2008 Woodie Awards
Seminar eases debt doubts
By: Amanda King
Issue date: 10/4/07 Section: Lifestyle
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Undergraduate students across the country are leaving their universities with more than a diploma in hand. The average college student will have racked up close to $3,000 in credit card debt by graduation, said associate business professor Steve Hinson at a presentation sponsored by Students in Free Enterprise.
These debts are compounded by student loans. More than 72 percent of undergraduates at private four-year universities take out loans for their education, accumulating an average of $21,900 in debt at the time of graduation, said Hinson.
"To some extent, the student loan debt may be unavoidable. And arguably, it is good debt in the sense that the return on the investment may be greater than the cost of the debt," said Hinson. "But for credit card debt, that's a pretty hard argument to make."
Hinson cautioned students against getting into credit card debt in the first place, but also offered tips on getting out of debt. For instance, students can avoid paying hefty amounts of interest by paying off their credit cards every month - or at least by keeping the balance low. Hinson drove home this point by making an example out of the average student's $3,000 credit card balance.
"If you pay the $60 minimum payment only on the $3,000 balance each month and the interest is accruing at 16 percent … to pay it off …will take 351 months (29 years and 3 months) … and you wind up paying about three times what you originally paid for the product," said Hinson.
Junior accounting major and SIFE Secretary Gina Runde was surprised by the scenario.
"You could be making car payments with that," said Runde.
Freshman accounting major Natalia Torres said she was most interested in Hinson's information on credit scores.
"I'm an international student so I didn't know that information about FICO (Fair Issace Company) scores," said Torres.
FICO scores - a measure of a borrower's reliability - are important to students on a number of levels, said Hinson. Lenders use FICO scores to determine interest rates on loans. In Missouri, the interest rate on an auto loan for a borrower with a high credit score (720-850) is 7.17 percent, while the rate for a borrower with a low credit score (500-589) is more than double that, at 15.35 percent.
These debts are compounded by student loans. More than 72 percent of undergraduates at private four-year universities take out loans for their education, accumulating an average of $21,900 in debt at the time of graduation, said Hinson.
"To some extent, the student loan debt may be unavoidable. And arguably, it is good debt in the sense that the return on the investment may be greater than the cost of the debt," said Hinson. "But for credit card debt, that's a pretty hard argument to make."
Hinson cautioned students against getting into credit card debt in the first place, but also offered tips on getting out of debt. For instance, students can avoid paying hefty amounts of interest by paying off their credit cards every month - or at least by keeping the balance low. Hinson drove home this point by making an example out of the average student's $3,000 credit card balance.
"If you pay the $60 minimum payment only on the $3,000 balance each month and the interest is accruing at 16 percent … to pay it off …will take 351 months (29 years and 3 months) … and you wind up paying about three times what you originally paid for the product," said Hinson.
Junior accounting major and SIFE Secretary Gina Runde was surprised by the scenario.
"You could be making car payments with that," said Runde.
Freshman accounting major Natalia Torres said she was most interested in Hinson's information on credit scores.
"I'm an international student so I didn't know that information about FICO (Fair Issace Company) scores," said Torres.
FICO scores - a measure of a borrower's reliability - are important to students on a number of levels, said Hinson. Lenders use FICO scores to determine interest rates on loans. In Missouri, the interest rate on an auto loan for a borrower with a high credit score (720-850) is 7.17 percent, while the rate for a borrower with a low credit score (500-589) is more than double that, at 15.35 percent.
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