Student debt declines: But U students still use credit cards as primary payment option

Undergraduate students nationwide are carrying fewer credit cards and using them less, a new study by college lender Nellie Mae found.

At the U, however, credit cards remain the most popular way for students to purchase supplies from the bookstore, buy food from Chartwells and pay for tuition, according to U officials. This differs from the nationwide trend.

The Nellie Mae study shows that undergraduates nationwide carried an average of four cards last year, and their outstanding balance was, on average, $2,169, which is down from $2,327 in 2001 and $2,748 in 2000.

In a written statement, Marie O’Malley, vice president of Nellie Mae, said, “The fact that average credit card usage has declined among undergraduates in the past three years can be viewed as a sign that the message to use credit responsibly is reaching its intended audience.”

The Nellie Mae study, which is based on data from the nation’s main credit bureaus as well as a survey of students, often serves as a benchmark of America college students’ financial well-being.

The latest study found that more than half of the students received their first credit card at age 18. Undergraduates reported direct mail solicitation as the primary source for selecting a credit-card vendor; the second most common source was referral from parents.

The study showed that slightly fewer than 24 percent of students reported using credit cards for tuition, but U student Chad Rowland, paid his tuition last semester with his credit card rather than taking out a loan.

“It was easier to put it all on my credit card,” Rowland said, “although it probably would have been cheaper to take out a student loan.”

It took Rowland a few months into the semester to pay the balance.

O’Malley strongly suggested using student loans rather than credit cards, because loans have built-in deferment options, low interest rates and repayment incentives for making payments on time.

“They are a much wiser financing choice for qualified education expenses than credit cards,” O’Malley said. The study also showed indications that students were using credit responsibly.

More than half of the undergraduates with credit cards carried balances below $1,000.

The most frequently charged educational expenses were school supplies and textbooks, while the most frequently charged non-educational expenses were food, clothing, cosmetics and gifts.

More than one in five students paid their credit card balances in full every month. More than two-thirds of the undergraduates said they’re making only minimum payments on some or all of their cards, while 11 percent said they can’t even pay the minimum.

The study also found that credit card debt increased with year in school. Freshmen and sophomores carried an average credit card debt of about $1,580, while juniors carried $2,000 and seniors, $2,864.

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