Credit card debt hits college students

By Ashley M. Heher
U-WIRE Washington Bureau
April 16, 2001

It was a crisp October weekend in New Hampshire when Kelly Pearson’s father told her they were going to have a barbecue in honor of her weekend visit home from college.

“Oh really? What are we having?” she asked as her father hit the gas switch on the big black grill.

“Your credit cards.”

Out came Pearson’s wallet and the two carefully extracted the shiny Visa card her parents had cosigned and she had maxed out. Together they tossed it into the crackling orange flames and watched the silver eagle hologram melt and the shiny, but well-used, green plastic drip through the blackened grates.

In October the 22-year-old senior at The George Washington University had rung up almost $9,000 in debt among four different credit cards. Accompanying the ceremonial credit card cookout was an early graduation present from her parents — a $5,000 check to pay off some of the bill.

Now six months later, Pearson’s debt has dropped to about $3,000 between three cards: a gold and blue USAir frequent flyer visa, a silver Citibank MasterCard and a Capitol One visa card emblazoned with a tranquil ocean scene.

“I’m a nutcase with my credit cards,” Pearson said. “I have one of my friends hold two of them — my Capitol One and my Citibank — because I’m trying to pay those down. I had him hide them in his apartment, so not only do I have to call him but I have to physically walk over there if I want to use them. I used to give them to my roommate to hide, but I’d always find them and run them back up.”

According to data complied by the NellieMae financial and student loan company, Pearson isn’t alone in her credit card worries. Seventy-eight percent of college students carry a credit card in their own name. In a credit card usage study of its college clients, the company found that the average student has three credit cards and is carrying almost $2,800 worth of credit card debt. Most troubling to financial managers is the trend toward increased credit card debt. This year’s $2,800 figure is $1,000 higher than the average balance recording two years ago.

While another study conducted by Student Monitor, a New Jersey-based market research group referred to U-WIRE by both Visa and MasterCard officials, disputes NellieMae’s data and shows the average student carries 1.89 credit cards and that the average unpaid balance is $577, financial planners and experts in the credit industry are worried that college students are accruing debt levels well beyond their means.

To Pearson, each of her credit cards has its own personality. She calls the USAir card, notably her favorite, a “bad-ass card.”

“The Citibank, which every college student has, is great because it has an 8.9 percent APR,” Pearson said ticking off the qualities of each of her three remaining cards. “I like to look at the ocean on the Capitol One card. I think about how I can’t afford to go there because I racked so much up.”

Pearson got her first card, in her own name, her sophomore year in college.

“I got it online,” she said. “It was so easy. You can get approved in 60 seconds.”

Now to keep track of spending, she keeps an Excel spreadsheet itemizing her monthly expenditures: $650 a month at restaurants and bars; $500 a month at CVS; $500 a month for rent. Then there’s money for necessities, like her cell phone bill and groceries.

“I charge all this stuff because it’s the mentality I have,” she said. “I can’t fix it. It’s because it’s plastic and you’re not seeing the money being taken away. It doesn’t feel like a real transaction.”

Now working full-time at a law firm, her goal is to have her entire balance paid before starting law school in August. And she hopes to keep it off for good.

Steve Rhode, the president and co-founder of, a non-profit Internet-based credit counseling service, spends a lot of time helping people find a way to manage debt.

“When it comes to credit card marketing, the first issuer that gets that card into someone’s hands wins,” he said. “People hold on to that card. They’re willing to take a risk on college students because many have part-time jobs and may have the bank of mom and dad.”

The problem he finds from mixing college students and credit cards is a lack of education, Rhode said.

“I have college students who tell me they know more about condoms then credit cards,” he said.

To try and teach his own 13-year-old daughter about budgeting money and credit early on, Rhode got her a pre-paid credit card last month.

“I’d rather get her over that thrill of having a card while I have some parental input than sending her off to college and be surprised when she gets a card when she walks by a sorority giving away free t-shirts,” Rhode said.

The main reasons Americans — and often college students — are so dependent on money and the purchasing power of credit cards, are psychological, Rhode said.

“It’s a status thing. We want to fit in, we want to be accepted and to be part of a certain crowd,” he said. “In order to fit in we have to acquire things that make us part of that group. We buy a certain sweater or a certain type of car and it creeps up on us and then we’ve got this huge balance.”

Brian Shane, a 2000 University of Maryland graduate, got his first and only card the summer he worked at Camden Yards in Baltimore three years ago when he signed up in order to give a friend the free subscription gift.

“I decided I might as well use it,” Shane said. “I bought a new printer and some baseball tickets. And all of a sudden I owed $500 and I wasn’t making enough money to cover the whole bill, which is the cardinal sin of credit cards. I started high and just never got rid of it.”

Three years later, he carries a balance of almost $2,000 and has a $5,000 credit limit. He already paid off $1,800 after graduation. To better manage money, he tries to use cash and limit the credit card for emergencies only. But when he was in school, his philosophy was different.

“When you’re a college student and you go to a bar with a credit card, you might as well be getting free drinks all night,” Shane said.

Many students say they feel targeted by the credit card companies because they form the perfect credit demographic.

“I don’t think college students … know what it means to be careful with their money,” Shane said. “It’s like they’re going to have to learn the hard way what it’s like to be in debt. Some people are down right abusive with their cards. It’s easy to pay for something and forget about it for a month.”

Nina Prikazsky, vice president of operations for NellieMae, says her company has noticed an alarming increase in college credit debt over the past six years.

“It’s a fairly new phenomena,” she said. “In recent years, students are coming to use already having four and five credit cards and already having credit card balances and no job. Credit card companies see this as a way to get customers early and for life.”

At Money Management International, the parent company for Consumer Credit Counseling Service, the average client is 29 years old, with eight credit cards and $25,000 in outstanding debt, said Rudy Cavazos, director of corporate and media relations.

“What that tells me is that people had to acquire that debt somewhere and usually we find it is college credit cards,” Cavazos said.

Critics claim the major credit card companies are trying to lure college students in, betting on lifetime brand loyalty. But to capture a new customer, the companies have to take a financial risk by offering credit to students who often only have a part-time job, or no job at all.

But the major credit card companies defend their actions to solicit young users.

“There are plenty of statistics that support the idea that college students are wise and responsible with their credit cards,” said Catherine Cummings, vice president of consumer affairs for MasterCard International. “Overall, our industry experience is that students are responsible users of credit and very conscious that their use of credit today affects their future.”

Cummings cites 2000 data from Student Monitor, a market research firm, which shows 16 percent of college students use their credit cards at least once a month. Fourteen percent use it less frequently. Fifty-nine percent pay their monthly credit card bill in full and of the 41 percent who do carry a balance, 81 percent pay more than the minimum amount due.

Eric Weil, the managing partner for Student Monitor says many college students are often in better financial situations than adults.

“The fact of the matter is it’s been our experience that college students are more responsible managing credit cards and the responsibilities of the credit cards then their parents are,” Weil said. “If you dig a little deeper, you’ll find the percentage of students who carry a balance forward each month is lower than the adult population.”

The reason college students are often better customers is because many student acquire credits to establish credit — not to make more purchases like many adults do, Weil said.

Students need to establish a solid credit rating to rent apartment, buy cars and apply for loans.

At GW, 1999 statistics compiled by GW’s Office of Academic Planning and Assessment, show 62 percent of GW students obtained their first credit cards to build a credit history, according to The GW Hatchet.

Weil claims his data shows a similar trend: 51 percent of students surveyed they first obtained a credit card to build a good credit history.

Nineteen-year-old New York University student Amy Phillips is the type of student Cummings and Weil cite as the model, responsible college credit consumer.

She’s part of the student population that pays off her entire credit card balance regularly. Using her student American Express card, she charges about $200 in purchases each month and pays the balance in full.

“I think it’s something my parents taught me growing up,” she said. “They always told me that it’s bad to owe people money. I sort of developed a paranoia about it, so much so that I won’t buy something I can’t pay for … or won’t be able to pay for by the end of the month, especially because I don’t have a lot of money coming in.”

Phillips got her American Express card about a year ago to create a credit rating for herself.

“You need credit if you want to rent an apartment and I’ve been planning to move off campus,” Phillips said. “I had a check card for a while and it was real convenient to use plastic. I guess I have an overdeveloped sense of responsibility. I’d lie awake at night worrying if I had several thousand dollars in credit card debt.”

But what concerns many financial experts if that for every student like Phillips, there are many more like Pearson who are still learning to control their spending and manage their college credit card debt.

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