As a business professor, it has been very disconcerting to see students end college with a mountain of debt. Sure, we hear a great deal about the rise in tuition for college education, and the student loan debt-load that graduates end school with. But we hear little about the other debt. For the most part, my interaction with students suggest they enjoy good lives, and seem to serve their needs very well (or somewhat well, depending on the student) for entertainment, clothing, and various other instant gratifiers—and much of this is paid for by credit cards.

When I was a PhD student in the late 80’s, I had a friend who literally had a 2″+ stack of credit cards from various stores. As a CPA earning her PhD in accounting, she was aghast at all the credit card offers she received. She added up her line of credit on these various cards and noted it was $104,000, and she had no income! And this was before credit card companies REALLY began targeting students! Compounding this is that, 20 years ago, credit cards generally had a much lower cap than they do now. And confounding this further is that $104,000 in 1988 dollars is FAR less than in 2008 dollars. . . . Imagine if you, as a student, or your children as students, accessed a line of credit that essentially was $200,000+ in this decade!

One of my students graduated with a ‘mere $30,000′ in credit card debt, derived mainly from clothing, entertainment, and various living expenses. Her first job, then, needed to support not only paying back student loans, trying to get an apartment and furnish it, saving for the future, but also that $30,000 debt. Thus, not much saving was going on. This instant gratification may contribute to the growing number of 20-somethings who live at home with parents.

As students and parents, beware this trap. Opportunities abound to over-extend, and only good financial management skills will help you avoid this easy pitfall. The following article discusses a program aimed at the problem of all-to-easy access to what seems like ‘free money’ to many students:

Facecard Woos Students With Debt Message

by Aaron Baar, Tuesday, Aug 19, 2008 5:00 AM ET, Marketing Daily, 8.19.08

As college students gear up for the new year–and their new independence–Facecard, a purveyor of prepaid debit cards, is looking to sign them up with an on-campus marketing effort that will educate students and parents about the risks of racking up debt.

To coincide with the kickoff of the NCAA football season, Facecard marketing teams will distribute informational packets on 50 college campuses around the country. The brochure, titled “Get smart. Get more,” will include tips for students including budgeting and banking and how to prevent identity theft.

“Unfortunately, college students see credit cards as quick money,” Constance Baker, director of marketing for Facecard parent edo Interactive, tells Marketing Daily. “[Our program] is teaching them it’s not quick money. It’s not even their money.”

Rather than opting for a more mass-media effort, the Nashville, Tenn. company is using marketing teams. The company has also set up pages on social networking sites like Facebook. “Going through the traditional avenues like print or television advertising doesn’t work with this demographic,” Baker says. “I get more for my dollar if they hear about us from their peers.”

With the start of the school year, banks and other credit card companies are ramping up efforts to attract new college students with enticing credit card offers. Earlier this year, the U.S. Federation of State Public Interest Groups issued a warning to college students that they were “among the most prominent targets for marketing.”

“Companies use a variety of techniques, from buying lists from schools and entering into exclusive marketing arrangements with schools to marketing directly to students through the mail, over the phone, on bulletin boards and through aggressive on-campus and ‘near-campus’ tabling–facilitated by ‘free gifts,’” read a report issued by the group. Gifts included a T-Shirt, blankets, food and discount coupons for certain products.

To combat the efforts, U.S. PIRG set up a Web site, www.truthaboutcredit.com, to educate students about the pitfalls of credit card debt and the marketing techniques used by credit card companies to lure new customers. This fall, the group will send out marketing teams of its own, hoping to get students to sign petitions about marketing practices on campuses. The teams will look and act like a regular credit card company, working for a fictional company called “Feesa” (tagline: “Free stuff now. Huge debt later”) and handing out lollipops saying, “Don’t be a sucker.”

“It’s the kind of ironic event that works well with the demographic,” says Christine Lindstrom, the higher education project director for U.S. PIRG.

Category: Financial Struggles · Getting Started · Money