BRAINTREE, Mass., May 25, 2005—The average outstanding balance on undergraduate credit cards fell to $2,169, its lowest level since 1998, according to a study released by Nellie Mae, a top originator of student loans and leader in helping students manage debt and understand the responsibilities of borrowing. The study, "Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends," which can be found at www.nelliemae.com, analyzes the credit card behavior of Nellie Mae student loan applicants during the last year.
"While the sharp increases in credit card usage among college students that we have seen in recent years appear to be leveling off, undergraduate students and credit cards remain a dangerous combination," said Marie O'Malley, vice president of marketing for Nellie Mae.
Nellie Mae's 2004 study of credit card usage and trends is the fourth in a series conducted since 1998, establishing a benchmark from which the following trends can be identified:
Credit card availability and usage
- Seventy-six percent of undergraduates in 2004 began the school year with credit cards, an 8% decrease from the 83% with cards reported in 2001.
- Undergraduates reported freshman year as the most prevalent time for obtaining credit cards, with 56% reporting having obtained their first card at the age of 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 average number of credit cards per undergraduate student fell from 4.25 cards in 2001 to 4.09 cards in 2004.
- Forty-three percent of undergraduate students with credit cards had at least four cards in 2004, compared to 47% in 2001.
Credit card debt
- The average outstanding balance on undergraduate credit cards was $2,169, a reduction of 7% from 2001 when the average balance was $2,327, and the lowest average balance reported since 1998. In 2000, the average balance was $2,748.
- Twenty-three percent of undergraduate students carried a balance of more than $3,000 in 2004, compared to 27% in 2001.
- More than half of the undergraduates with credit cards carried balances lower than $1,000.
- Twenty-one percent of undergraduates with credit cards reported that they pay off all cards each month; 44% say they make more than the minimum payment but generally carry forward a balance; 11% say they make less than the minimum required payment each month.
"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," said O'Malley.
The results from Nellie Mae's credit card studies have long begged the question as to whether there is a correlation between credit card usage among college students and education expenses. Seventy-four percent of undergraduates reported using credit cards for school supplies, the No. 1 reported use of cards; the second most common usage of cards reported by undergraduates was a tie between textbooks and food, with 71% reporting these as charged expenses.
While slightly less than 24% reported using credit cards for tuition, O'Malley warns that such usage is disconcerting given that variable interest rates on credit cards average roughly 13% (source: Bankrate.com, May 17, 2005). "Because student loans have built-in deferment options, low (often subsidized) interest rates, and repayment incentives for making on-time payments, they are a much wiser financing choice for qualified education expenses than credit cards," she said.
More than one-third (34%) of students reported working 10 to 20 hours per week during the school year; 30.5% reported working more than 20 hours per week.
Conclusions reached in a regional breakdown of the survey's results were similar to those in 2001. Students who reside in the Northeast tend to be more conservative with using credit cards than students in other regions of the country. Midwestern and Western students have the greatest likelihood of owning a credit card, as 82% own at least one card. Students who reside in the Midwest have the greatest debt levels compared to students in other regions. The average credit card debt is $2,498 for these students, half of whom have four or more credit cards.
For the 2004 study, as well as each of its previous studies in 1998, 2000 and 2001, Nellie Mae extracted data from the credit bureau reports for a randomly selected group of student loan applicants. In 2004, Nellie Mae added a survey component. An online survey was sent to 1,260 students between the ages of 18 and 24 attending public and private four-year undergraduate institutions, of which roughly 10% responded.
Nellie Mae's goal in publishing this information is to underscore the importance of educating college students about using credit effectively, weighing their spending decisions and considering their source of borrowing. "The key to financial health for students during school and after graduation is being aware of what they borrow, when they borrow, and how much they borrow, and understanding the costs and responsibilities associated with all types of borrowing, including credit cards," continued O'Malley.
To view the study in its entirety, visit www.nelliemae.com.
About Nellie Mae Since 1982, Nellie Mae has focused exclusively on providing education financing for undergraduate and graduate students and families. Programs include Federal Stafford, PLUS and Consolidation Loans, as well as private loans. Online services include loan pre-approval, a loan information center, and debt-management tools to help students before and after college. Visit www.nelliemae.com for more information. Located in Braintree, Mass., Nellie Mae is a wholly owned affiliate of Sallie Mae, the nation's largest provider of education funding. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States.