Factors Influencing Credit Card Debt Amongst College Students
Darlington Prince Whyee
English 202
Date 12/8/05
The issue of credit card debt amongst college students is a rising concern across the nation that equally needs a national attention. Addressing this issue in an in-depth fashion may not seem possible due to the duration of this research and due to social economic status transcending among many college students that are either freshman or seniors. While it is important to recognize and commend authors of books and other publications written in respect to this topic, it is equally important to stress that this research will reemphasize on some of the paramount factors that causes college students to plunge into credit card debt.
I have lived in the United States for the past five years now. I came to this country in the year 2000 as an international student from Liberia. Liberia is a country that is economically crippled, underdeveloped thereby creating no room for subject such as credit card debt but the experience that I have had relative to this subject matter is a revelation since my arrival. When I entered college, I thought college was fun. At this moment of my life, making my own decisions seems paramount to me. It seems like I was being emancipated from the “prison” of parenthood, and breaking lose from the shekel of parental restriction. Wow, this was a new life with new exciting experiences. Making friends, going to parties, and other social activities was completely a new experience.
My first year at Lincoln University in the year 2002, introduced me to the other side of reality relative to college life. My introduction to the credit card world was like meeting a beautiful girl with an enticing smile that would hypnotize any man. Walking out of class one day, there were some men in the lobby of Fredrick Douglass Hall. They were dressed in business attire, and they wore big smiles on their faces. These men were distributing pamphlets and gifts to bypassing students. Who are these people? Where are they from? What are they doing here? I was curious to find out. My curiosity led me to approach one of the men and asked these questions. To my greatest surprise, these men were giving out not only pamphlets and gifts; they were giving something more enticing. They were signing students up for credit cards, and like a child, I got curious.
My curiosity was elevated to a supreme interest in getting a credit card that would take care of my basic social spending. This was just a pondering thought that was not verbalize but internally and briefly scrutinized in my mind. From there on, I signed up for two more credit cards, went on shopping spree, use up my spending limit and just like that my joy ride ended. For one minute, it felt like I was at the top of the world. Money was not a problem for me. Just like riding on a roller coaster, eyes closed, feeling the excitement, and enjoying the ride, when it is all over and your eyes are open again, than that is when reality hits you. I was back in prison, prison to credit card debt. However, this story is not about my life, it is about my observation in an academic world circumvented with the changing nature of social inequality. Like me, many other college students have been primary target of the credit card companies.
In The United States, the question “paper or plastic?” often refers to the method of payment rather than to shopping bags. However, no matter what method we use to shop, we are face with the big question of “can you afford it?” students seems to look beyond this question. We look at the financial power of possessing a credit card. We idolize our ability to buy what ever we want with the money that we get from the magical plastic card. With the advantages of carrying a credit card, students are on the contrary, fond of closing their eyes on the disadvantages. Because of this, many students fall into a financial web of credit cards debt.
The credit card companies
It is not in the best interest of this research project to be monotonous in elaborating on the history of the credit card Industry, but it will rather be in the best interest of my readers to be aware of some major historical facts circumventing the credit card industry. During the 1980s, according to research, the credit card industry marketing campaigns successfully expanded into middle-class markets, including blue-and white-collar workers who suffered unexpected employment disruptions due to corporate downsizings and recession-related layoffs. This profitable linkage with lower income households early in the decade-emboldened banks to targets other nontraditional niche markets such as unemployed college students in the mid-1980s, than the working poor and the recently bankrupt with secured credit cards in the late 1980s and early 1990s. (Credit card nation p10).
According to Manning in his book Credit card nation, the results were impressive. As a result of these development, the profusion of credit cards generated rapidly escalating consumer finance charges, merchant discount fees, and, of course, profits. It is also important and interesting to note that between 1980 and 1990, the charges of the average U.S. Household jumped sharply from $885 to $ 3,753 per year, or more than twice as fast as disposable income, while average cardholder debt soared from $ 395 to $2,350. According to Lawrence M.Ausubel, in his highly acclaimed 1991 article “the failure of competition in the credit card market”, credit card issuers earned between three and five times the ordinary rate of return in banking in the period 1983-1988. This extraordinary profitability intensified institutional pressures for bank deregulation that led to the financial services Modernization Act of 1999. (Manning 11).
Over the years since the 1980s and 1990s, College students especially freshman that are just entering college now seem to be the primary target for most credit card companies. Credit cards companies were shifting their attention on a new demography. To new consumer they felt were not too critical of their business strategy and policies. What group of consumers could be more gullible than college students? The word gullible is use here to project a point that as freshman, a student just entering college may not be informed of the negative effect of a credit card therefore they are most likely to accept an afford without first thinking about it. moreover, they are some how not educated to the appropriate usage of a credit card thereby, creating what I will described as a huge and perpetual financial obligation to credit cards companies. Furthermore, college freshman believed that the credit card company primary purpose is to help them with their financial needs while in college. However, in this scenario, students really do not take the time to evaluate a credit card company’s policy before accepting their offer. Because they are not well educated on the subject of an interest rate and what it mean to them and Credit Card Company, the company see it as an opportunity to do business with them. Against this background, it is essential to look at the credit card industry, and unearth the reason why they target college students and why they sell their high rate interest cards.
Research have point to recent public attention to the growing debt and social issues and problems related to aggressive marketing of credit cards to college students has led to excess regional, and national reports on this subject. According to research, there have been series of forums, media institutions, and special programs that have address the issue of college student’s credit debt, and repentant attitudes. In a realistic and considerate point of view, college students are consider informed adults who accept the legal responsibility of credit under their own free will. While this assumption stands to be partially true, on the other side of rationality, banks are also view as profit maximizers that are focus only on capital gain by developing effective marketing campaigns; after all, their so-called job is to loan money and make the highest possible profit for their shareholders.
Credit card companies have abruptly changed their lending policies for unemployed college students based on the lower risk assessment of this market niche. It is important to stress here that Students are now obtaining credit cards with out the involvement of what use to be “co-signers” such as their parents. Moreover, banks have dramatically increased college students credit lines without the traditionally required increase in income. The reason for this policy is that the banks know that students will pay their credit cards with other loans. Banks realize that students will either relied on their family, federal education loans, refunds, or private banks and even other credit cards. The disturbing and shaking revelation about these media investigations are that students’ credit card debt is portray as simply a new rite of passage. Like experimenting with alcohol, credit card debt amongst college students is considered normal as part of college life and youthful inexperience. (Manning Credit Card Nation, 2000)
Simple rules that students fail to follow
There are some key observations during the research that I will like to stress. These observations did not come as a surprise to me simply because I am a student myself. One of the major realizations is that many college students carried at least two to three credit cards. How they manage these credit cards is another important point to stress. Meanwhile, for my interview, I had the opportunity to interviewed four college students. Two of these students are juniors and two are prospective graduates. One of the junior students here at Indiana University that I had the opportunity to interview told me that she is contemplating on taking a year off from school in order to pay off her credit card debt. According to the female college student who is now 24 years old and is, still struggling to finish college said that her credit card debt is now $8,000.00. She said during her first year at Indiana University she had two credit cards. She had a Citi card and Fashion Bug card. The following year Capital One offered her a credit card and a credit card from Discover Card thus, making the total of credit cards she had four. The answer to how she used her credit cards again came as no surprise to me. According to her, every time she went shopping she will spend at least close to $200.00 on her credit card. Things she bought when she go shopping include food and clothing. What seems to be her problem was that she will always go on shopping spree and spend excessively but she was not thinking about paying on her monthly interest. “The credit card companies told me that I can take money from my card” she said to me. According to her, the credit card companies started calling her and writing her, letting her know that she own them. Because she had four credit cards, she was unable to manage her payment effectively. She was stressed and depressed and on one occasion contemplated suicide. Her grades dropped, this resulted to probation on two occasions. Taking money out and not putting it back was her problem and so is the problem of many other students with more than two credit cards.
Students’ inability to payoff monthly interest subsequently causes rate accumulation. As those interest rates accumulate, so is the students’ inability and complacency to pay. Some student will not realize this because they are busy with schoolwork, parties, and other extra curricular activities on campus and really do not have the time to think about future consequences. Though the use of credit card can make the life of students easy, it also has the propensity to make life miserable. Credit card can be a great tool however, irresponsible use of credit cards will cause students to get tangled into the web of credit card debt. Until students learn how to track of all their purchases, spend within their budget, pay off their balances on all of their credit cards at the end of each month, the problem of credit card debt will continue to be a national issue.
Advantages of Credit card
Every student who carried a credit card knows the enormous advantages that come along with it. A student understands that a credit card can make business transactions easier. Some people do not like carrying large amounts of cash with them therefore they prefered using a credit card. in other cases, if a company that your are doing transaction with doesn’t accept cash, the use of credit card is appropriate. Other advantages come in the form of protecin of purcahses-credit cards may also offer you additional protection of something you have bought is lost, damaged, or stolen. Both your credit card statement and the (and the credit card company)can vouch for the fact that you have made a puchase if the origginal receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases.
It is important to note that having a credit card and using it wisely can help in building a credit line. Having a good credit history is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or ven some job. Building a good credit history is manifested in the wise use of a credit card (making payments on time and in full each month). Another important advantage is that credit cards can be useful in times of emergency. While it is the wisest thing to do when avoiding spending outside your budget(or money you do not have), sometimes emergencies( such as your car breaking down or flood or fire) may lead to a large purchase(like the need for a rental car or a motel room for several nights.)
In addition to the benefits mention above, some crdit cards offer additional benefits, such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance). But will serve as a piece of advice to students that while most of these benefits are mean to encourage you to charge more money on your credit card( remember , credit card companies start making their money when you can not afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.(http://www.mtstcil.org)
Disadvantages of Credit cards.
While it is advantageous to the student in respect to having the purchasing power, credit cards also have a disadvantageous side.The biggest disadvantage of credit cards is that they encourage students to spend money that they do not have. Most credit cards do not require students to pay off their balance each month, so even if they only have $100, they may be able to spend up to $500 or $1,000 on their credit cards. While this may seem like 'free money' at the time, they will have to pay it off any way, and the longer a student wait, the more money he or she will owe since credit card companies charge interest each month on the money a student have borrowed.
Credit card companies charge student an enormous amount of interest on each balance that they don't pay off at the end of each month. This is how they make their money and this is how most students in the United States get into debt. If you have a $100 in savings, most banks will give you at the most 2.0 to 2.5% interest on your money over the course of the year. This means you earn $2.00 - $2.50 a year on your $100 savings. Most credit cards charge up to 10 times that amount of interest on balances. This means that if a student have $100 balance that he or she is unable to pay off, he or she will be charged 20-25% interest on that $100. As a result, he or she will owe almost $30.00 interest (plus the original $100) at the end of the year. A good way to look at this is in comparison to what you would earn in interest from a bank or owe in interest to a bank loan. Savings accounts may pay you around 2% interest; if you have a loan from a bank you may pay them around 10% interest (5 times as much as you earn off your savings); if you owe money to a credit card company, you may pay them around 20% interest (10 times as much as you earn off your savings.) Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number (from a receipt, over the phone, or from a Web site) and use your card to rack up debts. If a student do not realize that his or her credit card was stolen and fail to report it to his or her credit card company immediately, he or she will be charged for any purchases that someone else has made. (http://www.mtstcil.org)
Credit cards on Campus and social consequence ( What are the effects and subsequent consequences of a credit cards?)
Athough american have beome inured to the tremendous growth of the national debt and economic consequences of corportate mergers, the newly reported social impacts of students debt stuck a chord in the national consciousness. Most americans had assumed that college administrators were responsible for providing a sage, nurturing environment where parents could expect that their children would acquire the persnonal skills and professional experiences necessary for a rewarding future. Instead , it was natianl revelation that young lives were being ruined by credit card debt that led to droping out of college(misclassified as academic casualities), health problems(physical and emotional), family conflicts, bankruptcy, job rejections(due to oor credit histories), loan denials, inability to rent apartments, professioanl school rejection, and even suicide
According to Manning, in his book (credit card Nation) On June 8, 1999, the consummer Federation of America(CFA) convened a major press conference on stduent credit card debt at the National Press Club in Washington D.C. this conference brought togather leading consumer advaocates, mother of two college students whose credit card debts contributed to their recent suicides, and the release of the first major academic study of student credit card debt that was based on both in-depth interviews and tention to the previously neglected social consequences of credit card debt. The topic was discussed in front-page newspaper stories, magazine articles, TV interfiews, and radio call-in shows.
Athough american have beome inured to the tremendous growth of the national debt and economic consequences of corportate mergers, the newly reported social impacts of students debt stuck a chord in the national consciousness. Most americans had assumed that college administrators were responsible for providing a sage, nurturing environment where parents could expect that their children would acquire the persnonal skills and professional experiences necessary for a rewarding future. Instead , it was natianl revelation that young lives were being ruined by credit card debt that led to droping out of college(misclassified as academic casualities), health problems(physical and emotional), family conflicts, bankruptcy, job rejections(due to oor credit histories), loan denials, inability to rent apartments, professioanl school rejection, and even suicide.
The personal testimonies of parents whose children committed suicide challenged the benign image of student credit debts as a new adolescent rite of passage of the “just do it “ and “shop ‘til you drop” generation. Their anguish resonated with the concerns of all americans who realized that their own sons and daughthers were at risk of the predatory marketing policies of the credit card industry. There is an exaple of a testimony in Manning book “Credit Card Nation” of a mother who deliberated on the death of 22 years old son who sccumbed to the temptation of what is term as easy money. In her confession, this grieving mother talked about the week before her sons death. She said that she had a long talk with him concerning his debts and about his future. In response to his mother concern,the desease told his mother that he had no idea how he was going to get out of his financial predicament and did not see much of a future for himself. This young college student’s dream was to go to law school but did not think he could get a loan to pay for law school simply because he owed so much in his credit card. Sadly enough, this young man went through credit counseling but fell futher behind. According to the book (credit card nation), the student had to transfer from the University of Dallas to the University of Oklahoma in his home town. In order to pay for his credit card debt he decided to work two jobs while going to school. Still he could not mak ends meet. By the time he died he had 12 cards including 1Master card, 2 Visas, Neiman-Marcus, sks 5th Avenue, Macy’s, Marshall Fields, Conoco, and Discover. The deseased mother blasted the credit card companies and adviced that “credit must be based on the appicant’s present income and not on potential to earn” she went on to futher suggest that there simply has to be some limits set on credit card companies.(Manning, credit card nation,p160)
There are many stories of this kind all around the nation. Many parents are not aware of the financial obligation that their children are faced with on campuses. These financial obligation which come as the result of students not paying off interest on their credti cards can sometimes turn into an emotinal mayham. The credit cards companies should be concern but again, they are into money making business. Their initial public relations strategy was to dismiss the sholaraly critiism and its relevance to the public as unrepresentative of natioanl trends and the students suicide and emotioanl problems as anecdotal anomalies. By ignoring the negative publicity, thy gambled on the expectation that the public’s attention would shift during the ummer to baseball pennant races and fimy vacations-financed by friendly credit card of course. However, the the groindswell of opposition to credit card marketing and lending policies led to mounting public pressures for corrective action in the form of federal bills and legistive amendments as well as the introduction of restrictive marketing bills in at least twelves state legislatures. The most prominent federal response is HR-3142, the College Student Credit Card Protection Act, which was introduced by U.S. Congresswoman Louise Slaghter (D-N.Y) in October 1999.
What is the role of the institution in respect to this issue?
According to reseach, additional student groups, parents and alumi have intensified pressure on colleg administrator to ban or restrict credit card marketing on their campuses. As a result, during the academic year 2000-2001, over 800 colleges and universities formulated official policeis that restricted on-campus credit caard marketing,and over 300 other schools were considering similar restriction. According to Manning, significantly, the most effective policies have been instituted by small liberal-arts colleges where the loss of even a few students has social economic reercussions. Converslely, the 250 largest public schools with their highly profitable student populations are where credit card companies most aggessively direct their marketing energies. This includes the threat of potential lawsuits aginst uncooperative universities, persuasive tactics of corporate lobbyist, major donations,and , of course, lucrative marketing contracts. Manning further stipulated that the most prominent example is the seven-year, $16.5millions deal with the University of Tennesse. The latter has provoked greater public scrutiny of “exclusive licensing” agreements with colleges that generate million of dollars in annual fees. In addition to the public scrutiny of college administrators in providing a safe environment for students, there has been greater attention to the role of colleges and universities in promoting complacent attitudes toward personal debt and to the need for effective credit card education and financial literacy programs.
Here at Indiana University, it is obvious that the administration do not have any policy that regulates students use of credit card or interactions with finacial institutions regarding this important issue. From one student that was interview during my reseach, his response to me when asked what must a college administration do to help students avoid credit card debt, was that the administration can not control every student’s choice. He believes that if you enrolled in a university or college for that matter, you are somehow responsible for choices you make even if it is a financial choice. He further stated that there are financial stress begins as soon as the student arrive on campus during his freshman year. One big factor that encourages students to sign up for credit cards is the factor that confront most of us going through the accademic walls. Students worried aobut how to pay for text books, clothing, social expenses and other things that required the use of money such as cell phone bills. Hence, they rather turn to the magic plastic that will help them deal with these worries.
Another senior student that was interviewed during this research also stressed that the issue of credit card debt and the consequencies that college students faced is some how brought upon them by their own neglegence and not by the school that they attend. It is true that those interest rates are unbelieveable at times, but credit cards companies and other financial institutions that give out loans and credit cards to college students only wants to make profit. Moreover, they do not care how, why, and when the students spend the money that is offered them, all they care about is to make their money. As long as the credit card company is gaining from doing business with their client, their only worry is how to collect that monthly payment.
Students must be aware of their financial obligations and must accept the responsiblitities that comes along with their choices. What ever choice or decision we make today, we must not forget that there is a subsequent effect. The choices we make today as students, while we still persue education, will determine our fate after, or before graduation. Moreover, it is not the purpose of this paper to dispute any fact relating to the issue of credit card debt amongst college students, however, to educate students on this topic will help reduce the problem. The Lure of the credit card world is powerful enough already. Only by educating students on the nature of credit card will we succeed in eradicating those bad hobbies that causes students to fall into credit card debt. Joinning the many other writers, and publishers who have writen on this issue, I believe our effort will be well worth the cost.
Works Cited
http://www.chiff.com/a/EC703HSCrC.htm
Caplovitz, Consumers in Trouble A study of Debtors in Default, p85, 2002
http://www.bankrate.com/brm/news/cc/19980605.asp
http://www.collegeboard.com/article/0,3868,2-10-0-9139,00.html
http://www.ericdigests.org/2003-2/credit.html
http://www.ericdigests.org/2003-2/credit.html
Manning, Robert, Staten, Michael, Barron, John, Journal of Student Financial Aid, Volume 35, No. 3, pp. 39-48, 2002-2003
Manning, Robert, Credit card Nation, p11, 2000
http://www.nelliemae.com/library/cc use.html
http://www.pbs.org/wgbh/pages/frontline/shows/credit/
U.S. General Accounting Office, 2001, June, p. 2
English 202
Date 12/8/05
The issue of credit card debt amongst college students is a rising concern across the nation that equally needs a national attention. Addressing this issue in an in-depth fashion may not seem possible due to the duration of this research and due to social economic status transcending among many college students that are either freshman or seniors. While it is important to recognize and commend authors of books and other publications written in respect to this topic, it is equally important to stress that this research will reemphasize on some of the paramount factors that causes college students to plunge into credit card debt.
I have lived in the United States for the past five years now. I came to this country in the year 2000 as an international student from Liberia. Liberia is a country that is economically crippled, underdeveloped thereby creating no room for subject such as credit card debt but the experience that I have had relative to this subject matter is a revelation since my arrival. When I entered college, I thought college was fun. At this moment of my life, making my own decisions seems paramount to me. It seems like I was being emancipated from the “prison” of parenthood, and breaking lose from the shekel of parental restriction. Wow, this was a new life with new exciting experiences. Making friends, going to parties, and other social activities was completely a new experience.
My first year at Lincoln University in the year 2002, introduced me to the other side of reality relative to college life. My introduction to the credit card world was like meeting a beautiful girl with an enticing smile that would hypnotize any man. Walking out of class one day, there were some men in the lobby of Fredrick Douglass Hall. They were dressed in business attire, and they wore big smiles on their faces. These men were distributing pamphlets and gifts to bypassing students. Who are these people? Where are they from? What are they doing here? I was curious to find out. My curiosity led me to approach one of the men and asked these questions. To my greatest surprise, these men were giving out not only pamphlets and gifts; they were giving something more enticing. They were signing students up for credit cards, and like a child, I got curious.
My curiosity was elevated to a supreme interest in getting a credit card that would take care of my basic social spending. This was just a pondering thought that was not verbalize but internally and briefly scrutinized in my mind. From there on, I signed up for two more credit cards, went on shopping spree, use up my spending limit and just like that my joy ride ended. For one minute, it felt like I was at the top of the world. Money was not a problem for me. Just like riding on a roller coaster, eyes closed, feeling the excitement, and enjoying the ride, when it is all over and your eyes are open again, than that is when reality hits you. I was back in prison, prison to credit card debt. However, this story is not about my life, it is about my observation in an academic world circumvented with the changing nature of social inequality. Like me, many other college students have been primary target of the credit card companies.
In The United States, the question “paper or plastic?” often refers to the method of payment rather than to shopping bags. However, no matter what method we use to shop, we are face with the big question of “can you afford it?” students seems to look beyond this question. We look at the financial power of possessing a credit card. We idolize our ability to buy what ever we want with the money that we get from the magical plastic card. With the advantages of carrying a credit card, students are on the contrary, fond of closing their eyes on the disadvantages. Because of this, many students fall into a financial web of credit cards debt.
The credit card companies
It is not in the best interest of this research project to be monotonous in elaborating on the history of the credit card Industry, but it will rather be in the best interest of my readers to be aware of some major historical facts circumventing the credit card industry. During the 1980s, according to research, the credit card industry marketing campaigns successfully expanded into middle-class markets, including blue-and white-collar workers who suffered unexpected employment disruptions due to corporate downsizings and recession-related layoffs. This profitable linkage with lower income households early in the decade-emboldened banks to targets other nontraditional niche markets such as unemployed college students in the mid-1980s, than the working poor and the recently bankrupt with secured credit cards in the late 1980s and early 1990s. (Credit card nation p10).
According to Manning in his book Credit card nation, the results were impressive. As a result of these development, the profusion of credit cards generated rapidly escalating consumer finance charges, merchant discount fees, and, of course, profits. It is also important and interesting to note that between 1980 and 1990, the charges of the average U.S. Household jumped sharply from $885 to $ 3,753 per year, or more than twice as fast as disposable income, while average cardholder debt soared from $ 395 to $2,350. According to Lawrence M.Ausubel, in his highly acclaimed 1991 article “the failure of competition in the credit card market”, credit card issuers earned between three and five times the ordinary rate of return in banking in the period 1983-1988. This extraordinary profitability intensified institutional pressures for bank deregulation that led to the financial services Modernization Act of 1999. (Manning 11).
Over the years since the 1980s and 1990s, College students especially freshman that are just entering college now seem to be the primary target for most credit card companies. Credit cards companies were shifting their attention on a new demography. To new consumer they felt were not too critical of their business strategy and policies. What group of consumers could be more gullible than college students? The word gullible is use here to project a point that as freshman, a student just entering college may not be informed of the negative effect of a credit card therefore they are most likely to accept an afford without first thinking about it. moreover, they are some how not educated to the appropriate usage of a credit card thereby, creating what I will described as a huge and perpetual financial obligation to credit cards companies. Furthermore, college freshman believed that the credit card company primary purpose is to help them with their financial needs while in college. However, in this scenario, students really do not take the time to evaluate a credit card company’s policy before accepting their offer. Because they are not well educated on the subject of an interest rate and what it mean to them and Credit Card Company, the company see it as an opportunity to do business with them. Against this background, it is essential to look at the credit card industry, and unearth the reason why they target college students and why they sell their high rate interest cards.
Research have point to recent public attention to the growing debt and social issues and problems related to aggressive marketing of credit cards to college students has led to excess regional, and national reports on this subject. According to research, there have been series of forums, media institutions, and special programs that have address the issue of college student’s credit debt, and repentant attitudes. In a realistic and considerate point of view, college students are consider informed adults who accept the legal responsibility of credit under their own free will. While this assumption stands to be partially true, on the other side of rationality, banks are also view as profit maximizers that are focus only on capital gain by developing effective marketing campaigns; after all, their so-called job is to loan money and make the highest possible profit for their shareholders.
Credit card companies have abruptly changed their lending policies for unemployed college students based on the lower risk assessment of this market niche. It is important to stress here that Students are now obtaining credit cards with out the involvement of what use to be “co-signers” such as their parents. Moreover, banks have dramatically increased college students credit lines without the traditionally required increase in income. The reason for this policy is that the banks know that students will pay their credit cards with other loans. Banks realize that students will either relied on their family, federal education loans, refunds, or private banks and even other credit cards. The disturbing and shaking revelation about these media investigations are that students’ credit card debt is portray as simply a new rite of passage. Like experimenting with alcohol, credit card debt amongst college students is considered normal as part of college life and youthful inexperience. (Manning Credit Card Nation, 2000)
Simple rules that students fail to follow
There are some key observations during the research that I will like to stress. These observations did not come as a surprise to me simply because I am a student myself. One of the major realizations is that many college students carried at least two to three credit cards. How they manage these credit cards is another important point to stress. Meanwhile, for my interview, I had the opportunity to interviewed four college students. Two of these students are juniors and two are prospective graduates. One of the junior students here at Indiana University that I had the opportunity to interview told me that she is contemplating on taking a year off from school in order to pay off her credit card debt. According to the female college student who is now 24 years old and is, still struggling to finish college said that her credit card debt is now $8,000.00. She said during her first year at Indiana University she had two credit cards. She had a Citi card and Fashion Bug card. The following year Capital One offered her a credit card and a credit card from Discover Card thus, making the total of credit cards she had four. The answer to how she used her credit cards again came as no surprise to me. According to her, every time she went shopping she will spend at least close to $200.00 on her credit card. Things she bought when she go shopping include food and clothing. What seems to be her problem was that she will always go on shopping spree and spend excessively but she was not thinking about paying on her monthly interest. “The credit card companies told me that I can take money from my card” she said to me. According to her, the credit card companies started calling her and writing her, letting her know that she own them. Because she had four credit cards, she was unable to manage her payment effectively. She was stressed and depressed and on one occasion contemplated suicide. Her grades dropped, this resulted to probation on two occasions. Taking money out and not putting it back was her problem and so is the problem of many other students with more than two credit cards.
Students’ inability to payoff monthly interest subsequently causes rate accumulation. As those interest rates accumulate, so is the students’ inability and complacency to pay. Some student will not realize this because they are busy with schoolwork, parties, and other extra curricular activities on campus and really do not have the time to think about future consequences. Though the use of credit card can make the life of students easy, it also has the propensity to make life miserable. Credit card can be a great tool however, irresponsible use of credit cards will cause students to get tangled into the web of credit card debt. Until students learn how to track of all their purchases, spend within their budget, pay off their balances on all of their credit cards at the end of each month, the problem of credit card debt will continue to be a national issue.
Advantages of Credit card
Every student who carried a credit card knows the enormous advantages that come along with it. A student understands that a credit card can make business transactions easier. Some people do not like carrying large amounts of cash with them therefore they prefered using a credit card. in other cases, if a company that your are doing transaction with doesn’t accept cash, the use of credit card is appropriate. Other advantages come in the form of protecin of purcahses-credit cards may also offer you additional protection of something you have bought is lost, damaged, or stolen. Both your credit card statement and the (and the credit card company)can vouch for the fact that you have made a puchase if the origginal receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases.
It is important to note that having a credit card and using it wisely can help in building a credit line. Having a good credit history is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or ven some job. Building a good credit history is manifested in the wise use of a credit card (making payments on time and in full each month). Another important advantage is that credit cards can be useful in times of emergency. While it is the wisest thing to do when avoiding spending outside your budget(or money you do not have), sometimes emergencies( such as your car breaking down or flood or fire) may lead to a large purchase(like the need for a rental car or a motel room for several nights.)
In addition to the benefits mention above, some crdit cards offer additional benefits, such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance). But will serve as a piece of advice to students that while most of these benefits are mean to encourage you to charge more money on your credit card( remember , credit card companies start making their money when you can not afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.(http://www.mtstcil.org)
Disadvantages of Credit cards.
While it is advantageous to the student in respect to having the purchasing power, credit cards also have a disadvantageous side.The biggest disadvantage of credit cards is that they encourage students to spend money that they do not have. Most credit cards do not require students to pay off their balance each month, so even if they only have $100, they may be able to spend up to $500 or $1,000 on their credit cards. While this may seem like 'free money' at the time, they will have to pay it off any way, and the longer a student wait, the more money he or she will owe since credit card companies charge interest each month on the money a student have borrowed.
Credit card companies charge student an enormous amount of interest on each balance that they don't pay off at the end of each month. This is how they make their money and this is how most students in the United States get into debt. If you have a $100 in savings, most banks will give you at the most 2.0 to 2.5% interest on your money over the course of the year. This means you earn $2.00 - $2.50 a year on your $100 savings. Most credit cards charge up to 10 times that amount of interest on balances. This means that if a student have $100 balance that he or she is unable to pay off, he or she will be charged 20-25% interest on that $100. As a result, he or she will owe almost $30.00 interest (plus the original $100) at the end of the year. A good way to look at this is in comparison to what you would earn in interest from a bank or owe in interest to a bank loan. Savings accounts may pay you around 2% interest; if you have a loan from a bank you may pay them around 10% interest (5 times as much as you earn off your savings); if you owe money to a credit card company, you may pay them around 20% interest (10 times as much as you earn off your savings.) Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number (from a receipt, over the phone, or from a Web site) and use your card to rack up debts. If a student do not realize that his or her credit card was stolen and fail to report it to his or her credit card company immediately, he or she will be charged for any purchases that someone else has made. (http://www.mtstcil.org)
Credit cards on Campus and social consequence ( What are the effects and subsequent consequences of a credit cards?)
Athough american have beome inured to the tremendous growth of the national debt and economic consequences of corportate mergers, the newly reported social impacts of students debt stuck a chord in the national consciousness. Most americans had assumed that college administrators were responsible for providing a sage, nurturing environment where parents could expect that their children would acquire the persnonal skills and professional experiences necessary for a rewarding future. Instead , it was natianl revelation that young lives were being ruined by credit card debt that led to droping out of college(misclassified as academic casualities), health problems(physical and emotional), family conflicts, bankruptcy, job rejections(due to oor credit histories), loan denials, inability to rent apartments, professioanl school rejection, and even suicide
According to Manning, in his book (credit card Nation) On June 8, 1999, the consummer Federation of America(CFA) convened a major press conference on stduent credit card debt at the National Press Club in Washington D.C. this conference brought togather leading consumer advaocates, mother of two college students whose credit card debts contributed to their recent suicides, and the release of the first major academic study of student credit card debt that was based on both in-depth interviews and tention to the previously neglected social consequences of credit card debt. The topic was discussed in front-page newspaper stories, magazine articles, TV interfiews, and radio call-in shows.
Athough american have beome inured to the tremendous growth of the national debt and economic consequences of corportate mergers, the newly reported social impacts of students debt stuck a chord in the national consciousness. Most americans had assumed that college administrators were responsible for providing a sage, nurturing environment where parents could expect that their children would acquire the persnonal skills and professional experiences necessary for a rewarding future. Instead , it was natianl revelation that young lives were being ruined by credit card debt that led to droping out of college(misclassified as academic casualities), health problems(physical and emotional), family conflicts, bankruptcy, job rejections(due to oor credit histories), loan denials, inability to rent apartments, professioanl school rejection, and even suicide.
The personal testimonies of parents whose children committed suicide challenged the benign image of student credit debts as a new adolescent rite of passage of the “just do it “ and “shop ‘til you drop” generation. Their anguish resonated with the concerns of all americans who realized that their own sons and daughthers were at risk of the predatory marketing policies of the credit card industry. There is an exaple of a testimony in Manning book “Credit Card Nation” of a mother who deliberated on the death of 22 years old son who sccumbed to the temptation of what is term as easy money. In her confession, this grieving mother talked about the week before her sons death. She said that she had a long talk with him concerning his debts and about his future. In response to his mother concern,the desease told his mother that he had no idea how he was going to get out of his financial predicament and did not see much of a future for himself. This young college student’s dream was to go to law school but did not think he could get a loan to pay for law school simply because he owed so much in his credit card. Sadly enough, this young man went through credit counseling but fell futher behind. According to the book (credit card nation), the student had to transfer from the University of Dallas to the University of Oklahoma in his home town. In order to pay for his credit card debt he decided to work two jobs while going to school. Still he could not mak ends meet. By the time he died he had 12 cards including 1Master card, 2 Visas, Neiman-Marcus, sks 5th Avenue, Macy’s, Marshall Fields, Conoco, and Discover. The deseased mother blasted the credit card companies and adviced that “credit must be based on the appicant’s present income and not on potential to earn” she went on to futher suggest that there simply has to be some limits set on credit card companies.(Manning, credit card nation,p160)
There are many stories of this kind all around the nation. Many parents are not aware of the financial obligation that their children are faced with on campuses. These financial obligation which come as the result of students not paying off interest on their credti cards can sometimes turn into an emotinal mayham. The credit cards companies should be concern but again, they are into money making business. Their initial public relations strategy was to dismiss the sholaraly critiism and its relevance to the public as unrepresentative of natioanl trends and the students suicide and emotioanl problems as anecdotal anomalies. By ignoring the negative publicity, thy gambled on the expectation that the public’s attention would shift during the ummer to baseball pennant races and fimy vacations-financed by friendly credit card of course. However, the the groindswell of opposition to credit card marketing and lending policies led to mounting public pressures for corrective action in the form of federal bills and legistive amendments as well as the introduction of restrictive marketing bills in at least twelves state legislatures. The most prominent federal response is HR-3142, the College Student Credit Card Protection Act, which was introduced by U.S. Congresswoman Louise Slaghter (D-N.Y) in October 1999.
What is the role of the institution in respect to this issue?
According to reseach, additional student groups, parents and alumi have intensified pressure on colleg administrator to ban or restrict credit card marketing on their campuses. As a result, during the academic year 2000-2001, over 800 colleges and universities formulated official policeis that restricted on-campus credit caard marketing,and over 300 other schools were considering similar restriction. According to Manning, significantly, the most effective policies have been instituted by small liberal-arts colleges where the loss of even a few students has social economic reercussions. Converslely, the 250 largest public schools with their highly profitable student populations are where credit card companies most aggessively direct their marketing energies. This includes the threat of potential lawsuits aginst uncooperative universities, persuasive tactics of corporate lobbyist, major donations,and , of course, lucrative marketing contracts. Manning further stipulated that the most prominent example is the seven-year, $16.5millions deal with the University of Tennesse. The latter has provoked greater public scrutiny of “exclusive licensing” agreements with colleges that generate million of dollars in annual fees. In addition to the public scrutiny of college administrators in providing a safe environment for students, there has been greater attention to the role of colleges and universities in promoting complacent attitudes toward personal debt and to the need for effective credit card education and financial literacy programs.
Here at Indiana University, it is obvious that the administration do not have any policy that regulates students use of credit card or interactions with finacial institutions regarding this important issue. From one student that was interview during my reseach, his response to me when asked what must a college administration do to help students avoid credit card debt, was that the administration can not control every student’s choice. He believes that if you enrolled in a university or college for that matter, you are somehow responsible for choices you make even if it is a financial choice. He further stated that there are financial stress begins as soon as the student arrive on campus during his freshman year. One big factor that encourages students to sign up for credit cards is the factor that confront most of us going through the accademic walls. Students worried aobut how to pay for text books, clothing, social expenses and other things that required the use of money such as cell phone bills. Hence, they rather turn to the magic plastic that will help them deal with these worries.
Another senior student that was interviewed during this research also stressed that the issue of credit card debt and the consequencies that college students faced is some how brought upon them by their own neglegence and not by the school that they attend. It is true that those interest rates are unbelieveable at times, but credit cards companies and other financial institutions that give out loans and credit cards to college students only wants to make profit. Moreover, they do not care how, why, and when the students spend the money that is offered them, all they care about is to make their money. As long as the credit card company is gaining from doing business with their client, their only worry is how to collect that monthly payment.
Students must be aware of their financial obligations and must accept the responsiblitities that comes along with their choices. What ever choice or decision we make today, we must not forget that there is a subsequent effect. The choices we make today as students, while we still persue education, will determine our fate after, or before graduation. Moreover, it is not the purpose of this paper to dispute any fact relating to the issue of credit card debt amongst college students, however, to educate students on this topic will help reduce the problem. The Lure of the credit card world is powerful enough already. Only by educating students on the nature of credit card will we succeed in eradicating those bad hobbies that causes students to fall into credit card debt. Joinning the many other writers, and publishers who have writen on this issue, I believe our effort will be well worth the cost.
Works Cited
http://www.chiff.com/a/EC703HSCrC.htm
Caplovitz, Consumers in Trouble A study of Debtors in Default, p85, 2002
http://www.bankrate.com/brm/news/cc/19980605.asp
http://www.collegeboard.com/article/0,3868,2-10-0-9139,00.html
http://www.ericdigests.org/2003-2/credit.html
http://www.ericdigests.org/2003-2/credit.html
Manning, Robert, Staten, Michael, Barron, John, Journal of Student Financial Aid, Volume 35, No. 3, pp. 39-48, 2002-2003
Manning, Robert, Credit card Nation, p11, 2000
http://www.nelliemae.com/library/cc use.html
http://www.pbs.org/wgbh/pages/frontline/shows/credit/
U.S. General Accounting Office, 2001, June, p. 2
posted by Darlington whyee at 3:54 PM
1 Comments:
Darlington, I enjoyed your research paper on credit cards. I wrote a short blog abou it at http://www.debtfreeblog.blogspot.com
Thanks, Rick
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