When he came to MSU last fall, criminal justice freshman Griffin McCarthy knew he would accumulate mounds of debt by the time he graduates. “I’m in a financial situation where my family can’t pay out-of-pocket for school,” McCarthy said. “I’m in a single-parent home, so some of the financial burden is too much.”
As education costs rise and private lenders become more difficult to borrow from, McCarthy’s situation is increasingly common among students.
The economy has made the incidence of debt much higher than in the past, said Larry Hamm, a food industry management professor and expert in debt and credit markets.
“When prices fall, the interest stays the same, so it seems like more,” he said. “So in deflationary times, like right now, the rates will be more noticeable.”
McCarthy expects to have about $20,000 in loans to pay off when he finishes school, just under MSU’s average student debt at $21,175, according to Project on Student Debt, a nonprofit independent research and policy organization. The average graduate of U.S. public universities graduates $18,482 in the red.
With incomes falling, it is becoming more difficult to pay back debts, making them seem worse than before. And students get the brunt of the problem, accumulating debt for both personal finances and educational costs.
Brian Winters, a financial wellness consultant at Olin Health Center, said any debt isn’t ideal, but if it can’t be avoided students should focus on only borrowing for essential items.
“You’re better off not owing money if you can avoid it,” he said. “But the best kinds would be ones that are investments.”
Put away the plastic
Winters said a majority of students who he consults are seeking help for health insurance, student loan debt and credit card debt.
He said credit card debt is one of the most dangerous ways for students to lose control of finances. The average student at MSU has about $2,700 in credit card debt.
“It’s basically all going towards the credit card company to make money,” Winters said.
“People just don’t seem to understand how much money it costs to maintain that debt and the amount of money to pay back the debt.”
Joyce Banish, V.P. for university and community public relations at Michigan State University Federal Credit Union, said students are ideal prey for credit card companies to capitalize on fees, late payments and overcharging penalties.
“Students definitely do have difficulty with debt and credit troubles,” Banish said. “Most companies are ruthless and there’s no mercy.”
The importance of having a good credit score can impact post-college plans, including buying a house or vehicle. To avoid those problems, Banish said students should pay back credit bills in full whenever possible.
While his school-related debt is another matter, McCarthy said he tries to avoid racking up personal debt.
“I try and not order out that much and I’m not a big spender outside of that,” he said. “A lot of it will come down to me being careful budgeting my money.”
Loans a last resort
While credit card spending is avoidable, loans are sometimes the only option for needy students to pay for school.
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Val Meyers, associate director of MSU Office of Financial Aid, said student loans are the best form of debt, because the resulting education will pay off in the form of a better job.
Still, she said, loans should be considered a last resort when funding from other sources isn’t available.
“Don’t borrow more than you need,” Meyers said. “If you can work instead of borrowing a lot, do that and just take what you absolutely need.”
Meyers said finding alternatives to accumulating massive college debt, such as taking less expensive community college courses or applying for need-based financial aid, are other ways to reduce debt.
When budgeting, Meyers said students should prioritize loans and pay off high interest debts first.
“Make as large a payment as possible; there isn’t a penalty for paying off loans early,” she said. “If you can’t make the payment, go to the lender. You can change payment plans.”
One of the worst things students can do is not seek help, Banish said. Olin offers a financial wellness program to help students cope with financial stresses
and credit unions are generally willing to offer debt counselling.
“I hate for students to end up with more debt than they have to, but most of the times it’s out of our hands,” she said. “They can only be helped if they call.”
