Some College Credit Is Undesirable, Finance Expert Says

Purdue University News Service
1132 Engineering Administration Building
West Lafayette, Indiana 47907-1132
Voice (765) 494-2073 Fax (765) 494-0401

SOME COLLEGE CREDIT IS UNDESIRABLE, FINANCE EXPERT SAYS

WEST LAFAYETTE, Ind. ã Parents can add credit cards to the list of grades, peer pressure and other things they worry about when their son or daughter leaves for college.

A Purdue University professor says parents need to discuss credit management with their children before the students head off to school, even if the children don't have credit cards. She says chances are good they'll get one at school.

"When the students get to campus, they are bombarded with credit card offers," says Charlene Sullivan, associate professor of management. "Often these cards are offered along with free stuff, like T-shirts, travel perks and soft drinks. As a parent, I would tell my child to buy his own soft drinks and stay out of debt."

Sullivan says it's a good idea for students to have one credit card for occasional use and emergencies. And she says she believes that young adults should learn how to use credit responsibly. But she suggests that the card be issued from a hometown bank and be subject to parental monitoring.

"The trouble starts when students are issued their own credit cards with huge lines of credit and they begin to live beyond their means," Sullivan says. "It's easy to do and can snowball very quickly."

For instance, if a student racks up a balance of $1,000 at 18 percent annual interest, he's paying an average of $15 per month in interest. If he only makes the $10 per month minimum payment, the balance will actually increase each month.

From a business perspective, Sullivan says, students are a very desirable target for credit card companies. "The assumption is that college graduates eventually will have an above- average income and be more future and investment oriented," Sullivan says. "So, if I were a credit card marketer, I would think, what better pool to put my fishing pole into?"

The truth, according to Sullivan, is that many college graduates are starting their careers with a lot of debt. "I know a parent whose son had $25,000 in credit card debt when he graduated from college," Sullivan says. "He finally had to tell his parents, who helped him restructure the credit with a lower rate to keep their son from filing bankruptcy. Students don't realize how credit trouble can follow them. If you have poor credit, it can affect your housing options and your ability to buy a car, and some employers even check credit records to see how an applicant has handled his finances."

CONTACT: Sullivan, (765) 494-4382; e-mail, [email protected]