Students: The Next At-Risk Group

Now that Wall Street is finally starting to get over the credit crisis, everything about credit is going to be hunky-dory from now on, right? Well, maybe not.

Back in March, U.S. Public Interest Research Group (PIRG) warned about the long-standing problem of credit card companies aggressively marketing their products to college students. Young and cash-strapped, this segment represented a perpetually untapped market (As Americans get more established in their lives and careers, they tend to take on more credit; most American adults carry nearly five credit cards in their wallets.)

Traditionally, credit card companies have bombarded students with credit deals, many of which contain hidden risks. According to PIRG’s survey of 1,500 college students, the average respondent received almost five credit offers in the mail every month. Three-fourths of respondents said they had seen credit companies set up tables and offer giveaways (t-shirts, Frisbees, food) to entice them to apply for credit.

According to PIRG, students at one Ohio campus were promised free food, but were allowed to eat only after they had filled out forms requesting a new credit card. The contracts often include hidden fees and outrageous penalties, such as universal default, in which credit card companies charge higher interest when a customer fails to pay a bill completely unrelated to the credit card account.

On many campuses, such deceptive practices have occurred with the blessings of the university or an alumni group, which gives a particular credit card company a monopoly on solicitations to students. In return, the institution receives a cut from the total amount of money students spend with those new cards. In a recent editorial, The New York Times equated this scheme to the recent scandal of university loan officers taking bribes in return for steering students toward selected lenders. Such arrangements make “the school a partner in the plundering of young peoples’ meager assets,” the Times wrote.

In the wake of the current financial crisis, will credit card companies quit aggressive marketing to the young and financially inexperienced? While that remains to be seen, U.S. PIRG, the Times, and other groups are pushing for a new federal law that would forcefully limit such practices, as six other states have already done. In the meantime, here’s what you can do if credit card solicitors wind up on your campus:

• Ask yourself: Do you really need another t-shirt? Sure, credit card marketers on campus might offer a t-shirt, Frisbee or even a sandwich. But that short-term, and very cheap, gratification can lead to insurmountable credit card debt, especially if the student isn’t prepared to deal responsibly with his or her newfound lines of credit.

• Buy a shredder. Even using a cheap one is better than throwing all those credit offers into the trash.

• Find out whether your university or alumni group is getting a kickback in return for letting credit card companies on campus. If so, how can you convince them to stop? A letter writing campaign is a good first step.