Presentation on theme: "Agenda The problems and emerging issues The risks for students"— Presentation transcript:
1Student Credit Card Debt: The Emerging Crisis in Education Debt Management
2Agenda The problems and emerging issues The risks for students 60 Minutes II video segmentWays to address the issuesQuestion & answer
3Emerging IssueStudent credit card debt is getting a lot of attention and “press” latelyConsumer Federation of America press release (2/27/01) and report June 1999Representative Duncan’s Remarks from the Congressional Record 3/28/01General Accounting Office report June 2001National Public Radio Morning Edition segments Winter ‘02Numerous print and online articles over the last yearComprehensive book examining America’s credit card crisis: Credit Card Nation: The Consequences of America’s Addiction to Credit by Robert D. Manning
4Student Credit Card Debt Is this a problem?Majority of students use credit cards responsiblyFor some, card use is putting them at riskthis number is increasing, rapidlyCredit card debt is not closely monitored by collegesOver the past ten years, the industry has aggressively marketed to studentsSo, 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
5Student Credit Card Debt Why is this a problem?Most students aren’t experienced with dealing with debtdon’t understand the basics of credit debtdon’t understand that low intro rates changequickly “max out” limit; often $1,500 or moretake out new cards to pay for existing debtdon’t practice delayed gratification very welldon’t understand how a bad credit start can impact their lives for many, many years to comeWe 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:
6Student Credit Card Debt Credit card usage is becoming a big problem for many more college students83% of undergraduates have at least one carda 24% increase since 1998Average credit card balance is $2,32721% of undergraduates who have cards, have high-level balances between $3,000 & $7,000Students double their average credit card debt and triple the number of credit cards from when they arrive on campus until graduationSource: Undergraduate Students and Credit Cards: An Analysis of Usage Rates and Trends-Nellie Mae April 2002
7Student Credit Card Debt Characteristics of high-risk useAverage credit card balances over $1,000Owning four or more credit cardstransferring balances, getting new ones to pay off existing cardsCarrying a balance each monthUsing credit cards to charge tuition or feesmany college do not allow anymoreOkay, 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
8The 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 students58 percent of Hispanic studentsAlternative debt levels are risingat all institution types, including two and four year public schools*From state PIRGs' study.
9Emerging IssueProposed legislation and resolutions were introduced in at least 24 states from 1999 through mid-May 2001banning incentives to entice studentsrequiring written parental consentprotect parents from debt collectionrequiring credit vendors to register
10GAO Report to Congress College Students and Credit Cards requested by Congressconducted about 100 interviews at 12 universities and collegesreviewed and quoted three studiesTERI/IHEP, Student Monitor, & Nellie MaeReport released July 17, 2001 by three Congressional representativesLouise Slaughter (D-NY), John Duncan (R-TN), and Paul Kanjorski (D-PA)
11GAO Report to Congress Looked at four objectives advantages/disadvantagesresults of key studiesuniversity policiesbusiness strategies/educational efforts of credit card issuers
12GAO Report to Congress College Students and Credit Cards provide convenience and securityallow students to establish credit historiesfound that students are more likely than other types of credit card users to run up debts they could not paycollege students (with limited or no credit history and income) are charged higher interest rates
13GAO Report to Congress College Students and Credit Cards many students do not understand the consequences of incurring excessive debt and making payments lateimpaired credit ratingmore difficult and costly to obtain creditfor students who do not manage credit the disadvantages outweigh the advantagesmany students pay only the minimum amount due each month, not aware of how much this will cost them in interest and time
14GAO Report to CongressInterest savings between lowest/highest payment = $1,570;time saved = 75 months or 6.25 years!
15GAO Report to Congress University/college policies two of the twelve had relatively restrictive policies based on state lawnine had decentralized policiesone area might restrict solicitation, while another area would allow it
16GAO Report to Congress University/college policies both university officials and students cited the personal solicitation of college students as causing the most controversyfew universities collected data on why students leave college, but financial concerns are believed to be a big reason
17GAO Report to Congress Business strategies of credit card issuers students viewed as good customers, heavily marketed to as a groupuse a variety of strategieson campus soliciting, Internet, direct mailsome have arrangements with schoolalumni or athletic dept assoc, logo usecustomize risk management/underwriting standards for college studentssometimes adjust terms and conditions
18Legislation Legislation was pending in Congress H.R. 184, The college student credit card protection act, 107th Congressamends Truth in Lending Actlimit the total credit extended to full-time, traditional-aged college studentsprohibits 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 card58 co-sponsorssix from CA, five from Ohio, one from FLExpired when 107th Congress endedno new legislation currently pending in 108th
19LegislationSenate bill 891, introduced by Sen. Dodd, called “Underage Consumer Credit Protection Act of 2001'’similar to H. R. 184would amend the Truth in Lending Actwould require application requirements to issue credit cards to those under the age of 21co-signer or proof of financial means to payrequire completion of financial counseling courseExpired with the close of the 107th Congress
20The RisksBetween % of students are risking unacceptably high levels of debt33% of students have both student loans and credit cardsMany must take on additional jobs to pay debtMany cut back on the number of classes or drop out of school all togetherAccording 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
21Student 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
22The Risks Career choices can be limited Some are forced to file bankruptcyA few students, so overwhelmed with debt, have committed suicideThey 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!
24Believe 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 applicationsSome students, so far in debt, have resorted to “cyberbegging” to help pay off their debtsMany 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
25Student Credit Card Debt What can be done?Control credit card vendors and their access to students or ban them altogetherWork with parents to limit student useEducation, offer “life skills” courses on personal finance management topicsAllow use of “starter” card, ban othersProvide credit counseling and/or peer counseling for students who get in too deepWe’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.
26Student Credit Card Debt What can be done?Explain to other campus areas the relationship between high credit card debt and failure to graduateenrollment and retention issuesalumni issuesHighlight your efforts to control credit card issues at your institution to parents and potential studentsmany parents are becoming aware of this issue and are asking what schools are doing about it
27Student Credit Card Debt What can be done?Require credit card vendors to provide educational materials/sessionsEstablish a relationship with the local Consumer Credit Counseling Services (CCCS) officecall to be connected to the office nearest youweb site: National Foundation for Credit Counseling
33Other Recommendations For collegesreview current practices for allowing credit vendors, fee structureprohibit credit companies from offering trinkets to students for completing applicationsinclude credit card and debt education materials in brochures inserted in bagsconsider limiting the number of credit card tables allowed on campusconduct regular debt management sessionsExcerpted from: PIRG: Recommendations for Colleges, Students, and Congress
34Other Recommendations For studentsbecome informed consumers, know what you are getting intoconsider risks and benefits of credit card debt, before you applyone national credit card is all you needif you must carry a balance, pay as much as you can afford, every monthcompare the fees, after intro interest rates, charges, and other hidden costslook beyond low intro ratesselect the best valueDEBTExcerpted from: PIRG: Recommendations for Colleges, Students, and Congress
35Other Recommendations For Congressdo not enact industry-supported legislation, that is unbalanced and puts the student consumer at a disadvantagerequire credit card bills to include a monthly calculation illustrating the time it will take to pay off the balance at the minimum amountprohibit the mailing of unsolicited credit cards, even cards that are not activatedExcerpted from: PIRG: Recommendations for Colleges, Students, and Congress
36Helpful Web Sites National Endowment for Financial Education National Institute for Consumer Education(NICE)Credit Card CalculatorThe Savvy StudentPublic Interest Research Group Tips
37Helpful Web Sites Credit Card Nation Federal Trade Commission; Consumer Protection DivisionConsumer InformationScholarship, Employment, Job PlacementScholarship Scams
38Helpful Web Sites Misc Sites http://www.cardweb.com/ (budget exercise)(credit card tips)