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October 20, 2014
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Students look for money management alternatives

Caleb-Grant-Credit-Card
Photo illustration by Marianna Dunbrook

For Timothy Berry, a senior at Ithaca College, the financial stress he and other college students have felt at an increasingly growing rate is all too familiar.

“When I opened my third credit card, I was a sophomore at the time,” Berry said. “I was swiping things on my credit card in addition to my debit card. So when the bills came around at the end of the month, I wouldn’t have enough money in my checking account to make the minimum payments on my credit card. And that really scared me.”

The average college senior graduated with $3,000 in credit card debt in 2013, according to a May 2013 article on CNNMoney.com.

Ninety-one percent of undergraduates have at least one credit card, up from 76 percent in 2004, according to a 2009 report published by Credit.com. The study also states that the average number of cards has grown to 4.6, with half of college students having four or more cards.

As the trend of high credit card debt among college students increases, studies have also shown that credit card companies are responding with greater solicitation efforts targeting this demographic. A report released by the Federal Reserve in 2009 states that credit card companies paid more than $83 million to colleges, alumni groups and foundations to solicit business through mailings and offering students gifts and incentives for enrolling.

Brenda Cude, professor of housing and consumer economics at the University of Georgia, said she has noticed credit card companies have been targeting college students to utilize their services. However, she said she believes college students may be more susceptible to solicitation because they are often not as informed about the do’s and don’ts of managing their finances.

“I do think there has been a trend of credit card companies soliciting more to college students,” she said. “The Credit Card Accountability Responsibility and Disclosure Act of 2009 has limited the ways that credit card companies can market to students on college campuses. But that doesn’t limit their emails or mailings.”

The Credit CARD Act of 2009 aims “to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes,” according to government transparency website, Govtrack.org.

Some limitations the act places on credit card companies soliciting to young consumers are: no credit card may be issued to a consumer under the age of 21, unless he or she has submitted a written application to the card issuer; colleges and universities must publicly disclose contracts or agreements made with a card issuer; card issuers may not offer a student any tangible item to get them to apply for a credit card if the offer is made on or near campus, or at an event sponsored by or related to the college or university; and colleges and universities are encouraged to limit on-campus marketing of credit cards and offer credit card and debt education as a regular part of new student orientations.

While Cude said she supports the CARD Act, she believes it has limitations because credit card companies may still be able to find loopholes to solicit to college students of all ages. Cude said her findings from a 2006 study about some “recommended” practices needing to be modified to help college students manage their finances more responsibly are still applicable today.

A 2013 study by the Sallie Mae corporation sheds a more positive light on college students’ credit card usage. The report states that more than 62 percent of students pay off their outstanding balances each month on all cards, while 33 percent pay at least the minimum requirement payment each month, with most paying more than the minimum. One percent of students pay less than the minimum requirement each month.

Berry said he has four credit cards. However, unlike many college students who use their cards for superfluous purchases, like expensive bar tabs, he said he now keeps his finances in check by only using each card for a specific payment.

“I have one that’s combined with my car insurance, so everything I swipe on that is usually utility-based,” he said. “Basically my utilities, because of the reward points, pay for my insurance. I have one that gives me cash back on specific food purchases, and I have one that’s just great cash back on everything — and one for gas of course.”

In order to combat the growing national credit card debt average as well as the tendency of banks to take advantage of those less-financially literate, individuals like Robert Hockett, professor of law at Cornell University, are implementing change.

In September 2011, after finding inspiration in the Occupy movements that took place in Zuccotti Park in New York City, where the consulting firm he worked at was located, Hockett said he came up with The Occupy Card, a pre-paid debit card with a transparent fee structure. He said the card serves as an alternative to the current banking structure by providing people with access to low-cost financial services. Any profits or surpluses that are made by the banking cooperatives will be returned to its members.

Credit union members, Hockett said, are usually required to share a common bond, such as locality, geography, profession or any defined affinity. The Occupy Money Cooperative, which will distribute the card, will operate similarly to a credit union, but will have a national scope where anyone can be a member.

“The Occupy Card is a way to do away with the tension and divergence of interest that exists between shareholders, depositors and borrowers, and unify the three constituencies into one,” he said.

In Ithaca, there are also outlets that exist to offer an alternative to corporate banking. Alternatives Federal Credit union has a “Student Credit Union,” which provides financial education and services to students exclusively.

Brett Snyder, a graduate student at the college pursuing a Master of Business Administration degree in professional accountancy, said the benefits of opening a credit card at a credit union, which are not-for-profit, surpass those a for-profit corporate bank could offer.

“What this means to you as a credit card holder or as someone who holds a bank account at a credit union, is you won’t be paying large fees and penalties like you would at the big banks,” Snyder said.

Snyder said the most important thing a student can do to secure their financial future is to do their homework before taking out a credit card or getting a bank account.

“You need to determine what is most important to you, and make sure that wherever you are planning on doing your banking can fulfill all of your needs,” Snyder said.