Credit card debt on campus

Unprepared students have been increasingly targeted by card issuers, and some lawmakers are taking notice.

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By Jessica Dickler, staff writer

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NEW YORK ( -- Been turned down for a credit card lately? Probably not if you're a teenager with no job and no credit history.

Even at a time when the sluggish economy is being blamed on lenders who gave home loans to people who couldn't afford them, college students remain a prime target for credit card issuers. Experts say college campuses are still flooded with credit card flyers and brochures, as issuers attempt to lure valuable first-time cardholders.

But regulators are hoping to do something about it. The House Financial Services Committee on Financial Institutions and Consumer Credit held a hearing in June to address credit card practices affecting college students.

The legislative panel, lead by Rep. Carolyn Maloney (D-NY), heard from a representative from the credit card industry and consumer advocates including U.S. Public Interest Research Group's student debt program director, Christine Lindstrom.

"Research has documented that students are targeted, indeed, bombarded by credit card company solicitations, in the mail, on the phone and while they are walking across campus," Lindstrom said in her testimony.

Lindstrom cited a 2008 survey by the U.S. Public Interest Research Group which found that 80% of students said they received direct mail from card companies. In addition, 22% said they received about four phone calls, on average, a month from credit card companies.

And such persistent marketing, coupled with a lack of financial experience, leads many college kids into serious debt.

Free gifts with strings attached

Sometimes all it takes are a few freebies like T-shirts, pizza or beach chairs, to get students to apply for credit cards with little understanding of what they are signing up for.

At the start of her freshman year at the University of Arkansas, Aletha Boggs, 19, got a coupon for a free Subway sandwich. When she went to collect her complimentary lunch, she was instructed to fill out a card with her name and address, completely unaware that it was a credit card application she was filling out. A week later Boggs was surprised to find a credit card in her mailbox with a $2,000 limit.

Now, less than a year later, her card is maxed out and she is struggling to pay down the outstanding balance. "I don't really know how to do the budgeting and now I'm lagging behind," Boggs admitted.

Boggs isn't alone. Many students get lured into signing up for credit cards that they don't have the experience to manage, and end up with big bills that they can't pay off at the end of each month.

The average outstanding balance on undergraduate credit cards was $2,169 in 2005, according to student-loan provider Nellie Mae.

Mike Gambino applied for his first credit card his freshman year of college to get a free T-shirt. By the end of the year he had seven credit cards and thousands of dollars of debt.

"I didn't really think ahead," he said.

With a minimum wage job during college, the debt accumulated. Ultimately, Gambino declared bankruptcy at age 26, a move that will cause his credit serious long-term consequences.

Fifty-six percent of undergraduates get their first card at age 18 and 91% of students have at least one credit card by their final year, Nellie Mae reported. By graduation, 56% of students carry four or more cards.

"Undergraduate students and credit cards remain a dangerous combination," Marie O'Malley, vice president of marketing for Nellie Mae, said in a statement.

Cash cow for credit card companies

So why do credit-card companies target a seemingly high-risk group like college students? Despite young adults being perceived as a high-risk demographic, it's still very profitable for issuers to go after them, said Bill Hardekopf CEO,

Young students are an untapped market. They tend to hold onto their first credit card into adulthood. "That's how loyalty is built," Hardekopf explained, making students a prime acquisition target. In addition, the cost per acquisition is low; sometimes all it takes is a free soda or a sandwich to rope in a college student.

Even if they do default, often parents are willing to bail them out, coughing up the dough to pay off their balances, including interest and fees.

In his testimony at the hearing in June, Kenneth Clayton, of the American Bankers Association Card Policy Council, argued that despite conventional wisdom, the vast majority of students manage their credit obligations well.

"Students handle credit as well as, and in some cases better than, the general adult population," he said.

With regard to legislative proposals that would limit or prevent certain students from obtaining credit cards, Clayton urged the committee to exercise caution. He said credit cards are a valuable tool for students, serving as an entry point into the world of credit, and the first step in building a credit history that will one day help them buy a house or get a job.

Changes afoot

While there are a few bills being floated by members of the House and Senate, including Rep. Maloney, to address concerns about credit cards on college campuses, as of yet, none have been voted on.

Regardless of what changes come to the college credit card industry and its marketing practices, a small but increasing number of campuses, like the University of Maryland, College Park and the Rochester Institute of Technology have voted to restrict credit-card marketing to students.

Despite the lack of legislation so far, the national media attention the issue has received in recent years - including some instances of kids who committed suicide to escape credit card debt - may finally be wearing down the industry.

Even some credit card issuers may finally be taking a hard look at their impact on college life. "We are in the process of reevaluating our student card marketing strategies," said a spokeswoman from Discover.

Still, most experts agree that regardless of restrictions, the key to tackling the student debt problem is education - all students need more instruction on the benefits and dangers of credit. To top of page

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