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Credit Card Pushers And Student Junkies: What To Do?

August 18, 2008

Tony Pugh’s recent accounting of credit card pushing on campus is a must read. It’s so important that I’m going paste as much here as I can get away with and provide commentary. Titled “Big debt on campus: Credit offers flood the quad,” and distributed by McClatchy-Tribune, I saw the article in today’s Chicago Tribune. Here goes:

As the fall semester beckons and financial aid from parents and the government runs dry, more college students are turning to credit cards to pay not only for their textbooks, meals and transportation but also for tuition.

TL: Financial aid from the government running dry? If this is an allusion to overly dire warnings about federal financial aid going under, that’s too alarmist—and a bad trope for starting what is (I promise) a good article. The New America Foundation’s Higher Ed Watch Blog has discussed how the situation is not as dire as greedy loan providers are making it seem. Search for other stories at Higher Ed Watch on the bogusness of the student aid crunch.

A recent survey by U.S. Public Interest Research Groups found that two-thirds of college students have at least one card, 70 percent pay their own monthly bills and 24 percent have used their cards to help pay tuition. That helps explain why the average survey respondent will graduate with more than $2,600 in credit card debt, and those with student loans will owe nearly $3,000.

TL: But that $2600 doesn’t include credit card debt paid down via prior student loans. So that number only represents a student’s overextension during their senior year. Also, the fact that students are finding credit cards attractive could be a function of the fact that student aid is not high enough in light of yearly increases in tuition and campus costs. It’s not only about students being carefree.

Concern about college students’ credit card debt has led regulators, lawmakers and consumer advocates to question whether schools are making it too easy for card companies to market their plastic to students.

TL: This concern is old news. It’s been talked about since I was on campus in the early 1990s. So, people are worried, but not the right people.

Of particular concern are exclusive agreements in which card companies and banks pay millions of dollars to schools or alumni associations for preferential treatment with their card-marketing efforts. The perks can include prime marketing space in high-traffic areas on campus or the use of a school’s name and logo on their cards.

TL: This is the first I’ve heard of these exclusive agreements. Slimy.

Three hundred of the nation’s largest universities collectively pocket more than $1 billion a year on these marketing deals, said Robert Manning, the director of the Center for Consumer Financial Services at the Rochester Institute of Technology, in Rochester, N.Y.

TL: I’d like to know how much the University of Missouri-Columbia pocketed in the early 1990s when I was a student. Hmm…

The New York attorney general’s office is investigating the practice nationally, but Benjamin Lawsky, a deputy counselor with that office, provided few details of the probe in recent congressional testimony. “I think when those provisions in these agreements become public, sometime relatively soon, I think it will shock many people, the kinds of relationships that some of these credit card companies have with the schools,” Lawsky testified.

TL: Andrew Cuomo’s office is on the job again. Is this guy a hero conscientious higher education folks, or what? I love how the guy is trying to expose the corporatization of higher education.

The agreements usually are confidential and often require the school to provide students’ personal contact information, such as telephone numbers, e-mail addresses and home addresses. That can lead to a deluge of card offers. While most issuers frown on applicants with shallow earnings and sparse credit histories, college students with similar attributes are coveted as potential long-term customers whose earnings will increase with time.

TL: As we’ve seen with the subprime mortgage crisis, lending institutions are in it for the buck. I think every bank in the U.S. should contribute to a rainy day fund for 20-somethings with a college education who get in a financial bind. Every person with college credits under 20 should be able to proportionally withdraw (based on their credits) from this fund if they get into X amount of debt.

So students face aggressive card promotions on campus, where they’re vulnerable to a host of marketing tactics.

One company offered free rides in a bicycle taxi if students watched a video pitch for its credit cards. Others set up tables around campus and offer free T-shirts, movie rentals, music downloads, Frisbees and even food if students fill out card applications.

TL: Wow, the perks have gone upscale. It was only t-shirts in the early 1990s.

Experts say these temptations can make an already-difficult decision even harder for young adults with little financial know-how. “It’s practically impossible to be a decent consumer and have a normal thought process when you’re staring at a steaming hot piece of pizza,” said Christine Lindstrom, the higher education program director with U.S. Public Interest Research Groups.

TL: New motto: A steaming hot piece in college will only get you into hot water later! But seriously, Ms. Lindstrom, your point is well-taken, but the steaming hot pizza analogy is a bit overboard.

John Velasco never had such conflicts. Velasco, 22, was a sophomore at West Virginia University when ads drew him to a promotion offering pizza to students who took part in a five-minute survey. “The [ads] never said a word about credit cards,” Velasco recalled. It wasn’t until he reached the front of a long line that he realized that the “survey” was a credit card application, and he couldn’t get pizza unless he filled it out. “I said, ‘No way.’ I’m not going for that. It was ridiculous,” said Velasco, who now attends State University of New York’s Albany campus.

TL: Dear John: Was the pizza ridiculous (i.e. Hawaiian or with anchovies), or the application? I mean, was the slice too small and the app. too large, or did the survey-bait-and-switch bug you?

Card industry representatives say that the vast majority of college students share Velasco’s discerning judgment.

TL: Uh, “discerning judgment.” You mean you count on bait-and-switches to help you figure out if the applicant will be good one? Do you go harder for those who figure out your mini-shell game? I mean, they seem to be the kind of discerning consumer you want. … … No, you want the sucker.

Andrew Kunka charged $4,000 to his credit card several years ago to help pay tuition at Loyola Marymount University in Los Angeles. Now a first-year law student at Rutgers University’s Newark, N.J., campus, Kunka struggles to make the minimum payment on the card, which is nearly maxed out.
“I feel like credit card companies target us because we really have no financial awareness,” said Kunka, 22. “We’re barely out of our homes, barely having experiences as adults, and they throw these things at us and they don’t make you aware of what you’re signing into.”

TL: This is both sad and revealing. It’s tempting to call Kunka a smart person who’s just going to have to take his lumps: some will say he should’ve known better. But I was much like Kunka at his age: apparently smart enough, but not savvy with my dough. The problem is especially acute if you come from a poor family. When that’s the case, even one’s financial aid package seems like a money to you. It’s tempting to spend more than you should because you can, for the first time in your life. Note to Kunka: use your next financial aid payment to help pay down your card and live on Ramen noodles in the fall term. Do this until you can’t stand it.

“Certainly there are examples of students who took on more debt than they were ultimately able to manage, but in the vast majority of cases, students are acting responsibly in meeting their obligations,” said Kenneth Clayton, the senior vice president of the card policy council of the American Bankers Association.

TL: Mr. Clayton, show me the numbers that back up your claim.

In testimony before Congress, Clayton told lawmakers that credit cards helped cash-strapped students stay in school, build their credit histories and provide a financial safety net in emergencies. He said that imposing new restrictions on marketing cards to college students would hurt many responsible students who need them.

TL: True. Now, Congress, make a move to increase aid and control education costs so students do not need those cards. Oh, and Mr. Clayton, if you’re only concerned about helping students build credit histories, then make a move to restrict the debt ceiling. Make Mr. Kunka’s $4000-in-debt situation impossible by restricting his debt limit to $1000.

In addition to the two-thirds of college cardholders who pay their balances in full each month, the rest keep an average balance of $452, down from $559 last year, according to a recent survey of college students by the Student Monitor, a market research firm.

TL: This is fine, but how are they defining “college cardholders”? How many of them are full-time students in the 18-25 age range? We all know that many “students” are older, perhaps getting credits as adults and going part-time, or even graduate students. What about the key population: young, vulnerable, full-time students?

Recently, U.S. Public Interest Research Groups student chapters at 39 schools launched a “Truth About Credit” campaign to tighten card-marketing rules on campus. The groups are urging school officials to adopt a set of six principles for responsible card marketing. …[Christine] Lindstrom [of PIRG] said negotiations were ongoing and that schools might adopt some or all of the standards, which are supported by the American Council on Education, the National Association of College and University Business Officers and Student Affairs Administrators in Higher Education.


A big thanks for Mr. Pugh for outlining what’s sadly becoming a perennial topic. If only we could get things to the point where this is not a problem.

And it’s nice to see PIRG doing something other than hounding me on campus about “whether I have time for the environment?” I sympathize completely with their aims on that subject, but they’re a bit pushy themselves. I hope they’re not just bitter because card companies are crowding them from prime campus spots for student solicitations/accosting.

Anyway, I hope that Congress and well-meaning folks, like those associated with PIRG, will continue working to reduce the number of credit card pushers and student junkies on campus. This should’ve never become a problem. – TL

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