Maxed Out College Students: A Call to Limit Credit Card Solicitations on College Campuses

Abstract

Distraught over mounting debt and an inability to pay her bills, 18-year-old freshman Mitzi Pool hanged herself in her dorm room at the University of Central Oklahoma. She had spread out on her bed, her checkbook and the bills for three credit cards she had maxed out to $2,500.

How does a college freshman barely old enough to vote, end up with three credit cards and insurmountable debt? In their first week at school, students like Mitzi can expect to receive an average of eight credit card solicitations, and nearly half of all students report receiving applications on a daily basis. With free food and merchandise sporting the college's logo, credit card companies lure students into applying for credit cards even though the students are usually unemployed or low-income workers. By the time they leave school, a majority of students will have multiple credit cards.

Johnson conducted a survey of Ohio State students and found that about one fifth (21.4 percent) would consider harmful options in the face of uncontrollable debt, including substance abuse and suicide. Most in the survey reported that they were not aware that a damaged credit history could have long-term consequences, including denial of employment. Based on her analysis of research on students' credit card usage, Johnson finds that many students are not using credit cards wisely.

Johnson's article also looks at how universities have responded to the dramatic increase in on-campus soliciting of students and finds that while some have banned on-campus solicitations from credit card companies and have taken other measures, not enough is being done in the area of teaching responsible credit usage.

A growing trend among universities is for them to enter into lucrative contracts with a single credit card company and allow that company to be the only one with exclusive on-campus marketing privileges. For example, the University of Tennessee signed a contract obligating First USA to pay the school $16.5 million over seven years in exchange for exclusive on-campus marketing rights and for exclusive access to the names and addresses of alumni, associates and students. Johnson concludes that legislators should ban credit card companies from soliciting on campuses and in the absence of a ban, prohibit them from offering free merchandise and other material incentives to students.

Moreover, universities should institute programs to educate their students on responsible credit practices. "University administrators and lawmakers must provide the kind of education that enables students to make financially wise decisions and protect their credit history - the asset or liability that will follow them the rest of their lives," Johnson writes.

Keywords: consumer credit

JEL Classification: D18, G28, I29, K30