"DEBT, n. An ingenious substitute for the chain and whip of the slave-driver."... ...Ambrose Bierce, The Devil's Dictionary...
Commentary of the Day - December 30, 2000: Ban the Campus Credit Card Vultures:
As I write my last commentary of the year 2000, the campus here at Krispy Kreme U. is very quiet. We are between semesters, and except for a few intersession classes not much is happening. But within a few short weeks the campus will come alive as the new semester begins. When the students are here in force the public spaces on our crowded commuter campus resemble a middle eastern bazaar. The walkways are lined with tables and booths that offer our students everything from "Kettle Korn" to eternal salvation. Included among those hawking their wares will be several credit card vendors. In addition, with each visit to the campus bookstore our students will find their purchases accompanied by numerous advertisements for new plastic.
These enterprising souls hope to hook our students with the promise of easy credit. Invariably, some "free" gift will be offered to entice the student to sign up; and, more often than not the vendor will attempt to sweeten the deal with a "low, low introductory rate". Generally, these introductory rates, which are good for a few months, are well below typical market rates. More than likely, the vendor loses money on these "low introductory rates", but just like the crack dealer who offers that first rock at a bargain price the credit card companies hope to addict their student customers to the instant gratification that easy credit offers. The credit card vendors know that college students are, for the most part, strapped for case and relatively naive about financial matters. They are unlikely to pay off their credit card debt before those low introductory rates suddenly rise to 20% or more.
Unfortunately, the campus credit card vultures have been all too successful. A recent poll by the National Association of Colleges and Employers showed that more than 22% of college students owe $7,500 or more in credit card debt. About half of all college students owe more than $3,000 (see the figure below).
The rapid rise in college costs coupled with the easy availability of credit cards has left many students with crushing debt loads as they approach graduation. Most entered college with little understanding of the effects of compound interest. Few understand that it will take more than 12 years to pay off a $1,000 debt at an 18% rate if only the minimum payment is made every month, and that in the process they will pay more in interest than principle.
So far, more than 300 colleges and universities in the United States have banned the marketing of credit cards to their students. U.S. Rep. John LaFalce (D-N.Y.) has introduced a bill that would ban the issuing of credit cards to anyone under the age of 21 unless the recipient has parental approval or has demonstrated the ability to make regular payments.
The Irascible Professor supports these moves. Credit card marketing on campus should be strictly limited. Most campuses are associated with credit unions that provide credit cards to creditworthy individuals at (relatively speaking) reasonable interest rates. On-campus marketing of cards, if not banned outright, should be limited to the campus credit union. Sign-up gifts and "teaser" rates should be forbidden, and the credit card issuance process should include straight forward information about the real cost of carrying credit card debt.
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©2000 Dr. Mark H. Shapiro - All rights reserved.