By Trishia Hughes
Four years in college can get expensive; between tuition, books and school supplies, there’s little left for fun. Most students open credit cards to purchase anything from food and clothes to new laptop computers and iPods, believing they will be able to pay it back.
According to a report published in May 2005 showed that 76 percent of undergraduates begin the school year with credit cards, carrying an average outstanding balance of just over $2,000.
A staggering 56 percent said they acquired their first credit card at age 18 and by senior year nearly doubled their debt to an average balance of almost $3,000, according to Nellie Mae, a Sallie Mae subsidiary that deals with college students and credit cards. And while 21 percent of undergrads claim to completely pay off their cards each month, 11 percent say they can’t even make the minimum payment.
“At the height of my debt, I owed about $8,000 on six different cards,” said Nicole Jalufka, 24-year-old junior at Florida International University. “I used my credit cards to run up a tab for me and my friends whenever we went out. I didn’t care. I wanted to have fun and I did – and now I’m paying for it.”
Jalufka says it took her six years to cut her balance in half, still leaving her with $4,000. She says she still uses plastic, but tries to be more conscientious of what she charges.
Her boyfriend, Frank Irizarry, 22 and a sophomore at Miami-Dade College, racked up $10,000 on two cards in no time and said as soon as he started missing payments, his interest rates sky-rocketed.
Last year Irizarry took his financial woes to CareOne Credit Counseling, a debt consolidation service that claims to lower monthly payments and reduce interest rates.
“I’m down to $7,300 this month,” Irizarry said. “I send CareOne $304 a month and they take care of everything. They told me it would take four years to wipe out my debt – I’ve got three more to go.”
With debt consolidation comes a trade-off: a little more money for a little less hassle. Rather than making individual payments and trying to figure out which cards to pay off first, the company charges a monthly fee – $30 in Irizarry’s case – and does all the work for their clients.
For some, more money equals more problems, but for Irizarry it equals peace of mind.
While both credit card use and abuse is still rampant among U.S. college students, the percentage of students with credit cards and their average outstanding balance has actually decreased approximately 7 percent over the last three years.
Though credit card debt is declining, debt as a whole is not.
Nearly 10 million undergrads borrowed money through the Federal Stafford Loan Program to finance the 2004-2005 academic year, and according to the College Board’s October 2005 Trends in Student Aid Report, grant aid has increased 86 percent over the last decade.
Based on the report, $129 billion in financial aid was distributed in the form of grants, work-study, federal loans and tax credits and deduction. It sounds like a lot, but it wasn’t enough.
The report found that those same students borrowed an additional $14 billion from nonfederal sources in order to help finance their education.
Sallie Mae said they issued $21.4 billion in both federal and private education loans last year.
According to Trends, the average debt level of bachelor recipients for four years at a private nonprofit institution is $20,000, just $5,000 more than the average debt accrued at public universities.
The numbers don’t quite make sense when comparing tuition rates from a public college to a private university. Take the University, for example.
“For the 2005-2006 academic year, there are at present 9,865 student loans that have been processed,” said Janice Contino, director of financial aid at the University. “Approximately 67 percent of Hofstra undergraduates have some type of student loan.”
With current tuition set at $11,900 that’s roughly $24,000 a year for fall and spring. This doesn’t include basic University fees, totaling another $515 a term, nor does it take into consideration food, housing, textbooks and supplies – not to mention optional winter or summer classes.
“I find it somewhat of a disgrace that in order to better myself as a person and create a higher standard of living that my parents never had, I’m forced to throw myself into debt,” Danielle Aposhian, a senior public relations major at the University said. “While graduating from the college of my choice, I still come out many steps behind my degree because I face thousands of dollars that I need to pay off.”
Aposhian, who transferred to the University from C.W. Post after two years, has an overall debt of about $80,000 and is still borrowing to finish school.
Given that the maximum Federal Pell Grant is currently capped at $4,050, it’s hard to believe that most students can get more than half of their education paid for through grants and scholarships alone, and therefore have to accumulate four or more year’s worth of student loans in order to cover the rising cost of education.
“Student loans are just one of the four components of financial aid,” said Erin Korsvall, representative for Sallie Mae, which recommends a 1-2-3 approach to paying for college.
First, they say, exhaust your free money options that do not need to be repaid. Next, borrow money through federal loan programs because they offer the best rates and terms, and finally, seek private education loans from the same provider to cover any unmet expenses, but remain wary of debt.
“Borrow only what you need,” Korsvall said. “Every dollar you do not borrow is one you do not have to repay.”
This, many experts agree, is where students get pulled under. Financing education is such a colossal expense that students, overwhelmed by the cost, become numb to it – forgetting that come six months after graduation, the repayment begins.
For most, 10 years is all it takes, but according to the U.S. Department of Education, there is a 4.5 percent average default rate on student loans nationally.
Dr. Mamdouh Farid, chairperson for the Department of Management, Entrepreneurship and General Business, discussed the topic of debt management to his students and categorized their attitudes into three positions.
“Some students are not aware that financial aids are debt,” Farid said. “For students who are aware, they do not consider the gravity of the situation [and think] ‘Graduation and finding a job will solve everything.'”
The rest of Farid’s business students compared student loans to credit card debt and felt neither would ever be paid off. But with some hardcore planning and a watchful eye just about anyone can be pulled out of debt.
In fact, debt is such a hot topic right now that talk-show host Oprah Winfrey recently challenged the nation to join her “Debt Diet” and asked America to start shedding the bills with financial experts Jean Chatzky, David Bach and Glinda Bridgforth.
Together, the three have devised a step by step guide to getting out of the red and back on sturdy ground: calculate your debt, track your spending, learn the credit card game and stop spending.
Experts agree that facing debt head-on and knowing just how much is owed is crucial to getting financially fit.
When it comes to having the money to start paying down debt, putting a halt to frivolous items by tracking your spending is sure to turn up some extra cash. Sacrifices will have to be made, but Starbucks will still be around to take your money once you’re in the clear financially.
“First and foremost, students should borrow wisely. They should finance their education, not their lifestyle,” Korsvall said.
While aware of the burden student loans place on the borrowers, Korsvall doesn’t want to discourage young people from financing their education.
“Education is an incredible investment in one’s future,” Korsvall said. “The Census Bureau estimates that college graduates will earn an average of about $2.5 million, or about $1 million more over their working lives than high school graduates.
If student loans are your biggest concern and you’re about to graduate consider looking into consolidation before July 1, 2006. In mid-May the government will announce the interest rate for the next fiscal year.
“If it stays the same wait until after July 1 to avoid the fee,” said Contino, who believes this will be the last year that loan consolidation will be beneficial to students. “In 2007, consolidation will be a fixed rate.”
Contino said the number one question to ask before consolidating is “When do you capitalize?” Capitalizing takes all of the interest and applies it to the principal.
“Look for one-time capitalizing,” said Contino. She urges students to do some research and find out what their monthly payments will be if they consolidate and if they don’t. In many cases, she says, it doesn’t pay to consolidate.
Contino is currently working with advisers in the financial aid department to create debt management workshops for upcoming graduates. Ideally, she’d like to see incoming students attend an information session upon entering the University and then again just prior to graduation. This way they’ll know their options and be better equipped to have a handle on their finances.
“The key to financial health for students during school and after graduation is their awareness of what they borrow, when they borrow and how much they borrow, and understanding the costs and responsibilities associated with all types of borrowing, including credit cards,” said Nellie Mae.
