Risky Financial Behavior is on the Rise Among College Students

Posted By Terri Williams on November 4, 2015 at 8:30 am
Risky Financial Behavior is on the Rise Among College Students

Although college students today have more financial experience, it doesn’t seem to be translating into better financial decisions. At least, those are the results of a recent survey conducted by EverFi for HigherOne, which revealed that many college students are engaging in risky financial behavior.

Over the past three years, the number of students making wise financial decisions has steadily declined. Fewer students are creating budgets, keeping track of their spending, or exercising restraint when using credit cards. While there’s no magic bullet to solve this problem, steering college students toward bank accounts – instead of credit cards and school-sponsored debit cards – can help them develop discipline, increase their understanding of finances, and avoid paying unnecessary fees and accumulating high-interest credit card debt.

Credit card behavior

From the 2012-2013 academic school year to the 2014-2015 academic school year, the survey shows there was a steady decline in the number of students who paid their credit card bills on time, reviewed their bills for errors, paid the entire credit card balance, followed a budget to limit spending, used a debit vs. credit card for everyday purchases, or contacted credit card bureaus to identify potential errors.

In addition, most college students with credit cards were carrying balances.

Outstanding credit card balance 4-year colleges 2-year colleges
Less than $1,000 76% 54%
$1,000 to $2,499 13% 19%
$2,500 to $4,999 5% 12%
$5,000 to $9,999 3% 9%
$10,000 or more 3% 6%


While most students had credit card balances of less than $1,000, the survey reveals that 20% of seniors had credit card balances over $7,000.

According to David Bakke, a financial expert at MoneyCrashers.com, “The improper use of credit cards can deal a serious blow to a college student’s credit score and depending upon the severity, it could take years for them to recover from their spending mistakes.”

And Sean Moore, Certified Financial Planner and the Founder of Boca Raton-based SMART College Funding, adds, “I’m not a fan of students using credit cards, but I think they should have access to a parent’s account as an authorized signer for emergencies.”

Credit card crackdown

A 2008 study by United College Marketing services revealed that college students received anywhere from 25 to 50 credit card solicitations each semester. The Credit Card Act of 2009, which was designed to prevent students from incurring unnecessary financial debt, has severely limited credit card companies from unfairly targeting college students. For example, companies were prohibited from teasing students with free merchandise if they signed up for a credit card – if the companies were soliciting at a school-sponsored event or near a college campus. It also stopped companies from sending credit cards to students who never applied for them. In addition, the Act limited the credit card line to $500 or $20% of the student’s annual income.

School-sponsored debit cards

Although the Credit Card Act of 2009 placed limits on credit card companies, school-sponsored debit cards are one way to circumvent the system. When students receive financial aid, many schools place any remaining amount (after tuition, etc.) on school-sponsored debit cards. Colleges and universities receive millions of dollars for using the debit cards of certain card issuers. For example, according to a CNBC article, Huntington Bank stated that it pays Ohio State University $25 million to be the school’s “official consumer bank.” The University of Iowa has an agreement with Hills Bank and Trust Company to pay $10.4 million for each of the next five years, along with incentives that could include several hundred thousand additional dollars.

Bakke strongly cautions students against getting a school-sponsored debit card. “Those are typically loaded with plenty of extra fees, and since your financial aid is usually automatically loaded onto them, it increases the chance of overspending or using the money for things other than necessary school-related expenses,” explains Bakke.

The Department of Education is trying to crack down on this practice as well with a proposal requiring schools to directly deposit any remaining funds into the student’s personal banking account. Schools argue that it limits student choice, but consumer advocacy groups say this measure would eliminate ATM withdrawal fees and other types of charges associated with the cards.

Regular debit cards

Even students who don’t use school-sponsored debit cards may be at risk for unnecessary spending. According to the Consumer Financial Protection Bureau, college students use debit cards more often than other age groups and are also more likely to have overdraft fees associated with these accounts.

Prevalence of checking accounts

The survey also revealed that the majority of students polled already had a checking account, and over half had a personal checking account.

4-year colleges 2-year colleges
Students with a checking account 88% 82%
Personal 60% 65%
Joint account 14% 28%
Custodial account 20% 5%
Don’t know 6% 1%


Moore says, “A student that has planned well should already have a bank account and debit card before heading off to college. In today’s world, there is rarely a need to switch banks based on location or convenience.”  

Setting budgets and managing money

Only 39% of the students at 4-year institutions and 60% of the students at 2-year institutions used budgets, according to the survey. And only 25% of students at 4-year institutions and 53% of students at 2-year institutions kept their receipts. Using a checking account may force students to set and stick to a budget, as well as use more discretion when spending money.

“When a college student uses a bank or credit union account instead of opening a credit card, there’s no chance of carrying a balance and paying unnecessary interest charges,” says Bakke.  He continues, “Plus, managing a bank or credit union account will prepare a college student much better in a financial sense when it comes to managing their own money when they graduate.”

Terri Williams
Terri Williams graduated with a B.A. in English from the University of Alabama at Birmingham. Her education, career, and business articles have been featured on Yahoo! Education, U.S. News & World Report, The Houston Chronicle, and in the print edition of USA Today Special Edition. Terri is also a contributing author to "A Practical Guide to Digital Journalism Ethics," a book published by the Center for Digital Ethics and Policy at Loyola University Chicago.

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