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Don't Start Out on the Wrong Foot

Would you have turned down a free pizza when you were in college? You might have if you knew you'd end up paying for it for the next 15 years -- or longer.

Today, college students get plenty of opportunities to put themselves in serious credit trouble. According to a recent study from the U.S. Public Interest Research Group Education Fund, which surveyed students at 40 schools across the country, nearly two-thirds of all students have at least one credit card. The study shows that although many students are using credit cards wisely, parents are rightly concerned about the potential dangers of credit cards -- and especially the strong marketing practices from card issuers.

Walking the line
The study includes plenty of scary statistics. Of the two-thirds of students with cards who are responsible for paying their own bills, about half carry a monthly balance. The average senior had more than $2,600 in credit card debt, and the average freshman's balance was more than $1,300.

But perhaps more disturbing are the gimmicks that card issuers use to get college students to sign up for credit cards on campus. In exchange for completing an application, students can get anything from cheap T-shirts and desk toys to free food or gift cards. They're also getting hit from more traditional marketing, including direct mail and phone solicitation -- students report an average of 4.8 mailings and 3.6 phone calls from credit card companies each month.

Nothing new for adults
Of course, these sorts of tactics are commonplace for older adults. Plenty of retailers, including Target (NYSE: TGT  ) , J.C. Penney (NYSE: JCP  ) , and Gap (NYSE: GPS  ) , offer first-day discounts to new credit card applicants in the expectation that they'll later recoup discounts through finance charges and other fees. And credit card junk mail only gets heavier as you get older.

But students and parents alike are less than thrilled about decisions that some schools have made concerning credit and their kids. The study cites an agreement between the University of Iowa and Bank of America (NYSE: BAC  ) , in which the school gives out mailing lists of students to help market school-branded credit cards to students and alumni. In Ohio, the attorney general sued Citigroup (NYSE: C  ) and a college marketing firm on charges of deceptive credit card marketing on campuses through the state.

Overall, strong majorities of students favor requiring fair marketing practices for card issuers and oppose sales of mailing lists or other personal information to issuers. Yet as the recent success of the Visa (NYSE: V  ) IPO reminds us, the potential revenue related to credit card use means that high stakes are involved. Moreover, with many card-issuing financial institutions facing challenges in other business segments, the lucrative college credit card market remains a valuable profit center. It would be naive to expect card issuers to give up a promising customer base without a fight.

Stay vigilant
Regardless of whether public interest groups are successful in reining in questionable marketing practices, the best defense for college students is the same as for any other card user: If you can't pay off your balance every month, you're probably better not having a card -- or you should use it only in emergencies.

For more on managing your credit cards, read about:


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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