Hearing on "The Importance of Financial Literacy Among College Students."

Prepared Statement of Dr. Robert D. Manning
Caroline Werner Gannett Professor of Humanities
Rochester Institute of Technology

10:00 a.m., Thursday, September 5, 2002 - Dirksen 538

I would like to thank Chairman Paul S. Sarbanes for providing this opportunity to share my views with the Committee on the increasingly important topic of consumer debt among college students and the lack of financial literacy/education programs for America’s financially vulnerable youth. In addition, I applaud the legislative initiatives of Senator Christopher Dodd, who has championed credit card marketing restrictions on college campuses along with critically needed financial education programs, and Senator Charles E. Schumer’s efforts to protect consumers from deceptive marketing and contract disclosure practices of the credit card industry. The twin issues of rising consumer debt and shockingly low levels of financial literacy among our youth have grave implications to the continued economic well-being of the nation—especially as Americans age into debt. For these and many other reasons, I commend the Committee for accepting the daunting task of examining these serious problems.

.As an economic sociologist, I have spent the last 16 years studying the impact of U.S. industrial restructuring on the standard of living of various groups in American society. Over the last 11 years, I have been particularly interested in the role of consumer credit in shaping the consumption decisions of Americans as well as the role of retail banking in influencing the profound transformation of the U.S. financial services industry. In regard to the latter, I have studied the rise of the credit card industry in general and the emergence of financial services conglomerates such as Citigroup during the deregulation of the banking industry beginning in 1980. In terms of the former, my research includes in-depth interviews and lengthy survey questionnaires with over 800 respondents in the 1990s. The results of this research are summarized in my recent book, CREDIT CARD NATION: America’s Dangerous Addiction to Consumer Credit (Basic Books, 2001). More recently, I have collected survey data from a case-study of a mid-sized public university based on a representative sample of nearly 800 college students in 2002. Some of the key findings of the study are reported in this testimony. In addition, I have become actively involved in the national movement to improve the financial literacy/education of our youth. My work with colleges, universities, and student loan organizations has inspired my own internet-based financial literacy/education program at www.creditcardnation.com as well as my next book which offers practical financial information for college students and novice credit card users.


The Triple Witching Hour Haunts Recent College Graduates

For recent college graduates, the stark realities of coping in the ‘real world’ and pursuing a career in the new economy are compounded by their unprecedented levels of personal debt. To apply a Wall Street analogy, the "Triple Witching Hour," record levels of student loan and credit card/consumer debt have coincided—for the first time—with the worst job market in over a decade. Indeed, as long as America’s longest economic expansion in history continued unabated, college students were lulled into a false sense of financial security by university administrators and credit card/finance companies which led to the amassing of enormous personal debt obligations. A generation that grew up with tv’s FRIENDS, whose mid-town NYC lifestyle belies their modest professional incomes, was unprepared for the bursting of the nation’s economic bubble in spring 2001. Afterall, "recession" was not a part of their lived experience and denial of self-gratification is mass-marketed by Madison Avenue as "old school."

More significantly, declining real household incomes in the early and mid-1990s sharply reduced family financial contributions to college expenses while the long term decline in public financing of higher education shifted student economic strategies from savings, grants, and part-time employment to reliance on federally subsidized student loans. As a result, median student loan levels have skyrocketed over the last 25 years—from about $2,000 in 1977 to nearly $7,000 in 1990 and doubled again today. In 1996, the College Board reported the average public university student graduated with $11,950 of loans in 1996 (a 70% increase from 1993) while graduates of private colleges averaged $14,290 (a 43% increase from 1993). This trend is mirrored in the recent surveys by Nellie Mae. In 1991, the student loan debts of its clients (survey data comprised of 65% undergraduate and 35% graduate students) averaged $8,200 and jumped to $18,800 in 1997 albeit partially due to the rapid increase in graduate (professional) student debt.1 Today, public school graduates can expect nearly $15,000 and private school graduates over $18,000 in student loans. Clearly, the student loan industry and higher education administrators have encouraged and abetted the record levels of student loan debts with unrealistic expectations of high paying employment with job and pension security.

The rising cost of higher education and intensifying pressures for "competitive consumption" on America’s college campuses contributed to the sharply rising demand for "plastic" money among our youth—without the extolling the necessary financial education programs. At the onset of the deregulation of the U.S. financial services industry in the early 1980s, extending credit to college students was viewed as a risky strategy. College seniors with "one foot out of the door" were perceived as relatively low financial risks and typically received credit card offers as they approached their 21st birthday; most offers, however, were for gas and retail rather than "universal" bank cards. The exceptions were student with full-time jobs or whose parents were willing to co-sign the revolving loan contract. By the late 1980s, banks began to saturate their middle and working class revolving credit card markets (based on prevailing underwriting criteria) and began to aggressively pursue the college student market by relaxing the industry’s voluntary parental co-signature requirement for students under 21 years old. This was because industry executives realized that students would use their summer earnings and college loans to pay for their credit card debts. Furthermore, they were even willing to ask their parents to assist in paying their credit card bills. Even so, when U.S. Congressman Joe Kennedy convened the "Kiddie Credit Card Hearing" before the Subcommittee on Consumer Credit and Insurance in March 1994, student credit cards typically featured introductory limits of $200 to $300 and it was rare to find a student that amassed over $5,000 in credit card debt in the early 1990s. In my own research on this period, high credit card debt levels were more likely accumulated by students immediately after graduation rather than during college matriculation. This was largely due to the difficult job market of the early 1990s and greater willingness of banks to extend higher credit limits after leaving school.2

The enormous profitability of consumer credit cards, together with the cross-marketing strategies of financial services conglomerates in the mid- and late 1990s, have produced competitive pressures to recruit new clients at an increasingly younger age. The result is that the overall proportion of college students with credit cards has risen sharply—from about one-half in 1990 to over three-fourths today; my studies of students at universities in the Metropolitan Washington, D.C. area range from 77 to 85 percent. Significantly, this means that college and even high school students are being socialized to perceive consumer credit as a generational entitlement rather than an earned privilege. For most American students, credit card "membership has its privileges" before commencing a full-time job and adhering to a financial budget. This fracturing of what I refer to as the traditional "cognitive connection"—where one’s standard of living is defined by one’s household income--is a radical departure from America’s Puritan influenced cultural attitudes toward consumer credit and debt where satisfactorily abiding by a household budget (fiscal responsibility) is rewarded with more consumer credit.3 The availability of greater levels of consumer credit at an earlier age without accompanying financial education is a financial windfall to the credit card industry and its associated networks of retailers including college and university administrators who reap multimillion dollar exclusive marketing agreements. This is because the largest 250 public universities account for over two-thirds of college students at four-year institutions. For instance, the University of Tennessee signed a 7 year contract with FIRSTUSA in 1998 which guarantees at least $16.5 million dollars while the University of Oklahoma received a $1 million dollar signing bonus. It is noteworthy that none of the "royalties" from these lucrative contracts have been used to fund financial literacy/credit card education or debt consolidation programs.4

Over the last decade, the two most noticeable trends in the marketing of credit cards to college students is the progressively earlier age of opening the first credit card account and the resulting rise in personal debt associated with consumer credit cards. Although it is not my intention to detail the flawed methodology of credit card industry financed studies, which I have reviewed elsewhere, it is important to recognize the complex dynamics of student consumer debt.5 First, an accurate estimate of student consumer debt levels and their associated social consequences require a research methodology that "tracks" or follows a student class cohort from orientation to graduation. This will capture students who have dropped out of school due to high debt levels and are not subsequently interviewed since they are no longer included in the matriculating student population universe. This methodological issue was noted in the highly flawed 2001 General Accounting Office (GAO) report on this topic.6

Second, average student debt levels must be estimated by each class cohort (freshman through senior) rather than a institutional average that combines low freshman debts with high senior debts and thus underestimates the debt obligations of college students when they leave school. The real issue is how much debt young adults have incurred upon graduation NOT an average for the overall student population at a single point in time. Third, student debt levels must examine the dynamic smorgasbord of all different types of personal debt. For example, my 1999 study was the first to explore the relationship between student loan and credit card debt. That is, the survey questionnaires of industry financed studies neglect to ask students whether they use college loans to pay their credit card debts and thus miraculously erase substantial portions of revolving credit card debt. Unlike the accounting magic of Wall Street, personally assumed debt of average Americans must be eventually repaid, regardless of the accounting category. As a result, my research suggests that more accurate estimates of student debt require in-depth interviews throughout the collegiate career of student respondents. Significantly, I am not aware of any credit card industry-sponsored study that is based on in-depth interviews with real-life college students.


Hunting in a Baited Field?

Academic and industry-financed studies agree that students are receiving credit cards at a progressively earlier age. For instance, the Student Monitor, which is funded by contracts from the banking industry, reports that its survey of 100 schools (1200 interviews) in 1994 found that 11% of its student credit cardholders opened their accounts while in High School and 20% after High School but before attending college. In 1998, these proportions rose to 15% and 22%, respectively. Overall, the proportion of students that received their first credit card after their freshman year of college declined from 34% in 1994 to 19% in 1998. Dr. Michael Staten and Dr. John Barron’s new study of credit card accounts opened between January 1998 and May 2000 (conducted under the auspices of the Credit Research Center at Georgetown University with its longstanding financial ties to the banking industry) reports that the median age of students when they opened their credit card accounts was 19.9 years old. Since the sampling unit is credit card accounts rather than students, it is not possible to identify the age of the first credit card account or the total credit card debt of an individual student with precise accuracy since the average student has at least 3-4 credit cards before completing college.7 Indeed, many students are not aware that not using their credit card does not necessarily terminate the cardholder agreement. Nevertheless, it is safe to assume that during this period the median age of opening a student’s first credit card account was the end of the freshman or beginning of the sophomore year of college.

Interestingly, the major disagreement between the industry-sponsored and student loan/academic studies is the amount of accumulated credit card debt. Although the Student Monitor data and the 1998 The Education Resources Institute (TERI) survey show a monotonic increase of credit card debt over a student’s collegiate career, both studies report average student credit card debt at less than $700.8 Similarly, the Staten and Barron study report average student credit card debt at less than $600 although it does not estimate the total, aggregate average credit card debt per college student. And, of course, none of these studies explicitly investigated whether student loans were used to pay credit card debts during the students’ collegiate career. As a result, these different sampling units of industry-sponsored studies tend to obscure rather than clarify the true level of consumer debt among college students.

The time series of surveys of undergraduate student loan clients at four year colleges (18 to 24 years old) conducted by Nellie Mae in 1998, 2000, and 2001 offers an important longitudinal comparison albeit based on a college student universe that includes differences from the overall U.S. student populations. For instance, these students may be less debt adverse and come from lower economic backgrounds. Hence, critics of these studies contend that the Nellie Mae data overstate the amount of credit card debt among college students. Nevertheless, the trends are striking. The proportion of students with credit cards rose from 67% in 1998 to 83% in 2001 while the proportion of students with 4 or more credit cards jumped from 27 to 47 percent. Median credit card debt per student rose from $1,222 in 1998 to $1,770 in 2001 while the proportion of balances from $3,000 to $7,000 rose 61% from 14 to 21 percent. Significantly, those with credit card balances exceeding $7,000 declined from 10 to 6 percent which explains the decline in average credit card debt per student from $2,748 in 2000 to $2,327 in 2001. Unfortunately, we do not know if these most heavily indebted students reduced their credit card balances through debt consolidation transactions or actually paid it off.

The most striking pattern is the monotonic relationship between credit card debt and class standing in 2001. Median credit card debt rises from $901 among freshman and $1,564 among sophomores to $1,872 among juniors and $2,185 among seniors. The average credit card debt levels are $1,533, $1,825, $2,705, and $3,262, respectively, which reflects the high debt levels of students at the extreme tail of the distribution. Similarly, the proportion with balances between $3,000 and $7,000 rises from 8% of freshman and 18% of sophomores to 24% of juniors and 31% of seniors. Significantly, Nellie Mae reports the median student loan debt of seniors ($15,708) together with their median student credit card debt ($2,185) for a total of $17,893; the average combined student debt of $20,402 includes $17,140 of student loans and $3,262 of credit card debt.9 Although credit card debt comprises an average of 16% of median student debt among the college seniors of the 2001 Nellie Mae survey, this is an underestimate since it does not distinguish earlier credit card debt that was paid with student loans. These trends are immortalized in the Now and Zen "slacker" line of t-shirts which features a parody of the popular MasterCard advertising campaign:

"Late night pizzas: $5,200
Books for classes: $7,000
Tuition & Fees: $120,000
Moving back into the basement: Priceless


Passing Or Making a Buck

The increasing social pressure to enjoy a more costly lifestyle in college and increasingly High School—the "Just Do It" competitive consumption of immediate gratification—means that students are more likely to spend borrowed rather than earned money outside the budgeting framework of a family allowance and part-time employment. For many parents, their children’s internet shaped lifestyles entail the use of virtual money with its own set of rules and responsibilities. Plastic money is currency of the "web" and cash is becoming as alien to High School students as minimum wage employment is to the price of popular music CD’s and movie DVD’s. More disconcerting, however, is the lack of adequate personal finance or consumer "life skills" curriculum in American High Schools. According to Professor Lewis Mandel, SUNY-Buffalo School of Management, less than one in seven High School seniors in his 2002 survey received any personal finance education.10 And, of course, not all curriculum is equal or entails measurable results. As a financial educator in Texas recently confided to me, the educational program for a private, largely white suburban school was offered every day whereas the same program was offered only once every-other week in the largely minority, public, urban school.

The most striking finding of Professor Mandel’s financial literacy survey, which has been conducted over the last five years, is that the performance of High School seniors continues to decline. In 2002, the average score on his financial literacy test was only 50 percent, a failing grade by any measure concludes Mandel. Furthermore, only 60 percent agreed that sales taxes "makes things more expensive" and 35 percent stated that they are "not to sure" or "not at all sure" about how to manage their money." At the same time, 28 percent reported using their own or their parents’ credit card.11 As students feel compelled to spend more than they earn and credit card companies are eager to offer them high interest credit, it is becoming even more imperative that financial literacy programs be offered in High School and college so that America’s youth do not suffer the social consequences of an unfair financial "playing field." Currently, the financial learning curve for American students is economically benefiting a few financial services conglomerates at the expense of unsuspecting families and the future of America’s youth.

Clearly, the lack of financial education/literacy and parental oversight of students’ purchasing decisions (especially over the internet) encourages the credit card industry to market their products to increasingly younger students in the pursuit of higher corporate profits. As budgetary constraints send more High School students to Junior Colleges for part-time and even full-time classes and High School juniors and seniors visit colleges in order to make informed matriculation decisions, access to bank credit cards continues to push the boundaries of informed consent. In fact, I was recently contacted by an economics teacher at a California High School who was shocked by the brazen marketing of credit cards and student loans to his students on campus by representatives of Wells Fargo Bank. For this teacher, such aggressive marketing campaigns (featuring ‘free’ mini soccer balls) means that the social and personal problems of local college students will become more prevalent in High School. For the credit card industry, then, the goal is to encourage naïve students to obtain credit cards at an earlier age and, especially, outside of the purview of their parents. Indeed, a recent study of credit card financed consumption patterns at Pennsylvania State University—Erie campus showed that those students who used credit cards that are co-signed or whose bills are paid by their parents spend considerably less than their peers whose parents are excluded from the oversight of their credit card purchases.12


A Case-Study of a Mid-Sized Public University

The picture of student credit card debt on American college campuses appears from the available data to be a Dickenesque "Tale of Two Cities." On the one hand, industry-sponsored studies portray college and High School students as largely informed consumers whose purchases tend to conform to a generally manageable level of personal debt. College is viewed as the stepping stone to a secure financial future and any accumulated debt will be easily paid-off during the early years of an adult’s "earning cycle." On the other hand, critics of the credit card industry point out that credit card debt is vastly underreported and that the social consequences may outweigh the economic costs. This is because students are naïve about their personal and especially financial decisions which disproportionately impact minorities, first-generation college students, members of low income households, and the emotionally fragile. Furthermore, college administrators are receiving millions of dollars in credit card "royalties" and other "sweetners" from the banking industry which has clouded their judgement in accurately recognizing the magnitude of the problem and implementing the necessary educational programs. And, the noneconomic consequences can lead to academic failure, loss of financial aid, deteriorating employment prospects, health problems, personal and familial conflicts, credit problems, lifestyle difficulties, failed relationships, and even suicide.13

In order to assess the prevalence of student debt and the dynamics of student credit dependency, I sought to examine these issues through a case-study of a mid-sized public university: George Mason University. Located in Northern Virginia (Fairfax County) and part of the Washington, D.C. Metropolitan Area, George Mason University features an enrollment of approximately 25,000 students; about 60 percent are undergraduates and 40 percent graduate and professional students. In the spring of 2002, a random sample of 8,000 students was selected from the university registrar’s list of matriculating students. From this sample, 800 randomly selected student interviews were conducted in April and the results confirm that the sample closely mirrors the university student population characteristics.14 From this sample, the results are presented separately for undergraduate (N=500) and graduate students (N=300). This methodologically rigorous sampling design yields a representative sample of credit card usage patterns of George Mason University undergraduate students.15 Not incidentally, it is distinct from industry-sponsored studies that are comprised of pooled samples of small numbers of students from a large number of colleges and universities.

For the purposes of this hearing, I will report on only a few variables of public policy significance. First, Table 1 shows that over three-fourths (77.4%) of George Mason undergraduate students have bank credit cards. As expected, the lowest proportion (62.4%) is among freshman and the highest is among seniors (88.2%). Interestingly, the sharpest increase in credit card use is between sophomores (65.7%) and juniors (87.5%). Similarly, the proportion of students with more than two bank credit cards increases substantially from 5% among freshmen to 14% among sophomores to 21% of juniors and 28% of seniors. Interestingly, this trend coincides with the greater use of student loans as reported in Table 3, ranging from a low of 33.6% of freshmen to a high of 52.8% of seniors.

Table 2 illuminates the results of the recent marketing pressures on High School students. In 1998, 10 percent of George Mason freshmen indicated that they first used bank credit cards before the age of 18. Over the next two years, the proportion rose to an average of 16 percent and then doubled to 30 percent in 2001. Overall, 86 percent of the George Mason freshman class with bank credit cards received them by the age of 18 years old. Hence, bank credit cards are now available to virtually any college student and soon High School student who is at least 18 years old—regardless of financial education and/or experience. With the average cost of acquiring a new bank client ranging from $120-$170, it is not unreasonable to assume that some credit card companies may offer "kiddie cards" with comparable credit limits for 17 year old students.

Access to consumer credit cards, however, does not necessarily entail student debt problems. If students are informed consumers and understand the cost-efficient use of bank credit cards, then earlier use of credit cards may result in fewer student debt problems later in school. Table 2 shows the results of whether students have maxed out their credit card limits at least once while in college. Surprisingly, nearly 60 percent of freshmen reported maxing out a credit card at least once while the proportion rises to about three-fourths of the remaining undergraduates. Even more shocking is the reported use of one credit card to pay for another. Almost 60 percent of George Mason freshmen and nearly two-thirds of the other Mason undergraduates used one credit card to pay for another. Finally, the question that has not been investigated by industry sponsored studies is reported in Table 3. It shows that freshmen are more likely than upperclassmen to use their student loans to pay down their credit cards: 73% of freshmen versus 67% of juniors and seniors. This finding suggests that access to credit cards at an earlier age—without accompanying financial education—increases the probability of the accumulation of higher levels of costly consumer debt. The key issue, then, is who bears the costs of their social consequences?


A Growing Collegiate Crisis or Benign Societal Trend

Like driving a car to work, bank credit cards offer highly convenient and useful services to informed consumers who understand how to use them most effectively. Although students can sacrifice their lives for the nation through military service at the age of 18, they are not allowed to drive a car without adult supervision until they demonstrate adequate proficiency skills in an evaluation setting. Some students may be sufficiently mature to drive alone at 16 years old while others may not handle the responsibility until the age of 25 years or even older. Similarly, a novice driver should not be encouraged to drive a high performance sports car while an unemployed student should not be tempted with a high line of credit. As a male sophomore respondent explains, "I don’t own a credit card myself. I don’t think that I want one at this stage of my life. I couldn’t trust myself with a credit card right now. I have so many wants. It’s hard to separate my wants from my needs." Another student discussed the naivete of students toward ‘plastic’ money, "I think its too easy to spend money because you’re not actually seeing the money, you’re just swiping the card real fast and then you don’t have to think about it anymore. If you had to pay with cash you would notice the size of your wallet decreasing."

While such caution may lead to the rejection of the advantages of bank credit cards, the more common experience is expressed by a first-year female respondent,

"[Credit cards are] a good way to establish credit, but an easy way to get carried away! I would suggest everyone who wishes to establish credit to get a credit card, but only use it for emergencies! Everything else, use cash or you will get yourself into a rut because it’s too easy to say, ‘Oh, it’s a credit card so I’ll just pay it later.’ But you forget about the interest and finances charges and pretty soon your’re at or beyond your credit limit an then you’re stuck paying a high amount, plus finance charges each month! So, be wise about getting/using credit cards… they can help you, but they can also hurt you!"

The issue of informed/practical financial knowledge and lack of personal maturity resonates with the respondents of the George Mason survey. As second-year student confides, "It is important to build credit so that when you get out of school you have some good credit, but I think a lot of students end up worse off from having credit cards and do not use them wisely. I do not have one, but I will get one my senior year because I feel I will be mature enough to handle it then. I would rather not risk being in debt." A junior expressed frustration over the lack of marketing restraints on credit card companies, "It is so easy to get into deep debt using credit cards unwisely. If you can’t afford to buy something with cash, you should generally not put it on a credit card. Credit card companies should not offer cards to everyone. We get at least six offers each week in the mail." These sentiments were echoed by a fourth-year senior, "I wish that I never received a credit card. I was stupid and 18. It didn’t help that credit card companies would call my apartment on campus and ask if I wanted one because I was ‘pre-approved.’ All they wanted was a sucker who would go into debt and owe them 500% interest. I think the age for getting a credit card should be 21. At least then you would have grown up a little bit more … away from your parents."

As George Mason students were asked to explain the principal reasons for rising credit card debt, financial illiteracy in general and the role of universities in particular assumed central roles in the success of "mafia like" bank conspiracies. According to a recent graduate, "I think that Americans in general lack sound financial education which leads to many people accruing too much debt. Credit cards can be a useful spending tool, but should be paid off monthly if possible. I had $20,000 in credit card debt when I got out of college…" Others specifically vented their anger at college administrators, "Universities should not allow credit card companies to solicit their business on-campus. Freshmen who live on-campus are very likely to get a credit card, spend wildly, and end up with terrible credit later in life. I saw it happen to many friends." Similarly, a second year male respondent declared, "I think credit cards are pushed on college students too much. I have been offered a card by 8 different companies, at least, since I came to GMU. Credit cards are nothing but trouble because once you get them, you can’t resist using them, and the companies know that. College students are easy prey for the credit card companies." As a fourth year student described her continuing distress, "They are dangerous and I feel that I was trapped into getting one because every credit card company was after me [during] my freshman year and now I have so many I cannot pay them off… The crazy thing is I have 4 cards that are maxed and I have not used them in the last three years [yet] I am still paying for them." Finally, a junior male respondent succinctly declared, "There should be a rule not allowing credit card companies to solicit applications from people on campus. They ruined my life."

Fear, anger, and despondency can overwhelm students who are trying to complete their studies especially when they realize that their credit cards are now an impediment rather than a useful aid in their quest to graduate. Whether as one sophomore describes them as "They’re like the Mob. You should know how to deal with them" or as a graduating senior dispassionately explains, "I believe that most people do not know how to manage their money well, however I feel that I can. I enjoy the fact that because most Americans are in debt because of their stupidity" to a fatalistic loss of freedom, "I really believe most Americans are moving towards the stigma associated the word "american": born in debt, die in debt."

For many students, the loss of personal freedom that has resulted from the unbridled pursuit of competitive consumption on college campuses leaves no other option but government regulation and public education. As a female junior concluded, "Public policy should require full disclosure about interest rates prior to issuing a credit card. Budget plans should be required prior to issuing a credit card. Financial planning courses should be part of junior high and high school curriculums—as well as for college freshmen." Sadly and ironically, most students expressed cynical pessimism that their university administrators would respond to the student debt crisis by imposing responsible restrictions on credit card companies and offering useful financial education programs and practical seminars. For most of these students, credit cards were viewed as simply another way of "ripping off" students by an indirect form of revenue enhancement. The solution was articulately summarized by a third year male respondent,

"I believe credit card use by students is alarming. How do students who generally don’t work pay back credit card bills… I think that there should be restrictions and legislation on credit card solicitations on college campus—college administrators, student government council et cetera have a responsibility to protect and educate students on the evils of credit card companies seeking student sign-ups. Also, I think credit card knowledge and awareness should be part of the College 101/1st year orientation class to help prevent this epidemic sweeping across college campuses. My mom was once a bank loan lender and she noted to me the sadness of the number of people who were denied loans because of poor credit ratings established as young college students."


Public Policy Responses to Credit Cards on Campus

The unrestrained marketing of bank credit cards on college and High School campuses is not a phenomenon that simply can be reduced to dollars and sense. Rather the lack of financial literacy and educational programs is consigning increasing numbers of young Americans to the shackles of high interest consumer debt—the lucky ones that is. Indeed, as students obtain access to "easy" money at an earlier age it means that some will encounter consumer debt problems as early as their freshman year of college and even in the senior year of High School. My data indicates that a substantial proportion of college student students exhaust their credit limits within an academic semester—regardless of the amount of aggregate credit. A $500 "introductory" line of credit in the fall semester can easily rise to $2000 to $4000 by the end of the academic year. For many of these students, a realistic credit limit can make the difference between surviving their financial "learning curve" or becoming an academic casualty of competitive consumption or shrinking public education budgets.

As major credit card companies become leading student loan providers, competition for young clients will continue to escalate with students learning the refinement of debt management techniques like the "credit card shuffle" and the "hidden debt" or rotating student loan game. This explains how the credit card industry is increasing student credit card debt capacity (it is now common to find undergraduate students with credit card debts of over $20,000) through public subsidies such as student loans and low cost tuition at public universities. Unfortunately, the consequences of mounting credit card debt are not equally borne, especially amongst students from low-income, minority, and first-generation college backgrounds. Hence, the marketing of high interest consumer loans to college students—before they begin full-time employment—has major implications to future societal trends such as college retention and graduation rates, racial and ethnic social inequality, rising health problems including anxiety and clinical depression, future matriculation in graduate programs, homeownership, career mobility, bankruptcy filings, retirement patterns, and even the decision to have children.16 It also has profound implications to the national savings rate—which is increasingly becoming a foreign policy issue—as the Consumer Bankruptcy Project of the Harvard Law School reports a 51 percent increase in filers under 25 years old between 1991 and 1999. These bankruptcy filers accounted for nearly 7 percent of all bankruptcies at the end of the 1990s which is a striking finding in view of the brief number of years that they have spent in the full-time workforce.17

Clearly, the credit card industry has proven itself incapable of self-regulation while administrators of large public institutions have demonstrated greater interest in increasing credit card royalties than in fulfilling their responsibility to ensure the graduation of their students with the lowest possible level of financial debt. It is imperative that college administrators begin to formulate a code of conduct that is enforceable and with effective sanctions on unrepentant credit card marketers. As the banking industry emphasizes that credit card debt is an individual decision that requires individual level behavioral changes, it is important to note that this learning curve benefits primarily the top ten credit card companies. And, that these behavioral changes are the product of over a decade of costly and highly persuasive mass marketing campaigns. According to a representative of the American Banking Association, the credit card industry should not be criticized for marketing to teenagers since Americans are essentially fair game for all corporations beginning at the age of three. Consequently, without legislative restrictions on credit card marketing and the implementation of objective, practical, and effective financial literacy/education programs in High School and college, the student credit card debt problem will become a social crisis of far greater proportions.

Table to accompany Dr. Manning's Testimony are available here.


  1. Sandy Baum and Diane Saunders, Life After Debt: Results of the National Student Loan Survey, Nellie Mae, Braintree, Ma, 1998.

  2. Robert D. Manning, Credit Cards on Campus: The Social Consequences of Student Debt, Consumer Federation of America, Washington, D.C., 1999 and Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit, Basic Books, 2000.

  3. Lendol Calder, Financing the American Dream: A Cultural History of Consumer Credit, Princeton University Press, 1999 and Robert D. Manning, "Charging for Credit: Convenience Users and the Ideology of the Moral Divide," Chapter 4 in Credit Card Nation: The Consequences of America’s Addiction to Credit, Basic Books, 2000.

  4. For specific terms of the contract, see Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit, Basic Books, 2000, p. 348.

  5. Robert D. Manning, Credit Cards on Campus: Current Trends and Informational Deficiencies, Consumer Federation of America, Washington, D.C., 1999.

  6. General Accounting Office, Consumer Finance: College Students and Credit Cards, Washington, D.C., June 2001, pp. 33-34. This methodologically flawed report features a striking reliance on credit card industry financed studies and an explicit reluctance to examine academic studies on the topic. In addition, the GAO failed to require the credit card industry to supply important proprietary information that could have revealed new insights into these issues.
  7. Student Monitor, "Financial Services," Ridgewood, New Jersey, 2001 and Michael E. Staten and John M. Barron, College Student Credit Card Usage, Credit Research Center, Georgetown University, Washington, D.C., June 2002.

  8. The Education Resources Institute and the Institute for Higher Education Policy, Credit Risk or Credit Worthy? College Students and Credit Cards, Boston, MA June 1998.
  9. Nellie Mae, Undergraduate Students and Credit Cards: An Analysis of Usage Rates and Trends, Nellie Mae, Braintree, Ma, April 2002.
  10. Lewis Mandell, Our Vulnerable Youth: The Financial Literacy of American 12th Graders: A Failure by Any Measure, JumpStart Coalition for Personal Financial Literacy, Washington, D.C. 1998, 2000, 2002.
  11. Lewis Mandell, Our Vulnerable Youth: The Financial Literacy of American 12th Graders: A Failure by Any Measure, JumpStart Coalition for Personal Financial Literacy, Washington, D.C. 1998, 2000, 2002.
  12. Pinto, Mary Beth, Diane H. Parente, and Todd S. Palmer, "College Students’ Credit Card Debt and the Role of Parental Involvement: Implications for Public Policy," Journal for Public Policy and Marketing, Vol. 20 (1), pp. 105-113.
  13. Patrica Drentea, "Age, Debt and Anxiety," Journal of Health and Social Behavior, Vol. 41 (December 2000), pp. 437-450; Patrica Drentea and Paul J. Lavrakas, "Over the limit: the association among health, race and debt," Social Science & Medicine Vol 50 (2000), pp. 517-529; and Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit, Basic Books, 2000.
  14. Robert D. Manning, Gregory A. Guagnano, and Ray Kirshak, "CREDIT CARDS ON CAMPUS: A Growing Collegiate Crisis or Benign Societal Trend?" (September, 2002).

  15. Sandy Baum and Diane Saunders, Life After Debt: Results of the National Student Loan Survey, Nellie Mae, Braintree, Ma, 1998 and Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit, Basic Books, 2000.

  16. Reported in General Accounting Office, Consumer Finance: College Students and Credit Cards, Washington, D.C., June 2001, pp.12-14. See also Teresa A. Sullivan, Elizabeth Warren and Jay L. Westbrook, The Fragile Middle Class: Americans in Debt, Yale University Press, 2000.

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