Credit Card Companies on Campus

[posted by Jennifer Hoffman]
We were alarmed when we received a credit card invoice at our house, addressed to our 20 year old son who was away at college. We called him to ask if he had applied for a card and when he told us he hadn't we opened the envelope, worried that someone had stolen his identity to start an account in his name. The balance on the invoice was zero but when our son called the company to inquire about the account, they would not give him information because he did not know the password to the account! After many calls, hours on hold and several attempts at verification, our son found out that he had in fact opened a credit card account several months earlier, apparently as a "fund-raiser" event for his fraternity. The credit card company offered the fraternity money to sign up students for accounts with the promise that there would be no charge to the students signing up if they did not want to use the card, and they could cancel at any time. The more students signing up, the more money for the fraternity!

Read this important notice regarding new rules for credit card companies provided to us by the folks at NICCP.com .

"Credit Card Companies on Campus"

At college campuses around the country, a fall ritual as familiar as the football tailgate party is about to disappear. The on-campus credit card marketing, characterized by free pizzas and T-shirts for every completed application, is enjoying its last hurrah before a new federal law kicks in next year.

Credit card issuers in recent years routinely awarded cards to students with no income and no co-signer. Many colleges and universities joined the credit card game, allowing school mascots to be emblazoned across cards marketed to students and alumni.

Some colleges provide credit card companies with names and addresses of students and alumni. In exchange they can earn lucrative royalties based on the number of sign-ups and the volume of charges.

Consumer advocates say the reining in of student credit card sales can’t come soon enough. In a study by Sallie Mae, the student loan organization, college students who had applied for student loans had an average of 4.6 credit cards in the spring of 2008, with the average senior graduating with $4,100 in credit card debt.

College students have been a key target of the credit card industry. In February, a host of changes will hit campus. The law will:

• Allow consumers under 21 to get credit cards only if a parent or other adult co-signs or if they prove they have the independent means to repay credit card debt.

• Require disclosure of agreements that authorize collegiate affinity cards, including the details on royalty payments and mailing lists.

• Prohibit card issuers from offering freebies like food or trinkets when marketing on campus.

• Stop prescreened credit card offers for consumers under 21 and ban credit limit increases without permission of a parent or other co-signer.

While many credit card companies have already scaled back aggressive on-campus marketing, consumer advocates say they will be monitoring colleges this fall.

The new reforms are aimed at keeping students from accumulating more credit card debt than they can handle. The changes are likely to make it more difficult for consumers under 21 to get credit cards.

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Paying for College,Then and Now

Excerpt from my book, coming soon.

© 2009 C. Gary Hoffman, MBA, CFP^® , CCPS

The Real Cost of College: How to Finance Your Kids’ College Education Without Bankrupting Your Retirement®

  When I was nearing graduation of high school in 1970, I told my parents of my desire to go to college and asked for their help. I'll never forget the look on their face and our conversation.  I was the youngest of four boys and neither of my parents had gone to college nor any of my older brothers.
My dad worked as a debit insurance salesman for the Life Insurance Company of Virginia and my mom having been a stay-at-home housewife, had gone to work as a secretary. We lived in a very modest small home outside of Richmond across the street from my grandparents’ mini farm where my mother had grown up with her four siblings. My parents had met at the VA hospital during World War II just up the road, at a time when college degrees were not nearly as prevalent and as critical as they are today in the workforce.  So when I asked for help, not only did it seem to be a burden beyond their means but perhaps a luxury that neither of us could afford.
So they said they wouldn't be able to help me and if I wanted to go to college, I would have to be “on my own”. Well my mom lied a little because when I was in college she sent me a check every other week, for $5, $10 or sometimes $20, whatever she could afford out of her hard earned paycheck. Thanks Mom!
I was determined to go to college in spite of the costs and our lack of family funding. I applied to three colleges Virginia Tech, the University of Richmond and the University of Virginia. I was fortunate enough to be accepted into all three.
I had followed my brothers’ lead into the construction field and had been working as a carpenter's helper during the summers in high school. After deciding to attend the University of Virginia I squirreled away my summer savings, added it to what I had already saved (which wasn't much) and headed off to college. During the holiday and winter breaks I would work construction with my brother’s company to help make ends meet.
In round figures the total cost of attendance at the University of Virginia in the early 1970s was approximately $3,000 per year. During the summer break I was able to pick up a full- time job as a carpenter (I promoted myself!) earning six dollars per hour. With 10 weeks of work over summer break, 40 hours per week at six dollars per hour I was able to earn about $2,400. That left me about $600 short per year which I covered with student loans and work during winter and holiday breaks.
Come to find out I wasn't the only one at that time "paying my own way" through college.  Over recent years I conducted numerous at my college planning seminars. Often as many as one half of the parents attending these sessions had “paid their way through college”. 
If an ambitious student 25 to 30 years ago worked full time in the summers and during college breaks, they could pay for almost all of the entire cost of education without running up debt.
Today the story is quite different.  I currently have two of my kids in college full- time with Virginia in-state tuition rates and fees.  The total cost of attendance (COA) each college is approximately $20,000 per year. My son and daughter both have been working during summer college breaks. One worked at a local summer camp as a counselor and the other has worked at a local bagel shop.  The going rate for college kids is about (if you are lucky) $10 per hour.  40 hours per week for 10 weeks earns approximately $4000 per full-time summer employment. 
If today's student was trying to "pay their way through college" just using summer earnings, they would have a $16,000 shortfall each year!
In comparing these two time periods, there are obviously factors of inflation to consider. In the 70s I was $600 short after applying my summer earnings, which was 20% of my total cost. I did use student loans and when I left college I had $1,500 of total student debt. I remember what a huge amount of money that seemed to be and wondering if I could ever pay it off!  
Inflation actually helped to reduce the college debt as over time, the value of the loan dollars declined, while my ability to earn money increased.
In today's world taking on $16,000 worth of debt each year is not a reasonable or realistic approach.  The $16,000 earnings deficit is 80% of the total cost of attendance compared to an earnings deficit of 20% in the 70s.  
What this illustrates is the disparity between the inflation of college costs over 30 years and the meager growth rate of unskilled labor earnings over that same time period.
So what we could do then, our kids can't do now! For our students to earn 80% of the cost of attendance like I did, they have to be earning $16,000 over 10 weeks. 
Nevertheless, if you do the comparative mathematics, today’s student would need to earn $1,600 per week, (a rate of $83,200 per year), for summer wages to be able to match today’s inflated cost of college. And if students can earn that much over 10 weeks you and they might wonder why even to go to college!

College Aid Overhaul as reported by Fox News

Fox News reports on the new proposed financial aid overhaul http://www.foxnews.com/search-results/m/26460887/financial-aid-overhaul.htm#q=college+loan

Assets Income and Determining Aid