The broke college kid isn’t just a stereotype: A new survey shows that 36% of college students have more than $1,000 in credit card debt. EVERFI, an education tech company, surveyed over 30,000 college students from more than 440 institutions in 45 states and uncovered some disturbing financial insights about Generation Z.
The iPhone generation isn’t the most financially savvy demographic group. Almost half of college students surveyed said they do not feel prepared to manage their money, which is bound to cause challenges after graduation when they have to deal with both their student debt and, in many cases, a large amount of credit card debt.
One major issue with credit card debt is the high interest rates that come with it. As StudentLoanHero.com points out, credit card interest rates are usually somewhere higher than 20% annually, whereas student loan interest is typically far below 10%. And that doesn’t even account for penalty interest rates that credit cards charge for missed payments, which can be as high as 30%. Additionally, credit cards don’t provide any avenue to lower their exorbitant rates through refinancing (at least not in the long run).
With this in mind, students would be much better off taking out more student loans than carrying debts for basic expenses on a credit card.
To make matters even worse, many students today don’t have the flexibility to work as many hours during college, as they are restricted by the required course load. However, the benefits of working while in college go far beyond the elimination of credit card debt. According to another study from Rutgers, students who worked a part-time or full-time job while in college had average earnings up to $20,000 higher than those who didn’t.
“Colleges and universities need to think seriously about how to make it easier for working students to incorporate these two parts of their lives,” Daniel Douglas, senior researcher at Rutgers Education and Employment Research Center told CNBC. He’s exactly right.
Students should be able to work at least a part-time schedule while they earn, but that’s only one part of the equation. Without proper personal finance training (whether that means a high school course or something less formal) prior to starting college, the cycle of students graduating with mind-numbing amounts of debt will continue without ceasing. College students need new financial habits, but it’s on us to help them find their way.
Brendan Pringle (@BrendanPringle) is a writer from California. He is a National Journalism Center graduate and formerly served as a development officer for Young America’s Foundation at the Reagan Ranch.
