Credit Cards Going Back to College Along With Students
Joe College is a new breed. Gone are the ragged trench coats, the letters home begging for cash advances. Half of today’s full-time college students have credit cards.
It makes sense. College kids, with their youth, their eagerness, their expectations and their expenditures, offer card issuers a new market, and card issuers offer what today’s kids apparently want most--money, and a credit history.
Still, something here might give one pause. Some people question whether kids should be given credit, never mind credit histories, before they’re earning incomes. Others say that in our credit culture, it’s already too late to ask such questions.
The vigorous pursuit of college students started several years ago, when card issuers, facing a saturated market, saw a new way to increase their market share. “A college student has the perfect profile for any product,” says K. Shelly Porges, Bank of America’s senior vice president of retail product management. Surveys indicate that they have $7.5 billion and maybe more in discretionary income; they fly, they vacation abroad, and, says Porges, “they spend billions of dollars on entertainment.”
Issuers Limit Approach
They’re also likely to be tomorrow’s high earners, wanting higher credit lines, car loans, home mortgages and other financial services. And because consumers tend to use most the first card they get, everyone wants to be “the first card in their pocket,” says Ed Skonicki, vice president for card acquisitions at Citibank, which has 1.4 million student cardholders.
Wanting beginners, but not bad risks, many card issuers limit their approach. The students must be enrolled full time, and generally in four-year colleges--indication “of having passed a major life hurdle,” says Leo Toralballa, senior vice president for personal card acquisition at American Express. It also indicates greater commitment, personal and financial.
Most card issuers mount what Porges calls “major initiatives” during registration, setting up tables, signs, “take one” displays, putting flyers in bookstore bags. They also do mailings to commercially marketed lists of students compiled from campus phone directories.
Kids, of course, welcome the cards as “their entry into adulthood,” says Ken Chenault, consumer card group president at American Express, whose half million students constitute a fifth of new cardholders. “It’s a badge of distinction, (marking them) as responsible, productive consumers.” They like establishing a credit history early in life and find the cards immediately useful, “as identification to rent a car perhaps,” says Skonicki, “or to stretch your budget.”
Card issuers may well be liberal about acceptance, taking a high proportion of such applicants. “In fact,” says an American Express letter, “it’s actually easier for you to qualify for the card now, while you’re still a student, than it will be at any other time.” (Citibank may be unusual, turning down half its applicants.)
Limits Vary
Most require only proof of age (18 in most states), enrollment and income ($200 a month will do for B of A, after rent, tuition, utilities and food expenses) from job, parents or other funding, plus a clean, if empty, credit history. Students may then be limited to a credit line of $300 to $500, although the Discover card allows them its standard $1,000-$3,000, and American Express has no preset limits. (American Express also requires full payment every month, unlike standard credit cards.)
Whether college students can handle credit--once a privilege granted those who have already proved financial responsibility--is another question. Card issuers say the college market performs well, at least for them. Collegians as a group have fewer delinquencies than the general portfolio and are even “profitable,” says Skonicki, “but not as profitable as the regular portfolio.” Students tend to “revolve” more (carrying over balances, and incurring finance charges) but charge up a lot less.
But “the problem is not that college kids are abusing the cards,” says Les Kirschbaum, president of Mid-Continent Agencies in Glenview, Ill., a national collection agency that is beginning to see more collegiate delinquencies. “It’s the mind-set they’re developing at a very early age, getting used to (using credit) when they don’t really need it. There’s no education.”
Indeed, providers tout the college credit card as a Head Start for financial life but offer little tutelage. Brochures naturally emphasize benefits over responsibilities, the “ease,” “choice” and “purchasing power” of card membership. Students get the same minimal explanations of terms as everyone else, nothing specific to their age and inexperience, and nothing very compelling--at best a brief, perfunctory piece in an American Express magazine on “Controlling Credit,” recommending that they “limit consumer debt to about 15% of after-tax income” and stuffed between more colorful stories on student theater and getaway weekends.
Real education would explain how credit works, what it costs, and when or how to use it wisely. Kids starting out could also be told, says Michael Sedgwick, a Los Angeles certified public accountant, “that it’s a very expensive source of credit, and one that helps unsophisticated, inexperienced people fool themselves about the amount of money they have.” Real financial responsibility, says Redwood City financial adviser Robert Ortalda, is “putting aside money for the things you want. In the short run, (these cards) will teach kids how to scramble around and pay off later.”
But issuers say today’s college students are already knowledgeable about credit because “they’re coming from backgrounds where their parents have had credit cards,” says Bill Hodges, senior vice president of marketing for Discover cards. And the old rule about saving money and spending only what one has is simply passe. “To think we’re a cash-based society is kind of foolish,” says Skonicki. “We’ve moved to being a society dependent on credit and cash, and the right mix of the two.”
Given today’s world, if education is the question, says Spencer Nilson, who publishes a Santa Monica-based newsletter for credit card executives, “we should be giving cards to high school students, teaching them what credit is and how to use it, within limits, like teaching them to drive.”
