Newly Indebted: Your Teen’s Use of Credit Cards in College
June 5, 2009 by admin
Filed under Transitioning
Money may make the world go around, but credit cards help make it spin a little faster. And the story is no different in college, where credit card companies compete to win over new customers (your kids!) with fancy giveaways, high limits and low introductory interest rates. The temptation to sign up for one of these cards is difficult to ignore; after all, your kids may have an emergency that requires some quick access to funds. However, owning a credit card in college is a major decision. The possibility of graduating with student loan debt and credit card debt is not an ideal scenario. So what do you need to know to help your children avoid ruining their credit before they graduate? Let’s take a look at the world of college credit cards.
The Cold Hard Facts
A 2001 study by student loan provider Nellie Mae found that 83 percent of undergraduates have at least one card and their average balance was $2,327. It also reported that students double their average credit card debt—and triple the number of credit cards in their wallets—from the time they arrive on campus until graduation. This is a good indicator that students are carrying balances month-to-month, and likely paying little more than the minimum required payment.
What to Know Before You Apply
Nowadays, colleges have opened up their campuses to credit card companies who offer school-branded credit cards. Though school spirit might lead some to apply, there are things kids need to know before they sign on the dotted line. We recommend you have a discussion with your child about the dangers of credit cards. You may want to add your child to your credit card as a way of monitoring usage, or perhaps you can ease them into their own card over the course of their time at college. If you do decide that you want your child to have their own card, give them some tips on how to handle this new responsibility.
Before they apply, have them check the card’s Annual Percentage Rate, or the rate of interest they’ll be charged. If the company is offering a low introductory APR, find out how long it will last and what it will rise to once the introductory period is over. Often, companies will give you an APR to entice sign ups, but six months later the APR skyrockets to over 20% and the balances the holder has been carrying suddenly get a lot more expensive to pay down.
Tell your kids to find out if there’s an annual fee attached to the card. Some companies may offer to waive the fee for a year, but if card holders plan on keeping the card for longer they’ll want to know what they’re getting into. Also, both you and your kids should know about the card’s limit. According to a study by the Smith College Women & Financial Independence (WFI), half of the students surveyed reported charging their cards to the limit some or most of the time. If your kids keep their limits low, it’ll help control their potential for debt. Also, make sure they ask about late charges and the consequences of making a late payment. Companies will not only charge a late fee, often $30 or higher, they may increase the APR.
Using a Credit Card
“Students are not just paying for late-night pizza with their credit cards, they are paying for college,” said Mahnaz Mahdavi, Smith College professor of economics, director of WFI and lead author of their credit card study. WFI reports that in addition to tuition, textbooks and school supplies, students used their credit cards to pay for personal items (58%); dining out (50%); entertainment (48%); groceries (47%); and travel (33%). A study by TERI/IHEP found that many students are using their credit cards to pay for education-related expenses such as tuition and fees (12%) and books and supplies (57%). Talk with your kids about using their card responsibly and, if possible, paying it off at the end of each month. Though carrying a balance is not recommended, if they do need to spread out their payments, make sure they make more than just the minimum payment. Minimum payments are often going to pay for interest only and will do little to bring down the balance and paying more than the minimum will also contribute to increasing credit scores so that future borrowing is at lower rates. Also, advise them to never take cash advances. These types of credit card transactions often have a very high interest rate.
In Debt = Indebted
The statistics show that most college students will get a credit card during their time at school, so it’s important they understand the kinds of risks that come with credit. Talk to your kids about budgeting –that way, when they graduate, they’re not left with a mountain of debt, along with their diploma. You may also want to review their credit report with them once or twice a year to catch any problems before they can do damage to their overall credit worthiness.
Free Money: Your Kids and College Scholarships
There is nothing better than free money…and the good news is your children have the power to claim it. If you’ve thought scholarships are only available to those students with specialized skills or unique backgrounds, think again. There are scholarships available to every kind of student, it’s just a matter of looking in the right place.
For the Love of Money
A 2005 report by the Institute for Higher Education Policy found that students receive more than $3 billion per year in private scholarships: 7% of undergraduates receive private scholarships with an average value of $1,982, and 5% of graduate students received private scholarships averaging $3,091. But the most important statistic is that total unclaimed aid is estimated to be approximately $100 million. It’s just out there, waiting for your child to apply for it.
Some of the biggest obstacles to applying for scholarships are right at home. According to a Careerbuilder.com survey, “We won’t qualify for a scholarship” is a phrase echoed by parents in 25 percent of U.S. households. Another 38% say they do not know if their child would qualify for a scholarship. “The unfortunate reality of these findings is that many parents will rule out the possibility of a scholarship without even researching if their child is truly eligible on the basis of need or merit,” said Farhan Yasin, Vice President of Business Development for CareerBuilder.com.
Lots of Eggs in the Basket
The Careerbuilder.com survey also found that 67% of national scholarships and 73% of school-specific scholarships are merit-based. This provides opportunities to any students looking for scholarship aid. The first step is research. Although there are search companies you can hire to determine scholarship matches for your child, the Federal Trade Commission has alerted consumers to fraud related to these types of services. You can find out more about these scams at www.ftc.gov/scholarshipscams. Fortunately, there are free search engines on the Internet that you can use to narrow down a list of potential scholarships. Start early so there’s enough time to prepare the application.
When the application materials arrive, read through them carefully with your children. Find out about the eligibility requirements before your kids put too much effort into the application. If your child is eligible, weigh the amount of time needed to complete the application with the other scholarships on the list. You may want to suggest focusing on another more valuable award if it’s going to take the same amount of time to apply.
The Process
Most scholarships require applicants to write an essay or personal statement that will address significant achievements, professional goals and the reasons why they think they deserve to receive the award. It is essential that applicants answer whatever questions they pose and do so in a compelling manner. Ensure that your kids include their academic accomplishments including any honors they’ve received, GPA, and any leadership skills they’ve developed through social groups, clubs, etc. Remind them to highlight the community service they’ve performed no matter how small and talk about any lessons they learned while volunteering. If your children have work experience, tell them to talk about how it has helped shape them as students and members of the community.
Applicants should write in active voice; for example, “I developed my skills through several classes,” as opposed to “My skills were developed through several classes.” Read through it before it’s submitted, and both you and your child should proof the application extensively. A great tip you can give your child for proofing is to read the essay backwards. By starting with the last sentence and working towards the first they’ll approach their writing in an unfamiliar way, which helps uncover errors.
Support the Cause
If the scholarship requires a resume, have your kids craft it with the scholarship in mind. Applications should also include any activities or experiences which will stand out to the scholarship committee. And don’t forget to remind your children to start early for letters of recommendation and approach people who know them well, both professionally and personally. Ideally, they’ll want an individual who specializes in the field of study the scholarship is geared towards. Tell them to supply the person with any materials that can help them craft the letter. They’ll also want to send away for transcripts and gather important documents early to avoid missing a scholarship deadline. In addition, applicants may need to need to send test score information, financial aid forms, parent’s financial data, and academic transcripts, along with the supporting materials for the application.
Although it may seem overwhelming to complete a scholarship application, it’s well worth the effort when you consider any amount your child wins will minimize the amount you may need to pony up for their education!
Show Me the Money: The Facts About Scholarship Finders
With college tuition skyrocketing, many students are looking for outside help to fund their education. Of course, the first and most reliable place to seek out assistance is through financial aid programs. But if your kids don’t qualify for financial aid, they can always apply for a scholarship. Scholarships are financial gifts that don’t need to be paid back, and are awarded based on certain criteria. There are academic scholarships, religious scholarships, scholarships based on ethnicity–the list goes on and on. With millions of scholarships available in the United States, the chances one fits your child’s qualifications are high. But how can you help your kids find one with their name on it?
The Research Search
Research is the best way to find that special scholarship. Unfortunately, many students don’t have the time to look or just haven’t had much luck in their search. There are services available that do the searching for them. These scholarship finders charge a fee to compare a student’s profile with a database of scholarship opportunities. They often print or email a specialized report that lists all the potential scholarship opportunities available for which a student may qualify, along with information on how to apply, deadlines, etc. The key to getting the most for the money is to be persistent in the scholarship hunt. If your kids do decide to go this route, make sure they utilize the list provided to them by the company, and if some of the scholarships don’t match their qualifications be sure to talk with the company about the discrepancies.
Do-It-Yourself
In addition to paid services, there are also free Internet search engines that can help match students to appropriate scholarships. Collegedata.com offers a search engine that takes the most common eligibility criteria like GPA, gender, residency, ethnicity, religion, and area of study, and matches it to the scholarships in their database. The drawback to relying on this kind of search is that it is often too broad. Students establish their criteria, then wind up with a long list of potential scholarships, many of which will likely be outside their realm of qualifications. Other sites that offer free comprehensive scholarship searches include scholarship-monkey.com, brokescholar.com, and collegeboard.com. For more links to free scholarship search engines head to www.college-scholarships.com and click on “Free College Scholarship and Financial Aid Searches.”
Not-So-Free Money
Though there are legitimate companies that offer these services for a fee, there are a lot of scam artists who claim to have secret information, guarantee your money back, or make other outlandish promises. The Federal Trade Commission recently launched an investigation into these unscrupulous activities and released an alert with information on how to avoid these scams. According to the FTC, the following advertising lines are red flags:
• “The scholarship is guaranteed or your money back.”
• “You can’t get this information anywhere else.”
• “I just need your credit card or bank account number to hold this scholarship.”
• “We’ll do all the work.”
• “The scholarship will cost some money.”
• “You’ve been selected by a ‘national foundation’ to receive a scholarship” or “You’re a finalist” in a contest you never entered.
The FTC suggests parents and students looking into paid scholarship finding services should investigate the organization, get references, and request the offer, services, and policies in writing. To learn more about these scams, visit the ftc.gov/scholarshipscams, and, if you do encounter a scam artist, file a complaint on the FTC website.
If a company is legitimate and does deliver a comprehensive list of scholarships, you have a very good chance of recouping your investment in the service. But it will take a lot of action on your child’s part to find the scholarship and complete the application process. They’re giving your family the map and directions to the rainbow, it’s up to you to find the other side…but there may just be a pot of gold waiting.
