Perils of Credit Card Marketing on Graduation

Perils of Credit Card Marketing on Graduation from college should be an exciting and renewing experience. It represents an accomplishment that should be celebrated and the beginning of new adventures and experiences. Yet, for many recent college graduates it represents something entirely different. For these individuals graduation from college represents having to begin their new careers drowning in debt with credit scores below 500. The cause of this unfortunate circumstance is often the improper use of credit cards given to these individuals on their very first day on campus straight out of high school (Lazarony, 1999).

The credit card market is very competitive. The college age consumer is an attractive one for credit card companies. They have a captured market with individuals possessing a minimum degree of financial sophistication. As a result, credit card companies are able to issue cards to young people who are not able or willing, to understand the complex fees and associated costs that accompany the use of these cards.

Students are easy prey for the credit card companies. Entering college young men and women are often experiencing their first taste of independence. Accustomed to living under their parents' homes and the accompanying rules, they are eager to being orchestrating their own affairs. Having witnessed their parents using credit cards for years they identify such use as a sign of being "grownup" and the fact that credit card companies appear to be falling over themselves to offer them cards makes having one even more appealing.

Added to this is the culture of debt that students find themselves in when they enter college. Beginning early in the decision making process, students are told repeatedly that paying for school is no problem: "just borrow the money."

College admission counselors tell students how easy it is to qualify for loans, emphasize how everyone is doing it, and how long they have to repay them. Students soon determine that accumulating debt is part of the college experience and that credit card debt is just one more form of it.

The unfortunate part of this scenario, however, is that the credit card business is not governed by the same rigid restrictions placed on the student loan industry. Student loan companies do not use T-shirts and other give away programs as rewards for applying; Student loan companies do not use fellow students to solicit their potential customers, and student loan companies are not allowed to solicit customers in the comfort of the student's dorms. Each of these techniques is used extensively by credit card companies

Another pitfall for young students, accustomed to being nurtured by their parents, is the fact that many of these credit card company solicitations appear to have the support of the university. Students moving from their parents' home look to the safety of the university as their support system and, as a result, they view the fact that the university not only allow the credit card companies to solicit at on-campus but also, in many cases, partner themselves with one company or another as sign that the university is ratifying the use of credit cards. This arrangement may cause the student to adopt a feeling of security that is unwarranted.

The problems caused by the nearly unbridled efforts of credit card companies to solicit students on campus have come under increasing scrutiny in recent years. A down economy and resulting poor job market for recent graduates has resulted in an increased default rate for credit cards issued to students. This has created interest on both sides as the credit card companies are concerned about addressing the default problem and consumer advocates are concerned about limiting the credit card companies with continued access to students (The U.S. Public Interest Research Group Education Fund, 2008).

To address this problem there are several measures that should be adopted as soon as possible. Recognizing that the credit card companies are not likely to regulate themselves, it is incumbent that either the individual state legislatures or federal congress initiate legislation that will limit or prohibit the granting of credit cards to college students (Silver-Greenbert, 2007).

The first required step is to limit the amount of credit granted to students. Ordinarily credit is not granted to individuals who are unemployed and, for the most part, college students are unemployed but the credit card companies in an effort to establish a long-term relationship with potential high earning customers cannot be expected to ignore this marketing opportunity. Recognizing this, legislatures should limit the allowable credit limits on student accounts. Doing so will allow credit card companies to solicit the business while limiting the devastating consequences caused by over and improper use.

A second problem that must be addressed is not limited to the student credit card industry. For too long the credit card industry has been able to use misleading and unclear language in their contracts. This is a particular problem in relation to student credit cards due to the low level of financial sophistication present in that market. Credit card companies must be either encouraged or forced to make their contracts more consumer friendly.