month to keep the interest from accruing. His balance never decreases.

Now that he is employed, he hopes to have the card paid off in two years.

“The most frustrating thing is that I keep paying the interest off and I’m not getting anywhere,” he said.

When students allow their finances to spiral out of control, debt can become a harsh reality.

According to a July 2001 report by the U.S. General Accounting Office, college students are in serious trouble when it comes to dealing with debt.

The report ranks irresponsible credit card use and repaying student loans as the major factors placing students in the red.

The Nellie Mae Education Foundation, a non-profit organization that provides student loans, reports that 78 percent of undergraduates possess at least one credit card, compared with 67 percent in 1998.

A college student carries an average of three cards and posts an average credit card debt of $2,748, up from $1,879 in 1998.

Nine percent of card-carrying undergraduates have a credit card debt of more than $7,000.

“Often it is easier for a college student to get a credit card than a college graduate with a job,” said Mike Reynolds, director of student financial aid for the university.

Credit card companies regularly set up shops on college campuses, setting up tables outside student unions, offering T-shirts and sunglasses as prizes for signing up for a credit card.

Many students apply for these cards without considering the consequences.

The average penalty rate on student credit cards is 22.84 percent, eight points higher than a regular card.

The penalty rate can begin as soon as a student misses one payment. Often, student cards do not offer a grace period for payment.

Having high, unpaid balances is the fastest way to incur debt.

“Credit-card debt is the type that can get away from you quickly,” Reynolds said.

Credit cards do have some positive aspects for students if handled responsibly. The cards can help build a good credit history, which can aid students in receiving loans in the future. Credit cards are also handy in an emergency, and they decrease the amount of cash or checks that one must carry.

Student loans are another possible debt burden that many students face.

The Federal Perkins Loan, Health Professions Student Loan, Institutional Loans, Federal Stafford Loans and Federal Parent Plus Loans are available for those who qualify.

Logan McLemore, a sophomore at Auburn, is using the Federal Stafford Loan for the second time.

“I wanted to have enough money for living expenses and spending,” he said.

McLemore said that there is a good chance he will take out another loan next year, but he is concerned about having to repay it in the future.

“When you get out of college, you want to start your own living rather than worrying about paying college loans the rest of your life,” he said.

While loans are a feasible source of tuition for many students, Reynolds advises students to be careful in choosing the amount they wish to borrow.

“One way students get into debt is when they take out a loan for what they qualify for, rather than what they really need,” Reynolds said. “Often they find it difficult to pay back.”

The financial aid department requires students to have an entrance interview before they take out any loans, he said. The interview prepares and informs them about their payment responsibilities.

To remain debt-free in college, Reynolds suggests maintaining a budget and avoiding credit whenever possible.

The Nellie Mae Foundation offers several tips regarding responsible credit card use. Look for cards with low interest rates, low or no annual fees, a grace period and benefits to the card, such as free gas or airline miles.

Most importantly, students should ask themselves whether they can afford a credit card.

Handling the burden of repaying student loans can be made easier by keeping a detailed schedule of how much money is due and when. Making payments on time is essential part of remaining debt-free.

Several agencies exist to help manage debt, such as the National Foundation for Consumer Credit, Genus Credit Management and Debt Counselors of America.

Sometimes it is also possible to work out a payment plan with the credit card company, which may slightly ease the burden.