Economic Slowdown Bad News for Student Debtors

In his briefing to the Senate Banking Committee last month, Federal Reserve Board Chairman Alan Greenspan said that while the economy is slowing, economic futures remain bright because productivity continues to be robust. 
This steady productivity is the result of changes in the way we do business, largely because technology has streamlined systems and made virtually every sector of the economy more effective. Productive capacity is likely to increase as technology touches more of us.  And according to Greenspan, only human resistance to technological change will slow its effect.
Even a short-term slowing in the pace of economic growth affects workers, however. One of the impacts of technology has been the rapidity with which corporations can foresee inventory buildup, and the rapid response that they can make to unwanted, excess inventory by implementing layoffs.
So, when corporate recruiters hit campuses this spring, we shouldn't be surprised if they bear lower offers and fewer perks for new workers. This is bad news for students who were counting on big bonuses to buy them out of credit card debt. Amazingly, thousands of people under age 25 are filing for bankruptcy because of credit card debt they ran up in
college.
Almost 70 percent of the nation's enrolled undergraduates hold at least one credit card. Just 15 percent have cards that were cosigned by their parents. The majority have cards that they got on their own, usually from a campus-based solicitation. Students as young as 17 years old, some who have never held a job, can get as much as $500 in credit just by filling out an application on campus. Some find their limits increased, or other cards readily available, as soon as they get their first card and pay their balances. And while most campuses offer a smorgasbord of counseling services, including academic counseling, AIDS counseling, birth control and abortion counseling, counseling for suicide, eating disorders, substance abuse and depression, few offer debt counseling, or financial literacy counseling.
Robert D. Manning, senior fellow at the
Institute for Higher Education Governance and Law at the University of Houston, has written about our nation's dependence on credit in his new book, Credit Card Nation: The Consequences of America's Addiction to Credit (Basic Books, $26). He makes the point that credit card companies are spending four times as much on advertising today as they were just four years ago, and that, as a result, too many families use their credit cards as an income supplement.
At the beginning of 2000, consumer installment debt was $1.4 trillion. Of those households with credit cards, says Manning, 33.5 million are convenience users who pay their balances in full each month. But nearly 44.5 million are revolving users, and in early 2000, they had an average of $11,575 in revolving debt. Millions of these revolving users are students who had no means of support when they received their credit cards.
When students can't pay their credit card balances, card companies go after them aggressively, and then go after their parents. Companies have resisted regulation that would require them to inform parents when their children under 21 years of age receive credit cards. Yet, they don't mind dunning parents when scofflaw children can't pay their bills.
 Parents with the means to pay sometimes do so, because students with scarred credit can find that a poor credit report will hurt future job prospects. Manning's book notes that students who aspire to go into the financial services industry may find that a youthful bankruptcy is a barrier to entry in that industry. One student he interviewed notes sardonically that companies that lost tens of millions of dollars had some nerve judging him for owing a few thousand.
Students like credit cards for the same
reasons their parents do — either for convenience or to provide a bridge between hard times and good ones. But the good times won't be rolling for students who are expecting fat job offers or signing bonuses this spring.  Many, at 22 or 23, will be facing bankruptcy because they didn't resist credit's siren song.
African American students are more likely than others to be caught in bankruptcy's vise because these students don't have parents who are able to bail them out of credit card
problems. 
Sororities, fraternities and civic organizations step up to the plate to offer African American students all kinds of advice. "Use a condom." "Study." "Fasten your seat belt." Can someone say, "beware of plastic," or let students know that credit cards are, at best, a means to an end instead of an end? Plastic money is a tool, not an income supplement.
Students who don't get that message will get caught in the sticky web of debt, often
before they have jump-started their careers. And an economic slowdown is likely to make it worse, not better, for students at the bottom.