Credit Card Firms Going to College

As students arrive on college and university campuses across the country this week and next, they will find an opportunity to sign up for more than classes, activity cards and parking spaces. They will be offered credit cards--American Express, Discover, VISA and MasterCard.

The pitch is pervasive. Credit card applications are available in college bookstores and in retail shops and bank branches near campuses. They are placed in shopping bags with purchases.

Increasingly, they are handed out by representatives of credit card companies and banks stationed at tables set up on campuses. Eye-catching signs read “Your Credit History Starts Here” and announce “Automatic Approval Programs for Students.”

Parents Can Share Cards

Of course many parents--like the father on American Express’ national TV ads who presents his college-bound daughter with an American Express card in her name--merely add their son or daughter to their own line of credit.

Although the student has his or her name on the card, the bills will still be coming home to the parents each month. With this option, the student has only an extension of his parents’ credit and is not establishing his or her own.

That “additional card” approach, said American Express’ Nancy Muller, vice president of public affairs, is “for parents who want to go a little slower” with credit for their teen-agers.

What may come as a surprise to many parents is that the nation’s 12 million college students, as long as they are 18 years old, have a pretty good chance of obtaining credit cards without a parent’s signature or consent.

Most banks require the student applicant to meet certain criteria--a set monthly income (which can include allowances from parents), proof of enrollment in college (most insist on four-year colleges), class level and major, a checking and/or savings account in good standing, a list of loans and other credit card accounts.

And many companies have stepped up their efforts to appeal to college-age customers. New York-based Citibank, for example, in a concentrated four-year national appeal to collegians, has signed up 1.3 million students as VISA and MasterCard customers from 1,000 campuses.

Easy credit for students, though, does have its detractors.

Many parents aren’t so sure the independent cards are a good idea, and they are concerned that they will have to foot the bill if their son or daughter gets into debt.

Parents have no legal obligation to pay their children’s credit card bills if they did not co-sign applications or agree to underwrite credit charges.

Parents Will Help Out

But industry analysts say that the banks issuing credit to students count on the fact that most parents will bail out their children if they overextend their credit.

There are horror stories: the mother of a USC student who nearly ruined her own credit trying to get her overextended daughter out of debt; a student who had to drop out of school for a semester in order to get a job to pay his credit bills; students who come to financial aid offices asking how to pay off several thousand dollars in credit card bills.

University financial counselors see students in credit trouble almost every day, according to John Hoyt, a supervisor in financial counseling at UCLA.

“It’s not unusual anymore to hear students having such credit card bills that it’s causing them financial problems,” said Hoyt.

“In the last two or three years, we’ve had a larger number of them. Some of them are living (high) off their cards. Three years ago, I never would have seen it.”

Others insist it’s more likely that today’s college students are credit-wise, having used their parents’ charge cards, department store and gas cards before they ever get to colleges and universities.

“Students have gotten a lot of firsthand experience with credit cards in their teens,” said Dave Stewart, a professor of marketing in USC’s School of Business. “The students probably act as responsibly as the population generally. There always is a percentage that will get in trouble with credit.”

“I think students should be given credit cards with low limits when they are in high school, so they will understand at an earlier age what the liability is,” said Spencer Nilson of Santa Monica, who has published the Nilson Report, a newsletter for industry executives, for 19 years.

Most Are Good Customers

For their part, credit card issuers say most students are good, responsible customers, no more likely to get into credit trouble than their older adult counterparts. (Nationally, 3% of people who use revolving credit default.)

According to Muller, American Express studies of student cardholders show that “the performance of people who got cards as students is better . . . than people who got them in later life.”

“Students are financially savvy these days,” said Anne Kortlander, a Bank of America vice president and manager of new business acquisitions, who noted that B of A sees students as “our future really good customers.”

B of A has increased its campus promotion of VISA and MasterCards this fall, and for the first time is including sophomores in appeals on 60 California campuses.

Interest, Fees Vary

But once the decision to apply for a card is made, students should check what’s being offered. For one thing, interest rates on the revolving credit cards like VISA and MasterCard can vary from about 16% to 20%, and annual fees range from none to between $15 and $50.

Both VISA, with 110 million cardholders in the U.S., and MasterCard, at 87 million cardholders, leave the regulating of fees and interest rates to the individual banking firms that market their cards.

Most banks offering VISA and MasterCards offer initial credit limits for students ranging between $200 and $1,000, but will raise students’ credit lines if they establish good records and pay their bills on time.

Security Pacific Bank has a conservative approach to collegiate credit cards and does not set up application shops on campus. It offers students a “collegiate card,” a MasterCard or VISA under which the credit line is “loosely determined by the level in college,” according to Greg Landenburg, a vice president and product manager for college programs.

Under that system, a standard practice with most banks, “a graduate student is going to get more credit than a freshman.”

‘High Potential’ Market

“The college market is very, very high potential,” said Landenburg, “But our approach is cautious. We recognize the opportunity but also understand the risk.”

Unlike MasterCard and VISA, American Express is not a revolving credit card, but requires full payment every month.

With 21.6 million cardholders, it, too, has stepped up its appeals to collegians in the last two years and has expanded its card offerings from seniors and grad students to freshmen, sophomores and juniors. American Express charges $45 per year for student cards.

“We’re finding students are wonderful customers,” said Bank of America’s Kortlander, who noted B of A now has more than 50,000 student accounts.

“They (students) are very interested in establishing good credit programs with us. I go to some of the student booths on campuses and talk with them.

“They’re so much more knowledgeable than 10 years ago. They project an attitude of being more responsible toward personal financial management.”