Financial Knowledge or Financial Situations? Toward Understanding Why Some College Students Use Credit Cards to Pay for College Tuition

Abstract

While the majority of college students use credit cards for educational expenses like textbooks, recent data reports that college students also use credit cards to directly fund their schooling by charging for at least some part of their tuition (Sallie Mae, 2009). Because credit cards carry a higher interest rate than student loans, and because they do not have a period of deferred payment while a student is enrolled in school, credit cards are a particularly risky method of payment that students resort to in order to attend college. Why do college students participate in such risky spending behavior to fund their education? This paper uses data from a nationally-representative data set (Education Longitudinal Study) and from a recent national study on college student finances (Study on Collegiate Financial Wellness) to investigate whether financial knowledge or financial situations are better predictors of whether a student uses a credit card to pay for at least some of their college tuition. While most research on this topic has focused on social-psychological factors that influence college student credit card use, this study includes important financial resource and situation variables that shed light on the ways in which college students make financial decisions in a broader economic environment.