Search results matching tag 'college'

An insider look at pricey textbooks

Karen Datko — Fri, 04 Sep 2009 20:00:00 GMT

Wining and dining professors. Sales staff getaways at sexy locations. That's the life of a college textbook sales rep.

Who woulda thunk? That's part of the insider look at the textbook publishing business offered by David Weliver in a post at Money Under 30 called "Confessions of a textbook salesman." David used to be a textbook sales rep. "Students: I'm sorry," he said.

The cost of textbooks has become so ridiculously expensive that a national campaign has been launched at Make Textbooks Affordable, he said.

How do textbook publishers operate? David explains:

New editions come out whether they contain vital new information or not. "Publishers release new editions every two years or so under the guise of presenting the most up-to-date information," David wrote. "In reality, every new edition makes the old book obsolete and forces students to pony up for new books."
Publishers bundle new material, like workbooks or CDs, with the book, which allows them to use a new ISBN even though the book hasn't changed. Plus, they can charge more for the bundle.
Sales reps are pushy. "Sales reps become best buddies with the professors that teach your classes (and choose your textbooks) by sending them loads of free books and buying them dinner and drinks," David wrote.

What's a student to do?

Buy used. You may not need the latest edition. Look for tips here.
Rent. Web sites like Chegg and BookRenter.com are making that possible, and now publisher Cengage Learning has followed suit. For more about that, check out this New York Times story.
Sell your book back to the bookstore when you're done. Leah Ingram at Suddenly Frugal wrote about cost-saving measures like book buybacks and price matching by university bookstores.
Look for online versions. Even publishers are considering this, David said.
Share with friends. "I had multiple classes with several friends all four years of engineering school. Why do we all need the same book? I buy this one, you buy that one ...," reader Stu said at Money Under 30.

Eventually, maybe overpriced textbooks will become obsolete. "Vh" at Funny about Money, a textbook author herself, said, "The community college I'm teaching at is talking about switching to a 100% open-access system and eliminating textbooks altogether."

Another alternative to pricey textbooks: Buy overseas

Your 5-minute guide to college savings

College for half-price

Should feds forgive student loan debt?

Karen Datko — Fri, 28 Aug 2009 15:57:00 GMT

Some people are talking about a federal bailout for former college students. Forgive student loan debt, they say, and the economy will be instantly energized.

The Baltimore Sun's Eileen Ambrose polled readers of Consuming Interests about this, and, last we checked, readers were hugely in favor -- even though her post presented a solid argument about why it wouldn't work as advertised.

We voted no. "JLP" at All Financial Matters, who directed his readers to the poll, also said no. "Actually, I say HELL NO!" he wrote.

A public proponent of this idea is lawyer Robert Applebaum, creator of ForgiveStudentLoanDebt.com. He graduated with a law degree and $65,000 in student loan debt, then took a low-paying job as a prosecutor and put his debt in forbearance for five years, which caused it to grow. Now, after five years of payments, he still owes 85 grand.

True, many students borrowed more than they could afford. The College Board says 10% of last year's graduates had more than $40,000 in student loan debt, according to U.S. News & World Report. A third had no debt, and the median debt was about $20,000.

Let's assume that the government forgives all student loan debt (don't hold your breath). Would that stimulate the economy?

Eileen interviewed Mark Kantrowitz, publisher of FinAid.org, who said that forgiveness would cost Uncle Sam $730 billion -- $598 billion in federal loans plus $132 billion in private loans.

But, in fact, he said, only 4% of the outstanding debt -- or $28.8 billion -- is being repaid each year. Assuming all of that money would instead be spent on consumer goods, that's not much of a boost to the economy.

What are some possible solutions to help those who are overextended -- and to prevent it from happening? Here are some ideas that have been tossed around:

Allow student loan debt to be discharged in bankruptcy court. (Another site, StudentLoanJustice.org, has made that part of its mission.)
Provide more education to young borrowers. "Even if someone would have told me 10 years ago that my payments would be $880/month, at that point, could I have really understood the consequences?" reader "Saddled_With_Debt" said at Consuming Interests.
Increase grants to needy students.
Provide more federal aid for those who face huge student loan debt to fill essential occupations, like family practitioners, internists and geriatricians in the medical field.
Encourage students to avoid private loans.
Make student loan forgiveness even more available for those who take public service jobs. "I've heard of programs that forgive student loans to insure a supply of doctors and teachers for rural areas. That makes economic sense as it is a bonus to attract new applicants, not a bailout," All Financial Matters reader Rick Francis wrote.

Graduates, meanwhile, can take advantage of another new program. In an article at MSN Money, Liz Pulliam Weston described how it works:

(Graduates) have the option to limit payments on federal loans to no more than 15% of their discretionary income or 15% of the amount of their income that exceeds 150% of the federal poverty level. (For example, the 2009 poverty level for a single person is $10,830, so payments would be capped at 15% of his or her income over $16,245.) Unpaid interest and principal are added to the loan, but any balance would be forgiven after 25 years of payments.

What do you think? Should the federal government wipe the slate clean? Do students overburdened by the debt they took on deserve some kind of help? What are other solutions?

Related reading:

Ask for student loan forgiveness

An insider's guide to student loans

How much college debt is too much?

College students get a break on costs

Top 10 moneymaking degrees

Karen Datko — Tue, 04 Aug 2009 22:27:00 GMT

Forget a job on Wall Street. If you want to make money when you get out of college, engineering is the current hot choice.

The National Association of Colleges and Employers released its 2009 ranking of the top 10 average starting salaries for new college grads, and petroleum engineering was No. 1, at a cool $83,121. Nine of the top 10 jobs have "engineering" in the title.

But does that mean you should change your major immediately? Hold on, said Darwin at Darwin's Finance. Not so fast.

Darwin, a high school math and science wiz, majored in chemical engineering (No. 2 on the list) at a big state university, an experience he discussed in great detail in a post called "Top 10 college degrees in 2009 with massive demand." Funny thing is, he never worked in his field after graduation. He's in project management for a biotech manufacturing firm.

Darwin's major points:

Don't put lots of stock in these lists. They're "cyclical," he said, noting that finance and other business majors were hot last year.
Don't underestimate the competition. He thought he was pretty clever until he realized that many of his classmates were smarter and more disciplined. Others who brought less to the table than Darwin were weeded out.
Know what you want from college life. He worked a lot harder than friends who majored in non-engineering fields. No spring break trips for him. He's not kicking himself now, but we do sense a tinge of regret.
A bigger paycheck starting out doesn't mean you'll remain among the highest paid. He wrote:

The reason I say not to focus solely on starting salary is that if you're anything like me, you'll work very hard in both your undergrad (post-grad) and your career only to find that finance and business majors, while starting lower, end up making multiples of your salary within years.

Related reading:

Is a college degree worthless?

Will grad school pay off?

Students today, debt slaves forever

How much college debt is too much?

Inside the new GI Bill

Karen Datko — Tue, 04 Aug 2009 16:00:00 GMT

The Post-9/11 GI Bill that took effect with much fanfare will provide many veterans and military members with expanded educational opportunities.

Contrary to some reports, the older Montgomery GI Bill isn't going away with the advent of the new bill and, in some cases, may still be the better option. But for many, the new law will cover the full cost of a college degree.

We love the idea that people who have served their country are rewarded with a paid education. It's also good for the nation as a whole.

The original G.I. Bill of Rights, which expired in 1956, had huge ramifications for the country, the Chicago Tribune explains: "By providing World War II veterans with money to go to college, the original GI Bill transformed the American campus from a preserve of children of affluence into a broad highway to the middle class."

Here's how the new bill works:

Generally, members of the military, National Guard and Reserve who have at least 90 days of active-duty service after Sept. 11, 2001, are eligible for the bill's benefits. The amount of the benefit is based on length of service. Those with three years are entitled to the full amount.

Here's another important component: Those who have been in the military for a specified amount of time can transfer their unused benefits to a spouse or children. Children must use it by age 26.

Also:

The bill provides yearly tuition and fees up to an amount equal to those charged to in-state students by the most expensive public university in each state. Thus, the benefit varies state to state. Right now, the California public university system, which charges fees in place of tuition, is in kind of a no-man's-land, but that's being remedied.
If you want to attend a more expensive school, the Yellow Ribbon Program may help. Some universities have elected to split the extra cost with the VA.
Generally, you're eligible for a monthly housing allowance.
You'll also get a yearly $1,000 book stipend.

The older Montgomery GI Bill might work better for some military members, particularly those who are still on active duty. Military.com explains:

Choosing to switch to the Post-9/11 GI Bill is irrevocable, making sure it best suits each individual's needs before switching is critical. For most, the new GI Bill is a better deal; however, here are some reasons why the Post 9/11 may not fit your needs:

The school you plan to attend is located in a state with low tuition rates and/or you plan to use your benefits to attend online courses.
You plan to use your benefits to take vocational or technical training.
You qualify for less than 100% of the Post-9/11 GI Bill based on the number of active-duty months served since Sept. 10, 2001.
You have used more than half of your MGIB benefits. If you exhaust your MGIB before switching, you may be eligible for up to 12 additional months of Post-9/11 GI Bill benefits.

To compare the two laws, click here. Also, Military.com has a good explanation.

Still clear as mud? Here are additional resources that explain the new bill:

The VA's GI Bill home page.
Veterans Benefits GI Bill.
"Fact checking the new GI Bill" at Military.com.
Newgibill.org.

Related reading:

Does military service still pay?

Payday loans ambush military members

Who's profiting from the Iraq war?

Basics of online education

Karen Datko — Tue, 28 Jul 2009 13:17:00 GMT

This post comes from Jim Wang at partner blog Bargaineering.

If you go back 10 or 15 years, there were two things you could do online that would get you laughed at: finding a date and getting a postsecondary degree.

With dating sites flourishing and online education popping up everywhere, the stigma associated with the online versions of both has all but been washed away. Meeting someone online no longer means you're meeting someone capable only of interacting with a computer, and getting a degree online no longer means you took some cupcake classes and paid for a diploma.

However, just as you still want to be careful whom you choose to meet in person from an online dating site, you'll also have to be careful which online university you choose to attend. Like dates, not all universities are created equal.

Benefits

The main benefit of online education is flexibility. When I attended Johns Hopkins for my MBA, I had to drive half an hour each way and pay for parking just so I could sit in a classroom. Sure, I participated, but the vast majority of the time I listened to a lecture and then drove home. With online education, the flexibility of listening to courses when I wanted to would've been very appealing. Nothing replaces the classroom experience, but when the majority of your other part-time classmates are looking to learn a little, get a degree, and get out, the classroom experience is limited.

Plus, by taking it at my own pace, I free up an hour of my life that I can spend on something else.

While flexibility is probably the biggest benefit, a close second has to do with the speed of learning. A class always seems to progress at the speed of the slowest vocal student. This is bad for two reasons. First, if someone understands a concept quickly, he or she must wait. If someone doesn't understand a concept quickly but is shy about it, the class continues on without that person. Both students are done a disservice, and that's mostly avoided with online education.

The last big benefit has to do with cost. Online programs are often less expensive than traditional programs strictly from a tuition perspective. With a lower cost, students can avoid loans, which further drives down the cost of education. It's a lot like the idea of online banks and brick-and-mortar banks: Online banks don't have the overhead that traditional banks do and they are able to pass those savings on to consumers.

Drawbacks

As with anything else, there are pluses and minuses. Online education still suffers from a stigma because it's not "traditional." Some online universities are incorporating a classroom component, where you might have to attend a classroom session once a month, but some people still see online courses as "buying" your degree (which is still true with some institutions).

Another drawback of online education is that it's self-paced. Self-paced learning is a double-edged sword. Some students learn at their own speed, and others don't get the full value of the course because they're trying to cram it all in at the last moment. Understanding how you'll handle self-paced learning is important in understanding whether online education is for you.

We've briefly discussed the benefits and drawbacks of online education. Let's look at how you should choose an online education institution.

Accreditation

The easiest measure of a university is whether it's been accredited. Accreditation is a way to determine the quality of the education at a particular school. It's performed by private accreditation organizations, not the federal government. Fortunately, the Higher Education Act of 1965 requires the U.S. secretary of education to publish a list of nationally recognized accrediting agencies and a database of nationally accredited postsecondary institutions and programs.

It's important to note that not all accreditation is created equal, though all are recognized as equal by the federal government. It's generally accepted that regional accreditation is the highest level of accreditation a school can get. There are six regional accreditation organizations:

Middle States Association of Colleges and Schools.
New England Association of Schools and Colleges.
North Central Association of Colleges and Schools.
Northwest Commission on Colleges and Universities.
Western Association of Schools and Colleges.
Southern Association of Colleges and Schools.

You can also go to the Council on Higher Education Accreditation to find out more about the accreditation body that accredited the online university you're looking at. You can read more about educational accreditation at Wikipedia.

You do not have to be accredited to open a school and award degrees. That's a very important point to understand. A school may be authorized to operate and not be accredited, so you'll want to check its accreditation and which organization awarded it.

Why does accreditation matter? Some employers and other universities may not recognize degrees you've obtained or classes you've taken at non-accredited universities because they can't be sure of the quality of the education. By going to a non-accredited school, you run the risk that your degree or your classes aren't recognized, so why risk it?

How to pick the right online university

After reviewing accreditation, you'll want to start doing the same research you would for a traditional university:

Professors. Since you'll be learning from them, do a little bit of background research on the professors who will be teaching your courses. See what their degrees are in, what their experience is, and what you think they bring to the virtual classroom.
Cost. Online education is generally cheaper but it may not be, after you consider all the fees and charges they may add on (cost of software should be included in tuition).
Classroom size. It may seem kind of silly to look at classroom size when you aren't in a classroom, but this will give you a better idea of how stretched your professor may be. Remember that these professors will be reading your work and giving you feedback. If he or she has 50 students, then you won't get as good an experience as you would with a professor who needs to interact with only 20.
Software requirements. If the online university uses software that requires you to have a newer computer, you'll need to add that to the cost of attending.
Classroom attendance. Some universities will require you to regularly attend a classroom session, perhaps once a month or once every two weeks.

Free online courses

If you're not concerned about getting credit for classes or degrees but are instead focused on expanding your skill set, you might want to try taking free online courses from traditional universities. Many universities offer self-paced online courses that are absolutely free. Here are a few to get you started:

What are your thoughts on online education?

Related reading at Bargaineering:

What is your total credit limit?

Supermarket psychology

Cheapest cars to insure

100-plus tips for college survival

Karen Datko — Fri, 24 Jul 2009 00:24:00 GMT

Want your college experience to be meaningful? Campus Grotto produced a comprehensive and insightful list of more than 100 tips to survive -- and actually learn something, which is why you're there. Right?

Some of the advice on the list won't vastly improve your prospects (although "Wear sandals in the showers" could prevent the distraction of itchy feet). But much of it could be critical, particularly as educators debate the pros (you save money) and cons (you work your buns off) of earning a bachelor's degree in three years.

(We did it, many years ago. Limited finances were a powerful motivator, and taking several advanced placement classes in high school helped.)

In fact, some U.S. colleges already offer three-year programs, the Houston Chronicle reports, adding, "But the programs aren't for everyone. Part-time students can't participate. Nor can those who lack discipline."

Among the Campus Grotto tips that deal with staying focused:

"Don't fall behind." Sure, that sounds obvious, but there's no better way to increase your stress than to have to cram and catch up.
Read the textbook. Yes, some students do skip this part. Also, don't skip class.
"Finals week will be hell; make sure you are prepared."
Sit near the front of the classroom. You'll get more out of it, and you want the professor to know you.
Don't take an 8 a.m. class if you can't stay awake. (We fell asleep in early-morning calculus much too often, which the prof commented on, even though we sat way in the back.)

Many of the tips deal with other serious issues, like financial aid and picking a major. Among the tips that are funny but make lots of sense:

"Don't cite Wikipedia in your research papers."
Don't wear your jammies to class. Why advertise how unmotivated you are?
If you join a frat, anticipate that your grades likely will suffer that semester.
Ditch the love interest at home, unless he or she is "the one."

Related reading:

College for half-price

Is a college degree worthless?

Help! Can our kids afford college?

Will community college meet your needs?

What's a master's degree worth?

Karen Datko — Mon, 20 Jul 2009 18:11:00 GMT

This guest post comes from "vh" at Funny about Money.

Tina, my associate editor on the day job and my moonlight business partner, sent a link to this interesting discussion. The main post itself has several links to relevant, equally interesting posts and conversations.

Given the astonishing burden of student loans that too many young people are saddled with -- my son's roommate's girlfriend, for example, remarked that she will graduate from a top-quality institution with a master's degree in international business and $1,400-a-month student loan payments -- assessing the "value" of graduate education is not a crass or pointless exercise.

It's well and good to love learning for learning's sake and so to feel that the graduate school experience is irrelevant to one's vocational prospects. However, once that graduate school experience ends, you still have to pay for it. You still have to keep a roof over your head, put food on your table, and foot the considerable cost of raising a family. When young people are saddled with five- and six-figure student loan debt, they should reasonably expect the financial investment in graduate education to pay off with jobs that will support them.

That, unfortunately, is too often not the case.

In our current economy, there simply aren't enough decent jobs (or jobs at all) to accommodate the rafts of M.A.s and Ph.D.s that learning factories like the Great Desert University crank out each year. Certain degrees make for more-employable graduates than others, and some degrees, such as the M.B.A., need to come from a top-tier (read "wildly expensive") school even to get the holder hired, to say nothing of commanding an upper-middle-class starting salary. And some degrees, to be blunt about it, are simply fraudulent: they're moneymaking scams perpetrated by administrators solely to extract as much cash as possible from as many suckers as will bite.

For example, GDU has a much-ballyhooed interdisciplinary master's degree that has virtually no entrance requirements and virtually no substance. Students in this program, which the university advertises as something that will help working adults get ahead in their careers, pay a $200-per-credit surcharge, on top of the regular graduate tuition and various extra charges (all GDU students, for example, pay an extra fee to support the athletic program). Because a standard graduate course carries three credits, every single course you take in this program costs you $600 more than any other student on the campus would pay for it. Students enrolled in the program take a few core courses taught by the program's director and then fill out their card with electives in regular departments. One elective is U.S.-Mexican border history. A student in this exotic interdisciplinary program may sit next to a History Department graduate student who pays a full $600 less to be in that classroom. Because the program is pretty fluffy and leaves one with a master's degree in nothing recognizable by another university or by an employer, its value is highly questionable. IMHO, it's a scam.

That's not to say you shouldn't pursue a master's degree. Or a doctorate, or a J.D., or degrees in nursing, public health, history, English, library science, whatever is your bliss. To the contrary. Graduate education has -- or should have -- real financial value in addition to the intellectual adventure and polish that students rightly expect to gain from it.

After altogether too many years in the ivied halls of academe, I would advise those who are thinking that now is the time to go back to school for a master's degree, a professional degree, or a doctorate to plan very carefully. You need to develop a two-pronged planning scheme:

Intellectual and spiritual planning. The prospective graduate student should ask Why, really, do I want to do this?

Do you want to pursue a subject because you're crazy-passionate about it, so much so that you don't care whether you can ever make a living at it? (There's nothing wrong with this, BTW.)
Do you feel a graduate degree will make you look smarter to people who matter to you? (You'd be amazed at how many people with Ph.D.s wanted, at heart, to prove to someone that they weren't so stupid after all. This is not a good reason to go to graduate school.)
Do you want a graduate degree because you hope it will open the door to an interesting line of work, whose pay doesn't really matter as long as the job doesn't bore the pants off you?
Do you want the degree because you think it will open the door to high-paying occupations, whose remuneration very much does matter?
Is it that, at the grand old age of 28 or 30, you still don't know what you want to do when you grow up and you'd like to take a couple years in graduate school to figure that out? (Chances are you won't figure it out then, either. Precious few of us ever know what we want to do when we grow up.)

The answers to these and similar questions not only bear on your choice of major, they bear on financial issues, too. To make a just-barely-living wage in teaching, journalism, or library science, for example, may require a master's degree, but it doesn't require one from an expensive university. As long as you can put food on your table, a vocation that calls to you need not earn a ton of money. But ... maybe it shouldn't put you in hock for the rest of your life. And surely Tucson, Buffalo, or Austin is as good a place as New Haven to take two years to seek the meaning of your life. On the other hand, if a high-powered corporate career is what you're after, then you probably need a degree from a world-class institution -- a costly program may pay for itself within a few years after you graduate.

Financial planning. Bringing your real motives into sharp focus goes a long way toward deciding how much to spend on a degree and how to finance it. First, of course, you now can decide whether you truly need a degree from a prestigious (i.e., expensive) school or whether an in-state public university will suffice.

Consider that even lukewarm public universities often have one or two first-rate-sometimes world-class programs. The University of Arizona, for example, has one of the premier programs in astrophysics on the planet. Psychology programs at Michigan, Cal-Berkeley, Illinois, UCLA, Minnesota, Indiana, and Washington rank among the top 20 in the U.S. Cal-Berkeley, NYU, North Carolina, Indiana, Washington, and Maryland's MBA programs have shown up among the top 20. Don't discount your home state's public schools, especially if you're in a place in your life where one master's degree is about as good as another. Check university rankings for schools in your state and for public universities whose out-of-state tuition is more or less within reason.
If nothing close to home has a program that suffices, investigate universities in other countries, such as Canada, where costs are far more reasonable than out-of-state fees in the U.S.
Try to get your employer to foot part or all of the bill. Many companies and government employers will underwrite graduate training relevant to the job. Even if you have to agree to stay with the company for a number of years after you finish the degree, that's more than a fair trade to avoid being saddled with student loan debt for years.
Look for research assistantships that waive tuition. Tell the program director or whoever is trying to recruit you that you can't attend unless you get an assistantship or other support that will waive tuition. Remember: Graduate students are the bread and butter of most university departments. They want you.
Failing that, try to get a 50% FTE job on the campus. Most universities waive tuition for employees, and often this applies to half-time as well as full-time workers. GDU, for example, considers a half-time job to be "full time," complete with health insurance and tuition waiver. The waiver is taxed as income, but since you will earn so little, your tax will be minimal, certainly compared with a lifetime of student loan payments. Often this applies only to in-state tuition; bear that in mind if you're looking at out-of-state schools.
Some universities will waive tuition for an employee's spouse. If your husband or wife has a job that's fungible and is willing to work at the desired college or university, this is a strategy that might make sense.
If you're interested in a university in another state, get a job in that state, register your car there, register to vote, and wait a year to enroll. This will establish residency and avoid the outrageous tuition often charged to out-of-state students.

Do everything you can to avoid having to take on student loans, even if it means maintaining your dreary day job and taking coursework online and at night. If you possibly can get by on a part-time income, tighten your belt for the two to four years it will take to complete a program while you work. That's a hard row to hoe, but well worth the goal: completing the degree free of debt.

Finally, I'd add one more bit of advice.

Caveat emptor!

Investigate and think carefully about any degree program before enrolling -- no matter which institution offers it. Some otherwise respectable universities have gone into the diploma mill business. Under pressure from legislators and alumni to compete with outfits like the University of Phoenix, university administrators and boards of regents crave to operate their institutions on a business model, even though education is not and should never be a business.

Any degree program that does not require the GRE, the GMAT, the LSE, or a similar entry exam is suspect. My university, for example, offers a very respectable master of business administration, for which applicants must submit GMAT scores. It also offers several knockoff low-residency and online versions of the MBA, none of which requires an entrance exam of any kind. Savvy employers know the difference.

Any fully online degree program should be regarded with deepest suspicion. Any low-residency program should be approached with caution. Any interdisciplinary program that leaves you with a strangely titled degree ("master of liberal studies," for example) should be avoided. These degrees may get you a perfectly fine job. Maybe not, too.

If higher education is a business, then students are consumers, and they should use as much care in buying the "product" as they do in buying a refrigerator or a dishwasher.

Postscript: One other strategy for underwriting a master's degree without going into permanent hock is to join the military. I didn't think about this as I wrote the post, first because it's such a huge commitment and second because IMHO, you should join the military because you want to serve your country, not because you want to extract a lagniappe. If your main motive for signing up is to have the taxpayer cover the cost of your graduate tuition, you really ought to ask yourself whether a master's degree is worth risking your life. There are higher reasons for serving America.

Related reading at Funny about Money:

Student loans: Whither young college graduates?

Are college degrees overrated?

Legislators propose to shoot us all in the foot

Student guide to credit cards

Karen Datko — Fri, 17 Jul 2009 13:12:00 GMT

This is a condensed version of a post at partner blog The Dough Roller.

Student credit cards kind of remind me of the movie "A Few Good Men," starring Tom Cruise and Jack Nicholson. If you've seen the movie, you remember well Lt. Daniel Kaffee's (Cruise) cross-examination of Col. Nathan R. Jessep (Nicholson). In that powerful cross-examination, all Lt. Kaffee wants is the truth.

"A Few Good Men" video

When it comes to student credit cards, the truth is all we want, too. We want to peel away all the marketing hype that surrounds student cards, understand the pros and cons, risks and rewards of student cards, and then make an informed decision.

To do that, we've created this College Student's Guide to Credit Cards. The aim of this guide is not to convince anyone that credit cards are good or bad. Instead, the guide is designed to arm college students (and parents) with the information they need to make sound financial decisions about credit cards.

What you should know

The use of credit cards by college students has increased significantly in recent years. A study released by Sallie Mae earlier this year shows that as of 2008, 84% of undergraduates had at least one credit card, while half of all college students had four or more credit cards. The average number of cards has also grown to 4.6, according to the study.

The Sallie Mae study's key findings also reveal an alarming trend of increasing credit card debt among college students:

Record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004's $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.
Fewer students with zero balance. In spring of 2008, only 15% of freshmen had a zero balance, down dramatically from 69% in the fall of 2004. The median debt freshmen carried was $939, nearly triple the $373 in 2004.
More students charging educational expenses. Ninety-two percent of undergraduate credit card holders charged textbooks, school supplies or other direct education expenses, up from 85% percent in 2004. Nearly one-third (30%) put tuition on their credit card, an increase from 24%.
Students surprised at high balances. Sixty percent experienced surprise at how high their balance had gone, and 40% said they have charged items knowing they didn't have the money to pay the bill.
Most students carry a balance. Only 17% said they regularly paid off all cards each month, and another 1% had parents, a spouse, or other family members paying the bill.

To make matters worse, colleges and universities have started charging students an additional fee when they pay tuition with a credit card. The Chicago Sun-Times recently reported that schools across the country have added a 2.75% "convenience fee" for students charging their tuition.

What does all this mean? It means that credit cards need to be treated with respect. While they offer convenience and security, they can also create significant financial difficulties.

Survive the marketing blitz

For years credit card companies have marketed their student cards on campus. Colleges and universities have received compensation in exchange for giving card companies access to students and even information about the students.

The Credit Card Act of 2009 will significantly restrict a credit card issuer's ability to market cards on campus. The law, however, does not go into effect until February.

One campus marketing strategy is to use affinity cards. An affinity credit card program "allows an organization to offer its members and supporters -- those who have an ‘affinity' for that organization -- a credit card that promotes the organization's brand and imagery each time a cardholder uses the card. An affinity credit card program also pays the organization a bonus for each new account generated, plus a percentage of every transaction charged to the card. This payment is funded by the bank that issues the credit card," according to Wikipedia.

While these cards have significant appeal to some students, school spirit should not be expressed through a credit card.

Another marketing practice is to promote cards through campus clubs and student organizations. Credit cards are often promoted at school events and coupled with free promotional items in exchange for completing an application.

Here are some tips to deal with credit card marketing promotions and schemes:

No quick decisions. The decision to apply for a credit card should never be made on the spot. If you are interested in the card, take the information home and think about it for a few days.
Forget affinity cards. Having a picture of your college on a credit card should be the last consideration when selecting a credit card. If you chose to get a card, evaluate the terms and conditions of the card and pick the one that's best for you, not your school.
Avoid peer pressure. Peer pressure comes in many forms. While it might surprise some, peer pressure is even part of credit card marketing. Clubs and campus organizations have in the past made money to fund their operations through the marketing of credit cards. Don't let these groups talk you into a decision that ultimately may be great for them, but not so good for you.

Should you get a card?

The pros and cons of using a student credit card come down to one thing: Will you pay off the balance in full every single month without fail? Those who pay off the balance can enjoy cash back, travel, or other credit card rewards without the financial burden of high interest payments. In stark contrast, those who carry and grow their balance from month to month will pay more in interest than any rewards they receive from the card.

With that, here are some of the pros and cons of carrying student credit cards:

Pros

Emergencies. A credit card can be used in real emergencies when cash is not available.
Security. Students can shop securely with a credit card. Due to a cardholder's limited liability should the card number be stolen, credit cards are a safe way to purchase items like books and school supplies over the Internet. There is also no need to carry cash, which runs the risk of being lost or stolen. Making purchases with credit cards also allows you to track your spending habits. This is especially helpful if something is stolen from you, or if a case of fraud or identity theft arises.
Card rewards. Credit cards come with a variety of cash-back reward systems that students can use for a variety of purposes.
Building credit. In preparation for larger purchases in the future, like a car or house, students can start building a credit history by using a credit card responsibly in their early years.

Cons

Interest charges. The biggest risk for students is failure to pay balances in full each month, resulting in high interest charges. Carrying a balance costs a lot more in the long run than paying off charges each month.
High interest rates. Student credit cards typically charge higher interest rates than many other cards.
Overspending. Studies show that people in general tend to spend more frivolously with a credit card than with cash or checks. Students are at high risk to spend more than they can afford each month when using a credit card. Credit cards should not be used in lieu of another source of income.
Bad credit history. If payments are made late or not at all, a student's credit report will reflect this activity. As a result, rather than building a solid credit score and history, students may find that credit cards have hurt their credit record.
Co-signers. Some students will not be able to obtain a credit card without a co-signer. This means that someone else will become responsible for the debt if the student does not manage his or her financial responsibilities. There is always a risk of embarrassment and relationship strain where a co-signer is involved.
Additional fees. Credit cards feature a plethora of extra charges if not used carefully. Fees for late payments and over-the-limit charges can prove especially daunting for students. Credit card companies also have the ability to increase your interest rates as they see fit (at least until the Credit Card Act of 2009 goes into effect). This can result in high rates that are difficult, if not impossible, to manage.

Consider how long it would take to pay off a card balance by making only the minimum payment. For example, a student with a credit card balance of $7,000 with an interest rate of 18.9% could make minimum monthly payments for 16 years before paying off the balance in full. The principal plus interest would equal $14,173, more than twice the amount of the initial card balance.

How to evaluate a card offer

Evaluating a student credit card, or any credit card for that matter, is a fairly straightforward process. Federal law requires credit card issuers to provide consumers with the basic information they need to understand the terms and conditions of a credit card offer. This information is contained in what has become known as the Schumer Box.

The information in the Schumer Box is critical to evaluating a card offer:

Annual percentage rate for purchases. This represents the interest rate you'll be charged for purchases if you don't pay the balance off in full each month. If there are any introductory rate offers, they will be listed here, too.
Other APRs. Here you'll find the interest rate charged for transactions other than purchases. Cash advance and default rates are always high, so avoid them at all costs.
Variable-rate information. Credit card interest rates can either be fixed or variable. A variable rate fluctuates based on some measure, like the prime rate. Most cards today carry variable rates.
Grace period. This tells you how long you have to pay your monthly balance in full to avoid finance charges.
Method of computing the balance of purchases. How the card company computes your daily balance will determine how much in finance charges you pay. Of course, pay off your card in full each month, and you won't have to worry about it. The thing to watch out for is double-cycle or two-cycle billing. Most cards have moved away from this method of computing the daily balance, and the Credit Card Act of 2009 outlaws double-cycle billing.
Foreign currency transaction fee. This is important if you plan to travel outside the U.S.
Annual fee. The annual fee is what you'll pay each year to carry the card. Most student cards do not charge an annual fee.
Minimum finance charge. Just about every card comes with a minimum finance charge, usually about 50 cents, that would kick in if you carry a very small balance.
Cash-advance transaction fee. Cash advances not only have high interest rates, but they also have fees.
Late fee. While you should work hard to avoid penalty fees, they are a reality for many credit card users.
Over-limit fee: Likewise, you'll be charged a fee if you're over the limit.

The Schumer Box tells you just about everything you need to know about the terms and conditions of a credit card. For this reason, it is important to review it carefully before applying for a student credit card. The Schumer Box can be found on any card issuer's Web site, usually on the application page.

Beyond the terms and conditions of a card, any rewards offered by the card should also be considered. The primary benefits offered by student credit cards are cash back, travel rewards, or points.

How to use a credit card

If you decide to get a student credit card, some basic money-management tips can help you stay out of financial trouble:

Pay in full every month. Commit right from the start that you'll pay the balance in full every month. Of course, paying the balance in full takes more than just a commitment, but good habits start with a promise to yourself.
Leave your card at home. If you don't need the card, leave it in a secure place when you're out with friends. If you don't have your card, you won't succumb to temptation.
Pay your credit card several times a month. Rather than waiting for your bill to arrive before paying it, log in to your credit card account and pay the bill electronically several times a month. This will help you control your spending, and eliminate surprises at the end of the month when the credit card bill arrives.
Use mini budgets. A great way to budget is to pick the one or two expense areas where you tend to overspend, and set a budget for just those categories. For example, if eating out is your Achilles' heel, set a budget just for that spending category and stick to it.
Keep credit card rewards in perspective. Cash back, travel, and other credit card rewards should never be used to justify a purchase. Don't let the perks of a card cause you to overspend.
Stop using the card if you accrue a balance. If you find yourself unable to pay your credit card bill in full one month, commit to shelving the card until the balance is paid off.
Consider credit card alternatives. If credit card debt starts to spiral out of control, consider cutting up the card and using one of several credit card alternatives.

Alternatives

Credit cards aren't the only convenient and widely accepted payment method available these days. Financial institutions have developed some alternatives that feature many of the same benefits that credit cards offer, but at the same time the alternatives eliminate some of the dangers. Here are some of them:

Bank debit card. A bank debit card or ATM card is tied to your checking account. Each time the card is used, the amount of the transaction is automatically deducted from the linked checking account.
Charge card. Charge cards are different from credit cards because they must be paid in full every month. Most students, however, would likely need a co-signor to qualify for a charge card.
Prepaid credit cards. With a prepaid card, there is no risk of exceeding limits or overspending. These cards work just like a regular credit card, only there is a set amount of money that must be deposited to the card in advance. Prepaid cards are very inexpensive to set up, and students or parents can even set up direct deposit into the account. There are monthly fees associated with prepaid credit cards, usually less than $10, but these are often waived if you have direct deposit.

Final thoughts

The No. 1 rule of financial management is: "Don't spend money that you do not have." While student credit cards offer convenience, security and financial rewards, they also come with potential risk. It is critical for students to understand the many benefits and downfalls of credit cards before opening an account.

And if you do get a student credit card, manage your money so that you can pay the card off in full every month. You'll build a solid credit history, enjoy credit card rewards, and avoid the high cost of finance charges.

Related reading at The Dough Roller:

Student credit cards

Looking to attend college for free? Try Harvard

10 online budget tools

Students: Card companies want you

Karen Datko — Thu, 16 Jul 2009 19:34:00 GMT

Expect credit card companies to make their final stand on college campuses this fall (except Connecticut; see below) -- enticing young adults to fill out credit card applications with offers of free T-shirts and pizza. Here's why:

Starting Feb. 22, the credit card reform law that Congress passed will ban card companies from offering gifts on campus or at college activities.
You'll have to be 21 to get a card, unless you have proof of income or other resources sufficient to pay it off, or a parent who is willing to co-sign.
Also, universities and card companies will have to disclose how much the companies pay the schools to be able to market cards to students and alumni. That should be fascinating.

In light of the new law, CNN says, "this fall semester you can be sure credit card issuers will be hard at work trying to get students to sign up."

If you're a parent, what should you do? Have your college-bound child apply for a credit card now, one columnist recommends.

"So this is the kind of mean and rotten parent I've become: Recently, I vigorously persuaded my 19-year-old daughter to get her first credit card," Karen Blumenthal wrote in The Wall Street Journal.

Why? Her daughter can start building a record of good credit at age 19, and Karen, a wise parent, won't have to co-sign for the card. How can her daughter learn responsible credit card use, Karen asks, if Mom will end up footing the bill?

Protecting students from themselves was one of the ideas behind the bill, and to some extent it seems necessary. A recent study by Sallie Mae showed that 84% of college students have credit cards, with an average debt of $3,173. By graduation, that average debt is $4,700, a heavy burden for someone who probably also took out student loans.

Also noteworthy: About half of students have four or more credit cards, and only 17% of students said they pay off the balance each month.

On the other hand, Karen wrote, a subsequent study at the University of Arizona indicated that a lack of financial education at home may be more at fault than plastic's allure. It showed that more than 70% of students engage in risky financial behavior occasionally -- whether they are cardholders or not.

Parents, listen up: An article at CreditCards.com recommends that you have the credit card talk, along with that talk about drinking, etc., with your kids before they leave the nest. That advice needs to include: Don't charge what you can't afford, and pay off the balance in full every month.

Re Connecticut: Students there will see even tighter restrictions, the Hartford Courant reports.

Effective right now, card companies can't market cards at registration or orientation.
Card companies must distribute information about proper credit use along with their offers.
Colleges and universities can't sell student contact information to credit card companies.
Card companies can't pursue parents for a student's credit card debt, unless they had agreed to be responsible.

Related reading:

Under 21? No credit card for you

Confessions of a credit card pusher

Credit card reform: The winners and losers may surprise you

Escape the crush of student loans

College students, what’s your earning potential?

Karen Datko — Tue, 07 Jul 2009 19:57:00 GMT

What can you expect to earn after graduating with a bachelor's degree in history from Podunk U? Would that income increase if you had the same degree from an Ivy League school? How about if you had a journalism or engineering degree?

A peer-to-peer private student loan service called People Capital has devised a way of estimating the earning potential of college graduates based on a number of variables, like major, college or university attended, and academic performance. The result, called the Human Capital Score, is presented as an alternative to the FICO score for people who haven't used credit long enough to have a meaningful credit history.

Even if you're not in the market for student loans, this could make for interesting conversation -- particularly if you get a good score. So let's try this out.

People Capital explains, "Our Human Capital Score calculates future income potential by including variables such as GPA, standardized test scores, college and major. (People Capital "provides a peer-to-peer (p2p) lending platform to match students with college funding sources -- be they individual investors, philanthropic/affinity groups or financial institutions," the Web site says.)

In short, the score is based on what former students whose situations were similar to yours have already earned over time, so it's no guarantee of future earnings. In fact, the most entertaining part of this Web site is the explanation of what the Human Capital Score CANNOT do. For instance:

It can't calculate a borrower's willingness to pay off debt. Your first job out of school may pay $108,000 a year, but if you're a slacker when it comes to paying bills, the Human Capital Score people have no way of knowing that. (But the credit bureau folks will quickly figure it out.)
It can't anticipate your personal plans. The Web site says that if an MIT engineering grad with spectacular grades "plans to join the circus (no disrespect to this particular career path intended, just that it traditionally affords a lower income level) after graduation, the Human Capital Score cannot, and does not attempt to, reflect this."

Now for the fun stuff, or so we thought. It turns out that the dates we took the SAT and attended college were so long ago that they couldn't be entered in the online form. (That makes sense: If we haven't figured out our earning potential by now, we're hopeless.) Eliot at Credit Karma Blog tried it out. You can read his results here.

Who might find the Human Capital Score useful once it's beyond the beta phase? Both students and lenders, the Web site says. "College students, or prospective college students, can use their Human Capital Score to provide to lenders an objective, third-party ranking on their capability to repay loans," it says. Lenders can use the information to evaluate loan applicants, including those who explore the peer-to-peer student loan lending site that's now in the works.

Related reading:

How to blitz your college debts

An insider's guide to student loans

Is your degree worth $1 million -- or worthless?

Is college worth the money?