Bank’s New Game Plan for Students May Create Bigger Debt
In the Orlando Sentinel newspaper this week, there was an article about a credit union in Michigan offering to make loans to students so they could get to the Rose Bowl in Pasadena California and see Michigan State play Stanford. Is this a brilliant idea or not? It depends on which perspective you take.
The credit union will probably make money on the interest paid on the Rose Bowl loans to students. The credit union will also be able to leverage the Rose Bowl loans as a way to creatively generate additional business and thus additional income and profit. From the credit union’s perspective, the Rose Bowl loans sound like a good business deal.
If you are a student, the offer of a trip from snowy, cold Michigan to warm sunny California may be hard to resist. But that trip comes at the price of being saddled with long-term debt for short-term fun. On the trip, most students will run up credit card debt, in addition to the loan from the credit union. After all, it’s hard to resist tee shirts, food and drinks after the $1,000 loan has been used for airfare and hotel costs.
According to CNN Money, the average college student graduates with about $35,000 in debt. The debt is a mixture of student loans, personal and family loans and of course credit card debt. When students graduate, the total amount of debt often comes as a shock and the reality of paying back the debt can be a burden for years. The monthly interest payment alone for $35,000 at a 14.9% interest rate is $434.58. If only the minimum payment is made each month and no further charges are made it may take almost 40 years to payoff the average college debt!
Of the college graduates in the CNN Money survey, 39% say they would have done things differently and been more fiscally responsible. Unfortunately, this change of attitude often comes only after the reality of the debt load hits them.
Interestingly, the Sentinel had another column on the same page that was about Florida state lawmakers proposing that all high school students take a mandatory financial literacy course to learn about personal finances.
Maybe a mandatory financial literacy course should also be part of the college experience!
In today’s worldly society the focus is on fulfilling our every want, often without considering the long term consequences.
Do the Michigan State students need to go to the Rose Bowl? No! Would it be fun to go? Most assuredly! However, if they stay home and watch the game on TV they will be able to avoid incurring $1,000 to $2,000 in debt. Perhaps the Rose Bowl loans should come with a warning from the Book of Sirach 20:12 (GNT) “Sometimes what seems like a real bargain can turn out to be a very expensive mistake.
