SCHUMER REVEALS: WITH GRADUATION AROUND THE CORNER, UPSTATE NY COLLEGE STUDENTS BURDENED WITH OVER $1.2 BILLION IN CREDIT CARD DEBT

As Upstate New York college students graduate this month, U.S. Senator Charles E. Schumer today released a new countybycounty report detailing how credit card debt carried by college students in Upstate New York has skyrocketed to $1.2 billion.  This increase has been fueled in part by the weakening economy and misleading marketing practices by credit card companies, such as ratcheting up interest rates without clear disclosure and aggressively targeting students with irresponsible offers of credit lines that they cannot afford to pay. Meanwhile, as the economy has floundered and other forms of credit have dried up, a shocking 30 percent of college students are now using credit cards to help pay rising tuition expenses when savings and financial aid don't cover the entire bill.  

 

To help protect students and cardholders, Schumer is cosponsoring legislation introduced by Senator Chris Dodd (DCT) that will provide clearer disclosure and adequate safeguards for students and young cardholders. The bill requires parental approval for a card to be issued, a financial literacy course approved by the Treasury Department, and prohibits prescreened offers to people below the age of 21. The bill passed out of the Banking Committee last month and is expected to be considered by the Senate in the coming weeks.

 

"Graduates are not only leaving college with a diploma, but also with mountains of credit card debt," Schumer said. "Credit cards should be a legup for college students, not a legtrap that snares them in unbearable debt. This new legislation will help protect students from unfair lending practices to provide them with a path toward secure financial and economic futures."

 

Credit cards are an indisputable fact of college life and, when used properly, they can help students successfully fund their educational and every day life expenses, and provide a cushion in case of emergencies. If a student does not have a credit card before college, there are countless opportunities to acquire a card once school begins. Students find credit card offers stuffed into new textbooks, delivered to their physical and electronic mailboxes, and posted on bulletin boards on campus, including in classrooms. According to Sallie Mae, 38 percent of students obtained their first credit card by responding to direct mail from a credit card vendor; 11 percent signed up in response to an instore solicitation at a retail outlet; and 5 percent signed up for a card after being solicited by a vendor on campus. Another 19 percent signed up in response to an email offer or sought out credit card offers online. Credit card companies seize almost any opportunity to recruit new borrowers, especially 1824yearolds who make small purchases that are likely to add up unnoticed. This demographic is also the least likely to be able to pay off their monthly balance in full, racking up high finance charges.

 

A new study released on Monday by Sallie Mae, a collegefinancing company, revealed that undergraduate students increasingly find themselves entrenched in credit card debt by the time they graduate. The study found that the average undergraduate carried $3,173 in credit card debt in 2008, the highest level since Sallie Mae began collecting this data in 1998. In 2004, the last time the study was conducted, students carried an average of $2,169 in card debt - a 46 percent increase.

 

The study also shows that the higher the grade level, the greater the card debt. In 2008, college seniors with at least one credit card graduated with an average of $4,138 in card debt, up 44% from 2004. By comparison, freshmen's average credit card debt jumped 27% to $2,038.

Many college students also use credit cards to live beyond their means-not just for convenience or necessity. According to the study, 40 percent of students said they have charged items knowing they didn't have the money to pay the bill.

In Upstate New York 464,694 undergraduate students are enrolled in part and fulltime programs and 84 percent of these students have at least one credit card. Collectively, they carry some $1.2 billion in credit card debt.

 

Schumer today released a new analysis showing how much debt college students in each county carry when graduating. Here is how the numbers break down across the state:

 

• Students in the Capital Region carry $190 million in credit card debt.

• Students in Central New York carry $179 million in credit card debt.
• Students in the Hudson Valley carry $237 million in credit card debt.
• Students in the RochesterFinger Lakes area carry $228 million in credit card debt.
• Students in the North Country carry $81 million in credit card debt.
• Students in the Southern Tier carry $109 million in credit card debt.

• Students in Western New York carry $215 million in credit card debt.

 

As a Congressman in the House in 1988, Schumer enacted the credit card "Schumer Box," which requires that credit card companies clearly inform consumers of their terms (in solicitations). Schumer found that consumers are often unaware of the misleading marketing practices aimed at younger cardholders. There are no safeguards in place to protect young people from the predatory practices of credit card companies that run aggressive mailing and marketing campaigns on college campuses.

Today, in an effort to protect the thousands of Upstate New York undergraduates from unfair marketing schemes, Schumer announced that he is cosponsoring legislation to protect consumers from confusing, misleading and predatory practices.

This legislation, the Credit Card Accountability Responsibility and Disclosure (Credit C.A.R.D.) Act, would specifically benefit students and cardholders under 21 years of age as it requires parental approval for a card to be issued, a financial literacy course approved by the Treasury Department, prohibits prescreened offers to people below age 18, and only allows prescreened offers for those aged 1821 if the consumer opts to receive them..

Schumer noted that a higher frequency of discussion with parents may influence credit card spending choices in a positive way. The Sallie Mae study revealed that students who rarely or never discussed credit card use with parents were more likely to pay for tuition with a credit card and were more likely to be surprised at their credit card balance when they received the invoice. The Sallie Mae study found that 84 percent of undergraduate students indicated that they needed more education on financial management and would have liked to receive that education as college freshmen, before it was too late.

The new legislation would also require issuers soliciting persons under the age of 21 to obtain an application that contains the signature of a parent, guardian, or other individual who will take responsibility for the debt, and proof that the applicant has an independent means of repaying any credit extended. The legislation would also limit prescreened offers of credit cards to young consumers and allow consumers who are at least 18, but not yet 21, to choose whether or not they want to receive such solicitations, and prohibit solicitations to consumers below the age of 18.

The bill, which passed out of the Banking Committee last month, has recently gained steam in Congress. On Monday, White House economic adviser Lawrence Summers said that President Obama will back congressional efforts to clamp down on credit card abuses in an effort to address the recession's effect on Main Street. Summers, director of the White House National Economic Council, and other administration officials are scheduled to meet tomorrow with top credit card company executives to discuss a possible industry overhaul.