Today the Committee returns to the issue of financial literacy. This hearing, which is focused on college students, is the fifth in our series. We began our consideration last February, when we held two hearings and heard from a number of distinguished witnesses, all of whom called for increased financial education and awareness. Following up on some of the specific topics raised at those initial hearings, we held two subsequent hearings each exploring an issue raised previously: the financial literacy of the 'unbanked', who lack the benefits access to mainstream financial institutions provides; and the financial literacy of immigrants who send money back to their country of origin and often pay exorbitant fees do so. Today, we will focus on the importance of financial literacy among college students, specifically with regard to the use - and possible misuse - of credit cards.

My colleague, Senator Dodd, is to be commended for his leadership on this issue; he has offered legislation (S. 891, the 'Underage Consumer Credit Protection Act of 2001') that seeks to protect persons under the age of 21 from creating serious financial problems through the misuse of credit cards. Senators Corzine, Akaka, Stabenow, and Schumer have also been active on these issues. Senators Corzine and Akaka spearheaded the successful effort to attach language to the recently passed education bill which will enhance the ability of primary schools across the country to teach financial literacy to their students. Senator Schumer has a long standing interest in protecting credit card users.

The timing of this hearing is not accidental. This month, more than 13 million young people seeking a post-secondary education will go "back to school," where many of them will be faced with making significant personal financial decisions for the first time. This hearing is intended to serve as a signal to these young people, who may be eager to have access to credit without fully understanding the responsibilities that credit brings, and also to those eager - perhaps too eager - to make that credit easily available.

The responsible use of credit is essential to the efficient functioning of our economy, but it is increasingly clear that many young people are ill-prepared to handle credit responsibly. President Patrick Swygert of Howard University, testifying on behalf of the Historically Black Colleges and Universities, raised this point at our February hearings. He observed that: "If used responsibly, credit cards allow students to build up credit histories that facilitate increased access to credit in the future." He warned, however, that "If college students have not learned financial management skills in their secondary education, or from their parents, and if they misuse their credit cards or mismanage their credit card debt, the disadvantages far outweigh any supposed advantages."

For many Americans, college is the time when they first enter the financial system. Unfortunately, studies show that most college students lack the financial knowledge necessary for a smooth entry. According to Americans for Consumer Education and Competition, a non-profit institution, in the year 2000, 82 percent of high school seniors failed a thirteen-question personal financial quiz.

The situation is not improving: the JumpStart coalition, which promotes financial literacy efforts at the K-12 level, released a study this year that found: "high school seniors know even less about credit cards, retirement funds, insurance and other personal finance basics than they did five years ago."

Despite their lack of financial literacy, incoming college students are reportedly inundated with offers for credit cards. A recent article in the Kansas City Star -- entitled 'Credit Card Hawkers Nest on College Campuses' -- reported that, "Like it or not, credit-card hawkers are just as much a part of campus life as fraternities, sororities, and homecoming games." According to a study by Nellie Mae, a company that provides student loans, the vast majority of college students (83%) have at least one credit card. And the General Accounting Office reports that over half (55%) of college students acquire their first credit card during their first year in college. Thus, the research suggests that most college students have credit cards, while at the same time, they lack the basic financial knowledge necessary to effectively and efficiently use them.

Therefore, it should come as no surprise that many students build up significant credit card debt without fully comprehending the consequences. According to the Department of Education, in the 1999-2000 school year, 44.7 percent of college students had a balance due on their credit cards, with a median balance of close to $1,450 and an average balance above $3,000. Evidence such as this has led many colleges and universities to consider what role they can play in helping their students achieve a smooth entry into the financial system.

Today we will examine these issues with an excellent panel of witnesses.

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