Picture yourself in the not-too-distant future. After years of
toiling away in libraries and lecture halls–the moment has arrived. You
are finally gearing up for your college graduation. As you stroll across
the stage before family and friends, you’re leaving college with an
abundance of knowledge and skills, a prestigious degree, key contacts
and relationships, and an enormous amount of credit card debt?
Unfortunately, this is the case for far too many college graduates.
[ILLUSTRATION OMITTED]
My middle daughter can picture the above scenario all too clearly.
Though the following chain of events occurred more than 10 years ago,
she can recall the experience as if it transpired yesterday. It was
winter break during her junior year. As she capped off a 12-hour drive
from Norman, Okla. and pulled up to our Atlanta, Ga. home, she was
shaking in her boots. Not because of poor grades or a fight with her
roommate. Blessed with a pleasing disposition, she had never caused us,
her parents, an ounce of trouble. Everyone seemed to be her friend. And
she had always been an excellent student–more than equal to the task.
As her mother has shared on more than one occasion, it seems as if this
child could add before she could read. To drive the point home, she was
labeled by her college buddies and fellow business majors as a
“quant-jock.” When other students cowered in fear at the
prospects of statistics and upper division economic theory, she found
safe haven in numbers and mathematical formulas buried in reams of data.
But now the tables were turned and we knew why. Thanks to the constant
barrage of creditors who bombarded our phone lines when she failed to
respond to their messages, we knew our child was bringing home much more
than a semester’s worth of dirty laundry. Stuffed in among her
tattered luggage, duffle bags, and back pack, was nearly $4,000 of
credit card debt.
“Her first thought? How am I going to get out of this and not
tell my parents?” recounts this wiser and now financially
disciplined college grad. She now shops with cash and not plastic in
order to know exactly how much she can spend.
“Looking back, so many of my friends were trapped in a web of
robbing Peter to pay Paul,” says Kimberli Kimbro. “Or worse,
paying no one at all just because of credit cards. I vowed that I would
never fall prey to the lure of the latest fashions or the hottest
electronic gadgets and all-night parties. But to be honest, I stumbled
into the same trap. Wherever I turned on campus-from the bookstore, to
the coffee shop, or walking to the parking deck–somebody was waiving a
credit card application under my nose. I discovered that there’s a
huge gap between what I want and what I need.”
At one time, the biggest worries a parent could face when they
packed their teenager off to college were sex, drugs, and endless
drinking. However, in the past decade, another issue has been added to
that list: avoiding the credit card trap. Though my daughter eventually
leaned on us, her parents, for financial and emotional support, we still
required her to bite the bullet and drop out spring semester to pay down
her debts. Thankfully, she honored her commitments and still marched
with her class. For many college students, a credit card is viewed as a
rite of passage–a chance to not only express newfound independence but
to spend without permission or thinking. Sadly, this small piece of
plastic can also lead to economic ruin that can haunt you long after
graduation.
Case and point: Even with all of her mathematical prowess, my
daughter still had difficulty calculating the one problem that could
impact her entire life. While credit cards have become a fact of life on
college campuses, thousands of students are learning their lessons the
hard way. When it comes to credit and personal finances, increasingly,
more Black college students are stumbling into serious debt that has
little to do with the cost of their education and more to do with their
lifestyle.
WHAT’S IN YOUR WALLET?
Gone are the days of the stereotypical “starving
student.” Surprisingly, some students arrive on campus with credit
card in hand and, according to a recent study, “have no idea what
interest rate they are paying.” Teenagers heading to campus today
expect to continue to enjoy the same lifestyle they had when mom and dad
were footing the bills. To compound matters, most are blissfully naive
regarding how the world of credit operates. From industry leader Bank of
America to Capital One, every financial institution has long been aware
that if they open an account for a college student, that individual is
likely to remain a loyal customer for many years after graduation.
The irony is that many students are obtaining their first credit
cards–which often lead to financial trouble–with the help of their
beloved college. In a 1998 survey, one out of four students who applied
for credit said they were solicited either directly by a campus
representative or a school-related ad. This raises the question: Why are
credit card applications included in freshman orientation packets? And,
how are students able to sign up for immediate, pre-approved lines of
credit right on the quad or oval?
Consolidated Credit Counseling Services, a national non-profit
boasting 50 years experience in money management, reports that 20
percent of freshmen obtained their first credit cards while still in
high school, and approximately 93 percent of college seniors have
acquired at least one card during their college years. Many campus
credit card vendors make applying for a $10,000 credit line as easy as
purchasing a lottery ticket or filling out a sweepstakes entry–and just
as attractive.
With a slew of on-campus promotions utilizing marketing tactics
ranging from magazines to web sites, who can say no? And don’t
forget the low introductory rates and appealing incentives–t-shirts to
bonus airline miles–it’s not surprising to discover that according
to Nellie Mae, the college loan behemoth, 83 percent of all college
undergraduates tote at least one credit card–a 24 percent increase
since 1998–and carry an average balance of roughly $2,700. That’s
on top of an average student loan balance of $19,400–but more than
$30,000 for African American graduates!
Nellie Mae has conducted a string of credit card studies since
1998, and the patterns of behavior related to credit card usage among
lower income undergraduates, particularly minority students, reveals a
host of disturbing trends:
* Three out of five students with credit cards maxed them out
during their freshman year.
* Three out of five freshmen with multiple credit cards used bank
cards to pay for other revolving credit accounts.
* 47 percent of undergraduates own four or more credit cards.
* 10 percent of all seniors face more than $7,000 of credit card
debt upon graduation.
* Financial burdens can often lead to academic problems. Credit
card debt is linked to low retention rates among African-American
undergrads, as students quit school to work full-time.
* Nearly three-fourths of students use their students loans to pay
credit card bills.
YOUNG, BLACK AND BROKE
The learning curve with credit cards remains steep, and
there’s little room for trial and error. Most college students
don’t know how to balance a checkbook, much less manage their
credit. Little do they know that by making the minimum payment on their
$2,700 balance, they won’t retire that debt for 15 years. Given the
current entry-level job market, chances are this excess debt is more
than most students will be able to repay. It’s no coincidence that
bankruptcies among consumers age 25 and under has soared. As
today’s students take on more debt, due in part to higher tuition
and endless credit solicitations, this new class of spenders has been
labeled “Credit Card Nation” and “Generation Debt.”
Black collegians are often faced with a major decision, one that
has little to do with their field of study. According to the Federal
Reserve, Blacks are denied credit more often than whites and typically
pay higher interest rates (in excess of 18 percent). As I prepared to
pen this article I sat down with a host of upperclassmen and
women-students who attend Atlanta University Center schools–and
addressed the touchy subject of credit. Below are a few choice words
from soon-to-be May 2008 graduates:
“Between my student loans-totaling $70,000, and two VISA cards that
are maxed out–bankruptcy looks like my only option. I never took
finances seriously until my loans began to accumulate.”
“Spring break in Miami? I knew I couldn’t afford to go but everyone
was going to be there. That was my sophomore year. I’m still digging
out. What was I thinking?”
“I’m a senior and I can tell you that it’s not worth the hassle. When
I arrived in Atlanta, I fell in love with Neiman Marcus and
Nordstrom’s. Three credit cards later … Please, don’t ask what I
owe. It’s so easy to swipe a card and get what you want. From now on
I’ll just go window shopping. Did I mention that someone hit my car?”
“I was $3,000 in debt before I could legally drink. I’m interviewing
now. I just hope and pray my future employer doesn’t request a credit
check.”
PASSING WITH FLYING COLORS
College is the last care free bastion before real life seeps in, or
at least it should be. As a professor who interacts with Black students
on a daily basis, I’ve been led to believe that at the close of
each day students should be able to rest their weary heads with no more
on their minds than tomorrow’s class assignments or calculus exam.
Students should be able to live at peace, even if they can’t
afford much more than an occasional late night whopper or pizza. At the
very least they should not be forced to fret about overdue bills from
impulse spending. Unfortunately, for many Black students this is not the
case. Many are already over-burdened with financial obligations and
saddled with credit card debt and interest rates that are spinning out
of control.
As I think about my daughter and the challenges that were thrust
upon her shoulders, I admit, I was overly naive. I could’ve used a
pre-emptive strike. The issue of young adults obtaining credit is, quite
frankly, a lot like sex: Most are going to do it. As a parent or
guardian, you want to be sure your child or loved one does it
responsibly and safely. The following pointers will help any college
student master the ABCs of credit and ace one of college’s toughest
exams.
Dennis Kimbro, Ph.D., is a faculty member at the Clark Atlanta
University School of Business Administration. He is currently writing
his fifth book, “Have vs Have Not: What Black Millionaires Know
that Others Do Not.”
By Dennis Kimbro, Ph.D.
RELATED ARTICLE: HOW TO USE CREDIT WISELY
** APPLY FOR LOW-LIMIT CREDIT CARDS. Many banks offer credit cards
that feature built in spending limits, such as $500 or even $250, which
makes repayments easier and helps to control spending.
** BE RESPONSIBLE. Debt isn’t the problem; your buying
decisions are. If you do get a credit card, pay the bill on time.
Financial counselors say the answer to student debt is not avoiding
credit altogether. Establishing and building a healthy credit history
can open doors in the future. Paying student loans and credit cards on
time is a surefire way to let future lenders know that you stand by your
commitments. Most financial planners encourage clients to strive for a
credit score of 760 to 850, which almost guarantees an easier path to
financial stability. Remember, upon graduation your credit rating is
just as important as your GPA.
** COMPARE CREDIT CARD OFFERS. Choose a card that has an annual
percentage rate. If you own other cards and find a lower rate, try
moving higher credit-card debt to the card with the lower rate, and pay
off the balance. Consider the following elements when selecting a card:
finance charges, annual and penalty fees, and ending balance
calculations.
** DO USE A DEBIT CARD. These funds are pulled from a checking or
savings account and buffers any temptation to overspend. Many parents
set up accounts and manage their child’s spending accordingly.
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