Financial aid administrators were among those testifying before Congress September 5, 2002 on the need for financial literacy among college students, in part to keep them from running up unmanageable credit card debt while in school.
"The timing of this hearing is not accidental. This month, more than 13 million young people seeking a postsecondary education will go back to school, where many of them will be faced with making significant personal financial decisions for the first time," stated Senator Paul S. Sarbanes (D-MD), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, which held the hearing. "This hearing is intended to serve as a signal to these young people, who may be eager to have access to credit without fully understanding the responsibilities that credit brings, and also to those eager - perhaps too eager - to make that credit easily available. "
An advisory panel testified on the importance and urgency for lawmakers to provide the needed education and information on financial literacy for not only college students but for students of all ages. On the panel were:
- Ellen Frishberg, Director of Student Financial Services, Johns Hopkins University
- Natala "Tally" Hart, Director of Financial Aid, The Ohio State University
- Robert Manning, Caroline Werner Gannett Professor of Humanities, Rochester Institute of Technology
- Michael E. Staten, Director of the Credit Research Center, Georgetown University
- Jonathan Miller, Treasurer, Commonwealth of Kentucky
Senator Sarbanes echoed what a number of individuals believe is a major issue facing our youth in today's society: the increasing concern with the lack of financial literacy, especially credit card usage, among college students. College students are inundated with credit card offers thrown at them by companies using aggressive selling tactics the first day they step on campus. Unfortunately, a number of them lack the financial knowledge to use them effectively and efficiently. Sarbanes noted that "it should come as no surprise that many students build up significant credit card debt without fully comprehending the consequences."
Some colleges and states have sought to help their students reverse the growing trend of credit card debt facing their undergraduate students. They have implemented credit counseling courses and services, and have attempted to restrict credit card solicitations on-campus by companies. Hart and Frishberg stated their support for congressional legislation that would set a national standard of how credit card companies solicit college students on campuses.
Until then, both Ohio State and Johns Hopkins have taken proactive steps to assist students who are now in debt or about to be in debt. The following are some examples from their testimony.
Ohio State University:
- instituted a special week of financial literacy as part of the financial aid office's "First Year Experience Success Series"
- limits credit card solicitation on campus
- added a senior staff position in the aid office dedicated to debt management and who will work with the existing debt-counseling center on campus
- will continue to provide feedback to several groups developing excellent training materials about dealing with finances and avoiding debt, such as the Financial Survival Program by the Consumer Federation of America and MasterCard International and the Life Skills Series by USA Funds;
- developed courses on credit card usage and basic financial skills
Johns Hopkins University:
- does not allow full-time students to pay tuition with a credit card;
- does not permit marketing of the university's alumni affinity card to current students (except graduating seniors);
- ensures that student loan and other financial services vendors are not cross marketing financial products to the database of Johns Hopkins students to which they lend;
- prohibits credit card vendors from campus.
Hart told the committee that Ohio State's Office of Student Financial Aid learned from a number of campus sources that many students are not only in credit card debt far too large to handle, but that this debt is proving disruptive to their studies. She said that as a public institution governed by Ohio law, Ohio State could not totally ban credit card solicitation on campus due to First Amendment law governing commerce. It could, however, limit the "time, place and manner" in which credit card companies approached students, and is implementing a proposal that works within these parameters.
Frishberg's testimony told the committee of several steps that financial aid administrators can take:
- be aware of cross-marketing by vendors – whether it is the ID and stored value card vendor or the student and alternative loan vendors;
- use the school's stored value/debit cards as important learning tools – sort of "credit cards on training wheels";
- encourage students to use the opt-out service of the major credit bureaus; and
- use their role as educators to teach about compound interest, capitalization, and credit reports, at the same time they are doing student loan default prevention.
Not all the committee members or witnesses necessarily thought there was any overriding problem, and some suggested alternative paths to take.
"It is much easier to get credit cards than to learn about how credit cards work and what responsibilities come with them," noted Senator Jim Bunning (R-KY). "However, restricting credit is not necessarily the answer. Many students use credit cards to charge their books and tuition. They get air miles that may get them a free ticket home for Christmas. They get cash back. And some, especially those who work, would have a much more difficult time being able to pay for school without credit." He said he wanted to make sure the committee did nothing that would deny credit to those who need and understand it.
Professor Staten said in his testimony that according to his recent study on student credit card usage, the number of students amassing unmanageable credit card debt is not as big as has been portrayed in recent reports. The study, however, analyzes individuals' accounts activities for one credit card and does not fully address the issue of students having balances on more than one credit card.
All speakers agreed that the lack of financial knowledge among college students often leads to a large debt burden that can further complicate their future financial situations. Students may not realize the importance of having a clean credit report in pursuing future financial opportunities. These college students who make uninformed financial decisions tend to continue making the same mistakes as they get older.
"Left unchecked, this growing debt threatens to severely undermine the home buying, renting, and employment futures of an entire generation," warned Senator Jon S. Corzine (D-NJ). "That's why it's so important that we carefully examine this issue."
Noting that more and more students obtain credit cards in their freshmen year, Senator Daniel Akaka (D-HI) called on the Committee to examine necessary actions to help ensure that college students are able to make informed financial decisions during and after college. "Financial literacy among all Americans, not just college students, needs improvement," he stated.
The committee also has under consideration legislation titled the "Underage Consumer Credit Protection Act," introduced by Senator Christopher Dodd (D-CT). S.891seeks to provide safeguards to protect persons under the age of 21 from creating serious financial problems through the misuse of credit cards. The bill requires that credit cards be issued to persons under the age of 21 only if one of the following three options is met:
- The credit card applicant obtain a co-signature from a parent, legal guardian, or spouse of the consumer, or any other individual having a means to repay debts incurred by the consumer in connection with the account, indicating joint liability for debts incurred by the consumer in connection with the account before the consumer has attained the age of 21.
- The credit card applicant submits financial information indicating an independent means of repaying any obligation arising from the proposed extension of credit in connection with the account.
- The credit card applicant shows proof that he or she has completed a credit counseling course of instruction by a nonprofit budget and credit counseling agency approved for such purpose.
The bill is still under review by the Committee on Banking, Housing, and Urban Affairs.
Opening statements from members of the Committee and testimonies from the witnesses on the panel can be found at http://www.senate.gov/%7Ebanking/02_09hrg/090502/index.htm.
By Ermelinda Carvajal
NASFAA Assistant Director for Communications
Posted September 9, 2002 on www.NASFAA.org, Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Please submit Web Site questions or comments to ask@nasfaa.org.
