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Young People In Debt

Thursday, June 20, 2002 at 12:55 PM

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The interest rates for federal student loans will drop nearly two points from 5.99 to 4.06. That's the lowest rates for Stafford and PLUS loans. That's good news for college students who finding it harder to graduate without being in debt. A growing problem is credit card debt. A recent article in USA Today reported nearly 80% of undergraduate students credit cards and average balance was close to $3,000. Some students say they need the borrowed money simply to get through school, but that makes life after graduation difficult to manage. Carrying thousands of dollars of debt prevents young people from getting that first car or buying a home. 90.3 WCPN's Tarice Sims reports on what some local schools and organizations are doing to help students understand and manage their debt.

Tarice Sims: When Cleveland State University student Camera Brown was 18 he first got a credit card - a Citibank Visa. Brown says the Visa allowed him the freedom to buy all the things in the stores he had to pass by because he didn’t have the money. But the Visa had a 21% interest rate - a concept Brown says he didn’t fully understand.

Camera Brown: I was doing pretty good for a while. And what happened was I lost my job - I got fired, and things got kind of crazy then because I found myself trying to survive just to get money, and I wasn’t worrying about bills. And then it got to the point where I didn’t even pay the bills.

TS: Brown says in no time he ran up a $500 credit card bill - a bill that sat for a year. The 24-year-old Brown now uses a debit card - only. His classmate at CSU, Elizabeth Vanel, says she has to have a credit card. The 26-year-old single mother says right now credit cards are her livelihood.

Elizabeth Vanel: I’m basically living off of my student loans and my credit cards because you have to survive somehow.

TS: Vanell says her minimum payment is $14 a month. She says she pays the balance off with money from her student loan.

EV: Yeah you head the warnings slightly but you also have to live now so what else can you do. So what else can you do but survive now and I guess worry about it later. There are people who perceive it as an extension of their income and it’s not.

TS: Nancy Deevers is with Consumer Credit Counselors, or CCC. She says she sees a lot of young people who wind up feeling trapped under a mountain of debt because they use it as additional paycheck. Deevers says the reason that people don’t understand the how powerful an impact will be in the future if debt gets out of control.

Nancy Deevers: And adults or college students both what we stress is don’t just trust that you’ll find the money down the line or you’ll fix it later. So living in the future is dangerous in that respect.

TS: Deevers says Consumer Credit Counseling helps people work out a payment plan that they can live with. She estimates roughly half of those seeking help are under 35 years old. In a study from the U.S. Public Interest Research Group survey information showed nearly 40% of student borrowers graduate with unmanageable debt. Earlier this week, CCC offered free credit checks for those looking to invest in homes. Blake Hanlin with Household Finance Corporation assisted in the process. He says it’s a good idea to know your credit standing.

Blake Hanlin: Credit card debt is not necessarily bad, but if you have too much outstanding credit the credit reporting agencies view that as potentially risky that you could go out on a spending binge. So you just need to know even if you have good credit you may think you have good credit you need to know what they’re saying about you.

TS: Hanlin says one example he’s encountered has to do with student loan payment. He says they don’t understand a missed payment from five years ago can ruin your chance to make a major purchase of a house or car in the near future. Yet developing a credit history early is not bad. Kathy Edwards is with Discover Card. Although she did not what to speak on air about her credit card, Edwards did go on record as saying that the majority of young people they serve use credit responsibly. She added it makes good business sense for credit card companies to establish a relationship with potential clients early. Discover Card initially started marketing to junior and seniors in college 16 years ago because they were most likely to become wage earners now they’re expanded to underclassmen.

Meanwhile some schools are trying to monitor credit card companies on campus. A spokesperson from CSU says the school does not yet have a program to counsel students on credit card debt management. But, the financial aid office does offer advice on the responsibility that comes with student loans. In Cleveland, Tarice Sims, 90.3 WCPN News.

Additional Information

* America Saves
* Consumer Credit Counseling Services

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