This year Dierdre Kelleher paid off the credit card debt she ran up while attending Loyola University in Chicago. She graduated when she was 21; she is about to turn 31.
With Discover, MasterCard, Visa and a handful of department store credit cards, she peaked at $12,000 in debt.
“I started getting solicited in my sophomore year,” she said of credit card offers. “Then when I moved into an apartment from student housing in my junior year, that’s when I started doing the spending. I wasn’t going on big shopping trips. It was just day-to-day stuff. Occasionally I’d buy some clothes, but I certainly wasn’t dressed to the nines.”
Though she often made minimum payments on her cards, she never considered bankruptcy, because after graduating she wanted to buy a home, and besides, “My father would have killed me.”
Now a middle school teacher at Emerson School in Oak Park, she eventually did buy a condominium, and after eight years of teaching, she is virtually debt-free, having sold the condo and living in a home owned by her family. “I don’t have any credit cards, and I throw away all credit card offers.” And that’s her advice to other college students: “Throw them away.”
In the spirit of that admonition, there are moves afoot to deal with the problem of college students plunging into credit debt. From a proposal in Congress to an educational thrust by the Illinois treasurer’s office, the issue is popping up on the radar screen.
Looking back at her middle-class upbringing, Kelleher said, she never had been forced to be responsible for money as a child. “I didn’t even have an allowance,” she said. “If I needed it, my parents bought it.”
Kelleher’s story isn’t unusual. Georgetown sociologist Robert Manning has found that 70 percent of undergraduates at four-year colleges have at least one credit card, and the average revolving debt on the cards is more than $2,000. One-fifth of those students carry more than $10,000 in debt.
The upshot is this: Parents and students may agonize over college’s big tickets of tuition and room and board, never realizing that it is small stuff put on credit cards that could sabotage the whole experience.
The Georgetown study found that in some cases, a parent will step in to pay off the debt, but in other cases a student may have to cut back on classes and work longer hours to pay off the debt. In the extreme, students have committed suicide because they were so deep in consumer debt, according to the Consumer Federation of America, based in Washington, D.C. Large debt also can handicap a graduate looking for a job, because employers conducting background checks will flinch if the job involves entrusting large amounts of money to a heavily indebted person, according to the study.
Sandra O’Neill’s credit card balance was about $2,000 by the time her mother discovered that the college student had even gotten the card. The balance was about $3,600 when Annette O’Neill paid off her daughter’s card, for fear that the young woman’s inability to make full payments would scar her credit rating right when life should have been rich with promise.
Now all is well with the 25-year-old Buffalo State University biology major, who graduated this year and moved to Ft. Lauderdale in search of a job, but Annette O’Neill has not forgotten her distaste for the idea of a bank issuing a credit card to a young person who was not prepared to manage one, let alone pay it off. Nor did she like the idea of ultimately feeling responsible for a debt over which she had no say.
“Their brains aren’t developed yet, even though they’re in college,” said O’Neill, now able to laugh about it.
The Rochester, N.Y., mother was angry enough to contact her congresswoman, Rep. Louise Slaughter (D-N.Y.), who has been hearing credit card horror stories repeatedly from constituents.
So last fall Slaughter introduced the College Student Credit Card Protection Act. The legislation would limit the total credit extended under a credit card to a full-time, traditional-aged student unless a cosigner assumes joint liability. The limit would be 20 percent of a student’s gross annual income, and considering that many students work for subsistence wages, that may not be much. In addition, a credit card could not be provided to a student with no gross income.
“A 3-year-old child in my district received a platinum credit card with a $5,000 limit, and a cat named Bud got a preapproved card with a $3,000 limit,” Slaughter said. “It angered me that as Congress considered tightening the nation’s bankruptcy laws to pursue people who had fallen deeply into debt, nothing was being done about credit card companies that solicit consumers on a daily basis.
“I then learned how serious this problem has become for numerous college students. Young people are literally bribed into opening credit card accounts by companies that solicit on campuses with offers of free merchandise, such as T-shirts. Too many college students, lured by unaffordable credit lines, fall victim to crushing credit card debt just as they are starting their adult lives. I thought it was wrong that credit card issuers were lobbying for a bill to make it easier to collect in bankruptcy proceedings, when at the same time they were targeting college students who have no income to pay their credit card bills.”
Now in subcommittee, the bill has 36 cosponsors, including Illinois Democrats Lane Evans and William Lipinski.
In addition, at Slaughter’s request, the General Accounting Office has agreed to study the problem.
Though overextending oneself on credit manifests itself in college, or when a child goes out on his own, prevention for it should begin when kids are craving Pokemon, not Pierre Cardin, according to debt counselors.
“We don’t let our kids fail in a controlled atmosphere when it comes to money, like when a kid has $2 or $3 in 2nd grade and they buy too much candy, then don’t have enough money when it’s time to go rollerskating,” said Catherine Williams, president of the Consumer Credit Counseling Service of Greater Chicago.
That lesson hurts a lot less at that age than, say, blowing a job with a Wall Street firm because of too much personal debt.
Ultimately, the lesson is this simple, she explained: “It boils down to adding and subtracting and deciding what it is you need and what it is you want.”
With the easy availability of credit and unrestrained, untrained young consumers, she added, “It’s getting to be real scary out there.”
Kenny Thomas, director of corporate relations of Visa U.S.A. in San Francisco, said that though it is the issuing banks that determine who gets a card and how much the credit limit is, his company has responded to the problem of credit abuse by promoting better financial education among teens.
“Visa and its issuers are not interested in getting college students hooked on debt,” he said. “Education is the key here, and that’s where Visa is really taking the lead. We offer our issuers a host of resources to be able to help their cardholders manage credit and stay out of trouble when it comes to consumer debt.”
Thomas added that the problem of credit abuse is not confined to college students. “People can get into trouble without managing their finances appropriately. We all carry a high load of consumer debt, and I think that’s more at the root of the problem. You should use a credit card for the convenience and the security it offers. It shouldn’t be used as a way to borrow money.”
Visa does, indeed, make a major effort to promote financial education. In fact, it’s nearly impossible not to find help and information about personal finances all over the Internet or in the information section of a local bank. The greater question is, why doesn’t the information seem to be doing any good?
“Illinois is one of probably 30 states that have a mandate for any kind of consumer education,” Williams said. “It’s in your junior or senior year of high school, and it’s sandwiched in a nine-week period of time with a lot of other subjects. It gets real low billing, and there aren’t real good textbooks for teachers. Sometimes the teachers don’t have a real strong foundation themselves, so how can they teach it?
“If credit education would receive 10 percent of what driver’s ed has received over the years, within a generation of schoolkids, we probably would be well on our way to becoming a nation of savers instead of spenders.”
But these are lessons that should be taught well before college or even high school, she said.
Illinois Treasurer Judy Baar Topinka’s office has taken note. This fall it is expanding an educational program that was begun for elementary-school children and has grown to include college-age students.
Called Bank at School, it now includes personal finance seminars at colleges, which also are asked to include credit card cautions in freshman orientation programs. Last year Topinka’s office worked with community colleges, plus Bradley University in Peoria and Southern Illinois University, Carbondale.
“I’m figuring we’ll hit all the universities in the course of this year,” said Roger Germann, spokesman for the office. “These kids get bombarded with credit card applications, and they end up thinking they have more money than they have. It gets to be a tough situation for those guys.”
Maria McCay, program supervisor of consumer credit counseling for Metropolitan Family Services of Chicago, said students tend to knock on her door after graduating. “They seem to be able to float the debt while they are there,” she said, “but it keeps getting greater. They’re not going to pay on time, so they not only come out with lots of debt but a record that shows a less than perfect credit rating.”
McCay said she knows the temptation to acquire cards. “When I went to graduate school,” she said, “I must have gotten three credit applications for each book I bought. I got them in the bag of books at the store.”
She said that the only real defense is education. But “children really aren’t taught about money management at school or in the home,” she said. “Children see only that you’re buying with a plastic card. There’s no real connection about spending and saving and using money. A credit card should be used only for an emergency, and pizza is not an emergency.”
Though she thinks debit cards or ATM cards connected to a checking account are a good alternative, there is no built-in protection against loss or theft as with credit cards, she pointed out. Too, if a student uses an ATM card without keeping track of withdrawals, as might be the temptation, the balance might strike zero at a very inopportune time.
Dennis Stoia, 20, of Hinsdale, a junior at DePaul University in Chicago, doesn’t use credit cards “because of the reputation they have.” A finance major, he only recently opened a checking account with an ATM card. Before that, he managed with an antique: cash from his savings account. His philosophy on credit is simple: Avoid it, because “you don’t want to live the rest of your life in a rut,” he said.
Assistant professor Peter DaDalt teaches personal finance at Southern Illinois University, a for-credit course. But he thinks the root of that education lies not necessarily in finance but in personal discipline. “My goal in teaching personal finance is not about teaching sophisticated calculations. It’s simple, and it’s hard.”
The discipline starts from infancy, and that is when lessons should begin, he said, explaining: “Kids should get all of their needs met, and very few of their wants. I think one of the best things kids can hear is `no.’ ” DaDalt is not totally opposed to credit cards, which are “value neutral.” In other words, it’s the holder who commits the sin. Here is his formula for using them: Seal the cards in a plastic bag, then freeze the bag in a block of ice. When you think you need the card, pull out the ice to thaw. If you still think you need the card once the ice is melted, at least you will have had time to think about it.
“Credit is like dynamite,” he said. “It’s great in some areas, but it has to be handled with care.”
Gwendolyn Reichbach, executive director of the National Institute for Consumer Education, associated with Eastern Michigan University in Ypsilanti, put it simply: “Personal finance education is just as important as the college education they’re getting. We should not leave it to chance, because the school of hard knocks can be very expensive.”
Jennifer Slagter of Palos Heights figured that out. The 19-year-old junior at Trinity Christian College in that suburb carries three credit cards but uses them only for emergencies, and she pays off any balances each month. It was her father who wanted her to have the cards, she said.
“My dad is a financial planner, and he wanted me to have the cards to build credit,” she explained.
But she operates under no illusion: “Once you hit 17 or 18, you’ve got to start to realize what’s out there. And Mommy and Daddy aren’t always going to be there to save you.”
Now that’s a kid who deserves credit.
