College Students’ Futures Clouded by Plastic
For Charles Hogan, the path to crushing debt was paved with pizza.
Two years ago, while walking across the University of Central Florida campus, he was handed a flier promising free food. All he had to do was apply for an MBNA credit card.
He got his pizza. And now he has three cards with $6,000 worth of debt.
That puts Hogan, 23, at the center of a national debate about whether credit card companies should be allowed to recruit on college campuses. At risk are tens of thousands of students who are increasingly falling into debt, using student loans to pay credit card bills, taking second jobs and, in some cases, dropping out of school.
A handful of states, including California, New York and Washington, have passed laws aimed at curtailing campus marketing.
Not Florida. The state’s university system offers no formal guidance, leaving administrators free to set their own rules -- rules that allow schools such as the University of Central Florida to make money off students’ card purchases.
Through an agreement with MBNA, the university’s alumni association gets a cut of every card purchase. In exchange, MBNA has exclusive access to the campus, handing out trinkets and food to catch students’ attention.
Hogan, a senior from Clearwater, Fla., whose major is creative writing, started with good intentions, wanting only to build his credit score for the future. Although he’s the one who let things get out of hand, he feels betrayed by the giveaways -- free ice cream got him a second MBNA card.
“We’re college students,” Hogan said. “We see free food, we’re definitely going to go after it.”
The alumni association won’t say how much money it gets from the MBNA deal. But Executive Director Tom Messina said it was less than 10% of the organization’s budget.
Although the group makes money off transactions, he said, it gets nothing from balances carried over each month.
“We don’t encourage debt. I don’t ever want to make money off their debt,” Messina said.
But critics argue that’s exactly what’s happening -- at schools in Florida and nationwide -- as students use plastic to buy more than they can afford.
“These kids are facing the most sophisticated mass-marketing system in history,” said Robert Manning, professor at the Rochester Institute of Technology and author of the book “Credit Card Nation.”
Manning and others point to studies such as one done last year by student loan provider Nellie Mae. It showed that 56% of seniors carried four or more credit cards, compared with 15% of freshmen. The average balance for seniors was $2,864, compared with $1,585 for freshmen.
Still, the average outstanding balance for all students has declined slightly since 2001, to $2,169 from $2,327, according to the study.
The push to reach college students started in the late 1980s, when credit card companies made their first forays into the lucrative market. Today, bankers say students are among their top customers.
“They tend to be more responsible with credit than the general population,” said Tracey Mills, spokeswoman for the American Bankers Assn., an industry group.
Critics say that’s because parents often pitch in. They accuse issuers of signing up students regardless of ability to pay.
“A college student merely has to be breathing,” said Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group.
Central Florida junior Nicole Stancel still wonders how she managed to qualify for four cards while making $100 a week working at the campus library. Now about $2,500 in debt, she dreams of taking a pair of scissors to her cards. Yet she feels a sense of power as she looks over her small, essentially useless, pile of plastic.
“Someone thought I was responsible enough to have four -- which I obviously wasn’t,” Stancel said.
There have been numerous national efforts -- including failed legislation by Sen. Christopher J. Dodd (D-Conn.) -- targeting campus marketing. Opponents have pushed to curtail giveaways, force companies to offer financial literacy training and make students meet the same credit requirements faced by the general population.
Such proposals have met fierce opposition from the banking lobby, which argues that students have the right to make their own choices.
“These are adults who happen to be in college,” said Mills, the American Bankers Assn. spokeswoman.
Without federal guidelines, college campuses in most states have remained fertile hunting grounds. About 900 universities have enacted restrictions, but often limit only which banks get access.
Universities are getting deals that pay $1 million or more a year, receiving as much as 1% of students’ charges.
The lure has proved too much for Nova Southeastern University in Fort Lauderdale, Fla. The school prohibits credit card vendors on campus but is negotiating a deal with an unidentified bank. The deal is expected to generate money for scholarships and other programs, while giving students access to banking services. In exchange, the bank will be free to use giveaways to market its cards on campus.
“I have no problem with that,” said David Dawson, executive director of university relations. “They’re offering a service that is convenient to students.”
The University of Miami also has an exclusive deal, with Bank of America -- which recently bought MBNA for $34 billion. A university spokeswoman would not discuss the agreement, saying only that it lets the company onto campus several times a semester to solicit students.
Bank of America spokeswoman Julie Davis downplayed credit card marketing, saying the bank offers all of its services, including checking accounts.
“We don’t go out and specifically target students with credit cards,” Davis said.
Although such deals draw harsh criticism from consumer advocates, educators quarrel among themselves over their own roles in students’ lives.
How far, they ask, should a university go to protect students?
Paul Gregg is a Central Florida finance professor who has criticized credit card practices, including the ease with which credit is granted. But he stops short of criticizing the MBNA agreement.
“I would not say that [the university] has any blame here,” Gregg said. “This is college, not high school. These are young adults.”
But others say many students arrive on campus, away from home for the first time, with little preparation for the responsibility of having a credit card.
“We are not here to protect them,” said Deborah Thorne, an assistant professor of sociology at Ohio University, which prohibits marketing. “But I don’t think we should throw them to the sharks and make money off their ignorance.”
Fighting that financial ignorance is what Larry Chiang, founder of United College Marketing Services, says his company does.
Every year, it conducts about 10,000 credit seminars on the nation’s campuses -- all while trying to get students to apply for credit cards from the companies it represents.
Chiang’s argument is simple: Credit cards are a crucial tool for building a credit history. “They are dangerous, yes,” he said. “But what about the fact that you can qualify for a mortgage a year out of college?”
That’s what attracted Fabian Richards, 23, to his first credit card. The electrical engineering senior at Central Florida has used it for a variety of things, including a Colorado ski trip, but only spends what he has in the bank.
“It’s strictly to build credit,” Richards said. “I’m very careful with that.”
But then there are students such as Cassandra Jean, 23, who also had good intentions.
Now, bill collectors start calling her each day around 8 a.m., trying to recover the $3,000 she owes on four maxed-out credit cards.
Jean, a Central Florida senior, has a part-time job. But even with her earnings, she has just $100 to spare after paying her rent.
“It’s pretty frustrating and stressful,” she said. “You’re reminded every second of every day. They just want their money.”
