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Congratulations, Grads--You're Bankrupt

A marketing blitz buries kids in plastic and debt

Katy Spivak, a student at Emory University in Atlanta , will never forget the first credit card she signed up for, as a freshman in the fall of 1997. "I thought, `Wow, here's $500 in free money'," recalls the psychology major. One card quickly became 14, and within three years, Spivak ran up $9,000 in debt, charging everything from pizza to clothes. "I put $3,000 alone on my credit cards during a trip to Italy last summer," she says. Today, the 22-year- old senior still owes $7,500 and works two part-time jobs to pay off her bills.

Spivak is among tens of thousands of students overwhelmed by ballooning credit-card debt. An alarming number are now filing for bankruptcy. "The first big act of too many young people as adults was to declare themselves financial failures," says Harvard University law professor Elizabeth Warren, who released a study on the trend last year.

Just how financially delinquent are today's teens and college students? According to Warren 's study, bankruptcy filings by those 25 and younger rose 51% during the 1990s. From 60,180 in 1991, the number leapt to 118,000 by 1999. Now, the 25-and-under set accounts for 7% of the nation's bankruptcy filings.

"CAN'T WIN." Blame the phenomenon on a free-flowing credit spigot aimed directly toward a whole lot of kids without the maturity to keep spending under control. In its latest annual study of student borrowers, college-loan giant Nellie Mae found that the percentage of college students with four or more cards hit 32% in 2000. Since 1998, the average student's debt from plastic jumped 46%, to $2,748, while nearly 1 in 10 owed more than $7,000.

Why the big rise? Since the mid-1990s, as the adult market has matured, credit-card issuers have increasingly targeted college students. Their lack of jobs notwithstanding, students have disposable income and are initially, at least, debt free. They're also an easy mark, won over with incentives such as T-shirts, coffee mugs, concert tickets, and round-trip airline tickets. Even better for companies that make their money on interest payments, students tend to borrow up to the limit and pay only the monthly charges. "The banks are looking for marginal borrowers," says Warren .

But credit-card companies insist that offering cards to young adults is not only a good business, it's good for the kids. "Truth is, many members of the industry are involved in educating students about managing money," says Catherine Cummings, vice-president of consumer affairs at MasterCard International Inc. Cummings cites an industry-funded pilot program begun last year on 15 campuses that employs students to educate their peers in money management.

For their part, some college administrators admit they have done a poor job teaching students home economics. "We tell coeds, `Don't go home late at night,' but nothing about the dangers of credit," says Lewis Mandell, dean of the management school at the State University of New York at Buffalo . Mandell also points out that university administrators often give credit-card companies access to their students because issuers frequently underwrite campus activities. Credit-card bank MBNA Corp., for example, has financed an alumni-student mentoring program at the University of Ottawa .

KEEP OUT. Now, a backlash seems to be brewing. Democrats just tried unsuccessfully to add a provision to the consumer bankruptcy bill currently before Congress that would have prevented the marketing of credit cards to anyone under age 18. Meanwhile, campus administrators are cracking down on their own. Colleges ranging from New York 's SUNY Buffalo to Georgia Tech in Atlanta have banned credit-card marketers from the campus.

Such efforts remain limited, however. For the foreseeable future, most students aren't likely to have any trouble getting extra credit at school.

Corrections and Clarifications

"Congratulations, grads--you're bankrupt" (News: Analysis & Commentary, May 21) incorrectly reported that between 1991 and 1999 bankruptcy filings by Americans 25 and under increased 51%. The correct figure is 96%.

By Charles Haddad, with Ushma Patel in Atlanta , Nicole St. Pierre in Washington , and bureau reports