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Alternative College Funding: Credit Cards
by Emily Zaborniak
 
Credit card companies know just how to market to eager young college students. Walk across almost any college campus, and you will see representatives waving free t-shirts, throwing free Frisbees, and dangling free key chains. The only thing a college student has to do in order to receive any of these "free" items is fill out a credit card application. Another effective tactic is marketing through the mail by sending students pre-approved cards with activation only a phone call away. It's easy to dial the 800 number and open a credit line while hanging out in one's dorm. However they have ended up with them, a significant number of college students have credit cards in hand; unfortunately, many do not understand the rules and dangers associated with overcharging.

The latest trend in credit card use by college students isn't online shopping—it's charging tuition payments. According to a recent online news update by Higher Education Washington, Inc., more than half of students have credit cards in their names, and a quarter of them are using those cards to finance escalating tuition payments. Because college students are just beginning to establish credit, the interest rates on these cards tend to be brutally high—often higher than they would be if a student were to take out federal student loans and consolidate them at fixed rates.

Considering the costs of tuition and the costs of compounding interest, a college student can quickly rack up a substantial credit card balance. And students rarely have the income they need to keep up with payments, which they will need to make while they are still in school. In an October 2006 press release, the American Council on Education (ACE) reported that "overall, more than four in ten student cardholders carried a balance from month to month, with a median balance of $1,000." 55% of students counted in that statistic accumulated balances by charging their tuition.

If college tuition continues to increase, then it's reasonable to conclude that more students will rely on credit cards to patch together "affordable" educations. Some students feel the burden over the course of their college years. The ACE study reported that 48% of student cardholders carried balances by their fourth or fifth years in college. Some students begin charging right from the start, as ACE's study confirmed when it found that this was true for 37% of freshmen.

"If students are floating their credit card payments, that's troubling because there are certainly less expensive forms of credit," said Jacqueline King, Director of the ACE Center for Policy Analysis.

The press release announcing the ACE study discussed the roles institutions play: "Many schools, particularly state institutions and community colleges, let students or parents pay tuition bills with credit cards for convenience. But some institutions refuse to allow the practice, saying they worry it will steer students toward more expensive ways to borrow. Some colleges also say the fees charged by credit card companies to process the payments aren't worth it."

Despite the warnings and statistics, students are turning to credit cards out of desperation, due to their accessibility. With cards at their fingertips, it's easy to get caught in the cobweb of credit.





 


Article Title : Alternative College Funding: Credit Cards
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