A Warning to Students: Credit Cards Can Be Risky

JANE JONES, a senior at Southern Illinois University at Carbondale, is working hard - working hard to pay off her $10,000 credit-card debt, that is.

Jane (not her real name) holds three jobs in addition to her classes, doesn't date, and doesn't travel anywhere. Her goal: clearing up her bad credit history before it prevents her from landing a job, renting a home, or getting a loan.

Jane probably is an extreme example of what can happen when a college student gets his or her own credit card without a job or other means of paying off charges. But thousands like her teeter on the brink of financial disaster, experts say.

Part of the problem is no one knows how widespread credit-card default is among college students. ``It's very hard to determine how many own and default on cards because the issue is broader than the default rate,'' says Judith Cohart, a director of the National Foundation for Consumer Credit (NFCC) in Silver Spring, Md. ``There's a lot of anecdotal evidence. Most students can handle credit cards, but there's a certain percentage that cannot. Parents bail them out, and then you don't have any real data on the students.''

College students fair game for issuers

This year 9 million to 13 million college students were expected to spend $60 billion, including $13 billion in discretionary spending, much of it via credit cards.

Southern Illinois professors Connie Armstrong and M. Joyce Craven polled 243 students about credit-card usage. The findings were published in the Journal of Consumer Education. Of those polled, 74 percent carried at least one credit card; 38 percent had two to three; and 31 percent had four to eight. Cards were used to pay for such items as clothing but not education or textbooks.

``The problem of credit-card default by college students is very serious,'' Ms. Armstrong concludes. ``For freshmen and sophomores, there's a lot of marketing for cards. They run up a lot of debt, and then during their last two years, they have to work really hard to pay it off.''

Credit-card issuers want to sign college students up because they have good earning potential. Some students actually believe they don't have to pay credit back, says Judy McCoid, a director at the Consumer Credit Counseling Service (CCCS) of Greater Washington. Others think a wad of cards can't hurt them.

Too many cards foster `charge it' mentality

But Armstrong says they are wrong. The more cards they own, the higher will be their ``debt potential,'' or total amount of their credit limit, she says. A loan officer or landlord who checks into their credit history may look unfavorably at a high debt potential. The result? Denial of the loan or apartment. ``Students don't often realize this until they're seniors - that having a high number of cards is to your disadvantage,'' she says.

Armstrong offers this advice to college students:

* You need only one general-purpose credit card.

* Put a limit on what you spend on your card each month.

* Tell your parents your limit, so they will help you stick to it.

* Don't be influenced by marketing. With interest rates going up, you may not be able to catch up on payments.

If students can't pay off their debt, they should call the CCCS to dispose of any extra credit cards and help the card issuer come up with a payment plan, she suggests.

Citibank MasterCard and Visa and the NFCC are two groups involved in credit-card and money-management education for college students. Citibank has sponsored seminars by financial planners and credit consultants at colleges around the country for four years, says Maria Mendler, a spokeswoman in New York.

The NFCC is working with the Office of Consumer Affairs in Washington to develop a video/workshop that will teach college students how to select and use a credit card.