Cards: The Gift That Keeps On Giving
The start of a new academic year means students everywhere will be greeted by more than just their new roommates. Credit card representatives are likely to be on hand as well, setting up shop on college campuses as they hand out freebies such as T-shirts or water bottles in exchange for the signature of students who sign up for a credit card.
College students, particularly freshmen, are a prime market for credit card companies. While the majority of college students are in fact responsible users of credit, credit cards can spell trouble for some young consumers.
A study conducted by the U.S. Public Interest Research Group (PIRG) revealed that students who obtained a credit card at on-campus tables have higher unpaid balances than those who do not. Many of these same students pay only the minimal balance each month, which can quickly lead to incurring excessive debt. Moreover, students who abuse credit cards at the onset of college may unknowingly suffer long-term consequences—from damaging their credit to lessening future chances of purchasing big-ticket items such as a car or home or even securing student loans for additional education.
“Although many students understand and manage the responsibilities of borrowing, there is some apprehension that some students are setting themselves up for financial failure even before graduation,” says Marie O’Malley, Vice President of Marketing for Nellie Mae, a leader in helping students borrow responsibly and manage debt. “Without assistance, these students may not have the know-how to borrow wisely on the front end nor the income to honor their credit obligations after they’ve borrowed.”
According to Nellie Mae’s 2005 report Undergraduate Students and Credit Cards, 43 percent of undergraduate cardholders obtained their cards freshman year. Today, the average college freshman has more than $1,500 in credit card debt. By the time that student graduates four years later, the amount has increased two-fold.
A newly released study from the American Council on Education (ACE) on credit card ownership and college students offers further insight. Findings from Credit Card Ownership and Behavior Among Traditional-Age Undergraduates, 2003-04 showed that the likelihood of owning a credit card increases as students progress through their academic careers. While 43 percent of first-year undergraduates owned credit cards, the figure rose to 74 percent for fourth- and fifth-year students. Further, students became more likely to hold multiple cards as they advanced through college. In the first year of college, only 8 percent of all undergraduates owned three or more cards. By the fourth or fifth year, 24 percent of students held that many cards.
Interestingly, the ACE study found that students with credit cards were not significantly more or less likely to borrow student loans than those who did not have a credit card. Students who carried a balance on their card were somewhat more likely to also have borrowed a federal student loan than those who paid off their credit card balance each month (42 percent, versus 34 percent), suggesting that these students may have turned to credit cards to augment what they had borrowed through student loan programs.
A number of colleges and universities have taken on the issue of on-campus credit card marketing, offering money-management and financial literacy programs during freshmen and parent orientation or providing similar information in bookstore shopping bags, to help students fully understand the ramifications of credit. Some schools, including Lehigh University and the University of Wisconsin, ban on-campus credit card marketing altogether.
“Students should expect to be deluged with credit card offers while at college, particularly at the start of the new academic year,” says Nellie Mae’s O’Malley. “These offers will be mailed to them, will pop up on Web sites and will also be on campus. It would be ideal if credit card companies agreed to take a more conservative lending approach to students to prevent them from getting too deeply into credit card debt while in school.
“More practically, however, students need to learn how to manage financially. Credit cards and other borrowing options will continue to be available to them while they are in college and after they graduate. Credit card use and borrowing money have become common practices in American society and aren’t going to cease. The wisest course is to teach students to limit credit card usage and to borrow wisely.”
For more on credit and college students, visit these consumer and education Web sites: