Plastic: Handle With Care
January 13, 2002
By EDWARD WYAT
Parents squealed last fall when state colleges, pinched by the economic slowdown and declines in state aid, raised yearly tuitions, many of them by several hundred dollars a student. But some of those same parents have been less attuned to finances in another area, sending their children off to college with wallets bulging with high-interest-rate credit cards. The incongruity was noted by Tahira K. Hira, an associate vice provost at Iowa State University. "We had kids and parents all over the place saying, 'We can't afford this,"" she said, referring to the recent $300 tuition increase at Iowa State. "Meanwhile, they or their kids were paying a 22 percent interest rate on their credit cards."
Dr. Hira's observations are not just hyperbole. After years of studying and teaching family financial planning and personal finance, she is certain that many, if not most, students do not understand the effect that unpaid credit card bills have on their well being, financial and otherwise.
"We know there are kids who start bringing in a lot of credit card debt without recognizing they are adding debt," Dr. Hira said. "They don't realize the cards move from an instrument of transaction to an instrument of borrowing at a very high cost. They don't understand that because they have never been taught that clearly." Nearly 80 percent of undergraduate degree recipients in the 1999-2000 school year carried at least one credit card as students, according to a report by the American Council on Education. The data came from the Department of Education's National Postsecondary Student Aid Study, which in 2000 included questions about credit cards for the first time.
Almost half the students who responded carried a balance on their cards from month to month, and the median balance on those cards was $1,600. That means that students were racking up, on average, $240 to $400 of interest charges each year.
That estimate is probably conservative, moreover, because the Department of Education survey covers only students who completed a degree or certificate program, and who were financially dependent on their parents. College and university officials report that it is no longer uncommon for some students to drop out before completing their degree because of the burden of credit card debt.
Drop out, or worse. Last year, the television newsmagazine "60 Minutes II" profiled two college students-one who had recently graduated from the University of Oklahoma and the other who was enrolled at the University of Central Oklahoma-who had committed suicide while struggling with credit card debts of thousands of dollars apiece.
Pick a campus virtually anywhere in the country, stroll around on registration day or during orientation, and you are likely to run into a table where students are offered Frisbees or T-shirts or even cash rebates if they sign up for a credit card. These are not disinterested solicitors.
They are often students at the same university who earn extra money for each completed application delivered and whose fraternity or social club is being paid a fee by the credit card issuer.
Universities sometimes work hand in hand with the credit card companies on these efforts. In June, the General Accounting Office published a study that surveyed 12 universities and colleges, both public and private and of varying sizes, about their credit card policies. It found that 10 of the 12 allowed on-campus "tabling," or solicitation of students in the student union or at other sites. Eight allowed credit card applications to be inserted into bookstore bags. And 11 had alumni associations that offered an "affinity card"-a credit card that carries the logo of the university and pays rebates to the institution based on cardholder spending.
Those programs can provide substantial payments to the universities. Edmund Mierzwinski, the consumer program director for the United States Public Interest Research Group, said large public universities typically earned millions from contracts with card issuers.
The G.A.O. also surveyed the companies. Among its findings were that four of the six credit card issuers that responded to the survey had eliminated standard income and employment requirements for college students. One issuer deemed it more important which college a student attended than whether the student was employed.
The credit card issuers, which hope to capture upwardly mobile graduates as lifelong customers, argue that it is important for students to build a good credit record so they can buy a car or otherwise establish themselves once they leave college. Also, the students to whom they market are of legal age and able to vote and to drive-if not, in most cases, to drink.
"If you are old enough to go to college, we think you can understand the idea that when you sign up for a credit card, using the card creates a loan," said Catherine Pulley, a spokeswoman for the American Bankers Association. "Yes, there are people who get into credit card trouble, but those are people of all ages, not just college students."
Training in financial literacy has to begin at a young age, she said, adding that the credit card industry contributed to the effort with programs in junior high and high schools as well as at colleges.
"A lot of consumer groups like to make it sound like you turn 18 and you go to college or go into the workplace or into the Army and you start spending money," Ms. Pulley said. "That's just not the case. In our society, an 18- or 19-year-old has already been targeted and marketed to with far more aggressive tactics" than those used by credit card companies. "It's ridiculous for consumer groups to claim that students are unfairly lured by a T-shirt or a Frisbee."
After several years of negative publicity, credit card issuers have vowed to restrain some of their practices or discontinue them, like offering cash gifts to successful applicants.
But Mr. Mierzwinski does not believe they have restricted their marketing to students much. "We have seen increased activity by student activists trying to rein in some of the programs," he said. "And some colleges have added debt orientation programs. But I've seen no real decline in marketing or aggressiveness."
Some schools are beefing up their activities. Iowa State plans to add sessions on credit cards and personal finance to its orientation program next fall. For the last several years, Wellesley College has sent parents of incoming freshmen a letter requesting they sit down with their children to discuss credit cards and their appropriate use.
Voncile White, the dean of first-year students at Wellesley, said that while the college had offered sessions on financial strategies during student orientation, "we find there's very little we can do if parents haven't talked to students before they left home." The pattern that has been repeated too often, Dean White said, was for a student to fall behind on credit card payments. "Then, she'll think she can pick up a job to deal with it. Then, her academics suffer," sometimes leading to failure or withdrawal from school. "They are already in trouble before someone like me finds out about it," she added.
Debt problems are not limited to college students, as Ms. Pulley pointed out. But in many cases, students mirror the financial behavior of their parents, who are often laboring under their own burden of debt.
"Financial illiteracy is one of America's untold stories," Mr. Mierzwinski said. "Every survey we've ever done suggests the need for more training, more skill building. Certainly there is value in a student building a credit record. But many students are ruining their credit record before they even leave college." And often, it seems, parents are unwittingly helping them do it.
Edward Wyatt is a reporter for The NY Times.
E-mail: wyatt@nytimes.com.
