College students' credit-card debt spurs concern

WASHINGTON — 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.

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.

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, who's 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."

In recent congressional testimony, a card industry representative said stories such as Kunka's were aberrations and that two out of three students paid their card balances in full each month.

However, 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.

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.

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

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.

The agreements are usually confidential and often require the school to provide students' personal contact information, such as telephone numbers, e-mail addresses and home addresses.

This 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.

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.

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.

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.

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

"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.

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.

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.

The survey also found that the number of students with credit cards in their names is declining because of the increased use of debit and ATM cards, that more than half of respondents had cards before entering college and 82 percent thought they were responsible enough to have cards. However, 42 percent said they needed more credit education from their first card issuers.

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.

The principles call for banning gifts for filling out for card applications, requiring card promotional material to meet school posting regulations, increasing student financial education, denying access to student contact information, forbidding card companies from sponsoring student groups and school departments, and discouraging credit card terms that take advantage of students.

Lindstrom 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.

On the Web:

A report on concerns about on-campus credit card marketing

>More information about choosing the best card for college students

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