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Credit Cards and the College Bottleneck

A House subcommittee hearing examines the need for stricter limits on credit card companies as students struggle to cope with increasing education expenses.

A Washington State University student poses with a credit card at a pub near campus. Campus Progress Action's Erica Williams testified before a House committee that college students are uniquely affected by credit card debt and abusive credit card practices. (AP/Joe Barrentine)
A Washington State University student poses with a credit card at a pub near campus. Campus Progress Action's Erica Williams testified before a House committee that college students are uniquely affected by credit card debt and abusive credit card practices. (AP/Joe Barrentine)

“If people are leaving college with almost $3,000 worth of debt and no job, doesn’t that sound like we have a problem?” asked Rep. Emanuel Cleaver (D-MO), a member of the House Committee on Financial Services at Thursday’s hearing, “Problem Credit Card Practices Affecting Students: The Need for Legislative Action.” Testimony, including that of Erica Williams, Policy and Advocacy Manager for Campus Progress Action, examined the use of credit cards by college students and young people.

Rep. Carolyn Maloney (D-NY), the chairwoman of the committee, noted that 76 percent of undergraduates had a credit card, 43 percent had four or more cards, and the average balance on student credit cards was $2,169, according to a 2005 Nellie Mae study.

These statistics, Williams argued, mean that, “young people, especially students, are uniquely impacted by credit card debt and the abusive practices of credit card companies,” and that “this negative impact can only be made better through an approach with legislative action at its center.” Williams related the stories of college students who had incurred credit card debt and described debt’s long-term repercussions. “For college students, major borrowing from credit card companies is like visiting a Las Vegas Casino: It’s a gamble, and the odds are against you,” she said.

Students may be finding credit cards especially attractive as a result of poor state and federal education policies. Brett Thurman, President of the Undergraduate Student Government at the University of Illinois at Chicago, noted that students’ demand for credit cards is exacerbated by rising education costs. “This isn’t just a credit card problem. This isn’t just a student problem. This is brought about very specifically because students need to find more financing for education, and this financing is not available in the places we would like it to be available,” he said.

Echoing Thurman, Christine Lindstrom, the Director of the Higher Education Debt Project at USPIRG, said, “Excessive, high-cost credit card debt has exacerbated the crisis that students already face from the rising costs of higher education…as states have pulled back on funding for higher education, more of the costs of college have fallen on the shoulders of college students.” To minimize the risks to students associated with credit card use, she called for restrictions on marketing, and campus bans on cards with unfair terms.

Escalating credit card marketing practices play a significant role in enticing students to sign up for cards that can lead them down the path toward debt. Williams noted the omnipresence of credit card offers at many schools, and Benjamin Lawsky, Deputy Counselor and Special Assistant to the Attorney General of New York, described how credit card companies use universities as a “bottleneck” through which they access students. “At a very, very large number of universities around the country, there are highly lucrative, somewhat secretive, exclusive marketing agreements at the schools with particular credit card companies. The schools have, in many cases, agreed not to make these agreements public,” he said.

Actions to curb problem credit card practices have to balance students’ status as responsible adults with the fact that college arguably represents the most vulnerable point in one’s financial life. Kenneth Clayton, Managing Director and General Counsel of the American Bankers Association Card Policy Council, focused his testimony on ensuring access to credit for college students. “We fear that policy decisions made on the basis of anecdotes will result in the creation of barriers to credit access that restrict the ability of young responsible adults to manage their everyday lives,” he said.

Clayton’s argument was echoed by Rep. Jeb Hensarling (R-TX). Hensarling, who used a credit card to make necessary repairs to his car while in college, noted that “every restriction, every limit, every regulation has a high probability of making credit less accessible, less affordable, more costly, ultimately helping rob people of their educational opportunities, especially at a time of skyrocketing tuition.”

The balance between ensuring access to credit and preventing irresponsible credit card use can be tricky. As one solution, the panelists suggested financial education and limits such as mandating cosigners for students without a source of income.

Ultimately students are left to bear the costs of credit card company abuses. While being questioned by Rep. Judy Biggert (R-IL), Thurman noted that a college student who charged $452 of books to a credit card in the fall semester would owe credit card companies $1,380 by May if the student had no source of income and therefore no way to pay off the monthly balances.

“Well, then you shouldn’t have a card,” noted Biggert.

“Very good point,” replied Thurman.

  • Read Erica Williams’ testimony from this hearing here.

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