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Student debt rising, survey says

Feb. 28, 2001

Companies are targeting 'lower-income markets'



Anyone with a mailbox and a phone knows what it is like to be solicited by a credit card company these days. Evidently it's working.

According to a recent study, the percentage of students with credit cards rose from 67 percent in 1998 to 78 percent in 2000.

The rise of credit cards on college campuses presents many issues that are becoming more prominent as students make purchases on credit. The ease of obtaining a credit card, bankruptcy laws and university participation in signing up students all contribute to growing concerns about consumer behavior at a vulnerable age.

James Roberts, associate professor of marketing, has conducted several studies on student spending habits. He said he attributes the rising numbers of students with cards to the credit card companies tapping into younger and lower-income markets.

Companies want to go younger because people typically keep their first cards the longest, which builds brand loyalty. Also, companies believe college-educated workers are more likely to pay down their monthly payments in the long run.

Short term, however, the average student credit card debt has increased from $1,879 to $2,748 in two years, according to a recent study by educational loan provider Nellie Mae.

Aside from the fact that the United States is becoming an increasingly debt-reliant society, it is simply easier than ever for a student to obtain a card.

Richard Manning, a credit card industry expert, notes in his book, Credit Card Nation, that it is easier for jobless college students to get approved for a credit card than for full-time, low-income employees.

Bounyasone Sayavongsa, a Fort Worth junior, said he obtained a MasterCard as a freshman, before he had any kind of income. He said he received a pamphlet in his mailbox.

'I got accepted on my first try,' he said. 'No questions asked.'

In a 1986 study by consumer behavior expert R.A. Feinberg, an experiment showed that when a credit card logo is visible on the outside of a store or restaurant, students were more likely to use a credit card. The study also showed that students spend more money at these establishments on credit than they normally would with cash or a check.

'It's just more convenient when you're low on cash to pull out a credit card,' Sayavongsa said.

In Roberts' study, he notes that because students are raised in a materialistic culture, many students, especially low-income students, are driven to compulsive buying to keep up with their particular group of friends.

For instance, students who may not be able to afford a popular spring break trip may be tempted to charge everything on a credit card and worry about it later. Combined with interest, these debts can take months to years to pay off.

Sayavongsa said even though he has found it tough to pay credit card bills at times, students should be responsible when they use their cards.

'I think people with jobs or allowances are more responsible with their cards, but everyone needs to be careful regardless of how much money they make,' he said.

The worst-case scenario for credit card debt is bankruptcy, which will be discussed at length in the second installment of this series. In only two years, bankruptcy among people under 25 has increased from one percent to 8.7 percent, and presents many difficult problems that schools, students and the U.S. Congress are under increasing pressure to resolve.

Editor's note: This is part 1 of a 3-part series dealing with college students and their credit card use.

CREDIT from page 1