College Students and Credit Card Information

The statistics are startling. According to Nellie Mae, a student loan corporation, the average credit card debt among undergraduate college students increased by nearly $1,000 during the past two years. On average, students owed $2,748 in 2000, up from $1,879 in 1998 (USA Today, February 13, 2001). The number of bankruptcies among young people under age 25 has grown by 50% since 1991 ("The New Rules of Borrowing," Consumer Reports, July 1999). According to the Consumer Federation of America report "Credit Card Debt Imposes Huge Costs On Many College Students," about 70 percent of undergraduates at four-year colleges possess at least one credit card. "Revolvers" carry debts on these cards that average more than $2,000, with one-fifth carrying debts of more than $10,000. In 1998, 81% of college students with credit cards had received their first card by the end of their freshman year (see www.consumerfed.org).

College students are tomorrow's newly employed young workers. While most do not earn sizable incomes, their future earnings potential is enormous, making them an attractive target market to creditors. Students can apply for credit cards without an income, co-signers, security deposits, or a credit history. No other type of consumers can obtain credit cards in this manner. College students are barraged by offers of credit through mailed solicitation letters and from representatives of marketing companies who visit campuses. These companies often offer free gifts for filling out credit card applications and hire students to staff tables set up on campus. The students frequently are paid by the number of applications completed and may be very aggressive in their solicitations.

Many students apply for credit cards intending to use them for emergencies while they are in college but find it all too easy to use the cards for impulse purchases. Evidence is mounting that increasing numbers of students are experiencing financial difficulty due to overextended credit. This has caught the attention of university administrators who have begun to see a relationship between high student debt levels, college dropout rates, student loan defaults, and even suicides of indebted students. According to the Consumer Federation of America, indebted students from affluent families are often bailed out by their parents, who then impose strict financial discipline. Students from families with more modest incomes, on the other hand, are often forced to cut back on their course work and/or increase time in paid employment to pay off their debts. A University of Indiana administrator remarked in 1998 that "we lose more students to credit card debt than to academic failure."

An even greater loss to students is the opportunity cost of debt. Money spent on credit card payments is unavailable to invest in a home, graduate education, employer retirement plan or other financial goals. Increasingly, students with high credit card debt are also having trouble getting good jobs because employers are reviewing credit reports. According to the Fair Credit Reporting Act, negative information can remain in a person's credit file for up to seven years. However there is no time limit for information reported in response to an application for a job with a salary of more than $75,000. Given the extent of these problems, some universities have begun to restrict on-campus credit card solicitations and/or review their policies regarding credit card vendors. Rutgers University is in the process of doing this and has initiated a campus-wide financial Education initiative called RU-FIT.