For Young Credit Users, Bankruptcy On The Rise
The Miami Herald
December 3, 2000
By Michele Chandler, mchandler@herald.com

Nguyen Matos got his first two credit cards shortly after he arrived as a freshman at Florida International University. "Usually the first couple of days at school, you run into 10 or 11 of them offering you free stuff like coffee mugs, T-shirts and posters," Matos said, referring to the companies that solicit on campus. "I thought, 'I don't have a credit card. Let me fill out these applications. Why not?' " Within a year, Matos had charged both Visa cards to their $500 limits. His minimum-wage job didn't bring in enough to cover his car expenses and phone bill and for him to make his credit card payments, too. "I missed three months of credit card payments and found I owed another $300," an incredulous Matos said.

With the number of young people with credit cards increasing, their debt sometimes mounting into the tens of thousands and the number of bankruptcies among those 18 to 24 on the rise, the issue of credit card debt is gaining notice in Congress and among lenders and debt counseling firms. And with credit experts saying that many parents aren't teaching their children how to avoid credit pitfalls, some colleges and universities, including FIU, now require students to complete a financial management course that includes guidance on how to handle debt responsibly. Credit card firms are not limiting their heavy marketing to students at colleges, consumer credit experts say. Anticipating fierce competition for students on campus, "companies are marketing to young people before they even hit their senior year in high school," said Harvard law professor and bankruptcy expert Elizabeth Warren. "They're signing on these kids starting at 17, 16, even 15 years old."

Less stringent underwriting criteria at major credit card companies, coupled with the direct push to students, have led to easy access to credit cards for students with absolutely no credit history, according to a recent report by Nellie Mae, a national provider of student loans.

GROWING MARKET
In 1998, 67 percent of college undergraduates had credit cards, the company found. By 2000, 78 percent of undergraduates had at least one credit card; 32 percent of those had four or more credit card accounts. Credit card balances held by college students are also rising. While undergraduates carried card balances averaging $1,879 three years ago, their credit card debt has jumped 46 percent, to an average of $2,748 last year, according to Nellie Mae's study. And 9 percent of the students had balances of more than $7,000 last year, the study found.

"We noticed in the mid-1990s that students were starting to get credit cards, where in the early 1990s they did not have credit cards unless they were older students and independent," said Nina Prikazsky, vice president of operations at Nellie Mae.

A major indicator of trouble: rising bankruptcy rates among people 18 to 24. Two years ago, 118,000 people in that age range filed for bankruptcy nationwide, research by Warren found. That's up 51 percent from 1991. Credit card debt, Warren said, was the main problem cited when those people were asked why they filed for bankruptcy. "I've helped people who have never had a job, but have $30,000 in credit card debt," said Mark Blomquist, director of counseling for Auriton Solutions, a financial counseling firm.

LEGISLATION PROPOSED
The rising tide of young people tussling with credit card debt has attracted attention from lawmakers. Last week, U.S. Rep. Louise Slaughter, D-N.Y., who has co-authored legislation that would tighten up on student credit, pitched her bill to members of Congress. Her proposal, called the College Student Credit Card Protection Act, would limit credit lines to 20 percent of a student's annual income and require parents to approve before credit limits are increased on cards for which they have co-signed. The bill is now before the House subcommittee on financial institutions and consumer credit.

"Credit card issuers are raining down solicitations on college students," Slaughter said, dumping bags of credit card solicitations into a laundry basket on the House floor. "As a result, a lot of college students end up taking a crash course in debt management."

In a move making credit cards even more familiar on campus, universities are partnering with banks to offer cards to students and alumni, personalized with the school's logo.

FIU's Mastercard, for example, is emblazoned with the school's mascot, the golden panther. The card is offered through an exclusive deal with MBNA America Bank, one of the nation's largest issuers of credit cards.

The university agrees to allow MBNA's card to be promoted on campus through brochures tucked in bags from the campus bookstore and through direct mail to students and alumni. In return, the university receives a payment for every credit account opened, plus a fee for every transaction that students and alumni make.

"They support our homecoming events," said Carlos Becerra, interim director of alumni relations at FIU. "MBNA is giving back to the university. Not many vendors can say they give millions of dollars to support the programs here."

Still, colleges are realizing that students and credit cards can be a volatile mix. Some colleges are giving instruction on the responsible use of credit cards.

All students at FIU, for example, are required to complete a 16-week course that includes instruction on topics such as how to handle stress, make the best use of their time - and use credit.

ACADEMIC ADVICE
The textbook for that course urges students to develop a budget, carry just one credit card, use it only in case of emergency, pay bills on time, and check the Yellow Pages for credit counseling programs if problems arise. Some schools are counseling more students struggling with credit card debt. "They don't look at credit cards as debt, they look at it as free money for a while," said Pamela Deroian, assistant director of the University of Miami's student counseling center.

"These students are not quite ready to accept the responsibility of adulthood. But credit cards are a major responsibility and are just being pushed on them like crazy. . . . It's very sad to see these students come in and say, 'I don't know what to do. I have $4,000 in credit card debt, people are calling me all the time, and I can't tell my parents.' "

Catherine Pulley, spokeswoman for the American Bankers Association, a trade group that represents credit card issuers, said that rather than blaming the issuers, placing more emphasis on credit education could reduce college students' credit problems. She said her organization is involved in such educational efforts.

"Those are simple things, like budgeting and determining your needs vs. your wants," she said. "Parents need to teach their child how to use money."

But for credit card companies, granting a card to a college student can lead to a lifetime of brand loyalty.

And even younger students are answering the credit card call. Miami resident Maria Moya - a high school student who just turned 18 - has received more than a dozen card solicitations in the mail in the last few months. She applied for only one, a Visa card with a $500 balance that promoted itself as being good for students. "The literature said since I was in high school and going on to college, it would help me because I could start building up my credit," said Moya, a senior at William H. Turner Technical Arts High School in North Miami-Dade. She plans to pay all her bills in full.

That's advice that Matos, now a sophomore at FIU, could have used. After getting his cards shortly after entering FIU, he bought items for his car, computer and home and figured he would pay them off later. But the bills quickly rose.

A QUEST FOR HELP
Initially, Matos was too embarrassed to ask his mother for help. "When I told her, she said, 'You got yourself into it, you can get yourself out.' "

He looked online for credit counseling help and found the counseling service Auriton Solutions. Six months ago, that company consolidated his debt - still about $1,000 - and he pays $50 a month to pay off his balance. While his first two credit card accounts have been closed as part of the agreement with Auriton, he now has another card with a smaller credit line. "I don't go credit card crazy," he said. "I use it to get gas once or twice, the bill comes, and I pay it off and I don't worry about it. I learned my lesson."

CREDIT CARD TROUBLESHOOTING
Several organizations operate financial counseling services to help people struggling to pay their bills.

In the case of Auriton Solutions, the group brokers payment arrangements with creditors, organizing a debt repayment plan. The client pays a set monthly amount to Auriton, which in turn pays creditors. The group also tries to help people see changes that need to be made so they can live within their means. "If you talk to them like their parents, they won't do it," said Mark Blomquist, Auriton's director of counseling. "We never say, 'This is how you have to budget your money.' If we say, 'See how going out costs you a grand a month?' that will have more effect than trying to push them into any kind of spending habit."

* Auriton Solutions' website: www.auriton.org
Miami-Dade: 305-770-9975
Broward County: 954-791-4070

OTHER TIPS:
* Carry just one credit card, and use it only for emergencies.
* Don't accumulate debt you can't afford to pay by the end of the month.
* Consider a debit card. It's impossible to spend more than is in your
account.
* Don't take a cash advance on your credit card except in an extreme emergency. Usually, there's a fee and interest begins accruing immediately.

partial excerpt www.herald.com