Trends and Issues

Seven things to teach your students about credit card use

For more and more students, credit cards are becoming a necessary accessory. According to a 2004 study conducted by Nellie Mae, over 75 percent of students own a card and use their credit muscle to add an average of $2,000 to their student loan debt by the time of graduation.

Working with students each day, you understand the temptation that credit cards pose and the need to regulate their use. If you're providing information to students on how to manage their finances, you may consider offering a few "best practices" for handling credit cards.

You'll find a short list of general principles below. TG also offers students a series of trainings on financial literacy and life success — POSITIVE+BALANCE™. For students, POSITIVE+BALANCE serves to foster skills in money management and includes a particular module on credit card use. These training sessions can be integrated with existing training you provide students.

The credit card "best practices" list
Most of your students are probably novices at handling their finances. They'll likely welcome what you can offer in the way of general guidelines about particular aspects of money management, including credit card use. Help them put in place a strong foundation for their future financial health with these seven tips on credit cards.

• Limit yourself to one credit card: Credit cards can be all too tempting — easy to apply for and easy to use. To set a firm limit on what you spend, take out only one card. One card will make it easier to set a regular pattern of purchases and repayment — and establish a good credit history.
• Understand all credit card terms: Before you take out a credit card, educate yourself. What is the interest percentage rate? Are there annual fees attached? Is there a different interest rate for cash advances? Get the answers before you settle on a card.
• Set a time limit on big purchases: If you want a big-dollar item, put off buying it immediately. Consider the necessity and feasibility of repayment on such a purchase. Establish a time limit of several days before you buy.
• Charge only the amount you can afford: Everyone lives on a budget. Work in your monthly credit card expenses to your monthly budget and ensure you can swing it.
• Pay more than the minimum: If you are not able to pay the balance in full, pay at least twice the minimum monthly payment. Paying more eliminates the debt faster and gives you more room to spend on other items, like household expenses.
• Verify your statements: Check your receipts against the monthly statement you receive. That way, you can see patterns in your purchases, consider the amount you spend, and keep a close eye on what you're being charged for interest.
• Shop around for the best interest rates: Watch out for "low introductory" rates. These can sometimes turn into higher rates if a payment is missed or comes in late. Also, be aware of annual fees. Many companies may charge an annual fee just to have the credit card itself.

Learn more
To find out more about POSITIVE+BALANCE and this particular training module, contact your account executive at (800) 252-9743. You can also learn more from Rett Anderton or Joe Braxton, TG's default aversion consultants. Rett Anderton may be reached at (800) 252-9743, ext. 4765, or by sending an e-mail message to rett.anderton@tgslc.org. Joe Braxton may be reached at (800) 252-9743, ext. 4696, or by sending an e-mail message to joe.braxton@tgslc.org.

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Correction to previous Shoptalk Online edition

In Shoptalk Online, edition 396, the Question of the Week included inaccurate information regarding the treatment of certain loan discharge amounts for federal income tax purposes. Although the Internal Revenue Code states in Section 108(f) that some loan forgiveness amounts should not be included in a borrower's gross income, this is not the case for the FFELP Teacher Loan Forgiveness (TLF) Program. FFELP loan amounts forgiven under TLF must, under current law, be reported as gross income. Please see Chapter 5 of IRS Publication 970 for more detailed information.

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Question of the week

Q.: If a borrower is eligible for a late disbursement of loan funds, must the school offer and deliver such a disbursement to the borrower, or does the school have any discretion in this matter?

A.: There are actually two "types" of late disbursements — one made after the student has successfully completed the loan period, and one made after the student has dropped below half-time status. In addition, there is a post-withdrawal disbursement, which is made after the student has withdrawn. The federal regulations in 34 CFR 668.164(g)(3) say the school must do the following in each of these cases:

• According to 34 CFR 668.164(g)(3)(ii), if a student successfully completed the loan period, the school "must provide [the borrower] the opportunity to receive" the late disbursement. While the regulations do not give a timeframe for the borrower to respond to this offer, the school should keep in mind that if it delivers a late disbursement, it must do so within 120 days after the end of the loan period. Note that the final regulations published November 1, 2007, increased this timeframe to 180 days after the end of the loan period, effective July 1, 2008, unless implemented earlier by the school.
• According to 34 CFR 668.164(g)(3)(iii), if a student did not withdraw but ceased to be enrolled as at least a half-time student, the school may, but is not required to, offer the late disbursement to pay for educational costs that the school determines the student incurred for the period in which the student was eligible. While the regulations do not give a timeframe for the borrower to respond to this offer, the school should keep in mind that if it delivers a late disbursement, it must do so within 120 days after the date the student ceased to be enrolled at least half time. Note that the final regulations published November 1, 2007, increased this timeframe to 180 days after the date the student ceased to be enrolled at least half time, effective July 1, 2008, unless implemented earlier by the school.
• According to 34 CFR 668.164(g)(3)(i), if a student withdraws and, per the school's completion of the return of Title IV funds calculation, the student is eligible for a post-withdrawal disbursement of loan funds, the school must offer the borrower the loan funds [in accordance with 34 CFR 668.22(a)(5)(ii)(B)(2) and (3)], and, if the borrower accepts the funds within the permitted timeframe provided in 34 CFR 668.22(a)(5)(ii)(A)(5), must deliver the funds within 120 days of the date the school determined that the student withdrew. Note that the final regulations published November 1, 2007, increased this timeframe to 180 days after the date the school determined that the student withdrew, effective July 1, 2008, unless implemented earlier by the school.

Do you have a question?
If you have a question that needs an answer, feel free to Ask TG™. Ask TG is TG's online query tool for borrowers, schools, and lenders. It includes a database of frequently asked questions about financial aid, student loan processing, and TG's products and services. To submit a question to Ask TG, visit tgslc.custhelp.com.

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