College Grads Crippled by Credit Card Debt

Many experts have predicted that our economy is moving into a recession and as the economy declines, it will become even more important for college students to graduate with as little credit card debt as possible to enable them weather tough times. A recent article in the Washington Post stated that college students can least afford to graduate with debt these days with an unstable job market. Many college students are crippled with debt. They graduate with credit card debt as well as student loan debt and in today's economy they may not be able to find a job immediately upon graduation. In spite of these facts, research shows that college students continue to accumulate credit card debt.

A recent study by the US PIRG Education Fund showed that nearly two thirds of students reported that they had at least one credit card. Seniors reported carrying more than $2,500 of credit card debt. This debt was incurred to pay for college expenses as well as living expenses. Students reported using credit cards for "day-to-day" expenses (55%) and books (55%). The next highest categories reported were "weekends and pizza" and emergencies.

As college costs continue to soar, college students are increasingly turning to credit cards to cover costs. The US PIRG survey showed that nearly 25% reported that they used their credit cards to pay for tuition. Last week two major financial institutions announced plans to curb private student loans and this move will likely force even more students to turn to credit to finance their college education.

In spite of the dire situation, there are efforts to help college students escape the credit trap. Financial education coupled with sound policy and less credit card marketing on campuses could help college students avoid the credit card trap.

Many consumer advocates believe that financial education is important because students often don't understand the obligations and long-term impact of credit cards and as a result, some universities are beginning to incorporate financial education into their freshman orientation.

• Credit card issuers are exploring ways to educate college students who apply for credit to help reduce the number who ultimately fall into trouble. The Center for Financial Services Innovation documented the results of a pilot program of three credit card issuers--Target Financial Services, U.S. Bank, and Wells Fargo. The results showed that although engaging cardholders in educational activities was challenging, early intervention seems to hold some promise for improving credit behavior and reducing delinquency.

• Recently several policy makers are taking steps to address this issue. Senator Robert Menendez (D-NJ) introduced a bill that requires consumers under age 21 to "opt in" before they could be the target of credit card solicitations. Carolyn Maloney (D-NY) and Barney Frank (D-MA) have introduced a similar bill in the House that addresses complaints that card issuers manipulate their mail to result in late payments even when consumers pay on time.

• Additionally, universities are stepping in to ban credit card marketing on their campuses. College students are frequently enticed to open credit card accounts on campus with the lure of free gifts. The US PIRG study shows that 76 percent of students stopped at tables on campus to apply for a credit card and nearly one-third were offered a free gift. Increasingly, college campuses are banning these practices.

These efforts are all important steps to help college students avoid the credit-card trap and enable them to graduate without a debt load that will certainly burden them and threaten their financial future.