Students Climbing Mountain of College Loan and Card Debt

Students who are borrowing to pay for their education also rely heavily on credit cards to manage their expenses, according to a new study from the New Hampshire Higher Education Assistance Foundation (NHHEAF) Network Organizations, a consortium of four non-profit groups involved in college financing and related activities. 

The study compared the aggregate student loan and credit information from current student borrowers to previous student borrowers that have now entered repayment, referred to as consumers. The study tracked about 37,000 New Hampshire current and former college students.

The study found that the average credit card balance of student borrowers was $3,106, compared with the average $4,433 carried by consumers. More than 80 percent of all college freshmen had at least one open credit card, while 42 percent had six or more open credit cards. The average credit card debt for student loan borrowers with six or more cards was $4,830 compared with $1,120 for those with two open credit cards.

Assuming a student has a credit card with 19 percent interest and an average balance of $3,106, it will take the student 136 months to be rid of the debt while making the minimum payment required, according to NHHEAF. For this amount of debt, the estimated minimum payment would start at $124.24. In that time, the student will pay $1,941.92 in interest, or 63 percent of the principal amount.

But nearly half of students apparently don’t have $124 to pay towards a minimum payment, according to the study. Forty-six percent of all students have been reported delinquent on their credit card payments, and 12 percent were delinquent at least 120 days. Missing payments can quickly have students receiving calls from collection agencies, points out Sarah Lowe, a research analyst with NHHEAF.

Lowe said the study shows that college students don’t understand the short and long-term financial implications of carrying credit card debt.

The average college loan debt for students with open credit cards was $17,276. As the college loan balance rose, so did the average credit card balance for all those borrowers with active credit, according to the study.

The study didn’t explore the type of purchases college students made with the cards, or if any cash advances or purchases were for college-related expenses.