College Students & Debt

I recall, some time ago as a freshman in college, I applied for a major credit card.  I had to identify my “major.”   I listed my major, History.  I was rejected.

My mother was offended.  I didn’t have a bad credit history.  I had no credit history.  So she wrote to the credit card company (either Visa or Master Card) and asked for an explanation.  The official response:  the credit card company didn’t expect I would make much money with a degree in History, and thus declined to issue me a card.

If credit card companies had continued with such tight lending standards, a lot of college students would not have graduated during the past two decades with significant credit card debt in addition to their student loan debt.

Speaking of student loans, I found the following paragraph rather disturbing.

For young college graduates, student-loan-debt burdens are the main financial worry.  Recent research ex[poses], too, the widespread myth that student loan default rates are low.  The U.S. Department of Education has said for years that the default rate was a relatively modest 4 to 5 percent.  Yet the federal agency only looks at the first two years of debt repayments.  Longer-term studies find far more dire results.  For instance, reaching back  into the 1990s and following students over the subsequent decade, students with loans totaling $15,000 or more had nearly triple the default rate of those with $5,000 or less in loans — 19 percent versus 7 percent.  For African-American students with large debts the default rate is almost 40 percent — an outrageous figure.  It’s likely the default rates are much higher now since debt burdens are much larger than in the early nineties.

From  pages 190-91 of The New Frugality: How to Consume Less, Save More, and Live Better by Chris Farrell.

It’s sad that not everyone in the United States who wishes to attend college can afford college.  Defaulting on student loans definitely ruins one’s credit.

Parents and their children need to think long and hard about how to fund a student’s college education.  Options to consider:  in-state rather than out-of-state; public rather than private; community college rather than a four-year college; part-time rather than full-time.

One does not want to graduate from college with significant student loans plus credit card debt.  How will the graduate afford to pay rent, purchase a car, etc.?  Credit card debt can be controlled and eliminated.  The options listed above should be seriously considered so the graduate does not spend a significant amount of his/her wages paying off  student loans over the succeeding 10 years.

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