Paige Reed, a sophomore at the University of Indiana, might not remember everything from her freshmen orientation. She does, however, remember walking through campus when a chipper salesman gave her a fistful of bright orange coupons offering her and her friends complimentary slices of pizza. But by the time she got to Papa John's, a line was coiled around the block. When she finally got inside, she realized that in order to get her "free" lunch she'd have to fill out a credit-card application. "By the time we got in there, we had waited so long for our pizza that we filled out the information," she says. "I didn't think too much then." Soon after, a credit card arrived at Reed's home address, though she says she never used it because she is "too scared" of going into debt.
In that regard she's in the minority among her college classmates, many of whom have spent the past few years signing up for one card after another. Despite the credit crunch, card issuers seem as eager as ever to recruit college students as new customers. "Banks will continue to seek out responsible borrowers regardless of what demographic they represent," says Ken Clayton, the senior vice president of card policy at the American Bankers Association. "With younger borrowers, they have a vested interest in establishing long-term relationships."
Last year, The U.S. Public Interest Research Group (PIRG) created the "Truth About Credit" campaign to educate college students about the aggressive tactics creditors use to market their cards. "We found that they are focusing in a laser-like way on young populations," says Christine Lindstrom, who runs the program. She's referring to the free sandwiches, memorabilia or reward points that are offered to young co-eds almost immediately when they step on campus. Last year, U.S. PIRG compiled the survey results from 40 universities in 14 states and found that more than three fourths of undergraduate students stopped at a marketing table to learn about credit-card offers. Of those, a third were offered T shirts, water bottles, food, even "stress balls" in exchange for filling out a credit-card application. Such tactics work: nearly two out of three students in the 1,500-person sample said they'd signed up for a card.
Bankers insist, however, that less than 5 percent of their new clients come from marketing events on college campuses. Clayton says that many new college-age customers are actually applying at bank branches, through direct mail and via phone solicitations. Students are also signing up online at sites like Creditcards.com that have special sections specifically designed to appeal to college students.
Whether online or off, many of the offers have one thing in common: enticing low- to zero-introductory interest rates that spike to as much as 24 percent once the promotional period ends. It's these cards, and their steep rates that land in the typical college student's wallet for a night out drinking or a Saturday spent shopping. And when one piece of plastic is out of commission, there's usually another card in reserve. The Center for a New American Dream, a group focused on helping Americans spend wisely, found that more than half of American college students signed up for at least four credit cards by the time they graduated. These card-stacked wallets help explain why, according to U.S. PIRG, the average American senior now racks up more than $2,500 in credit-card debt by the time they receive their diploma.
That's a hefty sum to be paying back, especially given today's bleak job market. "This happens because students are new and inexperienced to the marketplace," Lindstrom says. "They're not going to have the savvy to ask the right questions." Chief among those are the rules about rising interest rates and penalties if you're late on a payment or go into default.
It doesn't help that most universities don't do much to educate students about the dangers of debt, let alone regulate the number of credit-card company recruiters on campus. Many schools even sell their enrollment rosters to card issuers for direct-mail marketing. But where some schools are failing, some state lawmakers are picking up the slack. Fifteen states have passed laws that prevent or restrict the ways in which creditors can market on campuses. Among the most recent is New Jersey, where a bill would limit college credit-card offers. If the legislation passes, it will require all students in the state to learn about interest rates, unpaid balances and how long it takes to pay off balances with a minimum payment. Once students pass this course, they'll receive a certificate that they'll have to show to lenders in order to apply for a credit card.
But even in tough economic times, programs like that are sorely lacking. In an era where most college freshmen must learn about sex education and alcohol abuse, financial education has fallen by the wayside at a majority of freshmen orientations. When Reed of Indiana University approached her dean about limiting credit-card marketers, he told her that the school was a liberal campus and wanted to give students options to choose from. Reed's response? She's planning an upcoming event, in conjunction with "Truth About Credit," to educate her classmates. Like the credit-card companies themselves, she'll be manning a table, talking a big game, and handing out gifts like visors to qualified customers. But the only thing she'll be promoting is free information about staying out of debt. These days, that's a deal too good to pass up.