"Step right up and get $5,000 worth of credit -- no questions asked! Oh, and here's a cute little stuffed replica of the school mascot to adorn your dorm room."

It used to be, the biggest worries parents had when they packed off their teenager for college were about sex, drugs and wild keg parties. But in the past ten years, another issue has been added to that list: unprotected use of plastic.

In 2000, a study by Nellie Mae, the college loan behemoth, found that 78 percent of undergraduates had at least one credit card. A more recent survey pegs it as high as 85 percent.

According to Dr. Robert Manning, finance professor at the Rochester Institute of Technology and author of "Credit Card Nation," nearly 14 percent of college freshman have at least two credit cards. That number more than doubles (29.8 percent) among seniors.

More startling are the results of a statewide survey taken by the state of Oklahoma over the 2002-2003 school year. It found that 33 percent of undergraduate students had four or more bank credit cards, plus two store cards, at least one gas-related card, and a line of revolving credit issued by a bank!

But these "average" numbers mask a dark undercurrent: students who have to borrow to pay for their college education -- i.e. lower income students -- tend to rack up heavier credit card debt, as well. Nellie Mae confined its 2000 survey to students with outstanding student loans. Among this group, it found that 13 percent of undergrads carry between $3,000-7,000 in credit card debt; 9 percent owe more than $7,000.

The Scary Part

As a parent, you will probably never know until well after the fact that your teenager has obtained a credit card account. Gone are the days when mom or dad must co-sign the application. Students are such an attractive demographic for credit card issuers they're willing to take on the added risk of directly extending credit to someone who earns little (if any) income and may already owe a significant amount of money in the form of student loans. Naturally, you can expect them to charge a higher rate and assess higher fees in order to cover this risk.

(Surprisingly, students have a lower default rate than you might think. And there's always the parental bailout scenario: rather than see Junior's credit rating wrecked, mom and dad can sometimes be prevailed upon to fork over the money.)

A study in 1994 estimated that the discretionary income of college students was $13 billion. Adjusting that for inflation of 3 percent per year, means potential student purchasing power amounts to more than $18.5 billion today. A market this size is hard to resist.

Out of the Pockets of Babes...

In addition, there are several factors that make college students -- particularly freshmen -- vulnerable to the pitches of credit card issuers. The first is cultural: young people are used to living in a credit-fueled society where debt is "normal." In addition, gone are the days of the stereotypical "starving student." Teenagers heading to campus today expect to continue to enjoy the same lifestyle they had when mom and dad were paying the bills.

At the same time most are blissfully naive about how credit operates. A study in 2000 found that 71 percent "had no idea what interest rate they were paying." Credit card companies know that if they open an account for a college student, that individual is likely to remain a loyal customer for many years after graduation.

Adam Levin, the former Consumer Affairs director for the state of New Jersey and current president of www.credit.com, is less charitable. He says credit card companies began aggressively marketing to students several years ago when they realized two things: (1) "How much money they were making when balances aren't paid in full," and (2) "Students never have enough money to pay for anything in full."

It All Adds Up

It's easy to see how this combination of easy credit and inexperienced cardholders can quickly add up to the potential for a whole lot of trouble.

Several studies -- the Oklahoma survey, a nationwide poll by the U.S. Department of Education, Manning's research -- all indicate that whatever level of credit card debt a student has by the end of his/her freshman year, that amount has usually doubled by the time they graduate and, on average, is somewhere north of $3,000.

The Center for Economic and Policy Research reports that about two-thirds of students attending a 4-year college or university finance their education with federal loans. Last year, the average senior who borrowed to pay for college owed $17,600 in student loan debt on graduation day. Add to this the outstanding credit card debt this student is likely to have and it's no wonder that, according to Manning, "the fastest growing groups of bankruptcy filers are those that have previously registered the lowest rates: senior citizens and young adults under 25-years-old."

In recent years, at least two unrelated student suicides were tied to worries about what the victims felt was an overwhelming amount of debt. In one case this amounted to just $2500.

An Unholy Alliance

The irony is that many students are obtaining their first credit card -- and getting into credit trouble -- with the help of their college. In a 1998 survey, one out of four students who applied for credit said they were solicited either directly by a campus representative or a school-related ad.

Which raises the question: Just how do credit card applications get included in the orientation packets of incoming freshman? How are students able to sign up for immediate, pre-approved lines of credit right on the quad?

Manning minces no words. He accuses colleges and universities of entering a Faustian alliance with credit card issuers. Many of these institutions have signed "exclusive licensing contracts" giving credit card companies permission to issue "affinity" cards bearing the school's logo, mascot, or colors. The college gets a fee for each account that is opened. In exchange, the credit card issuer gets access to students.

In other words, although two-thirds of students said they thought the credit card offers had been screened by their college, the main thing colleges officially are screening for is which credit card company offers the sweetest deal.

At large schools, Manning maintains this relationship between credit card companies and institutions of higher education generates "millions" of dollars annually.

"There's a conflict of interest between the royalties received by colleges in return for unrestricted on-campus marketing campaigns. " He also accuses colleges of doing little to educate students about how to use credit responsibly.

If You Can't Beat 'em...

Look, I get that having a credit card today is about as necessary as having a driver's license or a checking account. Establishing a credit history is extremely important. It can determine whether you are able to get utility service, qualify for a car loan, and what interest rate you'll pay on a mortgage. Employers examine your credit record to see if you'll be a dependable employee. Insurance companies use it to decide whether you are a "good" risk. In short, it's difficult to fully function as an American adult without having at least one credit card in our name.

The issue of college kids obtaining credit cards is, frankly, a lot like the issue of them having sex: Most are going to do it. As a parent, you want to be sure they do it responsibly and safely.

Dear Student...

It's important to understand that the responsible use of a credit card during your college years can help you build a solid credit history and land that dream job or buy a car when you graduate.

On the other hand, missed or late payments will wreak havoc with your credit rating and can ruin your chances of both -- and more. And it will take years -- at least 7 -- for these black marks to come off your record.

Look for a card with no annual fee and a low interest rate -- and not just for the first 6 months. One place to start is www.creditcards.com, which let's you compare offers from a variety of issuers.

Read the fine print. Among other things, it's likely to tell you that the "fixed rate" the credit card issuer touts is conditional. The company can up your rate if you violate certain terms.

Sometimes all it takes is one late payment and your interest rate skyrockets. For similar transgressions your credit issuer can also reduce the "grace period" -- the amount of time you have to pay a charge before interest starts accruing.

Don't "surf" from one low-interest offer to another thinking you're outwitting the credit card companies by transferring your unpaid balance just before the introductory rate is increased. This hurts your credit score. Adding insult to injury, many companies also charge you for sending your balance to another firm.

Pay your bills on time -- and preferably in full. Don't charge more than you can afford to pay.

Make your payments on time. Skipping a payment will do serious damage to your credit report. A late payment can easily cost $25.

Avoid those tempting "cash-advances." There's generally no grace period. Interest starts accumulating the day you receive the money.

Try to confine your use of the card to emergency expenses. Don't get into the habit of charging everyday items such as toiletries and pizza.

Avoid "reward" cards. Those tempting "points" you are supposed to accumulate can disappear faster than the contents of a keg in a frat house if you get behind in your payments or fail to meet other conditions.

Keep your credit cards in a safe place. According to Levin, each year more than half a million people between the ages of 18 and 29 are victims of identity theft, and "a large group of them are college students." Since most young people don't check their credit reports they make ideal victims. He says an I.D. thief "can run up their credit and destroy it" before the student even knows it.

Dear Mom & Dad...

Consider a pre-emptive strike. In a 1999 survey 30 percent of students said they never had a conversation with their parents about basic financial issues such as the importance of saving or setting financial goals. So talk to your student about using credit wisely.

Levin suggests adding the student to your own credit card. That way you get a copy of the monthly bill and can see what your child is buying. Make sure you and your student understand how payments will be handled. Perhaps you agree to cover certain items -- books, for instance -- but say that others will be subtracted from the allowance you send your child each month.

He advises against taking the "tough love" approach when and if a student runs up a bill he can't pay. The "you-created-this-problem-young-man-so-you-figure-out-how-to-fix-it" approach is dangerous when we're talking about your child's credit history. Sure he made a stupid mistake. But do you really want him to head off into adulthood with a credit record in tatters? Levin urges parents to keep in mind that they have something students don't: income. A better approach would be to negotiate how you'll help the student pay off the debt.

Manning thinks adding your kid to your existing credit card account merely gives parents a false sense of security. In all likelihood, he says, there's a good chance the student is "keeping two sets of books." In other words, mom and dad's monthly statement may list the bookstore purchases but "she's charging her birth control pills on her own account."

Manning says his research shows that if a student is inexperienced in dealing with credit he "can get caught up in credit card debt" and drop out after the first semester. He recommends parents take into consideration the financial maturity of their child. "If you don't think the child can handle credit, during the first semester only allow them to make transactions with checks or cash." The next step would be a debit card. "If he demonstrates he can handle that responsibly, the reward would be a credit card with a $500 limit." Each year, bump up the limit so that it hits a maximum of $2,500 by graduation.

According to Manning, one of the most useful credit lessons a parent can teach a son or daughter can be learned by reviewing the child's credit report. By law, once a year we're entitled to a free report from each of the three credit reporting agencies. However, rather than order this from all three at the same time, it makes more sense to stagger your requests so that you hit a different credit bureau every four months. That way, you're likely to catch a mistake or a problem sooner. "I encourage parents to sit down with their kids on a regular basis and review their credit report. You'd be surprised at what shows up."

Manning's website, www.creditcardnation.com, includes a link that will take you to the page where you can order your free credit report. You'll also find a simple online "Debt Zapper" calculator that will show you how long it will take to pay off your debts based on the interest rate charged and amounts you pay.

The Bottom Line: The most important score you graduate with is not your GPA -- it's your credit score.

Guard it carefully.

Hope this helps,
Gail

This story ran on on September 9, 2006.