Student Credit Options

Getting higher education typically improves earnings in most careers, but you have to pay for that post-secondary degree. It's not unusual for a single credit to cost $200 to $400 as of 2011, and many students have trouble funding their education upfront entirely on their own. This leads them to seek student credit options.

Credit Cards

Student credit cards operate in the same way as non-student cards. That is, the students charge against their available credit and then pay at least minimum amounts on their balances each month. Credit cards are usually unsecured, which means you don't need to offer collateral to get one. If you are a student who is under 21, you likely will need a parent to co-sign, since most states have laws that forbid minors from signing legal contracts, and because the Credit Card Act requires those under 21 to have either a co-signer or proof you can pay off your debt yourself. Credit card companies market aggressively to students to gain new lifetime clients.

Credit cards, when properly managed, are an excellent way for students to manage their cash flow. However, they often come with high interest rates and fees (particularly after introductory periods end) because many students haven't built up a sufficient credit history to get better deals.

Prepaid Cards

With a prepaid card, you purchase the card at face value, or load a desired amount of your own money onto the card. You can spend only the amount you've put into the account. For this reason, prepaid cards generally are better for money management and limiting debt. They are accepted in most places where credit cards function, since they are backed by the issuing company in many cases. You can choose from store-specific cards or general prepaid cards you use at any vendor. An advantage to a prepaid card over a debit card is that it isn't necessarily linked to a bank account. Prepaid cards don't require extensive credit history because you operate the card with your own funds, so they're usually very easy for students to get. Fees, if any, tend to be lower, and there usually isn't any interest. Not all prepaid card companies report your account history to the credit bureaus, but some do.

Loans

Loans are the traditional method of meeting major student expenses, aside from grants and scholarships. Students may choose from both government and private loans, and loans can be unsecured or secured, depending on the lender and your credit history. To approve the loan, lenders usually require proof of your income, and they may specifically state in the loan terms that the funds are to be used only for academic expenses. Government loans usually have lower interest rates. However, the amount you take out in any student loan is limited by your debt-to-income ratio, and you likely will be paying your student loan debt for years after you get your degree unless you borrow only a small amount. Loans should be a last-resort funding choice.

Considerations

Regardless of what credit option you choose as a student, how you behave with your funds as you learn greatly impacts your financial stability in the future. To avoid potential money traps, read every word of your credit and loan contracts, and enroll in economics or budgeting courses that will show you how to control your assets. Don't use any credit option unless you know exactly how you'll finance it or pay it back.