Credit Cards: Tough Lesson For Students
All the other credit-card peddlers do the same thing, so the brochure from Citibank - stuffed into the plastic bag with every purchase from the college book store - can be considered typical.
On the front are photographs of Citibank Visa and MasterCard credit cards and, in bold print, the reassuring words: NO FEE. NO WORRIES.
Just in case an unemployed 18-year-old with no credit history and no visible means of support was doubtful about the wisdom of taking on credit-card debt, the brochure promises that his new Citibank card “makes life simpler … (so) you can concentrate on the important parts of college life.”
It’s unclear exactly what a credit card does to simplify math tests and the study of English poetry, but getting the card is certainly a piece of cake: “Applying is as easy as writing your name. There’s no co-signer or minimum income required. All you need is a minute and an unchewed pen.”
Once that’s done, students are urged to “just relax. Do what comes naturally at college.”
The sound you hear is the parents of college students falling over in a dead faint.
They know good and well that “what comes naturally” to college students is spending every dime they get their hands on.
No sooner do parents take out a second mortgage to send their kids to college than along comes the country’s largest bank hawking a four-figure credit line to inexperienced and impulsive freshmen.
Make life simpler, the bank says. NO WORRIES.
No worries, that is, as long as the student cardholder pays interest rates that “start” at 18.4 percent. If he or she falls behind on payments and the account isn’t kept in good standing, the rate can be increased by another 3.5 percentage points.
(In many states, anything over 18 percent is usury and illegal. But a recent Supreme Court ruling allows credit-card companies to exceed that rate if they are incorporated in a state with higher limits, or no limits at all.)
It’s easy to see why the debt pushers come on campus: there’s money to be made by luring customers as soon as the law will let them sign on the dotted line.
It’s harder to understand why colleges and universities loose the dogs of debt on their students.
Yet they allow credit-card issuers to come onto school property to solicit customers, pass out brochures in the college book store, even sponsoring credit cards themselves - in effect, handing out free needles.
Though there are no firm statistics on how many students are hooked on credit cards, experts who counsel debtors say the incidence is rising.
“We see young people coming for help and advice, especially in college towns,” says Ken Scott, of the National Foundation for Consumer Credit Counseling in Houston.
“We also see their parents, who try to work out a way of bailing them out so that their credit history isn’t ruined before they begin.”
For students and their families, easy credit can mean individual hardship. But we all pay a price for their debt.
The profits on credit cards are so great - double that of most other banking operations - that issuers have all but abandoned traditional credit assessment in favor of the spray-and-pray method.
They peddle cards to anyone who can sign their name, pray that most of the high-risk customers will pay and charge usurious interest rates to cover those who don’t.
This high-risk marketing explains why, for the first time, bankruptcy filings have continued to rise, even as the economy has experienced the second-longest peacetime expansion in history.
As of June 1, Americans owed $446.7 billion to credit-card companies and spent fully 17 percent of their total after-tax income making payments on installment debt.
Meanwhile, the Federal Deposit Insurance Corp. says the 77 banks that control four-fifths of the credit-card business more than doubled their earnings between 1991 and 1996.
NO WORRIES. No joke.
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