In too deep

By Michelle McCollum

Arizona Summer Wildcat

As the expenses for higher education grow, UA officials warn students about the dangers of credit card debt

In-state tuition for a full time student: $2,490. Three hardback textbooks and a six pack of pencils: $130. One week's worth of groceries: $100. All charged to a credit card.

The look on the face of the student when he gets the monthly bill: definitely not priceless.

The economic demands of college life, like rising tuition, rent, and car upkeep are too difficult to handle without a credit card, says Tamara Harold, a sociology sophomore. While Harold is already in $5,000 in debt, she also says having a credit card is the only way for her to financially survive.

"There is just so much stuff to buy," she says. "It's just a constant flow out. You can never catch a break."

"The best I can hope for is a good job after graduation," she adds. "I guess I'll work hard and pay them off as soon as possible."

According to Susan Ferrell, an adviser for the University of Arizona Associated Students' legal services department, college students are most likely to fall prey to credit cards.

"The college crowd is a gold mine (for credit companies)," she says. "They generally don't look at the interest rates too much or read the fine print. They end up paying the minimum payments and the interest alone keeps them on for years."

On June 15, the Chronicle of Higher Education printed an article entitled "The Lure of Easy Credit Leaves More Students Struggling With Debt." The article said that 20 years ago, an 18-year-old could buy beer but couldn't acquire a credit card without his parents. The times are changing.

Now credit card companies target college-aged students primarily because they are away from their parents for the first time.

"I see a lot of new students, freshman and transfer students, with debt problems," Ferrell says. "They are inexperienced and so they get themselves in debt very easily."

Electrical engineering major Tyrone, who asked that his last name be withheld, was taken in by the easy money available to him through credit cards. Within a short time, he racked up $10,000 in charges.

"I was stupid," Tyrone says. "I bought things like a stereo system and stuff like that. I had to get a job and work really hard for three or four years to pay it off. That's never going to happen again."

"Who gives an 18-year-old a $10,000 limit, though?" he asks, shaking his head. "Credit cards are good in that you can buy stuff you don't have money for right then. But they're bad because it's easy to not feel responsible for the money you're spending."

The credit card conspiracy

When each semester begins, dozens of credit card vendors bombard the campus without UA's permission to sell, said Diane Newman, the UA's Commercial and Mall Activity coordinator.

Credit card vendors who wish to be on campus must get permission from Newman, but she says that sometimes a few slip through the cracks. Students should beware of these few, Newman says.

"Avoid the people with gifts like T-shirts draped over their arms," says Newman. "They'll also have clipboards, no booths and they'll generally look like they don't have a permanent place to be. They wander."

These vendors, says Newman, are not authorized to sell on campus, so the students who buy from them could be getting scammed.

"These (vendors) are good-looking college-aged students, so that reels people in right there," Newman says. "But they can be very intimidating and will get right in your face while you're sitting on the Mall. If you ever do feel threatened by someone like this, call UAPD."

Many students have had to learn the hard way that they should beware of credit card vendors bearing free gifts. These students warn others against credit card companies who see the plight of the poor college student, lure them in with a T-shirt or candy, and then exploit them with high credit limits and interest rates.

"(The credit card companies) offer you the credit card with the cool UA logo on it," says Caren Childers, a mathematics senior. "I think they know you'll use it as often as you can, and so you'll be paying them interest forever."

Childers is a returning student, having spent eight years recovering from financial troubles due to credit cards she acquired when she first arrived at the UA. While she sees the companies as partly to blame for many students' debt, she also admonishes students to take responsibility for their own decisions.

Only have one credit card and use it sparingly, Childers suggests.

"You're in college now," says Tyrone. "You're at least 18. You're an adult. You ought to learn that when somebody gives you money, you're going to have to give it back."

The college crowd

College students, infamous for their monetarily-challenged lifestyles, often find themselves as prime targets for credit card vendors because of their need for extra funds. Low-paying jobs coupled with the need for food and expensive books is the dangerous combination that leads students into applying for - and eventually misusing - credit cards, Ferrell says.

"It's so much easier to use than cash," says Laurel Steinbring, a nursing senior. "Those things that may not seem so big right now eventually add up to a lot of money."

According to a recent analysis of credit card behavior, the number of college students with one or more credit cards has risen 10 percent since 1998. The study, released in February by the Nellie Mae Foundation, also shows that the average student debt has risen from $1,879 in 1998 to $2,748 in 2000.

The Nellie Mae Foundation proclaims itself a leading national provider of higher education loans that also studies and researches financial behavior. Their research shows that overall students are digging themselves deeper into debt.

But it's not all bad news: the study also shows that only 10 percent of students who own credit cards owe $7,000 or more, a decrease from previous years.

"I also think students get targeted by credit card companies because there's so much pressure to be trendy," Steinbring says. "There's so much stuff to do, and most people just don't have the money to do it."

Summa Cum Loan

While credit cards help to establish a credit history, which in turn makes possible future car loans, life insurance, and mortgages, they can also hurt by creating excessive interest fees if the balance is not paid off right away.

"You've got to think: 'Do I really need this?'" says Newman. "Think long term, because if you had $3,000 debt and you paid only the minimum payment every month, the way the interest would accrue you would be paying something like $25,000."

In 1997, Newman surveyed 100 people about their credit card use. She discovered 75 percent were in debt $1,000 or less. This survey's numbers matched those of the national average of 75 percent with debts less than $1,000.

"It makes me wonder why you hear supposed experts on credit cards saying college students are really in debt, because my survey says 75 percent aren't, really," Newman says.

Tina Mehl, an assistant manager in charge of financial services at Pima Federal Credit Union, describes credit cards as a loan. The amount you borrow to pay for an item is the amount you have to pay back plus the interest that grows after time, which is called the Annual Percentage Rate.

"It's a low interest loan, practically no interest," Mehl says, "because if you keep the balance paid off every month the interest doesn't have a chance to accrue.

"Always ask about the various fees, finance charges, and interest rates. Some (banks) may make you pay more than others, and some of them actually charge for cash advances. Look at the interest rates because they tell you how much is going to be added to your outstanding balance."

The way out

For students already in debt, there are many options as a way out, depending on how far in debt the student is.

Ferrell counsels students who often find themselves in over their heads.

For those who are unable to pay debts less than $1,000, Ferrell helps them to write letters to their creditors explaining their situation.

"If it is a small debt, writing letters usually helps," Ferrell says. "Most credit companies don't even deal with (the cardholder) until the person has defaulted a couple of times anyway."

For those who find themselves $1000-$3000 in debt, which is considered an average amount, Ferrell suggests going to a credit counselor such as the Consumer Credit Counseling Services Southwest, a non-profit agency which helps with credit problems.

"We have a debt management plan," says LisaDay, representative for Consumer Credit Counseling Services Southwest. "We consolidate the debt to one payment. The person must not use the credit card at all while on the plan, and must meet with a counselor for 45 minutes to an hour to find a suitable payback plan. We also have classes about personal finance management the person can take."

But if the student has large debts and cannot pay them back, Ferrell suggests, but does not encourage, declaring Chapter 7 bankruptcy, which would liquidate the debts.

"It would almost completely wipe them out," Ferrell says. "But it stays on your credit record for seven years. Which means if you are at the end of your college career, it will stay with you even as you are looking for a house or a car. It affects everything."

Meanwhile, avoiding debt altogether is Ferrell's main advice for financial success.

"If you don't have the money, don't spend it," she says.

Ferrell says being educated about the mistakes one can make will help students to make better decisions that will ultimately help them in the future.

And that knowledge is priceless.