Washington, D.C. — This morning, the Consumer Federation of America (CFA) released a 90-page study by Georgetown University sociologist Robert Manning on student credit card debt. The study indicates that previous research has underestimated the extent of this debt and related problems, including suicides of indebted students.  The study also reveals how aggressive, seductive, and effective the marketing efforts of credit card issuers have become.

CFA called on issuers and cardholders to exercise more responsibility, respectively, in the distribution and use of credit cards.  “For a start, Congress should pass legislation permitting only those minors with parental approval or sufficient income to obtain credit cards,” said CFA Executive Director Stephen Brobeck.  “The large majority of young adults support such a restriction,” he added.

The study, titled Credit Cards on Campus:  Costs and Consequences of Student Debt, was based on more than 300 interviews and more than 400 responses to a detailed questionnaire completed by students at Georgetown University, American University, and the University of Maryland.

Student Credit Card Debt Larger Than Previous Estimates

One notable finding of the study is that student credit card-related debt is larger than previously thought.  About 70 percent of undergraduates at four-year colleges possess at least one credit card.  “Revolvers” carry debts on these cards that average more than $2,000, with onefifth carrying debts of more than $10,000.  But additional credit card debt has been “refinanced” with student loans or with private debt consolidation loans.  At some schools, college loan debt averages more than $20,000 per graduating senior.

Over the past decade, students obtained their first credit card at a younger age.  In 1994, 66 percent of college students with at least one card received their first card before college or during their freshman year; in 1998, 81 percent had received their first card by the end of their freshman year.

Many colleges and universities not only permit aggressive credit card marketing on campus; they actually benefit financially from this marketing.  Credit card issuers pay institutions for sponsorship of school programs, for support of student activities, for rental of on-campus solicitation tables, and for exclusive marketing agreements such as college “affinity” credit cards.  On the other hand, few issuers or institutions support effective financial education of undergraduates beginning with freshman orientation.

Debt Imposes Large and Varied Costs on Students

Perhaps the most striking finding of the study is the huge and varied costs credit card debts impose on students.

• Students, with large debts, who come from affluent families typically are bailed out by parents who then impose strict financial discipline. The greatest costs here are embarrassment and family tensions.
• But students, with unsustainable debts, who come from families with modest incomes are typically forced to cut back on their course work and take or increase time on paid jobs to pay off their debts. In worst cases, these students are forced to drop out of school and work full time.  A University of Indiana administrator said, in 1998, that “we lose more students to credit card debt than to academic failure.”
• Increasingly, students with high credit card debts are having trouble getting good jobs because employers are reviewing credit reports. One interviewee was asked by a major Wall Street Banking firm:  “How can we feel comfortable about you managing large sums of our money when you have had such difficulty handling your own [credit card] debts?”
• The psychological problems resulting from unsustainable debts can be more severe than the financial strains. These problems range from anxiety to a severe emotional crisis resulting in suicide.

Sean Moyer, the son of Janne O’Donnell and a National Merit Scholar, signed up for a credit card his freshman year at the University of Texas.  With a part-time job, he could afford the debt on this card.  But without his parents’ knowledge, he accumulated a Visa, two MasterCards, and nine other store and gas cards.  His parents did not learn that he owed $10,000 until he moved home to save money and work off his debts.  A week before his suicide in 1998, he told his mother that he had no idea how to get out of his financial mess and did not see much of a future for himself.

Around the same time, the daughter of Tricia Johnson, Mitzi Pool, called her mother crying and distraught.  The University of Central Oklahoma freshman had lost her part-time job as a telemarketer and was afraid that she could not make ends meets.  Johnson tried to reassure the frantic 18-year old.  Late that night, police called to tell her that Mitzi had hung herself with a bedsheet.  What Johnson had not known was that Mitzi, whose weekly income rarely exceeded $65, had received three credit cards and run up $2,500 in balances.  “Credit cards and bills were spread out on her bed,” says her mother.  “That had to be what was on her mind.”

“The unrestricted marketing of credit cards on college campuses is so aggressive that it now poses a greater threat than alcohol or sexually transmitted diseases,” said Manning. “Typically, students slide into debt through the extension of unaffordable credit lines, increasing education-related expenses, peer pressure to spend, and financial naiviete reinforced by low minimum monthly payments and routine increases in credit,” he added.

Issuers, Colleges, and Debtors Must Exercise Restraint

The most important measure that could be taken to mitigate this problem would be for Congress to pass legislation restricting minors from obtaining credit cards without parental approval or an adequate income.  In fact, in a national opinion survey conducted by Opinion Research Corporation International in April, 79 percent of those between the ages of 18 and 24 supported such a restriction.  The most important reason was summed up by one interviewee: “The credit card industry knows exactly what it is doing [in encouraging debt] while taking advantage of students who are trying to learn how to adjust to living away from home, often for the first time.”

But it would also be helpful if card issuers and college administrators took more responsibility.  The former should limit the total revolving credit extended to individual students (certainly to no more than 20 percent of their incomes unless parents co-sign for the debt). College administrators should not accept subsidies from issuers, should severely restrict credit card marketing, and should insist that the quid pro quo for marketing is effective financial education for cardholders, especially during freshman orientation.  As a Georgetown University student noted:  “We don’t need another AIDS awareness program during freshman orientation, by now we know how to protect ourselves, but credit cards…that is the information that we need and don’t get.”