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Student debt poses national problem
Archive
dit card industry.
“I was able to land a lucrative internship to rack up $3,000 to $4,000, but I was spending half of my earnings paying off credit card debt.”
Many are not as fortunate to land a high-paying summer job to cover the spending frenzy during school.
In 1997, University of Central Oklahoma freshman Mitzi Pool hanged herself in her dorm room while awash in $2,500 worth of debt. While such an extreme and tragic case is unusual, lawmakers and consumer groups are closely examining the issue of student indebtedness.
According to a student survey conducted by sociologist Robert Manning, currently an adjunct professor at the University of Texas, about 70 percent of students at four-year colleges have at least one credit card with an average revolving debt of more than $2,000.
Manning’s study also estimates that one-fifth of four-year college students possess a $10,000 or higher amount of credit card debt.
The saga doesn’t end for Walstrom. He rectified his credit woes through his summer internship, but during the school year, he returned to his spending ways.
“I was eating out at every night at $20 or $30 bucks a meal, which would add up to $100 to $200 a week,” he recounted. “There are a lot of great restaurants in Pittsburgh.”
Walstrom found that when he was near his credit limit, credit card companies would extend his limit. Because he continued to pay off his minimum balance, plus whatever his means would allow, he appeared to be a successful borrower for the creditors.
Secondly, companies would offer Walstrom new cards with lower interest rates and an option for a balance transfer.
“It appeared to be effective income, when it really isn’t. You still have to pay off the old balance at the previous rate.”
While cases of extreme credit card debt do occur, Carnegie Mellon has been particularly adroit at avoiding the problem. Dean of Student Affairs Michael Murphy said the University and students have examined the issue in the past.
“It was an issue that came up last year. We didn’t have particular evidence that (student credit card debt) made it a concern, but we did do a piece that tells people how to deal with credit card issues.”
The group published a pamphlet included with bookstore purchases to advise students how to examine credit card applications intelligently.
Myvesta.org, a Maryland-based non-profit credit relief organization, found that 430 colleges have banned credit card marketing on campus. Several schools have restricted access to the student population to their affinity card company.
SELLING TO STUDENTS
Many opinions exist as to why students are the recipients of enormous lines of credits. The Web site of Market Source, a company dedicated to marketing products to college students, states “The nation’s 15.5 million college students are impressionable consumers who spend nearly $105 billion a year
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on a wide range of consumer goods and services.” According to a 1998 Campus Monitor study, college students have about $19 billion in discretionary spending ability. With such buying power, it is no wonder that creditors are actively seeking to establish a relationship with the youngest group of consumers.
A study in the fall of 1998 by the U.S. Public Interest Research Group found that credit card companies, under the guise of third-party marketers, lure students to sign up for credit cards by rewarding applications with free T-shirts, calling cards and Frisbees — almost essentials for CMU students unwilling to buy trendy clothing and living quite a distance from home.
One on-campus marketer, Citibank, declined to release details as to the effectiveness of the soliciting.
Critics of on-campus solicitation charge that corporations can avoid a great deal of responsibility and organization by outsourcing its on-campus prescence. Third-party marketers, while trained by the corporation or a marketing parent such as Market Source, work on commission. By being third party, they can also have ties with several competing credit card companies.
MARKETING AT CMU
A recent solicitor and proprietor of a company called “Marketing Services” (MS), at CMU said he obtains on average 50 or 60 applications a day. Last Thursday, he filed almost 170. Of those with correct information, he said he collects a $3 commission.
A corporate marketer must pay $150 for a three-day stay at CMU’s campus. The solicitor said the vast majority of applications contain true information. Therefore, if MS filed 40 of 55 applications accurately during each of the three days, MS would amass $320, or a $170 profit.
This past week, a number of first-years were completing their first credit card application. Sean Waters, a first-year in IDS, completed his first form at college in return for a free T-shirt.
Waters opened a credit card account when he first turned 18 in hopes of building a credit history. While accumulating a $200 to $300 a month in credit card debt, Waters has been perfect in paying off his monthly balance.
Suparna Saha, a junior in MCS, typified the CMU response to credit card marketing. “I just did it (filled out the application) for the free phone card. I’ve probably filled out 10 of these since I’ve been here.”
The issue of on-campus credit card marketers is nothing new to Murphy. “The University Student Affairs Council conducted some discussion last year whether or not we should be more restrictive about credit card companies advertising on campus.”
Murphy added that if commercial activity was deemed out of hand by the student body, “I would have no difficulty at all restricting it to a level that students are comfortable with.”
JUST CHARGE MY TUITION
Sociologist Manning contends an “unholy” alliance between the credit card industry and schools is raising prices in all sectors of the colleges. While card companies profit off of a transaction fee in addition to interest payments, they can rake in large amounts on tuition payments. Many parents and students interested in garnering frequent flyer miles often pay tuition and related bills through plastic.
Credit transactions have steadily increased during the four years the HUB has accepted credit payment. This past year, plastic was used 8,000 times at the HUB for an average amount of $3,100. CMU accepted some $25 million in credit payment.
However, some schools have lost money by taking charge cards. Harvard University has stopped accepting credit cards because of the transaction fees.
Manning contends while schools receive monies for affinity cards, students are amassing thousands in credit card debt due to inflated prices for textbooks, tuition and other expenses.
“Students are obtaining a poor credit history. While we experience good economic times, credit card debt is masked by the fact the job market is so good.”
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Copyright c2000 The Tartan via U-Wire