<DOC>
[107 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:89958.wais]
S. Hrg. 107-987
THE IMPORTANCE OF FINANCIAL
LITERACY AMONG COLLEGE STUDENTS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ON
THE ADEQUACY OF THE LEVEL OF FINANCIAL LITERACY AND EDUCATION AMONG
COLLEGE STUDENTS; THE CONSEQUENCES OF A
FINANCIALLY UNDEREDUCATED STUDENT BODY; THE ROLE THAT COLLEGES AND
UNIVERSITIES CAN PLAY IN PROMOTING FINANCIAL EDUCATION AMONG THEIR
STUDENT BODY; THE ABILITY AND EFFICACY OF A COLLEGE OR UNIVERSITIES TO
ESTABLISH LIMITS ON SOLICITATION OF ITS STUDENTS; THE APPROPRIATENESS
OF CERTAIN MARKETING TECHNIQUES ON COLLEGE CAMPUSES; AND
RECOMMENDATIONS TO REDUCE THE NUMBER OF STUDENTS WHO
ACCUMULATE EXCESS CREDIT CARD DEBT
__________
SEPTEMBER 5, 2002
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut PHIL GRAMM, Texas
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii JOHN ENSIGN, Nevada
Steven B. Harris, Staff Director and Chief Counsel
Wayne A. Abernathy, Republican Staff Director
Aaron Klein, Economist
Daris Meeks, Republican Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
THURSDAY, SEPTEMBER 5, 2002
Page
Opening statement of Chairman Sarbanes........................... 1
Opening statements, comments, or prepared statements of:
Senator Dodd................................................. 3
Prepared statement....................................... 39
Senator Johnson.............................................. 6
Senator Gramm................................................ 7
Senator Carper............................................... 8
Senator Bayh................................................. 9
Senator Corzine.............................................. 10
Prepared statement....................................... 39
Senator Reed................................................. 10
Senator Akaka................................................ 40
Senator Bunning.............................................. 40
Senator Stabenow............................................. 41
WITNESSES
Louise Slaughter, a U.S. Representative in Congress from the
State of New York.............................................. 11
Robert D. Manning, Ph.D., Caroline Werner Gannett Professor of
the
Humanities, Rochester Institute of Technology.................. 14
Prepared statement........................................... 41
Ellen Frishberg, Director, Student Financial Services, Johns
Hopkins
University..................................................... 18
Prepared statement........................................... 54
Natala K. Hart, Director, Student Financial Aid, The Ohio State
University..................................................... 21
Prepared statement........................................... 58
Michael E. Staten, Director, Credit Research Center, McDonough
School of
Business, Georgetown University................................ 23
Prepared statement........................................... 81
Jonathan Miller, Treasurer, The Commonwealth of Kentucky......... 27
Prepared statement........................................... 89
Additional Material Supplied for the Record
College Students and Credit Card Fact Sheet prepared by the
Senate Banking Committee Staff................................. 95
Consumer Bankers Association Press Release, dated September 5,
2002........................................................... 96
Letter to Senator Paul S. Sarbanes from Daniel A. Mica, President
& CEO, Credit Union National Association, dated September 5,
2002........................................................... 97
Newsletter submitted by The National Consumer Council............ 99
Statement of Kelly Presta, Vice President, Visa U.S.A., dated
September 5, 2002.............................................. 103
U.S. Public Interest Research Group Press Release, dated
September 5, 2002.............................................. 104
Statement of Eric R. Weil, Managing Partner, Student Monitor LLC,
dated September 9, 2002........................................ 105
(iii)
THE IMPORTANCE OF FINANCIAL
LITERACY AMONG COLLEGE STUDENTS
----------
THURSDAY, SEPTEMBER 5, 2002
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:10 a.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. The hearing will come to order.
Today, the Committee on Banking, Housing, and Urban Affairs
returns to the issue of financial literacy. This hearing, which
focuses on college students, is another in our ongoing series.
We first began last February, when we held two hearings and
heard from a number of distinguished witnesses--including the
Secretary of the Treasury, Chairman of the Federal Reserve
Board, and the Chairman of the Securities and Exchange
Commission and many more--all of whom called for increased
financial education and awareness.
Following up on some of the specific topics raised at those
initial hearings, we held two subsequent hearings, each
exploring an issue that had been previously touched upon: One,
the financial literacy of the unbanked, those who lack the
benefits access to the mainstream financial institutions
provides, of whom, of course, there are a significant number
across the country; and two, the financial literacy of
immigrants and the immigrant community, many of whom send money
back to their family in their country of origin, and often pay
exorbitant fees to do so. In fact, the President of Mexico, in
a meeting with President Bush, placed that issue high on the
agenda for discussion, in the accurate perception that if these
fees were more realistic, the amount of, in effect, private
economic assistance coming into Mexico would significantly
increase. Today, we will focus on the importance of financial
literacy among college students, specifically with regard to
the use--and possible misuse--of credit cards.
My colleague, Senator Dodd, is to be commended for his
leadership on this issue. He introduced legislation, S. 891,
the Underage Consumer Credit Protection Act of 2001, that seeks
to protect persons under age 21 from creating serious financial
problems through the misuse of credit cards. Senators Corzine,
Akaka, Stabenow, Schumer, and Enzi have also been active on
these issues of financial literacy. In fact, Senators Corzine
and Akaka spearheaded the successful effort to attach language
to the recently passed education bill which will enhance the
ability of primary schools across the country to teach
financial literacy to their students.
Now the timing of this hearing is not accidental. This
month, more than 13 million young people seeking a post-
secondary education will go ``back to school,'' where many of
them will be faced with making significant personal financial
decisions, often for the first time in their lives. This
hearing is intended to serve as a
signal to these young people who may be eager to have access to
credit without fully understanding the responsibilities that
credit brings, and also to send the message to those who are
eager, perhaps too eager, to make that credit easily available.
The responsible use of credit is essential to the efficient
function-
ing of our economy, but it is increasingly clear that many
young people are ill-prepared to handle credit responsibly.
President Patrick Swygert of Howard University, testifying on
behalf of the Historically Black Colleges and Universities,
raised this point at our February hearings. He observed that:
``If used responsibly, credit cards allow students to build up
credit histories that facilitate increased access to credit in
the future.'' He warned, however, that: ``If college students
have not learned financial management skills in their secondary
education, or from their parents, and if they misuse their
credit cards or mismanage their credit card debt, the
disadvantages far outweigh any supposed advantages.''
For many Americans, college is the time when they first
enter the financial system. Unfortunately, studies show that
most college students lack the financial knowledge necessary
for a smooth entry. Americans for Consumer Education and
Competition, a nonprofit institution, in the year 2000,
reported that 82 percent of high school seniors failed a 13-
question personal financial quiz. Eighty-two percent.
The situation is not improving. The Jump$tart Coalition,
which promotes financial literacy efforts at the K through 12
level, released a study this year that found that: ``High
school seniors know even less about credit cards, retirement
funds, insurance, and other personal finance basics than they
did 5 years ago.''
Despite their lack of financial literacy, incoming college
students are reportedly inundated with offers for credit cards.
A recent article in the Kansas City Star, entitled, ``Credit
Card Hawkers Nest on College Campuses''--I love those headline-
writers----
[Laughter.]
``Credit Card Hawkers Nest on College Campuses,'' reported
that: ``Like it or not, credit card hawkers are just as much a
part of campus life as fraternities, sororities, and homecoming
games.'' According to Nellie Mae, which provides student loans,
the vast majority of college students, 83 percent, have at
least one credit card. The GAO reports that over half of
college students acquire their first credit card during their
first year in college. The research suggests that most college
students have credit cards, but, yet, lack the basic financial
knowledge to effectively and efficiently use them.
Therefore, it comes as no surprise that many students build
up significant credit card debt without fully comprehending the
consequences. According to the Department of Education, in the
1999-2000 school year, 45 percent of college students had a
balance due on their credit cards, with a median balance of
close to $1,450, and an average balance above $3,000. This has
led many colleges and universities to consider what role they
can play in helping their students achieve a smooth entry into
the financial system.
Today, we are very fortunate to have an excellent panel of
witnesses in order to discuss these issues. I will defer
introducing the panelists until we have had an opportunity for
other Members to make their opening statements.
Congresswoman Slaughter, I know you have come to present
one of our witnesses. I will just inquire, does your time
schedule permit you to wait until we complete our statements
here before doing so?
Representative Slaughter. I would be happy to hear them.
Thank you.
Chairman Sarbanes. Good. We are very pleased that you are
here with us.
Senator Dodd.
STATEMENT OF SENATOR CHRISTOPHER J. DODD
Senator Dodd. Thank you very much, Mr. Chairman.
Let me commend Congresswoman Slaughter. She has been a
terrific financial literacy advocate. She is not just here to
introduce a witness, but she also, has introduced a companion
piece of legislation in the House. There are some differences
with the bill that I have introduced and the one that she has
introduced. But she has been a real leader along with John
Duncan, a Republican Member of the House, in this area, and I
want to commend her for it.
And Mr. Chairman, I want to thank you----
Chairman Sarbanes. We will refrain from asking whether the
differences are better or worse.
[Laughter.]
Representative Slaughter. We will work it out.
Senator Dodd. I am sure that that will emerge.
Chairman Sarbanes. That will emerge in the course of the
discussion.
[Laughter.]
Representative Slaughter. We can fix it.
Senator Dodd. It is fixable, however.
[Laughter.]
First of all, let me thank you, Mr. Chairman, and our
witnesses for being here. This has been an issue that I have
been deeply interested in for a number of years, since some of
the earlier data began to emerge. And I think it is important
at the outset to say, look, having students with credit cards
is not a bad thing at all. In fact, credit cards have been a
wonderful asset for lot of people, allowing them access to
consumer goods and activities they never would have been able
to have if not for the use of credit cards.
I do not want this hearing or my position to be construed
in any way as anti-credit card. It has been a wonderful asset.
And there are many financial institutions which do a good job.
This is not an indictment of all financial institutions and how
they handle credit cards. However, the ugly reality is that
some of these companies do abuse the credit card system, and
unfortunately, a lot of vulnerable young people are taken
advantage of. And as a result, we have seen an escalating
increase in the amount of consumer debt among young people,
burdening them even before they begin their adult lives with
financial obligations that make it very difficult for them to
get underway.
So, this hearing and our legislative proposals, despite
what the opponents of it have tried to suggest, is not in any
way designed to stop or to discourage the use of credit cards
among young people, but really, to inject a dose of reality in
terms of what is happening on college campuses all across the
country.
The headlines that the Chairman used, while they may seem
creative and clever, in fact describe very accurately the
situation in far too many cases.
And so, it is an important time to conduct this kind of a
hearing and to once again raise the issue. We voted on this in
the past on the floor of the Senate, and to the credit of the
credit card companies, they are able to muster the votes every
time to defeat even reasonable legislation designed to inject
some degree of financial literacy into the debate. But we will
not stop from trying to see if we cannot improve the situation.
Let me just mention a few things, if I can.
Incoming freshmen in college are woefully unprepared, in my
view, to handle the ordinary financial obligations that come as
a result of entering college. And for the first time,
graduating high school seniors and incoming college freshmen
are presented with new opportunities and confronted with
difficult decisions that will affect them for the rest of their
lives--access to large amounts of credit, primarily through the
use of credit cards. Most new students lack the financial
sophistication necessary to handle the terms and conditions
associated with credit card use.
Making credit available to help finance the pursuit of
higher education is something that we all recognize as vital,
and credit cards can play a very important role in that.
However, the predatory practices of some credit card companies
and the failure to ensure that college students recognize the
long-term consequences of incurring these debts is a serious
and it is a growing problem.
The fact of the matter is that some financial institutions
view incoming college freshmen as shooting fish in a barrel
when it comes to credit card solicitations. Financial
institutions have become more concerned with ``branding'' than
forming responsible financial relationships with new consumers.
They are more interested in luring students with offers of low
minimum payments, free T-shirts, and other giveaways than
caring about whether or not the prospective customers can
reasonably handle their credit obligations.
Earlier in this Congress, as noted by the Chairman, I
introduced the Underage Consumer Credit Protection Act of 2001.
It would require that credit card issuers, prior to granting
credit to persons under the age of 21, have one of the
following--not all of them but any one of the following: A co-
signature of a parent, guardian, or other responsible party; an
independent means of financial support for repaying their
debts--not an outrageous or radical suggestion, I would offer--
the debts that they would incur; or the completion of a
certified credit counseling course. Any one of those three and
you get the credit card. Not all three, but any one of the
three.
Financial institutions, in my view, must take a closer look
at individuals to which they are extending credit, and this
bill would do just that by requiring a responsible and
realistic approach to providing credit.
When we raised this issue in the past, we were flooded with
inquiries from parents all across the country who are horrified
about what is happening in too many cases where they incur the
obligations as a result of what their children have signed onto
without their knowledge, they are stunned by what is going on.
So this is designed to encourage a greater degree of
responsibility.
Better education makes up only part of the equation that
will help us achieve our goal of financial responsibility. It
is important, I think, as well to remember that we should not
only encourage
financial institutions to better educate the consumers,
especially those receiving credit for the first time, but we
must also remind financial institutions that they have an
obligation, in my view, to make credit decisions that are
realistic and responsible as well.
We are facing a looming financial crisis in this country,
an explosion in the levels of consumer debt and an increase in
personal bankruptcy rates. Credit card use has played a
significant role in the rapid increase in indebtedness in our
Nation. In a Washington Post editorial on Sunday, David Broder
cited a biennial report conducted by the Economic Policy
Institute. The Economic Policy Institute report exposes the
rising levels of consumer debt incurred by middle Americans
during the 1990's. According to the data collected by the
Census Bureau and the Federal Reserve Board, debt during the
1990's rose from 80 percent of disposable personal income to
well over 100 percent. One in seven middle-income households
were spending at least 40 percent of their income on monthly
payments and one-sixth of their income on reducing debts alone.
Dramatic increases in debt, coupled with the slowing of
economic expansion that we have experienced in the past 3
years, has begun to force significant increases in the number
of personal bankruptcies. In fact, the Consumer Federation of
America reports that 1.45 million personal bankruptcies last
year alone--this was the all-time high--largely driven by
credit card use within the last 10 years. In my home State of
Connecticut, personal bankruptcies increased by 42 percent
between 1994 and 1999, and those numbers are expected to
increase when the next reports come out.
As the bankruptcy reform legislation is being debated in
conference, I believe we should reexamine the potential adverse
effects of this piece of legislation. This bill would have an
unintended adverse impact on the most vulnerable in our Nation,
including the children of those who file for bankruptcy, and
the hard-working families faced with extraordinary financial
challenges and others who have fallen on hard times through no
fault of their own.
So as we continue to explore ways to better improve the
financial literacy of our Nation's younger consumers, I also
think that we have an obligation to be vigilant in encouraging
the responsibility of financial institutions. That,
unfortunately, is not the case in far too many of them.
Mr. Chairman, I thank you again for holding this hearing
and I am anxious to hear what our witnesses have to say.
Chairman Sarbanes. Thank you, Senator Dodd.
Is it correct that the three things you mentioned were part
of the alternative, in terms of getting a credit card?
Senator Dodd. It was either show you have the financial
ability to pay, have a parent or guardian co-sign for you, or
be willing to go through some credit counseling course so you
would know what your obligations would be. Any one of those
three.
Chairman Sarbanes. Any one of the three.
Senator Dodd. Any one of the three.
Chairman Sarbanes. Right.
Senator Johnson.
STATEMENT OF SENATOR TIM JOHNSON
Senator Johnson. Mr. Chairman, thank you for holding this
hearing on the importance of financial literacy among college
students. I also want to thank our distinguished witnesses for
taking time to join us today, and a particular welcome to my
former colleague, Representative Slaughter, a wonderful friend
during my years in the House, and continues today. This hearing
is indeed timely, with millions of students returning to school
this month.
Financial literacy should be part of any complete education,
and I commend you, Mr. Chairman, for highlighting the
importance of this issue.
As I have noted in previous hearings on financial literacy,
part of what makes our Nation great is the opportunity that we
all have to make something of ourselves. Equal credit
opportunity is an important aspect of achieving the American
Dream. Likewise, I believe the ability to finance a college
education provides important opportunities for success. In
fact, last February, I was pleased to be able to secure passage
of legislation that will allow students and their parents to
receive student loans at affordable interest rates, that
legislation now signed by the President. This was a big step in
ensuring that young Americans have access to college education.
The topic of today's hearing is equally important. While
credit cards provide important opportunities for our young
people, it is critical that these students have the financial
education to use, rather than abuse, those chances. While
students must take responsibility for their own finances,
credit card companies have a role to play in helping American
students use credit responsibly.
This year, my daughter Kelsey will be a junior at the
University of South Dakota. As a father, I am glad that Kelsey
has access to a credit card, and I have been pleased that she
has used her credit card responsibly. I am sure that my threat
to call her up as a witness on irresponsible credit card use
before the Committee has had nothing to do with her prudent
spending habits.
[Laughter.]
And I would share with the Committee that she has an older
brother who went through some painful experiences about the
wisdom of credit card debt. Even so, based on her experiences,
I can relate a number of good reasons for students to have
access to a full array of banking services, including credit
cards.
Credit cards enable students to build a credit history, to
learn about credit and build financial management skills. A
good credit history is important for being able to rent an
apartment or finance a car. It can also help with job
applications.
Also, credit cards provide a mechanism to pay for school
supplies, such as books in anticipation of seasonal income or a
student loan disbursement.
Another good reason for students to carry credit cards is
security. I know I feel better that my daughter has access to
money in case, for example, her car breaks down. Also, having a
credit card means that she doesn't have to carry as much cash
with her.
At the same time, of course, problems arise when students
fail to use credit responsibly. Today's witnesses have provided
important evidence of these problems in the written testimony
and in Dr. Manning's books. I am also concerned about the
volume of credit card solicitations, and believe that students
shouldn't be showered with credit offers that they did not
request.
Although I am not an advocate of the devil-made-me-do-it
school of personal responsibility, I do believe that the
emphasis should be in other directions rather than restricting
credit available to responsible young people, and I believe
that continued emphasis needs to be placed on financial
literacy programs.
A good financial education can help people make better
decisions throughout their lives, whether it be the choice
between a fixed rate or adjustable rate mortgage, or whether to
buy or lease a new car. I applaud financial literacy programs
offered by a number of organizations, including nonprofit
groups such as the Jump$tart Coalition, public sector
organizations, and large credit card issuers.
Mr. Chairman, I thank you for calling attention to the role
that financial literacy plays in ensuring that our college
students understand basic money management and I look forward
to hearing from our distinguished witnesses.
Chairman Sarbanes. Thank you very much, Senator Johnson.
Senator Gramm.
STATEMENT OF SENATOR PHIL GRAMM
Senator Gramm. Well, Mr. Chairman, first of all, let me
make it clear, I am for financial literacy. In fact, I wish
everybody had to take a course in economic literacy before they
voted, much less got a credit card.
[Laughter.]
I would have to say, though, that I do want to set out some
cautions. When you are dealing with college students, unless
they are extraordinary students and have arrived in college
before their class has arrived, they can be drafted. They can
start a business. They can get married. I think in a free
society you always have the question about how far should
paternalism--I guess in the South, you would want to say
maternalism--go.
And we have had debates in the past. I know it is not the
subject today. But since it brushes up against it, we have had
questions in the past and voted in the past on issues related
to college students being able to get credit cards. I have
never seen credible, solid, empirical evidence, and I would
like to see it, on whether college students are better credit
risks than the population as a whole. Let me say, I would not
be shocked if they were.
If I were in the banking business, I would send a credit
card to every engineering student at every major university in
America. And I would make the point, you are going to make a
lot of money. You are going to be a reliable citizen. You may
have questionable credit today, but you are not going to have
it for long. I want you to remember my bank when you are rich,
and I want you to put your money in it.
I would send a credit card to everybody that goes to Notre
Dame University and everybody that goes to Texas A&M, because
you are going to make money by doing that. Now, I know there is
a paternalism thing that, well, maybe there is some person
there who is not up to it. I think economic literacy and
financial literacy are critically important and I am very much
for promoting them. And I want to be marked down as being on
the side of literacy of all kinds. But I do think that we have
to be careful in a free society about how far we are going to
go in restricting people's rights.
I do not think this targeting of college students is
somehow irresponsible. I have not seen the convincing data.
Maybe it is out there. Maybe somebody has it today. I would be
glad to look at it. But I would just be willing to say, even if
it were my money, I would be willing to bet, if you gave a
credit card to every student at Notre Dame and you tracked the
profitability of that decision for 30 years, you would make
money by doing it.
I am surprised they do not do more of it. Maybe they do.
Maybe they just did not send them to my children. And that may
have been wise.
[Laughter.]
But in any case, having said all that, I think whenever we
are talking about literacy, especially financial literacy and
the age we are in where people are making sophisticated
financial decisions, I think it is always a good thing and I am
always for it.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much, Senator Gramm.
Senator Bayh.
COMMENTS OF SENATOR THOMAS R. CARPER
Senator Carper. Mr. Chairman, could I just have 30 seconds?
I asked Senator Bayh if I could just have 30 seconds to make a
quick comment. I need to slip out a minute and then I am coming
back.
May I speak out of order?
Chairman Sarbanes. Sure.
Senator Carper. Thank you very much.
Chairman Sarbanes. I would rather Senator Bayh acquiesce.
Senator Carper. I think he has.
Senator Bayh. I would be pleased to acquiesce.
Chairman Sarbanes. He more than acquiesces.
[Laughter.]
Senator Carper. I just want to welcome three people from
some of my old alma maters.
Congresswoman Slaughter, it is great to see you again,
Louise. Welcome.
Representative Slaughter. It is good to see you.
Senator Carper. Thanks for being here today.
Ms. Hart, ``O-H.''
Ms. Hart. ``I-O.''
Senator Gramm. I meant to mention all those colleges. I did
not know you all were from colleges. Okay.
[Laughter.]
Senator Carper. It is great to have you here. Go Bucks.
Mr. Miller, Treasurer from Kentucky, where my mom and
sister live, we are happy that you are here. I am an old
treasurer myself. And Jack Markell, our State Treasurer today,
is one of your colleagues and is very much a great leader on
financial literacy for people young and old. We are grateful
that you are all here and I look forward to coming back and
hearing part of your testimonies.
Thank you, Mr. Chairman.
Thank you, Senator Bayh.
Chairman Sarbanes. Senator Bayh.
STATEMENT OF SENATOR EVAN BAYH
Senator Bayh. Thank you, Mr. Chairman. I would like to echo
the comments of other Members of the Committee for your holding
this hearing today. It is a very important topic. And to
Senators Dodd and Johnson and others who have worked on this, I
compliment you for the important work you have done. You really
have set the table here for making some important progress in
this area.
I think Senator Gramm has raised really one of the critical
issues that has to be addressed here--at what age and under
what circumstances are American citizens qualified and able to
make important decisions for themselves? Or to phrase the
question a little bit differently--and by the way, Phil, I am
pleased that you singled out Notre Dame as an area of
responsibility since it is located, as you know, in South Bend,
Indiana. You could choose the other institutions in our State
as well.
To look at it a little bit differently, or to phrase it
just a little bit differently, what are the necessary
antecedents for a fairly and freely functioning marketplace?
What do people need to know to be informed consumers? I think
Chairman Sarbanes in his opening comment put his finger on part
of the answer.
As Senator Gramm mentioned, you can enlist in the military,
you can vote, you can choose to smoke in many jurisdictions,
drink alcohol, drive an automobile, do other things, enter into
certain kinds of debts, get married. But the data also
indicates that 82 percent of seniors in high school do not have
sufficient information to qualify under at least some
definitions for being financially literate.
So it is entirely possible, I would say to Senator Dodd,
that we do have a market failure here because the information
just has not been made available because we haven't emphasized
it in our academic institutions--primary, secondary education--
to give particularly younger college students an adequate base
of information for making these decisions on their own.
The question I think we have is do we have a market failure
here that needs to be filled in with more adequate information?
I think the answer to that question is, yes, we do. And I
salute you for focusing on this challenge.
I would also just like to say a word about Treasurer
Miller. He comes from our neighboring State of Kentucky. He has
labored in these vineyards for a long time. He is going to be
discussing for us, Mr. Chairman, some of his ideas about the
Commission on Personal Savings and Investment that he has
promoted in Kentucky, and has really done a good job in that
Commonwealth of trying to ensure that young people do have the
kind of information they need to make these decisions.
Treasurer Miller, it is good to see you. I apologize for
needing to slip out, but I am aware of your good work and I
compliment you for that, just as I do Senator Dodd and the
other Members of the Committee.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you, Senator Bayh.
Senator Corzine.
COMMENTS OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman. As you noted,
financial literacy for the unbanked, for the immigrant
community, and college students, is something that you have
focused on. I compliment you on this and raising up this issue.
I think the point that has been mentioned about the 82
percent failure rate on a simple test is really the foundation
point for the discussion that we will have today.
And for a father who is sending off a young man for his
freshman year in college, actually just yesterday, this is even
a more frightening prospect to attend to. We want to make sure
that he understands what 18 percent compound interest is.
I think it is a question that should be asked of those
responsible for approviding credit, that the ability to pay is
a question that should be addressed before credit is extended.
At least that is what I learned in my previous banking world
career.
And so, I think there are questions here of responsibility
on both sides that need to be addressed, and they all underlie
the fact that we need to improve our financial literacy and
economic literacy, in this country.
I think the kind of legislation that Senator Dodd has
proposed, which brings some checks and balances to make sure
that that exists, is a very worthwhile idea. And I am hopeful
that we will hear perspectives on that from people that are
laboring in the vineyards.
I appreciate very much your holding this hearing on this
subject and the actions that we might be able to draw from it.
Chairman Sarbanes. Thank you, Senator Corzine.
Senator Reed.
COMMENTS OF SENATOR JACK REED
Senator Reed. Thank you, Mr. Chairman.
I want to commend Senator Dodd also for his leadership on
this issue. Certainly, no one can argue the need for financial
literacy, and not just restricted to college students, but
across the board.
There are some interesting statistics. Nellie Mae conducted
a study that found that 21 percent of college students have
credit card balances between $3,000 and $7,000. Those are
pretty impressive figures. I would shudder if my balance was
that high.
They also found that college students are three times more
likely than the general population of credit card holders to be
90 days' delinquent on their payments, pay late fees, and to
pay over the limit fees, which suggests that there is probably
some literacy that could be improved.
Then another survey, interestingly enough, conducted by
George Mason University, found that among students with student
loans, more than two-thirds have used money from their loans to
pay down credit card debt. So borrowing money to pay down
credit card debt is not the strategy I think we would
recommend.
I think this is a timely hearing and I commend Senator Dodd
for leading the effort.
Let me also recognize, Louise Slaughter from New York, a
dear friend and colleague in the House. And thank you all, the
panelists, I look forward to your testimony.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much, Senator Reed.
Congresswoman Slaughter, we would be happy to hear from
you. I want to underscore again how pleased we are that you
have come to be with us today. I also want to recognize the
leadership role you have played on the subject of college
students and credit cards.
STATEMENT OF LOUISE SLAUGHTER
A U.S. REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW YORK
Representative Slaughter. Mr. Chairman, Senators, thank you
very much. I am delighted to be here this morning, and to see
my colleagues from the House who were truly dear friends.
I always knew, even then, that they were destined for
greatness and a 6-year term.
[Laughter.]
I do not want to let the moment go by without
congratulating this Committee for the extraordinary work you
have done on corporate responsibility. The whole country is in
your debt for that.
This hearing is necessary, and I am so pleased that you are
holding it because the lack of financial education and its
consequences among college students is something that we have
been worried out in our office for some time.
I am pleased to introduce Dr. Robert Manning, who is a
Humanities Professor at the Rochester Institute of Technology
in my district. I became aware of Professor Manning's work in
1999, when he published a study through the Consumer Federation
of America illustrating higher credit card debt among college
students than previously thought.
The study found that students are snowballing into debt
through the extension of unaffordable credit lines, peer
pressure to spend, and financial naivete reinforced by low
minimum monthly payments and the routine increases given to
them in credit. His study indicated that 70 percent--which is
really quite frightening--of undergraduate students possess at
least one credit card and, indeed, credit card solicitations
fall upon students like snow. Students are receiving their
first card at younger and younger ages, now into the high
school years. A GAO accounting office study that we requested
found similar statistics, that 64 percent of college students
had at least one card.
Now, like you, I have no problem with them having as many
cards as they want. The difficulty is that we find most
students do not know what credit card debt means. We hear from
the parents who are forced to try to pay off that debt, which
brings that lesson home. College students are much more likely
than other types of credit card users to run up debts they
cannot pay, because of their financial inexperience. The
consistent misuse of credit cards by college students,
particularly combined, as Senator Reed mentioned, with student
loan debt, could lead to substantial debt burden.
According to the GAO report, and I must say that the GAO
did not find much cooperation among universities. It would have
been a much more extensive report had they been able to do
that. But two of the universities of the 12 that they visited
had to make bankruptcy attorneys available to counsel students
who were having financial difficulties. According to one of the
attorneys, over the 3 years since April 1998, 1,328 students
had to use that legal service and that many of them had to
declare bankruptcy. Credit card debt of the students who sought
advice from the bankruputcy attorney range from about $2,100 to
$39,000, and average approximately $11,200, which is
frightening.
I am very much concerned with rising credit card debt among
young people and the serious implications that it has for their
future. Too many students are literally spending their futures
now.
Let me give you a riddle. Who has been denied a credit card
with a high limit? A, a cat. B, a 3-year-old toddler. C, a
freshman college student with no independent income. Or D, a
25-year-old full-time worker. The correct answer is D, the
full-time worker. Not only did a cat in my district receive a
credit card with a $3,000 limit, but a local toddler received
her very own platinum credit card with a $5,000 limit.
We all agree that that is very foolish, but we are really
concerned about the ease of credit to people who have no
ability to pay the bill. Many, many parents have contacted me
about children who have had to drop out of school because of
credit card debt. It is a tragedy if a good student with good
grades, academically successful, has to drop out of school
because of debt on a credit card that they cannot pay. One
constituent's stepson filed for bankruptcy at the age of 21
when he had $30,000 in credit card debt. Another mother called
me because of enormous credit card bills her daughter
accumulated as a student at the University of Buffalo.
In response, as Senator Dodd mentioned, we have our
legislation which we are looking forward to working with him
into fruition as law. Like his bill, we require parents to co-
sign, particularly if they are going to be held accountable for
the credit. We are concerned, too, that more credit is added to
the original cards as the student continues in college,
regardless of their ability to pay.
One of the most important things I think that we need to
say is that young people at least deserve to know that by
declaring bankruptcy at the age of 20 or 21 years old, they may
very well be jeopardizing their ability to access credit in the
future--more difficult to get mortgages, more difficult to get
car loans. I think they have no idea of that. So, we need to do
what we can to, at least, make sure that they understand the
consequences.
I do appreciate very much your holding this hearing today.
I think it is very important. And thank you so much for letting
me be with you this morning.
Chairman Sarbanes. Well, thank you very much. We are very
pleased you were able to join us.
Representative Slaughter. Thank you.
Chairman Sarbanes. We appreciate it. I say to my
colleagues, I know you have a pressing schedule, so we will
certainly excuse you.
Representative Slaughter. If I may be excused.
Chairman Sarbanes. Thank you.
Well, we are very fortunate to have a very able panel here
this morning. I am going to just briefly introduce each, and
then we will turn to the witnesses.
Dr. Robert Manning, who will lead off, is, as we heard,
Professor of Humanities at the Rochester Institute of
Technology. His book, ``Credit Card Nation,'' received the 2001
Robert Ezra Park Award for Outstanding Contribution to
Sociological Practice from the Sociological Practice
Association, and his study, ``Credit Cards on Campus,''
received the 2000 Morris Rosenberg Award from the District of
Columbia Sociology Society. And I might note that Dr. Manning
received his Ph.D. from Johns Hopkins University.
We have also been joined by Ellen Frishberg, who is the
Director of Student Financial Services at Johns Hopkins
University, a position she has held for the past 13 years. Ms.
Frishberg has served on a number of national loan advisory
boards, including the Sallie Mae Advisory Council and the
American Express Loan Board. As I understand, today is the
first day of classes at Hopkins, so we especially appreciate
that Ms. Frishberg could take the time to be with us.
Our third witness is Ms. Tally Hart, the Director of
Student Financial Aid at Ohio State University, one of the
largest financial aid offices in the country. Ms. Hart has done
significant research on student loan defaults and she helped
Ohio State University develop courses to teach financial
literacy to its students.
Professor Michael Staten is the Distinguished Professor and
Director of the Credit Research Center at the McDonough School
of Business at Georgetown University. Professor Staten's book,
``Consumer Attitudes Toward Credit Insurance,'' co-authored by
John Barron, won the American Risk and Insurance Association's
Eliza Wright Award.
And finally, we have the very able Kentucky State
Treasurer, Jonathan Miller. Treasurer Miller established and
now serves on the Kentucky Commission on Personal Savings and
Investment. The Commission held a hearing on student financial
literacy at the University of Louisville in December of last
year that actually touched on many of the issues we will be
discussing today. Treasurer Miller was one of 200 distinguished
delegates appointed by President Bush and Congressional leaders
to the National Summit on Retirement Savings.
We are pleased to have all of you here. Dr. Manning, we
will begin with you and then we will move straight across the
panel.
Your full statements will be included in the record. And I
want to, at the outset, express our appreciation for the
obvious work and effort that has gone into these statements. If
you could summarize the statements to somewhere between 5 and
10 minutes, that would be very helpful to the Committee. And
once we have heard from all the panelists, we will go to
questions from Committee Members.
Dr. Manning, we will hear from you first.
STATEMENT OF ROBERT D. MANNING, Ph.D.
CAROLINE WERNER GANNETT
PROFESSOR OF THE HUMANITIES
ROCHESTER INSTITUTE OF TECHNOLOGY
Dr. Manning. I would like to thank Chairman Paul S.
Sarbanes for providing me this opportunity to share my views
with the Committee on this increasingly important topic of
consumer debt among college students, and especially the lack
of financial literacy/education programs for America's
financially vulnerable youth. In addition, I applaud the
legislative initiatives of Senator Dodd, who has championed
credit card marketing restrictions on college campuses along
with critically needed financial education programs, and also
Senator Schumer's efforts to protect consumers from deceptive
marketing and contract disclosure practices of the credit card
industry. I should note that I am particularly pleased to
attend today. This is the first hearing on this topic since
March 1994, and that the twin issues of rising consumer debt
and the shockingly low levels of financial literacy among our
youth have grave implications for the continued economic well-
being of the Nation, especially as Americans age into debt. And
it is for these and other reasons I commend the Committee for
accepting this daunting task of examining these serious issues.
I am an economic sociologist. I have spent 16 years
studying the impact of U.S. industrial restructuring on the
standard of living of various groups in America. And over the
last 11 years, I have been particularly interested in the role
of consumer credit in shaping consumption decisions of
Americans, as well as the role of retail banking in influencing
the transformation of the U.S. financial services industry. In
terms of today's hearing, I want to discuss my new report,
which I feel is especially germane, which is really the first
case study based on a representative survey of 800 college
students in the nearby school here of George Mason University.
In addition, I have been very actively involved in the national
movement to improve the financial literacy/education of our
youth. And it is my work with colleges, universities, and
student loan organizations that has really inspired my own
efforts on Internet-based education on this topic.
What I want to emphasize to the Committee today is that
this is truly a unique period. If I could use the term from
Wall Street, the ``Triple Witching Hour.'' What we have before
us today in higher education is a real crisis. That is,
unprecedented levels of student loan debt, unprecedented levels
of credit card debt, and the worst job market in over a decade.
Indeed, as long as America's economic expansion has continued
unabated, college students were lulled into a false sense of
financial security by university administrators and credit card
finance companies. Indeed, keep in mind that this is a
generation that grew up with TV's Friends, the sitcom, whose
mid-town New York City lifestyle belies their modest
professional incomes. This is a generation that is unprepared
for the bursting of our Nation's economic bubble.
I do not think there is any dispute that over the last
decade we have seen a sharp increase in borrowing and the cost
of credit, particularly with the decline in public funding of
higher education. What is critical, though, is the relationship
of student loan debt and the relationship of universities in
terms of encouraging and fostering greater levels of debt, and
particularly the lack of balance of providing an environment
that is going to encourage students to understand the degree
and impact that their debt is going to have.
In fact, in 1994, when the last hearing on kiddie cards was
actually held, we were looking at a period of time when it was
really rare to find a student with over $5,000 in credit card
debt. Today, I can go to any college across the country and
find a student with anywhere from $20,000 to $25,000 in credit
card debt.
What I find most striking since my 1999 ``Credit Cards On
Campus'' study is the fact that the situation is far worse than
it was then. Keep in mind here what I see as a very important
and in some cases duplicitous and insidious relationship
between higher education and the credit card industry. Also
keep in mind that of the 250 largest public universities in the
country, they account for approximately two-thirds of all
enrolled students in 4-year universities. And this features
universities like the University of Tennessee, which signed a
7-year contract with First USA in 1998 for at least a
guaranteed $16\1/2\ million, as well as the University of
Oklahoma that received a $1 million signing bonus. Some of you
might have seen the 60 Minutes program that was based on my
``Credit Cards On Campus'' study. And what is critical is that
when we requested information on what universities were doing
with these credit card royalties, we could not find a single
penny that was going into any form of debt refinance, debt
consolidation program for students in debt, or for any credit
card or financial literacy education programs.
Now over the last two decades, the two most noticeable
trends in the marketing of credit cards to college students is
that they are being marketed at a progressively earlier age and
what we are seeing is that there is a sharp rise in personal
debt associated with consumer credit cards that tends to be
artificially compartmentalized in terms of student loan debt
and credit card debt.
What I want to show today is this relationship and why it
shouldn't surprise us that the risk associated with marketing
of credit cards on campus is so much lower in terms of their
being underwritten by publicly subsidized student loans, summer
earnings, efforts of getting parents to pay down debt during
extreme crises, and even using one credit card to pay another.
I am not going to go into detail since I have had in many other
places many of the methodological problems and issues in terms
of industry-structured investigations on this topic. What I do
want to emphasize is that the methodologies clearly define
whether there is the identification of a problem. In other
words, if you are doing a survey of a particular school and you
are looking at enrolled students, you are not going to find
anybody who has dropped out of school because of student loan
debt. That is by definition of that research design.
What I want to emphasize is that what we are seeing today
is about 15 years ago, when the industry released their
voluntary policy of having parents co-sign for credit cards, we
have seen the move from marketing affinity credit cards to
alumni to college seniors, then to juniors and sophomores to
freshmen, to today, we are seeing the marketing of credit cards
to high school seniors.
And indeed, we will discuss what the implications of this
will be. But keep in mind that the marketing of credit cards at
an earlier age, unless that life experience means that students
are going to handle them more appropriately, means that the
debt burden is going to show up earlier. It means that
retention in college is going to be affected, and we are going
to see increasing drop-out rates because a student who has a
debt problem in their sophomore year may not be able to find a
way to financially limp through the last 2 years, whereas, 5
years ago when I started this research, we were looking at this
problem manifesting at the junior and senior year. This is
clearly an issue that is going to have to be addressed by
college administrators.
In terms of my limited time, what is very clear here is
that industry-sponsored and financed research does not disagree
that we are marketing credit cards to younger students. The
disagreement is the amount of debt that has been incurred.
Indeed, we will be listening to Dr. Staten's report from
his recent study. But keep in mind, what we are interested in
is the experience of college students, not some amorphous set
of accounts, since we know that the average college student has
three credit cards.
What we need to understand is when a student starts college
his freshman year, and we want that person to graduate, what is
that experience and how much credit card debt has been
accumulated.
So, I think the Committee staff has done a fantastic job of
presenting to you some of the statistics that show quite
clearly two things--over the last 3 years, average and medium
credit card debt has increased significantly. And more
importantly, as credit cards are used at an earlier age,
students are accumulating debt at a much earlier age.
There is no doubt, and Professor Mandel's study on
financial literacy among college seniors that has been alluded
to, it is shocking that the problem with his data shows that
high school seniors actually are doing worse on these scores,
that attention to this topic is not by itself a market-driven
explanation that is going to resolve it. Yes, we now admit that
there is a problem. But we are not seeing anything that says
that we are going to solve it.
What I want to report to you today, then, is the findings
of the study that we conducted here at George Mason University
in this area. And I want you to keep in mind that the lack of
financial education and literacy and parental oversight of
students' purchasing decisions is being fostered by the
increased use of the Internet. But also keep in mind that as
budgetary constraints impact high schools, more and more high
school students are going to be taking courses in junior
college, in 4-year colleges, and more and more students are
getting credit cards before their parents ever thought it was
possible.
This is critical because where are children and teenagers
going to get financial education? At this point in time, it is
only in the household. And when these students make decisions
outside of the purview of their parents, of course there is
going to be some other issues that come up. In fact, a recent
study at Pennsylvania State, the Erie campus, showed that those
students whose parents co-signed on their credit card showed
far more responsible spending and consumer behavior patterns
than those who got their credit cards independently.
What I want to do is point you first to Table 1, which
shows us that approximately 77 percent of all students at
George Mason have a credit card. And it should not surprise us
that 62 percent of the freshmen have them; but by the senior
year, nearly 90 percent have credit cards.
More importantly, you will notice that as we go from
freshmen to seniors----
Chairman Sarbanes. Is this Table 1 of your statement?
Dr. Manning. Yes, it is.
Senator Gramm. Okay.
Chairman Sarbanes. So if we go to the back of the
statement, we have it right here.
Okay.
Dr. Manning. What is important here is that we are seeing
that students are getting their credit cards at an earlier age.
Eighty-six percent of the freshman class that have credit cards
received them by age 18. In fact, one of the striking findings
of this report is that, given the intensified efforts to market
in high school, last year, we saw a doubling, from 16 to 30
percent of students who said that they received and are using
their first credit card in high school.
Now keep in mind that the average cost of acquiring a new
bank client is somewhere around $120 to $170. And I do not
think it is going to be unreasonable to assume that some credit
card companies may offer kiddie cards with comparable limits
for students under 18 years old.
Now access to credit does not necessarily entail debt
problems. So the real question is what are students doing with
their credit cards and how are they using them? In fact, when
we asked students, have they maxed out on their credit cards,
shockingly, 60 percent of the freshmen with credit cards said
they have maxed out their credit cards and three-fourths of all
other students said that they have maxed out their credit
cards.
Freshmen are more likely than upper classmen to use their
student loans to pay down their credit cards. This was shocking
to us because I have not found an industry-sponsored study that
actually explicitly asked the question, ``have you used your
student loans to pay your credit cards?'' And lo and behold,
what we found here is over 70 percent, over two-thirds of all
students are using their student loans to pay for their credit
cards.
This is critical and it shows us how important the role of
understanding debt in colleges, that it is dynamic. We cannot
create these artificial categories. But, publicly subsidized
student loans are underwriting and reducing the risk of
marketing credit cards. Also notice the high rates of students
who are using one credit card to pay for another credit card.
Chairman Sarbanes. Dr. Manning, I am going to ask you to
draw it to a close.
Dr. Manning. What I want to do then is conclude with some
of the narrative comments that we have, and I think this one
statement will really reach closure for my statement at this
time.
This is a student who, in terms of responding to what and
how the issue of consumer credit cards affects them and their
real-life experience. He says: ``I believe credit card use by
students is alarming. How do students who generally do not work
pay back credit card bills? I think that there should be
restrictions and legislation on credit card solicitations on
college campus. College administrators, student government
council, et cetera, have a responsibility to protect and
educate students on the evils of credit card companies seeking
student sign-ups. Also, I think credit card knowledge and
awareness should be part of the College 101/1st-year
orientation class to help prevent this epidemic sweeping across
college campuses. My mom was once a bank loan lender and she
noted to me the sadness of the number of people who are denied
loans because of poor credit ratings established as young
college students.''
That is the voices from campus today.
Thank you.
Chairman Sarbanes. Thank you.
Ms. Frishberg, we would be happy to hear from you.
STATEMENT OF ELLEN FRISHBERG
DIRECTOR, STUDENT FINANCIAL SERVICES
JOHNS HOPKINS UNIVERSITY
Ms. Frishberg. Thank you, Chairman Sarbanes, and Members of
the Committee.
It is my honor to be here today to represent the interests
of the students of the Johns Hopkins University to discuss this
issue of credit card usage among college students. We are a
decentralized, multifaceted research university and I have been
there for 13 years helping students to pay for college. I work
primarily with undergraduate students. And at that endeavor, we
are a very small, selective private college of 4,000. However,
we educate 17,000 through our programs that are full and part-
time, graduate and undergraduate. We have eight divisions. We
have nine campuses. We are on three continents. And I think my
remarks do affect all of those learners wherever they may be.
But primarily, they affect the undergraduates.
We are very proud of the outcomes of our students. They
succeed and they graduate in impressive numbers, and more than
any other school in the Nation, they go on to graduate and
professional education. This has made our undergraduates an
incredibly attractive market for financial companies who are
looking for lifelong customers, as Dr. Manning mentioned. I
have never wanted for a student loan lender who was willing to
lend to my students and their families. We have a default rate
of less than 2 percent. We have an average graduating debt of
$16,200--that is student loan debt--from all Federal student
loans. Our students establish themselves as good payers. So
solicitation of these students starts very early. Many of our
freshmen arrived on campus this past weekend armed with credit
cards they received as high school seniors. It appears that the
lists that are available to the direct mail marketers come from
a variety of sources, some of them long before the students
ever register at our school. But the students arrive with the
credit cards and without an understanding of how they work.
They do not understand what APR is. They do not understand
compound interest. And they do not understand why paying only a
small amount of their bill will get them into trouble later on.
Because of the ease of getting credit and the lack of
financial savvy on the part of our otherwise very bright
students, and the unchecked solicitation and giveaways that
were going on during past orientation weeks, back in 1994, the
Dean of Students decided to prohibit credit card vendors from
setting up tables on campus. At about that time, my staff and I
became alarmed at the growing number of students we were
hearing about who were dropping out, who were having credit
card problems, and they were leaving school in order to repair
their financial health. They were going out, getting jobs,
paying off their debt, and then coming back. I have appended to
my statement one from an inner-city youth from Baltimore. He
was the child of a homeless woman. He was raised by his
grandmother. He has become a great success. He graduated from
Georgetown Law School and is now working as an attorney. But by
the end of his second year, he had already maxed out four
credit cards. By the spring of his sophomore year, he had eight
credit cards. He was earning $50 a week as a work-study student
and by the time he dropped out of school, he, and at that time,
his girlfriend, had 13 credit cards and $11,000 in debt. He had
no income, He had no family resources to fall back on. He had
lots of T-shirts and mugs. He had lots of debt. Luckily, he
came to us and asked for a lot of help to try to restore his
financial health, and he was able to do that and become a
success. But he was a victim of these credit offerings. And you
can read his statement attached to my testimony.
Keeping credit cards out of the hands of students is very
difficult. As Senator Dodd said, we know that credit is not
always a bad thing. It provides for emergencies. It allows
students to shop on the Internet, and that is where they get
used books at a discounted rate and air miles. Our students
come from 50 States and they do need to look for low-cost ways
to get here. However, we thought that if we made sure that our
student loan and other financial services' vendors were not
cross-marketing financial products to the database of students
that they were lending to, it would help to reduce the direct
mail and the Internet offers that came because of the students'
relationship with the university. We did not want them to be
getting these offers because they were students at our
institution.
For a variety of reasons, this being one of them, the
university decided to participate in the William D. Ford Direct
Loan program, which took private lenders out of the student
loan equation for our need-based loans. We have no empirical
evidence, but we do believe that this decision has also
reduced, but by no means eliminated, the number and type of
solicitations that our students received for other financial
products, including credit cards. Our concern remains that if
you or I get into credit trouble, we have ways out--home equity
loans or mortgage refinancing. But if our students get into
trouble, their options are very limited. Often, it is their
unknowing parents who end up dealing with the debt.
However, we are not so naive as to believe that we can
restrict or control the behavior of our students, who live
their lives on the Internet--and if you ever searched on the
Web, you know that pop-up credit card offers are a way of life.
We do advise our students on student loan issues. But we do not
advise them on credit card issues because they do not come to
us. They come to us when they have student loan needs and we
have the opportunity to talk with them directly. Speaking of
the web, colleges and universities are offering new web
services to students to ease getting through administrative
processes, including allowing tuition to be paid by credit
cards. While Hopkins does not allow this for full-time
students, we can see how it could help to get students into
trouble. Because of the short time that it takes to apply for
and receive a credit card, some students will follow the path
of least resistance and opt for a credit card rather than for a
student loan. Compared to the process of applying for a Federal
student loan, which can take up to 6 weeks and lots of
applications and forms--Credit cards are sometimes the easier
way to go.
Our alumni association does offer an affinity card and that
is something that we were very concerned about. The JHU card is
not permitted, we do not permit MBNA to distribute that card to
our current students. We restrict them to only marketing that
card to our graduating seniors and to parents of current
students. That is something that is currently under review,
whether or not to allow that to go to parents of current
students. We like that card because the monies that come back
to the university from people who use our affinity card go
directly into the scholarship budget and allow us to help needy
students to pay their bills. But we are also happy that the
marketing is restricted to graduating seniors.
What we as administrators can do is to be aware of the
cross-marketing that our vendors are doing, whether it is the
ID--and stored value card vendor on our campus, or our student
and alternative loan lenders. We can use our stored value and
debit cards as important learning tools for our students, kind
of credit cards on training wheels. We can encourage students
to use the opt-out service of the major credit bureaus. I am
not sure enough people understand how those work. I have
participated in that myself and while it doesn't eliminate, it
does lessen the numbers of offers you get. And we can use our
roles as educators to teach about compound interest,
capitalization, and credit reports, at the same time we are
doing student loan default prevention.
Many students and parents are concerned about this topic
and I am thankful for this hearing. Whenever I mentioned I was
coming here, there was universal agreement that a problem
exists. My husband, an elementary school teacher, was a credit
card executive in a former career. He believes that the banks
need to take responsibility to offer national education at the
high school level, as the use of cards will not go away. He
says it is kind of like sex education, educating young people
about birth control after the pregnancy occurs is not very
helpful.
The lenders may offer financial literacy programs, but we
do not see them on campus. They are not reaching our students.
So, they could help us with better disclosure. They could help
us with more and better programs. They can make their account
statements, the inserts in the account statements in bigger
fonts, not just because my eyes are going, but because they are
hard to read, so young people do not think that paying the
minimum on their bill is sufficient. We need more programs like
the Life Skills program offered by the USA Funds Group of
Indiana. And we also need our lenders to start restricting
their marketing to those who can afford to pay. It should be
credit-tested. Not the students without the financial safety
net or the parental resources to fall back on.
Thank you.
Chairman Sarbanes. Thank you very much.
We will now hear from Ms. Tally Hart, the Director of
Financial Aid at Ohio State University.
Ms. Hart.
STATEMENT OF NATALA K. HART
DIRECTOR, STUDENT FINANCIAL AID
THE OHIO STATE UNIVERSITY
Ms. Hart. Mr. Chairman, Members of the Committee, my name
is Natala Hart and I am honored to be here before you today. I
am the Director of Student Financial Aid at The Ohio State
University and I see in that capacity each week the growing
importance of financial skills for today's students. My fellow
witnesses have laid the case well for this need and demand.
I can report to you that the matter of financial literacy
and keeping their children out of credit card trouble is the
leading financial concern that parents express to us as they
are bringing their freshmen students to our orientation and
leaving them on move-in day. We think that that is very
reflective of a national concern about the availability of
credit and, as has been stated, the increasing opportunity for
younger and younger children to obtain credit. I am the parent
of a 13-year-old and I have already begun to coach her about
how to be a good borrower, a good saver in her future because I
know, based on her predecessor groups, that she will begin to
receive credit card offerings when she is 16 years old.
In the financial aid office at Ohio State, we delved into
the very small percentage of our students who had defaulted on
their student loans. We were interested, as we remain
interested, in driving that number to zero. What we learned in
this small number of student loan borrowers who had defaulted
was that the vast preponderance, more than 90 percent of them
who had defaulted on their student loans, had credit card debt
even higher than the amount of their student loans. So they
were doing both. It was not the student loan by itself that
proved problematic in repaying, but a combination of debt that
included large amounts of consumer debt.
We hear from our colleagues in the residence hall system
that a small but increasing number of our students are already
arriving as college freshmen in credit card trouble. They
define credit card trouble as these students being so concerned
about how they are going to pay those bills, that the students
are not able to focus adequately on their class studies and
their primary responsibility of being students.
As a result, our Division of Student Affairs conducted a
study about credit card practices at Ohio State among our
students and I have submitted to staff a copy of that study.
We also have on our faculty Dr. Lucia Dunn, an economist,
who has developed a ``Debt Condition Index'' with psychologists
on our campus, part of a ``Debt Stress Index,'' that describes
when debt becomes so significant as to be disruptive to the
lives of normal Americans.
Well, what are we doing about all of these issues?
We have taken a number of proactive steps and plan to
continue and expand the things that we are already doing. We
offer, through our Office of First Year Experience classes at
Ohio State, a Financial Literacy Week curriculum. We offer a
wide array of course work and last year had more than 1,600
freshmen attend these courses. Very few of them were required
to attend. We find that about 30 percent of our freshmen class
really want to come to these literacy courses, and that is
reflective of what Dr. Dowhower found in her study of our
students in general. A lot of them really want this type of
education.
We have also enacted a campus policy that limits credit
card solicitation. We had a slightly different experience than
Ms. Frishberg reported at Johns Hopkins because of our public
institutional status. We discovered that by looking into some
of the First Amendment limits, that we were required to have
consumer-free speech, if you will, on our public campus under
Ohio law and First Amendment restrictions according to our
legal counsel. What we could do, however, was to limit the
``time, place, and manner'' in which students were solicited.
Our students, along with a key faculty committee, developed
what they thought were appropriate standards for this to occur.
For example, they felt that students solicited during the
second half of the term were much more likely to borrow for
holiday plans or for spring break. At the beginning of the
term, available credit might really help them with more
legitimate financial concerns. We have executed a Request For
Proposal (RFP) for services and had a successful bidder who
will adhere to our rules and the way in which the students are
approached. It includes not having trivial gifts like T-shirts
and 2-liter bottles of soda, but good educational materials to
our students. Part of the contract also requires that they fund
a debt counseling position in our student wellness center. We
think that type of arrangement is working really well.
Our course work remains our biggest defense in the end for
this whole problem. Even with our campus policy, we are aware
that we cannot limit the degree to which our students are going
to receive credit card solicitations through the mail. And we
think that making educational literacy available is the right
solution for this important issue.
We plan to continue our third week of every term Financial
Literacy Week on the Ohio State campus and hope our subsequent
class, which begins in just a couple of weeks, will be as
interested in developing these skills.
Finally, I want to commend the work you are doing on this
issue. I know from my daily work in seeing the small number of
students who are in big trouble with their credit card issues,
that financial literacy can be as important as the excellent
academic opportunities we offer at Ohio State. We look forward
to any opportunities to assist the Committee in looking into
the issue of financial literacy and to continue to report on
our very positive findings of making those available to our
students.
Thank you very much.
Chairman Sarbanes. Thank you very much.
Dr. Staten.
STATEMENT OF MICHAEL E. STATEN
DIRECTOR, CREDIT RESEARCH CENTER
McDONOUGH SCHOOL OF BUSINESS
GEORGETOWN UNIVERSITY
Dr. Staten. Thank you very much, Mr. Chairman, and good
morning to you and Members of the Committee. I am an economist
by training, just as a bit of background. I am the Director of
the Credit Research Center at Georgetown University. The center
is a nonpartisan, academic research center devoted to studying
the economics of consumer and mortgage credit markets. Over its
28-year history, CRC has generated over 100 research studies
and papers, most of which examine the impact of public policy
on credit markets. I have served as the Center's Director for
the past 12 years.
As students head back to college this fall, a perennial
debate will resume over the problems some of them have in
handling their credit cards. Marketing research surveys
indicate that about 57 percent of full-time undergraduates own
a general-purpose card in their own name. By that I mean a
Visa, MasterCard, Discover, or American Express, in their own
name. From the sad anecdotes often portrayed in the news media,
and actually mentioned today by some of the other panelists,
one could get the impression that the majority of students are
awash in debt, victims of relentless marketing by big credit
card companies and incapable of controlling their own urge to
charge. I do not doubt that any of the anecdotal stories are
true. These things do happen. But, of course, the advantage of
anecdotes is that they can show us what can happen, the
disadvantage is that they don't show us how often they happen.
Along with my co-author, Professor John Barron at Purdue
University, I recently completed a study for CRC at Georgetown
that offers new evidence on student credit card usage, evidence
that paints quite a different picture. The report provides a
number of benchmark measures of college student card usage
based on an analysis of over 300,000 credit card accounts
randomly selected from the portfolios of 5 of the top 15
general-purpose card issuers in the United States.
Discussions of college student credit card usage in both
the policy arena and the popular press have been based mostly
on anecdotes and self-reported survey evidence. To our
knowledge, the Georgetown study marks the first time account-
level information has been pooled across major issuers to
create a statistically reliable database for examining the
actual usage and performance of credit cards marketed to
college students. Consequently, the results should be helpful
in grounding subsequent discussion on the facts rather than
anecdotes.
I would like to share with you a few results from our
study. More details along with a number of charts are contained
in the text of my written statement which has been submitted to
the Committee and the full report is available on CRC's
website.
The analysis compares behavior across three types of
accounts: Those opened through college student card marketing
programs; those opened by young adults aged 18 to 24 through
normal marketing channels, that is, cards they received that
weren't through student dedicated marketing programs; and the
last group are those opened by older adults over the age of 25
through normal marketing channels. All the accounts that were
analyzed in the study were opened between mid-1998 and early
2000, and were observed over a 12-month period between 2000 and
2001.
And I should note that the analysis follows a study plan
that was originally proposed by the U.S. General Accounting
Office during the fall of 2000 in response to a request from
Members of Congress, but was never executed by GAO due to
budget constraints. So it is basically their plan.
There is much evidence that college students are as
responsible as the rest of us when it comes to their credit
card usage behavior. And in fact, they are more sensible in
some respects. Let me give you a few brief examples and refer
you to my submitted testimony and the full report for more
details.
The following can be said about student accounts relative
to accounts held by the other two groups in our study. Student
accounts have significantly lower limits and balances. The
average balance of an active student credit card account in a
given month is $552, which is about one-third the size of the
average balance for a nonstudent account of other young adults
under age 25, and one-fourth the balance for adults age 25 and
over.
Student accountholders do not take all the rope that is
given them. By that I mean utilization rates on student
accounts are on par with the other groups, despite having much
lower limits. And for students who do have higher credit
limits, that is, those with limits over $1,000, the utilization
rates are much lower than for the other two groups. Student
cardholders take cash advances much less frequently. They pay
any outstanding balance in full slightly more frequently.
Delinquency rates on both student accounts and other young
adult accounts are higher than for older adult accounts. In a
given month, 12 percent of active student accounts are past
due, versus about 11 percent for other young adults under age
25, and 8 percent for adults 25 and older. However, among
student accounts that have large balances, for example, those
with the balances of greater than $1,000, delinquency rates are
substantially lower than for similar accounts held by other
young adults under age 25.
I presume that this hearing on student financial literacy
sought out information on how credit card products are being
used and hence, invited me, because card usage is perceived as
a barometer of how well literacy translates into practical
skills and decisionmaking. So let me offer some conclusions
based on my reading of these results.
If one were to gauge the level of practical financial
literacy skills across these three groups, based on the way
that they use their credit cards, then the data do not indicate
a dramatic lack of
sophistication among students regarding the handling of what is
a very powerful payment tool.
I do see some evidence of underappreciation of the
potential harm from sloppy payment habits. There is a very
sizable chunk of student delinquencies that are on balances
less than $100, which suggests to me carelessness in handling
their monthly paperwork.
I also see a higher rate of serious delinquencies among
students--that is, by my definition, accounts 90 days or more
past due--but in any given month, this amounts to just 3
percent of all active student accounts compared to 2.4 percent
for other young adults and 1 percent of other older adults. So,
admittedly, the student rate is three times that of other older
adults, but it is only 3 percent of all active student
accountholders.
More importantly, there is evidence of learning by doing
because the rate of serious delinquencies for students declines
as the account matures, so that it is nearly identical to the
rate for other young adults within 18 months of the accounts
being opened.
In summary, 88 percent of student accounts pay as agreed in
any given month. And 97 percent handle their accounts without
serious delinquency in any month.
All of these findings are consistent with issuer statements
that they establish student accounts with relatively low credit
limits, with the expectation that the large majority of new
young cardholders will learn how to manage a credit card,
establish a credit history, and become longer-term customers.
The undergraduate experience gives young adults an
opportunity to transition from life at home to life on their
own. Learning personal financial management is part of that
real-world experience.
A general purpose credit card offered with relatively low
limits gives students an introduction to the most powerful and
versatile payment device on the planet. I think of it as the
``training wheels'' approach to learning to use a credit card.
Students learn that their wants usually exceed their resources
and they have to manage that tension. They learn that a
purchase made with plastic today and forgotten tomorrow can
come back to haunt them at the end of the month with the
arrival of the credit card statement. They learn the credit
card company does not forget you made the purchase, nor will it
forget if you do not pay. For those who choose to revolve, a
balance that seems to fall far too slowly month after month
kindles a new urge to find gainful employment during the summer
or after graduation, and perhaps not let the balance rise
again.
All of these lessons must be learned eventually. I believe
it is better to learn them with the relatively small exposure
permitted by the lower limits that are typical of cards
obtained through college student marketing programs. Postponing
the lesson until after graduation would raise the financial
stakes and put young consumers at even greater risk.
It surely cannot be too difficult for our best and
brightest youth to learn about cards and card marketing while
they are in college. I know that artificial limits on card
marketing to students have been proposed at various times
around the country. But it seems to me that this is counter-
productive to preparing them for life after graduation. The
wiser course seems to be to facilitate student access to the
information they need to make sound decisions about using
credit and the importance of maintaining a good credit history,
and then let them learn by doing.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much.
Before we turn to Jonathan Miller, I want to ask one
question, Dr. Staten, about your methodology. In these
comparisons you are making, how did you factor in, if you did,
the number of credit cards the person may hold?
Dr. Staten. Well, all the results are representative of the
way a given account is used. Now some of these students may
have had more than one account.
Chairman Sarbanes. The figures seem to indicate that many
of these students have lots of accounts. Some students then
will have four or five accounts.
Dr. Staten. That number is relatively small, I would
suggest. The best surveys we have seen suggest the average
number of cards held in their own name is 1.6. That comes from
the student monitor annual marketing surveys.
Chairman Sarbanes. Well, Nellie Mae studied this. They
said, in 2001, among students with credit cards, the percentage
who have four or more cards, is 47 percent.
Dr. Staten. Senator, I am glad you raised the Nellie Mae
study.
Actually, if you scratch a little closer at that and take a
close look at their sampling methodology, all of their
conclusions are based on a restricted sample of students who
did not qualify for other types of student loans, and who
consequently applied to this special loan program that they
had. I would argue that that is not a representative sample.
Chairman Sarbanes. But your methodology does not allow for
or take into account that a student may have multiple cards.
Would that be correct?
Dr. Staten. It tells us how a given account is used. But if
you find a statistic that you are comfortable with that tells
you the
average number of cards students hold, simply multiply that by
our average balance and that will tell you what the average
student card debt is for any given student.
Chairman Sarbanes. How about the people you are comparing
them with? How many cards do they hold?
Dr. Staten. You can get the statistics from Visa and
MasterCard. They range from three to four cards for the adult
population.
Chairman Sarbanes. But we should factor that in when making
the comparison, shouldn't we?
Dr. Staten. I do suggest how you might do that.
Chairman Sarbanes. If you compare a student who has four
accounts with an adult who has one account in order to get an
apples to apples comparison, you have to, in effect, accumulate
the four accounts to compare with the one account, would you
not?
Dr. Staten. Well, I think we can accomplish where you are
headed simply by looking at how an average account for each
group is used. And then if you are interested in trying to
determine what the total balance, what the total card debt of
any particular individual is, simply multiply it by the average
number of cards that that group holds. That is a valid way to
proceed.
Chairman Sarbanes. I take it that is saying yes to my
question.
Dr. Staten. I am not sure if it is saying yes, but I think
I just described the valid way to proceed.
Chairman Sarbanes. All right.
Senator Dodd. Let me ask this. I am curious on the funding
of these studies. Did the credit card companies fund this
study?
Dr. Staten. The credit card companies provided the data and
provided the grant to support the study, yes.
Chairman Sarbanes. Treasurer Miller.
STATEMENT OF JONATHAN MILLER
TREASURER, THE COMMONWEALTH OF KENTUCKY
Mr. Miller. Thank you, Mr. Chairman. I appreciate this
opportunity to testify today, and I am particularly grateful
that you are shining the spotlight on the important issue of
financial literacy among college students.
The first few weeks of college have always presaged many
rites of passage--choosing a major, attending your first
football game, rushing for a fraternity or sorority. But a new
rite of passage has emerged recently for college freshmen on
campuses across the country. Applying for your first credit
card.
As you mentioned, Mr. Chairman, my Commission on Personal
Savings and Investment studied this issue very closely and
found many of the things Dr. Manning and the other witnesses
stated today and they are included in my formal remarks
submitted for the record.
Let me instead address how Kentucky has reacted to this
growing problem of credit cards and debt on college campuses.
And let me also echo Senator Carper that there is a lot of good
work going on around this country, particularly from his
Treasurer, Jack Markell, who has some outstanding programs in
financial literacy.
My Commission took a hard look at this problem and we
realized that we could not fix all of the problems created by
financial illiteracy in the State in one fell swoop, we decided
instead to gather our resources and focus our efforts on one
community--Owensboro--a small city within a county of 90,000
residents.
In a few weeks, we will be launching Owensboro Saves--a
project which unites the entire community's leadership from
elected officials to school superintendents, from college
presidents to constituency group activities, from labor leaders
to Chamber officials and key employers. This public-private
partnership will sponsor programming over the next year to
promote better financial literacy among all residents of the
region, of all ages and incomes. We will have seminars on
various issues that concern Americans today.
However, we also more significantly hope to initiate
permanent educational initiatives to improve the region's
financial literacy. Working with the nationally recognized
Daviess County School Superintendent, Stuart Silberman, we will
work to ensure that every elementary, middle, and high school
in the county develops sound, mandatory financial literacy
courses for its students, to be in place by the 2003 school
year. We would like this financial literacy education to be
systematic and widespread. And to do so, we will build on
existing resources and seek private funding and support from
community businesses to refine curricula, publish educational
materials, and train teachers on financial literacy
instruction.
At the same time, we are working with officials from the
four
institutions of higher education in Owensboro to develop strong
financial literacy curricula for college freshmen. It is my
goal that every incoming student will be required to take a
mandatory financial literacy course upon matriculation. In the
meantime, we will develop with school administrators a code of
conduct for credit card solicitation to include this mandatory
education as a prerequisite for owning a credit card. We hope
that this will not only work for Owensboro, but also we would
like to build a model we can use in communities across the
State and perhaps across the country.
Our Commission believes that legislation was also necessary
to combat the growing problem of credit card abuse on college
campuses. In the last legislative session, Representative Susan
Westrom introduced a bill that would have required Kentucky
colleges and universities to develop codes of conduct for
credit card solicitations on college campuses, prohibiting
practices such as free gifts. It also instructed these schools
of higher education to require mandatory debt education and
counseling sessions for incoming students. There would be no
ban on credit cards or even on marketing. We recognize that
such solutions would be ineffective since anyone can be reached
through the mail or off-campus, where there would be no ability
to monitor. Rather, the universities, who supported this
measure, would be charged with ensuring the best interests of
their students.
Now our legislation passed through the State house
unanimously and sailed through a Senate committee without
opposition. But, mysteriously, the Senate leadership did not
allow a vote on the Senate floor. This failure has become all
too common across the country. A GAO survey revealed that in
the past few years, most credit card reform legislation in
State legislatures has died the same way--buried in a
committee, without an opportunity for legislators to cast an up
or down vote.
I am very hopeful that as the public becomes more aware of
this problem, pressure will be too strong for legislators in
Kentucky and across the country to abandon this needed
legislation.
But I believe more legislative action is needed on the
Federal level. Credit card companies are national, sometimes
multinational conglomerates, and for any regulation to be
effective, it needs to come from the U.S. Congress. These
corporations have few ties to the universities' communities
that they target. As a result, they are often unresponsive to
local concerns.
That is why, Senator Dodd, I particularly applaud the work
that you are doing. And as you devise your legislation, and
hopefully, it will pass at some point, in some form, I believe
that you should impose a real code of conduct covering the
actions of credit card companies on all the Nation's campuses,
prohibiting incentives such as gifts, and banning the more
aggressive sales practices such as the recruitment of student
groups that use peer pressure to complete applications. Credit
card companies should be forced to determine before approving a
card whether the student can even afford to pay off a balance.
Teaser rates, low introductory rates that balloon into much
higher rates after only a few months, should be restricted in
marketing to college students.
Further, company disclosures should not be limited to the
fine print of credit card agreements and solicitations, where
fees and penalties are often hidden or obscured.
Still, we will only be able to fully combat this problem
with a much more comprehensive effort of promoting financial
literacy. Mr. Chairman, I urge the Members of this Committee
and I urge the Congress as a whole to make financial literacy a
high priority for American education. As you consider education
bills, please consider making financial concepts a requirement
of standards and making training of teachers on financial
issues a part of your funding initiatives.
While such Federal measures will be valuable, a Washington
mandate will not solve the Nation's financial literacy problem.
Ultimately, the solution will come in communities like
Owensboro, Kentucky, or, Mr. Chairman, Gaithersburg, Maryland,
where community leaders must join in a public-private
partnership to better educate their citizens.
But it will require a concerted effort from those in the
industry who profit from the accumulation of personal debt. In
the process of my Commission's work, I have met with several
representatives of the credit card industry. They have shared
with me their desire to protect children from the unfair and
aggressive practices of the so-called ``bad actor'' credit card
companies who they say are a small minority of their industry.
That is why I challenge the credit card companies to join us in
our national effort to protect college students from credit
card debt and promote financial literacy. Today's college
students rarely review educational brochures and websites
sponsored by the credit card companies, no matter how well-
meaning or comprehensive they are.
Today, I challenge the credit card industry to put its
money where its mouth is. I ask the companies to make a
substantial monetary commitment to the development of mandatory
financial curricula for our Nation's schools and colleges and
to train teachers to provide effective instructions on these
issues. We do not need to recreate the wheel. We simply should
build on existing resources provided by the outstanding
organizations that have been working on these issues. Funding
can help us produce and publish materials that young people
will read, understand, and apply to their financial behavior.
Ultimately, credit card debt is an issue of personal
responsibility. But it is unfair to hold college students
accountable for behavior when they are subjected to high
pressure marketing tactics and do not have the financial
literacy to make proper economic decisions. Once given proper
education on credit card use and misuse, individuals will then
be accountable for their own financial behavior. And by
empowering our citizens with the skills to manage their
finances effectively, we can help reduce our national reliance
on social welfare programs and personal bankruptcy.
And maybe, a decade or so from now, there will be some new
rites of passage for our Nation's youth. A rite of passage for
every third grader to learn about the magic of compound
interest and the importance of savings. A rite of passage for
every eighth grader to study the stock market and American
financial institutions, a rite of passage for every high school
senior to take a course on family budgeting and income
management. And finally, in some future September, before the
football games, before the fraternity rituals, a rite of
passage for every college freshman to be given solid
instruction on credit and debt management to prepare them, as
they leave their parents' nest, to build their own nest eggs.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much. I am quite
impressed, actually, with the efforts that you have undertaken
in Kentucky in this regard and I strongly want to commend you
for what you are trying to accomplish.
I regret that that legislation you were moving through the
legislature stalled. But it also happens around here on
occasion.
[Laughter.]
We just have to come back at it. I will yield to Senator
Dodd. Again, let me underscore the leadership role that he has
played on this issue, and the balance that is reflected in his
legislative proposals, which seem to me to be very sensible and
very pragmatic, as he said at the outset. He is not seeking to,
in effect, eliminate the availability of the credit cards, but
rather he is trying to put some safeguards around them, which
will help us to avoid some of the more serious problems that
result.
I must say, it would seem to me that responsible actors in
the field should pick up on this and perceive it as an
opportunity to address an issue in a sensible and a responsible
way which allows
legitimate economic activity to continue, but provides some
safeguards against these abuses, which then lead to some of the
very serious problems which Ms. Hart and Ms. Frishberg talked
about earlier in their testimony.
Senator Dodd.
Senator Dodd. Thank you very much, Mr. Chairman. Let me
thank all of our witnesses for your preparation and your work.
I regret that my friend from Texas has left, Senator Gramm,
who made some comments at the outset, where he talked about the
ability of people who drive automobiles and enter military
service, to be able to smoke or drink or enter college.
In the case of automobiles, obviously, most States today
require some driver training program. I do not know of a single
State that allows you just to go and operate a car without
doing that. Certainly military service requires training.
Certainly college requires exams and tests before you can get
in.
And we all know, at least there is some way to restrain the
use of smoking and drinking. We permit it at a certain age, but
I think there is not an adult that I know of that would not do
everything in their power to convince a young person not to
begin those bad habits and the tremendous costs associated with
it.
So to suggest somehow that people can do these other
things, the implication being that there are not certain
hurdles that we place in front of them before they are allowed
to operate an automobile or enter into the military service of
the country, makes the case, in a sense, of what we are talking
about here when it comes to credit and the incredible life-long
stigmas that can be associated with bankruptcy and with
accumulation of debt at a very early age.
I am very grateful again for the evidence. I know that some
of it is anecdotal, but I think anecdotal evidence helps make
the case.
I do not know of a single one of you that offered that as
the empirical data to support conclusions that something needed
to be done, but rather, evidence of what happens when
individuals do get themselves into some trouble.
Dr. Staten, I raised the issue about who paid for your
study only because I wished you had identified that in your
testimony. You talked about your study, but I think it is
important that when we do those things, that we identify that
fact here. So, I was going through, hoping that it might be
identified here in the data.
I want to give Dr. Manning an opportunity to rebut, if he
can, some of the allegations made by Dr. Staten, or the
suggestions made by Dr. Staten, when it comes to the relevant
sense of burden between those younger individuals as opposed to
those who are over the age of 25.
How do you respond to the suggestions made by Dr. Staten,
regardless of who paid for the study. He challenges your study
very directly.
Dr. Manning. I think what is very critical here is we have
to look at real students in real households.
Looking at accounts, which, at a cross-sectional analysis,
we certainly have to link those accounts, we would have to say,
we know that students open an account and they think that it
miraculously disappears when they stop using it. There is so
much misinformation on this topic.
I think it is also very important to understand that a
student who is 20 that has a substantially high credit card
debt and suddenly drops out of school or graduates, that that
high credit card debt suddenly doesn't disappears as they
become an adult. So there is a lot of statistical apparitions
that can be manipulated when we present high or low empirical
data on overall debt levels.
The other critical issue is I do not know if some of these
credit card accounts have been paid off with their student
loans. I have presented to you here a statistically
representative sample that shows two-thirds of all of these
students at a typical mid-size public university has paid their
credit cards with their student loans.
To simply present to me an artifact of the point in time of
a balance without looking at the relationship of how different
forms of lending and borrowing are recycling through an
individual's ultimate debt obligation upon graduation, it seems
to me that all of us here concerned with graduation levels are
going to be concerned with the accumulation of debt and how
credit cards play a part of that accumulation.
Simply dividing credit card debt accounts independent of
student loan accounts, independent from debt consolidation
loans at the university credit union, independent of other
sources of borrowing, really does not convince me that we can
come to the types of conclusions that Dr. Staten presents to
us.
Senator Dodd. I will state again for those who may have
missed it, I think credit cards have been a tremendously
valuable asset for consumers in this country, and they have
been very helpful to younger people. And under good management,
obviously, they can provide tremendous opportunities. As the
Chairman very graciously has pointed out, the legislation we
have offered in no way would restrict those opportunities. It
merely sets some conditionality here: First, that you have to
demonstrat an ability to pay. I remember when I received my
first credit cards, I had to prove that I could actually pay
the debts. I know that is an archaic idea, but that was the
requirement.
Chairman Sarbanes. Imagine that.
[Laughter.]
Senator Dodd. It wasn't just to fill out the forms. I had
to show that I could actually pay the debt.
Second, have someone co-sign it with you, your parent, or
someone else, which is not a typical hurdle. Or just to
complete some credit counseling.
So, again, I emphasize the point. I happen to be a fan of
credit cards. I think they are terrific, well managed, in
responsible hands with knowledgeable people, can do wonderful
things and open up wonderful opportunities.
In my conversations with the leaders of these companies who
have come to see me to talk about my legislation, is a
competition downward, in a sense. It is a race to the bottom.
You are disadvantaged, if you decide to demonstrate some
responsibility and restrain the kind of activities you are
involved in and your major competitors do not, you can get hurt
by it financially because there is obviously loyalties that
develop early on.
And so, from a corporate business standpoint, if there is
not a level playing field in how we deal with all of this, you
force, in a sense, business decisions for the companies to do
exactly what their competitors are doing, even though they do
not particularly like it, in order to succeed.
It seems to me the rationale for some national legislation,
much as Mr. Miller has suggested, makes some sense. And I
wonder if the witnesses might comment on the value of having
some national legislation that would apply a standard across
the board so then a responsible company, many of whom said they
would like to do some of these things, from a business
standpoint, cannot leave the competition an open field without
them being allowed to play in it. So I wonder if you might
comment on that particular perspective.
Also, I understand about the companies. What really has
been more bothering to me than the companies is the
universities. I am really stunned in a way that university
officials have become allies with some of the most abusive
behavior here and become the beneficiaries financially of their
own students accumulating the debt, since they acquire a
certain financial benefit very directly, as I understand it,
with the amount of credit cards that students assume and the
debt that they accumulate. I am stunned that colleges and
universities would allow themselves to become co-conspirators,
if you will, in this accumulation of debt, which does such
disadvantage to their own students.
And I would like you to comment on those two things.
Ms. Hart. May I respond, Senator?
Senator Dodd. Yes.
Ms. Hart. I understand that there are certainly problems
among colleges and universities of the type that you describe.
I think that there are a larger group who fit into Ohio State's
mode of saying, for example, when we issued an RFP,
understanding by State law that we had to have at least one
credit card company that we could then govern, we specifically
avoided having any financial relationship with the level of
debt of our students. We saw that as absolutely antithetical to
the many efforts we were extending for good financial education
for our students.
Senator Dodd. I commend you. But you and I both know that
there are universities----
Ms. Hart. Exactly. I just think that----
Chairman Sarbanes. You would not assert that all colleges
and universities are following best practices in this respect,
would you?
Ms. Hart. Not at all. I feel that a majority do and that
issues like this hearing itself help promote wider
understanding.
I think, honestly, that some of these practices aren't even
well enough known within the institution. And especially, we,
like any other entity, respond very directly to the needs of
our consumers. And as I have said, we found in just the last
year that this is the leading financial issue that parents
present to us. We are in the business of responding to those
educational initiatives and then aligning our practices.
We really hope that many institutions will join the kind of
model that we are setting forth and we intend to be a best
practices institution to try to promote that, where it is not
well understood among any collegial institutions.
Chairman Sarbanes. I would question your assertion that a
majority of the educational institutions have evolved to the
point where they are following the best practices that you are
following at Ohio State University.
Ms. Hart. An important matter to study, perhaps.
Chairman Sarbanes. Senator Carper.
Senator Carper. Thanks, Mr. Chairman.
And to our witnesses, I do not understand well the
legislation that Senator Dodd has apparently proposed, but I
understand it has three aspects to it. One of those is the
notion that parents would essentially co-sign with an
agreement.
Senator Dodd. That is one of the options. They would prove
their own ability to pay or take a credit course to show some
financial education. Either one of those three you can do.
Senator Carper. I do not know. I had to be out of the
hearing for a bit and you may have each commented on his
proposal. I heard Treasurer Miller commend Senator Dodd for his
proposal.
Let me just ask the other witnesses your take on what
Senator Dodd has suggested.
Dr. Manning. I would like to put a little background on
this.
Senator Carper. And I would ask you not to take much time.
Dr. Manning. Of course. The best practice of the industry
until the late 1980's was parental co-signatures. That was a
decision that the industry dropped in the late 1980's.
The other point is there is a misconception somehow that
college students are singled out. The reality is that the
industry has created a two-tiered system in its underwriting.
That is, if you are a college student and you make $5,000, you
can get $20,000 in credit cards. If you are a part-time
employed 18-year-old making $4,000, you may get rejected.
So, I think one of the key points is we need to make it
clear, what is their standard for underwriting and what is
their expectation of being repaid?
The biggest problem I find on college campuses----
Senator Carper. Answer my question, please.
Dr. Manning. Is that the credit limit is the problem. If we
could get a reasonable limit of a student that would have to be
adhered to, say $500 has been proposed, then we wouldn't hear
these problems of students saying, I had no idea I suddenly
owed $10,000.
Senator Carper. Thank you.
Senator Dodd. He supports my bill.
[Laughter.]
Senator Carper. Thank you for that interpretation.
[Laughter.]
Ms. Frishberg. While students can get credit on a student
loan without a co-signer, they cannot get credit on a private
loan without a co-signer.
We encourage our students if they are going out for private
loan funding, to make sure they work with their families to
figure out the best type of loan to take, whether it is the
parent taking the loan, which is our primary option, or them
taking a co-signed loan with their parent or someone who earns
at least $15,000 a year.
We are curious as to why the credit card industry has a
different standard for college students than they do have for
anyone else of their age group. We know it is because they want
good customers. But we certainly believe that there is nothing
wrong with requiring a co-signer, if you have one available.
My fear is that for students who do not have a family
member or a financial security blanket, we do have quite a few
of our students who are independent of their families and do
not have that fall-back, that there be another way for them to
prove their creditworthiness and receive a credit card. And the
bill does that as well.
Senator Carper. Thank you.
Ms. Hart. I think especially the point about having
financial literacy a possible requirement, one of the three. In
this world of Internet, delivery of good counseling to
students, we use that extensively. We are experienced in that.
And so, I think it is very feasible to make that a widely
available option so that the students, like those that Ms.
Frishberg mentions, who do not have those other options readily
available, could have a very good, reasonable counseling
mechanism through Internet services.
We use that extensively in our student loan education today
and find, our data suggests that it is very effective, that
students really do go through those mechanisms, and some would
suggest, learn better because they choose when they receive
that education.
Now it would precede certain events like the credit card.
It does in student loans. But they are choosing to delve into
that at 10 at night, which seems to be our most popular time,
is often better learning than saying you are going to do it at
Wednesday on 10 p.m. So, I think the mechanisms make it very
feasible to deliver that education.
Senator Carper. What is 10 p.m. is the most popular time
for?
Ms. Hart. For Internet usage.
Senator Carper. Thank you.
Ms. Hart. Where our charts go off between 10 p.m. and 2
a.m.
Rather than having to come to a given session in the usual
dedagogical style, our students, for functions like this,
really prefer an Internet service. And our research suggests
that they learn very well in those mechanisms, basic lessons
like financial literacy, that they are well delivered in that
way.
Senator Carper. I remember as a freshman at Ohio State, and
this really dates me, that 10 p.m. was when you had to have the
girls back in the girls' dorms.
[Laughter.]
So 10 p.m. had a different connotation.
Senator Dodd. There were no girls in the dorms anywhere
when I was there.
[Laughter.]
Chairman Sarbanes. Things have changed.
[Laughter.]
Senator Carper. They changed by my senior year, in 4 years,
I will tell you.
[Laughter.]
Mr. Staten, your take on what Senator Dodd has proposed?
Dr. Staten. One of the proposals I find intriguing. The
other two I am somewhat skeptical about, the two being
requiring the co-signer, and documenting income. And the only
reason I say that is because we know when those are required of
other accountholders, they do not necessarily prevent that
accountholder from getting into trouble with the card.
In fact, what the co-signer does is provide a safety net,
so the credit card company knows it is going to get paid by
somebody. But there is no necessary linkage between having a
co-signer and that co-signer knowing how the person is actually
using the card. I would argue the same thing with the income
requirement. Incomes come and go, and we have seen that
required in other types of loans, and people still get into
default trouble with those loans.
Senator Dodd. Why do they require them for other people?
Dr. Staten. I am sorry.
Senator Dodd. Why do they require income information, then,
for someone who is not a student?
Dr. Staten. I would suggest that with students--I am just
speculating now--there are two factors involved. One is, they
know this is a promising young customer who has an income
prospect in the future relative to somebody the same age that
is not in college. Two, they have still have half a foot at
home. And so the card companies know that the risk is probably
lower because somebody's going to cover that bill.
Senator Dodd. Well, wouldn't it be helpful, then, if that
person at home who is going to cover it, might have some say in
it?
It is a parent. We are talking parents now.
Dr. Staten. Yes. But requiring a co-signer won't guarantee
that.
Senator Dodd. But the parents might say, wait a minute,
before you go off, we are going to set limits here. We are
going to do some other things before junior signs up for
$10,000 worth of credit.
Dr. Staten. And I do not argue with that. But let me
suggest to you that there is a program that I have seen
announced just in the last few weeks. One of the issuers, I do
not know if it is Citi or somebody else, is starting to market
a program where the parents will actually receive copies of the
statements as well, which is something I gather is not typical.
And so, you can actually foster that learning process there and
maybe it is within the context of a co-signer. But that is a
product that has already hit the market.
The last item, completion of a counseling course, I would
just echo that while I think this is generally a good idea, I
suspect that there are implementation problems with actually
getting proof of a certificate of completion of a course, and
that it might a be far better effort devoted to creating
innovative ways to make information available to students. And
having a card issuer present on campus, whether it is through
the Internet or whether it is with seminars or whatever, I
think is probably a good thing.
Mr. Miller. If I can just add to this. The sense of urgency
that I see with today's economy is that, as Senator Dodd
mentioned, there is a race to the bottom right now with credit
card companies struggling to win this competition, that some of
the more ethical companies would like to avoid, I think that if
we had some better standards. And there is a race for any
dollar that these university presidents can find to pay for
important school services with State budget cutbacks.
That is why that legislation is urgently needed. But, I
would expand it. I would ask for Congress to join the efforts
of Treasurer Marquel, myself, and Treasurer Napier in
Connecticut, to promote financial literacy across the country.
The credit card problem is a symptom of a great problem of a
financial illiteracy of America. And we are only going to hit
that if we have programs in all the schools going from colleges
all the way down to grade schools.
Senator Carper. Good.
Mr. Chairman, thank you.
Senator Dodd. I have tried this in a lot of different ways.
Again, we run into the same problem.
I want to commend you, Mr. Miller. You have done a great
job in Kentucky. I am a graduate of the law school of the
University of Louisville, so I have a lot of affection for
Kentucky and I enjoyed my years down there very much.
I am very impressed with the work of the University of
Louisville. There was a study done there or you had a seminar.
There was some effort there. So, I commend you for that. And
maybe that is the way to approach this. We have the higher
education bill up in the next Congress, the reauthorization
comes up. Instead of approaching this from the bankruptcy side,
maybe one of the angles would be to approach it from the higher
education side.
There is a lot of Federal dollars that go out to
institutions. And in return for some of those Federal dollars,
we will try to see if some discipline can be exercised on
campuses in terms of responsibility. Maybe coming from that
angle of it, then that would be a better way to get the
companies to respond to this and the universities to respond.
We should talk to you about that. In fact, I will keep in
touch and have staff talk to you about what you have been doing
in Kentucky and how we might do something on the national
level.
Mr. Miller. I would love to help.
Chairman Sarbanes. Would the two university people briefly
describe the atmosphere that exists on registration day or
registration week, with respect to the dispensing of credit
cards and the freebies and all the rest of it, before you
brought it under control.
Maybe Dr. Manning should address that because I gather,
your universities have restrained these practices. But maybe
you could describe it in its unrestrained form, to the extent
you know about it, and then describe it in its restrained form.
Ms. Frishberg. If I could just speak to the item that
Senator Dodd just mentioned about the universities being in
some way responsible through the Higher Education Act.
I think that there is another, very important entity that
can be affected through the Higher Education Act, and that is
the student loan lending community themselves. Often, they do
not know what the other side of the house is doing with their
databases.
Senator Dodd. Good idea.
Ms. Frishberg. And again, we take issue because we have
been very responsible actors in banning both the tabling as
well as the marketing of our affinity card to our current
students.
I am not sure that it is rampant across campuses that they
are not taking this responsibility. But I do not work on a
public university campus, so, I do not know what that is like.
The carnival of what goes on during registration is not
just the credit card vendors, but it really is a carnival
atmosphere, purposefully so. It is supposed to be fun. You are
moving in and you are getting to meet people and you are
learning things.
There used to be multiple tables set up all over campus, no
matter where you walked. People coming out and handing you CD
players and Walkmen and T-shirts and mugs and please sign up.
It was your peers. It was your fellow students.
Chairman Sarbanes. Well, they are working on a commission
basis, aren't they? Don't they come in and if they can get a
certain number of people to sign an application, then they get
some kind of bonus? Like they get a free vacation trip or maybe
they get a record player set or something. Isn't that the case?
Ms. Frishberg. As I understand, that's how they make their
money, which is why we have not had them on campus for 6 years.
Chairman Sarbanes. Record player is not the right word.
[Laughter.]
I am as bad as Senator Carper.
Senator Carper. When they close the dorms at 10 p.m., they
get our their record players.
[Laughter.]
Ms. Hart. I can tell you that from our survey of our
students about credit card practices, that more than a third of
them found the manner in which they were solicited by credit
card companies very problematic. They also felt that it led to
a great distrust of the quality of information they were given
by those companies relative to things like interest rates.
This was a key factor in our decision to really try to
limit especially the manner in which our students were
approached for credit cards. And as I said, we found that
permissible and we have done that by an RFP that really
restricts not chasing a student across the oval to fill out a
credit card application because of one's incentives, but to try
to provide a reasonable vehicle for good credit card use and
information about educational services that support that good
use. Students definitely found it very problematic.
Senator Dodd. At Johns Hopkins or Ohio State, do you
receive a financial benefit from the credit card companies?
What do you receive at Ohio State? What is it?
Ms. Hart. I am sorry. I do not know, Senator, what the
response was to the RFP. That is an important question and I
would be glad to research that and tell you about it.
I do know that what we have done with the proceeds, which
was a question here, it used to be the case that our student
organizations received a benefit from sponsoring a credit card
company on campus. And so, we have used the proceeds from the
RFP to support those student activities, which are often
related to community service and good works.
Senator Dodd. Unrelated to the amount of debt.
Ms. Hart. Not at all. Not at all. It has to do just with
numbers of students. As I said, that was a very important
principle that we avoid any relationship to the level of debt
or even the number of students who ultimately took out a card.
Additionally, as I said, we asked in the RFP and got
universal response, positively, that some of the proceeds are
dedicated to adding to the debt counseling that we do on
campus.
There is a position in my office that is fully funded by
the university and the credit card proceeds will fund another
credit counselor in the student wellness center because not all
students think of the financial aid office as a source of this
information. And we think by teaming up, we have done a very
commendable job of using those proceeds responsibly.
Mr. Miller. Mr. Chairman, if I could just add, too.
We took testimony in our Commission about some of these
practices and found that really it was some of the students
themselves that were the greatest violators of what we would
think would be ethical practices.
Students who are hired by the companies, paid a quota based
on how many applications they complete, going into dorm rooms,
chasing fellow students around campus and otherwise doing
things that put a lot of unfair peer pressure, saying, ``I
really need your help in funding our parties at the fraternity.
So please fill out these applications for us.''
Of all great ironies, when we held this event at the
University of Louisville, which has an exclusive, multimillion
dollar marketing contract with a particular company, we looked
at the bulletin board right outside of the hall in which we
were holding it, and there were literally dozens of flyers up
representing several different credit card companies who were
not supposed to be marketing on campus, right on the bulletin
board right outside our hearing.
So these practices really need to be examined on a level
with establishing a code of conduct that these companies need
to follow.
Chairman Sarbanes. Good. Well, this has been an extremely
helpful panel. We appreciate your testimony and the effort that
went into it very much.
I think we have had an opportunity here to air a number of
these important issues.
The hearing is adjourned.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
[Prepared statements and additional material supplied for
the record follow:]
PREPARED STATEMENT OF SENATOR CHRISTOPHER J. DODD
Thank you, Mr. Chairman, for holding this hearing in such a timely
manner as, across our Nation, students return to college campuses. The
subject matter of this hearing--improving the financial literacy of our
Nation's youth--is an extraordinarily important one.
Many, if not most, incoming freshman are unprepared to handle the
ordinary financial obligations that come as a result of entering
college. For the first time, many graduating high school seniors and
incoming college freshman are presented with new opportunities and
confronted with difficult decisions that will affect them for the rest
of their lives--particularly access to large amounts of credit,
primarily through the use of credit cards. Most new students lack the
financial sophistication necessary to handle the terms and conditions
associated with credit card use.
Making credit available to help finance the pursuit of higher
education is something we all recognize as vital. However, the
aggressive marketing practices of some credit card companies and the
failure to ensure that college students recognize the long-term
consequences of incurring these debts is a serious and growing problem.
The fact of the matter is that financial institutions view incoming
college freshman as fish in a barrel for purposes of credit card
solicitations. Financial institutions have becoming more concerned with
``branding'' than forming responsible
financial relationships with new customers. They are more interested in
luring students with offers of low minimum payments, free T-shirts, or
other giveaways than caring about whether their prospective customers
can reasonably handle their credit obligations.
The trends relating to credit card use among college students are
alarming. Over 80 percent of undergraduates have at least one credit
card. Nearly 50 percent of college students carry four or more credit
cards. According to the Department of Education, the average balance
carried by these students is more than $3,000. College students are
getting into more and more debt at a faster and faster rate, and they
are increasingly facing the consequences of the debt they incur as a
result of the barrage of credit card solicitations. In the year 2000,
150,000 young Americans under the age of 25 filed for bankruptcy
protection. In fact, the fastest group of bankruptcy filers are those
people who are 25 years of age or younger. A lot of these young people
have been or will be forced to drop out of school to pay their debts.
And while personal responsibility is a critical component of avoiding
these problems, so is corporate responsibility on the part of credit
card issuers who lure students into obtaining multiple credit cards
without any regard for their ability to repay a debt. That kind of
corporate irresponsibility must stop. Educators, parents, students, and
credit card issuers must closely examine and must address the critical
need of improving the financial literacy of our Nation's youth to help
prevent against the rising tide of college age persons forced to
declare bankruptcy.
Earlier in this Congress, I introduced the Underage Consumer Credit
Protection Act of 2001. It would require that credit card issuers,
prior to granting credit to persons under the age of 21, ensure that
their new customers have one of the following: A co-signature of a
parent, guardian, or other responsible party; an independent means of
financial support for repaying the debts they incur; or the completion
of a certified credit counseling course. This is modest legislation
that would take a significant step toward protecting young people from
those who prey on them with false promises of easy credit.
----------
PREPARED STATEMENT OF SENATOR JON S. CORZINE
Mr. Chairman, I want to thank you for holding this hearing on an
enormously important subject--financial literacy. It is a subject of
great interest to me, and I am grateful for your attention to the many
facets of this issue, focusing on the unbanked, underserved
communities, older citizens, and predatory lending.
The issue that we will discuss today--credit card usage by college
students--is as important as they get. And it is a particularly
frightening prospect for me as the father of a soon-to-be college
freshman.
By now we have all heard the shocking anecdotes and startling
statistics underscoring the lack of financial literacy that is
pervasive throughout all age, races, and socioeconomic segments of our
society. Regrettably, our young people are but another glaring example
of that void. According to the Americans for Consumer Education and
Competition the vast majority of high school students--82 percent of
them--failed a fairly standard personal finance quiz.
It is a relatively safe bet that now an even greater number no less
about what ``APR'', ``simple and compound interest'', or a ``revolving
line of credit'' means.
To be certain, there are numerous benefits derived from placing
credit cards in the hands of responsible college students. They can
help defray the financial pressures on students, and parents, who would
otherwise have difficulty coming up with the costs of going to
college--money to purchase books, paying skyrocketing tuition costs,
and even that much-needed pizza during a long study session.
But there are pitfalls associated with placing these cards in the
hands of those who lack basic knowledge about finances and credit, or
the maturity to handle a newfound ``source of wealth.'' According to
the GAO, 55 percent of college students obtain a credit their freshman
year. That is an enormously powerful tool in the hands of a 17- or 18-
year-old.
One concern of mine is the intense marketing aimed at college-aged
students going on at colleges and universities all across America by
financial institutions and other credit card issuers.
Today, students find themselves barraged by credit card
solicitations via mail, e-mail, and campus visits by credit card
representatives who offer everything from free T-shirts to Frisbees to
water bottles to get students to apply for their cards.
As a result, some schools and some States have sought to restrict
credit card solicitations on-campus. In doing so they seek to reverse
the growing overall trend of credit card debt facing undergraduate
students--where average credit card debt has increased by almost 25
percent over the past 5 years.
Left unchecked, this growing debt threatens to severely undermine
the home buying, renting, and employment futures of an entire
generation. That is why it is so important that we carefully examine
this issue.
I thank you Mr. Chairman for seeking to do so today, and thank the
witnesses for providing us with their testimony. I would be remiss if I
did not commend Senator Dodd for his legislative efforts in seeking to
protect students, and their parents, from the accumulation of large
credit card debt as well.
----------
PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA
Thank you, Mr. Chairman. I appreciate your conducting this hearing
today and all of your efforts to have financial literacy be such an
important focus of the Banking Committee.
Many college students are not adequately prepared to make informed
financial decisions in situations that they will face during and after
college. Students often have to borrow heavily to help finance their
education and have limited means provided by part-time jobs. While
experiencing these financial difficulties, they are also provided with
countless opportunities to easily obtain credit cards. Thus, credit
card debt can quickly add up for the students who do not know how to
responsibly use credit.
This lack of knowledge often leads to a large debt burden for
students that further complicate their future financial situations.
Many students may not realize the importance of keeping their own
credit clean so as to not preclude future financial opportunities. For
recent graduates, debt burdens and poor credit histories can make it
even more difficult as they start out on their own and attempt to buy a
car, rent an apartment, or purchase their first home.
College students who make uninformed financial decisions are also
likely to continue to make the same mistakes as they get older. They
may not fully understand the power of, for example, compound interest
and may fail to save and invest sufficiently for retirement.
Today, this Committee must examine the actions necessary to help
ensure that college students are able make informed financial decisions
during and after college. Financial literacy among all Americans, not
just college students, needs improvement. I look forward to working
with my colleagues in developing comprehensive approaches to increase
financial literacy among citizens.
I thank the witnesses for appearing today and I look forward to
your testimony. Again, thank you, Mr. Chairman.
----------
PREPARED STATEMENTS OF SENATOR JIM BUNNING
Mr. Chairman, I would like to thank you for holding this hearing,
and I would like to thank all of our witnesses for testifying today. I
would especially like to welcome Jonathon Miller, the Kentucky State
Treasurer here today.
Financial literacy is a very important topic. I think all Americans
should brush up on this issue. From elementary school, to high school,
to college, to young families, to college parents, to retirees, many
Americans are making important financial decisions without the tools
that might allow them to make the best decision. We must make
information and education available to those making financial
decisions.
Everyone knows how easy it is for college kids to get credit cards.
They have T-shirt giveaways, and bag giveaways. Students are inundated
with junkmail. They get solicitations in the bags they carry their new
books home in. It is much easier to get credit cards than to learn
about how credit cards work and what responsibilities come with them.
However, restricting credit is not necessarily the answer. Many
students use credit cards to charge their books and tuition. They get
airmiles that may get them a free ticket home for Christmas. They get
cash back. And some, especially those who work, would have a much more
difficult time being able to pay for school without credit.
I think most 18-year-olds understand credit cards are not free
money. They do realize there are some responsibilities that go along
with the card and most know what an interest rate is.
I think we can do a lot to help financial literacy and I do think
some companies take advantage of naive kids. I just want to make sure
we do not do anything that would deny credit to those who need and
understand it.
Once again, I thank our witnesses for testifying today and I look
forward to hearing from you.
Thank you, Mr. Chairman.
----------------
PREPARED STATEMENT OF SENATOR DEBBIE STABENOW
Proper Financial Training Can Curb Rising Credit Card Debt
Among College Students
Stronger consumer protections are needed to prevent college
students from getting trapped by credit card debts that their limited
income and work schedule prevents them from escaping, Senator Debbie
Stabenow, a Member of the Senate's Banking, Housing, and Urban Affairs
Committee, said today.
Stabenow's comments came as the Committee prepared to take up the
issue of credit cards and students, an issue made more critical by
recent studies revealing that 80 percent of all college students carry
credit cards and that their average debt was more than $2,300. More
than 25 percent of those students had debts exceeding $3,000.
``How can a typical student--who is working part-time or perhaps
not working at all--ever hope to pay off a $3,000 credit card debt?''
Stabenow asked. ``In fact, they probably cannot. Instead, they may well
find themselves making minimum payments of mostly interest with little
hope of getting out of debt.''
Stabenow, who has co-sponsored legislation that would set
guidelines for issuing credit cards to students, said the problem needs
to be addressed both through legislation and by educating young people
in financial matters before they leave high school.
``Not only is credit card usage among college students increasing,
but the general financial knowledge of that same group is decreasing,''
Stabenow said. ``We learned recently how serious this problem is, when
a study revealed that 82 percent of high school students failed a 13-
question financial quiz.''
The quiz addressed such financial basics as interest rates,
savings, loans, credit cards, and calculating net worth.
``Schools can teach a broad variety of social skills, such as
dealing with alcohol abuse and getting along with roommates,'' Stabenow
said. ``I believe they can also teach enough financial fundamentals
that their graduates can avoid stepping out of commencement services
and stepping into debt.''
Stabenow is co-sponsor of S. 891, the Underage Consumer Credit
Protection Act.
----------
PREPARED STATEMENT OF ROBERT D. MANNING, Ph.D.
Caroline Werner Gannett Professor of the Humanities
Rochester Institute of Technology
September 5, 2002
I would like to thank Chairman Paul S. Sarbanes for providing this
opportunity to share my views with this Committee on the increasingly
important topic of
consumer debt among college students and the lack of financial
literacy/education programs for America's financially vulnerable youth.
In addition, I applaud the legislative initiatives of Senator
Christopher Dodd, who has championed credit card marketing restrictions
on college campuses along with critically needed financial education
programs, and Senator Charles E. Schumer's efforts to protect consumers
from deceptive marketing and contract disclosure practices of the
credit card industry. The twin issues of rising consumer debt and
shockingly low levels of financial literacy among our youth have grave
implications to the continued economic well-being of the Nation--
especially as Americans age into debt. For these and many other
reasons, I commend the Committee for accepting the daunting task of
examining these serious problems.
As an economic sociologist, I have spent the last 16 years studying
the impact of U.S. industrial restructuring on the standard of living
of various groups in American society. Over the last 11 years, I have
been particularly interested in the role of consumer credit in shaping
the consumption decisions of Americans, as well as the role of retail
banking in influencing the profound transformation of the U.S.
financial services industry. In regard to the latter, I have studied
the rise of the credit card industry in general and the emergence of
financial services conglomerates such as Citigroup during the
deregulation of the banking industry beginning in 1980. In terms of the
former, my research includes in-depth interviews and lengthy survey
questionnaires with over 800 respondents in the 1990's. The results of
this research are summarized in my recent book, Credit Card Nation:
America's Dangerous Addiction to Consumer Credit (Basic Books, 2001).
More recently, I have
collected survey data from a case-study of a mid-sized public
university based on a representative sample of nearly 800 college
students in 2002. Some of the key findings of the study are reported in
this testimony. In addition, I have become actively involved in the
national movement to improve the financial literacy/education of our
youth. My work with colleges, universities, and student loan
organizations has inspired my own Internet-based financial literacy/
education program at www.credit-
cardnation.com as well as my next book which offers practical financial
information for college students and novice credit card users.
Reality Bytes: The Triple Witching Hour Haunts Recent College Graduates
For recent college graduates, the stark realities of coping in the
``real world'' and pursuing a career in the new economy are compounded
by their unprecedented levels of personal debt. To apply a Wall Street
analogy, the ``Triple Witching Hour,'' record levels of student loan
and credit card/consumer debt have coincided--for the first time--with
the worst job market in over a decade. Indeed, as long as America's
longest economic expansion in history continued unabated, college
students were lulled into a false sense of financial security by
university administrators and credit card/finance companies which led
to the amassing of enormous personal debt obligations. A generation
that grew up with TV's Friends, whose mid-town NYC lifestyle belies
their modest professional incomes, was unprepared for the bursting of
the
Nation's economic bubble in spring 2001. Afterall, ``recession'' was
not a part of their life experience and denial of self-gratification is
mass-marketed by Madison Avenue as ``old school.''
More significantly, declining real household incomes in the early
and mid-1990's sharply reduced family financial contributions to
college expenses while the long-term decline in public financing of
higher education shifted student economic strategies from savings,
grants, and part-time employment to reliance on Federally subsidized
student loans. As a result, median student loan levels have skyrocketed
over the last 25 years--from about $2,000 in 1977 to nearly $7,000 in
1990 and doubled again today. In 1996, the College Board reported the
average public university student graduated with $11,950 of loans in
1996 (a 70 percent increase from 1993) while graduates of private
colleges averaged $14,290 (a 43 percent increase from 1993). This trend
is mirrored in the recent surveys by Nellie Mae. In 1991, the student
loan debts of its clients (survey data comprised of 65 percent
undergraduate and 35 percent graduate students) averaged $8,200 and
jumped to $18,800 in 1997 albeit partially due to the rapid increase in
graduate (professional) student debt.\1\ Today, public school graduates
can expect nearly $15,000 and private school graduates over $18,000 in
student loans. Clearly, the student loan industry and higher education
administrators have encouraged and abetted the record levels of student
loan debts with unrealistic expectations of high paying employment with
job and pension security.
---------------------------------------------------------------------------
\1\ Sandy Baum and Diane Saunders, Life After Debt: Results of the
National Student Loan Survey, Nellie Mae, Braintree, MA, 1998.
---------------------------------------------------------------------------
The rising cost of higher education and intensifying pressures for
``competitive consumption'' on America's college campuses contributed
to the sharply rising demand for ``plastic'' money among our youth--
without extolling the necessary financial education programs. At the
onset of the deregulation of the U.S. financial services industry in
the early 1980's, extending credit to college students was viewed as a
risky strategy. College seniors with ``one foot out of the door'' were
perceived as relatively low financial risks and typically received
credit card offers as they approached their 21st birthday; most offers,
however, were for gas and retail rather than ``universal'' bank cards.
The exceptions were student with full-time jobs or whose parents were
willing to co-sign the revolving loan contract. By the late 1980's,
banks began to saturate their middle and working class revolving credit
card markets (based on prevailing underwriting criteria) and began to
aggressively pursue the college student market by relaxing the
industry's voluntary parental co-signature requirement for students
under 21 years old. This was because industry executives realized that
students would use their summer earnings and college loans to pay for
their credit card debts. Furthermore, they were even willing to ask
their parents to assist in paying their credit card bills. Even so,
when U.S. Congressman Joe Kennedy convened the ``Kiddie Credit Card
Hearing'' before the Subcommittee on Consumer Credit and Insurance in
March 1994, student credit cards typically featured introductory limits
of $200 to $300 and it was rare to find a student that amassed over
$5,000 in credit card debt in the early 1990's. In my own research on
this period, high credit card debt levels were more likely accumulated
by students immediately after graduation rather than during college
matriculation. This was largely due to the difficult job market of the
early 1990's and greater willingness of banks to extend higher credit
limits after leaving school.\2\
---------------------------------------------------------------------------
\2\ Robert D. Manning, Credit Cards on Campus: The Social
Consequences of Student Debt, Consumer Federation of America,
Washington, DC, 1999 and Robert D. Manning, Credit Card
Nation: The Consequences of America's Addiction to Credit, Basic Books,
2000.
---------------------------------------------------------------------------
The enormous profitability of consumer credit cards, together with
the cross-
marketing strategies of financial services conglomerates in the mid-
and the late-1990's, have produced competitive pressures to recruit new
clients at an increasingly younger age. The result is that the overall
proportion of college students with credit cards has risen sharply--
from about one-half in 1990 to over three-fourths today; my studies of
students at universities in the Metropolitan Washington, DC area range
from 77 to 85 percent. Significantly, this means that college and even
high school students are being socialized to perceive consumer credit
as a generational entitlement rather than an earned privilege. For most
American students, credit card ``membership has its privileges'' before
commencing a full-time job and adhering to a financial budget. This
fracturing of what I refer to as the traditional ``cognitive
connection''--where one's standard of living is defined by one's
household income--is a radical departure from America's Puritan
influenced cultural attitudes toward consumer credit and debt where
satisfactorily abiding by a household budget (fiscal responsibility) is
rewarded with more consumer credit.\3\ The availability of greater
levels of consumer credit at an earlier age without accompanying
financial education is a financial windfall to the credit card industry
and its associated networks of retailers including college and
university administrators who reap multimillion dollar exclusive
marketing agreements. This is because the largest 250 public
universities account for over two-thirds of college students at 4-year
institutions. For instance, the University of Tennessee signed a 7 year
contract with First USA in 1998 which guarantees at least $16.5 million
while the University of Oklahoma received a $1 million signing bonus.
It is noteworthy that none of the ``royalties'' from these lucrative
contracts have been used to fund financial literacy/credit card
education or debt consolidation programs.\4\
---------------------------------------------------------------------------
\3\ Lendol Calder, Financing the American Dream: A Cultural History
of Consumer Credit, Princeton University Press, 1999 and Robert D.
Manning, ``Charging for Credit: Convenience Users and the Ideology of
the Moral Divide,'' Chapter 4 in Credit Card Nation: The Consequences
of America's Addiction to Credit, Basic Books, 2000.
\4\ For specific terms of the contract, see Robert D. Manning,
Credit Card Nation: The Consequences of America's Addiction to Credit,
Basic Books, 2000, p. 348.
---------------------------------------------------------------------------
Over the last decade, the two most noticeable trends in the
marketing of credit cards to college students is the progressively
earlier age of opening the first credit card account and the resulting
rise in personal debt associated with consumer credit cards. Although
it is not my intention to detail the flawed methodology of credit card
industry financed studies, which I have reviewed elsewhere, it is
important to recognize the complex dynamics of student consumer
debt.\5\
---------------------------------------------------------------------------
\5\ Robert D. Manning, Credit Cards on Campus: Current Trends and
Informational Deficiencies, Consumer Federation of America, Washington,
DC, 1999.
---------------------------------------------------------------------------
First, an accurate estimate of student consumer debt levels and
their associated social consequences require a research methodology
that ``tracks'' or follows a student class cohort from orientation to
graduation. This will capture students who have dropped out of school
due to high debt levels and are not subsequently interviewed since they
are no longer included in the matriculating student population
universe. This methodological issue was noted in the highly flawed 2001
General Accounting Office (GAO) report on this topic.\6\
---------------------------------------------------------------------------
\6\ General Accounting Office, Consumer Finance: College Students
and Credit Cards, Washington, DC, June 2001, pp. 33-34. This
methodologically flawed report features a striking reliance on credit
card industry financed studies and an explicit reluctance to examine
academic studies on the topic. In addition, the GAO failed to require
the credit card industry to supply important proprietary information
that could have revealed new insights into these issues.
---------------------------------------------------------------------------
Second, average student debt levels must be estimated by each class
cohort (freshman through senior) rather than a institutional average
that combines low freshman debts with high senior debts and thus
underestimates the debt obligations of college students when they leave
school. The real issue is how much debt young adults have incurred upon
graduation NOT an average for the overall student population at a
single point in time.
Third, student debt levels must examine the dynamic smorgasbord of
all different types of personal debt. For example, my 1999 study was
the first to explore the relationship between student loan and credit
card debt. That is, the survey questionnaires of industry financed
studies neglect to ask students whether they use college loans to pay
their credit card debts and thus miraculously erase substantial
portions of revolving credit card debt. Unlike the accounting magic of
Wall Street, personally assumed debt of average Americans must be
eventually repaid, regardless of the accounting category. As a result,
my research suggests that more accurate estimates of student debt
require in-depth interviews throughout the collegiate career of student
respondents. Significantly, I am not aware of any credit card industry-
sponsored study that is based on in-depth interviews with real-life
college students.
Credit Cards on Campus: Hunting in a Baited Field?
Academic and industry-financed studies agree that students are
receiving credit cards at a progressively earlier age. For instance,
the Student Monitor, which is funded by contracts from the banking
industry, reports that its survey of 100 schools (1,200 interviews) in
1994 found that 11 percent of its student credit cardholders opened
their accounts while in high school and 20 percent after high school
but before attending college. In 1998, these proportions rose to 15
percent and 22 percent, respectively. Overall, the proportion of
students that received their first credit card after their freshman
year of college declined from 34 percent in 1994 to 19 percent in 1998.
Dr. Michael Staten and Dr. John Barron's new study of credit card
accounts opened between January 1998 and May 2000 (conducted under the
auspices of the Credit Research Center at Georgetown University with
its longstanding financial ties to the banking industry) reports that
the median age of students when they opened their credit card accounts
was 19.9 years old. Since the sampling unit is credit card accounts
rather than students, it is not possible to identify the age of the
first credit card account or the total credit card debt of an
individual student with precise accuracy since the average student has
at least 3- 4 credit cards before completing college.\7\ Indeed, many
students are not aware that not using their credit card does not
necessarily terminate the cardholder agreement. Nevertheless, it is
safe to assume that during this period the median age of opening a
student's first credit card account was the end of the freshman or
beginning of the sophomore year of college.
---------------------------------------------------------------------------
\7\ Student Monitor, ``Financial Services,'' Ridgewood, New Jersey,
2001 and Michael E. Staten and John M. Barron, College Student Credit
Card Usage, Credit Research Center, Georgetown University, Washington,
DC, June 2002.
---------------------------------------------------------------------------
Interestingly, the major disagreement between the industry-
sponsored and the student loan/academic studies is the amount of
accumulated credit card debt. Although the Student Monitor data and the
1998 The Education Resources Institute (TERI) survey show a monotonic
increase of credit card debt over a student's collegiate career, both
studies report average student credit card debt at less than $700.\8\
---------------------------------------------------------------------------
\8\ The Education Resources Institute and the Institute for Higher
Education Policy, Credit Risk or Credit Worthy? College Students and
Credit Cards, Boston, MA, June 1998.
---------------------------------------------------------------------------
Similarly, the Staten and Barron study report average student
credit card debt at less than $600 although it does not estimate the
total, aggregate average credit card debt per college student. And, of
course, none of these studies explicitly investigated whether student
loans were used to pay credit card debts during the students'
collegiate career. As a result, these different sampling units of
industry-sponsored studies tend to obscure rather than clarify the true
level of consumer debt among college students.
The time series of surveys of undergraduate student loan clients at
4 year colleges (18 to 24 years old) conducted by Nellie Mae in 1998,
2000, and 2001 offers an important longitudinal comparison albeit based
on a college student universe that includes differences from the
overall U.S. student populations. For instance, these students may be
less debt adverse and come from lower economic backgrounds. Hence,
critics of these studies contend that the Nellie Mae data overstate the
amount of credit card debt among college students. Nevertheless, the
trends are striking. The proportion of students with credit cards rose
from 67 percent in 1998 to 83 percent in 2001 while the proportion of
students with 4 or more credit cards jumped from 27 to 47 percent.
Median credit card debt per student rose from $1,222 in 1998 to $1,770
in 2001 while the proportion of balances from $3,000 to $7,000 rose 61
percent from 14 to 21 percent. Significantly, those with credit card
balances exceeding $7,000 declined from 10 to 6 percent which explains
the decline in average credit card debt per student from $2,748 in 2000
to $2,327 in 2001. Unfortunately, we do not know if these most heavily
indebted students reduced their credit card balances through debt
consolidation transactions or actually paid it off.
The most striking pattern is the monotonic relationship between
credit card debt and class standing in 2001. Median credit card debt
rises from $901 among freshman and $1,564 among sophomores to $1,872
among juniors and $2,185 among seniors. The average credit card debt
levels are $1,533, $1,825, $2,705, and $3,262, respectively, which
reflects the high debt levels of students at the extreme tail of the
distribution. Similarly, the proportion with balances between $3,000
and $7,000 rises from 8 percent of freshman and 18 percent of
sophomores to 24 percent of juniors and 31 percent of seniors.
Significantly, Nellie Mae reports the median student loan debt of
seniors ($15,708) together with their median student credit card debt
($2,185) for a total of $17,893; the average combined student debt of
$20,402 includes $17,140 of student loans and $3,262 of credit card
debt.\9\ Although credit card debt comprises an average of 16 percent
of median student debt among the college seniors of the 2001 Nellie Mae
survey, this is an underestimate since it does not distinguish earlier
credit card debt that was paid with student loans. These trends are
immortalized in the Now and Zen ``slacker'' line of T-shirts which
features a parody of the popular MasterCard advertising campaign:
``Late night pizzas: $5,200; Books for classes: $7,000; Tuition & Fees:
$120,000; Moving back into the basement: Priceless.''
---------------------------------------------------------------------------
\9\ Nellie Mae, Undergraduate Students and Credit Cards: An
Analysis of Usage Rates and Trends, Nellie Mae, Braintree, MA, April
2002.
---------------------------------------------------------------------------
Student Financial [Il]literacy: Passing Or Making a Buck
The increasing social pressure to enjoy a more costly lifestyle in
college and increasingly high school--the ``Just Do It'' competitive
consumption of immediate gratification--means that students are more
likely to spend borrowed rather than earned money outside the budgeting
framework of a family allowance and part-time employment. For many
parents, their children's Internet shaped lifestyles entail the use of
virtual money with its own set of rules and responsibilities. Plastic
money is currency of the ``web'' and cash is becoming as alien to high
school students as minimum wage employment is to the price of popular
music CD's and movie DVD's. More disconcerting, however, is the lack of
adequate personal finance or consumer ``life skills'' curriculum in
American high schools. According to Professor Lewis Mandel, SUNY-
Buffalo School of Management, less than one in seven high school
seniors in his 2002 survey received any personal finance education.\10\
And, of course, not all curriculum is equal or entails measurable
results. As a financial educator in Texas recently confided to me, the
educational program for a private, largely white suburban school was
offered every day whereas the same program was offered only once every
other week in the largely minority, public, urban school.
---------------------------------------------------------------------------
\10\ Lewis Mandell, Our Vulnerable Youth: The Financial Literacy of
American 12th Graders: A Failure by Any Measure, Jump$tart Coalition
for Personal Financial Literacy, Washington, DC 1998, 2000, 2002.
---------------------------------------------------------------------------
The most striking finding of Professor Mandel's financial literacy
survey, which has been conducted over the last 5 years, is that the
performance of high school seniors continues to decline. In 2002, the
average score on his financial literacy test was only 50 percent, a
failing grade by any measure concludes Mandel. Furthermore, only 60
percent agreed that sales taxes ``makes things more expensive'' and 35
percent stated that they are ``not to sure'' or ``not at all sure''
about how to manage their money.'' At the same time, 28 percent
reported using their own or their parents' credit card.\11\ As students
feel compelled to spend more than they earn and credit card companies
are eager to offer them high interest credit, it is becoming even more
imperative that financial literacy programs be offered in high school
and college so that America's youth do not suffer the social
consequences of an unfair financial ``playing field.'' Currently, the
financial learning curve for American students is economically
benefiting a few financial services conglomerates at the
expense of unsuspecting families and the future of America's youth.
---------------------------------------------------------------------------
\11\ Lewis Mandell, Our Vulnerable Youth: The Financial Literacy of
American 12th Graders: A Failure by Any Measure, Jump$tart Coalition
for Personal Financial Literacy, Washington, D.C. 1998, 2000, 2002.
---------------------------------------------------------------------------
Clearly, the lack of financial education/literacy and parental
oversight of students' purchasing decisions (especially over the
Internet) encourages the credit card industry to market their products
to increasingly younger students in the pursuit of
higher corporate profits. As budgetary constraints send more high
school students to junior colleges for part-time and even full-time
classes and high school juniors and seniors visit colleges in order to
make informed matriculation decisions, access to bank credit cards
continues to push the boundaries of informed consent. In fact, I was
recently contacted by an economics teacher at a California high school
who was shocked by the brazen marketing of credit cards and student
loans to his students on campus by representatives of Wells Fargo Bank.
For this teacher, such
aggressive marketing campaigns (featuring ``free'' mini soccer balls)
means that the social and personal problems of local college students
will become more prevalent in high school. For the credit card
industry, then, the goal is to encourage naive students to obtain
credit cards at an earlier age and, especially, outside of the purview
of their parents. Indeed, a recent study of credit card financed
consumption patterns at Pennsylvania State University-Erie Campus
showed that those students who used credit cards that are co-signed or
whose bills are paid by their parents spend considerably less than
their peers whose parents are excluded from the oversight of their
credit card purchases.\12\
---------------------------------------------------------------------------
\12\ Pinto, Mary Beth, Diane H. Parente, and Todd S. Palmer,
``College Students' Credit Card Debt and the Role of Parental
Involvement: Implications for Public Policy,'' Journal for Public
Policy and Marketing, Vol. 20 (1), pp. 105-113.
---------------------------------------------------------------------------
George Mason University: A Case-Study of a Mid-Sized Public University
The picture of student credit card debt on American college
campuses appears from the available data to be a Dickenesque ``Tale of
Two Cities.'' On the one hand, industry-sponsored studies portray
college and high school students as largely informed consumers whose
purchases tend to conform to a generally manageable level of personal
debt. College is viewed as the stepping stone to a secure financial
future and any accumulated debt will be easily paid-off during the
early years of an adult's ``earning cycle.'' On the other hand, critics
of the credit card industry point out that credit card debt is vastly
underreported and that the social consequences may outweigh the
economic costs. This is because students are naive about their personal
and especially financial decisions which disproportionately impact
minorities, first-generation college students, members of low-income
households, and the emotionally fragile. Furthermore, college
administrators are receiving millions of dollars in
credit card ``royalties'' and other ``sweetners'' from the banking
industry which has clouded their judgement in accurately recognizing
the magnitude of the problem and implementing the necessary educational
programs. And, the noneconomic consequences can lead to academic
failure, loss of financial aid, deteriorating employment prospects,
health problems, personal and familial conflicts, credit problems,
lifestyle difficulties, failed relationships, and even suicide.\13\
---------------------------------------------------------------------------
\13\ Patrica Drentea, ``Age, Debt, and Anxiety,'' Journal of Health
and Social Behavior, Vol. 41 (December 2000), pp. 437-450; Patrica
Drentea and Paul J. Lavrakas, ``Over the limit: The association among
health, race and debt,'' Social Science & Medicine Vol. 50 (2000), pp.
517-529; and Robert D. Manning, Credit Card Nation: The Consequences of
America's Addiction to Credit, Basic Books, 2000.
---------------------------------------------------------------------------
In order to assess the prevalence of student debt and the dynamics
of student credit dependency, I sought to examine these issues through
a case-study of a mid-sized public university: George Mason University.
Located in Northern Virginia (Fairfax County) and part of the
Washington, DC Metropolitan Area, George Mason University features an
enrollment of approximately 25,000 students; about 60 percent are
undergraduates and 40 percent graduate and professional students. In
the spring of 2002, a random sample of 8,000 students was selected from
the university registrar's list of matriculating students. From this
sample, 800 randomly selected student interviews were conducted in
April and the results confirm that the sample closely mirrors the
university student population characteristics. From this sample, the
results are presented separately for the undergraduate (N=500) and
graduate students (N=300). This methodologically rigorous sampling
design yields a representative sample of credit card usage patterns of
George Mason University undergraduate students.\14\ Not incidentally,
it is distinct from industry-sponsored studies that are comprised of
pooled samples of small numbers of students from a large number of
colleges and universities.
---------------------------------------------------------------------------
\14\ Robert D. Manning, Gregory A. Guagnano, and Ray Kirshak,
Credit Cards on Campus: A Growing Collegiate Crisis or Benign Societal
Trend? (September 2002).
---------------------------------------------------------------------------
For the purposes of this hearing, I will report on only a few
variables of public policy significance. First, Table 1 shows that over
three-fourths (77.4 percent) of George Mason undergraduate students
have bank credit cards. As expected, the lowest proportion (62.4
percent) is among freshman and the highest is among seniors (88.2
percent). Interestingly, the sharpest increase in credit card use is
between sophomores (65.7 percent) and juniors (87.5 percent).
Similarly, the proportion of students with more than two bank credit
cards increases substantially from 5 percent among freshmen to 14
percent among sophomores to 21 percent of juniors and 28 percent of
seniors. Interestingly, this trend coincides with the greater use of
student loans as reported in Table 3, ranging from a low of 33.6
percent of freshmen to a high of 52.8 percent of seniors.
Table 2 illuminates the results of the recent marketing pressures
on high school students. In 1998, 10 percent of George Mason freshmen
indicated that they first used bank credit cards before the age of 18.
Over the next 2 years, the proportion rose to an average of 16 percent
and then double to 30 percent in 2001. Overall, 86 percent of the
George Mason freshman class with bank credit cards received them by the
age of 18 years old. Hence, bank credit cards are now available to
virtually any college student and soon high school student who is at
least 18 years old--regardless of financial education and/or
experience. With the average cost of acquiring a new bank client
ranging from $120-$170, it is not unreasonable to assume that some
credit card companies may offer ``kiddie cards'' with comparable credit
limits for 17-year-old students.
Access to consumer credit cards, however, does not necessarily
entail student debt problems. If students are informed consumers and
understand the cost-efficient use of bank credit cards, then earlier
use of credit cards may result in fewer student debt problems later in
school. Table 2 shows the results of whether students have maxed out
their credit card limits at least once while in college. Surprisingly,
nearly 60 percent of freshmen reported maxing out a credit card at
least once while the proportion rises to about three-fourths of the
remaining undergraduates. Even more shocking is the reported use of one
credit card to pay for another. Almost 60 percent of George Mason
freshmen and nearly two-thirds of the other Mason undergraduates used
one credit card to pay for another. Finally, the question that has not
been investigated by industry-sponsored studies is reported in Table 3.
It shows that freshmen are more likely than upperclassmen to use their
student loans to pay down their credit cards: 73 percent of freshmen
versus 67 percent of juniors and seniors. This finding suggests that
access to credit cards at an earlier age--without accompanying
financial education--increases the probability of the accumulation of
higher levels of costly consumer debt. The key issue, then, is who
bears the costs of their social consequences?
Credit Cards on Campus:
A Growing Collegiate Crisis or Benign Societal Trend
Like driving a car to work, bank credit cards offer highly
convenient and useful services to informed consumers who understand how
to use them most effectively. Although students can sacrifice their
lives for the Nation through military service at the age of 18, they
are not allowed to drive a car without adult supervision until they
demonstrate adequate proficiency skills in an evaluation setting. Some
students may be sufficiently mature to drive alone at 16 years old
while others may not handle the responsibility until the age of 25
years or even older. Similarly, a novice driver should not be
encouraged to drive a high performance sports car while an unemployed
student should not be tempted with a high line of credit. As a male
sophomore respondent explains, ``I don't own a credit card myself. I
don't think that I want one at this stage of my life. I couldn't trust
myself with a credit card right now. I have so many wants. It's hard to
separate my wants from my needs.'' Another student discussed the
naivete of students toward ``plastic'' money, ``I think it's too easy
to spend money because you're not actually seeing the money, you're
just swiping the card real fast and then you don't have to think about
it anymore. If you had to pay with cash you would notice the size of
your wallet decreasing.''
While such caution may lead to the rejection of the advantages of
bank credit cards, the more common experience is expressed by a first-
year female respondent,
[Credit cards are] a good way to establish credit, but an
easy way to get carried away! I would suggest everyone who
wishes to establish credit to get a credit card, but only use
it for emergencies! Everything else, use cash or you will get
yourself into a rut because it's too easy to say, ``Oh, it's a
credit card so I'll just pay it later.'' But you forget about
the interest and finances charges and pretty soon your're at or
beyond your credit limit an then you're stuck paying a high
amount, plus finance charges each month! So be wise about
getting/using credit cards . . . they can help you, but they
can also hurt you!
The issue of informed/practical financial knowledge and lack of
personal maturity resonates with the respondents of the George Mason
survey. As second-year student confides, ``It is important to build
credit so that when you get out of school you have some good credit,
but I think a lot of students end up worse off from having credit cards
and do not use them wisely. I do not have one, but I will get one my
senior year because I feel I will be mature enough to handle it then. I
would rather not risk being in debt.'' A junior expressed frustration
over the lack of marketing restraints on credit card companies, ``It is
so easy to get into deep debt using credit cards unwisely. If you can't
afford to buy something with cash, you should generally not put it on a
credit card. Credit card companies should not offer cards to everyone.
We get at least six offers each week in the mail.'' These sentiments
were echoed by a fourth-year senior, ``I wish that I never received a
credit card. I was stupid and 18. It didn't help that credit card
companies would call my apartment on campus and ask if I wanted one
because I was `preapproved.' All they wanted was a sucker who would go
into debt and owe them 500 percent interest. I think the age for
getting a credit card should be 21. At least then you would have grown
up a little bit more . . . away from your parents.''
As George Mason students were asked to explain the principal
reasons for rising credit card debt, financial illiteracy in general
and the role of universities in particular assumed central roles in the
success of ``mafia-like'' bank conspiracies. According to a recent
graduate, ``I think that Americans in general lack sound financial
education which leads to many people accruing too much debt. Credit
cards can be a useful spending tool, but should be paid off monthly if
possible. I had $20,000 in credit card debt when I got out of college .
. .'' Others specifically vented their anger at college administrators,
``Universities should not allow credit card companies to solicit their
business on-campus. Freshmen who live on-campus are very likely to get
a credit card, spend wildly, and end up with terrible credit later in
life. I saw it happen to many friends.'' Similarly, a second-year male
respondent declared, ``I think credit cards are pushed on college
students too much. I have been offered a card by 8 different companies,
at least, since I came to GMU. Credit cards are nothing but trouble
because once you get them, you can't resist using them, and the
companies know that. College students are easy prey for the credit card
companies.'' As a fourth-year student described her continuing
distress, ``They are dangerous and I feel that I was trapped into
getting one because every credit card company was after me [during] my
freshman year and now I have so many I cannot pay them off. . . . The
crazy thing is I have 4 cards that are maxed and I have not used them
in the last 3 years [yet] I am still paying for them.'' Finally, a
junior male respondent succinctly declared, ``There should be a rule
not allowing credit card companies to solicit applications from people
on campus. They ruined my life.''
Fear, anger, and despondency can overwhelm students who are trying
to complete their studies especially when they realize that their
credit cards are now an impediment rather than a useful aid in their
quest to graduate. Whether as one sophomore describes them as,
``They're like the Mob. You should know how to deal with them.'' Or as
a graduating senior dispassionately explains, ``I believe that most
people do not know how to manage their money well, however, I feel that
I can. I enjoy the fact that because most Americans are in debt because
of their stupidity'' to a fatalistic loss of freedom, ``I really
believe most Americans are moving toward the stigma associated with the
word `American': Born in debt, die in debt.''
For many students, the loss of personal freedom that has resulted
from the unbridled pursuit of competitive consumption on college
campuses leaves no other option but Government regulation and public
education. As a female junior concluded, ``Public policy should require
full disclosure about interest rates prior to issuing a credit card.
Budget plans should be required prior to issuing a credit card.
Financial planning courses should be part of junior high and high
school curriculums--as well as for college freshmen.'' Sadly and
ironically, most students expressed cynical pessimism that their
university administrators would respond to the student debt crisis by
imposing responsible restrictions on credit card companies and offering
useful
financial education programs and practical seminars. For most of these
students, credit cards were viewed as simply another way of ``ripping
off '' students by an indirect form of revenue enhancement. The
solution was articulately summarized by a third year male respondent,
``I believe credit card use by students is alarming. How do students,
who generally don't work, pay back credit card bills . . . I think that
there should be restrictions and legislation on credit card
solicitations on college campus--college administrators, student
government council, et cetera, have a responsibility to protect and
educate students on the evils of credit card companies seeking student
signups. Also, I think that credit card knowledge and awareness should
be part of the College 101/1st year orientation class to help prevent
this epidemic sweeping across college campuses. My mom was once a bank
loan lender and she noted to me the sadness of the number of people who
were denied loans because of poor credit ratings established as young
college students.''
Conclusion: Public Policy Responses to Credit Cards on Campus
The unrestrained marketing of bank credit cards on college and high
school campuses is not a phenomenon that simply can be reduced to
dollars and sense. Rather the lack of financial literacy and
educational programs is consigning increasing numbers of young
Americans to the shackles of high-interest consumer debt--the lucky
ones that is. Indeed, as students obtain access to ``easy'' money at an
earlier age it means that some will encounter consumer debt problems as
early as their freshman year of college and even in the senior year of
high school. My data indicates that a substantial proportion of college
student students exhaust their credit limits within an academic
semester--regardless of the amount of aggregate credit. A $500
``introductory'' line of credit in the fall semester can easily rise to
$2,000
to $4,000 by the end of the academic year. For many of these students,
a realistic credit limit can make the difference between surviving
their financial ``learning curve'' or becoming an academic casualty of
competitive consumption or shrinking public education budgets.
As major credit card companies become leading student loan
providers, competition for young clients will continue to escalate with
students learning the refinement of debt management techniques like the
``credit card shuffle'' and the ``hidden debt'' or rotating student
loan game. This explains how the credit card industry is increasing
student credit card debt capacity (it is now common to find
undergraduate students with credit card debts of over $20,000) through
public subsidies such as student loans and low-cost tuition at public
universities. Unfortunately, the consequences of mounting credit card
debt are not equally borne, especially amongst students from low-
income, minority, and first-generation college backgrounds. Hence, the
marketing of high-interest consumer loans to college students--before
they begin full-time employment--has major implications to future
societal trends such as college retention and graduation rates, racial
and ethnic social inequality, rising health problems including anxiety
and clinical depression, future matricu-
lation in graduate programs, homeownership, career mobility, bankruptcy
filings, retirement patterns, and even the decision to have
children.\15\ It also has profound implications to the national savings
rate--which is increasingly becoming a foreign policy issue--as the
Consumer Bankruptcy Project of the Harvard Law School reports a 51
percent increase in filers under 25 years old between 1991 and 1999.
These bankruptcy filers accounted for nearly 7 percent of all
bankruptcies at the end of the 1990's which is a striking finding in
view of the brief number of years that they have spent in the full-time
workforce.\16\
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\15\ Sandy Baum and Diane Saunders, Life After Debt: Results of the
National Student Loan Survey, Nellie Mae, Braintree, MA, 1998 and
Robert D. Manning, Credit Card Nation: The Consequences of America's
Addiction to Credit, Basic Books, 2000.
\16\ Reported in General Accounting Office, Consumer Finance:
College Students and Credit Cards, Washington, DC, June 2001, pp.12-14.
See also Teresa A. Sullivan, Elizabeth Warren, and Jay L. Westbrook,
The Fragile Middle Class: Americans in Debt, Yale University Press,
2000.
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Clearly, the credit card industry has proven itself incapable of
self-regulation while administrators of large public institutions have
demonstrated greater interest in increasing credit card royalties than
in fulfilling their responsibility to ensure the graduation of their
students with the lowest possible level of financial debt. It is
imperative that college administrators begin to formulate a code of
conduct that is enforceable and with effective sanctions on unrepentant
credit card marketers. As the banking industry emphasizes that credit
card debt is an individual decision that requires individual level
behavioral changes, it is important to note that this learning curve
benefits primarily the top ten credit card companies. And, that these
behavioral changes are the product of over a decade of costly and
highly persuasive mass marketing campaigns. According to a
representative of the American Banking Association, the credit card
industry should not be criticized for marketing to teenagers since
Americans are essentially fair game for all corporations beginning at
the age of 3. Consequently, without legislative restrictions on credit
card marketing and the implementation of objective, practical, and
effective financial literacy/education programs in high school and in
college, the student credit card debt problem will become a social
crisis of far greater proportions.
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PREPARED STATEMENT OF ELLEN FRISHBERG
Director, Student Financial Services, Johns Hopkins University
September 5, 2002
Senator Sarbanes and Members of the Committee, it is my honor to
appear before you today to represent the interests of the students of
the Johns Hopkins University, in the great State of Maryland, to
discuss financial literacy, and credit card usage among college
students. As you know, Johns Hopkins is a decentralized, multifaceted
research university, and I cannot presume to speak for all the
divisions of the university. My 13-year experience there, helping
students to pay for college, has been primarily with traditional
undergraduate students--and at that endeavor we are a small, selective
private college of 4,000. However, Hopkins does educate more than
17,000 students each year through our programs, both full- and part-
time, graduate and undergraduate, in eight divisions, at nine campuses,
and on three continents, and my remarks do touch many of these learners
in some way.
Hopkins is proud of our outcomes--our students succeed and graduate
in impressive numbers, and more than in any other school in the Nation,
they go on to graduate and professional education. This has made our
undergraduates an attractive market for financial companies who are
looking for lifelong customers. I have never wanted for student loan
lenders willing to lend to our students and their families--with a
default rate of less than 2 percent, even with an average graduating
debt of $16,200, our students have established themselves as good
payers. Solicitation of our students starts early--many freshmen
arrived on campus this past weekend armed with credit cards they
received their senior year of high school. It appears that lists are
available to the direct mail marketers from a variety of sources, long
before the students register at school. However, they also arrive
without understanding of how that credit card works--what is APR,
compound interest, and why they only have to pay a small amount each
month.
Because of the ease of getting credit, the lack of financial savvy
on the part of these otherwise very bright students, and the unchecked
solicitation and giveaways that were going on during orientation, in
1994 the Dean of Students decided it was best to prohibit credit card
vendors from the Homewood Campus. At about that same time, my staff and
I became alarmed at the growing number of students who reported credit
card problems--in some cases, causing them to have to leave school for
a time to repair their financial health (I have a statement from one
former student appended to this document--he was a poor, inner-city
Baltimore child who was motivated and mentored by family, counselors,
and clergy--and he became a successful graduate and attorney, but not
before falling victim to the easy allure of credit card debt). Keeping
credit cards out of the hands of students is a difficult task. We know
that credit is not always a bad thing--it provides for emergencies,
allows students to shop on the Internet, sometimes for used books to
keep their costs low, and gives them air miles to help keep the cost of
travel down--our students do come from all 50 States. However, we
thought that if we made sure that our student loan and other financial
services vendors were not cross marketing
financial products to the database of students they were lending to, it
would help to reduce the direct mail and Internet offers that came
because of the student's relationship with the university.
For a variety of reasons, the university decided to participate in
the William D. Ford Direct Loan program, which took private lenders out
of the student loan equation for our need-based loans. While we have no
empirical evidence, we believe that this decision has also reduced the
number and type of solicitations that our students received for other
financial products, including credit cards. Our concern remains that if
you or I get into credit trouble, we have ways out--home equity loans
or mortgage refinancing. If our students get in trouble, their options
are limited--sometimes to their unknowing parents.
However, we are not so naive as to believe that we can restrict or
control the
behavior of our students, who live their lives on the Internet--and if
you ever searched on the web, you know that pop-up credit card offers
are a way of life. Speaking of the web, colleges and universities have
offered new web services to students to ease getting through
administrative processes, including allowing tuition to be paid by
credit cards. While Hopkins does not allow this for full-time students,
we can see how it could help to get students into trouble. Because of
the short time it takes to apply for and receive a credit card, some
students will follow the path of least resistance and opt for credit
card payment rather than a student loan. Compared to the process of
applying for a Federal student loan, which can require up to 6 weeks
and numerous applications and forms, credit cards are easier.
Our alumni association does offer an affinity card--the JHU card,
but they are not permitted to market it to current students. In
financial aid, we are pleased to have that card available as some of
the proceeds come back to the annual scholarship budget to help fund
needy students. But we are also happy that the marketing is restricted
to graduating seniors.
What we as administrators can do is:
<bullet> Be aware of the cross-marketing that our vendors do--whether
it is the ID and stored value card vendor or our student and
alternative loan vendors.
<bullet> Use our stored value/debit cards as important learning tools--
credit cards on training wheels.
<bullet> Encourage students to use the opt-out service of the major
credit bureaus.
<bullet> Use our role as educators to teach about compound interest,
capitalization, and credit reports, at the same time we are doing
student loan default prevention.
Many students and parents are concerned about this topic--whenever
I mentioned that I was coming here, there was universal agreement that
a problem exists. My husband, an elementary school teacher, was a
credit card executive in a former
career. He believes that the banks need to take responsibility to offer
a national education program at the high school level--as the use of
cards will not go away. He says it is like sex education, educating
young people about birth control after the pregnancy occurs is not very
helpful.
The card industry can also help us with better disclosure in
account statements, so that young people do not think that paying the
minimum is sufficient, more programs like Life Skills, offered by USA
Funds, and restricting their marketing to those who can afford to pay--
not the students without the financial safety net and/or parental
resources to fall back on.
Thank you for your time and attention.
STATEMENT OF A JOHNS HOPKINS GRADUATE, NOW AN ATTORNEY
Timeline of My Credit Experience
Spring-Summer 1995
<bullet> I am young and finally free from my parents. The desire to
spend money the way I choose coupled with the lure of campus flyers
that proclaim ``No Annual Fee Student Visa/MasterCard'' induce me
to begin applying for credit.
<bullet> I apply for and receive my first three credit cards--one of
them with a $1,000 credit limit, another with a 17.99 percent
interest rate. Rather than explaining the effect of the interest
rate on the time it will take to pay off the debt, the cards simply
play up the low $15 minimum monthly payment.
<bullet> By the end of the summer I would have 4 credit cards,
destroying one of the original three and picking up two more,
including a department store credit card, in its place. My credit
limits totaled $3,700 at this point. My major credit purchases were
a 3-CD shelf stereo system and an Apple computer.
Fall 1995-Spring 1996
<bullet> Three of my four credit cards are maxed out because of the
computer and its accessories. I begin to use the fourth for
groceries, clothing, and other miscellaneous items.
<bullet> During registration week and all through the fall, I see
credit vendors outside of the campus bookstore giving away free T-
shirts, mugs, and other gifts for merely filling out a credit card
application. Driven partially by the drive to see how many cards I
could get, and also because the freebies were nice, I began to
apply for these cards also. Almost without exception, I would be
approved for generous amounts of credit.
<bullet> I cannot fully remember what I would use my credit for, but I
know that I was not using it responsibly. I would charge concert
tickets, trips to the movie theater, nights dining out, tickets for
college functions--basically anything I wanted to do but did not
have cash on hand for.
<bullet> By the spring of 1996, I had at least 8 credit cards, all of
them with balances, and credit debt approaching $5,000. I only
needed to be a student to get credit cards. As long as they knew I
was a student, creditors would lend me money without regard to my
lack of income (my only source of income was a Federal work study
job working 10 hours per week at $5.25/hour).
Fall 1998
<bullet> I am now married. Combined, my wife and I have 13 credit
cards, more than $11,000 in credit card debt and we earn $18,500
annually. Two of the cards that I have had since 1995 have
increased my credit limit by $500 every 6 months for the preceding
2 years, making their combined credit limit almost $6,000.
<bullet> After years of financially irresponsibility, I decide to
finally get my financial house in order. This task is made somewhat
easier by the fact that, by never being late with a payment, I have
a nearly perfect credit history.
<bullet> I begin to seriously talk with my college financial aid
advisors. I acquire financial software and begin reading books on
credit literacy. For the first time I learn that, thanks to the
magic of compound interest, I would probably spend the rest of my
life paying off credit cards if I continued to make the minimum
payments. I learn that making payments on time does not help my
credit rating in the short-term because my debt to income ratio is
high and because I have high balances on the credit cards. I
realized that your credit rating affects your ability to get a
house, a car, and even a job.
<bullet> I begin the slow process of defeating my credit card debt
through a combination of increasing my monthly payments as much as
my wife and I could afford and by paying down my credit cards with
student loans left over from my final year of college.
Present
<bullet> Thanks to self-education about credit, coupled with strict
financial management, my wife and I were able to pay off our last
credit card in September 2001. We destroyed most of the original 13
cards and today only have 2 of those cards left (for emergencies of
course).
<bullet> I have been able to use my credit to my advantage to secure
commercial educational loans to fund my professional school
education, to buy an affordable used car, and to buy a wonderful
town home.
The Moral of My Story
My story actually resonates through college campuses. Thousands,
perhaps even hundreds of thousands of young, financially irresponsible
18-year-olds leave home each year in search of social and of financial
freedom from their parents. These 18-year-olds are easy prey for credit
card advertisements that play up ``no annual fee'' and ``low minimum
monthly payment'' while offering free gifts as bonuses for applying for
cards. By no means, however, does the onus fall totally on credit card
companies. Although there were resources that I could utilize at my
college, many colleges perhaps do not offer entering students programs
and services designed to help them make wise decisions about their
credit. Many of these 18-year-olds, including myself at that age, also
need to own up to the responsibility that freedom demands of them by
educating themselves in the manner that I eventually did.
I do not have all the answers. I do know, however, that the ability
and willingness of an 18-year-old college student to begin to amass a
credit debt of $11,000 with 13 credit cards raises questions that
demand answers and action on the part of the student, the educational
institution, Congress, and the credit card companies.
PREPARED STATEMENT OF NATALA K. HART
Director, Student Financial Aid, The Ohio State University
September 5, 2002
Mr. Chairman, Members of the Committee, my name is Natala Hart, and
I am honored to be sitting before you today. As the Director of Student
Financial Aid at The Ohio State University, I see in our week each day
the growing importance of basic financial skills for today's students.
In my opinion, those skills can be as important as the excellent
academic knowledge students received at Ohio State.
The matter of financial literacy has emerged as the leading
financial concern among parents sending their children to Ohio State.
We believe that this is reflective of a national concern about the
extensive opportunities for credit, including credit among students
still in high school and as young as 16. I myself am a parent of a 13-
year-old and find it necessary to already begin coaching Katie about
credit, and its proper and improper uses.
We in the Office of Student Financial Aid entered into a surprising
view of the role of credit as we studied the profile of the small
number of former OSU students who default on their student loans. What
we learned was that the vast preponderance of those who defaulted on
their student loans had even higher consumer debt, most often the
result of credit card use. We do not know if this usage occurred while
in college or after, but it had a dramatic, negative effect on their
ability to meet their obligations to repay their Federal student loans.
We also learned from our colleagues assisting students in our
residence hall system that a small but troubling number of students
were arriving at Ohio State deeply in credit card trouble. They defined
credit card trouble as being so consumed by concern about paying credit
card bills that the students could not adequately focus on their
primary purpose of working on their education.
Our colleagues, Student Affairs, also conducted a study that
highlighted the same issues: A very high percentage of college students
are in credit card debt far too large and proving disruptive to their
studies. I have provided Committee staff with a copy of that study by
Dr. Andrea Dowhower.
Finally, we were ourselves educated by Dr. Lucia Dunn, an Ohio
State economist, who has developed a ``Debt Condition Index,'' part of
a ``Debt Stress Index'' that identifies the point at which debt begins
to negatively affect the life of Americans.
What Are We Doing About Credit Issues?
Ohio State has taken several proactive steps to assist both
students who are over their heads in debt or who need to avoid being in
that position.
<bullet> We have instituted as part of our Office of First Year
Experience (FYE) Success Series a special week for financial
literacy.
<bullet> We have enacted a campus policy that limits credit card
solicitation on campus.
<bullet> Ohio State has required as part of its agreement with the
single credit card company approved by the campus funding for a
debt counseling position in our Mary Daniels Student Wellness
Center.
<bullet> My office has added a senior staff position dedicated to Debt
Management that will collaborate with the debt-counseling center.
<bullet> We have and will participate in providing feedback to several
groups developing excellent training materials about dealing with
finances and avoiding debt. Those include:
--The Financial Survival Program by the Consumer Federation of
America and MasterCard International.
--Life Skills Series by USA Funds.
--OSU developed courses on use of credit cards and basic financial
skills.
The Ohio State study by Dr. Dowhower has been repeated with results
available in the next few months. We know from preliminary findings
that fewer students
reported reaching the maximums on their credit cards. (In 2000, 73.8
percent of students had not ``maxed out'' a credit card; in 2002 the
percent increased to 84.3 percent.) However, that may be because
students have higher balances because the amount of their monthly
balance has not changed too much. Of concern is their response to the
balance on the credit cards: In 2000, 26.1 percent had greater than a
$500 balance compared to 23.1 percent in 2002.
The Ohio State policy to limit credit card solicitation came from a
recommendation of our Council on Student Affairs, one of the most
important university student, faculty, and staff committees. The
Council learned that as a public institution
governed by Ohio law, we could not totally ban credit card solicitation
on campus due to First Amendment law governing commerce. We could,
however, limit the ``time, place, and manner'' in which credit card
companies approached our students.
The proposal being implemented restricts solicitation to the
beginning of academic terms, eliminates solicitation without incentives
of limited value such as soda or T-shirts, and defines educational
initiatives that will be provided under the terms of the successful
contract bidder. We believe that these limits will result in students
who chose credit card access for the right reasons.
I would like to describe our coursework in basic financial
education before closing. We have learned through Dr. Mabel Freeman and
her staff in our Office of First Year Experience that in the transition
to college, it is most often the third week of their initial enrollment
that students who do not have basic financial skills discover they need
those skills. We offer courses in constructing a budget, managing a
checking account, good and poor uses of credit cards, and even saving
and investing, emphasizing not going into debt as a fundamental
component of saving and
investing.
Last year, we offered 11 courses at hours convenient to the
students. More than 1,500 class attendance hours were recorded.
Students were required to write one paragraph reflection on what they
learned. Examples of their comments (paraphrased) were:
``I learned that completing college is actually the best investment
I can make.''
``Through the class, it was clear that I should try to avoid credit
cards other than for real emergencies.''
``I really didn't understand how to balance a checkbook--and I
didn't want to admit that even to myself.''
We believe that financial literacy is a critical component of our
students' educational success and their success as alumni of Ohio
State. We would be pleased to assist the Committee as it considers
financial education as a requirement for young credit card recipients.
Thank you.
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PREPARED STATEMENT OF MICHAEL E. STATEN
Director, Credit Research Center
McDonough School of Business, Georgetown University
September 5, 2002
Introduction
Good morning, Chairman Sarbanes and Members of the Committee. My
name is Michael Staten. I am Professor of Management and Director of
the Credit Research Center at the McDonough School of Business at
Georgetown University. The Center is a nonpartisan, academic research
center devoted to studying the economics of consumer and mortgage
credit markets. Over its 28-year history the Credit Research Center has
generated over 100 research studies and papers, most of which examine
the impact of public policy on credit markets. Throughout its history,
the Center's research program has been supported by a mix of grants
from the public sector (that is, National Science Foundation, Federal
Trade Commission) and unrestricted private sector grants from
foundations and corporations made to its host university on behalf of
the Center. I have served as the Center's Director since 1990.
As students head back to college campuses this fall, a perennial
debate will resume over the problems some of them will have in handling
their credit cards. Marketing research surveys indicate that about 57
percent of all full-time undergraduates own a general-purpose credit
card (Visa, MasterCard, Discover, American Express) in their own
name.\1\ From the sad anecdotes portrayed in the news media, one could
get the impression that students are awash in debt, victims of
relentless marketing by big credit card companies and incapable of
controlling their urge to charge.
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\1\ Financial Services, Student Monitor, Ridgewood, NJ, Spring
2001.
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Along with my co-author, Professor John Barron (Purdue University),
I recently completed a study for the Credit Research Center at
Georgetown University that
offers new evidence on student card usage, evidence that paints quite a
different picture.\2\ The report provides benchmark measures of college
student credit card usage. The analysis utilizes a pooled sample of
over 300,000 credit card accounts randomly selected from the portfolios
of 5 of the top 15 general-purpose credit card issuers in the United
States.
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\2\ College Student Credit Card Usage, Working Paper #65, Credit
Research Center, McDonough School of Business, Georgetown University,
June 2002 (available at www.msb.edu/prog/crc and held in Senate Banking
Committee files).
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Discussions of college student card usage in both the policy arena
and the popular press have been based mostly on anecdotes and self-
reported survey evidence. To our knowledge the Georgetown study marks
the first time account-level information has been pooled across major
issuers to create a statistically reliable database for examining the
actual usage and performance of credit cards marketed to college
students. Consequently, the results should be helpful in grounding
subsequent discussion on facts rather than anecdotes.
In the remainder of my testimony, I would like to share with you
some results from our study. There is much evidence that college
students are as responsible as the rest of us when it comes to their
card usage behavior, and are more sensible in some respects. Whether or
not they use credit cards wisely is a subjective question that depends
upon your own views of how credit and credit cards should be used. But
a dramatic lack of sophistication among students in handling this
powerful payment tool is not apparent in the data.
College Students and Credit Card Usage
The analysis compares behavior across three types of accounts:
Those opened through college student card marketing programs; those
opened by young adults aged 18-24 through normal marketing channels
(for example, not through dedicated student marketing programs); and
those opened by older adults through normal marketing channels. All
accounts analyzed in this study were opened during the
period mid-1998 until early 2000 and were observed over a 12-month
period during 2000-2001.
The analysis follows a study plan that was originally proposed by
the U.S. General Accounting Office in response to a request from
Members of Congress, but was never executed by GAO due to budget
constraints. The study is similar to the GAO study plan in the range of
cardholder behaviors to be examined and shares its focus on comparing
the activity of recently-opened student accounts to the experience of
accounts opened recently through conventional (nonstudent) marketing
programs.
One of the first findings of the study was the fact that any random
sample of open accounts contains a significant number of accounts that
exhibit no activity during a 12-month period. Such dormant or
``inactive'' accounts may reflect a credit card being held in reserve
by the owner for an emergency, or a credit card that has been discarded
or destroyed by the owner without the issuer being notified. The
incidence of such ``emergency/destroyed'' cards varied substantially
across the five companies in our sample, sufficiently that we could not
determine a reliable ``average'' rate of inactivity among open
accounts. Nevertheless, it is clear that any discussion of student
credit card usage that makes projections of student card debt based on
the number of credit cards owned (for example, the number of open
accounts) will likely overstate the actual use of credit cards.
The analysis in the report is restricted to a sample of more than
300,000 active accounts, each of which was followed for a 12-month
period during 2000-2001. Active accounts are defined as accounts with
charge activity, payment, positive balance, or some other posting of
activity at any point during the observation period. Given this large
sample size, the random sampling approach adopted by the participating
companies, the market share and national scope of the companies
providing the data, and the use of weights to reflect the relative
number of cards issued across the various groups by each company, the
findings reported below can be considered representative of accounts
opened at major credit card issuers during the period from mid-1998
through early 2000 that were active during the 2000-2001 period.
Results
Credit Balances, Credit Limits, and Utilization Rates
<bullet> The average balance of an active student credit card account
($552) is approximately one-third the size of the average balance
of an active nonstudent account of a young adult ($1,465), and one-
fourth the size of the average balance of an active older adult
account ($2,342).
Balance by Type of Account
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
<bullet> The mean credit limit for student accounts ($1,395) is less
than 40 percent of the mean for nonstudent accounts of young adults
($3,581) and less than 20 percent that of adult accounts ($7,436).
Credit Limits by Type of Account
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
<bullet> At 45 percent, the mean utilization rate across all student
accounts (percent of credit line tapped) is higher than the
utilization rate for older adult accounts (36 percent) and about
the same as the utilization rate for nonstudent accounts held by
young adults (46 percent), despite much higher credit limits for
these other groups. Among cardholders in all three groups who have
credit limits above $1,000, student accounts have significantly
lower utilization rates.
Utilization by Size of Credit Line and Type of Account
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Card Usage: Cash Advances, Paying the Full Balance, and Finance Charges
<bullet> Student accounts are substantially less likely to use their
credit cards for cash
advances.
<bullet> Among accounts with positive balances, the student accounts
are somewhat more likely in any given month to pay the prior
balance in full.
<bullet> A student account is less likely to incur finance charges in a
given month, but more likely to incur fees, either for being late
or for being over the credit limit. The average finance charge
incurred on student accounts in a given month is $7. Only 5 percent
of student accounts incur a finance charge greater than $26 in a
given month.
Delinquency Rates and Charge-offs
<bullet> Delinquency rates on both student accounts and young adult,
nonstudent accounts are higher than for older adult accountholders.
In a given month, 12 percent of active student accounts are past
due, versus about 11 percent for other young adults under age 25
and 8 percent for adults 25 and older. However, among student
accounts that have large balances (that is, accounts with an
outstanding balance greater than $1,000) student account
delinquency rates are substantially lower than for similar accounts
held by other young adults under age 25.
Delinquency Rates by Size of Balance and Type of Account
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
<bullet> About 3.6 percent of student accounts charge-off annually,
compared to 2.8 percent of young adult, nonstudent accounts and 1.6
percent of older adult accounts. The median dollar amount charged
off on student accounts is $1,133, vs. $2,217 for young adult,
nonstudent accounts and $4,919 for older adult accounts. Large-
dollar charge-offs are not common among student accounts given
their substantially lower average balances. Considering only
charge-offs that exceed $5,000, student account losses are rare.
For every 10,000 accounts of each type, the data-
set indicates there would be 77 adult accounts with charge-offs
exceeding $5,000 over a 1 year period, 58 such charge-offs for
nonstudent accounts of young adults, but only 2 such charge-offs
for student accounts.
Size of Charge-offs by Type of Account
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
<bullet> Over time, student accounts mature and performance converges
to that of young adult, nonstudent accounts. More specifically,
within about 18 months of the account opening date, student
accounts exhibit a frequency of serious delinquency (90+ days) and
a likelihood of charge-off nearly identical to that of nonstudent
accounts held by cardholders under the age of 25.
Delinquency Rates (90+ days) on Active Accounts
By Number of Months Since the Account Opened
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Summary
The data indicate that, on average, accounts marketed to college
students have lower credit limits and smaller balances than accounts of
similar age that were opened by young adults through issuers'
conventional (nonstudent) marketing programs. Compared to accounts
recently opened by older adults (age 25 and older), student balances
and limits are substantially lower.
About 88 percent of student accounts are current (for example, pay
their accounts as agreed) in a given month, compared to about 88
percent of young adult, nonstudent accounts and 92 percent of older
adult accounts. Although recently opened student accounts have a higher
likelihood of charging-off compared to other groups, the dollar amounts
at risk on delinquent accounts and the actual losses on charged-off
accounts are substantially lower. Further, the delinquency and charge-
off experience for student accounts becomes similar to nonstudent
accounts of young adults for accounts open more than 1 and 1\1/2\
years. These findings are consistent with issuers' statements that they
establish student accounts with relatively low credit limits with the
expectation that the large majority of new, young cardholders will
learn how to manage a credit card, to establish a credit history, and
to become longer-term customers.\3\
---------------------------------------------------------------------------
\3\ College Students and Credit Cards, U.S. General Accounting
Office, Report GAO-01-773, June 2001, pp 35-40.
---------------------------------------------------------------------------
Conclusions and Recommendations
I understand that this Committee is interested in the financial
literacy of young people. As you know, national coalitions of industry,
Government, and nonprofit organizations have committed substantial
resources to such efforts in recent years. They have already created a
tremendous range of educational materials and programs on personal
finances for both children and adults, with the promise of more to
come. I believe these efforts are essential to the long-term goal of
improving the money management skills of most Americans who are faced
with an increasingly sophisticated array of financial service products.
Clearly, there are some college students who build up large
balances that could well lead to payment problems, but that is true of
any cardholder population. I certainly see no evidence from the
Georgetown study that students are misusing cards so frequently as to
warrant singling them out as a group for special protections from
marketing solicitations.
In that regard, I am concerned about some proposals that have been
circulating at both the State and Federal level which would either
limit or ban the marketing of credit cards to college students.
Proposals that would ban on-campus marketing of credit cards seem
particularly misguided, given the available evidence from annual
marketing surveys about how and when students obtain their cards. For
students who own a general-purpose credit card in their own name, the
largest single source in 2001 was direct mail offers, accounting for
nearly 40 percent of all cards.\4\ Only about 20 percent of cards were
obtained from sources on campus (take-one displays; issuer reps at
``tabling'' events). The same survey revealed that nearly 40 percent of
undergraduates in 2001 who owned a general-purpose credit card in their
own name said they received their first one before they arrived on
campus their freshman year.
---------------------------------------------------------------------------
\4\ Financial Services, Student Monitor, Ridgewood, NJ, Spring
2001.
---------------------------------------------------------------------------
Consequently, restrictions that would ban on-campus marketing would
not stop the majority of students from acquiring cards. Moreover, such
restrictions would eliminate probably the only opportunity for any
face-to-face contact between a card issuer representative and the
cardholder. Present marketing practices may not take full advantage of
this opportunity for distributing educational materials and messages,
but an outright ban on such marketing eliminates the opportunity.
When First Card in Own Name was Obtained
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Methods of Obtaining General Purpose Cards in Students' Own Name
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Even if card marketing to students could be legislated away, such
action does not seem to be in students' best interest. The 4 years that
most undergraduates spend in school are arguably the best time to get
acquainted with credit cards. The undergraduate experience gives young
adults an opportunity to transition from life at home to life on their
own. Most students spend 4 years with one foot at home and one foot in
the real world, learning about one but sheltered by the other. Learning
personal financial management is part of that real-world experience.
A general-purpose credit card offered with relatively low limits
gives students an introduction to the most powerful and versatile
payment device on the planet. Think of it as the ``training wheels''
approach to learning to use a credit card. Students learn that their
wants usually exceed their resources, and that they must manage that
tension. They learn that a purchase made with plastic today and
forgotten
tomorrow can come back to haunt them at the end of the month with the
arrival of the credit card statement. They learn that the credit card
company does not forget that you have made the purchase, nor does it
forget if you do not pay. For those who choose to revolve, a balance
that seems to fall far too slowly month after month kindles a new urge
to find gainful employment during the summer, or after graduation.
All of these lessons must be learned eventually. I believe it is
better to learn them with the relatively small exposure permitted by
the lower limits that are typical of cards obtained through college
student marketing programs. Postponing the lesson until after
graduation would raise the financial stakes and put young consumers at
even greater risk.
It surely cannot be too difficult for our best and brightest youth
to learn about cards and card marketing while in college. Artificial
limits on credit card marketing to this group will not improve their
financial literacy. The wiser course seems to be to facilitate student
access to the information they need to make sound decisions about using
credit and the importance of maintaining a good credit history.
I thank you for the opportunity to appear today and would be happy
to answer any questions.
----------
PREPARED STATEMENT OF JONATHAN MILLER
Treasurer, The Commonwealth of Kentucky
September 5, 2002
Mr. Chairman, Members of the Committee, I appreciate the
opportunity to testify today, and I am particularly grateful that you
are shining a spotlight on the important issue of financial literacy
among college students.
It is fitting that the hearing is being held today, because, as we
speak, tens of thousands of young men and women across the country are,
for the first time, leaving the protections of home and entering
college. The first few weeks of college have always presaged many rites
of passage. Choosing a major. Attending your first football game.
Rushing for a fraternity or sorority.
But a new rite of passage has emerged recently for college freshmen
on campuses across the country. Applying for your first credit card.
Credit Card Marketing on College Campuses
The opportunities are endless. If you have been to a ball game or a
public event recently, you likely have been barraged by credit card
companies offering some gift or service in return for filling out an
application. For college students, this is almost an everyday
occurrence. Beginning with freshmen orientation, at activities fairs,
in student unions and lunchrooms, in the campus bookstore, even in the
privacy of their dorm rooms, students are tempted by unavoidable offers
from dozens of different credit card companies. It is rare to find a
bulletin board on campus that is not nearly covered by card offers.
The sales pitches can be irresistible. Thousands of dollars of
``free money'' if you just fill out this form. And by the way, here is
a T-shirt or a chance to win an enticing vacation. The offer might come
from a friend who needs your help in completing his quota of completed
applications. The card might come with a so-called ``teaser'' rate--a
low introductory interest rate that looks too good to be true--unless,
of course, you read the fine print and find out that the rate balloons
dramatically within a few months. As the General Accounting Office
(GAO) reported last year, some credit card ``vendors created a carnival
atmosphere with loud music and games . . . mask[ing] the
responsibilities of owning a credit card, especially since there was no
discussion of the consequences of misusing a credit card.''
In some circumstances, the solicitation turns ugly. Last year, the
Kentucky State Treasurer's Commission on Personal Savings and
Investment held a hearing on the issue of credit cards on college
campuses. A University of Kentucky student testified that one credit
card marketer pushed his way into her freshman dorm room and would not
leave until one of her roommates filled out a credit card application.
This young woman, for obvious reasons, felt violated. The GAO study
revealed that this example is not unique: Students reported that
vendors followed them around campus when their initial sales pitches
were rejected. Sometimes even students are
manipulated into revealing personal information in exchange for gifts.
The economic incentives that encourage these types of aggressive
credit card solicitations are enormous. Many universities, struggling
to fund vital programs
because of State budget cuts, have signed multimillion dollar contracts
to give a particular company exclusive rights to market its credit
cards on campus. Student organizations raising funds to pay for their
expenses have been recruited as sales agents by credit card companies--
these groups often are compensated $25-$200 a day to table the student
union and are paid $1-$5 for every completed application. Peer pressure
has become an invaluable sales tool.
Impact of Credit Cards on College Campuses
For many college students, owning and using a credit card does not
pose any serious problems and offers some advantages. For instance, in
an emergency situation, where cash is not available, a credit card can
be invaluable. When properly educated about their use, credit cards can
be a useful tool to learn about personal finance and budgeting.
Particularly when parents are involved, young people can be taught
important lessons about financial responsibility and accountability.
Credit cards, more-
over, offer a vehicle, albeit an imperfect one, for young people to
develop a positive credit rating. For the majority of students, credit
card debt is not a problem--recent surveys revealed that almost 60
percent of students pay their credit card balances in full every month.
However, for a significant and growing minority of college
students, credit card use and misuse can be devastating. Without proper
education on credit card use, and with only self-serving, on-campus
promotions instructing them, students often sign up for numerous credit
cards, making purchases up to the credit limit on each. In a telling
study by the Public Interest Research Group (PIRG), it was revealed
that students who obtained credit cards at student union tables had
more cards and higher debt balances than those that signed up
elsewhere.
Instead of the false promise of ``free money,'' students wind up
building mountains of credit card debt before they even have an income
stream to pay for it. Students are tempted by promotions on campus and
through the media to live beyond their means--many do not understand
the consequences of incurring excessive debt and making late payments,
both of which can severely damage their credit ratings or their
financial health in general.
The GAO report concluded that because of their inexperience,
college students are more likely than other credit card customers to
accumulate significant debts. That is why those companies that sign up
cardholders with higher risks of default--in exchange for higher
interest rates--often target college students. Students see low,
seemingly easy minimum payments, but do not realize they could spend
much of the rest of their lives repaying their debts.
Let me give you one example. Suppose a student today built up a
credit card balance of $3,000 on a credit card that charged a 19.8
percent interest rate. If that student never made another purchase, and
dutifully made the minimum payment each month, it would take her 39
years to repay that debt. In this example, the student would have to
pay out over $10,000 in interest--on only a $3,000 balance.
Our Commission took testimony revealing that this was not an
uncommon experience. One Kentucky student built up over $6,000 in debt
in her freshman year, and was still trying to pay it off 4 years later,
having already paid more in interest that what she put on the card.
Various studies revealed that the average student credit card debt
ranges from $500 to more than $3,000. Meanwhile, in 1999, a record
100,000 Americans under the age of 25 filed for bankruptcy.
The impact on students can be more than financial. My Commission
received testimony that the stress of credit card debt has significant
emotional, even physical effects on these young adults, compounding the
stress of leaving the shelter of home and family. One Indiana
administrator reported that they ``lose more students to credit card
debt than academic failure.'' And in an extreme case, a National Merit
Scholar headed for law school was reported to have hung himself in his
closet after racking up more than $14,000 in debt on twelve different
credit cards.
The impact on students also poses numerous long-term problems. With
many
college graduates already facing significant student loan debts, the
added burden of growing credit card balances can leave many young men
and women entering the workforce with seemingly desperate debt
problems. As a result, many young people are forced to choose jobs
solely on the basis of the starting salary offered, without regard to
suitability or personal satisfaction. This leads to further economic
problems for the young worker when the job situation worsens,
increasing the cycle of debt and credit card dependency. It also
appears to have the effect of shrinking the pool of otherwise eligible
and willing applicants for socially important, but less
lucrative entry level jobs in fields such as education and law
enforcement.
Financial Illiteracy in the United States
It would be too easy, and in fact unfair, to pin the entire blame
for this growing phenomenon on the credit card companies and their
representatives. While I believe that some regulation of credit card
marketing is necessary--and I will address these reforms later--the
problem is much greater than this. Indeed, credit card misuse on
college campuses is just a symptom of a much greater problem plaguing
the Nation--the financial illiteracy of much of America.
Our education system is, in many ways, the envy of the world. Yet
the same schools that have produced brilliant scientists, physicians,
and poets have also produced generations of financially illiterate
Americans. We teach our children to master such difficult mathematics
concepts as trigonometry and algebra, but we do not teach them how to
balance a checkbook. Many young people can discuss with great insight
the history of ancient civilizations, but are not cognizant of their
own credit histories or the significance of their credit reports. And
as is clear by my earlier remarks, admission to college requires good
grades and high scores on standardized tests, but no specific knowledge
on how to use--or not use--a credit card.
It is important to note that financial illiteracy is not simply a
problem faced by our youngest generation of Americans. In fact, it is
an epidemic. When the country's national savings rate during a period
of unprecedented prosperity dips below 1 percent, and when 12 percent
of Americans have no retirement savings whatsoever, we realize that
financial illiteracy could leave many of America's seniors desperately
needing financial assistance. When a growing number of individuals--
particularly the poor, elderly, and minority groups--fall victim to the
scams of predatory lending, we realize that financial illiteracy leaves
many Americans vulnerable to the loss of their homes or retirement
savings. And when the total household debt reaches $7.3 trillion; with
an average credit cardholder having over $8,000 in debt, we realize
that financial illiteracy has a devastating effect on our Nation's
economy.
There are many organizations and individuals across the country
trying to combat the growing problems posed by financial illiteracy.
Groups such as Junior Achievement and the National Council on Economic
Education have developed excellent curricula for promoting financial
literacy among students of all ages. The Consumer Federation of America
and Cooperative Extension have joined to create ``America Saves,'' a
national program that promotes sound personal financial practices in
several large cities. Additionally, many of my colleagues have
developed outstanding economic educational initiatives, such as
Delaware Treasurer Jack Markel's private-public partnership, ``The
Money School'' and Ohio Treasurer Joe Deters' free-to-the-public
``Women and Money'' seminars. These valuable programs, however, only
reach a small minority of our population. And despite these efforts,
financial illiteracy has grown over the past 25 years--a standard
financial literacy test demonstrated a drop from a 57 percent average
score in 1977 to 52 percent in 2000.
Legislation at the State and Federal level has been helpful, but
falls far short of solving these problems. Kentucky's historic
education reform of the late 1980's requires financial literacy
instruction for all students, but most public schools in the State fail
to address the subject, often because the teachers are uncomfortable
lecturing on a topic with which they have little familiarity. The
President's recent ``No Child Left Behind'' initiative allows for grant
money to promote financial literacy initiatives, but these programs are
forced to compete with much more pressing educational needs such as
reduction of class size and raising teacher pay.
Kentucky's Experiment--Owensboro Saves!
My Commission on Personal Savings and Investment took a hard look
at this growing problem and devised a potential solution. Realizing
that we could not fix all of the problems created by financial
illiteracy in the State in one fell swoop, we decided instead to gather
our resources and focus our efforts on one community: Owensboro, a
small city within a county of 90,000 residents.
On October 2, we will be launching Owensboro Saves!, a project
uniting the entire community's leadership--from elected officials to
school superintendents, from college presidents to constituency group
activists, from labor leaders to Chamber officials and key employers.
This public-private partnership will sponsor programming over the
course of the next year to promote better financial literacy among all
residents of the region, of all ages and incomes. We will host seminars
on how to avoid becoming a victim of predatory lending and how to
complete an Earned Income Tax Credit form. Volunteers will become money
mentors for residents struggling to save and invest. Activists will
work with Catholic Charities to develop an Individual Development
Account (IDA) program to enable the working poor to develop assets for
buying a home, saving for college, or starting a business. And we will
hold a free ``Women and Money'' seminar, providing free advice to area
women--who earn less, receive fewer retirement benefits, and live
longer than men.
But even more significantly, we hope to initiate permanent
educational initiatives to improve the region's financial literacy.
Working with the nationally-recognized Daviess County School
Superintendent Stuart Silberman, we will work to ensure that every
elementary, middle, and high school in the county develops sound,
mandatory financial literacy courses for its students, to be in place
by the 2003 school year. We would like the financial literacy education
to be systematic and widespread. To do so, we will build on existing
resources and seek private funding and support from community
businesses to refine curricula, publish educational materials, and
train teachers on financial literacy instruction.
At the same time, we are working with officials from the four
institutions of
higher education in Owensboro to develop strong financial literacy
curricula for college freshmen. It is my goal that every incoming
student will be required to take a mandatory financial literacy course
upon matriculation. In the meantime, we will develop with school
administrators a code of conduct for credit card solicitation to
include this mandatory education as a prerequisite for owning a credit
card.
We are aware that we will see both successes and failures with this
experiment. But our goal is to find out what works, and then to build a
model that we can use in communities across the State, perhaps around
the Nation. It is my belief that only through an intensive partnership
of public officials and civic leaders can we
effectively tackle the growing problem of financial illiteracy plaguing
the country, and in particular, among our Nation's youth.
Legislative Recommendations
Our Commission also believed that some legislation was necessary to
help combat the growing problem of credit card abuse on our college
campuses. To better protect our young people, the Commission found that
several actions need to be taken in Kentucky, through legislative,
administrative, and/or programmatic means:
<bullet> Financial literacy should be taught in every elementary,
middle, and high school classroom in the State. Principals and
teachers can draw on existing curricula and resources, such as
provided by the Kentucky Council on Economic Education, the
Cooperative Extension Offices and/or the Kentucky Bankers
Association.
<bullet> Mandatory, meaningful financial literacy courses should be
offered during freshman orientation of every Kentucky college or
university. Commission members will offer their expertise to help
design suggested curricula, in cooperation with the Council on
Postsecondary Education (CPE) and the Association of Independ-
ent Kentucky Colleges and Universities (AIKCU).
<bullet> Credit card companies should be required to register with
colleges and universities in order to solicit on campus, and to
abide by a Code of Conduct governing solicitation methods. This
Code should promote full disclosure of credit card terms and
prohibit the more egregious marketing practices, such as dormitory
room
solicitations and the offering of prizes, gifts, or other monetary
incentives to encourage applications from college students. This
Code should be developed by the State's colleges and universities,
with assistance offered by the Commission and organizations such as
CPE and AIKCU.
As a first step toward implementation of the Commission's
recommendations, Commission Chair and State Representative Susan
Westrom introduced House Bill 298 in the 2002 legislative session. The
legislation would have required Kentucky colleges and universities to
develop codes of conduct for credit card solicitations on college
campuses prohibiting practices such as free gifts. It also instructed
these schools of higher education to require mandatory debt education
and counseling sessions for incoming students. There was no ban on
credit cards or even on marketing; we recognized that such solutions
would be ineffective since any one can be reached through the mail or
off-campus, where there would be no ability to monitor. Rather, the
universities--who supported this measure--would be charged with
ensuring the best interests of their students.
House bill 298 sailed through the State House unanimously and
passed a Senate committee without opposition. However, in the last few
days of the session, the Senate leadership mysteriously did not allow
House bill 298 to come up for a vote. This failure has been all too
common across the country--a GAO survey revealed that in the past few
years, most credit card reform legislation in State legislatures has
died the same way--buried in a committee, without an opportunity for
legislators to cast an up or down vote.
I am very hopeful that as the public becomes more aware about this
problem, pressure will be too strong for legislators in Kentucky and
across the country to abandon this needed legislation. I am also
hopeful that the rest of the country will join States like Arkansas,
Louisiana, and Virginia who have addressed these issues on the
legislative level.
But I believe more legislative action is needed--on the Federal
level. Credit card companies are national, sometimes multinational
conglomerates, and for any regulation to be effective, it needs to come
from the U.S. Congress. These corporations have few ties to the
university communities they target, and, as a result, are often
unresponsive to local concerns.
I believe that Congress can and should impose a real code of
conduct covering the actions of credit card companies on all of the
Nation's college campuses--prohibiting incentives such as gifts, and
banning the more aggressive sales practices such as the recruitment of
student groups that use peer pressure to complete applications. Credit
card companies should be forced to determine before they approve a card
whether the student could even afford to pay off a balance. Teaser
rates--low introductory rates that balloon into much higher rates after
only a few months--should be restricted in marketing to college
students.
Further, company disclosures should not be limited to the fine
print of credit card agreements and solicitations, where fees and
penalties are often hidden or obscured. All credit card materials
should provide clear examples of how long it will take to pay off the
maximum debt permitted when the cardholder makes only minimum payments,
and examples of how much will be paid in interest by the cardholder
maintaining a balance over time. This common sense type of information
is currently provided by banks to borrowers obtaining a home mortgage,
and it helps inform borrowers of the true long-term cost of their debt.
Still, we will only be able to fully combat this problem with a
much more comprehensive effort of promoting financial literacy. Mr.
Chairman, I urge the Members of this Committee, and I urge Congress to
make financial literacy a high priority for American education. When
you develop standards for our students and teachers to reach, please
make knowledge of key financial concepts a requirement. And when you
determine funding for our Nation's public schools and universities,
please provide support for producing and publishing sound financial
literacy curricula and training for our Nation's teachers.
A Public-Private Partnership
While such Federal measures will be valuable, a Washington mandate
will not solve the Nation's financial illiteracy problem. Ultimately,
the solution will come in communities such as Owensboro, Kentucky,
Gaithersburg, Maryland or Terre Haute, Indiana, where community leaders
must join in a public-private partnership to better educate their
citizens. Local leaders--from the worlds of politics, education, and
business--must join together to ensure that residents of their
communities have a firm grounding in personal finance concepts.
But it will also require a concerted effort from those in the
industries who profit from the accumulation of personal debt. In the
process of my Commission's work, I have met with several
representatives of the credit card industry. These individuals seem to
be the same hard-working, ethical business leaders who have helped to
make our Nation and our economy unparalleled throughout the world. And
they have shared with me their sincere desire to protect our children
from the unfair and aggressive practices of those ``bad actor'' credit
card companies who they say are a small minority of their industry.
That is why I challenge the credit card companies to join us in our
national effort to protect college students from credit card debt and
promote financial literacy. Today's college students rarely review
educational brochures and websites sponsored by the credit card
companies, no matter how well-meaning or how comprehensive they may be.
Today, I challenge the credit card industry to put its money where
its mouth is. I ask the companies to make a substantial monetary
commitment to the development of mandatory financial curricula for our
Nation's schools and colleges and to train teachers to provide
effective instruction on these issues. We do not need to recreate the
wheel--we simply should build on existing resources provided by the
outstanding organizations that have been working on these issues.
Funding can help us produce and publish materials that young people
will read, understand, and apply to their financial behavior.
Similarly, I challenge all of those in the financial industry who
profit from lending and investment to make similar commitments. While
this will pose some upfront costs, in the end, our whole Nation will
benefit from a more financially literate
citizenry.
The only truly successful efforts in this area reflect what I
believe is the proper role of Government. This is a problem that cannot
be resolved by Government or private institutions acting alone.
Instead, Government should help equip people and community
organizations with the tools they need to solve their own problems.
Through partnerships with private industry and community leaders,
State, and Federal Government officials can make a significant impact
in better preparing our citizenry for the 21st Century economy and the
challenges it poses. Only by working together--elected officials,
industry leaders, and community activists--can we tackle the problems
posed by our Nation's financial illiteracy.
Ultimately, credit card debt is an issue of personal
responsibility. But it is unfair to hold college students accountable
for behavior when they are subjected to high pressure marketing tactics
and do not have the financial literacy to make proper economic
decisions. Once given proper education on credit card use and misuse,
individuals will then be accountable for their own financial behavior.
And by empowering our citizens with the skills to manage their finances
effectively, we can help reduce our national reliance on social welfare
programs and personal bankruptcy.
And maybe, a decade or so from now, there will be some new rites of
passage for our Nation's youth. A rite of passage for every third
grader to learn about the magic of compound interest and the importance
of savings. A rite of passage for every eighth grader to study the
stock market and American financial institutions. A rite of passage for
every high school senior to take a course on family budgeting and
income management. And finally, in some future September--before the
football games, before the fraternity rituals--a rite of passage for
every college freshman to be given solid instruction on credit and debt
management to prepare them, as they leave their parents' nest, to build
their own nest eggs.
COLLEGE STUDENTS AND CREDIT CARD FACT SHEET
Incoming College Students Lack Financial Knowledge
<bullet> Only 10-20 percent of high school seniors nationwide will have
had any personal finance training by the time they graduate.\1\
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\1\ Jump$tart Coalition; American Savings Education Council,
www.asec.org.
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<bullet> Eighty-two percent of high school seniors failed a 13-question
personal financial quiz examining their knowledge of issues like
interest rates, savings, loans, credit cards, and calculating net
worth.\2\
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\2\ Americans for Consumer Education and Competition, National
Survey of High School Seniors, February 2001.
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<bullet> A 2002 survey of high school seniors concluded: ``High school
seniors know even less about credit cards, retirement funds,
insurance, and other personal finance basics than they did 5 years
ago.'' \3\
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\3\ Jump$tart Coalition, ``From Bad to Worse: Financial Literacy
Drops Further Among 12th Graders,'' April 23, 2002.
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Credit Card Prevalence on Campus
<bullet> For the year 2001, 83 percent of undergraduate students had at
least one credit card, a 24 percent increase from 1998.\4\
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\4\ Nellie Mae, Undergraduate Students and Credit Cards, April
2002.
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<bullet> Over half (55 percent) of college students acquire their first
credit card during their first year in college.\5\
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\5\ GAO, College Students and Credit Cards, June 2001, GAO-01-773.
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<bullet> Fifty-eight percent of college students report seeing on-
campus credit card marketing tables for two or more days the first
month of the semester.\6\
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\6\ USPIRG, A Road Map to Avoiding Credit Card Hazards,
www.truthaboutcredit.org.
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<bullet> Thirty-three percent of college students reported applying for
a credit card at an on-campus table. Of these, 80 percent cite free
gifts as a reason for applying.\7\
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\7\ USPIRG, The Credit Card Trap, April 2001.
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<bullet> From 1999 to 2001, twenty-four State legislatures proposed or
enacted laws restricting credit card marketing on campus.\8\ One of
these States, California, has enacted legislation that prohibits
offering free gifts in return for applying for a credit card at
community and State colleges.
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\8\ GAO, College Students and Credit Cards, June 2001, GAO-01-773.
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College Students in Credit Card Debt
<bullet> Over 44 percent of college students carried a balance on a
credit card during the 1999-2000 school year. Among those students,
the average credit card debt was $3,066, while the median credit
card debt was $1,435.\9\
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\9\ U.S. Department of Education, National Center for Education
Statistics, 1999-2000 National Postsecondary Student Aid Study.
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<bullet> A random sample of students at George Mason University,
conducted in 2002 by Professor Robert Manning, found that among
sophomores, juniors, and seniors three-quarters had maxed out on at
least one credit card.\10\
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\10\ Robert D. Manning, Gregory A. Guagnano, and Ray Kirshak,
``Credit Cards on Campus: A Growing Collegiate Crisis or Benign
Societal Trend?'' September 2002.
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<bullet> The same survey found that of students with student loans,
more than two-thirds (68 percent) have used money from the loan to
pay down credit card debt.\11\
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\11\ Ibid.
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Student Debt
<bullet> For the 2001-2002 academic year, the average annual cost--
tuition, fees, room, and board--was $23,578 at a 4-year private
college, and $9,008 at a 4-year public university.\12\
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\12\ The College Board, Trends in College Pricing 2001.
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<bullet> In the 1999-2000 academic year nearly two in every three
students--64 percent--had Federal student loans. In percentage
terms, this represents an increase of more than 50 percent since
1992-1993.\13\
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\13\ The State PIRGs' Higher Education Projection, The Burden of
Borrowing, March 2002.
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<bullet> At graduation, the average student holding student loans will
have $20,402 in total debt. Of this total, $3,262, or 16 percent,
will be credit card debt. Yet more than one-third (34 percent) of
the average college graduate's monthly debt payment will go to
servicing credit card debt.\14\
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\14\ Nellie Mae, Undergraduate Students and Credit Cards, April
2002.
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Students in Their Own Words
<bullet> Debbie Alford, recent graduate of the University of Central
Oklahoma: ``My debt was a huge cloud hanging over me. I felt
ashamed about having put myself in that position, but I should
never have been able to get all those cards at such a young age.
When you are 18, you think you know what you are doing with
finances, but you really don't.'' \15\
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\15\ ``The Lure of Easy Credit Leaves More Students Struggling With
Debt,'' Chronicle of Higher Education, June 15, 2001.
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<bullet> Shilpa Hardas, a University of Georgia graduate: ``It is a
whole new world when you first go to college. You see your name
printed on a credit card and it is a sense of financial power. It
is like people are willing to give you money.'' \16\
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\16\ ``Georgia Undergraduates Are Among College Students Piling On
Credit Card Debt,'' Atlanta Journal-Constitution, July 14, 2002.
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<bullet> Christyna Lewis, a Louisiana youth: ``A week after my 18th
birthday I received about 10 credit card offers and I was still in
high school.'' \17\
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\17\ ``Credit Card Issuers Just LOVE Students,'' News-Star, Monroe,
LA, June 30, 2002.
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CONSUMER BANKERS ASSOCIATION NEWS RELEASE
September 5, 2002
CBA Financial Literacy Survey Shows Programs for College Students
Ninety-seven percent of banks responding to the Consumer Bankers
Association's 2002 Survey of Bank-Sponsored Financial Literacy Programs
sponsor or partner with a variety of financial literacy programs, with
45 percent supporting financial education programs for college
students.
Of those banks that offer college-based financial literacy
programs, most (72 percent) are aimed at the general student
population, while 59 percent said they direct the programs to low- and
moderate-income students and 47 percent said they were directed to
minorities.
``The banking industry is providing many resources to promote
financial literacy on campus,'' said Joe Belew, CBA President. ``There
is also widespread support of public school programs, with 87 percent
of banks supporting programs in some way,'' he said.
Among many examples, MBNA America, the Nation's largest independent
credit card issuer, developed the Student Financial Education Service
(SFES), an educational program designed to provide credit education and
counseling services to students and their parents.
MBNA presents a series of seminars at freshman orientations and
campus events, has reached thousands of students and projects that it
will double its audience in 2002. As a resource to parents, MBNA offers
a mini-seminar at ``parents weekend'' to educate parents on how to
raise financially smart kids. In addition, MBNA has recently partnered
with College Parents of America to offer an alternative credit product
where parents can control the use of their students' credit card.
Another institution, U.S. Bank, Minneapolis, MN, markets a broad
range of bank services directly on college campuses. According to Jim
Marshall, Senior Vice President, U.S. Bank, ``It is our job as a
community partner to assist college students with their financial
affairs so when they graduate, they are financially responsible people.
We want them in control of their finances, to be aware of their budget
limitations, and to use U.S. Bank as a financial tool.''
U.S. Bank has branches on several campuses, as well as a branch
within five miles of 500 campuses. ``Campus banking provides a wide
variety of banking products that fit students lifestyles and makes it
easy for them to manage their money,'' said
Marshall.
AmSouth Bank, Birmingham, Alabama, has partnered with historically
black colleges and universities (HBCU's) and public schools in low-
income areas to offer seminars at 60 schools throughout the
southeastern region. The program has reached 25,000 students, and is
being expanded to reach 30,000 this year.
The CBA survey includes 68 bank and thrift institutions that hold
60 percent of the total bank and thrift assets in the United States.
The complete study is available at CBA's website, www.cbanet.org.
The survey also provides details on programs to prepare people for
homeownership, delivery financial literacy curricula to public schools
and offer related services such as tutoring, deliver advice on small
business development, and support credit counseling programs.
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STATEMENT OF KELLY PRESTA
Vice President, Visa U.S.A.
September 5, 2002
Visa U.S.A. appreciates the opportunity to offer comments to the
Senate Committee on Banking, Housing, and Urban Affairs as it evaluates
the importance of financial literacy among college students.
Since 1991, Visa has been at the forefront of financial literacy
efforts by developing research-based tools and materials designed to
help consumers at every stage in their financial life. Our program,
Practical Money Skills for Life (available online at
www.practicalmoneyskills.com) is a culmination of more than 10 years of
work to deliver to consumers of all ages the best educational resources
available.
PracticalMoneySkills.com is a free online resource designed to help
educators, parents, students, and consumers practice better money
management for life. Americans think that financial basics are as
important as the three R's traditionally taught in school. In fact,
according to a Visa survey, 77 percent of parents believe personal
money management is a subject ``very important'' to their children's
lives as adults--second only to writing at 89 percent. And since many
young adults today graduate high school without even a basic knowledge
of money management, like how to create and stick to a budget, many
learn money skills through the school of trial and error.
To help today's youths and consumers of all ages become financially
savvy, Visa has aligned with leading consumer advocates, educators, and
financial institutions to launch a national program to improve the
Nation's financial skills--Practical Money Skills for Life. Working
with our partners the Jump$tart Coalition for
Personal Financial Literacy, the National Consumers League, BigChalk,
Light-
span.com, U.S. News and World Report Classroom Program, U.S. Hispanic
Chamber of Commerce, and the National Association of Consumer Agency
Administrators, this cutting-edge Internet-based personal finance
curriculum reaches more than 100,000 schools and 37 million students.
These financial literacy tools are available in English and Spanish.
In addition to providing online tools and resources via
www.practical-money-
skills.com, Visa has created free classroom material that high school
educators can use to teach personal finance. Available online or in a
binder format are teacher's guides, student worksheets and quizzes and
interactive brain-teasers that can be played by students via the Web or
from a CD-ROM.
New for this fall, Visa has also created with the National
Orientation Directors Association and the Association of Student
Financial Aid Administrators an educa-
tional program for college campuses. Geared to encourage peer learning,
college students teaching other students, the new Practical Money
Skills college presentation and student work book will be offered free
to every university in the United States. Visa is hopeful that
universities, students, and its member financial institutions will
answer the call to increase financial literacy on college campuses by
teaching this program to students.
Visa U.S.A. continues its efforts to bridge the digital divide by
donating computer equipment to schools in need and providing training
for teachers to ensure that schools have access to the equipment needed
to take advantage of Practical Money Skills for Life. Visa U.S.A.
expects to continue this program by donating computer labs to 10 high
schools across the United States every year. To date, Visa has donated
more than 45 computer labs nationwide.
Practical Money Skills for Life is educator-developed and educator-
approved. In fact, at the recent National Education Association's Expo
2001, more than 94 percent of the educators surveyed graded the program
an ``A'' or ``B'' and 98 percent said they would recommend the program
to a fellow educator.
Visa's commitment to financial literacy extends beyond the fact
that it is good for business, we also believe it is the right thing to
do. Our youth are graduating today without the vital life skills
necessary to ensure a successful life--like how to setup a budget and
how to save for the future. It is critical that children learn these
important financial facts of life before leaving home. Money skills are
learnings a student can take from the classroom to the boardroom.
Visa thanks the Banking Committee for the opportunity to submit
comments and we look forward to working with Members of the Committee
and staff on this important topic.
U.S. PUBLIC INTEREST RESEARCH GROUP PRESS RELEASE
September 5, 2002
Testimony at a Senate Banking Committee hearing today on aggressive
credit card industry marketing to college students confirms the
findings of reports by the State PIRG's that many college students,
already at risk from massive student loan debts, have their problems
worsened by deceptive credit card offers.
Recent PIRG surveys of campus credit card marketing have documented
that students who apply for cards at campus tables, in return for
candy, trinkets, or T-shirts, have more cards, higher balances, and
worse over-the-limit and delinquency problems than other students.
``Too often debt burden becomes a ball and chain for student
borrowers after graduation. Many student borrowers are taking on
unmanageable levels of debt to finance a college education,'' said the
State PIRGs' Higher Education Advocate, Ellynne Bannon. Bannon co-
authored a March 2002 report on rising student loan debts, based on an
analysis of the Department of Education data. That study, ``The
Burden of Borrowing,'' found the following:
<bullet> An estimated 39 percent of student borrowers now graduate with
unmanageable levels of debt, meaning that their monthly payments
are more than 8 percent of their monthly incomes. In 1999-2000, 64
percent of students graduated with student loan debt, and the
average debt has nearly doubled over the last 8 years to $16,928.
<bullet> Forty-one percent (41 percent) of all graduating seniors
carried credit card balances averaging $3,071. More of those
students (48 percent) with student loans had credit card debts,
which averaged $3,176.
``Colleges need to take aggressive action to police the credit card
industry, which has been under intensive regulatory and legal scrutiny
for its marketing practices in general, but wants to pitch cards
indiscriminately to students who may not have jobs or the ability to
repay and who may already have serious student loan debt problems,''
said State PIRG Consumer Program Director Ed Mierzwinski. ``Yet, even
though the Congress has moved swiftly to take up the credit card
industry's draconian bankruptcy bill, it has taken no action to rein in
unfair credit card marketing practices.''
The State PIRG's urged the Congress to do the following to stop
unfair credit card practices:
<bullet> Pass the Dodd legislation, S. 891, to require that credit card
companies either require the same terms of college students they
require of everyone else--either ability to repay a card or a co-
signer--or, at least, require proof that the student has passed a
qualified debt education course.
<bullet> Pass the broader House proposals, H.R. 1052 and H.R. 1060,
introduced by Rep. LaFalce (D-NY), to rein in unfair credit card
practices.
<bullet> Reject the credit card company-driven bankruptcy conference
report, which hurts victims of the recession without addressing any
of these problems.
The PIRG's also recommended that campus administrations establish
mandatory debt education programs, free from credit card company
interference, and also ban or strictly regulate credit card marketing
on campus. ``Letting the credit card companies run your debt education
program is like letting a tobacco company run your ``Stop Teen
Smoking'' campaign,'' Mierzwinski added.
``We commend Senator Sarbanes for holding this hearing,''
Mierzwinski concluded. ``We hope to work with him to ensure that
college students get a fair deal, not a raw deal, from unscrupulous
credit card companies.''
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