Undergraduates, universities must partner to fight rising student debt

Undergraduates, universities must partner to fight rising student debt

Erie, Pa. -- Armed with laptops, cell phones and MP3 players, the collective class of 2010 will descend upon college campuses in a matter of days, only to leave in four short years with credit card and student loan debts that may make choosing between food, shelter and their FICO score an ugly reality.

Findings from a new study by Mary Beth Pinto, associate professor of marketing, and Phylis Mansfield, assistant professor of marketing at Penn State Erie, conclude that the combined burden of student loans and credit card debt have become a ubiquitous part of the American college student experience. "Financially at-risk college students: An investigation of credit card usage, student loan debt and prioritization of debt repayment" is featured in the next issue of the National Association of Student Financial Aid Administrators' Journal of Student Financial Aid, available by Sept. 1.

"The results of this study suggest that financial aid administrators should take a proactive role in helping educate students about the proper use and misuse of credit cards," said Pinto, who also is director of Penn State Erie's Center for Credit and Consumer Research (CCCR).

The study found that, when forced to choose between paying a student loan or a credit card bill, students who are most at-risk of having both types of debt are more likely to pay the credit card bill. Financial aid administrators in higher education must take heed; schools that have a high percentage of students who default on their student loans are penalized and become ineligible to receive certain student aid funding.

Credit card debt is one of the factors that determines how burdened a borrower is after graduation and will influence how manageable repayment is for the student. Approximately 61 percent of the survey's respondents reported having at least one credit card. Most studies support this finding and suggest that more than 70 percent of college students possess one or more credit cards, with an average of two, and carry an outstanding balance of $500 to more than $3,000.

Pinto's research cites an average two out of every three college graduates face conventional educational debt, seek expensive private loans, turn to credit cards or utilize a combination of the three to finance their education. Likewise, 69.5 percent of this study's overall sample reported having some type of student loan in their name.

As a result, many colleges are beginning to offer credit card training sessions during freshman orientation programs, but there may be a need for more ongoing training and counseling programs. The Web also can be used as an educational tool -- much like the center's online credit card game.

Launched this spring, this interactive quiz is designed to educate students about their credit knowledge and offer the skills necessary to use credit cards wisely. The game, which can be found at http://www.cccr.psu.edu online, is much needed in light of legislation that state Sen. Jane Earll proposed and helped pass requiring all Pennsylvania colleges and universities to provide information about the use of credit to its students.

"Understanding credit and credit management is critical for the future financial planning of today's youth," Pinto said. "This study confirms that members of 'Generation Debt' rely too heavily on plastic to fund their lifestyles.

"The goal of the CCCR is to educate young people about how to use credit properly," Pinto continued. "It is imperative that colleges and universities get on board to ensure students' spending habits and college debts do not adversely affect them for years to come."

Senate Bill 157 requires an institution of higher education to establish a policy that regulates, including prohibiting, the marketing of credit cards on campus. When establishing this policy, the college or university may:

-- Require registration of on-campus credit card marketers;

-- Limit credit card marketers to specific pre-designated areas of campus;

-- Prohibit credit card marketers from offering gifts to a student in exchange for completing a credit card application, unless the student has been provided credit card debt education literature such as written brochures or electronic information;

-- Provide, at least quarterly, credit card debt education literature with campus bookstore purchases;

-- Incorporate a credit card debt education presentation into orientation programming.

The CCCR online credit card game is designed to stimulate students' interest in credit management, encourage students to translate this knowledge into behavior and promote word-of-mouth among students about credit issues, among others.

The "financially at-risk college students" study is based on 1,441 respondents from four public and four private universities in the eastern half of the United States. The sample featured traditional college students, defined as those younger than 24 years, who were categorized as financially at-risk or nonfinancially at-risk and asked about student loan debt, credit card use and prioritization of debt repayment.