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Student offers cautionary tips to plastic-carrying peers

By Hope Green

Each fall, as predictably as geese fly south, credit card marketers flock to city sidewalks and peddle plastic to unwary college students. The sales pitch, luring prospective customers with free T-shirts, Frisbees, and phone cards just for signing up, can be irresistible. It's also inescapable: credit card offers appear in everything from Internet pop-up ads to magazine blow-in cards.

Critics of the industry say the advertising blitz has worked all too well. Today the average college undergraduate holds four credit cards, and the media has reported an increasing number of students dropping out of school when their debts get out of hand.

Fortunately there is no rash of bankruptcies here, according to Boston University administrators. But students may not realize the long-term risks that debts can pose to their financial health. Many don't know, for instance, that a poor credit history can affect the ability to secure a loan for graduate school, finance the purchase of a new car, rent an apartment, or even get a job.

This semester a College of Communication senior is helping her fellow students become better money managers through a MasterCard peer education program called Are You Credit Wise? Jessica Morganoff (COM'02), who is serving as an instructor in the program as part of a public relations internship, counsels students individually and in workshops. Recently she made a presentation to a small group of undergraduates at BU's annual Career Expo.

"The biggest thing that surprises the students I talk to," she says, "is that every time they sign up and get the free T-shirt, they really are applying for a credit card, and the spending limit on that card goes on their credit report. And then when they apply for a loan, they don't understand why they're not getting approved. That's the real issue, not that college students are in severe debt, but that they are opening up all these accounts without realizing it."

Lenders, she explains, fear that a student with an excessive number of cards has the potential to rack up unmanageable debt loads and is consequently a poor risk for any new type of borrowing. This perception may exist even if the student currently has a zero credit balance.

Morganoff reminds students that over time, they can lose large sums of money in interest charges. She describes the consequences of a $1,000 purchase paid off long-term at 19 percent, a rate typical of what students are charged. Making the minimum monthly payment of $15, she says, it would take eight years to pay off the purchase -- and add $843 to the original cost.

"Developing good money-management habits early will benefit students well beyond graduation," Morganoff says. She adds that her workshops "are geared to people who are already being somewhat responsible, not people who are in severe debt, because most college students are not like that."
National statistics, however, show that student debt is on the rise. According to a survey conducted by the Nellie Mae Corporation, one of the country's largest providers of government-supported student loans, 78 percent of students carried charge cards in 2000, as compared with 67 percent in a 1998 survey. During those two years the average debt for student cardholders increased from $1,879 to $2,748.

A substantial 9 percent of the cardholders in 2000 carried debts of more than $7,000.

"One of our concerns as a student loan provider is whether this additional burden students take on will affect their ability to pay off their loans once they get out of school," says Marie O'Malley, marketing vice president for Nellie Mae. "It's a little early to tell."

Student loan default statistics have dropped every year since the early 1990s, she adds, but that could soon change.

"With the shift in the economy this year, it's a little bit scary for us to think that students will still continue to take on the same level of government loans and then add all this credit-card debt on top of that," O'Malley says. "Some of them are having problems finding jobs for the first time in about eight years. We don't know how that's going to affect their overall consumer behavior and their ability to manage their debts, specifically their student loan payments.

"While most college students are fairly responsible," O'Malley adds, "we are concerned about that 9 percent who have balances over $7,000. We have to educate them or help them manage their spending behavior while they're in school."

BU cautions freshmen about the hazards of credit card solicitations each year at orientation. The message comes with a dose of humor, courtesy of the Wellness Center's educational comedy troupe, the PEN (Peer Education Network) Players. In a two-minute sketch, representatives of a bank and a credit card company set up shop on a busy city street and urge passersby to stop and fill out a form, offering complimentary CD cases, T-shirts, and pens. They tempt potential customers with free checking accounts and cards with low introductory interest rates. Every so often a bell rings and a narrator steps in to offer consumer caveats.

"Food, gas, and regular expenses should be paid for with cash," he says at one point. "Who wants to finance a gallon of milk for seven months?"
Another source of consumer education for students is the University's Office of Financial Assistance. Before students receive loans through the University, they are required to attend a counseling session informing them of their rights and responsibilities.

"We talk about credit cards and warn them about how accumulating too much debt can jeopardize their future," says Barbara Tornow, executive director at the aid office. "Many students don't realize that there are actually professional and medical schools that won't admit them if they have debt problems, because they know these students have compromised their ability to obtain student loans.

"My concern, too, is that students are borrowing on credit cards when they could use much better sources of credit through subsidized loans with a special student rate," she adds. "Credit cards are a more convenient way to pay for things, but very often not the best way."

In addition to counseling sessions, Tornow's office provides information for aid recipients on the Internet. She is considering adding links to the Web site that will focus on the prudent use of credit cards. "I think students need to be better informed," she says.

Meanwhile, BU has banned credit card merchants from campus buildings, according to Herb Ross, associate vice president and associate dean of students. But vendors persist in their sidewalk campaigns.
"We try to monitor the real-time, in-your-face solicitations," Ross says. "We've been doing our best to keep them under control."

2 November 2001
Boston University
Office of University Relations