College Students and Credit Card Debt

Reader Question: Why do credit card companies target college students so aggressively, when many of them are already buried in debt?

Yours is certainly a valid question. I've seen quite a few news programs about college students running up a lot of credit card debt by using their cards carelessly. Of course, these same programs often fluctuate between news and sensationalism. But in general, there does seem to be a rising trend of credit problems among college kids.

I did some research when responding to this question, and it seems that the average credit card debt among college students is around $2,200. This is according to Nellie Mae, one of the largest student loan companies in the United States (and part of Sallie Mae). Keep in mind this is just the average. I'm sure a lot of students have much more debt than that. For an adult, this might not seem like a large balance. But you have to keep in mind these are college kids who generally do not make a substantial income (if any) while attending school.

That brings us up to your question. Why do the credit card companies seem to target college students so much? Here's why:

Students are Ideal Customers for These Companies

Let's step out of our "nice guy" shoes for a moment and step into the shoes of a marketing executive with one of the big credit card companies. When you think about it from this angle, you can see that college students are the perfect target for our marketing efforts. The majority of them do not have a significant income (they are students after all), so they are more inclined to use their credit cards as a primary method of payment.

There's also a new "crop" of potential customers entering colleges each and every year, so we have a self-renewing source of business. The marketing logistics are fairly simple as well, especially when the colleges use some kind of centralized mail system such as box numbers. This makes the students easy to reach, which saves us money on the logistical side. Most colleges will actually let us set up "recruiting" kiosks right outside the student union -- even better for business!

If these students fall behind on their payments (as they often do), we have an opportunity to pile on the penalty fees and jack up their interest rates. This means even more revenue for us! And as a credit card company, revenue is pretty much all we care about. It's our holy grail.

Besides, we know from our statistical data that Mom and Dad will chip in and rescue their kids when they accumulate too much credit card debt, so there's minimal risk for us. If they can afford to put their kids in college, they can afford to pony up for some of the debt. High gain and low risk ... just the way we like it.

Now let's break character and step back into our "nice guy" shoes. Do you feel dirty? Sort of like a ruthless predator? Yeah, me too. But at least now you can see why the credit card companies target college students with such focus.

Two Sides to the Credit Issue

Keep in mind, however, there are two sides to this argument. Do the credit card companies target these kids a little more aggressively than they should? Yes. Do many of these college students use their cards irresponsibly and pile up debt knowingly? Yes.

You can't expect these financial institutions to change their business models -- at least, not without laws forcing them to change. So in my opinion, the solution to this problem is actually quite obvious:

• Teach these kids how to manage their finances, and how to use credit responsibly.
• Teach them about the ill effects of maxing out cards and accumulating debt -- how it hurts your chances of getting a mortgage loan later on, etc.
• Make it a required course for first-year students, or at least a one-week mandatory seminar on the subject.

A few years ago (or perhaps even more recently), two women actually proposed some credit card reforms in congress. Both of them were mothers of college kids who had committed suicide as a result of their excessive credit card debt. Of course, because congress is in bed with the credit companies and banks, the proposal didn't get very far. But I salute those courageous women for at least trying.

Sure, people need to be responsible for their own actions. But here's what I find utterly despicable. Many colleges actually invite the credit card companies to set up shop on campus and "harvest" a new crop of customers. I saw it in James Surlock's documentary Maxed Out, and I was shocked by it. These companies will set up kiosks and give out free schwag to get kids to sign up. "Hey son, fill out this application for a free t-shirt." Why do the colleges allow this? Because they get paid, of course.

Kids go to college to learn -- not to be preyed upon right out of the gate. But maybe I'm just underestimating the power of greed.

If you ask me, most colleges are ignoring the problem at best, and contributing to it at worse. And their students are paying a hefty price.