MEL STILLER More students with debt
It’s that time of year again. Time to buy textbooks, stock up on groceries, purchase school logo clothing and get settled into college life. And the easiest way for any college student to quickly purchase all back-to-school necessities is to “charge it,” so banks and credit counseling services are pitching their tents on campus with credit-smart advice for eager young adults.
At college fairs around the nation, incoming freshman are enticed by solicitations of free bank accounts and “student rate” credit cards, but industry officials remind bankers and students that proper education on such incentives is necessary.
“All the colleges have fairs for incoming students that range from on-campus programs and food services to campus ministries and credit cards, and all the banks in the area have tables set up and many banks, whether it’s for banking services or credit cards, are there to solicit people,” said David Floreen, senior vice president of government affairs and trust services at the Massachusetts Bankers Association. “However, whether it’s banking services, financial services, credit cards or any other kind of activity, one element to explain to a young adult is that this [credit card] needs to be treated appropriately. Anything done in excess can create a problem. Credit cards are an essential way of life for most college students … if used wisely, they are very good. The important thing is to be able to learn how to use a credit card and understand that it’s not a free loan.”
According to Floreen and other members of the banking industry, the best line of defense against credit card abuse is education.
The education often is geared toward new students, but many recently graduated students are learning the lesson the hard way. In a tight economy, students are finding themselves leaving school only to enter a depressed job market, with the pressure of repaying student loans and credit card debt quickly becoming a daunting reality.
“It’s no secret that our recent graduates have entered a depressed job market, but proper preparation [credit counseling] needs to come prior to graduation. Some schools are doing a better job than others in terms of counseling students, but as a society, we could be doing a far better job educating students and young adults,” said Mel Stiller, chief executive officer of Consumer Credit Counseling Services of Southern New England. “It would be great to see financial education in the high school and in the colleges.”
According to the American Council on Education, 67 percent of students that graduate from a four-year secondary institution finish school with debt. In a 2002 national student loan survey conducted by Nellie Mae, a leading national provider of higher education loans, the average undergraduate education loan debt was $18,900. In addition, graduating students who used their credit cards to finance part of their education left college with an unpaid credit card balance of $3,400.
Stiller said the consequences of not paying student loans or credit card balances can affect a young person’s future because credit ratings will suffer, making it difficult to purchase a car or apply for a mortgage, and it negatively affects borrowing, deferments, forbearances and additional federal student financial aid.
Many credit card companies, including MBNA America, promote student credit cards on campus while at the same time passing out informational flyers on maintaining good credit.
These flyers list helpful tips for managing debt, and how to choose a good card carrier and budget wisely.
According to one MBNA flyer, seven “can’t miss” tips for keeping good credit are:
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These tips, along with other credit-worthy messages, are being touted around campuses with the help of national creditors and local organizations.
“We are going to the campuses to the extent we can … and we do the best we can in terms of going into colleges and high schools. However, we face resistance. Time is limited and resources are limited and some folks don’t understand the importance of financial education,” said Stiller. “It’s a different generation today, and the kids today are growing up with credit as a way of life whereas the previous generation did not. Over the last two to three years, statistics have remained the same … but there is a continuation of a trend in that more young people are coming to us with more credit card debt.”
Get Smart
In most cases, said industry officials, there has been some financial services education taught in the home or in the school systems before students attend college, but in the event of financial illiteracy, associations including the CCCS, MBA and American Bankers Association are working on financial literacy initiatives to bring to the school systems.
Teens and young adults across America will learn the do’s and don’ts of credit on the first annual Get Smart About Credit Day, sponsored by the American Bankers Association Education Foundation, to be held on Oct. 16.
Bankers across the country will visit colleges, high schools, freshman orientations, youth groups, and continuing education classes to teach students how to budget, use credit cards responsibly and build a positive payment history.
“It’s important to know how to use credit cards. It’s like driver’s education – you don’t have a driver’s license before you take the class, but the education is necessary. In this case, credit cards are not a toy and you are [responsible for the consequences of their use] … it’s better to be educated and it’s in the bank’s best interest, too,” said Catherine Pulley, spokeswoman for the ABA Education Foundation. “While teens may not have credit cards of their own … this is a generation of young people who will experience credit from the cradle to the grave.”
Pulley said teenagers spend an average of $75 a week and it’s necessary for them to understand the importance of careful spending.
“We are encouraging bankers to get involved and go into classrooms, youth centers, churches, synagogues and any other environment susceptible to learning,” said Pulley. Get Smart About Credit Day includes a video with teens, college students and young adults discussing their credit experiences, handouts on credit rights and credit reports, exercises on budgeting, saving and credit use, and quizzes.
“The goal is to educate people on the responsible use of credit and create more responsible consumers. It’s in the bank’s best interest, too,” said Pulley. “In the long term, the bank is going to make more money off a mortgage than if you go bankrupt.”
Here in the Bay State, Floreen said the MBA, much like its national counterpart, views enhancing financial literacy among young people as a high priority. And for member banks, good financial literacy courses will help build the bank’s reputation and grow its customer base – an investment in the future and in future customers.
“On almost all college campuses, programs are being offered that are catered toward students and you also have ATMs on campus that draw in students. With many community banks pursuing that market share on campus, the SUM [surcharge-free ATM network] machines are helping because for students, they can take their hometown bank to college. These are the banks looking at doing relationships with customers that will last four years and beyond,” said Floreen. “But, we really are tying to encourage responsible use of banks by students. Use everything in moderation and use it wisely. Many of our [member] banks already realize the value of reaching out to students as new customers – they are younger with part-time jobs and going to school, and they have money or access to money and they are the future customers. If banks treat students well, they are likely to grow their customer base.”
