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September 12, 2013 | paying-for-college

College & Credit Cards

Students starting or returning to college this fall are getting bombarded with more than homework. They’re also targeted by major credit card companies, which hope to turn your son or daughter into a long-term customer.

A recent survey by student loan provider Sallie Mae indicates that 56 percent of college students have at least one credit card. Typically, by the time a student reaches their final year of college, more than 90 percent have at least one credit card—and the average is four per student!

Debit vs. Credit

In 2015, students overwhelmingly had more debit cards (85 percent) than credit cards (56 percent). Most students are aware that money management skills are important, and 83 percent want to learn more about how best to manage their money. The Sallie Mae report also indicates that students know that attaining a good credit score is helpful for their future, since it can help them qualify for better interest rates and additional credit.

For those who have trouble managing credit, using a debit card is an alternative. That helps to ensure your student can’t spend more money than he or she actually has. Many parents set up accounts and deposit a set amount of funds on a regular basis.

The Credit CARD Act of 2009 reduced credit card usage among students by prohibiting on-campus marketing along with raising age restrictions to 21. The law now prohibits issuing credit cards to people younger than 21 without either a cosigner or an independent income. This also contributed to the increase in young people using debit cards as an alternative.

Repaying the Debt

About 25 percent of college students reported using a credit card to help pay tuition. Many credit cards offer rewards for every dollar spent, and it can be tempting to consider paying for tuition with a credit card. Unfortunately, 57 percent of credit card companies impose a convenience fee for tuition payments—averaging 2.62 percent—effectively canceling out the card reward.

Additionally, cash-strapped students may use credit cards to pay for items such as food, entertainment, and clothes. When the bill comes due, many students struggle to pay even the minimum balance—and before they know it, they’re strapped with growing amounts of debt. This can set them up for late or missed payments that can lower their credit scores and follow them for years.

Students and Identity Theft

The Federal Trade Commission reported more than 399,000 identify theft claims in 2016. 64 percent of students seem to be unconcerned about identity theft, yet they are the group most impacted, with 15 percent having experienced moderate or severe impact—three times higher than the average.

Young people may be at greater risk for certain kinds of identity theft scams. Scammers may try to convince a student that they need help accessing money (for example, cashing a check), and will try to gain access to personal information in the process.

Advice for College Parents

The answer isn’t to avoid using credit cards altogether, but to use them responsibly. Make sure your student understands that many employers obtain credit scores as part of the hiring process, and that a good credit score is necessary to rent an apartment once they graduate.

If your student does get a credit card, pass along these tips to ensure that they’re managed correctly:

  • Pay the bill on time. This improves your credit score and will save you thousands of dollars in interest over the course of your lifetime.
  • Pay more than the minimum amount each month—and if you can, pay the entire balance.
  • Ignore credit card offers and only use one card.

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