NCSL LegisBrief
Briefing Papers On the Important Issues of the Day
College Students, Credit Cards and Debt
By Kelly Anders
April/May 1999
Volume 7, Number 23
While attending institutions of higher learning, many college students are amassing
mountains of credit card debt. Despite their lack of existing credit and their lack of income, the
credit card industry, attracted by their lifetime profit potential and their naïve willingness
to accumulate a great amount of debt, wants college students. Companies such as Citibank
and American Express Optima each market credit cards on roughly 1,000 campuses.
At tables outside college bookstores and student centers, alongside the student
volunteers recruiting new members or raising money for charity, paid credit card company
representatives hand out frisbees, t-shirts, candy and two-liter bottles of soda as rewards for students who
fill out credit card applications. Students can also apply for credit cards over the Internet.
The credit card application process has become so quick and simple that consumer advocates
fear young people are signing up for cards without understanding their rights and responsibilities.
Credit card debt doubled between 1993 and 1997 to more than $422 billion. Debtors with
low incomes, including college students, are among the fastest growing new users of credit.
Additionally, interest rates on many common campus credit cards are very high, even
higher than industry averages. Wells Fargo's student card rate is 19.8 percent, according to its
Internet site. Although AT&T Universal Card's student rate is 17.9 percent, that's higher than its
current disclosed regular rate of 15.8 percent. Students who miss a payment jump to 23.9
percent. After its teaser expires, the American Express Student Optima Card rate goes to 18.4 percent.
The U.S. Public Interest Research Group conducted a study last spring in which 1,260
college students from 15 campuses from around the country responded to questions regarding their
use of credit cards. According to the study:
- Most students surveyed (69 percent) obtained credit cards in their own names, while
the others (31 percent) said that their parents either paid their primary credit card bills or
co-signed for at least one of their cards. Of those who obtained cards in their own names, only
15 percent reported holding a full-time job when they applied.
- More than half of students (61 percent) responsible for their own bills reported they
had obtained cards at campus tables while fewer than half of those who reported that their
parents helped with payments (41 percent) obtained cards at tables.
- More than one quarter of all students (28 percent) reported paying late at least once in
the last two years. Many banks now extract "penalty" interest rates of 22 percent to 28
percent from consumers who make one or two late payments in a year.
- The same number (28 percent) reported paying their credit card bill late with
cash advances at least once in the last two years. One quarter of these reported using a
cash advance to pay another debt.
- Forty-one percent of all students found credit card education materials "helpful"
or "somewhat helpful." The remainder found them not helpful or unreadable. Some students were harshly critical of "small print" and "deceptive legalese." Other students stated that telephone calls to or from credit card companies were only to obtain payment or aggressively sell add-on credit life insurance, not to offer advice on paying debts.
- The survey asked students how long it would take to pay off a $1,000 credit card debt at
an 18 percent annual percentage rate if one paid only the minimum balance due. Using
a generous 3 percent minimum payment (most credit cards require less) only 20 percent of
all students guessed the correct answer, six years. The most common answer was 10 years
(37 percent). An additional 19 percent guessed eight years and 15 percent guessed four years.
- While 79 percent of students reported using credit cards for many purposes, from
campus expenses to shopping, only 13 percent reported limiting credit card use to emergencies.
In response to criticism, the credit card industry is taking a larger role in educating
youngsters about credit. The efforts include MasterCard commercials aired on MTV that show a
young man's possessions disappearing one by one. A voice threatens: "If you max out on your
credit card and buy things you can't afford, you won't have anything to worry about." The
company developed a pamphlet on money management, "College Fundamentals," which has
been distributed at freshman orientations around the country. And it offers "Master Your
Money" seminars for college students, which includes some credit education.
Visa is touring a new financial management game show around college campuses.
Meanwhile, Sears has launched a starter card with low credit limits and constant reminders to pay on time. Students who apply for American Express cards are required to sign an "I
Understand" statement when they fill out the application form. Students must check off a box next to the paragraph that reads, "I am responsible for paying my own monthly bill by the due date. Not paying my bills can affect my credit record. If I choose not to pay my bill in full, I will be charged interest."
State Actions
There remains concern, however, that these efforts still may not do enough to help
students deal with the competitive credit card marketing that takes place on campuses. Legislation to ban or regulate solicitation on college campuses has been introduced this year in several states, including Arkansas, Massachusetts, New Jersey, Pennsylvania and Virginia.
Some colleges have banned credit card marketing on campus. Others have instituted
credit education programs. At least one college has made a credit card debt seminar part of
new student and parent orientation.
Selected References
Crenshaw, Albert B. "Crash Course On Spending Is Good Send-Off to College."
The Washington Post, Aug. 17, 1997.
McBride, Sarah. The Wall Street Journal. "Misspent Youth: Young Deadbeats Pose Problems
for Credit Card Issuers." Pittsburgh
Post-Gazette, Dec. 8, 1997.
Rubin, Bonnie. "College Students Charge Right Into Valley Of Debt."
The Chicago Tribune, Aug. 16, 1998.
Verzemnieks, Inara. "Credit Where Credit Is Due? Charge Card Companies Flock to
College Campuses." The Washington Post, Sept. 10, 1996.
Contacts for More Information
Heather Morton
NCSL—Denver
(303) 364-7700, ext. 216
heather.morton@ncsl.org
U.S. Public Interest Research Group
Washington, D.C.
(202) 546-9707
www.pirg.org
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