The other student loans: Credit-cards at college

by January 2, 2013
student loans

Take a look at other types of student spending and debt – namely credit-card marketing and use on campus.

You can bet student borrowing will be in the forefront of economic-woe headlines of 2013, and with good reason — the Federal Reserve Bank of New York in its Quarterly Report on Household Debt and Credit reported in late November that outstanding student loan debt was $956 billion, with nearly 11 percent in default.

And a recent Pew Research Center report said that about one-fifth of American households owe on student loans, up from 15 percent as recently as 2007.  Ten percent of those households owe more than $61,894.

It’s a story that’s not going away, and a springboard for a number of good business angles, from the high default rates of students at for-profit colleges to the stagnating effect loan burdens have on graduates’ consumer spending.  That is, they’re not buying cars and houses if they already have mortgage-level monthly payments on school debt.

However, a fresh angle and a good post-holiday story (when many publications address the belt-tightening that households often do after the annual spending mania) would be to take a look at other types of student spending and debt – namely credit-card marketing and use on campus.

The 2009 CARD Act, reforming the credit-card industry, including limits on the way cards could be marketed on college campuses — prohibiting, for example, merchandise giveaways and other come-ons.  It also required colleges and universities to disclose deals with financial institutions, and the Consumer Financial Protection Bureau recently released a (PDF) annual report that shows that despite a recent decline, schools still are raking in more than $62 million a year by allowing affinity cards bearing their names to be marketed to students, alumni and other parties.  And here’s a U.S. PIRG report about the revenue stream schools get from pre-paid and debit-card partnerships with financial institutions — with the student as the ultimate revenue source.

And of course, these affinity accounts are only a fraction of those in use by students; just Google “college student credit cards” or related terms to find the many products aimed at this market.  If any locally headquartered banks are represented, or those with a heavy presence, that’s a great opening to inquire about their efforts to woo that demographic.  Here’s a Forbes column lamenting some of the come-ons, and here’s a Yahoo! Finance report citing Sallie Mae statistics about college-student credit-card usage.

And without sounding prudish, I have to wonder if lifestyle choices aren’t at least partly to blame for the growth of student debt.  No doubt there really are noodle-eating, thrift-store shopping coeds leading a Spartan life, but this Crux Research / Refuel study says the current study body represents more than $400 billion in spending — and only $285 billion of that is “non-discretionary” such as tuition, books, room and board.  That means college students are spending about $120 billion a year on discretionary food, clothing, personal care, technology (6.4 gadgets apiece, on average) and other categories.

I think this mid-year period also is a perfect time to profile some students and their spending, if you can persuade some families in your area to cooperate — perhaps by enlisting a local certified financial planner to review the students’ finances and offer advice, as an incentive to the family for baring it all, fiscally speaking.  Some credit unions have budget counselors, who also might fit the role — point being, it would be interesting to review the credit-card and checking account (debit-card) statements of a handful of students, including the usage of any campus charge card or meal plan card, to see where their daily spending is taking place and if there are expenses that could be pared down.  (TheStreet.com says the “Freshman $1,000” of debt is the new twist on the old Freshman 15 weight gain bugaboo.)  The CFP or credit counselor can run numbers based on the borrowing pace and interest payments, to show the students what the long-term ramifications of their current choices are.

I think it would be a compelling personal finance story and one that would also illustrate the very real fact that — despite national hand-wringing about student debt and its effect on the future spending power of grads — college goers are an important target market and often cash cow for everything from financial institutions to the chain restaurants that have proliferated on campuses.