Student credit cards and young credit

Financial literacy programs promote credit responsibility

Amid charges that credit card issuers target young people, both lenders and universities are offering financial literacy programs to help educate students.

Compare Student Credit CardsDuring January 2006 hearings on credit card issuers, a few Senate Banking Committee members brought up the concerns expressed by constituents with children in college.  The committee members explained that parents are concerned their college-age kids, unable to resist the stream of credit card applications that come their way, will graduate with so much debt that the young people will be prevented from leasing apartments and cars, taking out loans for graduate school, and passing potential employers’ background checks into their credit histories.

But abandoning the use of student credit cards is not an option.  Since people still need credit, education has come to be seen by many as the best solution.  Although some consumers prefer debit cards to credit cards, experts note that the use of debit instead of credit can harm credit scores.  That is because avoiding credit can be viewed as just another form of credit misuse — in addition to suggesting a lack of understanding about how to use credit responsibly.

Among those in the industry who are addressing the problem through education, Citi has set up its online Credit-ED Program to increase awareness.  Those who take the course receive a Credit-ED certification, making it useful for students, school administrators, and parents, as well.  In fact, parents have the option of requiring certification as a condition before co-signing a credit application for their child.

According to a spokeswoman for student loan company Nellie Mae, the offerings for student who want to learn more about money management have surged over the last ten years.  Nowadays, credit and credit cards are a topic in many freshman orientation programs, Nellie Mae explained, with schools also creating programs to foster credit literacy.  Nellie Mae itself features a tutorial on its website.

Schools have reason to care.  Universities are worried that students who suffer from financial problems may end up having to drop out, experts say.  Additionally, alumni who suffer from poverty due to poor credit card management are unlikely to donate to college endowments.  In other words, fundraising efforts later on are likely to get a boost if colleges take an active role in students’ financial well being.

Texas Tech is one school that has taken an active role in students’ financial health through the establishment of Red to Black, its on-campus financial planning service.  The program aims “to keep students in the black and out of the red,” offering one-on-one peer counseling and making numerous presentations each year, and has become an example to other schools.  With each new freshman class, the need for the program is restored.

The current coordinator of Red to Black highlights two types of students who use the program: those who do not think about the impact of their actions and max out their student loans and credit cards unnecessarily, and those whose fear of credit means they are left struggling without the assistance provided by the financial options that could help them pay for school.

Red to Black’s coordinator, a student himself, explains that too many students pick up spending habits from parents but do not comprehend the earnings side of the equation.  Such young people appear unaware that credit is not just free money.

Back at the Senate Banking Committee, members appeared especially focused on providing credit card disclosures in plain English.  Meanwhile, proposals have also been made to limit aggressive credit card marketing tactics aimed at students.  Amid the backdrop of such attention, coupled with the range of online educational resources and university moves to strengthen financial literacy, college graduates may soon no longer be able to claim their credit card debt was the result of too little understanding.

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Published: April 13, 2007

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