College campuses have a range of policies--some actively work with companies and gain revenue from the marketing of credit cards. Others restrict access to campus property or regulate if card offers are tied to gifts or incentives.
For many students a credit card is a useful tool. Students tend to have expenses related to getting set up to learn (computer books etc) and as such going into debt to invest in future educational gains might make sense. Late night pizzas...not so much. Surveys sponsored by student lender Nellie Mae show more than 3 out of 4 undergraduates have at least one card. Those with cards on average owe more than $2,150. Most get their card their freshman year and many accumulate more than one card.
My own research shows few students look at mandated card disclosures unless directed. They are easily misled to think the introductory teaser APR is the actual APR. Almost none will look at details such as a default rate which might be three times the normal APR if the student defaults on any loan of any kind.
Thankfully most student credit cards have low balance limits. Some students may need these kinds of offers--and to make a few mistakes--to learn some hard financial lessons.
Campuses that limit offers to certain areas might be on the right path. Certainly students seeking a card can find one, but impulse applications at the bookstore might not be as prudent. Limiting free T-shirts, iPods or other features makes sense too--these may become a distraction from the actual terms and conditions of the card.
But most of all students need to learn, after all, and there is more most campuses can do. Simple brochures and email messages are a good start, as are workshops or seminars on financial topics. One small survey I conducted with undergraduates at Cornell University, where many students came from affluent backgrounds, showed more than two-thirds of students would attend a workshop on credit and financial management if it was offered at a convenient time and place.
Parents, or course, play a key role. My surveys show 87% of undergraduates say they learned about financial management from their parents. The number two source: the internet, at 40%. About one-third of the students I surveyed expect their parents to pay their bills for them and another third pay their own bills but have asked their parents for help in the past.
Parents with college students might consider having a regular conversation about credit card debt and budgeting with their kids. When they apply for a card ask questions about the APR and ask them what they think that means. Ask them to tell you about other fees--such as for using the card at an ATM to get a cash advance. All this will focus attention on costly features and details. And let them know your expectations about their spending. Even if you are willing to bail them out in an emergency, be sure they understand you are not a co-signer and the card is their responsibility. Since the majority of students use credit cards for convenience a low balance should be just fine for most students (often $500-1,000, or the cost of an unexpected plane ticket or emergency car repair). Beware that the card issuer may offer increased balance limits over time. Parents can discourage students from taking larger limits and make sure the student knows a larger limit just means larger bills.
With the proper tools, information and support, most students will do just fine with their first foray into the credit market. But parents and university administrators need to pay attention too.
Highlights of Student Credit Card Survey
Cornell University, Spring 2008 (n=182)
Use of Disclosures:
- 40% incorrectly identified the APR as the 'teaser' balance transfer rate
- 32% incorrectly identified APR as not changing or varying
- 40% incorrectly identified late payment fees
- 33% did not understand 'default rate' changes with late payments on other credit cards
Use of Cards:
- 55% used cards for convenience and always paid off the balance
- 15% carried a balance of $1,000 or more
- 20% paid a late payment fee in last 12 months
- 35% report using their card more when they feel stressed
- 75% report it is "very easy" or "easy" to get a credit card
- 10% reported ever being denied for a credit card
- 25% report getting credit card offers in the mail at least weekly
- Most popular marketing features: rewards or bonuses for making charges
- Least popular marketing features: free t-shirts or discounts for signing up
Attitudes:
- 69% report being "very likely" or "likely" to attend a seminar on personal financial management offered on campus at a convenient time
- 36% report "next to my student loan my credit card debt is nothing"
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