April 2008

Credit card companies hook students early

College students are a prominent target for banks that market credit cards. Visit any college campus and you are likely to pass a credit card representative manning a table covered with applications and free T-shirts or other giveaways.

Students are good credit risks for banks, despite the fact that they have student loans and often do not have jobs. Research shows that students stay loyal to their first credit card and continue to make purchases with it far into the future.

According to Forbes, the amount of credit card debt among students more than doubled between the mid-1990s and 2004 as a result of a massive marketing campaign by credit card companies aimed at college students.

A recent study released by the U.S. Public Interest Research Group (U.S. PIRG) shows that 76 percent of students say credit cards have been marketed to them through tables set up on or near college campuses, and nearly a third of these students have been offered a free gift ranging from t-shirts to blankets to iPods™.

The report criticizes credit card companies' practice of "renting" tables from campus organizations to reach students. Students are given credit card applications and free gifts while they learn about different activities and clubs on their campus.

Typically, the student club gets a flat fee or a commission for every application completed. Club members may also be offered a commission to get friends, roommates, and neighbors to apply for credit cards.

College students also receive an average of five mailings and four phone calls each month urging them to apply for credit cards. U.S. PIRG's findings are based on a nationwide survey of more than 1,500 college students at 40 colleges in 14 states.

Dr. Dorothy Bagwell Durband, the director of the nationally-acclaimed Red to Black financial and budget counseling program at Texas Tech University, says college students need to understand what is at stake when applying for credit cards. The Red to Black program provides peer-to-peer counseling for students that includes personal instruction on establishing credit and responsible credit card use.

"The allure of credit cards is very strong, so as educators we need to make sure students know that credit cards come with certain conditions and obligations," Durband says.

Although it did not reveal how common the practice is, the U.S. PIRG report also condemns agreements that some credit card companies have with alumni associations through which the card issuers gain access to students' names and addresses. USA Today reported that by 2006, each of the largest 10 colleges and universities — through their alumni or athletic associations — had partnered with a bank to issue co-branded credit cards to alumni and students, earning the colleges millions in annual fees.

When asked how credit cards are used, more than half (55 percent) of students reported that they use them for "day-to-day-expenses." The same number (55 percent) reported using credit cards for books. The next highest categories reported were "weekends and pizza" (40 percent) and "emergencies", but very few consumers limited their response to the latter category. Nearly one-quarter (24 percent) reported using credit cards to pay for college tuition.

Durband and other financial literacy professionals realize it is unreasonable to expect students not to use credit cards, which is why it is vital to educate them about credit cards and budgeting.

"It's crucial to understand the implications of every detail," Durband says. "Not only do students need to know their card's APR (annual percentage rate), but they must also be familiar with all the terms and conditions that determine how fees are calculated on their account."

The U.S. PIRG report has drawn the attention of a powerful member of Congress, Rep. George Miller (D-CA), chairman of the House Education and Labor Committee.

"This report shows the extent to which credit card companies are using aggressive marketing tactics to take advantage of college students faced with increasing prices for tuition, textbooks and other college-related expenses," Miller told the Los Angeles Times.

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For tips on how to establish high expectations for students as early as middle school and for assistance in planning for higher education academically and financially, visit www.AIE.org. TG provides this Web site has a public service to help all families and students achieve their educational goals and career dreams.

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