Credit debt in college: Who's accountable?

08:05 AM CDT on Monday, July 16, 2007

By Education Columnist Holly K. Hacker

I confess: I once applied for a credit card just to get the free T-shirt.

Even tried to give a bogus name and Social Security number – in pursuit of an enhanced wardrobe, mind you – until the guy trying to sign me up asked for a driver's license.

So I stopped the antics. But the credit-card companies haven't, especially on college campuses.

Millions of students give their real information to get the T-shirt and the card. Three out of every four college undergraduates carry at least one piece of plastic, and many have four or more, according to one national survey.

Only a handful of students pay off all their cards each month – so by the time they're seniors, they carry an average balance of $2,864.

So much for the "free" T-shirt.

Not that credit cards are inherently evil. College is a great time for students to build a credit history and financial savvy. But college students are easy prey. They're away from home for the first time, learning to make their own decisions. If a company can get students hooked on plastic now, they may stay loyal to that card well into adulthood. They'll get a job, make more money and hopefully charge more, too.

Several states, including Texas, are clamping down on aggressive credit-card marketing on campuses. A law that takes effect in September will let Texas' universities regulate when and where companies can hawk their cards.

Companies that do go on campus must also offer educational materials explaining key financial terms and phrases, money management basics and the like.

As for those T-shirts, tote bags and other swag? Students get the freebies only if they also take the educational stuff.

The new law, pushed by Rep. Dan Branch, a Dallas Republican, seems like sound policy. But will it really make students think twice before signing up for – and then using – credit cards? I'm not convinced.

Making credit-card companies offer money-management tips is like requiring Philip Morris to run anti-smoking ads. The businesses can feel all warm and fuzzy about doing good, but the efforts are hardly sincere. If students paid off their balances every month, they'd be in super financial shape – and the credit-card issuers wouldn't make nearly as much off them.

Limiting times and places for credit-card marketing is a great idea – but many universities already do that. The University of Texas at Arlington allows credit-card companies on campus just two days of the year. And the University of North Texas bans marketing completely on its main campus.

Of course, all the credit-card issuers have to do is set up shop across the street. And they do, often luring students with free hamburgers or pizza.

And the new law doesn't prevent companies from sending students credit-card offers in the mail or over the Internet.

The best answer is for colleges, not the credit-card companies, to teach students about responsible credit use and financial habits. And that's where Mr. Branch's bill looks most promising. It says colleges that restrict card marketing must offer students credit-card and debt education during orientation.

(Yes, I agree – but why not require this of schools that don't limit marketing?)

UNT runs a money-management center to help students learn financial responsibility. The center offers workshops, one-on-one consultation and other services. In its first year and a half, the center has helped 3,000 students.

Texas Tech University has a similar program called "Red to Black," after its school colors.

UNT's center has counseled students with staggering credit-card debts – close to $40,000 in extreme cases.

"They just realize that they have accumulated a level of debt that they're now feeling is somewhat unmanageable," said Paul Goebel, the center's director. For some students, a $200 balance can seem like a million.

The center tries to build on financial knowledge students already possess. But sometimes, counselors discover they're starting from scratch. When counselors ask students the basics about their credit cards – What's your interest rate? Your credit limit? When is your payment due? – they often get blank looks.

The center teaches students that when they charge something on a credit card, they've really just taken out a short-term loan – one that can have an incredibly high interest rate.

Counselors also try to make students think twice about filling out the application on impulse.

"They see us as a partner and an advocate, and that's very different from bringing in representatives from a credit-card company to do a workshop," Mr. Goebel said.

Banks and other companies that issue cards could show some restraint, too, by keeping credit limits and interest rates low.

Or do what the University of California does and prohibit card companies from signing up students on the spot, giving kids time to mull their decision.

But will the credit-card companies go along with any of that?

I wouldn't be willing to bet even a lousy T-shirt.