Majoring in Plastic

From the April 13, 2008 edition, Washington Post, Page F01

By Nancy Trejos

Lavina Ramchandani, 20, got an American Express card two months ago so she could pay this semester's tuition at the University of Maryland.

Holly Jackson, 19, got a credit card when she needed a laptop.

Ethan Elser, 20, recently used his card to pay for a spring-break trip to Mexico.

All are college students, and all are in debt.

As the economy worsens, largely because so many people took out mortgages they could not afford, the nation is questioning how credit could have been made so easily available and why consumers were so eager to accept it.

But experts say it is behavior that begins at an early age. Decades ago, it wasn't until one had a career, a spouse, even a child that credit cards typically entered the picture. Now, once people turn 18, they are bombarded with credit card offers. College campuses have become breeding grounds for new consumers of credit, with companies using free T-shirts, sandwiches, even iPods to entice potential customers.

"Most adults already have too many credit cards," said Ed Mierzwinski, program director for U.S. PIRG, a federation of state Public Interest Research Groups that defends consumers. "It's expensive to market to people who have credit cards with other companies. College students are an attractive market."

Consumer advocates say college students can least afford to graduate with debt these days, with an unstable job market. Many of them will graduate not only with credit card debt but also with student loan debt.

"Going into a recession, which it looks like we are, are you going to spend all this money on school and then graduate and not be able to find a job?" said Emily Davidson, a financial expert at Credit.com, a Web site that rates credit cards.

In a recently released U.S. PIRG survey of 1,500 students at 40 colleges in 14 states, nearly two in three students reported that they had at least one credit card. Fifty-five percent of cardholding students said they used their card for day-to-day expenses. Reflecting escalating college costs, 55 percent said they charge their books and nearly one-quarter said they pay their tuition with a card. On average, those freshmen whose parents were not helping them with their bills had a balance of $1,301. Seniors had more than twice that, $2,623.

Nellie Mae, a student loan company, gathered similar data when it did a study of undergraduate credit card use in 2004. Seventy-six percent of undergraduates began that school year with credit cards, and the average balance was $2,169, lower than it had been in 2001.

Jackson, a sophomore government and politics major at the University of Maryland, has more than $2,000 in credit card debt. She has two cards, one that she opened to buy a Dell laptop and another that she used to pay for gasoline, food and books.

She works part time at the Gap, earning $7.75 an hour. Most of that goes toward her credit card bills. So far, she has not made any late payments, but she said she feels overwhelmed and might get a second job. "I'm learning my lesson," she said. "After I pay these off, I don't plan on getting more. They're awful."

She has yet to tell her parents, who live in Annapolis, about her debt. "I don't want them to think I'm irresponsible. They'll only get mad," she said.

Card companies argue that college students are adults and therefore have a right to credit. For the most part, industry experts say, they are no less responsible than the average adult.

In a survey of 1,200 full-time undergraduates conducted last month on 100 campuses, the marketing research firm Student Monitor found that the percentage of students with a credit card in their own name had decreased, from 46 percent in 2004 to 35 percent this year. Of those who have cards, 63 percent said they pay their balance in full each month. The 37 percent who do not carried an average balance of $452, a decrease from last year, the report said. Students had more student loan debt than credit card debt, the study pointed out.

Both the U.S. PIRG and Student Monitor surveys found that about a quarter of the students had been charged a late fee at some point.

"To me, the bigger issue is more about financial education," said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. "These are the same people who can die for their country, but you're going to tell them they can't have a credit card?"

Consumer advocates and financial advisers agree that education is key and that the onus should be on parents, educators and the card companies to help students become smarter consumers. But the students themselves, they argue, should also do their part.

"Frequently, [students] don't have an understanding of both the rights and obligations of credit cards," said Susan Coleman, a finance professor at the University of Hartford. "Young adults and their parents need to take steps to educate themselves about the uses of debit and credit cards so they can be informed consumers."

Elser, a sophomore business administration major at George Washington University, said he considers himself informed. "I think once you hit 18, you're old enough to make your own decisions and you should absolutely be able to sign up for a credit card," he said.

He said that he has never missed a payment on his Visa card and that he always pays more than the minimum. (But he would have to pay interest on any unpaid balances.) He did not choose his card based on a marketing gimmick. Instead, he applied for one at his parents' bank before he went to college. Now, after that trip to Mexico, he has a balance of slightly more than $1,500, but his mother plans to help him pay it off. He has scaled back on his spending, eating out less and doing no unnecessary shopping. "I always have a plan for how I'm going to pay for it," he said.

Many schools are incorporating financial literacy into their curricula or freshman orientation. At George Mason University, for example, freshmen are required to take Mason 101, a course on handling college life that includes a lesson on credit cards. At Trinity Washington University, students go through a session on credit cards during freshman orientation, then again later in the year. The school also sends students e-mails advising them on good financial behavior, said spokeswoman Ann Pauley.

Credit card issuers said they, too, give students tips on how to handle their cards responsibly and start them out with lower limits. People who apply for the Discover Student Card receive a "Credit 101" booklet, and the company's Web site includes a "student center" with a budget calculator, credit quiz and a glossary of key terms, said Matthew Towson, a company spokesman. Capital One, in partnership with Visa, has offered MoneyWi$e University, a program to teach responsible spending and basic money management skills, on college campuses across the country since 2002.

Still, in recent months, federal and state lawmakers have taken credit card companies to task for their marketing techniques.

Last month, Sen. Robert Menendez(D-N.J.) introduced a bill that would, among other things, require credit card issuers to receive "opt-in" approval from consumers younger than 21 before mailing solicitations to them.

Also last month, the Maryland House of Delegates approved a bill that would ban companies from offering college students gifts to sign up for credit cards on campus or at school sporting events. The bill also would prohibit colleges from sharing student e-mail or postal addresses with card companies.

Ohio Attorney General Marc Dann recently sued Citibank for allegedly handing out coupons for free sandwiches at Ohio State University without making it clear that the students would have to fill out credit card applications to redeem them. Citibank has said it used an outside marketing company and did not authorize the campaign.

According to the U.S. PIRG study, 76 percent of students reported stopping at tables on campus to apply for credit cards, and nearly one-third were offered a free gift to sign up.

Increasingly, however, college campuses are banning such practices. Locally, card issuers are not allowed to market on several campuses, including Georgetown University, the University of Maryland and Howard University.

Coleman suggested that students first think about whether they need a card or have the income to sustain one. If they decide they do, she said, they should research several offers rather than take one from a company giving out free food. Interest rates on cards geared toward college students vary wildly but tend to be higher because young people pose more of a risk.

"College students are bombarded with credit card applications," she said. "They have the tendency to think it's free money when really it isn't. Look at the interest rate, terms of payments, fees, penalties."

For those who get into serious debt, financial advisers said there are ways out.

Brent Neiser, director of strategic programs and alliances at the National Endowment for Financial Education, said students can turn to credit counselors and, most important, to their parents. Mom and Dad might not pay off the debt, but they could have some good ideas for dealing with it. Students should then cut their spending and think about getting second jobs.

Curtis Arnold, founder of CardRatings.com, which reviews credit cards, said students should also consider transferring their balances to cards with lower rates. And if they are deeply in debt, they should cut up the card, several advisers said.

Ramchandani, a junior at the University of Maryland, has a plan for paying off her debt. She and her mother researched several credit cards and found an American Express card that charges no interest for the first 14 months and has a $2,000 limit.

Eager to pay her own way through college, she charged whatever her student loans could not cover of this semester's tuition. She is working part time at the campus television station and does not spend much money on things she does not need.

"It's not the greatest idea in the world. It's risky," she acknowledged. "I know I can be one of those college students who falls into debt. That's one of my greatest fears."

Still, she plans to pay off her card by June, then charge next semester's tuition.

Print this