What college student couldn’t use some extra money? You can bet your bottom dollar that credit card and loan companies are fully aware of that. They’re also aware that students’ parents often will bail them out if they get in over their heads with debt. They further know that students are usually young and that means they have many years ahead of them for making those interest payments that lenders so count on.
The payoff for lenders is great. A recent study showed that one out of four college students graduate with over $5,000 in card debt, aside from student loans. One in 10 leaves with over $10,000 in credit card debt. That’s a lot of interest for the lenders. It can be crippling to the student just starting out in the world while shouldering student loans, car payments and rent.
Do the math and it all adds up to a great demographic for the industry to target. And do they ever. Here are some things worth remembering, courtesy of your Better Business Bureau, for college students and their families considering taking on more debt, especially of the credit card variety.
Smart marketing
Students often have a hard time turning down something that’s “free.” Credit card companies dangle free items on or around campuses to lure students into signing up. Legally they can only give away intangible items on campus – things like coupons for free fast food or a promise of statement credit on the new card that the student signs up for. Just off campus they can offer tangible things like T-shirts, frisbees and the like. Such tactics sometimes work with students and then the door is opened to potentially damaging debt obligations.
Some strengthening of laws regarding credit cards to students has taken place in recent years. Companies can no longer issue cards without at least verifying a student’s income and without requiring a cosigner for those with no income. (Incredibly, they were previously allowed to do so.)
Colleges get paid handsomely by credit card companies to market their cards on campus. They can even get a kickback for each card opened and in some cases a percentage of charges made. That shows two things: Colleges, as is well known, desperately need money, and student credit cards are lucrative enough to the companies for them to be able to afford to pay colleges for the marketing opportunity.
What students should do
Most importantly, students need to remember to shop around for the best credit card deal. Comparison shopping is always smart and especially when the stakes are so high. Never give in to high-pressure sales tactics. A credit card sign-up can be the start of many years of transactions. For such a long-time association, take the time to look at several different offers. Don’t settle for anything with more than a zero annual fee. Get the lowest interest rate available. Watch out for their newer tactic of emailing students directly and soliciting sign-ups on Facebook.
Loans
For students considering personal loans:
• Seek out a fixed interest rate that cannot be raised by the lender.
• Ask about and understand any fees involved.
• Take no more than your budget will allow, even if it is offered.
• Read the contract carefully. Sign nothing without reading it.
• Pay the loan off early if at all possible. You’ll save a lot by doing so.
• Don’t be pressured into unaffordable monthly payments.
• Don’t pay an upfront fee prior to obtaining a loan.
• Never consent to wire transfer money or pay an individual you do not know.
Students should not let tight times in college lead them to hasty, easy-to-get credit cards and loans. Be as smart as if your future financial stability depended on it. It does. If you have questions or comments about student credit, contact your Better Business Bureau at 800-856-2417, or visiting the website bbb.org.
