Is your lending program "fair" to students? With college costs growing at more than twice the rate of inflation, students are increasingly turning to cards as a source of funding for education. In 2004, 76% of students polled were carrying at least one credit card, with 43% carrying four or more; by 2008, those numbers had risen to 84% and 50% respectively. A Sallie Mae study found that, of those students holding credit cards, 92% had used a credit card to cover college expenses, ranging from tuition to school supplies.
These significant expenses have helped to contribute to the $4,138 in credit card debt that the average student carries out of college, up 44% from $2,864 in 2004. Further, 19% of students graduate with over $7,000 in credit card debt, up from 10% in 2004. This dramatic rise has caused public opposition to mount against credit card issuers, with reactions ranging from aggressive documentaries like "Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders" to the recent passage of the Credit Cardholders Bill of Rights by Congress. The U.S. PIRG Education Fund polled 1,500 students to gauge their reactions:
Of those students surveyed, 80% responded that credit card marketing efforts should be reformed in some way. While the survey asked students to respond to how cards are marketed, their responses provide insight on how the cards should be crafted. Nearly three out of every four students felt that only the marketing of "fair cards" should be allowed on campus. Realize that this response has nothing to do with marketing; students are responding to the product itself.
If your credit union already has a credit card designed specifically for students, would a student think of it as a "fair card"? Here are some things to consider:
- Beware multiple rates. Increasingly students are being made aware of alternate balances that accrue with the usage of some credit cards, such as cash advance balances. Further, the new Bill of Rights instructs card companies to allocate payments across balances carrying different rates, diminishing the potential income gains from building multiple rates into the card.
- Focus on fees. Whereas some issuers are looking to have a relationship with students solely through credit cards, unreasonably high fees may price your credit union out of forming other relationships with students. If you offer a fair card, students will be more inclined to discover what other fair products and services you offer.
- Be as upfront about the costs of ownership as possible. Don't bury important information in pages of "small print." If a student finds that the card isn't what they were expecting, they will work to find a different card. Further, if you are offering a great credit card with low rates and fees, the absence of cautionary material may make your card seem "too good to be true," and scare students away from a product that is well suited for them. (See CYouth Episode 5)
- Try to reach them with lower rate products first. Of students with credit cards, 39% got their card before even going to college, meaning credit unions should start early by trying to reach them with other loan products. Offering students a credit card should be a last resort to cover the costs of education. A student loan or a home equity line (most likely for non-traditional students) may make more sense, and offering a cheaper product will help protect the relationship from other card issuers.