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Agenda The problems and emerging issues The risks for students

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Presentation on theme: "Agenda The problems and emerging issues The risks for students"— Presentation transcript:

1 Student Credit Card Debt: The Emerging Crisis in Education Debt Management

2 Agenda The problems and emerging issues The risks for students
60 Minutes II video segment Ways to address the issues Question & answer

3 Emerging Issue Student credit card debt is getting a lot of attention and “press” lately Consumer Federation of America press release (2/27/01) and report June 1999 Representative Duncan’s Remarks from the Congressional Record 3/28/01 General Accounting Office report June 2001 National Public Radio Morning Edition segments Winter ‘02 Numerous print and online articles over the last year Comprehensive book examining America’s credit card crisis: Credit Card Nation: The Consequences of America’s Addiction to Credit by Robert D. Manning

4 Student Credit Card Debt
Is this a problem? Majority of students use credit cards responsibly For some, card use is putting them at risk this number is increasing, rapidly Credit card debt is not closely monitored by colleges Over the past ten years, the industry has aggressively marketed to students So, let’s look at some of the details . . . One area that colleges often neglect to consider in their debt management activities is student credit card debt. A national survey was conducted by the Institute for Higher Education Policy. They found that most students are responsible in using credit cards; however, for some, credit card use is putting them at risk. The survey found that one in five students carry average balances of $1000 or more. Of these students, 49% have four or more cards and only 18% of the students pay off these balances each month. How many credit card solicitations have you received in the last month? Year? The industry sends out billions of these a year and even though the response rate is low, it is still enough to make it worthwhile for them to send them out. Check around campus - how many bulletin boards have credit card applications on them? What about your bookstore? Are they stuffing bags with credit card solicitations? How about responding with a debt management poster on the same bulletin board or adding a debt management fact sheet to the bookstore bags? We on college campuses contribute to the problem by allowing students to pay tuition and fees with credit cards, yet we don’t educate them on responsible credit card use or money management concepts. Source: Student Aid Transcript Summer 1999 and Institute for Higher Education Policy Survey

5 Student Credit Card Debt
Why is this a problem? Most students aren’t experienced with dealing with debt don’t understand the basics of credit debt don’t understand that low intro rates change quickly “max out” limit; often $1,500 or more take out new cards to pay for existing debt don’t practice delayed gratification very well don’t understand how a bad credit start can impact their lives for many, many years to come We already know that students don’t read a lot of the material that we send them so how many of you think they read the fine print of the credit card offers. Because of lack of experience, they may not understand that low introductory rates often disappear by the second or third month. They don’t understand how quickly that $1500 limit can be reached. I like to give them an example….if they bought a computer for $1500 and charged it to their credit card at 16% interest, and paid a minimum of $25 a month, how long would it take to pay it back and what would be the total cost? Provided they did not charge anything else on that card - it would take 10 years and two months to pay off that computer and they would pay $1537 in interest for a total cost of $ If they paid $50 a month, and they won’t, it will still take 2 years and three months to pay it off and an interest cost of $413. Now a good question to ask is - just how long will it take for the computer to be obsolete, or the cd to be “old” and un-listened to, or the clothes to be worn out. Chances are, if you are charging these items, you will be paying for them long after their usefulness has passed. I recommend that you do a search on the web for credit card repayment calculators and you will get a good list of sites to recommend to your students or to use in counseling. A couple of samples you may want to look are are:

6 Student Credit Card Debt
Credit card usage is becoming a big problem for many more college students 83% of undergraduates have at least one card a 24% increase since 1998 Average credit card balance is $2,327 21% of undergraduates who have cards, have high-level balances between $3,000 & $7,000 Students double their average credit card debt and triple the number of credit cards from when they arrive on campus until graduation Source: Undergraduate Students and Credit Cards: An Analysis of Usage Rates and Trends -Nellie Mae April 2002

7 Student Credit Card Debt
Characteristics of high-risk use Average credit card balances over $1,000 Owning four or more credit cards transferring balances, getting new ones to pay off existing cards Carrying a balance each month Using credit cards to charge tuition or fees many college do not allow anymore Okay, raise your hands if….no, just kidding, you don’t have to raise your hands but you might want to ask your students if they meet any of the characteristics of high risk use… (DMC _ You might want to add a personal anecdote here: I really worked hard at paying off my credit cards and kept them at zero balances for many years. Now that I am renovating a house, however, that went right out the window - time for me to practice what I preach!) Source: Institute for Higher Education Policy Survey

8 The Other Pieces to This Puzzle
Estimated 39 percent of all students graduate with unmanageable debt (payments more than 8% of monthly income)* 55 percent of African-American students 58 percent of Hispanic students Alternative debt levels are rising at all institution types, including two and four year public schools *From state PIRGs' study.

9 Emerging Issue Proposed legislation and resolutions were introduced in at least 24 states from 1999 through mid-May 2001 banning incentives to entice students requiring written parental consent protect parents from debt collection requiring credit vendors to register

10 GAO Report to Congress College Students and Credit Cards
requested by Congress conducted about 100 interviews at 12 universities and colleges reviewed and quoted three studies TERI/IHEP, Student Monitor, & Nellie Mae Report released July 17, 2001 by three Congressional representatives Louise Slaughter (D-NY), John Duncan (R-TN), and Paul Kanjorski (D-PA)

11 GAO Report to Congress Looked at four objectives
advantages/disadvantages results of key studies university policies business strategies/educational efforts of credit card issuers

12 GAO Report to Congress College Students and Credit Cards
provide convenience and security allow students to establish credit histories found that students are more likely than other types of credit card users to run up debts they could not pay college students (with limited or no credit history and income) are charged higher interest rates

13 GAO Report to Congress College Students and Credit Cards
many students do not understand the consequences of incurring excessive debt and making payments late impaired credit rating more difficult and costly to obtain credit for students who do not manage credit the disadvantages outweigh the advantages many students pay only the minimum amount due each month, not aware of how much this will cost them in interest and time

14 GAO Report to Congress Interest savings between lowest/highest payment = $1,570; time saved = 75 months or 6.25 years!

15 GAO Report to Congress University/college policies
two of the twelve had relatively restrictive policies based on state law nine had decentralized policies one area might restrict solicitation, while another area would allow it

16 GAO Report to Congress University/college policies
both university officials and students cited the personal solicitation of college students as causing the most controversy few universities collected data on why students leave college, but financial concerns are believed to be a big reason

17 GAO Report to Congress Business strategies of credit card issuers
students viewed as good customers, heavily marketed to as a group use a variety of strategies on campus soliciting, Internet, direct mail some have arrangements with school alumni or athletic dept assoc, logo use customize risk management/underwriting standards for college students sometimes adjust terms and conditions

18 Legislation Legislation was pending in Congress
H.R. 184, The college student credit card protection act, 107th Congress amends Truth in Lending Act limit the total credit extended to full-time, traditional-aged college students prohibits increasing the credit limit without parent/guardian consent (when co-signer) Prohibits opening a credit card for a student with no annual gross income or an existing card 58 co-sponsors six from CA, five from Ohio, one from FL Expired when 107th Congress ended no new legislation currently pending in 108th

19 Legislation Senate bill 891, introduced by Sen. Dodd, called “Underage Consumer Credit Protection Act of 2001'’ similar to H. R. 184 would amend the Truth in Lending Act would require application requirements to issue credit cards to those under the age of 21 co-signer or proof of financial means to pay require completion of financial counseling course Expired with the close of the 107th Congress

20 The Risks Between % of students are risking unacceptably high levels of debt 33% of students have both student loans and credit cards Many must take on additional jobs to pay debt Many cut back on the number of classes or drop out of school all together According to the Institute for Higher Ed Policy survey, between 10 and 20 percent of students are risking unacceptable levels of credit card debt - and this is before their student loans are even in repayment. 33% have both student loans and credit cards. Many have to take on additional work while in school in order to pay the credit card debt. We have all seen students who cut back on classes or drop out of school all together because they need to work more hours in order to pay for their debt. These problems with debt load occur before the students even enter loan repayment. Source: Institute for Higher Education Policy Survey

21 Student Credit Card Debt
In 1998, Indiana University reported that it lost more students to credit card debt than to academic failure.* *As quoted in a study by the Consumer Federation of America & Georgetown University

22 The Risks Career choices can be limited
Some are forced to file bankruptcy A few students, so overwhelmed with debt, have committed suicide They need to understand that the repercussions of abusing credit cards can range from: Impacting their career choices: Having to go with a higher paying job even though they would be more interested in another position. Some even lose certain types of employment opportunities. It’s becoming almost standard for firms to ask for a release to check credit history as part of the hiring process. - to: Having a serious and devastating effect on their lives - we have all read about the poor people who have committed suicide over their debt problems. WE don’t want our students to get to that point!

23 60 Minutes II Video

24 Believe It or Not... Recently, all credit card companies were kicked off the University of Louisville campus because one company was giving away racially offensive T-shirts to students who completed credit card applications Some students, so far in debt, have resorted to “cyberbegging” to help pay off their debts Many young people are filing bankruptcy right out of college due to high credit card and student loan debt (federal and private) In 1999 over 100,000 persons under the age of 25 filed for bankruptcy

25 Student Credit Card Debt
What can be done? Control credit card vendors and their access to students or ban them altogether Work with parents to limit student use Education, offer “life skills” courses on personal finance management topics Allow use of “starter” card, ban others Provide credit counseling and/or peer counseling for students who get in too deep We’ve talked about the problems, lets address what we can do about it: Control vendors: William Stanford, DOFA at Lehigh College in Bethlehem, PA--created their own brochures entitled “Before you charge into the world of credit” and required vendors to pass those out to students applying for the cards. Also, the vendors were charged a fee for the printing of the brochures. Clean up bulletin boards of credit card ads. Do away with those credit card ads placed in the bookstore bags. The college would probably need to subsidize the bookstore to eliminate the advertising, but this might be a reasonable expense as an umbrella protection plan for the college. Work with parents: Hold information sessions for those times when prospective freshmen come to campus with their parents. You can alert parents to the problem and get them involved. Pass out brochures to the parents on the “why’s” of credit and encourage families to discuss credit and money mgmt at home. Offer life skills courses: CCCS:This is an organization that provides counseling and debt repayment services to families and individuals as well as educational services for the community. Their work on setting up educational programs and counseling and working with individual students in debt has been invaluable.

26 Student Credit Card Debt
What can be done? Explain to other campus areas the relationship between high credit card debt and failure to graduate enrollment and retention issues alumni issues Highlight your efforts to control credit card issues at your institution to parents and potential students many parents are becoming aware of this issue and are asking what schools are doing about it

27 Student Credit Card Debt
What can be done? Require credit card vendors to provide educational materials/sessions Establish a relationship with the local Consumer Credit Counseling Services (CCCS) office call to be connected to the office nearest you web site: National Foundation for Credit Counseling

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33 Other Recommendations
For colleges review current practices for allowing credit vendors, fee structure prohibit credit companies from offering trinkets to students for completing applications include credit card and debt education materials in brochures inserted in bags consider limiting the number of credit card tables allowed on campus conduct regular debt management sessions Excerpted from: PIRG: Recommendations for Colleges, Students, and Congress

34 Other Recommendations
For students become informed consumers, know what you are getting into consider risks and benefits of credit card debt, before you apply one national credit card is all you need if you must carry a balance, pay as much as you can afford, every month compare the fees, after intro interest rates, charges, and other hidden costs look beyond low intro rates select the best value DEBT Excerpted from: PIRG: Recommendations for Colleges, Students, and Congress

35 Other Recommendations
For Congress do not enact industry-supported legislation, that is unbalanced and puts the student consumer at a disadvantage require credit card bills to include a monthly calculation illustrating the time it will take to pay off the balance at the minimum amount prohibit the mailing of unsolicited credit cards, even cards that are not activated Excerpted from: PIRG: Recommendations for Colleges, Students, and Congress

36 Helpful Web Sites National Endowment for Financial Education
National Institute for Consumer Education (NICE) Credit Card Calculator The Savvy Student Public Interest Research Group Tips

37 Helpful Web Sites Credit Card Nation
Federal Trade Commission; Consumer Protection Division Consumer Information Scholarship, Employment, Job Placement Scholarship Scams

38 Helpful Web Sites Misc Sites http://www.cardweb.com/
(budget exercise) (credit card tips)

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