College students in Michigan and across the nation are carrying burdens a lot heavier than their book bags: a crushing load of credit card debt that has forced an increasing number of young adults into bankruptcy. Wayne State University sophomore Mohamed Soofi doesn't find his $4,000 credit card debt all that troublesome, especially with a $6.50-an-hour part-time job in the computer lab.
"Does it bother me? Yes and no. Yes, because it's going to be hard to pay that off. No, because if I don't have cash, I can always use these," said Soofi, a business major from Detroit who has another $1,000 left before reaching his credit limit. While studies say unemployed and underemployed students shoulder an average $2,700 in debt, credit card companies keep inundating them with offers. And students keep snapping them up. A recent study by Nellie Mae, the federal student loan company, found that 78 percent of college students had at least one credit card, up from 67 percent just two years before. It's not surprising then, financial experts say, that college-age students were filing bankruptcy at record rates through last year, even while the overall rates were going down. Filers 25 years old or younger numbered almost 150,000 last year, a tenfold increase in just five years. At the same time, studies have shown that debt forces some students to delay their education, increasing their costs. What is surprising to many is that universities are joining in the game, profiting when their alumni associations take a cut of school-logo credit cards marketed to students. "It's clear the universities are taking the same course they have with every other social ill, and that's to wait for the litigation and then change," said Robert Manning, a University of Houston professor and author of a 1999 breakthrough study on student debt. "This is a system way, way out of control." Consumer educators in Michigan agree. "Many college students come to school as financial illiterates and they're being offered a lot of credit ... and they don't know what to do with it, said Gwen Reichbach, director of the National Institute for Credit Education, a group that teaches elementary and secondary school students about debt dangers. The institute is now pursuing grants so it can offer programs, starting at Eastern Michigan University, to let college students know what they're risking. "We're doing it because there's such a need," Reichbach said.
Most of Michigan's public universities offer tailor-made credit cards directly or through their alumni associations. The cards, imprinted with school logos, earn money for alumni groups, who funnel some of it back into campus programs and scholarships. The two biggest players are Delaware-based banks MBNA and First USA. Both offer their "affinity cards" at hundreds of campuses nationwide. Most schools earn the money through new sign-ups and a pay-per-use plan, which is then spent on everything from scholarships to alumni parties. "Statistics say that the vast majority of students are going to get credit cards anyway, so if we can offer one (that) provides some sort of incremental advantage to them, it's appropriate for us to be involved with it," said Jerry Sigler, business director of the alumni association at the University of Michigan. The U-M association earns between $1 million and $1.5 million a year from its 68,000 card holders. About 10,000 holders are students, with the money coming from sign-ups and per-card spending. "We hope it keeps alive their nostalgia for the university, in the same way as when they wear a U-M watch," said Sigler, who has no qualms with making credit cards available to students with little or no income. And schools allow credit card vendors -- for a fee -- to descend on campus, offering trinkets to students who secure new cards. Credit card companies point out they are marketing a legal product to adults who should be able to learn how to manage debt. They offer credit management programs on some university campuses and, for the well-wired student, tutorials online. Representatives of MBNA and First USA did not return calls for comment. But critics consider the programs little comfort compared to the millions of dollars that the companies make every year. Many of the students given credit lines up to $10,000 per card make less money than their working peers who aren't so heavily courted.
Students are appealing
Erica Young, 21, of Grand Rapids has a card with a limit now up to $8,500 -- her reward for using her card throughout college at the University of Michigan. But she refuses to keep a balance anywhere near her limit. "I couldn't pay that off," she said. "I think a $500 limit is fine for most things." It's not their earnings, but earnings potential that makes college students appealing. At the same time, the companies know that mom and dad can buy wayward students out of trouble. But then again, several studies have shown that debt forces one in six college students to delay their education so they can get jobs to pay their bills, Reichbach said. One Michigan school that does offer a card through its autonomous alumni association, Ferris State University, limits its cards to $750 for students. "We were just afraid that a card marketed by the alumni association might turn into a disadvantage for students," university spokesman Jim Thorp said. "We wanted to put a safeguard in there. We weren't just out to scam the students." The association pulls in between $25,000 and $35,000 a year. Some of the profits go back to the university for scholarships and other benefits.
Troubles with debt
While schools enjoy the perks, they don't know how much of the total is being paid for by students in debt trouble. Only the credit card companies know for sure, and they aren't telling, Manning said. Universities "don't care," he said. "They see it as a short-term infusion of cash." Wayne State University no longer lets vendors use table space in the Student Center Building. But the university alumni association markets a card, and has agreed with the vendor not to make the proceeds public. Companies argue that 60 percent of students pay their monthly bills on time and are a good risk. "One thing I'm always fascinated by is that the U-M student delinquency rate is below the delinquency rate for all MBNA card-holders," said Sigler of the U-M alumni group. But Manning counters that schools -- even those few that offer debt management education -- don't reveal the whole story. With debt causing students to take on jobs to pay off their balances, many sacrifice their goals of getting a degree in four years -- meaning they spend more on tuition over the long haul. "It's not in their interest (schools) to reduce debt on campus," he said. But it should be, he cautioned. "This is a generation that's maxed out and angry and they're not going to be donating money to the alumni association."
You can reach Janet Naylor Vandenabeele at (313) 222-2309 or email@example.com.
This story ran on The Detroit News on April 23, 2001.