Daily Texan Staff
Despite recent studies that show a rise in student credit card debt, there is little agreement throughout the personal finance community about who or what is to blame for the problem.
In fact, many in the banking industry deny that student credit card debt is really a "problem" at all.
However, one prominent researcher believes that student credit card debt is more than a problem it's an epidemic.
Robert Manning, a senior research fellow at the Institute for Higher Education, Law and Governance at the University of Houston Law Center, has conducted what some consumer advocates call the most comprehensive research in the nation concerning student credit card debt.
In June 1999, Manning announced the results of his report, "Credit Cards on Campus: Costs and Consequences of Student Debt."
Manning's study found that overaggressive marketing tactics aimed towards students are partly to blame for increasing student debt something Manning himself began to notice as a professor.
"Beginning in 1989, when I began teaching full-time, I noticed that credit card advertisements became increasingly visible on campus and in the university student newspaper," he said. "As tuition escalated and student loans jumped sharply in the 1990s, several undergraduates began to discuss with me their mounting credit card debts."
Manning's subsequent research found that college students are vulnerable targets for credit card solicitations.
"From freshman orientation hand-outs and bookstore inserts to applications strategically placed in dorm corridors, classrooms and cafeterias, credit card advertising campaigns are designed to condition students to accept the use of credit cards as the social norm of college," Manning said.
Additionally, some universities now indirectly benefit financially from the use of student credit cards, according to Manning's report.
"The [tuition] inflation rate in colleges has been two to three times the national inflation rate," Manning said. "Colleges know that people are going to have to make up the difference with their credit cards."
Some colleges encourage students to charge escalating tuition or fees on licensed "affinity" cards, from which some organizations collect payments on a fraction of each student purchase, Manning said.
While the University does not have any direct financial ties to such a credit card, the Texas Ex-Students' Association sponsors the "Longhorn Mastercard," which is issued by MBNA America Bank. The Longhorn card is one of several types of cards marketed to UT students on campus via strategically located tables.
"This [on campus] marketing campaign is crucial, because that first relationship is a free gift," Manning said, referring to credit card offers. "And students are happy because they think they got one on the bank. Just like a retailer in a shopping mall who can't sell you anything if you don't walk into the mall, it is the same with the credit card industry they can't make money off you if you don't get a credit card."
The prevalence of such credit card solicitations has made it easier for unemployed college students to receive major credit cards than low and moderate income workers, Manning added.
Banks also suspend their normal credit card underwriting criteria in order to make a more direct marketing push towards students, he said.
"The reality is that [banks] discriminate ... . If you are 19 years old and you make $18,000, you [would normally] get rejected for a credit card," Manning said. "The only reason you are getting it is because you are in college. And, if you graduate from UT and you get an $18,000 job, you may get rejected for credit cards that you turned down in college."
Jim Boon, executive director of the Ex-Students' Association, said his organization is concerned about credit debt and tries to educate students about financial responsibility.
"We partner with MBNA in conducting seminars throughout the year on the proper use of credit," Boon said, adding that educational materials are included in some credit card solicitations that MBNA mails to students.
The Daily Texan requested comment from MBNA America Bank by both phone and fax but received no response.
In the wake of Manning's study, some concerned members of Congress have authored legislation intended to help students avoid credit card debt but their efforts have been largely in vain.
In March 1999, Rep. John LaFalce, D-New York, introduced House Resolution 900, "The Consumer Credit Card Protection Amendments of 1999," which would have regulated credit card solicitation of underage consumers.
The legislation would have banned the issuance of credit cards to persons under 21 years of age unless parents gave prior approval or the student had evidence of independent means of payment.
It also required more complete disclosure of credit terms and fees in credit card solicitations, especially in misleading "teaser rate" promotions.
LaFalce said he decided to propose the legislation after receiving several letters from parents requesting protection for their children from unwanted credit card solicitations.
"With consumer bankruptcies reaching record levels up 84.2 percent since 1990 credit card companies should be more responsible about marketing to our nation's youth," LaFalce said in a statement.
Congress should hold hearings on the impact of credit card marketing, especially to teenagers and college students, and take a hard look at the nation's ballooning consumer debt, he added.
LaFalce's bill never reached the House floor, however.
On Jan. 3, Rep. Louise Slaughter, D-New York, introduced H.R. 184 "The College Student Credit Card Protection Act," which includes provisions that aim to curb student credit debt directly. The bill was first authored in March 1999.
The bill would limit the amount of credit any lender can extended to a college student to 20 percent of the student's annual income, or between $500 and $2,000, depending upon how long the student's account has been open.
Additionally, the legislation would prohibit lenders from issuing a credit card to a student who has no independent income and already maintains one credit card account.
Becky Bailey, spokeswoman for Rep. Slaughter, said the legislation has been referred to the House Committee on Financial Services, which is more open to looking at the issue now than in years past.
"We have increased the profile of this issue among the public and members of Congress, so we are optimistic in this session that we will get some action on it," Bailey said.
In conjunction with the new legislation, the General Accounting Office is conducting a study on student credit debt, she added.
Catherine Pulley, spokeswoman for the American Bankers Association, said Slaughter's legislation is unnecessary and would discriminate against young borrowers.
"If an 18-year-old is available to vote, to drive and die for their country, I think it's stretching it a little bit to assume that in the personal finance marketplace an 18 -year-old can't handle themself," Pulley said.
It is a form of illegal government price control to deny credit to a certain segment of the population based upon
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