Paper or Plastic?
By Michael Penn MA'97

The fear among many is that the reckoning will take the form of a head-on wreck when students graduate and all their bills — including student-loan payments — come due. In recent years, about half of UW-Madison undergraduates have left college with student-loan debt, with the average debtor owing close to $16,000. That doesn't account for credit card bills, which the university currently doesn't tabulate. With card debt adding on to the already losing mathematics of being a student, it's becoming more difficult for financial-aid advisers to feel secure that students aren't taking on more debt than they can manage.

"I used to feel confident that if I had a good handle on how much students were borrowing in the form of student loans, I would know how much students owed," says Steve Van Ess '74, director of student financial services. "What we're finding out is that there is this whole other world of debt that is very hard for us to measure."

Identifying the problem may be easier than solving it. Administrators, conscious of the danger of patronizing students by dictating their spending habits, are hesitant to interfere with what is basically a private business relationship between card issuers and students. And it's not as if the university can credibly warn against going into debt. "We realize that we can't tell students not to borrow," says Van Ess, "because most of them couldn't come to school if they didn't."

In any case, the university would be sending a mixed message, given that there are two cards marketed to students that bear the UW name and logos. These sorts of arrangements are becoming common among universities. Typically, the school agrees to add its name to a credit card, and the issuer pays for the rights to exclusively market the card. Often, the university gets a small portion of each purchase made with the card. The deals can be lucrative. The University of Oklahoma, for example, recently signed a deal with First USA that will guarantee the school at least $13 million.

Although UW-Madison itself doesn't have a formal deal with a credit card company, two of its affiliates — the Wisconsin Alumni Association (WAA) and the National W Club — do. (WAA's MasterCard, offered through MBNA, supports the programs and services of the alumni association, which include this magazine. The National W Club, a sports booster club, has a program through First USA that supports Badger athletics.) Although targeted to alumni and fans, both cards also solicit student accounts, which at least implies that the university supports students having credit cards.

In some instances, that's true. Paula Bonner MS'78, WAA's president and CEO, says that the alumni association's MasterCard program is primarily designed to help students with emergency expenses. And the numbers do show that many UW-Madison students avoid the kind of trouble indicated in the Nellie Mae study. Currently, more than 5,500 students have accounts with the card, making up about 12 percent of its total enrollment. But nearly 40 percent of the students who apply for the card are rejected, Bonner notes, and more than half of the student accounts currently show no balance. Among the rest, the average debt is slightly more than $1,000.

"We have always run our student part of the card with pretty tight restrictions," Bonner says. What concerns her and other administrators is when students are enticed by savvy marketing to spend more than they can afford.

For some, the most glaring example of hard-sell tactics occurs each fall, when credit card marketers stage an Omaha Beach-like landing on Library Mall during the first few weeks of the fall semester. Representatives from several credit card companies set up tables on the mall and offer carefully planned sales pitches to get students to fill out applications.

"It's like holding candy out on the street," says Nagy. "There isn't any educational or financial management component to [what they do] at all."

The U.S. Public Interest Research Group (PIRG), a national alliance of student activists, has called those tactics "reckless and deceptive." The group recently studied one hundred credit card offers made to students, finding that most of the deals had ballooning interest rates or hidden fees that don't typically get discussed at the marketing tables.

PIRG has compiled a Web site (www.truthaboutcredit.org) to expose what they consider tricks that credit card companies use to lure students into a spiral of accumulating debt. Among the other tactics PIRG cites are granting credit limits well beyond what students can afford and lowering minimum payments so that students stay in debt longer.

back, 1, 2, 3, 4, next
On Wisconsin home page