Tuition and fees, club dues and beer money — it’s expensive to be a college student. It doesn’t help that according to NerdWallet’s latest analysis, checking account and credit cards could be costing the average student up to $1,016 in fees and interest over four years of college . In total, college students in the U.S. could be spending more than $795 million a year on overdraft and late payment fees alone .
In a 2016 study, NerdWallet analyzed the overdraft fees of 20 checking accounts affiliated with some of the largest universities in the U.S. We looked at the same accounts this year, as well as student credit cards, to see how things have changed over the past 12 months.
- The median bank overdraft fee in the U.S., including university-affiliated accounts, is $35 , and the average college student overdraws his or her account 2.2 times per year, compared with 2.07 times for the average American. With over 11 million full-time undergraduate students in the U.S. as of 2016, most of whom have bank accounts, that could mean overdraft fees of more than $722 million . That’s an increase of almost $19 million over the previous year .
- One-third of students who will be graduating soon and who have a credit card have paid a bill late, and the average late-payment fee on the student cards we analyzed was $35. If one-third of the full-time undergraduate population with a credit card misses a payment, that’s almost $73 million in late-payment fees .
In 2015, the Consumer Financial Protection Bureau issued guidelines for colleges on picking partner banks that would best meet students’ needs. The Safe Student Account Toolkit has not yet brought banking improvements for students at the schools we analyzed. We saw year-over-year increases in fees for student accounts at some of the banks included in our study. We also found that student savings accounts and credit cards had extraneous, unnecessary costs that students could avoid by opting for different accounts or through smarter use of the cards.
In this study, we’ll break down the costs of student checking accounts and credit cards and provide cheaper alternatives. We’ll also give tips on how to start building credit as a college student and explain why it’s important.
Student checking accounts can be expensive
For each of the student checking accounts, we looked at the average maintenance fee, overdraft fee and overdraft fee limits — the maximum number of times per day a bank will charge you an overdraft fee. The average fee these banks charged for maintaining an account stayed at $0 for students. Three banks increased their overdraft fee; only one decreased its fee. In addition, two banks decreased the total number of overdraft fees they would charge per day, but one increased that number.
The median overdraft fee for these accounts increased from $34.50 to $35. Because the average college student overdraws his or her account 2.2 times per year, this would mean $77 per year in overdraft fees for a student using an account like those we analyzed, or $308 over a four-year college career. This is only an average. A smaller percentage of students is hit much harder by overdraft fees: According to a 2014 CFPB report, 10.7% of 18- to 25-year-olds incurred more than 10 overdrafts per year.
Online accounts, credit unions offer better deals
At most banks, customers can avoid fees. Banks typically will waive maintenance fees if you keep a minimum balance or have monthly direct deposits. You can avoid overdraft fees by not spending more than what’s in your account. But the easiest way to avoid unnecessary fees is simply opting for a bank that doesn’t charge them.
“Online banks are what all banks should be, which is more friendly to consumers,” says NerdWallet columnist Liz Weston, author of the book “Your Credit Score.” “They have fewer fees and minimum balance requirements, and they pay higher interest rates. You can’t step into a branch, but fewer and fewer of us are doing that, and we’re discovering online banks meet our needs just fine.”
For those who prefer not to bank online, credit unions are a solid option. The university accounts we looked at that were affiliated with credit unions had lower overdraft fees on checking accounts and higher interest rates on savings than university accounts affiliated with major national banks. They were less likely to have monthly maintenance fees, as well.
You can avoid overdraft fees
You can also opt out of overdraft coverage entirely. Overdraft coverage is the practice of the bank paying for certain kinds of transactions even though you can’t afford them, then charging you an overdraft fee. A federal rule requires that banks offer this coverage on an “opt-in” basis, rather than enrolling you automatically. If you’ve accidentally signed up for it, which is easy to do, you can opt out.
If you opt out of overdraft coverage, your card will likely be rejected if you try to buy something or make an ATM withdrawal without enough money. You may still be charged similarly priced nonsufficient funds fees, also called NSF or returned-item fees. You’ll more likely be charged NSF fees for things like bounced checks and online bill payments.
Regardless of whether you have overdraft coverage, sign up for text alerts for low balances and overdrafts through your bank’s website. If you do go negative, replenish your funds as soon as you can to avoid extended fees.
» MORE: The basics of overdraft fees
Late credit card payments do double damage
We also looked at student-specific credit cards from the major U.S. card issuers. Bank of America, Citibank, Discover, Capital One and Wells Fargo all offer student credit cards, with an average late payment fee around $35 and an average interest rate of 18.64%. Interest rates vary depending on your credit score; the cards we looked at had an average minimum interest rate of 14.51% and an average maximum interest rate of 22.76%.
According to an Experian survey, 33% of students who had a credit card and would be graduating within the next six months had been late with a credit card payment . Assuming this is representative of the entire full-time student body, more than 2 million students have made a late payment. That’s almost $73 million spent on late fees — and that’s assuming they accrued only one late payment each.
Late fees aren’t the only expense of paying a credit card bill late. Many cards impose penalty interest rates of up to 30% in such cases. That’s more than twice the average minimum interest rate on the student credit cards we analyzed and more than 7 percentage points higher than the average maximum rate.
The Experian survey found that soon-to-be graduates had an average of $2,573 in credit card debt. Assuming they built up that debt in equal amounts each month through four years of college, made minimum payments of $25 each month and paid the average interest rate on their account, this would add up to $569 in interest accrued before graduation. That doesn’t include the interest they’d accrue after graduation if they don’t pay off the balance — or, worse, if they keep charging without paying down their existing debt.
» MORE: Best student credit cards
Build credit, even if you can’t get a student card
Using a credit card responsibly — paying it off on time and not going over the limit — is one of the easiest ways to build credit. And while you might be years away from taking out an auto loan or mortgage, a good credit score can help in many other ways.
“Your credit determines a lot more than whether you can get a loan or the interest rates you’ll pay,” Weston says. “It can affect whether you can rent an apartment, how much you pay for insurance, the size of the deposit you’ll have to put down to get utilities and whether you’ll get the best deal on a cell phone.”
There are plenty of great student credit cards, though they can be hard to get if you’re under 21 because of the Credit Card Act of 2009. If you get rejected for a student credit card, don’t despair. There are two recommended alternatives:
- Secured credit cards: A secured credit card is backed by a cash deposit, usually equal to the card’s limit and typically between $200 and $500. You make purchases on the card and pay them off as with any other credit card. The deposit protects the issuer in case you don’t make your payments. You’ll get your deposit back once you “graduate” to an unsecured card or close your account in good standing.
» MORE: Best secured credit cards
- Authorized usership: As an authorized user, you get a card linked to someone else’s account, usually a family member’s or spouse’s. You aren’t legally responsible for the charges you make on the card — the primary account holder is — but many issuers report authorized user activity to the credit bureaus. That said, before becoming an authorized user, make sure that the primary cardholder pays her bills on time and the issuer of the credit card reports authorized user data to the credit bureaus.
Once you have a credit card, it’s time to start building credit. Be sure to pay all of your bills on time every month and pay down or limit your debt. For more tips, check out these good credit habits.
NerdWallet reviewed internal and external data sources to learn more about student banking and credit card products. Information about internal data not explained in the study or footnotes can be obtained by contacting us at [email protected]. The external data sources are publicly available online:
- Consumer Financial Protection Bureau. Data Point: Checking Account Overdraft. July 2014.
- Consumer Financial Protection Bureau. Student Banking, Annual Report to Congress. December 2016.
- Experian. Experian College Graduate Survey Report. April 2016.
- National Center for Education Statistics. Enrollment in elementary, secondary, and degree-granting postsecondary institutions, by level and control of institution, enrollment level, and attendance status and sex of student: Selected years, fall 1990 through fall 2024. March 2015.
- The Pew Charitable Trusts. Consumers Need Protection From Excessive Overdraft Costs. December 2016.
- Sallie Mae. Majoring in Money: How American College Students Manage Their Finances. 2016.
 We calculated a student’s costs over four years by adding the following:
- Checking account costs: Average 2.2 overdrafts per year multiplied by a median overdraft fee of $35
- Credit card costs: Average interest on credit card balance of $2,573 with interest rate of 18.64%, assuming debt was incurred in equal amounts through all four years, plus the average late payment fee of $34.56, assuming one late payment per year.
 The majority of college students have a bank account, according to Sallie Mae, which shows 85% of students have debit cards. We calculated overall student spending on overdraft and late payment fees by adding the following:
- Overdraft fees: Average 2.2 overdrafts per year multiplied by a median overdraft fee of $35, multiplied by the estimated number of undergraduate students in 2017 from the National Center of Education Statistics, multiplied by 85% of students who have debit cards according to Sallie Mae
- Late payment credit card fees: Average late payment fee of $34.56 of the student credit cards we looked at multiplied by the number of students with credit cards (the number of undergraduate students multiplied by the 58% of soon-to-be graduates who have credit cards) multiplied by the one-third of soon-to-be-graduates who have made a late payment, assuming one late payment per student. We made the assumption that soon-to-be graduates were representative of the entire undergraduate population.
The total student spending would add up to $795,096,041.
 According to the Pew Charitable Trusts, the median overdraft fee of 44 of the largest banks in the U.S. is $35, and according to our analysis of university-affiliated accounts, the median overdraft fee is $35.
 According to Sallie Mae, 85% of college students have debit cards. We multiplied this year’s and last year’s total overdraft fee numbers (number of students x average overdrafts x median overdraft fee) by 85% to arrive at the estimated overall overdraft fees for college students. Last year, the total number was $703,471,560. This year, it’s $722,109,850. The difference is $18,638,290.
 According to the Experian College Graduate Survey Report, 58% of soon-to-be graduates have credit cards and 33% of those with credit cards have made a late credit card payment.