The Dark Side Of Having Your Kids Pay For College

Students are charging more educational expenses to plastic, boosting credit card debt to record levels.

A recent study by Sallie Mae finds that the average undergraduate carried $3,173 in credit card debt last year. This is the highest level since Sallie Mae began collecting this data in 1998. In 2004, the last time the study was done, students carried an average of $2,169 in card debt.

The higher the grade level, the greater the card debt, according to Sallie Mae. In 2008, college seniors with at least one credit card graduated with an average of $4,138 in card debt.  This figure is up 44% from 2004. By comparison, freshmen’s average credit card debt jumped 27% to $2,038.

With the economy tightening these numbers are likely to get worse.

On top of this, many college lenders are also pulling back on private loans. Making it harder for some students to pay for college. Student loans backed by the federal government, however, are still readily available.

Credit cards should never be looked at as a lending source. Despite what some financial experts are recommending.

There are two major reasons for this explosion in student credit card debt:

Reason #1:  College costs are skyrocketing upwards.  In the past 10 years, tuition and fees at public four-year colleges have climbed 50%, according to the College Board.

Reason #2: The shift of basing financial aid on merit and not need. This gives universities the ability to attract students with the highest SATs. And allows colleges the chance to offer wealthy students merit based financial aid. Wealthy students normally won’t qualify for “need” based aid.   In turn colleges fund financial aid for the wealthy by raising the tuition rate for everyone else. Private universities have mastered this art of the “high fee, high aid” model.  And now several state and public universities have gone down this

So what can a family do to combat the growing problem of student credit card debt?

Step #1: Have a plan to pay for college ahead of time that accounts for all college costs.  One of the biggest college expenses that kids charge to credit cards are books and food.  Don’t forget to include these costs in your budget. Depending on your child’s major and appetite, these costs can run you anywhere from $500 to more than $1000 per semester.

Step #2:  Select the best school at the best price. Seek to achieve a great education for your child but also at the best value.  Don’t pay to much attention to sticker price before you know what your EFC is.  Because a high priced college could cost less then a state school.

Step #3:  Maximize aid.  This depends largely on two factors.  Number one being where your families EFC or Expected Family Contribution falls.  If your EFC is less then the cost of school, then you will be eligible for aid.  Factor number two is how much aid each school typically gives out.  With the amount colleges give out varying widely.   It can pay off big time to know ahead of time which colleges give better aid packages then others.