A Hard Lesson On Student Credit Cards

Parents of college students beware: The empty-nest syndrome you're experiencing may end up as empty-wallet syndrome. The moment your kids step on campus, they become highly sought-after credit-card customers. To establish relationships card marketers hope will extend well beyond the college years, they are offering students everything from free T-shirts to chances to win airline tickets as enticements to sign up.

As a result, college students now have heavy card debts. Some 14% have balances of $3,000 to $7,000, and 10% owe amounts exceeding $7,000, according to Nellie Mae, a nonprofit student-loan provider in Braintree, Mass. "Students who have no history with credit are being handed it on a silver platter," says Gerri Detweiler, education adviser for Debt Counselors of America, a consumer advocacy group in Rockville, Md.

As long as they are over 18, students can get a card without asking mom or dad to co-sign. But when they get into debt trouble, they often go running to their folks for help. Jason Britton did--and then some. Now 21 and a senior at Georgetown University in Washington, Britton racked up $21,000 in debt over four years on 16 cards. "When I first started, my attitude was: `I'll get a job after college to pay off all my debt,"' he says. He realized he dug himself into a hole when he couldn't meet the minimum monthly payments. Now, he works three part-time jobs. His parents are helping pay his tuition and loans.

PITFALLS. Having educated himself on the pitfalls of credit, Britton now speaks to student groups on the issue. Since card issuers' pitches may be confusing, he and experts dish out this advice:

-- Beware of teaser rates. Credit-card marketers may advertise a low annual percentage rate (APR) but it often jumps substantially after three to nine months. First USA's Student Visa has a 9.9% introductory rate that soars to 17.99% after five months. Teaser rates aren't unique to student cards, but a 1998 study by the Washington-based U.S. Public Interest Research Group found that 26% of college students found them misleading.

-- Pay on time. Because students move often and may not get their mail forwarded quickly, bills can get lost. Then the students fall prey to late-payment fees. Some cards, such as Wells Fargo & Co.'s Student MasterCard, have late fees as high as $30. If one or two payments are overdue, many cards bump interest rates up as well.

-- Shun cash advances. Students are often unaware that rates on cash advances are much higher than those on card balances. Citibank's student card has an APR on advances of 19.9%, vs. 17.15% for regular balances. Some cards also impose a fee of as much as 4% of the advance.

-- Don't ask for extra credit. Instead, find a card that has a restrictive credit line. The limit on the American Express Credit Card for College Students ranges from $500 to $4,000, depending on age and credit history. Another option: Get a secured credit card. Its credit limit depends on your savings at the issuing bank.

Debt advisers say students should hold only a credit card on which they can carry a small balance and a charge card they must pay off monthly. They should pay more than the minimum on credit cards. And they should not charge purchases they can pay for in cash, such as pizza and gas.

If you're a parent, talk to your kids about responsible credit-card use. College Parents of America, a Washington advocacy group, has tips on its Web site, www.collegeparents.org. Among them: Make sure your kids know a card isn't a way of getting items they can't afford.

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