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Charge It

College and a Credit Card


Twenty-two-year old Nicole Michelotti's financial troubles began with her first credit card. She was entering Columbia College Chicago as a freshman, and her mother recommended she have the card to help establish credit.

But by 2004, Michelotti, not old enough to drink alcohol, had three credit cards and $6,000 in debt.

"You don't realize what you're getting into when you get one," says Michelotti. The photography major has since given up living in the city and moved back home with her parents in Mount Prospect. "I pay for everything with money I have now."

Between working as a grocery store cashier and a coffee shop barista, Michelotti has brought her debt down to $3,000. But in her senior year with hopes of attending graduate school, she now fears another money woestudent loans.

According to the Project on Student Debt conducted by The Institute for College Access and Success, 1.3 percent graduating seniors in 1993 had $40,000 or more in student loans. That number rose nearly 10 percent in 2004, with 7.7 percent of new graduates having high loan debt of $40,000 or more. In Illinois, the average student loan debt for a graduating senior is about $17,089, according to the project. Add those dollars to the average young adult credit card debt in 2001, that's $4,088 according to the research firm Demos, and that's an expensive start to adulthood.

"If a student makes bad decisions in reference to credit card purchases, you put that on top of student loans and it becomes very difficult," says Ed McKibbin, staff attorney in the legal services department at Illinois State University in Normal. "Hopefully you get a good job. Chances are when you take that first job, your budget's going to be limited. A good portion of that monthly check goes toward paying off the student loan."

With student loan debt being an almost inevitable part of life for many of today's graduates, university attorneys like McKibbin try to steer students away from taking on too much credit card debt.

During his last year as an undergrad at Illinois State University, Dave Sacks, 23, racked up $1,000 on his credit card through unexpected expenses such as car repairs. When he started graduate school at the University of Iowa, he used student loans to pay off that debt. The fixed interest on a federal subsidized Stafford loan is about 6.8 percent, as opposed to soaring credit card interest that can reach the teens.

"You can get a free t-shirt on the quad if you fill out a credit card application," says Sacks, of Hoffman Estates. "They don't really explain the risk to a first-time credit card user."

Although McKibbin does his best to educate students about credit cards and will even look over applications before they sign, sometimes it's too late. Every so often, the word bankruptcy will come up, he says.

"If a student accumulates a lot of debt to the point that the student cannot pay that debt back, [bankruptcy] becomes an option," McKibbin says. "It's hard to believe a student would be that young and have to take on that issue, but it just shows you that if good decisions aren't made, it doesn't take long for those bad decisions to catch up to you."

Making good decisions is something Medinah resident Jerry Gerard wanted to instill in both his children before they started college. Gerard, whose son attends Northern Illinois University in DeKalb, says he helped him and his sister, a graduate of North Central College in Naperville, obtain credit cards. A credit card can be a necessity, Gerard told them, but the balance should be paid off every month.

"One of the things that happens is the credit card companies promote only paying the minimum," he said. "Where they really make money is on the interest. They want these kids to learn to just pay the minimum at the bottom of the bill."

As for student loans, Gerard, 61, says he took steps decades ago to ensure that there would be no debts after graduation. But by putting aside between 10 and 20 percent of what he earned into savings, Gerard says he hasn't had to turn to loans. Although saving that much money has meant doing without certain luxuries, he says it's worth it.

"It paid off in the long run," Gerard says. "I still don't have a big screen TV, but has it hurt my quality of life? Absolutely not. I would rather do without that big screen TV than try to get a loan for $36,000 to put my son and daughter through school. It's still painful to write that check, but the fact is, I can write that check."

Published: August 01, 2006
Issue: November 2006