Daily Texan Staff
Editor's note: This is the first article in a three-part series examining student credit card debt. Thursday's article will focus on the effects of student debt on the UT community.
In recent years, the national media has focused on a number of issues related to the well being of America's college students from designer drug use and binge drinking to sexual behavior and campus safety.
But some consumer rights advocates claim there is another important issue that is often ignored. The problem is student credit card debt and it has the capacity to ruin a young person's life as completely as any drug addiction or alcohol dependency.
The statistics concerning student credit card debt are either staggering or inconclusive, depending upon who one asks.
Teresa Sullivan, vice president and dean of UT graduate studies, said more conclusive research is needed on this subject.
"It is difficult to get [student credit debt] information because you've got to get either a group of students to sit down and do a pretty careful analysis of everything on their credit cards or you've got to get the credit card companies to open up their data and tell you what people are spending their money on," Sullivan said.
Little academic research has been conducted on the overall spending patterns of college students, Sullivan added.
"There are anecdotes out there about students who have horrendous debts for clothes, basically but they are just anecdotes, that's not really research," she said. "I think it makes a big difference whether students are paying for things that are reasonably part of their college education or if it is principally pizzas and Nikes."
While some independent surveys conclude student credit debt is a major problem both in terms of the number of students with debt and the amount of money that they owe other industry-sponsored surveys reflect different results.
A study of student credit card debt conducted during December 2000 by Nellie Mae, a leading national provider of higher education loans, reported college undergraduates carried an average credit card balance of $2,748, up from an average of $1,879 in 1998.
The debt balances are more troublesome when considering the amount of time it would take a borrower to pay off such a debt, the report said.
A student using a card with an 18 percent annual percentage rate and who makes a minimum monthly payment of $75 will be paying off that credit card balance of $2,748 over 15 years paying as much interest on the balance as he or she originally borrowed, the report said.
In addition, nearly one out of 10 undergraduates has credit card debt greater than $7,000.
The report also showed that 78 percent of undergraduate students have at least one credit card an increase of 11 percent from 1998. Of those who have credit cards, 32 percent carry four or more cards, up from 27 percent.
According to the report, 95 percent of graduate students have credit cards with an average debt of $4,776, while 6 percent of those students have credit debt greater than $15,000.
Nina Prikazsky, vice president of operations for Nellie Mae, said her organization conducted the survey because it was concerned about the impact of easy credit card availability and subsequent indebtedness accumulated by students.
Less stringent underwriting criteria at major credit card companies, coupled with the direct solicitation by companies to students on many campuses, has led to overall easier access to credit cards, Prikazsky said.
"Students tend to get into trouble very quickly with these credit cards," she said. "The more easily they are available, the more students will take on."
In years past, these same students would not have been given credit cards, Prikazsky added.
"Students are borrowing more," she said. "Students annually assume more debt of all kinds year-to-year and it has ramped-up considerably since the '70s. In general, students in the '70s could not obtain a credit card without a co-signer or employment."
Prikazsky said many undergraduate students, especially incoming freshmen, are flooded with credit card applications more frequently than in the past.
"They're solicited on the campus, they're solicited by direct mail, they're solicited in publications [at book stores], they will apply for credit and their parents won't even know that their kids qualify for these things," she said.
The results of the Nellie Mae study have led Prikazsky to appreciate the severity of the student debt problem, she added.
"[Student debt] is a reality out there, and I think the problem is the climate in general, with credit cards being so available [to students]," Prikazsky said.
Despite some evidence that many college students are finding it increasingly difficult to keep their credit card balances down, banking industry representatives insist the problem is overstated.
Catherine Pulley, spokeswoman for the American Bankers Association, said her organization recognizes student debt statistics that differ from those provided by Nellie Mae.
Pulley said college students carry an average credit card balance of $584, which is four times less than the national average of $2,563 meaning students are responsible borrowers.
"College students are more responsible with credit [than the average borrower]," she said, adding that 59 percent of college students pay their monthly credit card bill in full as opposed to a national average of 40 percent.
Of the 41 percent of students who a carry a balance, 81 percent pay more than the minimum amount due each month also better than the national average, Pulley added.
Pulley said some student debt surveys mistakenly equate college students with the 18-23 age bracket as a whole, which leads to confusing or inaccurate statistical results.
"We need to remember that in the aged 18-23 bracket, not everybody goes to college," she said. "When an 18-year-old applies for a credit card you cannot always assume that they are in school. To blanket the 18- to 23-year-old market and say that all of them are college students is really not an accurate description."
But, some industry-sponsored student debt studies are flawed in other ways, said Robert Manning, a senior research fellow at the Institute for Higher Education, Law and Governance at the University of Houston Law Center.
Manning said the surveys offer flawed views of credit card debt, both during the course of the school year and over the college career of individual students.
Analyzing the debt levels of all college students at a single point during the academic year statistically reduces "average" debt levels, Manning said.
"If you do your survey early in the fall you will have the lowest possible debt because students are just starting, they still have summer savings and freshmen may not even have credit cards yet. That's why taking an average is erroneous because most students are freshman," he said.
Manning added that students who drop out of school to work and pay off their debts are, by definition, excluded from industry-sponsored surveys.
In general, the banking industry fails to conduct the kind of critical research needed to make an accurate assessment of student vulnerability to credit debt, Manning said.
"In terms of working with the [federal government], the banking industry is really thwarting any efforts to do the type of survey-research study that is required," he said. "The bottom line is, you would think that as important as this issue is, [somebody would] actually sponsor the kind of study that would give the information that is necessary."