[Senate Hearing 107-987]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-987
 
                      THE IMPORTANCE OF FINANCIAL
                    LITERACY AMONG COLLEGE STUDENTS
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

  THE ADEQUACY OF THE LEVEL OF FINANCIAL LITERACY AND EDUCATION AMONG 
                COLLEGE STUDENTS; THE CONSEQUENCES OF A 
  FINANCIALLY UNDEREDUCATED STUDENT BODY; THE ROLE THAT COLLEGES AND 
  UNIVERSITIES CAN PLAY IN PROMOTING FINANCIAL EDUCATION AMONG THEIR 
STUDENT BODY; THE ABILITY AND EFFICACY OF A COLLEGE OR UNIVERSITIES TO 
 ESTABLISH LIMITS ON SOLICITATION OF ITS STUDENTS; THE APPROPRIATENESS 
       OF CERTAIN MARKETING TECHNIQUES ON COLLEGE CAMPUSES; AND 
         RECOMMENDATIONS TO REDUCE THE NUMBER OF STUDENTS WHO 
                   ACCUMULATE EXCESS CREDIT CARD DEBT

                               __________

                           SEPTEMBER 5, 2002

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs









                        U.S. GOVERNMENT PRINTING OFFICE
89-018                         wASHINGTON  : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001












            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel
             Wayne A. Abernathy, Republican Staff Director
                         Aaron Klein, Economist
                    Daris Meeks, Republican Counsel
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                       George E. Whittle, Editor

                                  (ii)










                            C O N T E N T S

                              ----------                              

                      THURSDAY, SEPTEMBER 5, 2002

                                                                   Page

Opening statement of Chairman Sarbanes...........................     1

Opening statements, comments, or prepared statements of:
    Senator Dodd.................................................     3
        Prepared statement.......................................    39
    Senator Johnson..............................................     6
    Senator Gramm................................................     7
    Senator Carper...............................................     8
    Senator Bayh.................................................     9
    Senator Corzine..............................................    10
        Prepared statement.......................................    39
    Senator Reed.................................................    10
    Senator Akaka................................................    40
    Senator Bunning..............................................    40
    Senator Stabenow.............................................    41

                               WITNESSES

Louise Slaughter, a U.S. Representative in Congress from the
  State of New York..............................................    11
Robert D. Manning, Ph.D., Caroline Werner Gannett Professor of 
  the
  Humanities, Rochester Institute of Technology..................    14
    Prepared statement...........................................    41
Ellen Frishberg, Director, Student Financial Services, Johns 
  Hopkins
  University.....................................................    18
    Prepared statement...........................................    54
Natala K. Hart, Director, Student Financial Aid, The Ohio State 
  University.....................................................    21
    Prepared statement...........................................    58
Michael E. Staten, Director, Credit Research Center, McDonough 
  School of
  Business, Georgetown University................................    23
    Prepared statement...........................................    81
Jonathan Miller, Treasurer, The Commonwealth of Kentucky.........    27
    Prepared statement...........................................    89

              Additional Material Supplied for the Record

College Students and Credit Card Fact Sheet prepared by the 
  Senate Banking Committee Staff.................................    95
Consumer Bankers Association Press Release, dated September 5, 
  2002...........................................................    96
Letter to Senator Paul S. Sarbanes from Daniel A. Mica, President 
  & CEO, Credit Union National Association, dated September 5, 
  2002...........................................................    97
Newsletter submitted by The National Consumer Council............    99
Statement of Kelly Presta, Vice President, Visa U.S.A., dated
  September 5, 2002..............................................   103
U.S. Public Interest Research Group Press Release, dated 
  September 5, 2002..............................................   104
Statement of Eric R. Weil, Managing Partner, Student Monitor LLC, 
  dated September 9, 2002........................................   105

                                 (iii)





                      THE IMPORTANCE OF FINANCIAL
                    LITERACY AMONG COLLEGE STUDENTS

                              ----------                              


                      THURSDAY, SEPTEMBER 5, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:10 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee) presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. The hearing will come to order.
    Today, the Committee on Banking, Housing, and Urban Affairs 
returns to the issue of financial literacy. This hearing, which 
focuses on college students, is another in our ongoing series. 
We first began last February, when we held two hearings and 
heard from a number of distinguished witnesses--including the 
Secretary of the Treasury, Chairman of the Federal Reserve 
Board, and the Chairman of the Securities and Exchange 
Commission and many more--all of whom called for increased 
financial education and awareness.
    Following up on some of the specific topics raised at those 
initial hearings, we held two subsequent hearings, each 
exploring an issue that had been previously touched upon: One, 
the financial literacy of the unbanked, those who lack the 
benefits access to the mainstream financial institutions 
provides, of whom, of course, there are a significant number 
across the country; and two, the financial literacy of 
immigrants and the immigrant community, many of whom send money 
back to their family in their country of origin, and often pay 
exorbitant fees to do so. In fact, the President of Mexico, in 
a meeting with President Bush, placed that issue high on the 
agenda for discussion, in the accurate perception that if these 
fees were more realistic, the amount of, in effect, private 
economic assistance coming into Mexico would significantly 
increase. Today, we will focus on the importance of financial 
literacy among college students, specifically with regard to 
the use--and possible misuse--of credit cards.
    My colleague, Senator Dodd, is to be commended for his 
leadership on this issue. He introduced legislation, S. 891, 
the Underage Consumer Credit Protection Act of 2001, that seeks 
to protect persons under age 21 from creating serious financial 
problems through the misuse of credit cards. Senators Corzine, 
Akaka, Stabenow, Schumer, and Enzi have also been active on 
these issues of financial literacy. In fact, Senators Corzine 
and Akaka spearheaded the successful effort to attach language 
to the recently passed education bill which will enhance the 
ability of primary schools across the country to teach 
financial literacy to their students.
    Now the timing of this hearing is not accidental. This 
month, more than 13 million young people seeking a post-
secondary education will go ``back to school,'' where many of 
them will be faced with making significant personal financial 
decisions, often for the first time in their lives. This 
hearing is intended to serve as a 
signal to these young people who may be eager to have access to 
credit without fully understanding the responsibilities that 
credit brings, and also to send the message to those who are 
eager, perhaps too eager, to make that credit easily available.
    The responsible use of credit is essential to the efficient 
function-
ing of our economy, but it is increasingly clear that many 
young people are ill-prepared to handle credit responsibly. 
President Patrick Swygert of Howard University, testifying on 
behalf of the Historically Black Colleges and Universities, 
raised this point at our February hearings. He observed that: 
``If used responsibly, credit cards allow students to build up 
credit histories that facilitate increased access to credit in 
the future.'' He warned, however, that: ``If college students 
have not learned financial management skills in their secondary 
education, or from their parents, and if they misuse their 
credit cards or mismanage their credit card debt, the 
disadvantages far outweigh any supposed advantages.''
    For many Americans, college is the time when they first 
enter the financial system. Unfortunately, studies show that 
most college students lack the financial knowledge necessary 
for a smooth entry. Americans for Consumer Education and 
Competition, a nonprofit institution, in the year 2000, 
reported that 82 percent of high school seniors failed a 13-
question personal financial quiz. Eighty-two percent.
    The situation is not improving. The Jump$tart Coalition, 
which promotes financial literacy efforts at the K through 12 
level, released a study this year that found that: ``High 
school seniors know even less about credit cards, retirement 
funds, insurance, and other personal finance basics than they 
did 5 years ago.''
    Despite their lack of financial literacy, incoming college 
students are reportedly inundated with offers for credit cards. 
A recent article in the Kansas City Star, entitled, ``Credit 
Card Hawkers Nest on College Campuses''--I love those headline-
writers----
    [Laughter.]
    ``Credit Card Hawkers Nest on College Campuses,'' reported 
that: ``Like it or not, credit card hawkers are just as much a 
part of campus life as fraternities, sororities, and homecoming 
games.'' According to Nellie Mae, which provides student loans, 
the vast majority of college students, 83 percent, have at 
least one credit card. The GAO reports that over half of 
college students acquire their first credit card during their 
first year in college. The research suggests that most college 
students have credit cards, but, yet, lack the basic financial 
knowledge to effectively and efficiently use them.
    Therefore, it comes as no surprise that many students build 
up significant credit card debt without fully comprehending the 
consequences. According to the Department of Education, in the 
1999-2000 school year, 45 percent of college students had a 
balance due on their credit cards, with a median balance of 
close to $1,450, and an average balance above $3,000. This has 
led many colleges and universities to consider what role they 
can play in helping their students achieve a smooth entry into 
the financial system.
    Today, we are very fortunate to have an excellent panel of 
witnesses in order to discuss these issues. I will defer 
introducing the panelists until we have had an opportunity for 
other Members to make their opening statements.
    Congresswoman Slaughter, I know you have come to present 
one of our witnesses. I will just inquire, does your time 
schedule permit you to wait until we complete our statements 
here before doing so?
    Representative Slaughter. I would be happy to hear them.
    Thank you.
    Chairman Sarbanes. Good. We are very pleased that you are 
here with us.
    Senator Dodd.

            STATEMENT OF SENATOR CHRISTOPHER J. DODD

    Senator Dodd. Thank you very much, Mr. Chairman.
    Let me commend Congresswoman Slaughter. She has been a 
terrific financial literacy advocate. She is not just here to 
introduce a witness, but she also, has introduced a companion 
piece of legislation in the House. There are some differences 
with the bill that I have introduced and the one that she has 
introduced. But she has been a real leader along with John 
Duncan, a Republican Member of the House, in this area, and I 
want to commend her for it.
    And Mr. Chairman, I want to thank you----
    Chairman Sarbanes. We will refrain from asking whether the 
differences are better or worse.
    [Laughter.]
    Representative Slaughter. We will work it out.
    Senator Dodd. I am sure that that will emerge.
    Chairman Sarbanes. That will emerge in the course of the 
discussion.
    [Laughter.]
    Representative Slaughter. We can fix it.
    Senator Dodd. It is fixable, however.
    [Laughter.]
    First of all, let me thank you, Mr. Chairman, and our 
witnesses for being here. This has been an issue that I have 
been deeply interested in for a number of years, since some of 
the earlier data began to emerge. And I think it is important 
at the outset to say, look, having students with credit cards 
is not a bad thing at all. In fact, credit cards have been a 
wonderful asset for lot of people, allowing them access to 
consumer goods and activities they never would have been able 
to have if not for the use of credit cards.
    I do not want this hearing or my position to be construed 
in any way as anti-credit card. It has been a wonderful asset. 
And there are many financial institutions which do a good job. 
This is not an indictment of all financial institutions and how 
they handle credit cards. However, the ugly reality is that 
some of these companies do abuse the credit card system, and 
unfortunately, a lot of vulnerable young people are taken 
advantage of. And as a result, we have seen an escalating 
increase in the amount of consumer debt among young people, 
burdening them even before they begin their adult lives with 
financial obligations that make it very difficult for them to 
get underway.
    So, this hearing and our legislative proposals, despite 
what the opponents of it have tried to suggest, is not in any 
way designed to stop or to discourage the use of credit cards 
among young people, but really, to inject a dose of reality in 
terms of what is happening on college campuses all across the 
country.
    The headlines that the Chairman used, while they may seem 
creative and clever, in fact describe very accurately the 
situation in far too many cases.
    And so, it is an important time to conduct this kind of a 
hearing and to once again raise the issue. We voted on this in 
the past on the floor of the Senate, and to the credit of the 
credit card companies, they are able to muster the votes every 
time to defeat even reasonable legislation designed to inject 
some degree of financial literacy into the debate. But we will 
not stop from trying to see if we cannot improve the situation.
    Let me just mention a few things, if I can.
    Incoming freshmen in college are woefully unprepared, in my 
view, to handle the ordinary financial obligations that come as 
a result of entering college. And for the first time, 
graduating high school seniors and incoming college freshmen 
are presented with new opportunities and confronted with 
difficult decisions that will affect them for the rest of their 
lives--access to large amounts of credit, primarily through the 
use of credit cards. Most new students lack the financial 
sophistication necessary to handle the terms and conditions 
associated with credit card use.
    Making credit available to help finance the pursuit of 
higher education is something that we all recognize as vital, 
and credit cards can play a very important role in that. 
However, the predatory practices of some credit card companies 
and the failure to ensure that college students recognize the 
long-term consequences of incurring these debts is a serious 
and it is a growing problem.
    The fact of the matter is that some financial institutions 
view incoming college freshmen as shooting fish in a barrel 
when it comes to credit card solicitations. Financial 
institutions have become more concerned with ``branding'' than 
forming responsible financial relationships with new consumers. 
They are more interested in luring students with offers of low 
minimum payments, free T-shirts, and other giveaways than 
caring about whether or not the prospective customers can 
reasonably handle their credit obligations.
    Earlier in this Congress, as noted by the Chairman, I 
introduced the Underage Consumer Credit Protection Act of 2001. 
It would require that credit card issuers, prior to granting 
credit to persons under the age of 21, have one of the 
following--not all of them but any one of the following: A co-
signature of a parent, guardian, or other responsible party; an 
independent means of financial support for repaying their 
debts--not an outrageous or radical suggestion, I would offer--
the debts that they would incur; or the completion of a 
certified credit counseling course. Any one of those three and 
you get the credit card. Not all three, but any one of the 
three.
    Financial institutions, in my view, must take a closer look 
at individuals to which they are extending credit, and this 
bill would do just that by requiring a responsible and 
realistic approach to providing credit.
    When we raised this issue in the past, we were flooded with 
inquiries from parents all across the country who are horrified 
about what is happening in too many cases where they incur the 
obligations as a result of what their children have signed onto 
without their knowledge, they are stunned by what is going on. 
So this is designed to encourage a greater degree of 
responsibility.
    Better education makes up only part of the equation that 
will help us achieve our goal of financial responsibility. It 
is important, I think, as well to remember that we should not 
only encourage 
financial institutions to better educate the consumers, 
especially those receiving credit for the first time, but we 
must also remind financial institutions that they have an 
obligation, in my view, to make credit decisions that are 
realistic and responsible as well.
    We are facing a looming financial crisis in this country, 
an explosion in the levels of consumer debt and an increase in 
personal bankruptcy rates. Credit card use has played a 
significant role in the rapid increase in indebtedness in our 
Nation. In a Washington Post editorial on Sunday, David Broder 
cited a biennial report conducted by the Economic Policy 
Institute. The Economic Policy Institute report exposes the 
rising levels of consumer debt incurred by middle Americans 
during the 1990's. According to the data collected by the 
Census Bureau and the Federal Reserve Board, debt during the 
1990's rose from 80 percent of disposable personal income to 
well over 100 percent. One in seven middle-income households 
were spending at least 40 percent of their income on monthly 
payments and one-sixth of their income on reducing debts alone.
    Dramatic increases in debt, coupled with the slowing of 
economic expansion that we have experienced in the past 3 
years, has begun to force significant increases in the number 
of personal bankruptcies. In fact, the Consumer Federation of 
America reports that 1.45 million personal bankruptcies last 
year alone--this was the all-time high--largely driven by 
credit card use within the last 10 years. In my home State of 
Connecticut, personal bankruptcies increased by 42 percent 
between 1994 and 1999, and those numbers are expected to 
increase when the next reports come out.
    As the bankruptcy reform legislation is being debated in 
conference, I believe we should reexamine the potential adverse 
effects of this piece of legislation. This bill would have an 
unintended adverse impact on the most vulnerable in our Nation, 
including the children of those who file for bankruptcy, and 
the hard-working families faced with extraordinary financial 
challenges and others who have fallen on hard times through no 
fault of their own.
    So as we continue to explore ways to better improve the 
financial literacy of our Nation's younger consumers, I also 
think that we have an obligation to be vigilant in encouraging 
the responsibility of financial institutions. That, 
unfortunately, is not the case in far too many of them.
    Mr. Chairman, I thank you again for holding this hearing 
and I am anxious to hear what our witnesses have to say.
    Chairman Sarbanes. Thank you, Senator Dodd.
    Is it correct that the three things you mentioned were part 
of the alternative, in terms of getting a credit card?
    Senator Dodd. It was either show you have the financial 
ability to pay, have a parent or guardian co-sign for you, or 
be willing to go through some credit counseling course so you 
would know what your obligations would be. Any one of those 
three.
    Chairman Sarbanes. Any one of the three.
    Senator Dodd. Any one of the three.
    Chairman Sarbanes. Right.
    Senator Johnson.

                STATEMENT OF SENATOR TIM JOHNSON

    Senator Johnson. Mr. Chairman, thank you for holding this 
hearing on the importance of financial literacy among college 
students. I also want to thank our distinguished witnesses for 
taking time to join us today, and a particular welcome to my 
former colleague, Representative Slaughter, a wonderful friend 
during my years in the House, and continues today. This hearing 
is indeed timely, with millions of students returning to school 
this month. 
Financial literacy should be part of any complete education, 
and I commend you, Mr. Chairman, for highlighting the 
importance of this issue.
    As I have noted in previous hearings on financial literacy, 
part of what makes our Nation great is the opportunity that we 
all have to make something of ourselves. Equal credit 
opportunity is an important aspect of achieving the American 
Dream. Likewise, I believe the ability to finance a college 
education provides important opportunities for success. In 
fact, last February, I was pleased to be able to secure passage 
of legislation that will allow students and their parents to 
receive student loans at affordable interest rates, that 
legislation now signed by the President. This was a big step in 
ensuring that young Americans have access to college education.
    The topic of today's hearing is equally important. While 
credit cards provide important opportunities for our young 
people, it is critical that these students have the financial 
education to use, rather than abuse, those chances. While 
students must take responsibility for their own finances, 
credit card companies have a role to play in helping American 
students use credit responsibly.
    This year, my daughter Kelsey will be a junior at the 
University of South Dakota. As a father, I am glad that Kelsey 
has access to a credit card, and I have been pleased that she 
has used her credit card responsibly. I am sure that my threat 
to call her up as a witness on irresponsible credit card use 
before the Committee has had nothing to do with her prudent 
spending habits.
    [Laughter.]
    And I would share with the Committee that she has an older 
brother who went through some painful experiences about the 
wisdom of credit card debt. Even so, based on her experiences, 
I can relate a number of good reasons for students to have 
access to a full array of banking services, including credit 
cards.
    Credit cards enable students to build a credit history, to 
learn about credit and build financial management skills. A 
good credit history is important for being able to rent an 
apartment or finance a car. It can also help with job 
applications.
    Also, credit cards provide a mechanism to pay for school 
supplies, such as books in anticipation of seasonal income or a 
student loan disbursement.
    Another good reason for students to carry credit cards is 
security. I know I feel better that my daughter has access to 
money in case, for example, her car breaks down. Also, having a 
credit card means that she doesn't have to carry as much cash 
with her.
    At the same time, of course, problems arise when students 
fail to use credit responsibly. Today's witnesses have provided 
important evidence of these problems in the written testimony 
and in Dr. Manning's books. I am also concerned about the 
volume of credit card solicitations, and believe that students 
shouldn't be showered with credit offers that they did not 
request.
    Although I am not an advocate of the devil-made-me-do-it 
school of personal responsibility, I do believe that the 
emphasis should be in other directions rather than restricting 
credit available to responsible young people, and I believe 
that continued emphasis needs to be placed on financial 
literacy programs.
    A good financial education can help people make better 
decisions throughout their lives, whether it be the choice 
between a fixed rate or adjustable rate mortgage, or whether to 
buy or lease a new car. I applaud financial literacy programs 
offered by a number of organizations, including nonprofit 
groups such as the Jump$tart Coalition, public sector 
organizations, and large credit card issuers.
    Mr. Chairman, I thank you for calling attention to the role 
that financial literacy plays in ensuring that our college 
students understand basic money management and I look forward 
to hearing from our distinguished witnesses.
    Chairman Sarbanes. Thank you very much, Senator Johnson.
    Senator Gramm.

                STATEMENT OF SENATOR PHIL GRAMM

    Senator Gramm. Well, Mr. Chairman, first of all, let me 
make it clear, I am for financial literacy. In fact, I wish 
everybody had to take a course in economic literacy before they 
voted, much less got a credit card.
    [Laughter.]
    I would have to say, though, that I do want to set out some 
cautions. When you are dealing with college students, unless 
they are extraordinary students and have arrived in college 
before their class has arrived, they can be drafted. They can 
start a business. They can get married. I think in a free 
society you always have the question about how far should 
paternalism--I guess in the South, you would want to say 
maternalism--go.
    And we have had debates in the past. I know it is not the 
subject today. But since it brushes up against it, we have had 
questions in the past and voted in the past on issues related 
to college students being able to get credit cards. I have 
never seen credible, solid, empirical evidence, and I would 
like to see it, on whether college students are better credit 
risks than the population as a whole. Let me say, I would not 
be shocked if they were.
    If I were in the banking business, I would send a credit 
card to every engineering student at every major university in 
America. And I would make the point, you are going to make a 
lot of money. You are going to be a reliable citizen. You may 
have questionable credit today, but you are not going to have 
it for long. I want you to remember my bank when you are rich, 
and I want you to put your money in it.
    I would send a credit card to everybody that goes to Notre 
Dame University and everybody that goes to Texas A&M, because 
you are going to make money by doing that. Now, I know there is 
a paternalism thing that, well, maybe there is some person 
there who is not up to it. I think economic literacy and 
financial literacy are critically important and I am very much 
for promoting them. And I want to be marked down as being on 
the side of literacy of all kinds. But I do think that we have 
to be careful in a free society about how far we are going to 
go in restricting people's rights.
    I do not think this targeting of college students is 
somehow irresponsible. I have not seen the convincing data. 
Maybe it is out there. Maybe somebody has it today. I would be 
glad to look at it. But I would just be willing to say, even if 
it were my money, I would be willing to bet, if you gave a 
credit card to every student at Notre Dame and you tracked the 
profitability of that decision for 30 years, you would make 
money by doing it.
    I am surprised they do not do more of it. Maybe they do. 
Maybe they just did not send them to my children. And that may 
have been wise.
    [Laughter.]
    But in any case, having said all that, I think whenever we 
are talking about literacy, especially financial literacy and 
the age we are in where people are making sophisticated 
financial decisions, I think it is always a good thing and I am 
always for it.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much, Senator Gramm.
    Senator Bayh.

              COMMENTS OF SENATOR THOMAS R. CARPER

    Senator Carper. Mr. Chairman, could I just have 30 seconds? 
I asked Senator Bayh if I could just have 30 seconds to make a 
quick comment. I need to slip out a minute and then I am coming 
back.
    May I speak out of order?
    Chairman Sarbanes. Sure.
    Senator Carper. Thank you very much.
    Chairman Sarbanes. I would rather Senator Bayh acquiesce.
    Senator Carper. I think he has.
    Senator Bayh. I would be pleased to acquiesce.
    Chairman Sarbanes. He more than acquiesces.
    [Laughter.]
    Senator Carper. I just want to welcome three people from 
some of my old alma maters.
    Congresswoman Slaughter, it is great to see you again, 
Louise. Welcome.
    Representative Slaughter. It is good to see you.
    Senator Carper. Thanks for being here today.
    Ms. Hart, ``O-H.''
    Ms. Hart. ``I-O.''
    Senator Gramm. I meant to mention all those colleges. I did 
not know you all were from colleges. Okay.
    [Laughter.]
    Senator Carper. It is great to have you here. Go Bucks.
    Mr. Miller, Treasurer from Kentucky, where my mom and 
sister live, we are happy that you are here. I am an old 
treasurer myself. And Jack Markell, our State Treasurer today, 
is one of your colleagues and is very much a great leader on 
financial literacy for people young and old. We are grateful 
that you are all here and I look forward to coming back and 
hearing part of your testimonies.
    Thank you, Mr. Chairman.
    Thank you, Senator Bayh.
    Chairman Sarbanes. Senator Bayh.

                 STATEMENT OF SENATOR EVAN BAYH

    Senator Bayh. Thank you, Mr. Chairman. I would like to echo 
the comments of other Members of the Committee for your holding 
this hearing today. It is a very important topic. And to 
Senators Dodd and Johnson and others who have worked on this, I 
compliment you for the important work you have done. You really 
have set the table here for making some important progress in 
this area.
    I think Senator Gramm has raised really one of the critical 
issues that has to be addressed here--at what age and under 
what circumstances are American citizens qualified and able to 
make important decisions for themselves? Or to phrase the 
question a little bit differently--and by the way, Phil, I am 
pleased that you singled out Notre Dame as an area of 
responsibility since it is located, as you know, in South Bend, 
Indiana. You could choose the other institutions in our State 
as well.
    To look at it a little bit differently, or to phrase it 
just a little bit differently, what are the necessary 
antecedents for a fairly and freely functioning marketplace? 
What do people need to know to be informed consumers? I think 
Chairman Sarbanes in his opening comment put his finger on part 
of the answer.
    As Senator Gramm mentioned, you can enlist in the military, 
you can vote, you can choose to smoke in many jurisdictions, 
drink alcohol, drive an automobile, do other things, enter into 
certain kinds of debts, get married. But the data also 
indicates that 82 percent of seniors in high school do not have 
sufficient information to qualify under at least some 
definitions for being financially literate.
    So it is entirely possible, I would say to Senator Dodd, 
that we do have a market failure here because the information 
just has not been made available because we haven't emphasized 
it in our academic institutions--primary, secondary education--
to give particularly younger college students an adequate base 
of information for making these decisions on their own.
    The question I think we have is do we have a market failure 
here that needs to be filled in with more adequate information? 
I think the answer to that question is, yes, we do. And I 
salute you for focusing on this challenge.
    I would also just like to say a word about Treasurer 
Miller. He comes from our neighboring State of Kentucky. He has 
labored in these vineyards for a long time. He is going to be 
discussing for us, Mr. Chairman, some of his ideas about the 
Commission on Personal Savings and Investment that he has 
promoted in Kentucky, and has really done a good job in that 
Commonwealth of trying to ensure that young people do have the 
kind of information they need to make these decisions.
    Treasurer Miller, it is good to see you. I apologize for 
needing to slip out, but I am aware of your good work and I 
compliment you for that, just as I do Senator Dodd and the 
other Members of the Committee.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you, Senator Bayh.
    Senator Corzine.

               COMMENTS OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman. As you noted, 
financial literacy for the unbanked, for the immigrant 
community, and college students, is something that you have 
focused on. I compliment you on this and raising up this issue.
    I think the point that has been mentioned about the 82 
percent failure rate on a simple test is really the foundation 
point for the discussion that we will have today.
    And for a father who is sending off a young man for his 
freshman year in college, actually just yesterday, this is even 
a more frightening prospect to attend to. We want to make sure 
that he understands what 18 percent compound interest is.
    I think it is a question that should be asked of those 
responsible for approviding credit, that the ability to pay is 
a question that should be addressed before credit is extended. 
At least that is what I learned in my previous banking world 
career.
    And so, I think there are questions here of responsibility 
on both sides that need to be addressed, and they all underlie 
the fact that we need to improve our financial literacy and 
economic literacy, in this country.
    I think the kind of legislation that Senator Dodd has 
proposed, which brings some checks and balances to make sure 
that that exists, is a very worthwhile idea. And I am hopeful 
that we will hear perspectives on that from people that are 
laboring in the vineyards.
    I appreciate very much your holding this hearing on this 
subject and the actions that we might be able to draw from it.
    Chairman Sarbanes. Thank you, Senator Corzine.
    Senator Reed.

                 COMMENTS OF SENATOR JACK REED

    Senator Reed. Thank you, Mr. Chairman.
    I want to commend Senator Dodd also for his leadership on 
this issue. Certainly, no one can argue the need for financial 
literacy, and not just restricted to college students, but 
across the board.
    There are some interesting statistics. Nellie Mae conducted 
a study that found that 21 percent of college students have 
credit card balances between $3,000 and $7,000. Those are 
pretty impressive figures. I would shudder if my balance was 
that high.
    They also found that college students are three times more 
likely than the general population of credit card holders to be 
90 days' delinquent on their payments, pay late fees, and to 
pay over the limit fees, which suggests that there is probably 
some literacy that could be improved.
    Then another survey, interestingly enough, conducted by 
George Mason University, found that among students with student 
loans, more than two-thirds have used money from their loans to 
pay down credit card debt. So borrowing money to pay down 
credit card debt is not the strategy I think we would 
recommend.
    I think this is a timely hearing and I commend Senator Dodd 
for leading the effort.
    Let me also recognize, Louise Slaughter from New York, a 
dear friend and colleague in the House. And thank you all, the 
panelists, I look forward to your testimony.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much, Senator Reed.
    Congresswoman Slaughter, we would be happy to hear from 
you. I want to underscore again how pleased we are that you 
have come to be with us today. I also want to recognize the 
leadership role you have played on the subject of college 
students and credit cards.

                 STATEMENT OF LOUISE SLAUGHTER

               A U.S. REPRESENTATIVE IN CONGRESS

                   FROM THE STATE OF NEW YORK

    Representative Slaughter. Mr. Chairman, Senators, thank you 
very much. I am delighted to be here this morning, and to see 
my colleagues from the House who were truly dear friends.
    I always knew, even then, that they were destined for 
greatness and a 6-year term.
    [Laughter.]
    I do not want to let the moment go by without 
congratulating this Committee for the extraordinary work you 
have done on corporate responsibility. The whole country is in 
your debt for that.
    This hearing is necessary, and I am so pleased that you are 
holding it because the lack of financial education and its 
consequences among college students is something that we have 
been worried out in our office for some time.
    I am pleased to introduce Dr. Robert Manning, who is a 
Humanities Professor at the Rochester Institute of Technology 
in my district. I became aware of Professor Manning's work in 
1999, when he published a study through the Consumer Federation 
of America illustrating higher credit card debt among college 
students than previously thought.
    The study found that students are snowballing into debt 
through the extension of unaffordable credit lines, peer 
pressure to spend, and financial naivete reinforced by low 
minimum monthly payments and the routine increases given to 
them in credit. His study indicated that 70 percent--which is 
really quite frightening--of undergraduate students possess at 
least one credit card and, indeed, credit card solicitations 
fall upon students like snow. Students are receiving their 
first card at younger and younger ages, now into the high 
school years. A GAO accounting office study that we requested 
found similar statistics, that 64 percent of college students 
had at least one card.
    Now, like you, I have no problem with them having as many 
cards as they want. The difficulty is that we find most 
students do not know what credit card debt means. We hear from 
the parents who are forced to try to pay off that debt, which 
brings that lesson home. College students are much more likely 
than other types of credit card users to run up debts they 
cannot pay, because of their financial inexperience. The 
consistent misuse of credit cards by college students, 
particularly combined, as Senator Reed mentioned, with student 
loan debt, could lead to substantial debt burden.
    According to the GAO report, and I must say that the GAO 
did not find much cooperation among universities. It would have 
been a much more extensive report had they been able to do 
that. But two of the universities of the 12 that they visited 
had to make bankruptcy attorneys available to counsel students 
who were having financial difficulties. According to one of the 
attorneys, over the 3 years since April 1998, 1,328 students 
had to use that legal service and that many of them had to 
declare bankruptcy. Credit card debt of the students who sought 
advice from the bankruputcy attorney range from about $2,100 to 
$39,000, and average approximately $11,200, which is 
frightening.
    I am very much concerned with rising credit card debt among 
young people and the serious implications that it has for their 
future. Too many students are literally spending their futures 
now.
    Let me give you a riddle. Who has been denied a credit card 
with a high limit? A, a cat. B, a 3-year-old toddler. C, a 
freshman college student with no independent income. Or D, a 
25-year-old full-time worker. The correct answer is D, the 
full-time worker. Not only did a cat in my district receive a 
credit card with a $3,000 limit, but a local toddler received 
her very own platinum credit card with a $5,000 limit.
    We all agree that that is very foolish, but we are really 
concerned about the ease of credit to people who have no 
ability to pay the bill. Many, many parents have contacted me 
about children who have had to drop out of school because of 
credit card debt. It is a tragedy if a good student with good 
grades, academically successful, has to drop out of school 
because of debt on a credit card that they cannot pay. One 
constituent's stepson filed for bankruptcy at the age of 21 
when he had $30,000 in credit card debt. Another mother called 
me because of enormous credit card bills her daughter 
accumulated as a student at the University of Buffalo.
    In response, as Senator Dodd mentioned, we have our 
legislation which we are looking forward to working with him 
into fruition as law. Like his bill, we require parents to co-
sign, particularly if they are going to be held accountable for 
the credit. We are concerned, too, that more credit is added to 
the original cards as the student continues in college, 
regardless of their ability to pay.
    One of the most important things I think that we need to 
say is that young people at least deserve to know that by 
declaring bankruptcy at the age of 20 or 21 years old, they may 
very well be jeopardizing their ability to access credit in the 
future--more difficult to get mortgages, more difficult to get 
car loans. I think they have no idea of that. So, we need to do 
what we can to, at least, make sure that they understand the 
consequences.
    I do appreciate very much your holding this hearing today. 
I think it is very important. And thank you so much for letting 
me be with you this morning.
    Chairman Sarbanes. Well, thank you very much. We are very 
pleased you were able to join us.
    Representative Slaughter. Thank you.
    Chairman Sarbanes. We appreciate it. I say to my 
colleagues, I know you have a pressing schedule, so we will 
certainly excuse you.
    Representative Slaughter. If I may be excused.
    Chairman Sarbanes. Thank you.
    Well, we are very fortunate to have a very able panel here 
this morning. I am going to just briefly introduce each, and 
then we will turn to the witnesses.
    Dr. Robert Manning, who will lead off, is, as we heard, 
Professor of Humanities at the Rochester Institute of 
Technology. His book, ``Credit Card Nation,'' received the 2001 
Robert Ezra Park Award for Outstanding Contribution to 
Sociological Practice from the Sociological Practice 
Association, and his study, ``Credit Cards on Campus,'' 
received the 2000 Morris Rosenberg Award from the District of 
Columbia Sociology Society. And I might note that Dr. Manning 
received his Ph.D. from Johns Hopkins University.
    We have also been joined by Ellen Frishberg, who is the 
Director of Student Financial Services at Johns Hopkins 
University, a position she has held for the past 13 years. Ms. 
Frishberg has served on a number of national loan advisory 
boards, including the Sallie Mae Advisory Council and the 
American Express Loan Board. As I understand, today is the 
first day of classes at Hopkins, so we especially appreciate 
that Ms. Frishberg could take the time to be with us.
    Our third witness is Ms. Tally Hart, the Director of 
Student Financial Aid at Ohio State University, one of the 
largest financial aid offices in the country. Ms. Hart has done 
significant research on student loan defaults and she helped 
Ohio State University develop courses to teach financial 
literacy to its students.
    Professor Michael Staten is the Distinguished Professor and 
Director of the Credit Research Center at the McDonough School 
of Business at Georgetown University. Professor Staten's book, 
``Consumer Attitudes Toward Credit Insurance,'' co-authored by 
John Barron, won the American Risk and Insurance Association's 
Eliza Wright Award.
    And finally, we have the very able Kentucky State 
Treasurer, Jonathan Miller. Treasurer Miller established and 
now serves on the Kentucky Commission on Personal Savings and 
Investment. The Commission held a hearing on student financial 
literacy at the University of Louisville in December of last 
year that actually touched on many of the issues we will be 
discussing today. Treasurer Miller was one of 200 distinguished 
delegates appointed by President Bush and Congressional leaders 
to the National Summit on Retirement Savings.
    We are pleased to have all of you here. Dr. Manning, we 
will begin with you and then we will move straight across the 
panel.
    Your full statements will be included in the record. And I 
want to, at the outset, express our appreciation for the 
obvious work and effort that has gone into these statements. If 
you could summarize the statements to somewhere between 5 and 
10 minutes, that would be very helpful to the Committee. And 
once we have heard from all the panelists, we will go to 
questions from Committee Members.
    Dr. Manning, we will hear from you first.

             STATEMENT OF ROBERT D. MANNING, Ph.D.

                    CAROLINE WERNER GANNETT

                  PROFESSOR OF THE HUMANITIES

               ROCHESTER INSTITUTE OF TECHNOLOGY

    Dr. Manning. I would like to thank Chairman Paul S. 
Sarbanes for providing me this opportunity to share my views 
with the Committee on this increasingly important topic of 
consumer debt among college students, and especially the lack 
of financial literacy/education programs for America's 
financially vulnerable youth. In addition, I applaud the 
legislative initiatives of Senator Dodd, who has championed 
credit card marketing restrictions on college campuses along 
with critically needed financial education programs, and also 
Senator Schumer's efforts to protect consumers from deceptive 
marketing and contract disclosure practices of the credit card 
industry. I should note that I am particularly pleased to 
attend today. This is the first hearing on this topic since 
March 1994, and that the twin issues of rising consumer debt 
and the shockingly low levels of financial literacy among our 
youth have grave implications for the continued economic well-
being of the Nation, especially as Americans age into debt. And 
it is for these and other reasons I commend the Committee for 
accepting this daunting task of examining these serious issues.
    I am an economic sociologist. I have spent 16 years 
studying the impact of U.S. industrial restructuring on the 
standard of living of various groups in America. And over the 
last 11 years, I have been particularly interested in the role 
of consumer credit in shaping consumption decisions of 
Americans, as well as the role of retail banking in influencing 
the transformation of the U.S. financial services industry. In 
terms of today's hearing, I want to discuss my new report, 
which I feel is especially germane, which is really the first 
case study based on a representative survey of 800 college 
students in the nearby school here of George Mason University. 
In addition, I have been very actively involved in the national 
movement to improve the financial literacy/education of our 
youth. And it is my work with colleges, universities, and 
student loan organizations that has really inspired my own 
efforts on Internet-based education on this topic.
    What I want to emphasize to the Committee today is that 
this is truly a unique period. If I could use the term from 
Wall Street, the ``Triple Witching Hour.'' What we have before 
us today in higher education is a real crisis. That is, 
unprecedented levels of student loan debt, unprecedented levels 
of credit card debt, and the worst job market in over a decade. 
Indeed, as long as America's economic expansion has continued 
unabated, college students were lulled into a false sense of 
financial security by university administrators and credit card 
finance companies. Indeed, keep in mind that this is a 
generation that grew up with TV's Friends, the sitcom, whose 
mid-town New York City lifestyle belies their modest 
professional incomes. This is a generation that is unprepared 
for the bursting of our Nation's economic bubble.
    I do not think there is any dispute that over the last 
decade we have seen a sharp increase in borrowing and the cost 
of credit, particularly with the decline in public funding of 
higher education. What is critical, though, is the relationship 
of student loan debt and the relationship of universities in 
terms of encouraging and fostering greater levels of debt, and 
particularly the lack of balance of providing an environment 
that is going to encourage students to understand the degree 
and impact that their debt is going to have.
    In fact, in 1994, when the last hearing on kiddie cards was 
actually held, we were looking at a period of time when it was 
really rare to find a student with over $5,000 in credit card 
debt. Today, I can go to any college across the country and 
find a student with anywhere from $20,000 to $25,000 in credit 
card debt.
    What I find most striking since my 1999 ``Credit Cards On 
Campus'' study is the fact that the situation is far worse than 
it was then. Keep in mind here what I see as a very important 
and in some cases duplicitous and insidious relationship 
between higher education and the credit card industry. Also 
keep in mind that of the 250 largest public universities in the 
country, they account for approximately two-thirds of all 
enrolled students in 4-year universities. And this features 
universities like the University of Tennessee, which signed a 
7-year contract with First USA in 1998 for at least a 
guaranteed $16\1/2\ million, as well as the University of 
Oklahoma that received a $1 million signing bonus. Some of you 
might have seen the 60 Minutes program that was based on my 
``Credit Cards On Campus'' study. And what is critical is that 
when we requested information on what universities were doing 
with these credit card royalties, we could not find a single 
penny that was going into any form of debt refinance, debt 
consolidation program for students in debt, or for any credit 
card or financial literacy education programs.
    Now over the last two decades, the two most noticeable 
trends in the marketing of credit cards to college students is 
that they are being marketed at a progressively earlier age and 
what we are seeing is that there is a sharp rise in personal 
debt associated with consumer credit cards that tends to be 
artificially compartmentalized in terms of student loan debt 
and credit card debt.
    What I want to show today is this relationship and why it 
shouldn't surprise us that the risk associated with marketing 
of credit cards on campus is so much lower in terms of their 
being underwritten by publicly subsidized student loans, summer 
earnings, efforts of getting parents to pay down debt during 
extreme crises, and even using one credit card to pay another. 
I am not going to go into detail since I have had in many other 
places many of the methodological problems and issues in terms 
of industry-structured investigations on this topic. What I do 
want to emphasize is that the methodologies clearly define 
whether there is the identification of a problem. In other 
words, if you are doing a survey of a particular school and you 
are looking at enrolled students, you are not going to find 
anybody who has dropped out of school because of student loan 
debt. That is by definition of that research design.
    What I want to emphasize is that what we are seeing today 
is about 15 years ago, when the industry released their 
voluntary policy of having parents co-sign for credit cards, we 
have seen the move from marketing affinity credit cards to 
alumni to college seniors, then to juniors and sophomores to 
freshmen, to today, we are seeing the marketing of credit cards 
to high school seniors.
    And indeed, we will discuss what the implications of this 
will be. But keep in mind that the marketing of credit cards at 
an earlier age, unless that life experience means that students 
are going to handle them more appropriately, means that the 
debt burden is going to show up earlier. It means that 
retention in college is going to be affected, and we are going 
to see increasing drop-out rates because a student who has a 
debt problem in their sophomore year may not be able to find a 
way to financially limp through the last 2 years, whereas, 5 
years ago when I started this research, we were looking at this 
problem manifesting at the junior and senior year. This is 
clearly an issue that is going to have to be addressed by 
college administrators.
    In terms of my limited time, what is very clear here is 
that industry-sponsored and financed research does not disagree 
that we are marketing credit cards to younger students. The 
disagreement is the amount of debt that has been incurred.
    Indeed, we will be listening to Dr. Staten's report from 
his recent study. But keep in mind, what we are interested in 
is the experience of college students, not some amorphous set 
of accounts, since we know that the average college student has 
three credit cards.
    What we need to understand is when a student starts college 
his freshman year, and we want that person to graduate, what is 
that experience and how much credit card debt has been 
accumulated.
    So, I think the Committee staff has done a fantastic job of 
presenting to you some of the statistics that show quite 
clearly two things--over the last 3 years, average and medium 
credit card debt has increased significantly. And more 
importantly, as credit cards are used at an earlier age, 
students are accumulating debt at a much earlier age.
    There is no doubt, and Professor Mandel's study on 
financial literacy among college seniors that has been alluded 
to, it is shocking that the problem with his data shows that 
high school seniors actually are doing worse on these scores, 
that attention to this topic is not by itself a market-driven 
explanation that is going to resolve it. Yes, we now admit that 
there is a problem. But we are not seeing anything that says 
that we are going to solve it.
    What I want to report to you today, then, is the findings 
of the study that we conducted here at George Mason University 
in this area. And I want you to keep in mind that the lack of 
financial education and literacy and parental oversight of 
students' purchasing decisions is being fostered by the 
increased use of the Internet. But also keep in mind that as 
budgetary constraints impact high schools, more and more high 
school students are going to be taking courses in junior 
college, in 4-year colleges, and more and more students are 
getting credit cards before their parents ever thought it was 
possible.
    This is critical because where are children and teenagers 
going to get financial education? At this point in time, it is 
only in the household. And when these students make decisions 
outside of the purview of their parents, of course there is 
going to be some other issues that come up. In fact, a recent 
study at Pennsylvania State, the Erie campus, showed that those 
students whose parents co-signed on their credit card showed 
far more responsible spending and consumer behavior patterns 
than those who got their credit cards independently.
    What I want to do is point you first to Table 1, which 
shows us that approximately 77 percent of all students at 
George Mason have a credit card. And it should not surprise us 
that 62 percent of the freshmen have them; but by the senior 
year, nearly 90 percent have credit cards.
    More importantly, you will notice that as we go from 
freshmen to seniors----
    Chairman Sarbanes. Is this Table 1 of your statement?
    Dr. Manning. Yes, it is.
    Senator Gramm. Okay.
    Chairman Sarbanes. So if we go to the back of the 
statement, we have it right here.
    Okay.
    Dr. Manning. What is important here is that we are seeing 
that students are getting their credit cards at an earlier age. 
Eighty-six percent of the freshman class that have credit cards 
received them by age 18. In fact, one of the striking findings 
of this report is that, given the intensified efforts to market 
in high school, last year, we saw a doubling, from 16 to 30 
percent of students who said that they received and are using 
their first credit card in high school.
    Now keep in mind that the average cost of acquiring a new 
bank client is somewhere around $120 to $170. And I do not 
think it is going to be unreasonable to assume that some credit 
card companies may offer kiddie cards with comparable limits 
for students under 18 years old.
    Now access to credit does not necessarily entail debt 
problems. So the real question is what are students doing with 
their credit cards and how are they using them? In fact, when 
we asked students, have they maxed out on their credit cards, 
shockingly, 60 percent of the freshmen with credit cards said 
they have maxed out their credit cards and three-fourths of all 
other students said that they have maxed out their credit 
cards.
    Freshmen are more likely than upper classmen to use their 
student loans to pay down their credit cards. This was shocking 
to us because I have not found an industry-sponsored study that 
actually explicitly asked the question, ``have you used your 
student loans to pay your credit cards?'' And lo and behold, 
what we found here is over 70 percent, over two-thirds of all 
students are using their student loans to pay for their credit 
cards.
    This is critical and it shows us how important the role of 
understanding debt in colleges, that it is dynamic. We cannot 
create these artificial categories. But, publicly subsidized 
student loans are underwriting and reducing the risk of 
marketing credit cards. Also notice the high rates of students 
who are using one credit card to pay for another credit card.
    Chairman Sarbanes. Dr. Manning, I am going to ask you to 
draw it to a close.
    Dr. Manning. What I want to do then is conclude with some 
of the narrative comments that we have, and I think this one 
statement will really reach closure for my statement at this 
time.
    This is a student who, in terms of responding to what and 
how the issue of consumer credit cards affects them and their 
real-life experience. He says: ``I believe credit card use by 
students is alarming. How do students who generally do not work 
pay back credit card bills? I think that there should be 
restrictions and legislation on credit card solicitations on 
college campus. College administrators, student government 
council, et cetera, have a responsibility to protect and 
educate students on the evils of credit card companies seeking 
student sign-ups. Also, I think credit card knowledge and 
awareness should be part of the College 101/1st-year 
orientation class to help prevent this epidemic sweeping across 
college campuses. My mom was once a bank loan lender and she 
noted to me the sadness of the number of people who are denied 
loans because of poor credit ratings established as young 
college students.''
    That is the voices from campus today.
    Thank you.
    Chairman Sarbanes. Thank you.
    Ms. Frishberg, we would be happy to hear from you.

                  STATEMENT OF ELLEN FRISHBERG

              DIRECTOR, STUDENT FINANCIAL SERVICES

                    JOHNS HOPKINS UNIVERSITY

    Ms. Frishberg. Thank you, Chairman Sarbanes, and Members of 
the Committee.
    It is my honor to be here today to represent the interests 
of the students of the Johns Hopkins University to discuss this 
issue of credit card usage among college students. We are a 
decentralized, multifaceted research university and I have been 
there for 13 years helping students to pay for college. I work 
primarily with undergraduate students. And at that endeavor, we 
are a very small, selective private college of 4,000. However, 
we educate 17,000 through our programs that are full and part-
time, graduate and undergraduate. We have eight divisions. We 
have nine campuses. We are on three continents. And I think my 
remarks do affect all of those learners wherever they may be. 
But primarily, they affect the undergraduates.
    We are very proud of the outcomes of our students. They 
succeed and they graduate in impressive numbers, and more than 
any other school in the Nation, they go on to graduate and 
professional education. This has made our undergraduates an 
incredibly attractive market for financial companies who are 
looking for lifelong customers, as Dr. Manning mentioned. I 
have never wanted for a student loan lender who was willing to 
lend to my students and their families. We have a default rate 
of less than 2 percent. We have an average graduating debt of 
$16,200--that is student loan debt--from all Federal student 
loans. Our students establish themselves as good payers. So 
solicitation of these students starts very early. Many of our 
freshmen arrived on campus this past weekend armed with credit 
cards they received as high school seniors. It appears that the 
lists that are available to the direct mail marketers come from 
a variety of sources, some of them long before the students 
ever register at our school. But the students arrive with the 
credit cards and without an understanding of how they work. 
They do not understand what APR is. They do not understand 
compound interest. And they do not understand why paying only a 
small amount of their bill will get them into trouble later on.
    Because of the ease of getting credit and the lack of 
financial savvy on the part of our otherwise very bright 
students, and the unchecked solicitation and giveaways that 
were going on during past orientation weeks, back in 1994, the 
Dean of Students decided to prohibit credit card vendors from 
setting up tables on campus. At about that time, my staff and I 
became alarmed at the growing number of students we were 
hearing about who were dropping out, who were having credit 
card problems, and they were leaving school in order to repair 
their financial health. They were going out, getting jobs, 
paying off their debt, and then coming back. I have appended to 
my statement one from an inner-city youth from Baltimore. He 
was the child of a homeless woman. He was raised by his 
grandmother. He has become a great success. He graduated from 
Georgetown Law School and is now working as an attorney. But by 
the end of his second year, he had already maxed out four 
credit cards. By the spring of his sophomore year, he had eight 
credit cards. He was earning $50 a week as a work-study student 
and by the time he dropped out of school, he, and at that time, 
his girlfriend, had 13 credit cards and $11,000 in debt. He had 
no income, He had no family resources to fall back on. He had 
lots of T-shirts and mugs. He had lots of debt. Luckily, he 
came to us and asked for a lot of help to try to restore his 
financial health, and he was able to do that and become a 
success. But he was a victim of these credit offerings. And you 
can read his statement attached to my testimony.
    Keeping credit cards out of the hands of students is very 
difficult. As Senator Dodd said, we know that credit is not 
always a bad thing. It provides for emergencies. It allows 
students to shop on the Internet, and that is where they get 
used books at a discounted rate and air miles. Our students 
come from 50 States and they do need to look for low-cost ways 
to get here. However, we thought that if we made sure that our 
student loan and other financial services' vendors were not 
cross-marketing financial products to the database of students 
that they were lending to, it would help to reduce the direct 
mail and the Internet offers that came because of the students' 
relationship with the university. We did not want them to be 
getting these offers because they were students at our 
institution.
    For a variety of reasons, this being one of them, the 
university decided to participate in the William D. Ford Direct 
Loan program, which took private lenders out of the student 
loan equation for our need-based loans. We have no empirical 
evidence, but we do believe that this decision has also 
reduced, but by no means eliminated, the number and type of 
solicitations that our students received for other financial 
products, including credit cards. Our concern remains that if 
you or I get into credit trouble, we have ways out--home equity 
loans or mortgage refinancing. But if our students get into 
trouble, their options are very limited. Often, it is their 
unknowing parents who end up dealing with the debt.
    However, we are not so naive as to believe that we can 
restrict or control the behavior of our students, who live 
their lives on the Internet--and if you ever searched on the 
Web, you know that pop-up credit card offers are a way of life. 
We do advise our students on student loan issues. But we do not 
advise them on credit card issues because they do not come to 
us. They come to us when they have student loan needs and we 
have the opportunity to talk with them directly. Speaking of 
the web, colleges and universities are offering new web 
services to students to ease getting through administrative 
processes, including allowing tuition to be paid by credit 
cards. While Hopkins does not allow this for full-time 
students, we can see how it could help to get students into 
trouble. Because of the short time that it takes to apply for 
and receive a credit card, some students will follow the path 
of least resistance and opt for a credit card rather than for a 
student loan. Compared to the process of applying for a Federal 
student loan, which can take up to 6 weeks and lots of 
applications and forms--Credit cards are sometimes the easier 
way to go.
    Our alumni association does offer an affinity card and that 
is something that we were very concerned about. The JHU card is 
not permitted, we do not permit MBNA to distribute that card to 
our current students. We restrict them to only marketing that 
card to our graduating seniors and to parents of current 
students. That is something that is currently under review, 
whether or not to allow that to go to parents of current 
students. We like that card because the monies that come back 
to the university from people who use our affinity card go 
directly into the scholarship budget and allow us to help needy 
students to pay their bills. But we are also happy that the 
marketing is restricted to graduating seniors.
    What we as administrators can do is to be aware of the 
cross-marketing that our vendors are doing, whether it is the 
ID--and stored value card vendor on our campus, or our student 
and alternative loan lenders. We can use our stored value and 
debit cards as important learning tools for our students, kind 
of credit cards on training wheels. We can encourage students 
to use the opt-out service of the major credit bureaus. I am 
not sure enough people understand how those work. I have 
participated in that myself and while it doesn't eliminate, it 
does lessen the numbers of offers you get. And we can use our 
roles as educators to teach about compound interest, 
capitalization, and credit reports, at the same time we are 
doing student loan default prevention.
    Many students and parents are concerned about this topic 
and I am thankful for this hearing. Whenever I mentioned I was 
coming here, there was universal agreement that a problem 
exists. My husband, an elementary school teacher, was a credit 
card executive in a former career. He believes that the banks 
need to take responsibility to offer national education at the 
high school level, as the use of cards will not go away. He 
says it is kind of like sex education, educating young people 
about birth control after the pregnancy occurs is not very 
helpful.
    The lenders may offer financial literacy programs, but we 
do not see them on campus. They are not reaching our students. 
So, they could help us with better disclosure. They could help 
us with more and better programs. They can make their account 
statements, the inserts in the account statements in bigger 
fonts, not just because my eyes are going, but because they are 
hard to read, so young people do not think that paying the 
minimum on their bill is sufficient. We need more programs like 
the Life Skills program offered by the USA Funds Group of 
Indiana. And we also need our lenders to start restricting 
their marketing to those who can afford to pay. It should be 
credit-tested. Not the students without the financial safety 
net or the parental resources to fall back on.
    Thank you.
    Chairman Sarbanes. Thank you very much.
    We will now hear from Ms. Tally Hart, the Director of 
Financial Aid at Ohio State University.
    Ms. Hart.

                  STATEMENT OF NATALA K. HART

                DIRECTOR, STUDENT FINANCIAL AID

                   THE OHIO STATE UNIVERSITY

    Ms. Hart. Mr. Chairman, Members of the Committee, my name 
is Natala Hart and I am honored to be here before you today. I 
am the Director of Student Financial Aid at The Ohio State 
University and I see in that capacity each week the growing 
importance of financial skills for today's students. My fellow 
witnesses have laid the case well for this need and demand.
    I can report to you that the matter of financial literacy 
and keeping their children out of credit card trouble is the 
leading financial concern that parents express to us as they 
are bringing their freshmen students to our orientation and 
leaving them on move-in day. We think that that is very 
reflective of a national concern about the availability of 
credit and, as has been stated, the increasing opportunity for 
younger and younger children to obtain credit. I am the parent 
of a 13-year-old and I have already begun to coach her about 
how to be a good borrower, a good saver in her future because I 
know, based on her predecessor groups, that she will begin to 
receive credit card offerings when she is 16 years old.
    In the financial aid office at Ohio State, we delved into 
the very small percentage of our students who had defaulted on 
their student loans. We were interested, as we remain 
interested, in driving that number to zero. What we learned in 
this small number of student loan borrowers who had defaulted 
was that the vast preponderance, more than 90 percent of them 
who had defaulted on their student loans, had credit card debt 
even higher than the amount of their student loans. So they 
were doing both. It was not the student loan by itself that 
proved problematic in repaying, but a combination of debt that 
included large amounts of consumer debt.
    We hear from our colleagues in the residence hall system 
that a small but increasing number of our students are already 
arriving as college freshmen in credit card trouble. They 
define credit card trouble as these students being so concerned 
about how they are going to pay those bills, that the students 
are not able to focus adequately on their class studies and 
their primary responsibility of being students.
    As a result, our Division of Student Affairs conducted a 
study about credit card practices at Ohio State among our 
students and I have submitted to staff a copy of that study.
    We also have on our faculty Dr. Lucia Dunn, an economist, 
who has developed a ``Debt Condition Index'' with psychologists 
on our campus, part of a ``Debt Stress Index,'' that describes 
when debt becomes so significant as to be disruptive to the 
lives of normal Americans.
    Well, what are we doing about all of these issues?
    We have taken a number of proactive steps and plan to 
continue and expand the things that we are already doing. We 
offer, through our Office of First Year Experience classes at 
Ohio State, a Financial Literacy Week curriculum. We offer a 
wide array of course work and last year had more than 1,600 
freshmen attend these courses. Very few of them were required 
to attend. We find that about 30 percent of our freshmen class 
really want to come to these literacy courses, and that is 
reflective of what Dr. Dowhower found in her study of our 
students in general. A lot of them really want this type of 
education.
    We have also enacted a campus policy that limits credit 
card solicitation. We had a slightly different experience than 
Ms. Frishberg reported at Johns Hopkins because of our public 
institutional status. We discovered that by looking into some 
of the First Amendment limits, that we were required to have 
consumer-free speech, if you will, on our public campus under 
Ohio law and First Amendment restrictions according to our 
legal counsel. What we could do, however, was to limit the 
``time, place, and manner'' in which students were solicited.
    Our students, along with a key faculty committee, developed 
what they thought were appropriate standards for this to occur. 
For example, they felt that students solicited during the 
second half of the term were much more likely to borrow for 
holiday plans or for spring break. At the beginning of the 
term, available credit might really help them with more 
legitimate financial concerns. We have executed a Request For 
Proposal (RFP) for services and had a successful bidder who 
will adhere to our rules and the way in which the students are 
approached. It includes not having trivial gifts like T-shirts 
and 2-liter bottles of soda, but good educational materials to 
our students. Part of the contract also requires that they fund 
a debt counseling position in our student wellness center. We 
think that type of arrangement is working really well.
    Our course work remains our biggest defense in the end for 
this whole problem. Even with our campus policy, we are aware 
that we cannot limit the degree to which our students are going 
to receive credit card solicitations through the mail. And we 
think that making educational literacy available is the right 
solution for this important issue.
    We plan to continue our third week of every term Financial 
Literacy Week on the Ohio State campus and hope our subsequent 
class, which begins in just a couple of weeks, will be as 
interested in developing these skills.
    Finally, I want to commend the work you are doing on this 
issue. I know from my daily work in seeing the small number of 
students who are in big trouble with their credit card issues, 
that financial literacy can be as important as the excellent 
academic opportunities we offer at Ohio State. We look forward 
to any opportunities to assist the Committee in looking into 
the issue of financial literacy and to continue to report on 
our very positive findings of making those available to our 
students.
    Thank you very much.
    Chairman Sarbanes. Thank you very much.
    Dr. Staten.

                 STATEMENT OF MICHAEL E. STATEN

                DIRECTOR, CREDIT RESEARCH CENTER

                  McDONOUGH SCHOOL OF BUSINESS

                     GEORGETOWN UNIVERSITY

    Dr. Staten. Thank you very much, Mr. Chairman, and good 
morning to you and Members of the Committee. I am an economist 
by training, just as a bit of background. I am the Director of 
the Credit Research Center at Georgetown University. The center 
is a nonpartisan, academic research center devoted to studying 
the economics of consumer and mortgage credit markets. Over its 
28-year history, CRC has generated over 100 research studies 
and papers, most of which examine the impact of public policy 
on credit markets. I have served as the Center's Director for 
the past 12 years.
    As students head back to college this fall, a perennial 
debate will resume over the problems some of them have in 
handling their credit cards. Marketing research surveys 
indicate that about 57 percent of full-time undergraduates own 
a general-purpose card in their own name. By that I mean a 
Visa, MasterCard, Discover, or American Express, in their own 
name. From the sad anecdotes often portrayed in the news media, 
and actually mentioned today by some of the other panelists, 
one could get the impression that the majority of students are 
awash in debt, victims of relentless marketing by big credit 
card companies and incapable of controlling their own urge to 
charge. I do not doubt that any of the anecdotal stories are 
true. These things do happen. But, of course, the advantage of 
anecdotes is that they can show us what can happen, the 
disadvantage is that they don't show us how often they happen.
    Along with my co-author, Professor John Barron at Purdue 
University, I recently completed a study for CRC at Georgetown 
that offers new evidence on student credit card usage, evidence 
that paints quite a different picture. The report provides a 
number of benchmark measures of college student card usage 
based on an analysis of over 300,000 credit card accounts 
randomly selected from the portfolios of 5 of the top 15 
general-purpose card issuers in the United States.
    Discussions of college student credit card usage in both 
the policy arena and the popular press have been based mostly 
on anecdotes and self-reported survey evidence. To our 
knowledge, the Georgetown study marks the first time account-
level information has been pooled across major issuers to 
create a statistically reliable database for examining the 
actual usage and performance of credit cards marketed to 
college students. Consequently, the results should be helpful 
in grounding subsequent discussion on the facts rather than 
anecdotes.
    I would like to share with you a few results from our 
study. More details along with a number of charts are contained 
in the text of my written statement which has been submitted to 
the Committee and the full report is available on CRC's 
website.
    The analysis compares behavior across three types of 
accounts: Those opened through college student card marketing 
programs; those opened by young adults aged 18 to 24 through 
normal marketing channels, that is, cards they received that 
weren't through student dedicated marketing programs; and the 
last group are those opened by older adults over the age of 25 
through normal marketing channels. All the accounts that were 
analyzed in the study were opened between mid-1998 and early 
2000, and were observed over a 12-month period between 2000 and 
2001.
    And I should note that the analysis follows a study plan 
that was originally proposed by the U.S. General Accounting 
Office during the fall of 2000 in response to a request from 
Members of Congress, but was never executed by GAO due to 
budget constraints. So it is basically their plan.
    There is much evidence that college students are as 
responsible as the rest of us when it comes to their credit 
card usage behavior. And in fact, they are more sensible in 
some respects. Let me give you a few brief examples and refer 
you to my submitted testimony and the full report for more 
details.
    The following can be said about student accounts relative 
to accounts held by the other two groups in our study. Student 
accounts have significantly lower limits and balances. The 
average balance of an active student credit card account in a 
given month is $552, which is about one-third the size of the 
average balance for a nonstudent account of other young adults 
under age 25, and one-fourth the balance for adults age 25 and 
over.
    Student accountholders do not take all the rope that is 
given them. By that I mean utilization rates on student 
accounts are on par with the other groups, despite having much 
lower limits. And for students who do have higher credit 
limits, that is, those with limits over $1,000, the utilization 
rates are much lower than for the other two groups. Student 
cardholders take cash advances much less frequently. They pay 
any outstanding balance in full slightly more frequently.
    Delinquency rates on both student accounts and other young 
adult accounts are higher than for older adult accounts. In a 
given month, 12 percent of active student accounts are past 
due, versus about 11 percent for other young adults under age 
25, and 8 percent for adults 25 and older. However, among 
student accounts that have large balances, for example, those 
with the balances of greater than $1,000, delinquency rates are 
substantially lower than for similar accounts held by other 
young adults under age 25.
    I presume that this hearing on student financial literacy 
sought out information on how credit card products are being 
used and hence, invited me, because card usage is perceived as 
a barometer of how well literacy translates into practical 
skills and decisionmaking. So let me offer some conclusions 
based on my reading of these results.
    If one were to gauge the level of practical financial 
literacy skills across these three groups, based on the way 
that they use their credit cards, then the data do not indicate 
a dramatic lack of 
sophistication among students regarding the handling of what is 
a very powerful payment tool.
    I do see some evidence of underappreciation of the 
potential harm from sloppy payment habits. There is a very 
sizable chunk of student delinquencies that are on balances 
less than $100, which suggests to me carelessness in handling 
their monthly paperwork.
    I also see a higher rate of serious delinquencies among 
students--that is, by my definition, accounts 90 days or more 
past due--but in any given month, this amounts to just 3 
percent of all active student accounts compared to 2.4 percent 
for other young adults and 1 percent of other older adults. So, 
admittedly, the student rate is three times that of other older 
adults, but it is only 3 percent of all active student 
accountholders.
    More importantly, there is evidence of learning by doing 
because the rate of serious delinquencies for students declines 
as the account matures, so that it is nearly identical to the 
rate for other young adults within 18 months of the accounts 
being opened.
    In summary, 88 percent of student accounts pay as agreed in 
any given month. And 97 percent handle their accounts without 
serious delinquency in any month.
    All of these findings are consistent with issuer statements 
that they establish student accounts with relatively low credit 
limits, with the expectation that the large majority of new 
young cardholders will learn how to manage a credit card, 
establish a credit history, and become longer-term customers.
    The undergraduate experience gives young adults an 
opportunity to transition from life at home to life on their 
own. Learning personal financial management is part of that 
real-world experience.
    A general purpose credit card offered with relatively low 
limits gives students an introduction to the most powerful and 
versatile payment device on the planet. I think of it as the 
``training wheels'' approach to learning to use a credit card. 
Students learn that their wants usually exceed their resources 
and they have to manage that tension. They learn that a 
purchase made with plastic today and forgotten tomorrow can 
come back to haunt them at the end of the month with the 
arrival of the credit card statement. They learn the credit 
card company does not forget you made the purchase, nor will it 
forget if you do not pay. For those who choose to revolve, a 
balance that seems to fall far too slowly month after month 
kindles a new urge to find gainful employment during the summer 
or after graduation, and perhaps not let the balance rise 
again.
    All of these lessons must be learned eventually. I believe 
it is better to learn them with the relatively small exposure 
permitted by the lower limits that are typical of cards 
obtained through college student marketing programs. Postponing 
the lesson until after graduation would raise the financial 
stakes and put young consumers at even greater risk.
    It surely cannot be too difficult for our best and 
brightest youth to learn about cards and card marketing while 
they are in college. I know that artificial limits on card 
marketing to students have been proposed at various times 
around the country. But it seems to me that this is counter-
productive to preparing them for life after graduation. The 
wiser course seems to be to facilitate student access to the 
information they need to make sound decisions about using 
credit and the importance of maintaining a good credit history, 
and then let them learn by doing.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much.
    Before we turn to Jonathan Miller, I want to ask one 
question, Dr. Staten, about your methodology. In these 
comparisons you are making, how did you factor in, if you did, 
the number of credit cards the person may hold?
    Dr. Staten. Well, all the results are representative of the 
way a given account is used. Now some of these students may 
have had more than one account.
    Chairman Sarbanes. The figures seem to indicate that many 
of these students have lots of accounts. Some students then 
will have four or five accounts.
    Dr. Staten. That number is relatively small, I would 
suggest. The best surveys we have seen suggest the average 
number of cards held in their own name is 1.6. That comes from 
the student monitor annual marketing surveys.
    Chairman Sarbanes. Well, Nellie Mae studied this. They 
said, in 2001, among students with credit cards, the percentage 
who have four or more cards, is 47 percent.
    Dr. Staten. Senator, I am glad you raised the Nellie Mae 
study.
    Actually, if you scratch a little closer at that and take a 
close look at their sampling methodology, all of their 
conclusions are based on a restricted sample of students who 
did not qualify for other types of student loans, and who 
consequently applied to this special loan program that they 
had. I would argue that that is not a representative sample.
    Chairman Sarbanes. But your methodology does not allow for 
or take into account that a student may have multiple cards. 
Would that be correct?
    Dr. Staten. It tells us how a given account is used. But if 
you find a statistic that you are comfortable with that tells 
you the 
average number of cards students hold, simply multiply that by 
our average balance and that will tell you what the average 
student card debt is for any given student.
    Chairman Sarbanes. How about the people you are comparing 
them with? How many cards do they hold?
    Dr. Staten. You can get the statistics from Visa and 
MasterCard. They range from three to four cards for the adult 
population.
    Chairman Sarbanes. But we should factor that in when making 
the comparison, shouldn't we?
    Dr. Staten. I do suggest how you might do that.
    Chairman Sarbanes. If you compare a student who has four 
accounts with an adult who has one account in order to get an 
apples to apples comparison, you have to, in effect, accumulate 
the four accounts to compare with the one account, would you 
not?
    Dr. Staten. Well, I think we can accomplish where you are 
headed simply by looking at how an average account for each 
group is used. And then if you are interested in trying to 
determine what the total balance, what the total card debt of 
any particular individual is, simply multiply it by the average 
number of cards that that group holds. That is a valid way to 
proceed.
    Chairman Sarbanes. I take it that is saying yes to my 
question.
    Dr. Staten. I am not sure if it is saying yes, but I think 
I just described the valid way to proceed.
    Chairman Sarbanes. All right.
    Senator Dodd. Let me ask this. I am curious on the funding 
of these studies. Did the credit card companies fund this 
study?
    Dr. Staten. The credit card companies provided the data and 
provided the grant to support the study, yes.
    Chairman Sarbanes. Treasurer Miller.

                  STATEMENT OF JONATHAN MILLER

            TREASURER, THE COMMONWEALTH OF KENTUCKY

    Mr. Miller. Thank you, Mr. Chairman. I appreciate this 
opportunity to testify today, and I am particularly grateful 
that you are shining the spotlight on the important issue of 
financial literacy among college students.
    The first few weeks of college have always presaged many 
rites of passage--choosing a major, attending your first 
football game, rushing for a fraternity or sorority. But a new 
rite of passage has emerged recently for college freshmen on 
campuses across the country. Applying for your first credit 
card.
    As you mentioned, Mr. Chairman, my Commission on Personal 
Savings and Investment studied this issue very closely and 
found many of the things Dr. Manning and the other witnesses 
stated today and they are included in my formal remarks 
submitted for the record.
    Let me instead address how Kentucky has reacted to this 
growing problem of credit cards and debt on college campuses. 
And let me also echo Senator Carper that there is a lot of good 
work going on around this country, particularly from his 
Treasurer, Jack Markell, who has some outstanding programs in 
financial literacy.
    My Commission took a hard look at this problem and we 
realized that we could not fix all of the problems created by 
financial illiteracy in the State in one fell swoop, we decided 
instead to gather our resources and focus our efforts on one 
community--Owensboro--a small city within a county of 90,000 
residents.
    In a few weeks, we will be launching Owensboro Saves--a 
project which unites the entire community's leadership from 
elected officials to school superintendents, from college 
presidents to constituency group activities, from labor leaders 
to Chamber officials and key employers. This public-private 
partnership will sponsor programming over the next year to 
promote better financial literacy among all residents of the 
region, of all ages and incomes. We will have seminars on 
various issues that concern Americans today.
    However, we also more significantly hope to initiate 
permanent educational initiatives to improve the region's 
financial literacy. Working with the nationally recognized 
Daviess County School Superintendent, Stuart Silberman, we will 
work to ensure that every elementary, middle, and high school 
in the county develops sound, mandatory financial literacy 
courses for its students, to be in place by the 2003 school 
year. We would like this financial literacy education to be 
systematic and widespread. And to do so, we will build on 
existing resources and seek private funding and support from 
community businesses to refine curricula, publish educational 
materials, and train teachers on financial literacy 
instruction.
    At the same time, we are working with officials from the 
four 
institutions of higher education in Owensboro to develop strong 
financial literacy curricula for college freshmen. It is my 
goal that every incoming student will be required to take a 
mandatory financial literacy course upon matriculation. In the 
meantime, we will develop with school administrators a code of 
conduct for credit card solicitation to include this mandatory 
education as a prerequisite for owning a credit card. We hope 
that this will not only work for Owensboro, but also we would 
like to build a model we can use in communities across the 
State and perhaps across the country.
    Our Commission believes that legislation was also necessary 
to combat the growing problem of credit card abuse on college 
campuses. In the last legislative session, Representative Susan 
Westrom introduced a bill that would have required Kentucky 
colleges and universities to develop codes of conduct for 
credit card solicitations on college campuses, prohibiting 
practices such as free gifts. It also instructed these schools 
of higher education to require mandatory debt education and 
counseling sessions for incoming students. There would be no 
ban on credit cards or even on marketing. We recognize that 
such solutions would be ineffective since anyone can be reached 
through the mail or off-campus, where there would be no ability 
to monitor. Rather, the universities, who supported this 
measure, would be charged with ensuring the best interests of 
their students.
    Now our legislation passed through the State house 
unanimously and sailed through a Senate committee without 
opposition. But, mysteriously, the Senate leadership did not 
allow a vote on the Senate floor. This failure has become all 
too common across the country. A GAO survey revealed that in 
the past few years, most credit card reform legislation in 
State legislatures has died the same way--buried in a 
committee, without an opportunity for legislators to cast an up 
or down vote.
    I am very hopeful that as the public becomes more aware of 
this problem, pressure will be too strong for legislators in 
Kentucky and across the country to abandon this needed 
legislation.
    But I believe more legislative action is needed on the 
Federal level. Credit card companies are national, sometimes 
multinational conglomerates, and for any regulation to be 
effective, it needs to come from the U.S. Congress. These 
corporations have few ties to the universities' communities 
that they target. As a result, they are often unresponsive to 
local concerns.
    That is why, Senator Dodd, I particularly applaud the work 
that you are doing. And as you devise your legislation, and 
hopefully, it will pass at some point, in some form, I believe 
that you should impose a real code of conduct covering the 
actions of credit card companies on all the Nation's campuses, 
prohibiting incentives such as gifts, and banning the more 
aggressive sales practices such as the recruitment of student 
groups that use peer pressure to complete applications. Credit 
card companies should be forced to determine before approving a 
card whether the student can even afford to pay off a balance. 
Teaser rates, low introductory rates that balloon into much 
higher rates after only a few months, should be restricted in 
marketing to college students.
    Further, company disclosures should not be limited to the 
fine print of credit card agreements and solicitations, where 
fees and penalties are often hidden or obscured.
    Still, we will only be able to fully combat this problem 
with a much more comprehensive effort of promoting financial 
literacy. Mr. Chairman, I urge the Members of this Committee 
and I urge the Congress as a whole to make financial literacy a 
high priority for American education. As you consider education 
bills, please consider making financial concepts a requirement 
of standards and making training of teachers on financial 
issues a part of your funding initiatives.
    While such Federal measures will be valuable, a Washington 
mandate will not solve the Nation's financial literacy problem. 
Ultimately, the solution will come in communities like 
Owensboro, Kentucky, or, Mr. Chairman, Gaithersburg, Maryland, 
where community leaders must join in a public-private 
partnership to better educate their citizens.
    But it will require a concerted effort from those in the 
industry who profit from the accumulation of personal debt. In 
the process of my Commission's work, I have met with several 
representatives of the credit card industry. They have shared 
with me their desire to protect children from the unfair and 
aggressive practices of the so-called ``bad actor'' credit card 
companies who they say are a small minority of their industry. 
That is why I challenge the credit card companies to join us in 
our national effort to protect college students from credit 
card debt and promote financial literacy. Today's college 
students rarely review educational brochures and websites 
sponsored by the credit card companies, no matter how well-
meaning or comprehensive they are.
    Today, I challenge the credit card industry to put its 
money where its mouth is. I ask the companies to make a 
substantial monetary commitment to the development of mandatory 
financial curricula for our Nation's schools and colleges and 
to train teachers to provide effective instructions on these 
issues. We do not need to recreate the wheel. We simply should 
build on existing resources provided by the outstanding 
organizations that have been working on these issues. Funding 
can help us produce and publish materials that young people 
will read, understand, and apply to their financial behavior.
    Ultimately, credit card debt is an issue of personal 
responsibility. But it is unfair to hold college students 
accountable for behavior when they are subjected to high 
pressure marketing tactics and do not have the financial 
literacy to make proper economic decisions. Once given proper 
education on credit card use and misuse, individuals will then 
be accountable for their own financial behavior. And by 
empowering our citizens with the skills to manage their 
finances effectively, we can help reduce our national reliance 
on social welfare programs and personal bankruptcy.
    And maybe, a decade or so from now, there will be some new 
rites of passage for our Nation's youth. A rite of passage for 
every third grader to learn about the magic of compound 
interest and the importance of savings. A rite of passage for 
every eighth grader to study the stock market and American 
financial institutions, a rite of passage for every high school 
senior to take a course on family budgeting and income 
management. And finally, in some future September, before the 
football games, before the fraternity rituals, a rite of 
passage for every college freshman to be given solid 
instruction on credit and debt management to prepare them, as 
they leave their parents' nest, to build their own nest eggs.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much. I am quite 
impressed, actually, with the efforts that you have undertaken 
in Kentucky in this regard and I strongly want to commend you 
for what you are trying to accomplish.
    I regret that that legislation you were moving through the 
legislature stalled. But it also happens around here on 
occasion.
    [Laughter.]
    We just have to come back at it. I will yield to Senator 
Dodd. Again, let me underscore the leadership role that he has 
played on this issue, and the balance that is reflected in his 
legislative proposals, which seem to me to be very sensible and 
very pragmatic, as he said at the outset. He is not seeking to, 
in effect, eliminate the availability of the credit cards, but 
rather he is trying to put some safeguards around them, which 
will help us to avoid some of the more serious problems that 
result.
    I must say, it would seem to me that responsible actors in 
the field should pick up on this and perceive it as an 
opportunity to address an issue in a sensible and a responsible 
way which allows 
legitimate economic activity to continue, but provides some 
safeguards against these abuses, which then lead to some of the 
very serious problems which Ms. Hart and Ms. Frishberg talked 
about earlier in their testimony.
    Senator Dodd.
    Senator Dodd. Thank you very much, Mr. Chairman. Let me 
thank all of our witnesses for your preparation and your work.
    I regret that my friend from Texas has left, Senator Gramm, 
who made some comments at the outset, where he talked about the 
ability of people who drive automobiles and enter military 
service, to be able to smoke or drink or enter college.
    In the case of automobiles, obviously, most States today 
require some driver training program. I do not know of a single 
State that allows you just to go and operate a car without 
doing that. Certainly military service requires training. 
Certainly college requires exams and tests before you can get 
in.
    And we all know, at least there is some way to restrain the 
use of smoking and drinking. We permit it at a certain age, but 
I think there is not an adult that I know of that would not do 
everything in their power to convince a young person not to 
begin those bad habits and the tremendous costs associated with 
it.
    So to suggest somehow that people can do these other 
things, the implication being that there are not certain 
hurdles that we place in front of them before they are allowed 
to operate an automobile or enter into the military service of 
the country, makes the case, in a sense, of what we are talking 
about here when it comes to credit and the incredible life-long 
stigmas that can be associated with bankruptcy and with 
accumulation of debt at a very early age.
    I am very grateful again for the evidence. I know that some 
of it is anecdotal, but I think anecdotal evidence helps make 
the case.
    I do not know of a single one of you that offered that as 
the empirical data to support conclusions that something needed 
to be done, but rather, evidence of what happens when 
individuals do get themselves into some trouble.
    Dr. Staten, I raised the issue about who paid for your 
study only because I wished you had identified that in your 
testimony. You talked about your study, but I think it is 
important that when we do those things, that we identify that 
fact here. So, I was going through, hoping that it might be 
identified here in the data.
    I want to give Dr. Manning an opportunity to rebut, if he 
can, some of the allegations made by Dr. Staten, or the 
suggestions made by Dr. Staten, when it comes to the relevant 
sense of burden between those younger individuals as opposed to 
those who are over the age of 25.
    How do you respond to the suggestions made by Dr. Staten, 
regardless of who paid for the study. He challenges your study 
very directly.
    Dr. Manning. I think what is very critical here is we have 
to look at real students in real households.
    Looking at accounts, which, at a cross-sectional analysis, 
we certainly have to link those accounts, we would have to say, 
we know that students open an account and they think that it 
miraculously disappears when they stop using it. There is so 
much misinformation on this topic.
    I think it is also very important to understand that a 
student who is 20 that has a substantially high credit card 
debt and suddenly drops out of school or graduates, that that 
high credit card debt suddenly doesn't disappears as they 
become an adult. So there is a lot of statistical apparitions 
that can be manipulated when we present high or low empirical 
data on overall debt levels.
    The other critical issue is I do not know if some of these 
credit card accounts have been paid off with their student 
loans. I have presented to you here a statistically 
representative sample that shows two-thirds of all of these 
students at a typical mid-size public university has paid their 
credit cards with their student loans.
    To simply present to me an artifact of the point in time of 
a balance without looking at the relationship of how different 
forms of lending and borrowing are recycling through an 
individual's ultimate debt obligation upon graduation, it seems 
to me that all of us here concerned with graduation levels are 
going to be concerned with the accumulation of debt and how 
credit cards play a part of that accumulation.
    Simply dividing credit card debt accounts independent of 
student loan accounts, independent from debt consolidation 
loans at the university credit union, independent of other 
sources of borrowing, really does not convince me that we can 
come to the types of conclusions that Dr. Staten presents to 
us.
    Senator Dodd. I will state again for those who may have 
missed it, I think credit cards have been a tremendously 
valuable asset for consumers in this country, and they have 
been very helpful to younger people. And under good management, 
obviously, they can provide tremendous opportunities. As the 
Chairman very graciously has pointed out, the legislation we 
have offered in no way would restrict those opportunities. It 
merely sets some conditionality here: First, that you have to 
demonstrat an ability to pay. I remember when I received my 
first credit cards, I had to prove that I could actually pay 
the debts. I know that is an archaic idea, but that was the 
requirement.
    Chairman Sarbanes. Imagine that.
    [Laughter.]
    Senator Dodd. It wasn't just to fill out the forms. I had 
to show that I could actually pay the debt.
    Second, have someone co-sign it with you, your parent, or 
someone else, which is not a typical hurdle. Or just to 
complete some credit counseling.
    So, again, I emphasize the point. I happen to be a fan of 
credit cards. I think they are terrific, well managed, in 
responsible hands with knowledgeable people, can do wonderful 
things and open up wonderful opportunities.
    In my conversations with the leaders of these companies who 
have come to see me to talk about my legislation, is a 
competition downward, in a sense. It is a race to the bottom.
    You are disadvantaged, if you decide to demonstrate some 
responsibility and restrain the kind of activities you are 
involved in and your major competitors do not, you can get hurt 
by it financially because there is obviously loyalties that 
develop early on.
    And so, from a corporate business standpoint, if there is 
not a level playing field in how we deal with all of this, you 
force, in a sense, business decisions for the companies to do 
exactly what their competitors are doing, even though they do 
not particularly like it, in order to succeed.
    It seems to me the rationale for some national legislation, 
much as Mr. Miller has suggested, makes some sense. And I 
wonder if the witnesses might comment on the value of having 
some national legislation that would apply a standard across 
the board so then a responsible company, many of whom said they 
would like to do some of these things, from a business 
standpoint, cannot leave the competition an open field without 
them being allowed to play in it. So I wonder if you might 
comment on that particular perspective.
    Also, I understand about the companies. What really has 
been more bothering to me than the companies is the 
universities. I am really stunned in a way that university 
officials have become allies with some of the most abusive 
behavior here and become the beneficiaries financially of their 
own students accumulating the debt, since they acquire a 
certain financial benefit very directly, as I understand it, 
with the amount of credit cards that students assume and the 
debt that they accumulate. I am stunned that colleges and 
universities would allow themselves to become co-conspirators, 
if you will, in this accumulation of debt, which does such 
disadvantage to their own students.
    And I would like you to comment on those two things.
    Ms. Hart. May I respond, Senator?
    Senator Dodd. Yes.
    Ms. Hart. I understand that there are certainly problems 
among colleges and universities of the type that you describe. 
I think that there are a larger group who fit into Ohio State's 
mode of saying, for example, when we issued an RFP, 
understanding by State law that we had to have at least one 
credit card company that we could then govern, we specifically 
avoided having any financial relationship with the level of 
debt of our students. We saw that as absolutely antithetical to 
the many efforts we were extending for good financial education 
for our students.
    Senator Dodd. I commend you. But you and I both know that 
there are universities----
    Ms. Hart. Exactly. I just think that----
    Chairman Sarbanes. You would not assert that all colleges 
and universities are following best practices in this respect, 
would you?
    Ms. Hart. Not at all. I feel that a majority do and that 
issues like this hearing itself help promote wider 
understanding.
    I think, honestly, that some of these practices aren't even 
well enough known within the institution. And especially, we, 
like any other entity, respond very directly to the needs of 
our consumers. And as I have said, we found in just the last 
year that this is the leading financial issue that parents 
present to us. We are in the business of responding to those 
educational initiatives and then aligning our practices.
    We really hope that many institutions will join the kind of 
model that we are setting forth and we intend to be a best 
practices institution to try to promote that, where it is not 
well understood among any collegial institutions.
    Chairman Sarbanes. I would question your assertion that a 
majority of the educational institutions have evolved to the 
point where they are following the best practices that you are 
following at Ohio State University.
    Ms. Hart. An important matter to study, perhaps.
    Chairman Sarbanes. Senator Carper.
    Senator Carper. Thanks, Mr. Chairman.
    And to our witnesses, I do not understand well the 
legislation that Senator Dodd has apparently proposed, but I 
understand it has three aspects to it. One of those is the 
notion that parents would essentially co-sign with an 
agreement.
    Senator Dodd. That is one of the options. They would prove 
their own ability to pay or take a credit course to show some 
financial education. Either one of those three you can do.
    Senator Carper. I do not know. I had to be out of the 
hearing for a bit and you may have each commented on his 
proposal. I heard Treasurer Miller commend Senator Dodd for his 
proposal.
    Let me just ask the other witnesses your take on what 
Senator Dodd has suggested.
    Dr. Manning. I would like to put a little background on 
this.
    Senator Carper. And I would ask you not to take much time.
    Dr. Manning. Of course. The best practice of the industry 
until the late 1980's was parental co-signatures. That was a 
decision that the industry dropped in the late 1980's.
    The other point is there is a misconception somehow that 
college students are singled out. The reality is that the 
industry has created a two-tiered system in its underwriting. 
That is, if you are a college student and you make $5,000, you 
can get $20,000 in credit cards. If you are a part-time 
employed 18-year-old making $4,000, you may get rejected.
    So, I think one of the key points is we need to make it 
clear, what is their standard for underwriting and what is 
their expectation of being repaid?
    The biggest problem I find on college campuses----
    Senator Carper. Answer my question, please.
    Dr. Manning. Is that the credit limit is the problem. If we 
could get a reasonable limit of a student that would have to be 
adhered to, say $500 has been proposed, then we wouldn't hear 
these problems of students saying, I had no idea I suddenly 
owed $10,000.
    Senator Carper. Thank you.
    Senator Dodd. He supports my bill.
    [Laughter.]
    Senator Carper. Thank you for that interpretation.
    [Laughter.]
    Ms. Frishberg. While students can get credit on a student 
loan without a co-signer, they cannot get credit on a private 
loan without a co-signer.
    We encourage our students if they are going out for private 
loan funding, to make sure they work with their families to 
figure out the best type of loan to take, whether it is the 
parent taking the loan, which is our primary option, or them 
taking a co-signed loan with their parent or someone who earns 
at least $15,000 a year.
    We are curious as to why the credit card industry has a 
different standard for college students than they do have for 
anyone else of their age group. We know it is because they want 
good customers. But we certainly believe that there is nothing 
wrong with requiring a co-signer, if you have one available.
    My fear is that for students who do not have a family 
member or a financial security blanket, we do have quite a few 
of our students who are independent of their families and do 
not have that fall-back, that there be another way for them to 
prove their creditworthiness and receive a credit card. And the 
bill does that as well.
    Senator Carper. Thank you.
    Ms. Hart. I think especially the point about having 
financial literacy a possible requirement, one of the three. In 
this world of Internet, delivery of good counseling to 
students, we use that extensively. We are experienced in that. 
And so, I think it is very feasible to make that a widely 
available option so that the students, like those that Ms. 
Frishberg mentions, who do not have those other options readily 
available, could have a very good, reasonable counseling 
mechanism through Internet services.
    We use that extensively in our student loan education today 
and find, our data suggests that it is very effective, that 
students really do go through those mechanisms, and some would 
suggest, learn better because they choose when they receive 
that education.
    Now it would precede certain events like the credit card. 
It does in student loans. But they are choosing to delve into 
that at 10 at night, which seems to be our most popular time, 
is often better learning than saying you are going to do it at 
Wednesday on 10 p.m. So, I think the mechanisms make it very 
feasible to deliver that education.
    Senator Carper. What is 10 p.m. is the most popular time 
for?
    Ms. Hart. For Internet usage.
    Senator Carper. Thank you.
    Ms. Hart. Where our charts go off between 10 p.m. and 2 
a.m.
    Rather than having to come to a given session in the usual 
dedagogical style, our students, for functions like this, 
really prefer an Internet service. And our research suggests 
that they learn very well in those mechanisms, basic lessons 
like financial literacy, that they are well delivered in that 
way.
    Senator Carper. I remember as a freshman at Ohio State, and 
this really dates me, that 10 p.m. was when you had to have the 
girls back in the girls' dorms.
    [Laughter.]
    So 10 p.m. had a different connotation.
    Senator Dodd. There were no girls in the dorms anywhere 
when I was there.
    [Laughter.]
    Chairman Sarbanes. Things have changed.
    [Laughter.]
    Senator Carper. They changed by my senior year, in 4 years, 
I will tell you.
    [Laughter.]
    Mr. Staten, your take on what Senator Dodd has proposed?
    Dr. Staten. One of the proposals I find intriguing. The 
other two I am somewhat skeptical about, the two being 
requiring the co-signer, and documenting income. And the only 
reason I say that is because we know when those are required of 
other accountholders, they do not necessarily prevent that 
accountholder from getting into trouble with the card.
    In fact, what the co-signer does is provide a safety net, 
so the credit card company knows it is going to get paid by 
somebody. But there is no necessary linkage between having a 
co-signer and that co-signer knowing how the person is actually 
using the card. I would argue the same thing with the income 
requirement. Incomes come and go, and we have seen that 
required in other types of loans, and people still get into 
default trouble with those loans.
    Senator Dodd. Why do they require them for other people?
    Dr. Staten. I am sorry.
    Senator Dodd. Why do they require income information, then, 
for someone who is not a student?
    Dr. Staten. I would suggest that with students--I am just 
speculating now--there are two factors involved. One is, they 
know this is a promising young customer who has an income 
prospect in the future relative to somebody the same age that 
is not in college. Two, they have still have half a foot at 
home. And so the card companies know that the risk is probably 
lower because somebody's going to cover that bill.
    Senator Dodd. Well, wouldn't it be helpful, then, if that 
person at home who is going to cover it, might have some say in 
it?
    It is a parent. We are talking parents now.
    Dr. Staten. Yes. But requiring a co-signer won't guarantee 
that.
    Senator Dodd. But the parents might say, wait a minute, 
before you go off, we are going to set limits here. We are 
going to do some other things before junior signs up for 
$10,000 worth of credit.
    Dr. Staten. And I do not argue with that. But let me 
suggest to you that there is a program that I have seen 
announced just in the last few weeks. One of the issuers, I do 
not know if it is Citi or somebody else, is starting to market 
a program where the parents will actually receive copies of the 
statements as well, which is something I gather is not typical. 
And so, you can actually foster that learning process there and 
maybe it is within the context of a co-signer. But that is a 
product that has already hit the market.
    The last item, completion of a counseling course, I would 
just echo that while I think this is generally a good idea, I 
suspect that there are implementation problems with actually 
getting proof of a certificate of completion of a course, and 
that it might a be far better effort devoted to creating 
innovative ways to make information available to students. And 
having a card issuer present on campus, whether it is through 
the Internet or whether it is with seminars or whatever, I 
think is probably a good thing.
    Mr. Miller. If I can just add to this. The sense of urgency 
that I see with today's economy is that, as Senator Dodd 
mentioned, there is a race to the bottom right now with credit 
card companies struggling to win this competition, that some of 
the more ethical companies would like to avoid, I think that if 
we had some better standards. And there is a race for any 
dollar that these university presidents can find to pay for 
important school services with State budget cutbacks.
    That is why that legislation is urgently needed. But, I 
would expand it. I would ask for Congress to join the efforts 
of Treasurer Marquel, myself, and Treasurer Napier in 
Connecticut, to promote financial literacy across the country. 
The credit card problem is a symptom of a great problem of a 
financial illiteracy of America. And we are only going to hit 
that if we have programs in all the schools going from colleges 
all the way down to grade schools.
    Senator Carper. Good.
    Mr. Chairman, thank you.
    Senator Dodd. I have tried this in a lot of different ways. 
Again, we run into the same problem.
    I want to commend you, Mr. Miller. You have done a great 
job in Kentucky. I am a graduate of the law school of the 
University of Louisville, so I have a lot of affection for 
Kentucky and I enjoyed my years down there very much.
    I am very impressed with the work of the University of 
Louisville. There was a study done there or you had a seminar. 
There was some effort there. So, I commend you for that. And 
maybe that is the way to approach this. We have the higher 
education bill up in the next Congress, the reauthorization 
comes up. Instead of approaching this from the bankruptcy side, 
maybe one of the angles would be to approach it from the higher 
education side.
    There is a lot of Federal dollars that go out to 
institutions. And in return for some of those Federal dollars, 
we will try to see if some discipline can be exercised on 
campuses in terms of responsibility. Maybe coming from that 
angle of it, then that would be a better way to get the 
companies to respond to this and the universities to respond.
    We should talk to you about that. In fact, I will keep in 
touch and have staff talk to you about what you have been doing 
in Kentucky and how we might do something on the national 
level.
    Mr. Miller. I would love to help.
    Chairman Sarbanes. Would the two university people briefly 
describe the atmosphere that exists on registration day or 
registration week, with respect to the dispensing of credit 
cards and the freebies and all the rest of it, before you 
brought it under control.
    Maybe Dr. Manning should address that because I gather, 
your universities have restrained these practices. But maybe 
you could describe it in its unrestrained form, to the extent 
you know about it, and then describe it in its restrained form.
    Ms. Frishberg. If I could just speak to the item that 
Senator Dodd just mentioned about the universities being in 
some way responsible through the Higher Education Act.
    I think that there is another, very important entity that 
can be affected through the Higher Education Act, and that is 
the student loan lending community themselves. Often, they do 
not know what the other side of the house is doing with their 
databases.
    Senator Dodd. Good idea.
    Ms. Frishberg. And again, we take issue because we have 
been very responsible actors in banning both the tabling as 
well as the marketing of our affinity card to our current 
students.
    I am not sure that it is rampant across campuses that they 
are not taking this responsibility. But I do not work on a 
public university campus, so, I do not know what that is like.
    The carnival of what goes on during registration is not 
just the credit card vendors, but it really is a carnival 
atmosphere, purposefully so. It is supposed to be fun. You are 
moving in and you are getting to meet people and you are 
learning things.
    There used to be multiple tables set up all over campus, no 
matter where you walked. People coming out and handing you CD 
players and Walkmen and T-shirts and mugs and please sign up. 
It was your peers. It was your fellow students.
    Chairman Sarbanes. Well, they are working on a commission 
basis, aren't they? Don't they come in and if they can get a 
certain number of people to sign an application, then they get 
some kind of bonus? Like they get a free vacation trip or maybe 
they get a record player set or something. Isn't that the case?
    Ms. Frishberg. As I understand, that's how they make their 
money, which is why we have not had them on campus for 6 years.
    Chairman Sarbanes. Record player is not the right word.
    [Laughter.]
    I am as bad as Senator Carper.
    Senator Carper. When they close the dorms at 10 p.m., they 
get our their record players.
    [Laughter.]
    Ms. Hart. I can tell you that from our survey of our 
students about credit card practices, that more than a third of 
them found the manner in which they were solicited by credit 
card companies very problematic. They also felt that it led to 
a great distrust of the quality of information they were given 
by those companies relative to things like interest rates.
    This was a key factor in our decision to really try to 
limit especially the manner in which our students were 
approached for credit cards. And as I said, we found that 
permissible and we have done that by an RFP that really 
restricts not chasing a student across the oval to fill out a 
credit card application because of one's incentives, but to try 
to provide a reasonable vehicle for good credit card use and 
information about educational services that support that good 
use. Students definitely found it very problematic.
    Senator Dodd. At Johns Hopkins or Ohio State, do you 
receive a financial benefit from the credit card companies? 
What do you receive at Ohio State? What is it?
    Ms. Hart. I am sorry. I do not know, Senator, what the 
response was to the RFP. That is an important question and I 
would be glad to research that and tell you about it.
    I do know that what we have done with the proceeds, which 
was a question here, it used to be the case that our student 
organizations received a benefit from sponsoring a credit card 
company on campus. And so, we have used the proceeds from the 
RFP to support those student activities, which are often 
related to community service and good works.
    Senator Dodd. Unrelated to the amount of debt.
    Ms. Hart. Not at all. Not at all. It has to do just with 
numbers of students. As I said, that was a very important 
principle that we avoid any relationship to the level of debt 
or even the number of students who ultimately took out a card.
    Additionally, as I said, we asked in the RFP and got 
universal response, positively, that some of the proceeds are 
dedicated to adding to the debt counseling that we do on 
campus.
    There is a position in my office that is fully funded by 
the university and the credit card proceeds will fund another 
credit counselor in the student wellness center because not all 
students think of the financial aid office as a source of this 
information. And we think by teaming up, we have done a very 
commendable job of using those proceeds responsibly.
    Mr. Miller. Mr. Chairman, if I could just add, too.
    We took testimony in our Commission about some of these 
practices and found that really it was some of the students 
themselves that were the greatest violators of what we would 
think would be ethical practices.
    Students who are hired by the companies, paid a quota based 
on how many applications they complete, going into dorm rooms, 
chasing fellow students around campus and otherwise doing 
things that put a lot of unfair peer pressure, saying, ``I 
really need your help in funding our parties at the fraternity. 
So please fill out these applications for us.''
    Of all great ironies, when we held this event at the 
University of Louisville, which has an exclusive, multimillion 
dollar marketing contract with a particular company, we looked 
at the bulletin board right outside of the hall in which we 
were holding it, and there were literally dozens of flyers up 
representing several different credit card companies who were 
not supposed to be marketing on campus, right on the bulletin 
board right outside our hearing.
    So these practices really need to be examined on a level 
with establishing a code of conduct that these companies need 
to follow.
    Chairman Sarbanes. Good. Well, this has been an extremely 
helpful panel. We appreciate your testimony and the effort that 
went into it very much.
    I think we have had an opportunity here to air a number of 
these important issues.
    The hearing is adjourned.
    [Whereupon, at 12:10 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
           PREPARED STATEMENT OF SENATOR CHRISTOPHER J. DODD
    Thank you, Mr. Chairman, for holding this hearing in such a timely 
manner as, across our Nation, students return to college campuses. The 
subject matter of this hearing--improving the financial literacy of our 
Nation's youth--is an extraordinarily important one.
    Many, if not most, incoming freshman are unprepared to handle the 
ordinary financial obligations that come as a result of entering 
college. For the first time, many graduating high school seniors and 
incoming college freshman are presented with new opportunities and 
confronted with difficult decisions that will affect them for the rest 
of their lives--particularly access to large amounts of credit, 
primarily through the use of credit cards. Most new students lack the 
financial sophistication necessary to handle the terms and conditions 
associated with credit card use.
    Making credit available to help finance the pursuit of higher 
education is something we all recognize as vital. However, the 
aggressive marketing practices of some credit card companies and the 
failure to ensure that college students recognize the long-term 
consequences of incurring these debts is a serious and growing problem.
    The fact of the matter is that financial institutions view incoming 
college freshman as fish in a barrel for purposes of credit card 
solicitations. Financial institutions have becoming more concerned with 
``branding'' than forming responsible 
financial relationships with new customers. They are more interested in 
luring students with offers of low minimum payments, free T-shirts, or 
other giveaways than caring about whether their prospective customers 
can reasonably handle their credit obligations.
    The trends relating to credit card use among college students are 
alarming. Over 80 percent of undergraduates have at least one credit 
card. Nearly 50 percent of college students carry four or more credit 
cards. According to the Department of Education, the average balance 
carried by these students is more than $3,000. College students are 
getting into more and more debt at a faster and faster rate, and they 
are increasingly facing the consequences of the debt they incur as a 
result of the barrage of credit card solicitations. In the year 2000, 
150,000 young Americans under the age of 25 filed for bankruptcy 
protection. In fact, the fastest group of bankruptcy filers are those 
people who are 25 years of age or younger. A lot of these young people 
have been or will be forced to drop out of school to pay their debts. 
And while personal responsibility is a critical component of avoiding 
these problems, so is corporate responsibility on the part of credit 
card issuers who lure students into obtaining multiple credit cards 
without any regard for their ability to repay a debt. That kind of 
corporate irresponsibility must stop. Educators, parents, students, and 
credit card issuers must closely examine and must address the critical 
need of improving the financial literacy of our Nation's youth to help 
prevent against the rising tide of college age persons forced to 
declare bankruptcy.
    Earlier in this Congress, I introduced the Underage Consumer Credit 
Protection Act of 2001. It would require that credit card issuers, 
prior to granting credit to persons under the age of 21, ensure that 
their new customers have one of the following: A co-signature of a 
parent, guardian, or other responsible party; an independent means of 
financial support for repaying the debts they incur; or the completion 
of a certified credit counseling course. This is modest legislation 
that would take a significant step toward protecting young people from 
those who prey on them with false promises of easy credit.
                               ----------
              PREPARED STATEMENT OF SENATOR JON S. CORZINE
    Mr. Chairman, I want to thank you for holding this hearing on an 
enormously important subject--financial literacy. It is a subject of 
great interest to me, and I am grateful for your attention to the many 
facets of this issue, focusing on the unbanked, underserved 
communities, older citizens, and predatory lending.
    The issue that we will discuss today--credit card usage by college 
students--is as important as they get. And it is a particularly 
frightening prospect for me as the father of a soon-to-be college 
freshman.
    By now we have all heard the shocking anecdotes and startling 
statistics underscoring the lack of financial literacy that is 
pervasive throughout all age, races, and socioeconomic segments of our 
society. Regrettably, our young people are but another glaring example 
of that void. According to the Americans for Consumer Education and 
Competition the vast majority of high school students--82 percent of 
them--failed a fairly standard personal finance quiz.
    It is a relatively safe bet that now an even greater number no less 
about what ``APR'', ``simple and compound interest'', or a ``revolving 
line of credit'' means.
    To be certain, there are numerous benefits derived from placing 
credit cards in the hands of responsible college students. They can 
help defray the financial pressures on students, and parents, who would 
otherwise have difficulty coming up with the costs of going to 
college--money to purchase books, paying skyrocketing tuition costs, 
and even that much-needed pizza during a long study session.
    But there are pitfalls associated with placing these cards in the 
hands of those who lack basic knowledge about finances and credit, or 
the maturity to handle a newfound ``source of wealth.'' According to 
the GAO, 55 percent of college students obtain a credit their freshman 
year. That is an enormously powerful tool in the hands of a 17- or 18-
year-old.
    One concern of mine is the intense marketing aimed at college-aged 
students going on at colleges and universities all across America by 
financial institutions and other credit card issuers.
    Today, students find themselves barraged by credit card 
solicitations via mail, e-mail, and campus visits by credit card 
representatives who offer everything from free T-shirts to Frisbees to 
water bottles to get students to apply for their cards.
    As a result, some schools and some States have sought to restrict 
credit card solicitations on-campus. In doing so they seek to reverse 
the growing overall trend of credit card debt facing undergraduate 
students--where average credit card debt has increased by almost 25 
percent over the past 5 years.
    Left unchecked, this growing debt threatens to severely undermine 
the home buying, renting, and employment futures of an entire 
generation. That is why it is so important that we carefully examine 
this issue.
    I thank you Mr. Chairman for seeking to do so today, and thank the 
witnesses for providing us with their testimony. I would be remiss if I 
did not commend Senator Dodd for his legislative efforts in seeking to 
protect students, and their parents, from the accumulation of large 
credit card debt as well.
                               ----------
             PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA
    Thank you, Mr. Chairman. I appreciate your conducting this hearing 
today and all of your efforts to have financial literacy be such an 
important focus of the Banking Committee.
    Many college students are not adequately prepared to make informed 
financial decisions in situations that they will face during and after 
college. Students often have to borrow heavily to help finance their 
education and have limited means provided by part-time jobs. While 
experiencing these financial difficulties, they are also provided with 
countless opportunities to easily obtain credit cards. Thus, credit 
card debt can quickly add up for the students who do not know how to 
responsibly use credit.
    This lack of knowledge often leads to a large debt burden for 
students that further complicate their future financial situations. 
Many students may not realize the importance of keeping their own 
credit clean so as to not preclude future financial opportunities. For 
recent graduates, debt burdens and poor credit histories can make it 
even more difficult as they start out on their own and attempt to buy a 
car, rent an apartment, or purchase their first home.
    College students who make uninformed financial decisions are also 
likely to continue to make the same mistakes as they get older. They 
may not fully understand the power of, for example, compound interest 
and may fail to save and invest sufficiently for retirement.
    Today, this Committee must examine the actions necessary to help 
ensure that college students are able make informed financial decisions 
during and after college. Financial literacy among all Americans, not 
just college students, needs improvement. I look forward to working 
with my colleagues in developing comprehensive approaches to increase 
financial literacy among citizens.
    I thank the witnesses for appearing today and I look forward to 
your testimony. Again, thank you, Mr. Chairman.
                               ----------
               PREPARED STATEMENTS OF SENATOR JIM BUNNING
    Mr. Chairman, I would like to thank you for holding this hearing, 
and I would like to thank all of our witnesses for testifying today. I 
would especially like to welcome Jonathon Miller, the Kentucky State 
Treasurer here today.
    Financial literacy is a very important topic. I think all Americans 
should brush up on this issue. From elementary school, to high school, 
to college, to young families, to college parents, to retirees, many 
Americans are making important financial decisions without the tools 
that might allow them to make the best decision. We must make 
information and education available to those making financial 
decisions.
    Everyone knows how easy it is for college kids to get credit cards. 
They have T-shirt giveaways, and bag giveaways. Students are inundated 
with junkmail. They get solicitations in the bags they carry their new 
books home in. It is much easier to get credit cards than to learn 
about how credit cards work and what responsibilities come with them.
    However, restricting credit is not necessarily the answer. Many 
students use credit cards to charge their books and tuition. They get 
airmiles that may get them a free ticket home for Christmas. They get 
cash back. And some, especially those who work, would have a much more 
difficult time being able to pay for school without credit.
    I think most 18-year-olds understand credit cards are not free 
money. They do realize there are some responsibilities that go along 
with the card and most know what an interest rate is.
    I think we can do a lot to help financial literacy and I do think 
some companies take advantage of naive kids. I just want to make sure 
we do not do anything that would deny credit to those who need and 
understand it.
    Once again, I thank our witnesses for testifying today and I look 
forward to hearing from you.
    Thank you, Mr. Chairman.
                            ----------------
             PREPARED STATEMENT OF SENATOR DEBBIE STABENOW
Proper Financial Training Can Curb Rising Credit Card Debt
Among College Students
    Stronger consumer protections are needed to prevent college 
students from getting trapped by credit card debts that their limited 
income and work schedule prevents them from escaping, Senator Debbie 
Stabenow, a Member of the Senate's Banking, Housing, and Urban Affairs 
Committee, said today.
    Stabenow's comments came as the Committee prepared to take up the 
issue of credit cards and students, an issue made more critical by 
recent studies revealing that 80 percent of all college students carry 
credit cards and that their average debt was more than $2,300. More 
than 25 percent of those students had debts exceeding $3,000.
    ``How can a typical student--who is working part-time or perhaps 
not working at all--ever hope to pay off a $3,000 credit card debt?'' 
Stabenow asked. ``In fact, they probably cannot. Instead, they may well 
find themselves making minimum payments of mostly interest with little 
hope of getting out of debt.''
    Stabenow, who has co-sponsored legislation that would set 
guidelines for issuing credit cards to students, said the problem needs 
to be addressed both through legislation and by educating young people 
in financial matters before they leave high school.
    ``Not only is credit card usage among college students increasing, 
but the general financial knowledge of that same group is decreasing,'' 
Stabenow said. ``We learned recently how serious this problem is, when 
a study revealed that 82 percent of high school students failed a 13-
question financial quiz.''
    The quiz addressed such financial basics as interest rates, 
savings, loans, credit cards, and calculating net worth.
    ``Schools can teach a broad variety of social skills, such as 
dealing with alcohol abuse and getting along with roommates,'' Stabenow 
said. ``I believe they can also teach enough financial fundamentals 
that their graduates can avoid stepping out of commencement services 
and stepping into debt.''
    Stabenow is co-sponsor of S. 891, the Underage Consumer Credit 
Protection Act.
                               ----------
             PREPARED STATEMENT OF ROBERT D. MANNING, Ph.D.
          Caroline Werner Gannett Professor of the Humanities
                   Rochester Institute of Technology
                           September 5, 2002
    I would like to thank Chairman Paul S. Sarbanes for providing this 
opportunity to share my views with this Committee on the increasingly 
important topic of 
consumer debt among college students and the lack of financial 
literacy/education programs for America's financially vulnerable youth. 
In addition, I applaud the legislative initiatives of Senator 
Christopher Dodd, who has championed credit card marketing restrictions 
on college campuses along with critically needed financial education 
programs, and Senator Charles E. Schumer's efforts to protect consumers 
from deceptive marketing and contract disclosure practices of the 
credit card industry. The twin issues of rising consumer debt and 
shockingly low levels of financial literacy among our youth have grave 
implications to the continued economic well-being of the Nation--
especially as Americans age into debt. For these and many other 
reasons, I commend the Committee for accepting the daunting task of 
examining these serious problems.
    As an economic sociologist, I have spent the last 16 years studying 
the impact of U.S. industrial restructuring on the standard of living 
of various groups in American society. Over the last 11 years, I have 
been particularly interested in the role of consumer credit in shaping 
the consumption decisions of Americans, as well as the role of retail 
banking in influencing the profound transformation of the U.S. 
financial services industry. In regard to the latter, I have studied 
the rise of the credit card industry in general and the emergence of 
financial services conglomerates such as Citigroup during the 
deregulation of the banking industry beginning in 1980. In terms of the 
former, my research includes in-depth interviews and lengthy survey 
questionnaires with over 800 respondents in the 1990's. The results of 
this research are summarized in my recent book, Credit Card Nation: 
America's Dangerous Addiction to Consumer Credit (Basic Books, 2001). 
More recently, I have 
collected survey data from a case-study of a mid-sized public 
university based on a representative sample of nearly 800 college 
students in 2002. Some of the key findings of the study are reported in 
this testimony. In addition, I have become actively involved in the 
national movement to improve the financial literacy/education of our 
youth. My work with colleges, universities, and student loan 
organizations has inspired my own Internet-based financial literacy/
education program at www.credit-
cardnation.com as well as my next book which offers practical financial 
information for college students and novice credit card users.
Reality Bytes: The Triple Witching Hour Haunts Recent College Graduates
    For recent college graduates, the stark realities of coping in the 
``real world'' and pursuing a career in the new economy are compounded 
by their unprecedented levels of personal debt. To apply a Wall Street 
analogy, the ``Triple Witching Hour,'' record levels of student loan 
and credit card/consumer debt have coincided--for the first time--with 
the worst job market in over a decade. Indeed, as long as America's 
longest economic expansion in history continued unabated, college 
students were lulled into a false sense of financial security by 
university administrators and credit card/finance companies which led 
to the amassing of enormous personal debt obligations. A generation 
that grew up with TV's Friends, whose mid-town NYC lifestyle belies 
their modest professional incomes, was unprepared for the bursting of 
the 
Nation's economic bubble in spring 2001. Afterall, ``recession'' was 
not a part of their life experience and denial of self-gratification is 
mass-marketed by Madison Avenue as ``old school.''
    More significantly, declining real household incomes in the early 
and mid-1990's sharply reduced family financial contributions to 
college expenses while the long-term decline in public financing of 
higher education shifted student economic strategies from savings, 
grants, and part-time employment to reliance on Federally subsidized 
student loans. As a result, median student loan levels have skyrocketed 
over the last 25 years--from about $2,000 in 1977 to nearly $7,000 in 
1990 and doubled again today. In 1996, the College Board reported the 
average public university student graduated with $11,950 of loans in 
1996 (a 70 percent increase from 1993) while graduates of private 
colleges averaged $14,290 (a 43 percent increase from 1993). This trend 
is mirrored in the recent surveys by Nellie Mae. In 1991, the student 
loan debts of its clients (survey data comprised of 65 percent 
undergraduate and 35 percent graduate students) averaged $8,200 and 
jumped to $18,800 in 1997 albeit partially due to the rapid increase in 
graduate (professional) student debt.\1\ Today, public school graduates 
can expect nearly $15,000 and private school graduates over $18,000 in 
student loans. Clearly, the student loan industry and higher education 
administrators have encouraged and abetted the record levels of student 
loan debts with unrealistic expectations of high paying employment with 
job and pension security.
---------------------------------------------------------------------------
    \1\ Sandy Baum and Diane Saunders, Life After Debt: Results of the 
National Student Loan Survey, Nellie Mae, Braintree, MA, 1998.
---------------------------------------------------------------------------
    The rising cost of higher education and intensifying pressures for 
``competitive consumption'' on America's college campuses contributed 
to the sharply rising demand for ``plastic'' money among our youth--
without extolling the necessary financial education programs. At the 
onset of the deregulation of the U.S. financial services industry in 
the early 1980's, extending credit to college students was viewed as a 
risky strategy. College seniors with ``one foot out of the door'' were 
perceived as relatively low financial risks and typically received 
credit card offers as they approached their 21st birthday; most offers, 
however, were for gas and retail rather than ``universal'' bank cards. 
The exceptions were student with full-time jobs or whose parents were 
willing to co-sign the revolving loan contract. By the late 1980's, 
banks began to saturate their middle and working class revolving credit 
card markets (based on prevailing underwriting criteria) and began to 
aggressively pursue the college student market by relaxing the 
industry's voluntary parental co-signature requirement for students 
under 21 years old. This was because industry executives realized that 
students would use their summer earnings and college loans to pay for 
their credit card debts. Furthermore, they were even willing to ask 
their parents to assist in paying their credit card bills. Even so, 
when U.S. Congressman Joe Kennedy convened the ``Kiddie Credit Card 
Hearing'' before the Subcommittee on Consumer Credit and Insurance in 
March 1994, student credit cards typically featured introductory limits 
of $200 to $300 and it was rare to find a student that amassed over 
$5,000 in credit card debt in the early 1990's. In my own research on 
this period, high credit card debt levels were more likely accumulated 
by students immediately after graduation rather than during college 
matriculation. This was largely due to the difficult job market of the 
early 1990's and greater willingness of banks to extend higher credit 
limits after leaving school.\2\
---------------------------------------------------------------------------
    \2\ Robert D. Manning, Credit Cards on Campus: The Social 
Consequences of Student Debt, Consumer Federation of America, 
Washington, DC, 1999 and Robert D. Manning, Credit Card 
Nation: The Consequences of America's Addiction to Credit, Basic Books, 
2000.
---------------------------------------------------------------------------
    The enormous profitability of consumer credit cards, together with 
the cross-
marketing strategies of financial services conglomerates in the mid- 
and the late-1990's, have produced competitive pressures to recruit new 
clients at an increasingly younger age. The result is that the overall 
proportion of college students with credit cards has risen sharply--
from about one-half in 1990 to over three-fourths today; my studies of 
students at universities in the Metropolitan Washington, DC area range 
from 77 to 85 percent. Significantly, this means that college and even 
high school students are being socialized to perceive consumer credit 
as a generational entitlement rather than an earned privilege. For most 
American students, credit card ``membership has its privileges'' before 
commencing a full-time job and adhering to a financial budget. This 
fracturing of what I refer to as the traditional ``cognitive 
connection''--where one's standard of living is defined by one's 
household income--is a radical departure from America's Puritan 
influenced cultural attitudes toward consumer credit and debt where 
satisfactorily abiding by a household budget (fiscal responsibility) is 
rewarded with more consumer credit.\3\ The availability of greater 
levels of consumer credit at an earlier age without accompanying 
financial education is a financial windfall to the credit card industry 
and its associated networks of retailers including college and 
university administrators who reap multimillion dollar exclusive 
marketing agreements. This is because the largest 250 public 
universities account for over two-thirds of college students at 4-year 
institutions. For instance, the University of Tennessee signed a 7 year 
contract with First USA in 1998 which guarantees at least $16.5 million 
while the University of Oklahoma received a $1 million signing bonus. 
It is noteworthy that none of the ``royalties'' from these lucrative 
contracts have been used to fund financial literacy/credit card 
education or debt consolidation programs.\4\
---------------------------------------------------------------------------
    \3\ Lendol Calder, Financing the American Dream: A Cultural History 
of Consumer Credit, Princeton University Press, 1999 and Robert D. 
Manning, ``Charging for Credit: Convenience Users and the Ideology of 
the Moral Divide,'' Chapter 4 in Credit Card Nation: The Consequences 
of America's Addiction to Credit, Basic Books, 2000.
    \4\ For specific terms of the contract, see Robert D. Manning, 
Credit Card Nation: The Consequences of America's Addiction to Credit, 
Basic Books, 2000, p. 348.
---------------------------------------------------------------------------
    Over the last decade, the two most noticeable trends in the 
marketing of credit cards to college students is the progressively 
earlier age of opening the first credit card account and the resulting 
rise in personal debt associated with consumer credit cards. Although 
it is not my intention to detail the flawed methodology of credit card 
industry financed studies, which I have reviewed elsewhere, it is 
important to recognize the complex dynamics of student consumer 
debt.\5\
---------------------------------------------------------------------------
    \5\ Robert D. Manning, Credit Cards on Campus: Current Trends and 
Informational Deficiencies, Consumer Federation of America, Washington, 
DC, 1999.
---------------------------------------------------------------------------
    First, an accurate estimate of student consumer debt levels and 
their associated social consequences require a research methodology 
that ``tracks'' or follows a student class cohort from orientation to 
graduation. This will capture students who have dropped out of school 
due to high debt levels and are not subsequently interviewed since they 
are no longer included in the matriculating student population 
universe. This methodological issue was noted in the highly flawed 2001 
General Accounting Office (GAO) report on this topic.\6\
---------------------------------------------------------------------------
    \6\ General Accounting Office, Consumer Finance: College Students 
and Credit Cards, Washington, DC, June 2001, pp. 33-34. This 
methodologically flawed report features a striking reliance on credit 
card industry financed studies and an explicit reluctance to examine 
academic studies on the topic. In addition, the GAO failed to require 
the credit card industry to supply important proprietary information 
that could have revealed new insights into these issues.
---------------------------------------------------------------------------
    Second, average student debt levels must be estimated by each class 
cohort (freshman through senior) rather than a institutional average 
that combines low freshman debts with high senior debts and thus 
underestimates the debt obligations of college students when they leave 
school. The real issue is how much debt young adults have incurred upon 
graduation NOT an average for the overall student population at a 
single point in time.
    Third, student debt levels must examine the dynamic smorgasbord of 
all different types of personal debt. For example, my 1999 study was 
the first to explore the relationship between student loan and credit 
card debt. That is, the survey questionnaires of industry financed 
studies neglect to ask students whether they use college loans to pay 
their credit card debts and thus miraculously erase substantial 
portions of revolving credit card debt. Unlike the accounting magic of 
Wall Street, personally assumed debt of average Americans must be 
eventually repaid, regardless of the accounting category. As a result, 
my research suggests that more accurate estimates of student debt 
require in-depth interviews throughout the collegiate career of student 
respondents. Significantly, I am not aware of any credit card industry-
sponsored study that is based on in-depth interviews with real-life 
college students.
Credit Cards on Campus: Hunting in a Baited Field?
    Academic and industry-financed studies agree that students are 
receiving credit cards at a progressively earlier age. For instance, 
the Student Monitor, which is funded by contracts from the banking 
industry, reports that its survey of 100 schools (1,200 interviews) in 
1994 found that 11 percent of its student credit cardholders opened 
their accounts while in high school and 20 percent after high school 
but before attending college. In 1998, these proportions rose to 15 
percent and 22 percent, respectively. Overall, the proportion of 
students that received their first credit card after their freshman 
year of college declined from 34 percent in 1994 to 19 percent in 1998. 
Dr. Michael Staten and Dr. John Barron's new study of credit card 
accounts opened between January 1998 and May 2000 (conducted under the 
auspices of the Credit Research Center at Georgetown University with 
its longstanding financial ties to the banking industry) reports that 
the median age of students when they opened their credit card accounts 
was 19.9 years old. Since the sampling unit is credit card accounts 
rather than students, it is not possible to identify the age of the 
first credit card account or the total credit card debt of an 
individual student with precise accuracy since the average student has 
at least 3- 4 credit cards before completing college.\7\ Indeed, many 
students are not aware that not using their credit card does not 
necessarily terminate the cardholder agreement. Nevertheless, it is 
safe to assume that during this period the median age of opening a 
student's first credit card account was the end of the freshman or 
beginning of the sophomore year of college.
---------------------------------------------------------------------------
    \7\ Student Monitor, ``Financial Services,'' Ridgewood, New Jersey, 
2001 and Michael E. Staten and John M. Barron, College Student Credit 
Card Usage, Credit Research Center, Georgetown University, Washington, 
DC, June 2002.
---------------------------------------------------------------------------
    Interestingly, the major disagreement between the industry-
sponsored and the student loan/academic studies is the amount of 
accumulated credit card debt. Although the Student Monitor data and the 
1998 The Education Resources Institute (TERI) survey show a monotonic 
increase of credit card debt over a student's collegiate career, both 
studies report average student credit card debt at less than $700.\8\
---------------------------------------------------------------------------
    \8\ The Education Resources Institute and the Institute for Higher 
Education Policy, Credit Risk or Credit Worthy? College Students and 
Credit Cards, Boston, MA, June 1998.
---------------------------------------------------------------------------
    Similarly, the Staten and Barron study report average student 
credit card debt at less than $600 although it does not estimate the 
total, aggregate average credit card debt per college student. And, of 
course, none of these studies explicitly investigated whether student 
loans were used to pay credit card debts during the students' 
collegiate career. As a result, these different sampling units of 
industry-sponsored studies tend to obscure rather than clarify the true 
level of consumer debt among college students.
    The time series of surveys of undergraduate student loan clients at 
4 year colleges (18 to 24 years old) conducted by Nellie Mae in 1998, 
2000, and 2001 offers an important longitudinal comparison albeit based 
on a college student universe that includes differences from the 
overall U.S. student populations. For instance, these students may be 
less debt adverse and come from lower economic backgrounds. Hence, 
critics of these studies contend that the Nellie Mae data overstate the 
amount of credit card debt among college students. Nevertheless, the 
trends are striking. The proportion of students with credit cards rose 
from 67 percent in 1998 to 83 percent in 2001 while the proportion of 
students with 4 or more credit cards jumped from 27 to 47 percent. 
Median credit card debt per student rose from $1,222 in 1998 to $1,770 
in 2001 while the proportion of balances from $3,000 to $7,000 rose 61 
percent from 14 to 21 percent. Significantly, those with credit card 
balances exceeding $7,000 declined from 10 to 6 percent which explains 
the decline in average credit card debt per student from $2,748 in 2000 
to $2,327 in 2001. Unfortunately, we do not know if these most heavily 
indebted students reduced their credit card balances through debt 
consolidation transactions or actually paid it off.
    The most striking pattern is the monotonic relationship between 
credit card debt and class standing in 2001. Median credit card debt 
rises from $901 among freshman and $1,564 among sophomores to $1,872 
among juniors and $2,185 among seniors. The average credit card debt 
levels are $1,533, $1,825, $2,705, and $3,262, respectively, which 
reflects the high debt levels of students at the extreme tail of the 
distribution. Similarly, the proportion with balances between $3,000 
and $7,000 rises from 8 percent of freshman and 18 percent of 
sophomores to 24 percent of juniors and 31 percent of seniors. 
Significantly, Nellie Mae reports the median student loan debt of 
seniors ($15,708) together with their median student credit card debt 
($2,185) for a total of $17,893; the average combined student debt of 
$20,402 includes $17,140 of student loans and $3,262 of credit card 
debt.\9\ Although credit card debt comprises an average of 16 percent 
of median student debt among the college seniors of the 2001 Nellie Mae 
survey, this is an underestimate since it does not distinguish earlier 
credit card debt that was paid with student loans. These trends are 
immortalized in the Now and Zen ``slacker'' line of T-shirts which 
features a parody of the popular MasterCard advertising campaign: 
``Late night pizzas: $5,200; Books for classes: $7,000; Tuition & Fees: 
$120,000; Moving back into the basement: Priceless.''
---------------------------------------------------------------------------
    \9\ Nellie Mae, Undergraduate Students and Credit Cards: An 
Analysis of Usage Rates and Trends, Nellie Mae, Braintree, MA, April 
2002.
---------------------------------------------------------------------------
Student Financial [Il]literacy: Passing Or Making a Buck
    The increasing social pressure to enjoy a more costly lifestyle in 
college and increasingly high school--the ``Just Do It'' competitive 
consumption of immediate gratification--means that students are more 
likely to spend borrowed rather than earned money outside the budgeting 
framework of a family allowance and part-time employment. For many 
parents, their children's Internet shaped lifestyles entail the use of 
virtual money with its own set of rules and responsibilities. Plastic 
money is currency of the ``web'' and cash is becoming as alien to high 
school students as minimum wage employment is to the price of popular 
music CD's and movie DVD's. More disconcerting, however, is the lack of 
adequate personal finance or consumer ``life skills'' curriculum in 
American high schools. According to Professor Lewis Mandel, SUNY-
Buffalo School of Management, less than one in seven high school 
seniors in his 2002 survey received any personal finance education.\10\ 
And, of course, not all curriculum is equal or entails measurable 
results. As a financial educator in Texas recently confided to me, the 
educational program for a private, largely white suburban school was 
offered every day whereas the same program was offered only once every 
other week in the largely minority, public, urban school.
---------------------------------------------------------------------------
    \10\ Lewis Mandell, Our Vulnerable Youth: The Financial Literacy of 
American 12th Graders: A Failure by Any Measure, Jump$tart Coalition 
for Personal Financial Literacy, Washington, DC 1998, 2000, 2002.
---------------------------------------------------------------------------
    The most striking finding of Professor Mandel's financial literacy 
survey, which has been conducted over the last 5 years, is that the 
performance of high school seniors continues to decline. In 2002, the 
average score on his financial literacy test was only 50 percent, a 
failing grade by any measure concludes Mandel. Furthermore, only 60 
percent agreed that sales taxes ``makes things more expensive'' and 35 
percent stated that they are ``not to sure'' or ``not at all sure'' 
about how to manage their money.'' At the same time, 28 percent 
reported using their own or their parents' credit card.\11\ As students 
feel compelled to spend more than they earn and credit card companies 
are eager to offer them high interest credit, it is becoming even more 
imperative that financial literacy programs be offered in high school 
and college so that America's youth do not suffer the social 
consequences of an unfair financial ``playing field.'' Currently, the 
financial learning curve for American students is economically 
benefiting a few financial services conglomerates at the 
expense of unsuspecting families and the future of America's youth.
---------------------------------------------------------------------------
    \11\ Lewis Mandell, Our Vulnerable Youth: The Financial Literacy of 
American 12th Graders: A Failure by Any Measure, Jump$tart Coalition 
for Personal Financial Literacy, Washington, D.C. 1998, 2000, 2002.
---------------------------------------------------------------------------
    Clearly, the lack of financial education/literacy and parental 
oversight of students' purchasing decisions (especially over the 
Internet) encourages the credit card industry to market their products 
to increasingly younger students in the pursuit of 
higher corporate profits. As budgetary constraints send more high 
school students to junior colleges for part-time and even full-time 
classes and high school juniors and seniors visit colleges in order to 
make informed matriculation decisions, access to bank credit cards 
continues to push the boundaries of informed consent. In fact, I was 
recently contacted by an economics teacher at a California high school 
who was shocked by the brazen marketing of credit cards and student 
loans to his students on campus by representatives of Wells Fargo Bank. 
For this teacher, such 
aggressive marketing campaigns (featuring ``free'' mini soccer balls) 
means that the social and personal problems of local college students 
will become more prevalent in high school. For the credit card 
industry, then, the goal is to encourage naive students to obtain 
credit cards at an earlier age and, especially, outside of the purview 
of their parents. Indeed, a recent study of credit card financed 
consumption patterns at Pennsylvania State University-Erie Campus 
showed that those students who used credit cards that are co-signed or 
whose bills are paid by their parents spend considerably less than 
their peers whose parents are excluded from the oversight of their 
credit card purchases.\12\
---------------------------------------------------------------------------
    \12\ Pinto, Mary Beth, Diane H. Parente, and Todd S. Palmer, 
``College Students' Credit Card Debt and the Role of Parental 
Involvement: Implications for Public Policy,'' Journal for Public 
Policy and Marketing, Vol. 20 (1), pp. 105-113.
---------------------------------------------------------------------------
George Mason University: A Case-Study of a Mid-Sized Public University
    The picture of student credit card debt on American college 
campuses appears from the available data to be a Dickenesque ``Tale of 
Two Cities.'' On the one hand, industry-sponsored studies portray 
college and high school students as largely informed consumers whose 
purchases tend to conform to a generally manageable level of personal 
debt. College is viewed as the stepping stone to a secure financial 
future and any accumulated debt will be easily paid-off during the 
early years of an adult's ``earning cycle.'' On the other hand, critics 
of the credit card industry point out that credit card debt is vastly 
underreported and that the social consequences may outweigh the 
economic costs. This is because students are naive about their personal 
and especially financial decisions which disproportionately impact 
minorities, first-generation college students, members of low-income 
households, and the emotionally fragile. Furthermore, college 
administrators are receiving millions of dollars in 
credit card ``royalties'' and other ``sweetners'' from the banking 
industry which has clouded their judgement in accurately recognizing 
the magnitude of the problem and implementing the necessary educational 
programs. And, the noneconomic consequences can lead to academic 
failure, loss of financial aid, deteriorating employment prospects, 
health problems, personal and familial conflicts, credit problems, 
lifestyle difficulties, failed relationships, and even suicide.\13\
---------------------------------------------------------------------------
    \13\ Patrica Drentea, ``Age, Debt, and Anxiety,'' Journal of Health 
and Social Behavior, Vol. 41 (December 2000), pp. 437-450; Patrica 
Drentea and Paul J. Lavrakas, ``Over the limit: The association among 
health, race and debt,'' Social Science & Medicine Vol. 50 (2000), pp. 
517-529; and Robert D. Manning, Credit Card Nation: The Consequences of 
America's Addiction to Credit, Basic Books, 2000.
---------------------------------------------------------------------------
    In order to assess the prevalence of student debt and the dynamics 
of student credit dependency, I sought to examine these issues through 
a case-study of a mid-sized public university: George Mason University. 
Located in Northern Virginia (Fairfax County) and part of the 
Washington, DC Metropolitan Area, George Mason University features an 
enrollment of approximately 25,000 students; about 60 percent are 
undergraduates and 40 percent graduate and professional students. In 
the spring of 2002, a random sample of 8,000 students was selected from 
the university registrar's list of matriculating students. From this 
sample, 800 randomly selected student interviews were conducted in 
April and the results confirm that the sample closely mirrors the 
university student population characteristics. From this sample, the 
results are presented separately for the undergraduate (N=500) and 
graduate students (N=300). This methodologically rigorous sampling 
design yields a representative sample of credit card usage patterns of 
George Mason University undergraduate students.\14\ Not incidentally, 
it is distinct from industry-sponsored studies that are comprised of 
pooled samples of small numbers of students from a large number of 
colleges and universities.
---------------------------------------------------------------------------
    \14\ Robert D. Manning, Gregory A. Guagnano, and Ray Kirshak, 
Credit Cards on Campus: A Growing Collegiate Crisis or Benign Societal 
Trend? (September 2002).
---------------------------------------------------------------------------
    For the purposes of this hearing, I will report on only a few 
variables of public policy significance. First, Table 1 shows that over 
three-fourths (77.4 percent) of George Mason undergraduate students 
have bank credit cards. As expected, the lowest proportion (62.4 
percent) is among freshman and the highest is among seniors (88.2 
percent). Interestingly, the sharpest increase in credit card use is 
between sophomores (65.7 percent) and juniors (87.5 percent). 
Similarly, the proportion of students with more than two bank credit 
cards increases substantially from 5 percent among freshmen to 14 
percent among sophomores to 21 percent of juniors and 28 percent of 
seniors. Interestingly, this trend coincides with the greater use of 
student loans as reported in Table 3, ranging from a low of 33.6 
percent of freshmen to a high of 52.8 percent of seniors.
    Table 2 illuminates the results of the recent marketing pressures 
on high school students. In 1998, 10 percent of George Mason freshmen 
indicated that they first used bank credit cards before the age of 18. 
Over the next 2 years, the proportion rose to an average of 16 percent 
and then double to 30 percent in 2001. Overall, 86 percent of the 
George Mason freshman class with bank credit cards received them by the 
age of 18 years old. Hence, bank credit cards are now available to 
virtually any college student and soon high school student who is at 
least 18 years old--regardless of financial education and/or 
experience. With the average cost of acquiring a new bank client 
ranging from $120-$170, it is not unreasonable to assume that some 
credit card companies may offer ``kiddie cards'' with comparable credit 
limits for 17-year-old students.
    Access to consumer credit cards, however, does not necessarily 
entail student debt problems. If students are informed consumers and 
understand the cost-efficient use of bank credit cards, then earlier 
use of credit cards may result in fewer student debt problems later in 
school. Table 2 shows the results of whether students have maxed out 
their credit card limits at least once while in college. Surprisingly, 
nearly 60 percent of freshmen reported maxing out a credit card at 
least once while the proportion rises to about three-fourths of the 
remaining undergraduates. Even more shocking is the reported use of one 
credit card to pay for another. Almost 60 percent of George Mason 
freshmen and nearly two-thirds of the other Mason undergraduates used 
one credit card to pay for another. Finally, the question that has not 
been investigated by industry-sponsored studies is reported in Table 3. 
It shows that freshmen are more likely than upperclassmen to use their 
student loans to pay down their credit cards: 73 percent of freshmen 
versus 67 percent of juniors and seniors. This finding suggests that 
access to credit cards at an earlier age--without accompanying 
financial education--increases the probability of the accumulation of 
higher levels of costly consumer debt. The key issue, then, is who 
bears the costs of their social consequences?
Credit Cards on Campus:
A Growing Collegiate Crisis or Benign Societal Trend
    Like driving a car to work, bank credit cards offer highly 
convenient and useful services to informed consumers who understand how 
to use them most effectively. Although students can sacrifice their 
lives for the Nation through military service at the age of 18, they 
are not allowed to drive a car without adult supervision until they 
demonstrate adequate proficiency skills in an evaluation setting. Some 
students may be sufficiently mature to drive alone at 16 years old 
while others may not handle the responsibility until the age of 25 
years or even older. Similarly, a novice driver should not be 
encouraged to drive a high performance sports car while an unemployed 
student should not be tempted with a high line of credit. As a male 
sophomore respondent explains, ``I don't own a credit card myself. I 
don't think that I want one at this stage of my life. I couldn't trust 
myself with a credit card right now. I have so many wants. It's hard to 
separate my wants from my needs.'' Another student discussed the 
naivete of students toward ``plastic'' money, ``I think it's too easy 
to spend money because you're not actually seeing the money, you're 
just swiping the card real fast and then you don't have to think about 
it anymore. If you had to pay with cash you would notice the size of 
your wallet decreasing.''
    While such caution may lead to the rejection of the advantages of 
bank credit cards, the more common experience is expressed by a first-
year female respondent,

          [Credit cards are] a good way to establish credit, but an 
        easy way to get carried away! I would suggest everyone who 
        wishes to establish credit to get a credit card, but only use 
        it for emergencies! Everything else, use cash or you will get 
        yourself into a rut because it's too easy to say, ``Oh, it's a 
        credit card so I'll just pay it later.'' But you forget about 
        the interest and finances charges and pretty soon your're at or 
        beyond your credit limit an then you're stuck paying a high 
        amount, plus finance charges each month! So be wise about 
        getting/using credit cards . . . they can help you, but they 
        can also hurt you!

    The issue of informed/practical financial knowledge and lack of 
personal maturity resonates with the respondents of the George Mason 
survey. As second-year student confides, ``It is important to build 
credit so that when you get out of school you have some good credit, 
but I think a lot of students end up worse off from having credit cards 
and do not use them wisely. I do not have one, but I will get one my 
senior year because I feel I will be mature enough to handle it then. I 
would rather not risk being in debt.'' A junior expressed frustration 
over the lack of marketing restraints on credit card companies, ``It is 
so easy to get into deep debt using credit cards unwisely. If you can't 
afford to buy something with cash, you should generally not put it on a 
credit card. Credit card companies should not offer cards to everyone. 
We get at least six offers each week in the mail.'' These sentiments 
were echoed by a fourth-year senior, ``I wish that I never received a 
credit card. I was stupid and 18. It didn't help that credit card 
companies would call my apartment on campus and ask if I wanted one 
because I was `preapproved.' All they wanted was a sucker who would go 
into debt and owe them 500 percent interest. I think the age for 
getting a credit card should be 21. At least then you would have grown 
up a little bit more . . . away from your parents.''
    As George Mason students were asked to explain the principal 
reasons for rising credit card debt, financial illiteracy in general 
and the role of universities in particular assumed central roles in the 
success of ``mafia-like'' bank conspiracies. According to a recent 
graduate, ``I think that Americans in general lack sound financial 
education which leads to many people accruing too much debt. Credit 
cards can be a useful spending tool, but should be paid off monthly if 
possible. I had $20,000 in credit card debt when I got out of college . 
. .'' Others specifically vented their anger at college administrators, 
``Universities should not allow credit card companies to solicit their 
business on-campus. Freshmen who live on-campus are very likely to get 
a credit card, spend wildly, and end up with terrible credit later in 
life. I saw it happen to many friends.'' Similarly, a second-year male 
respondent declared, ``I think credit cards are pushed on college 
students too much. I have been offered a card by 8 different companies, 
at least, since I came to GMU. Credit cards are nothing but trouble 
because once you get them, you can't resist using them, and the 
companies know that. College students are easy prey for the credit card 
companies.'' As a fourth-year student described her continuing 
distress, ``They are dangerous and I feel that I was trapped into 
getting one because every credit card company was after me [during] my 
freshman year and now I have so many I cannot pay them off. . . . The 
crazy thing is I have 4 cards that are maxed and I have not used them 
in the last 3 years [yet] I am still paying for them.'' Finally, a 
junior male respondent succinctly declared, ``There should be a rule 
not allowing credit card companies to solicit applications from people 
on campus. They ruined my life.''
    Fear, anger, and despondency can overwhelm students who are trying 
to complete their studies especially when they realize that their 
credit cards are now an impediment rather than a useful aid in their 
quest to graduate. Whether as one sophomore describes them as, 
``They're like the Mob. You should know how to deal with them.'' Or as 
a graduating senior dispassionately explains, ``I believe that most 
people do not know how to manage their money well, however, I feel that 
I can. I enjoy the fact that because most Americans are in debt because 
of their stupidity'' to a fatalistic loss of freedom, ``I really 
believe most Americans are moving toward the stigma associated with the 
word `American': Born in debt, die in debt.''
    For many students, the loss of personal freedom that has resulted 
from the unbridled pursuit of competitive consumption on college 
campuses leaves no other option but Government regulation and public 
education. As a female junior concluded, ``Public policy should require 
full disclosure about interest rates prior to issuing a credit card. 
Budget plans should be required prior to issuing a credit card. 
Financial planning courses should be part of junior high and high 
school curriculums--as well as for college freshmen.'' Sadly and 
ironically, most students expressed cynical pessimism that their 
university administrators would respond to the student debt crisis by 
imposing responsible restrictions on credit card companies and offering 
useful 
financial education programs and practical seminars. For most of these 
students, credit cards were viewed as simply another way of ``ripping 
off '' students by an indirect form of revenue enhancement. The 
solution was articulately summarized by a third year male respondent, 
``I believe credit card use by students is alarming. How do students, 
who generally don't work, pay back credit card bills . . . I think that 
there should be restrictions and legislation on credit card 
solicitations on college campus--college administrators, student 
government council, et cetera, have a responsibility to protect and 
educate students on the evils of credit card companies seeking student 
signups. Also, I think that credit card knowledge and awareness should 
be part of the College 101/1st year orientation class to help prevent 
this epidemic sweeping across college campuses. My mom was once a bank 
loan lender and she noted to me the sadness of the number of people who 
were denied loans because of poor credit ratings established as young 
college students.''
Conclusion: Public Policy Responses to Credit Cards on Campus
    The unrestrained marketing of bank credit cards on college and high 
school campuses is not a phenomenon that simply can be reduced to 
dollars and sense. Rather the lack of financial literacy and 
educational programs is consigning increasing numbers of young 
Americans to the shackles of high-interest consumer debt--the lucky 
ones that is. Indeed, as students obtain access to ``easy'' money at an 
earlier age it means that some will encounter consumer debt problems as 
early as their freshman year of college and even in the senior year of 
high school. My data indicates that a substantial proportion of college 
student students exhaust their credit limits within an academic 
semester--regardless of the amount of aggregate credit. A $500 
``introductory'' line of credit in the fall semester can easily rise to 
$2,000 
to $4,000 by the end of the academic year. For many of these students, 
a realistic credit limit can make the difference between surviving 
their financial ``learning curve'' or becoming an academic casualty of 
competitive consumption or shrinking public education budgets.
    As major credit card companies become leading student loan 
providers, competition for young clients will continue to escalate with 
students learning the refinement of debt management techniques like the 
``credit card shuffle'' and the ``hidden debt'' or rotating student 
loan game. This explains how the credit card industry is increasing 
student credit card debt capacity (it is now common to find 
undergraduate students with credit card debts of over $20,000) through 
public subsidies such as student loans and low-cost tuition at public 
universities. Unfortunately, the consequences of mounting credit card 
debt are not equally borne, especially amongst students from low-
income, minority, and first-generation college backgrounds. Hence, the 
marketing of high-interest consumer loans to college students--before 
they begin full-time employment--has major implications to future 
societal trends such as college retention and graduation rates, racial 
and ethnic social inequality, rising health problems including anxiety 
and clinical depression, future matricu-
lation in graduate programs, homeownership, career mobility, bankruptcy 
filings, retirement patterns, and even the decision to have 
children.\15\ It also has profound implications to the national savings 
rate--which is increasingly becoming a foreign policy issue--as the 
Consumer Bankruptcy Project of the Harvard Law School reports a 51 
percent increase in filers under 25 years old between 1991 and 1999. 
These bankruptcy filers accounted for nearly 7 percent of all 
bankruptcies at the end of the 1990's which is a striking finding in 
view of the brief number of years that they have spent in the full-time 
workforce.\16\
---------------------------------------------------------------------------
    \15\ Sandy Baum and Diane Saunders, Life After Debt: Results of the 
National Student Loan Survey, Nellie Mae, Braintree, MA, 1998 and 
Robert D. Manning, Credit Card Nation: The Consequences of America's 
Addiction to Credit, Basic Books, 2000.
    \16\ Reported in General Accounting Office, Consumer Finance: 
College Students and Credit Cards, Washington, DC, June 2001, pp.12-14. 
See also Teresa A. Sullivan, Elizabeth Warren, and Jay L. Westbrook, 
The Fragile Middle Class: Americans in Debt, Yale University Press, 
2000.
---------------------------------------------------------------------------
    Clearly, the credit card industry has proven itself incapable of 
self-regulation while administrators of large public institutions have 
demonstrated greater interest in increasing credit card royalties than 
in fulfilling their responsibility to ensure the graduation of their 
students with the lowest possible level of financial debt. It is 
imperative that college administrators begin to formulate a code of 
conduct that is enforceable and with effective sanctions on unrepentant 
credit card marketers. As the banking industry emphasizes that credit 
card debt is an individual decision that requires individual level 
behavioral changes, it is important to note that this learning curve 
benefits primarily the top ten credit card companies. And, that these 
behavioral changes are the product of over a decade of costly and 
highly persuasive mass marketing campaigns. According to a 
representative of the American Banking Association, the credit card 
industry should not be criticized for marketing to teenagers since 
Americans are essentially fair game for all corporations beginning at 
the age of 3. Consequently, without legislative restrictions on credit 
card marketing and the implementation of objective, practical, and 
effective financial literacy/education programs in high school and in 
college, the student credit card debt problem will become a social 
crisis of far greater proportions.






                 PREPARED STATEMENT OF ELLEN FRISHBERG
     Director, Student Financial Services, Johns Hopkins University
                           September 5, 2002
    Senator Sarbanes and Members of the Committee, it is my honor to 
appear before you today to represent the interests of the students of 
the Johns Hopkins University, in the great State of Maryland, to 
discuss financial literacy, and credit card usage among college 
students. As you know, Johns Hopkins is a decentralized, multifaceted 
research university, and I cannot presume to speak for all the 
divisions of the university. My 13-year experience there, helping 
students to pay for college, has been primarily with traditional 
undergraduate students--and at that endeavor we are a small, selective 
private college of 4,000. However, Hopkins does educate more than 
17,000 students each year through our programs, both full- and part-
time, graduate and undergraduate, in eight divisions, at nine campuses, 
and on three continents, and my remarks do touch many of these learners 
in some way.
    Hopkins is proud of our outcomes--our students succeed and graduate 
in impressive numbers, and more than in any other school in the Nation, 
they go on to graduate and professional education. This has made our 
undergraduates an attractive market for financial companies who are 
looking for lifelong customers. I have never wanted for student loan 
lenders willing to lend to our students and their families--with a 
default rate of less than 2 percent, even with an average graduating 
debt of $16,200, our students have established themselves as good 
payers. Solicitation of our students starts early--many freshmen 
arrived on campus this past weekend armed with credit cards they 
received their senior year of high school. It appears that lists are 
available to the direct mail marketers from a variety of sources, long 
before the students register at school. However, they also arrive 
without understanding of how that credit card works--what is APR, 
compound interest, and why they only have to pay a small amount each 
month.
    Because of the ease of getting credit, the lack of financial savvy 
on the part of these otherwise very bright students, and the unchecked 
solicitation and giveaways that were going on during orientation, in 
1994 the Dean of Students decided it was best to prohibit credit card 
vendors from the Homewood Campus. At about that same time, my staff and 
I became alarmed at the growing number of students who reported credit 
card problems--in some cases, causing them to have to leave school for 
a time to repair their financial health (I have a statement from one 
former student appended to this document--he was a poor, inner-city 
Baltimore child who was motivated and mentored by family, counselors, 
and clergy--and he became a successful graduate and attorney, but not 
before falling victim to the easy allure of credit card debt). Keeping 
credit cards out of the hands of students is a difficult task. We know 
that credit is not always a bad thing--it provides for emergencies, 
allows students to shop on the Internet, sometimes for used books to 
keep their costs low, and gives them air miles to help keep the cost of 
travel down--our students do come from all 50 States. However, we 
thought that if we made sure that our student loan and other financial 
services vendors were not cross marketing 
financial products to the database of students they were lending to, it 
would help to reduce the direct mail and Internet offers that came 
because of the student's relationship with the university.
    For a variety of reasons, the university decided to participate in 
the William D. Ford Direct Loan program, which took private lenders out 
of the student loan equation for our need-based loans. While we have no 
empirical evidence, we believe that this decision has also reduced the 
number and type of solicitations that our students received for other 
financial products, including credit cards. Our concern remains that if 
you or I get into credit trouble, we have ways out--home equity loans 
or mortgage refinancing. If our students get in trouble, their options 
are limited--sometimes to their unknowing parents.
    However, we are not so naive as to believe that we can restrict or 
control the 
behavior of our students, who live their lives on the Internet--and if 
you ever searched on the web, you know that pop-up credit card offers 
are a way of life. Speaking of the web, colleges and universities have 
offered new web services to students to ease getting through 
administrative processes, including allowing tuition to be paid by 
credit cards. While Hopkins does not allow this for full-time students, 
we can see how it could help to get students into trouble. Because of 
the short time it takes to apply for and receive a credit card, some 
students will follow the path of least resistance and opt for credit 
card payment rather than a student loan. Compared to the process of 
applying for a Federal student loan, which can require up to 6 weeks 
and numerous applications and forms, credit cards are easier.
    Our alumni association does offer an affinity card--the JHU card, 
but they are not permitted to market it to current students. In 
financial aid, we are pleased to have that card available as some of 
the proceeds come back to the annual scholarship budget to help fund 
needy students. But we are also happy that the marketing is restricted 
to graduating seniors.
    What we as administrators can do is:

 Be aware of the cross-marketing that our vendors do--whether 
    it is the ID and stored value card vendor or our student and 
    alternative loan vendors.
 Use our stored value/debit cards as important learning tools--
    credit cards on training wheels.
 Encourage students to use the opt-out service of the major 
    credit bureaus.
 Use our role as educators to teach about compound interest, 
    capitalization, and credit reports, at the same time we are doing 
    student loan default prevention.

    Many students and parents are concerned about this topic--whenever 
I mentioned that I was coming here, there was universal agreement that 
a problem exists. My husband, an elementary school teacher, was a 
credit card executive in a former 
career. He believes that the banks need to take responsibility to offer 
a national education program at the high school level--as the use of 
cards will not go away. He says it is like sex education, educating 
young people about birth control after the pregnancy occurs is not very 
helpful.
    The card industry can also help us with better disclosure in 
account statements, so that young people do not think that paying the 
minimum is sufficient, more programs like Life Skills, offered by USA 
Funds, and restricting their marketing to those who can afford to pay--
not the students without the financial safety net and/or parental 
resources to fall back on.
    Thank you for your time and attention.
         STATEMENT OF A JOHNS HOPKINS GRADUATE, NOW AN ATTORNEY
                    Timeline of My Credit Experience
Spring-Summer 1995
 I am young and finally free from my parents. The desire to 
    spend money the way I choose coupled with the lure of campus flyers 
    that proclaim ``No Annual Fee Student Visa/MasterCard'' induce me 
    to begin applying for credit.
 I apply for and receive my first three credit cards--one of 
    them with a $1,000 credit limit, another with a 17.99 percent 
    interest rate. Rather than explaining the effect of the interest 
    rate on the time it will take to pay off the debt, the cards simply 
    play up the low $15 minimum monthly payment.
 By the end of the summer I would have 4 credit cards, 
    destroying one of the original three and picking up two more, 
    including a department store credit card, in its place. My credit 
    limits totaled $3,700 at this point. My major credit purchases were 
    a 3-CD shelf stereo system and an Apple computer.
Fall 1995-Spring 1996
 Three of my four credit cards are maxed out because of the 
    computer and its accessories. I begin to use the fourth for 
    groceries, clothing, and other miscellaneous items.
 During registration week and all through the fall, I see 
    credit vendors outside of the campus bookstore giving away free T-
    shirts, mugs, and other gifts for merely filling out a credit card 
    application. Driven partially by the drive to see how many cards I 
    could get, and also because the freebies were nice, I began to 
    apply for these cards also. Almost without exception, I would be 
    approved for generous amounts of credit.
 I cannot fully remember what I would use my credit for, but I 
    know that I was not using it responsibly. I would charge concert 
    tickets, trips to the movie theater, nights dining out, tickets for 
    college functions--basically anything I wanted to do but did not 
    have cash on hand for.
 By the spring of 1996, I had at least 8 credit cards, all of 
    them with balances, and credit debt approaching $5,000. I only 
    needed to be a student to get credit cards. As long as they knew I 
    was a student, creditors would lend me money without regard to my 
    lack of income (my only source of income was a Federal work study 
    job working 10 hours per week at $5.25/hour).
Fall 1998
 I am now married. Combined, my wife and I have 13 credit 
    cards, more than $11,000 in credit card debt and we earn $18,500 
    annually. Two of the cards that I have had since 1995 have 
    increased my credit limit by $500 every 6 months for the preceding 
    2 years, making their combined credit limit almost $6,000.
 After years of financially irresponsibility, I decide to 
    finally get my financial house in order. This task is made somewhat 
    easier by the fact that, by never being late with a payment, I have 
    a nearly perfect credit history.
 I begin to seriously talk with my college financial aid 
    advisors. I acquire financial software and begin reading books on 
    credit literacy. For the first time I learn that, thanks to the 
    magic of compound interest, I would probably spend the rest of my 
    life paying off credit cards if I continued to make the minimum 
    payments. I learn that making payments on time does not help my 
    credit rating in the short-term because my debt to income ratio is 
    high and because I have high balances on the credit cards. I 
    realized that your credit rating affects your ability to get a 
    house, a car, and even a job.
 I begin the slow process of defeating my credit card debt 
    through a combination of increasing my monthly payments as much as 
    my wife and I could afford and by paying down my credit cards with 
    student loans left over from my final year of college.
Present
 Thanks to self-education about credit, coupled with strict 
    financial management, my wife and I were able to pay off our last 
    credit card in September 2001. We destroyed most of the original 13 
    cards and today only have 2 of those cards left (for emergencies of 
    course).
 I have been able to use my credit to my advantage to secure 
    commercial educational loans to fund my professional school 
    education, to buy an affordable used car, and to buy a wonderful 
    town home.
                         The Moral of My Story
    My story actually resonates through college campuses. Thousands, 
perhaps even hundreds of thousands of young, financially irresponsible 
18-year-olds leave home each year in search of social and of financial 
freedom from their parents. These 18-year-olds are easy prey for credit 
card advertisements that play up ``no annual fee'' and ``low minimum 
monthly payment'' while offering free gifts as bonuses for applying for 
cards. By no means, however, does the onus fall totally on credit card 
companies. Although there were resources that I could utilize at my 
college, many colleges perhaps do not offer entering students programs 
and services designed to help them make wise decisions about their 
credit. Many of these 18-year-olds, including myself at that age, also 
need to own up to the responsibility that freedom demands of them by 
educating themselves in the manner that I eventually did.
    I do not have all the answers. I do know, however, that the ability 
and willingness of an 18-year-old college student to begin to amass a 
credit debt of $11,000 with 13 credit cards raises questions that 
demand answers and action on the part of the student, the educational 
institution, Congress, and the credit card companies.
                  PREPARED STATEMENT OF NATALA K. HART
       Director, Student Financial Aid, The Ohio State University
                           September 5, 2002
    Mr. Chairman, Members of the Committee, my name is Natala Hart, and 
I am honored to be sitting before you today. As the Director of Student 
Financial Aid at The Ohio State University, I see in our week each day 
the growing importance of basic financial skills for today's students. 
In my opinion, those skills can be as important as the excellent 
academic knowledge students received at Ohio State.
    The matter of financial literacy has emerged as the leading 
financial concern among parents sending their children to Ohio State. 
We believe that this is reflective of a national concern about the 
extensive opportunities for credit, including credit among students 
still in high school and as young as 16. I myself am a parent of a 13-
year-old and find it necessary to already begin coaching Katie about 
credit, and its proper and improper uses.
    We in the Office of Student Financial Aid entered into a surprising 
view of the role of credit as we studied the profile of the small 
number of former OSU students who default on their student loans. What 
we learned was that the vast preponderance of those who defaulted on 
their student loans had even higher consumer debt, most often the 
result of credit card use. We do not know if this usage occurred while 
in college or after, but it had a dramatic, negative effect on their 
ability to meet their obligations to repay their Federal student loans.
    We also learned from our colleagues assisting students in our 
residence hall system that a small but troubling number of students 
were arriving at Ohio State deeply in credit card trouble. They defined 
credit card trouble as being so consumed by concern about paying credit 
card bills that the students could not adequately focus on their 
primary purpose of working on their education.
    Our colleagues, Student Affairs, also conducted a study that 
highlighted the same issues: A very high percentage of college students 
are in credit card debt far too large and proving disruptive to their 
studies. I have provided Committee staff with a copy of that study by 
Dr. Andrea Dowhower.
    Finally, we were ourselves educated by Dr. Lucia Dunn, an Ohio 
State economist, who has developed a ``Debt Condition Index,'' part of 
a ``Debt Stress Index'' that identifies the point at which debt begins 
to negatively affect the life of Americans.
What Are We Doing About Credit Issues?
    Ohio State has taken several proactive steps to assist both 
students who are over their heads in debt or who need to avoid being in 
that position.

 We have instituted as part of our Office of First Year 
    Experience (FYE) Success Series a special week for financial 
    literacy.
 We have enacted a campus policy that limits credit card 
    solicitation on campus.
 Ohio State has required as part of its agreement with the 
    single credit card company approved by the campus funding for a 
    debt counseling position in our Mary Daniels Student Wellness 
    Center.
 My office has added a senior staff position dedicated to Debt 
    Management that will collaborate with the debt-counseling center.
 We have and will participate in providing feedback to several 
    groups developing excellent training materials about dealing with 
    finances and avoiding debt. Those include:

  --The Financial Survival Program by the Consumer Federation of 
        America and MasterCard International.
  --Life Skills Series by USA Funds.
  --OSU developed courses on use of credit cards and basic financial 
        skills.

    The Ohio State study by Dr. Dowhower has been repeated with results 
available in the next few months. We know from preliminary findings 
that fewer students 
reported reaching the maximums on their credit cards. (In 2000, 73.8 
percent of students had not ``maxed out'' a credit card; in 2002 the 
percent increased to 84.3 percent.) However, that may be because 
students have higher balances because the amount of their monthly 
balance has not changed too much. Of concern is their response to the 
balance on the credit cards: In 2000, 26.1 percent had greater than a 
$500 balance compared to 23.1 percent in 2002.
    The Ohio State policy to limit credit card solicitation came from a 
recommendation of our Council on Student Affairs, one of the most 
important university student, faculty, and staff committees. The 
Council learned that as a public institution 
governed by Ohio law, we could not totally ban credit card solicitation 
on campus due to First Amendment law governing commerce. We could, 
however, limit the ``time, place, and manner'' in which credit card 
companies approached our students.
    The proposal being implemented restricts solicitation to the 
beginning of academic terms, eliminates solicitation without incentives 
of limited value such as soda or T-shirts, and defines educational 
initiatives that will be provided under the terms of the successful 
contract bidder. We believe that these limits will result in students 
who chose credit card access for the right reasons.
    I would like to describe our coursework in basic financial 
education before closing. We have learned through Dr. Mabel Freeman and 
her staff in our Office of First Year Experience that in the transition 
to college, it is most often the third week of their initial enrollment 
that students who do not have basic financial skills discover they need 
those skills. We offer courses in constructing a budget, managing a 
checking account, good and poor uses of credit cards, and even saving 
and investing, emphasizing not going into debt as a fundamental 
component of saving and 
investing.
    Last year, we offered 11 courses at hours convenient to the 
students. More than 1,500 class attendance hours were recorded. 
Students were required to write one paragraph reflection on what they 
learned. Examples of their comments (paraphrased) were:

    ``I learned that completing college is actually the best investment 
I can make.''
    ``Through the class, it was clear that I should try to avoid credit 
cards other than for real emergencies.''
    ``I really didn't understand how to balance a checkbook--and I 
didn't want to admit that even to myself.''

    We believe that financial literacy is a critical component of our 
students' educational success and their success as alumni of Ohio 
State. We would be pleased to assist the Committee as it considers 
financial education as a requirement for young credit card recipients.
    Thank you.


    
    
    
                PREPARED STATEMENT OF MICHAEL E. STATEN
                    Director, Credit Research Center
          McDonough School of Business, Georgetown University
                           September 5, 2002
Introduction
    Good morning, Chairman Sarbanes and Members of the Committee. My 
name is Michael Staten. I am Professor of Management and Director of 
the Credit Research Center at the McDonough School of Business at 
Georgetown University. The Center is a nonpartisan, academic research 
center devoted to studying the economics of consumer and mortgage 
credit markets. Over its 28-year history the Credit Research Center has 
generated over 100 research studies and papers, most of which examine 
the impact of public policy on credit markets. Throughout its history, 
the Center's research program has been supported by a mix of grants 
from the public sector (that is, National Science Foundation, Federal 
Trade Commission) and unrestricted private sector grants from 
foundations and corporations made to its host university on behalf of 
the Center. I have served as the Center's Director since 1990.
    As students head back to college campuses this fall, a perennial 
debate will resume over the problems some of them will have in handling 
their credit cards. Marketing research surveys indicate that about 57 
percent of all full-time undergraduates own a general-purpose credit 
card (Visa, MasterCard, Discover, American Express) in their own 
name.\1\ From the sad anecdotes portrayed in the news media, one could 
get the impression that students are awash in debt, victims of 
relentless marketing by big credit card companies and incapable of 
controlling their urge to charge.
---------------------------------------------------------------------------
    \1\ Financial Services, Student Monitor, Ridgewood, NJ, Spring 
2001.
---------------------------------------------------------------------------
    Along with my co-author, Professor John Barron (Purdue University), 
I recently completed a study for the Credit Research Center at 
Georgetown University that 
offers new evidence on student card usage, evidence that paints quite a 
different picture.\2\ The report provides benchmark measures of college 
student credit card usage. The analysis utilizes a pooled sample of 
over 300,000 credit card accounts randomly selected from the portfolios 
of 5 of the top 15 general-purpose credit card issuers in the United 
States.
---------------------------------------------------------------------------
    \2\ College Student Credit Card Usage, Working Paper #65, Credit 
Research Center, McDonough School of Business, Georgetown University, 
June 2002 (available at www.msb.edu/prog/crc and held in Senate Banking 
Committee files).
---------------------------------------------------------------------------
    Discussions of college student card usage in both the policy arena 
and the popular press have been based mostly on anecdotes and self-
reported survey evidence. To our knowledge the Georgetown study marks 
the first time account-level information has been pooled across major 
issuers to create a statistically reliable database for examining the 
actual usage and performance of credit cards marketed to college 
students. Consequently, the results should be helpful in grounding 
subsequent discussion on facts rather than anecdotes.
    In the remainder of my testimony, I would like to share with you 
some results from our study. There is much evidence that college 
students are as responsible as the rest of us when it comes to their 
card usage behavior, and are more sensible in some respects. Whether or 
not they use credit cards wisely is a subjective question that depends 
upon your own views of how credit and credit cards should be used. But 
a dramatic lack of sophistication among students in handling this 
powerful payment tool is not apparent in the data.
College Students and Credit Card Usage
    The analysis compares behavior across three types of accounts: 
Those opened through college student card marketing programs; those 
opened by young adults aged 18-24 through normal marketing channels 
(for example, not through dedicated student marketing programs); and 
those opened by older adults through normal marketing channels. All 
accounts analyzed in this study were opened during the 
period mid-1998 until early 2000 and were observed over a 12-month 
period during 2000-2001.
    The analysis follows a study plan that was originally proposed by 
the U.S. General Accounting Office in response to a request from 
Members of Congress, but was never executed by GAO due to budget 
constraints. The study is similar to the GAO study plan in the range of 
cardholder behaviors to be examined and shares its focus on comparing 
the activity of recently-opened student accounts to the experience of 
accounts opened recently through conventional (nonstudent) marketing 
programs.
    One of the first findings of the study was the fact that any random 
sample of open accounts contains a significant number of accounts that 
exhibit no activity during a 12-month period. Such dormant or 
``inactive'' accounts may reflect a credit card being held in reserve 
by the owner for an emergency, or a credit card that has been discarded 
or destroyed by the owner without the issuer being notified. The 
incidence of such ``emergency/destroyed'' cards varied substantially 
across the five companies in our sample, sufficiently that we could not 
determine a reliable ``average'' rate of inactivity among open 
accounts. Nevertheless, it is clear that any discussion of student 
credit card usage that makes projections of student card debt based on 
the number of credit cards owned (for example, the number of open 
accounts) will likely overstate the actual use of credit cards.
    The analysis in the report is restricted to a sample of more than 
300,000 active accounts, each of which was followed for a 12-month 
period during 2000-2001. Active accounts are defined as accounts with 
charge activity, payment, positive balance, or some other posting of 
activity at any point during the observation period. Given this large 
sample size, the random sampling approach adopted by the participating 
companies, the market share and national scope of the companies 
providing the data, and the use of weights to reflect the relative 
number of cards issued across the various groups by each company, the 
findings reported below can be considered representative of accounts 
opened at major credit card issuers during the period from mid-1998 
through early 2000 that were active during the 2000-2001 period.

Results

Credit Balances, Credit Limits, and Utilization Rates

 The average balance of an active student credit card account 
    ($552) is approximately one-third the size of the average balance 
    of an active nonstudent account of a young adult ($1,465), and one-
    fourth the size of the average balance of an active older adult 
    account ($2,342).

                       Balance by Type of Account




 The mean credit limit for student accounts ($1,395) is less 
    than 40 percent of the mean for nonstudent accounts of young adults 
    ($3,581) and less than 20 percent that of adult accounts ($7,436).
                    Credit Limits by Type of Account




 At 45 percent, the mean utilization rate across all student 
    accounts (percent of credit line tapped) is higher than the 
    utilization rate for older adult accounts (36 percent) and about 
    the same as the utilization rate for nonstudent accounts held by 
    young adults (46 percent), despite much higher credit limits for 
    these other groups. Among cardholders in all three groups who have 
    credit limits above $1,000, student accounts have significantly 
    lower utilization rates.
         Utilization by Size of Credit Line and Type of Account





Card Usage: Cash Advances, Paying the Full Balance, and Finance Charges

 Student accounts are substantially less likely to use their 
    credit cards for cash 
    advances.
 Among accounts with positive balances, the student accounts 
    are somewhat more likely in any given month to pay the prior 
    balance in full.
 A student account is less likely to incur finance charges in a 
    given month, but more likely to incur fees, either for being late 
    or for being over the credit limit. The average finance charge 
    incurred on student accounts in a given month is $7. Only 5 percent 
    of student accounts incur a finance charge greater than $26 in a 
    given month.
Delinquency Rates and Charge-offs
 Delinquency rates on both student accounts and young adult, 
    nonstudent accounts are higher than for older adult accountholders. 
    In a given month, 12 percent of active student accounts are past 
    due, versus about 11 percent for other young adults under age 25 
    and 8 percent for adults 25 and older. However, among student 
    accounts that have large balances (that is, accounts with an 
    outstanding balance greater than $1,000) student account 
    delinquency rates are substantially lower than for similar accounts 
    held by other young adults under age 25.
        Delinquency Rates by Size of Balance and Type of Account





 About 3.6 percent of student accounts charge-off annually, 
    compared to 2.8 percent of young adult, nonstudent accounts and 1.6 
    percent of older adult accounts. The median dollar amount charged 
    off on student accounts is $1,133, vs. $2,217 for young adult, 
    nonstudent accounts and $4,919 for older adult accounts. Large-
    dollar charge-offs are not common among student accounts given 
    their substantially lower average balances. Considering only 
    charge-offs that exceed $5,000, student account losses are rare. 
    For every 10,000 accounts of each type, the data-
    set indicates there would be 77 adult accounts with charge-offs 
    exceeding $5,000 over a 1 year period, 58 such charge-offs for 
    nonstudent accounts of young adults, but only 2 such charge-offs 
    for student accounts.
                 Size of Charge-offs by Type of Account





 Over time, student accounts mature and performance converges 
    to that of young adult, nonstudent accounts. More specifically, 
    within about 18 months of the account opening date, student 
    accounts exhibit a frequency of serious delinquency (90+ days) and 
    a likelihood of charge-off nearly identical to that of nonstudent 
    accounts held by cardholders under the age of 25.
            Delinquency Rates (90+ days) on Active Accounts
              By Number of Months Since the Account Opened







Summary
    The data indicate that, on average, accounts marketed to college 
students have lower credit limits and smaller balances than accounts of 
similar age that were opened by young adults through issuers' 
conventional (nonstudent) marketing programs. Compared to accounts 
recently opened by older adults (age 25 and older), student balances 
and limits are substantially lower.
    About 88 percent of student accounts are current (for example, pay 
their accounts as agreed) in a given month, compared to about 88 
percent of young adult, nonstudent accounts and 92 percent of older 
adult accounts. Although recently opened student accounts have a higher 
likelihood of charging-off compared to other groups, the dollar amounts 
at risk on delinquent accounts and the actual losses on charged-off 
accounts are substantially lower. Further, the delinquency and charge-
off experience for student accounts becomes similar to nonstudent 
accounts of young adults for accounts open more than 1 and 1\1/2\ 
years. These findings are consistent with issuers' statements that they 
establish student accounts with relatively low credit limits with the 
expectation that the large majority of new, young cardholders will 
learn how to manage a credit card, to establish a credit history, and 
to become longer-term customers.\3\
---------------------------------------------------------------------------
    \3\ College Students and Credit Cards, U.S. General Accounting 
Office, Report GAO-01-773, June 2001, pp 35-40.
---------------------------------------------------------------------------
Conclusions and Recommendations
    I understand that this Committee is interested in the financial 
literacy of young people. As you know, national coalitions of industry, 
Government, and nonprofit organizations have committed substantial 
resources to such efforts in recent years. They have already created a 
tremendous range of educational materials and programs on personal 
finances for both children and adults, with the promise of more to 
come. I believe these efforts are essential to the long-term goal of 
improving the money management skills of most Americans who are faced 
with an increasingly sophisticated array of financial service products.
    Clearly, there are some college students who build up large 
balances that could well lead to payment problems, but that is true of 
any cardholder population. I certainly see no evidence from the 
Georgetown study that students are misusing cards so frequently as to 
warrant singling them out as a group for special protections from 
marketing solicitations.
    In that regard, I am concerned about some proposals that have been 
circulating at both the State and Federal level which would either 
limit or ban the marketing of credit cards to college students. 
Proposals that would ban on-campus marketing of credit cards seem 
particularly misguided, given the available evidence from annual 
marketing surveys about how and when students obtain their cards. For 
students who own a general-purpose credit card in their own name, the 
largest single source in 2001 was direct mail offers, accounting for 
nearly 40 percent of all cards.\4\ Only about 20 percent of cards were 
obtained from sources on campus (take-one displays; issuer reps at 
``tabling'' events). The same survey revealed that nearly 40 percent of 
undergraduates in 2001 who owned a general-purpose credit card in their 
own name said they received their first one before they arrived on 
campus their freshman year.
---------------------------------------------------------------------------
    \4\ Financial Services, Student Monitor, Ridgewood, NJ, Spring 
2001.
---------------------------------------------------------------------------
    Consequently, restrictions that would ban on-campus marketing would 
not stop the majority of students from acquiring cards. Moreover, such 
restrictions would eliminate probably the only opportunity for any 
face-to-face contact between a card issuer representative and the 
cardholder. Present marketing practices may not take full advantage of 
this opportunity for distributing educational materials and messages, 
but an outright ban on such marketing eliminates the opportunity.
                When First Card in Own Name was Obtained






    Methods of Obtaining General Purpose Cards in Students' Own Name




    Even if card marketing to students could be legislated away, such 
action does not seem to be in students' best interest. The 4 years that 
most undergraduates spend in school are arguably the best time to get 
acquainted with credit cards. The undergraduate experience gives young 
adults an opportunity to transition from life at home to life on their 
own. Most students spend 4 years with one foot at home and one foot in 
the real world, learning about one but sheltered by the other. Learning 
personal financial management is part of that real-world experience.
    A general-purpose credit card offered with relatively low limits 
gives students an introduction to the most powerful and versatile 
payment device on the planet. Think of it as the ``training wheels'' 
approach to learning to use a credit card. Students learn that their 
wants usually exceed their resources, and that they must manage that 
tension. They learn that a purchase made with plastic today and 
forgotten 
tomorrow can come back to haunt them at the end of the month with the 
arrival of the credit card statement. They learn that the credit card 
company does not forget that you have made the purchase, nor does it 
forget if you do not pay. For those who choose to revolve, a balance 
that seems to fall far too slowly month after month kindles a new urge 
to find gainful employment during the summer, or after graduation.
    All of these lessons must be learned eventually. I believe it is 
better to learn them with the relatively small exposure permitted by 
the lower limits that are typical of cards obtained through college 
student marketing programs. Postponing the lesson until after 
graduation would raise the financial stakes and put young consumers at 
even greater risk.
    It surely cannot be too difficult for our best and brightest youth 
to learn about cards and card marketing while in college. Artificial 
limits on credit card marketing to this group will not improve their 
financial literacy. The wiser course seems to be to facilitate student 
access to the information they need to make sound decisions about using 
credit and the importance of maintaining a good credit history.
    I thank you for the opportunity to appear today and would be happy 
to answer any questions.
                               ----------
                 PREPARED STATEMENT OF JONATHAN MILLER
                Treasurer, The Commonwealth of Kentucky
                           September 5, 2002
    Mr. Chairman, Members of the Committee, I appreciate the 
opportunity to testify today, and I am particularly grateful that you 
are shining a spotlight on the important issue of financial literacy 
among college students.
    It is fitting that the hearing is being held today, because, as we 
speak, tens of thousands of young men and women across the country are, 
for the first time, leaving the protections of home and entering 
college. The first few weeks of college have always presaged many rites 
of passage. Choosing a major. Attending your first football game. 
Rushing for a fraternity or sorority.
    But a new rite of passage has emerged recently for college freshmen 
on campuses across the country. Applying for your first credit card.
Credit Card Marketing on College Campuses
    The opportunities are endless. If you have been to a ball game or a 
public event recently, you likely have been barraged by credit card 
companies offering some gift or service in return for filling out an 
application. For college students, this is almost an everyday 
occurrence. Beginning with freshmen orientation, at activities fairs, 
in student unions and lunchrooms, in the campus bookstore, even in the 
privacy of their dorm rooms, students are tempted by unavoidable offers 
from dozens of different credit card companies. It is rare to find a 
bulletin board on campus that is not nearly covered by card offers.
    The sales pitches can be irresistible. Thousands of dollars of 
``free money'' if you just fill out this form. And by the way, here is 
a T-shirt or a chance to win an enticing vacation. The offer might come 
from a friend who needs your help in completing his quota of completed 
applications. The card might come with a so-called ``teaser'' rate--a 
low introductory interest rate that looks too good to be true--unless, 
of course, you read the fine print and find out that the rate balloons 
dramatically within a few months. As the General Accounting Office 
(GAO) reported last year, some credit card ``vendors created a carnival 
atmosphere with loud music and games . . . mask[ing] the 
responsibilities of owning a credit card, especially since there was no 
discussion of the consequences of misusing a credit card.''
    In some circumstances, the solicitation turns ugly. Last year, the 
Kentucky State Treasurer's Commission on Personal Savings and 
Investment held a hearing on the issue of credit cards on college 
campuses. A University of Kentucky student testified that one credit 
card marketer pushed his way into her freshman dorm room and would not 
leave until one of her roommates filled out a credit card application. 
This young woman, for obvious reasons, felt violated. The GAO study 
revealed that this example is not unique: Students reported that 
vendors followed them around campus when their initial sales pitches 
were rejected. Sometimes even students are 
manipulated into revealing personal information in exchange for gifts.
    The economic incentives that encourage these types of aggressive 
credit card solicitations are enormous. Many universities, struggling 
to fund vital programs 
because of State budget cuts, have signed multimillion dollar contracts 
to give a particular company exclusive rights to market its credit 
cards on campus. Student organizations raising funds to pay for their 
expenses have been recruited as sales agents by credit card companies--
these groups often are compensated $25-$200 a day to table the student 
union and are paid $1-$5 for every completed application. Peer pressure 
has become an invaluable sales tool.
Impact of Credit Cards on College Campuses
    For many college students, owning and using a credit card does not 
pose any serious problems and offers some advantages. For instance, in 
an emergency situation, where cash is not available, a credit card can 
be invaluable. When properly educated about their use, credit cards can 
be a useful tool to learn about personal finance and budgeting. 
Particularly when parents are involved, young people can be taught 
important lessons about financial responsibility and accountability. 
Credit cards, more-
over, offer a vehicle, albeit an imperfect one, for young people to 
develop a positive credit rating. For the majority of students, credit 
card debt is not a problem--recent surveys revealed that almost 60 
percent of students pay their credit card balances in full every month.
    However, for a significant and growing minority of college 
students, credit card use and misuse can be devastating. Without proper 
education on credit card use, and with only self-serving, on-campus 
promotions instructing them, students often sign up for numerous credit 
cards, making purchases up to the credit limit on each. In a telling 
study by the Public Interest Research Group (PIRG), it was revealed 
that students who obtained credit cards at student union tables had 
more cards and higher debt balances than those that signed up 
elsewhere.
    Instead of the false promise of ``free money,'' students wind up 
building mountains of credit card debt before they even have an income 
stream to pay for it. Students are tempted by promotions on campus and 
through the media to live beyond their means--many do not understand 
the consequences of incurring excessive debt and making late payments, 
both of which can severely damage their credit ratings or their 
financial health in general.
    The GAO report concluded that because of their inexperience, 
college students are more likely than other credit card customers to 
accumulate significant debts. That is why those companies that sign up 
cardholders with higher risks of default--in exchange for higher 
interest rates--often target college students. Students see low, 
seemingly easy minimum payments, but do not realize they could spend 
much of the rest of their lives repaying their debts.
    Let me give you one example. Suppose a student today built up a 
credit card balance of $3,000 on a credit card that charged a 19.8 
percent interest rate. If that student never made another purchase, and 
dutifully made the minimum payment each month, it would take her 39 
years to repay that debt. In this example, the student would have to 
pay out over $10,000 in interest--on only a $3,000 balance.
    Our Commission took testimony revealing that this was not an 
uncommon experience. One Kentucky student built up over $6,000 in debt 
in her freshman year, and was still trying to pay it off 4 years later, 
having already paid more in interest that what she put on the card. 
Various studies revealed that the average student credit card debt 
ranges from $500 to more than $3,000. Meanwhile, in 1999, a record 
100,000 Americans under the age of 25 filed for bankruptcy.
    The impact on students can be more than financial. My Commission 
received testimony that the stress of credit card debt has significant 
emotional, even physical effects on these young adults, compounding the 
stress of leaving the shelter of home and family. One Indiana 
administrator reported that they ``lose more students to credit card 
debt than academic failure.'' And in an extreme case, a National Merit 
Scholar headed for law school was reported to have hung himself in his 
closet after racking up more than $14,000 in debt on twelve different 
credit cards.
    The impact on students also poses numerous long-term problems. With 
many 
college graduates already facing significant student loan debts, the 
added burden of growing credit card balances can leave many young men 
and women entering the workforce with seemingly desperate debt 
problems. As a result, many young people are forced to choose jobs 
solely on the basis of the starting salary offered, without regard to 
suitability or personal satisfaction. This leads to further economic 
problems for the young worker when the job situation worsens, 
increasing the cycle of debt and credit card dependency. It also 
appears to have the effect of shrinking the pool of otherwise eligible 
and willing applicants for socially important, but less 
lucrative entry level jobs in fields such as education and law 
enforcement.
Financial Illiteracy in the United States
    It would be too easy, and in fact unfair, to pin the entire blame 
for this growing phenomenon on the credit card companies and their 
representatives. While I believe that some regulation of credit card 
marketing is necessary--and I will address these reforms later--the 
problem is much greater than this. Indeed, credit card misuse on 
college campuses is just a symptom of a much greater problem plaguing 
the Nation--the financial illiteracy of much of America.
    Our education system is, in many ways, the envy of the world. Yet 
the same schools that have produced brilliant scientists, physicians, 
and poets have also produced generations of financially illiterate 
Americans. We teach our children to master such difficult mathematics 
concepts as trigonometry and algebra, but we do not teach them how to 
balance a checkbook. Many young people can discuss with great insight 
the history of ancient civilizations, but are not cognizant of their 
own credit histories or the significance of their credit reports. And 
as is clear by my earlier remarks, admission to college requires good 
grades and high scores on standardized tests, but no specific knowledge 
on how to use--or not use--a credit card.
    It is important to note that financial illiteracy is not simply a 
problem faced by our youngest generation of Americans. In fact, it is 
an epidemic. When the country's national savings rate during a period 
of unprecedented prosperity dips below 1 percent, and when 12 percent 
of Americans have no retirement savings whatsoever, we realize that 
financial illiteracy could leave many of America's seniors desperately 
needing financial assistance. When a growing number of individuals--
particularly the poor, elderly, and minority groups--fall victim to the 
scams of predatory lending, we realize that financial illiteracy leaves 
many Americans vulnerable to the loss of their homes or retirement 
savings. And when the total household debt reaches $7.3 trillion; with 
an average credit cardholder having over $8,000 in debt, we realize 
that financial illiteracy has a devastating effect on our Nation's 
economy.
    There are many organizations and individuals across the country 
trying to combat the growing problems posed by financial illiteracy. 
Groups such as Junior Achievement and the National Council on Economic 
Education have developed excellent curricula for promoting financial 
literacy among students of all ages. The Consumer Federation of America 
and Cooperative Extension have joined to create ``America Saves,'' a 
national program that promotes sound personal financial practices in 
several large cities. Additionally, many of my colleagues have 
developed outstanding economic educational initiatives, such as 
Delaware Treasurer Jack Markel's private-public partnership, ``The 
Money School'' and Ohio Treasurer Joe Deters' free-to-the-public 
``Women and Money'' seminars. These valuable programs, however, only 
reach a small minority of our population. And despite these efforts, 
financial illiteracy has grown over the past 25 years--a standard 
financial literacy test demonstrated a drop from a 57 percent average 
score in 1977 to 52 percent in 2000.
    Legislation at the State and Federal level has been helpful, but 
falls far short of solving these problems. Kentucky's historic 
education reform of the late 1980's requires financial literacy 
instruction for all students, but most public schools in the State fail 
to address the subject, often because the teachers are uncomfortable 
lecturing on a topic with which they have little familiarity. The 
President's recent ``No Child Left Behind'' initiative allows for grant 
money to promote financial literacy initiatives, but these programs are 
forced to compete with much more pressing educational needs such as 
reduction of class size and raising teacher pay.
Kentucky's Experiment--Owensboro Saves!
    My Commission on Personal Savings and Investment took a hard look 
at this growing problem and devised a potential solution. Realizing 
that we could not fix all of the problems created by financial 
illiteracy in the State in one fell swoop, we decided instead to gather 
our resources and focus our efforts on one community: Owensboro, a 
small city within a county of 90,000 residents.
    On October 2, we will be launching Owensboro Saves!, a project 
uniting the entire community's leadership--from elected officials to 
school superintendents, from college presidents to constituency group 
activists, from labor leaders to Chamber officials and key employers. 
This public-private partnership will sponsor programming over the 
course of the next year to promote better financial literacy among all 
residents of the region, of all ages and incomes. We will host seminars 
on how to avoid becoming a victim of predatory lending and how to 
complete an Earned Income Tax Credit form. Volunteers will become money 
mentors for residents struggling to save and invest. Activists will 
work with Catholic Charities to develop an Individual Development 
Account (IDA) program to enable the working poor to develop assets for 
buying a home, saving for college, or starting a business. And we will 
hold a free ``Women and Money'' seminar, providing free advice to area 
women--who earn less, receive fewer retirement benefits, and live 
longer than men.
    But even more significantly, we hope to initiate permanent 
educational initiatives to improve the region's financial literacy. 
Working with the nationally-recognized Daviess County School 
Superintendent Stuart Silberman, we will work to ensure that every 
elementary, middle, and high school in the county develops sound, 
mandatory financial literacy courses for its students, to be in place 
by the 2003 school year. We would like the financial literacy education 
to be systematic and widespread. To do so, we will build on existing 
resources and seek private funding and support from community 
businesses to refine curricula, publish educational materials, and 
train teachers on financial literacy instruction.
    At the same time, we are working with officials from the four 
institutions of 
higher education in Owensboro to develop strong financial literacy 
curricula for college freshmen. It is my goal that every incoming 
student will be required to take a mandatory financial literacy course 
upon matriculation. In the meantime, we will develop with school 
administrators a code of conduct for credit card solicitation to 
include this mandatory education as a prerequisite for owning a credit 
card.
    We are aware that we will see both successes and failures with this 
experiment. But our goal is to find out what works, and then to build a 
model that we can use in communities across the State, perhaps around 
the Nation. It is my belief that only through an intensive partnership 
of public officials and civic leaders can we 
effectively tackle the growing problem of financial illiteracy plaguing 
the country, and in particular, among our Nation's youth.
Legislative Recommendations
    Our Commission also believed that some legislation was necessary to 
help combat the growing problem of credit card abuse on our college 
campuses. To better protect our young people, the Commission found that 
several actions need to be taken in Kentucky, through legislative, 
administrative, and/or programmatic means:

 Financial literacy should be taught in every elementary, 
    middle, and high school classroom in the State. Principals and 
    teachers can draw on existing curricula and resources, such as 
    provided by the Kentucky Council on Economic Education, the 
    Cooperative Extension Offices and/or the Kentucky Bankers 
    Association.
 Mandatory, meaningful financial literacy courses should be 
    offered during freshman orientation of every Kentucky college or 
    university. Commission members will offer their expertise to help 
    design suggested curricula, in cooperation with the Council on 
    Postsecondary Education (CPE) and the Association of Independ-
    ent Kentucky Colleges and Universities (AIKCU).
 Credit card companies should be required to register with 
    colleges and universities in order to solicit on campus, and to 
    abide by a Code of Conduct governing solicitation methods. This 
    Code should promote full disclosure of credit card terms and 
    prohibit the more egregious marketing practices, such as dormitory 
    room 
    solicitations and the offering of prizes, gifts, or other monetary 
    incentives to encourage applications from college students. This 
    Code should be developed by the State's colleges and universities, 
    with assistance offered by the Commission and organizations such as 
    CPE and AIKCU.

    As a first step toward implementation of the Commission's 
recommendations, Commission Chair and State Representative Susan 
Westrom introduced House Bill 298 in the 2002 legislative session. The 
legislation would have required Kentucky colleges and universities to 
develop codes of conduct for credit card solicitations on college 
campuses prohibiting practices such as free gifts. It also instructed 
these schools of higher education to require mandatory debt education 
and counseling sessions for incoming students. There was no ban on 
credit cards or even on marketing; we recognized that such solutions 
would be ineffective since any one can be reached through the mail or 
off-campus, where there would be no ability to monitor. Rather, the 
universities--who supported this measure--would be charged with 
ensuring the best interests of their students.
    House bill 298 sailed through the State House unanimously and 
passed a Senate committee without opposition. However, in the last few 
days of the session, the Senate leadership mysteriously did not allow 
House bill 298 to come up for a vote. This failure has been all too 
common across the country--a GAO survey revealed that in the past few 
years, most credit card reform legislation in State legislatures has 
died the same way--buried in a committee, without an opportunity for 
legislators to cast an up or down vote.
    I am very hopeful that as the public becomes more aware about this 
problem, pressure will be too strong for legislators in Kentucky and 
across the country to abandon this needed legislation. I am also 
hopeful that the rest of the country will join States like Arkansas, 
Louisiana, and Virginia who have addressed these issues on the 
legislative level.
    But I believe more legislative action is needed--on the Federal 
level. Credit card companies are national, sometimes multinational 
conglomerates, and for any regulation to be effective, it needs to come 
from the U.S. Congress. These corporations have few ties to the 
university communities they target, and, as a result, are often 
unresponsive to local concerns.
    I believe that Congress can and should impose a real code of 
conduct covering the actions of credit card companies on all of the 
Nation's college campuses--prohibiting incentives such as gifts, and 
banning the more aggressive sales practices such as the recruitment of 
student groups that use peer pressure to complete applications. Credit 
card companies should be forced to determine before they approve a card 
whether the student could even afford to pay off a balance. Teaser 
rates--low introductory rates that balloon into much higher rates after 
only a few months--should be restricted in marketing to college 
students.
    Further, company disclosures should not be limited to the fine 
print of credit card agreements and solicitations, where fees and 
penalties are often hidden or obscured. All credit card materials 
should provide clear examples of how long it will take to pay off the 
maximum debt permitted when the cardholder makes only minimum payments, 
and examples of how much will be paid in interest by the cardholder 
maintaining a balance over time. This common sense type of information 
is currently provided by banks to borrowers obtaining a home mortgage, 
and it helps inform borrowers of the true long-term cost of their debt.
    Still, we will only be able to fully combat this problem with a 
much more comprehensive effort of promoting financial literacy. Mr. 
Chairman, I urge the Members of this Committee, and I urge Congress to 
make financial literacy a high priority for American education. When 
you develop standards for our students and teachers to reach, please 
make knowledge of key financial concepts a requirement. And when you 
determine funding for our Nation's public schools and universities, 
please provide support for producing and publishing sound financial 
literacy curricula and training for our Nation's teachers.
A Public-Private Partnership
    While such Federal measures will be valuable, a Washington mandate 
will not solve the Nation's financial illiteracy problem. Ultimately, 
the solution will come in communities such as Owensboro, Kentucky, 
Gaithersburg, Maryland or Terre Haute, Indiana, where community leaders 
must join in a public-private partnership to better educate their 
citizens. Local leaders--from the worlds of politics, education, and 
business--must join together to ensure that residents of their 
communities have a firm grounding in personal finance concepts.
    But it will also require a concerted effort from those in the 
industries who profit from the accumulation of personal debt. In the 
process of my Commission's work, I have met with several 
representatives of the credit card industry. These individuals seem to 
be the same hard-working, ethical business leaders who have helped to 
make our Nation and our economy unparalleled throughout the world. And 
they have shared with me their sincere desire to protect our children 
from the unfair and aggressive practices of those ``bad actor'' credit 
card companies who they say are a small minority of their industry.
    That is why I challenge the credit card companies to join us in our 
national effort to protect college students from credit card debt and 
promote financial literacy. Today's college students rarely review 
educational brochures and websites sponsored by the credit card 
companies, no matter how well-meaning or how comprehensive they may be.
    Today, I challenge the credit card industry to put its money where 
its mouth is. I ask the companies to make a substantial monetary 
commitment to the development of mandatory financial curricula for our 
Nation's schools and colleges and to train teachers to provide 
effective instruction on these issues. We do not need to recreate the 
wheel--we simply should build on existing resources provided by the 
outstanding organizations that have been working on these issues. 
Funding can help us produce and publish materials that young people 
will read, understand, and apply to their financial behavior.
    Similarly, I challenge all of those in the financial industry who 
profit from lending and investment to make similar commitments. While 
this will pose some upfront costs, in the end, our whole Nation will 
benefit from a more financially literate 
citizenry.
    The only truly successful efforts in this area reflect what I 
believe is the proper role of Government. This is a problem that cannot 
be resolved by Government or private institutions acting alone. 
Instead, Government should help equip people and community 
organizations with the tools they need to solve their own problems. 
Through partnerships with private industry and community leaders, 
State, and Federal Government officials can make a significant impact 
in better preparing our citizenry for the 21st Century economy and the 
challenges it poses. Only by working together--elected officials, 
industry leaders, and community activists--can we tackle the problems 
posed by our Nation's financial illiteracy.
    Ultimately, credit card debt is an issue of personal 
responsibility. But it is unfair to hold college students accountable 
for behavior when they are subjected to high pressure marketing tactics 
and do not have the financial literacy to make proper economic 
decisions. Once given proper education on credit card use and misuse, 
individuals will then be accountable for their own financial behavior. 
And by empowering our citizens with the skills to manage their finances 
effectively, we can help reduce our national reliance on social welfare 
programs and personal bankruptcy.
    And maybe, a decade or so from now, there will be some new rites of 
passage for our Nation's youth. A rite of passage for every third 
grader to learn about the magic of compound interest and the importance 
of savings. A rite of passage for every eighth grader to study the 
stock market and American financial institutions. A rite of passage for 
every high school senior to take a course on family budgeting and 
income management. And finally, in some future September--before the 
football games, before the fraternity rituals--a rite of passage for 
every college freshman to be given solid instruction on credit and debt 
management to prepare them, as they leave their parents' nest, to build 
their own nest eggs.
              COLLEGE STUDENTS AND CREDIT CARD FACT SHEET
Incoming College Students Lack Financial Knowledge
 Only 10-20 percent of high school seniors nationwide will have 
    had any personal finance training by the time they graduate.\1\
---------------------------------------------------------------------------
    \1\ Jump$tart Coalition; American Savings Education Council, 
www.asec.org.
---------------------------------------------------------------------------
 Eighty-two percent of high school seniors failed a 13-question 
    personal financial quiz examining their knowledge of issues like 
    interest rates, savings, loans, credit cards, and calculating net 
    worth.\2\
---------------------------------------------------------------------------
    \2\ Americans for Consumer Education and Competition, National 
Survey of High School Seniors, February 2001.
---------------------------------------------------------------------------
 A 2002 survey of high school seniors concluded: ``High school 
    seniors know even less about credit cards, retirement funds, 
    insurance, and other personal finance basics than they did 5 years 
    ago.'' \3\
---------------------------------------------------------------------------
    \3\ Jump$tart Coalition, ``From Bad to Worse: Financial Literacy 
Drops Further Among 12th Graders,'' April 23, 2002.
---------------------------------------------------------------------------
Credit Card Prevalence on Campus
 For the year 2001, 83 percent of undergraduate students had at 
    least one credit card, a 24 percent increase from 1998.\4\
---------------------------------------------------------------------------
    \4\ Nellie Mae, Undergraduate Students and Credit Cards, April 
2002.
---------------------------------------------------------------------------
 Over half (55 percent) of college students acquire their first 
    credit card during their first year in college.\5\
---------------------------------------------------------------------------
    \5\ GAO, College Students and Credit Cards, June 2001, GAO-01-773.
---------------------------------------------------------------------------
 Fifty-eight percent of college students report seeing on-
    campus credit card marketing tables for two or more days the first 
    month of the semester.\6\
---------------------------------------------------------------------------
    \6\ USPIRG, A Road Map to Avoiding Credit Card Hazards, 
www.truthaboutcredit.org.
---------------------------------------------------------------------------
 Thirty-three percent of college students reported applying for 
    a credit card at an on-campus table. Of these, 80 percent cite free 
    gifts as a reason for applying.\7\
---------------------------------------------------------------------------
    \7\ USPIRG, The Credit Card Trap, April 2001.
---------------------------------------------------------------------------
 From 1999 to 2001, twenty-four State legislatures proposed or 
    enacted laws restricting credit card marketing on campus.\8\ One of 
    these States, California, has enacted legislation that prohibits 
    offering free gifts in return for applying for a credit card at 
    community and State colleges.
---------------------------------------------------------------------------
    \8\ GAO, College Students and Credit Cards, June 2001, GAO-01-773.
---------------------------------------------------------------------------
College Students in Credit Card Debt
 Over 44 percent of college students carried a balance on a 
    credit card during the 1999-2000 school year. Among those students, 
    the average credit card debt was $3,066, while the median credit 
    card debt was $1,435.\9\
---------------------------------------------------------------------------
    \9\ U.S. Department of Education, National Center for Education 
Statistics, 1999-2000 National Postsecondary Student Aid Study.
---------------------------------------------------------------------------
 A random sample of students at George Mason University, 
    conducted in 2002 by Professor Robert Manning, found that among 
    sophomores, juniors, and seniors three-quarters had maxed out on at 
    least one credit card.\10\
---------------------------------------------------------------------------
    \10\ Robert D. Manning, Gregory A. Guagnano, and Ray Kirshak, 
``Credit Cards on Campus: A Growing Collegiate Crisis or Benign 
Societal Trend?'' September 2002.
---------------------------------------------------------------------------
 The same survey found that of students with student loans, 
    more than two-thirds (68 percent) have used money from the loan to 
    pay down credit card debt.\11\
---------------------------------------------------------------------------
    \11\ Ibid.
---------------------------------------------------------------------------
Student Debt
 For the 2001-2002 academic year, the average annual cost--
    tuition, fees, room, and board--was $23,578 at a 4-year private 
    college, and $9,008 at a 4-year public university.\12\
---------------------------------------------------------------------------
    \12\ The College Board, Trends in College Pricing 2001.
---------------------------------------------------------------------------
 In the 1999-2000 academic year nearly two in every three 
    students--64 percent--had Federal student loans. In percentage 
    terms, this represents an increase of more than 50 percent since 
    1992-1993.\13\
---------------------------------------------------------------------------
    \13\ The State PIRGs' Higher Education Projection, The Burden of 
Borrowing, March 2002.
---------------------------------------------------------------------------
 At graduation, the average student holding student loans will 
    have $20,402 in total debt. Of this total, $3,262, or 16 percent, 
    will be credit card debt. Yet more than one-third (34 percent) of 
    the average college graduate's monthly debt payment will go to 
    servicing credit card debt.\14\
---------------------------------------------------------------------------
    \14\ Nellie Mae, Undergraduate Students and Credit Cards, April 
2002.
---------------------------------------------------------------------------
Students in Their Own Words
 Debbie Alford, recent graduate of the University of Central 
    Oklahoma: ``My debt was a huge cloud hanging over me. I felt 
    ashamed about having put myself in that position, but I should 
    never have been able to get all those cards at such a young age. 
    When you are 18, you think you know what you are doing with 
    finances, but you really don't.'' \15\
---------------------------------------------------------------------------
    \15\ ``The Lure of Easy Credit Leaves More Students Struggling With 
Debt,'' Chronicle of Higher Education, June 15, 2001.
---------------------------------------------------------------------------
 Shilpa Hardas, a University of Georgia graduate: ``It is a 
    whole new world when you first go to college. You see your name 
    printed on a credit card and it is a sense of financial power. It 
    is like people are willing to give you money.'' \16\
---------------------------------------------------------------------------
    \16\ ``Georgia Undergraduates Are Among College Students Piling On 
Credit Card Debt,'' Atlanta Journal-Constitution, July 14, 2002.
---------------------------------------------------------------------------
 Christyna Lewis, a Louisiana youth: ``A week after my 18th 
    birthday I received about 10 credit card offers and I was still in 
    high school.'' \17\
---------------------------------------------------------------------------
    \17\ ``Credit Card Issuers Just LOVE Students,'' News-Star, Monroe, 
LA, June 30, 2002.
---------------------------------------------------------------------------
                               ----------
               CONSUMER BANKERS ASSOCIATION NEWS RELEASE
                           September 5, 2002
CBA Financial Literacy Survey Shows Programs for College Students
    Ninety-seven percent of banks responding to the Consumer Bankers 
Association's 2002 Survey of Bank-Sponsored Financial Literacy Programs 
sponsor or partner with a variety of financial literacy programs, with 
45 percent supporting financial education programs for college 
students.
    Of those banks that offer college-based financial literacy 
programs, most (72 percent) are aimed at the general student 
population, while 59 percent said they direct the programs to low- and 
moderate-income students and 47 percent said they were directed to 
minorities.
    ``The banking industry is providing many resources to promote 
financial literacy on campus,'' said Joe Belew, CBA President. ``There 
is also widespread support of public school programs, with 87 percent 
of banks supporting programs in some way,'' he said.
    Among many examples, MBNA America, the Nation's largest independent 
credit card issuer, developed the Student Financial Education Service 
(SFES), an educational program designed to provide credit education and 
counseling services to students and their parents.
    MBNA presents a series of seminars at freshman orientations and 
campus events, has reached thousands of students and projects that it 
will double its audience in 2002. As a resource to parents, MBNA offers 
a mini-seminar at ``parents weekend'' to educate parents on how to 
raise financially smart kids. In addition, MBNA has recently partnered 
with College Parents of America to offer an alternative credit product 
where parents can control the use of their students' credit card.
    Another institution, U.S. Bank, Minneapolis, MN, markets a broad 
range of bank services directly on college campuses. According to Jim 
Marshall, Senior Vice President, U.S. Bank, ``It is our job as a 
community partner to assist college students with their financial 
affairs so when they graduate, they are financially responsible people. 
We want them in control of their finances, to be aware of their budget 
limitations, and to use U.S. Bank as a financial tool.''
    U.S. Bank has branches on several campuses, as well as a branch 
within five miles of 500 campuses. ``Campus banking provides a wide 
variety of banking products that fit students lifestyles and makes it 
easy for them to manage their money,'' said 
Marshall.
    AmSouth Bank, Birmingham, Alabama, has partnered with historically 
black colleges and universities (HBCU's) and public schools in low-
income areas to offer seminars at 60 schools throughout the 
southeastern region. The program has reached 25,000 students, and is 
being expanded to reach 30,000 this year.
    The CBA survey includes 68 bank and thrift institutions that hold 
60 percent of the total bank and thrift assets in the United States. 
The complete study is available at CBA's website, www.cbanet.org.
    The survey also provides details on programs to prepare people for 
homeownership, delivery financial literacy curricula to public schools 
and offer related services such as tutoring, deliver advice on small 
business development, and support credit counseling programs.





                       STATEMENT OF KELLY PRESTA
                      Vice President, Visa U.S.A.
                           September 5, 2002
    Visa U.S.A. appreciates the opportunity to offer comments to the 
Senate Committee on Banking, Housing, and Urban Affairs as it evaluates 
the importance of financial literacy among college students.
    Since 1991, Visa has been at the forefront of financial literacy 
efforts by developing research-based tools and materials designed to 
help consumers at every stage in their financial life. Our program, 
Practical Money Skills for Life (available online at 
www.practicalmoneyskills.com) is a culmination of more than 10 years of 
work to deliver to consumers of all ages the best educational resources 
available.
    PracticalMoneySkills.com is a free online resource designed to help 
educators, parents, students, and consumers practice better money 
management for life. Americans think that financial basics are as 
important as the three R's traditionally taught in school. In fact, 
according to a Visa survey, 77 percent of parents believe personal 
money management is a subject ``very important'' to their children's 
lives as adults--second only to writing at 89 percent. And since many 
young adults today graduate high school without even a basic knowledge 
of money management, like how to create and stick to a budget, many 
learn money skills through the school of trial and error.
    To help today's youths and consumers of all ages become financially 
savvy, Visa has aligned with leading consumer advocates, educators, and 
financial institutions to launch a national program to improve the 
Nation's financial skills--Practical Money Skills for Life. Working 
with our partners the Jump$tart Coalition for 
Personal Financial Literacy, the National Consumers League, BigChalk, 
Light-
span.com, U.S. News and World Report Classroom Program, U.S. Hispanic 
Chamber of Commerce, and the National Association of Consumer Agency 
Administrators, this cutting-edge Internet-based personal finance 
curriculum reaches more than 100,000 schools and 37 million students. 
These financial literacy tools are available in English and Spanish.
    In addition to providing online tools and resources via 
www.practical-money-
skills.com, Visa has created free classroom material that high school 
educators can use to teach personal finance. Available online or in a 
binder format are teacher's guides, student worksheets and quizzes and 
interactive brain-teasers that can be played by students via the Web or 
from a CD-ROM.
    New for this fall, Visa has also created with the National 
Orientation Directors Association and the Association of Student 
Financial Aid Administrators an educa-
tional program for college campuses. Geared to encourage peer learning, 
college students teaching other students, the new Practical Money 
Skills college presentation and student work book will be offered free 
to every university in the United States. Visa is hopeful that 
universities, students, and its member financial institutions will 
answer the call to increase financial literacy on college campuses by 
teaching this program to students.
    Visa U.S.A. continues its efforts to bridge the digital divide by 
donating computer equipment to schools in need and providing training 
for teachers to ensure that schools have access to the equipment needed 
to take advantage of Practical Money Skills for Life. Visa U.S.A. 
expects to continue this program by donating computer labs to 10 high 
schools across the United States every year. To date, Visa has donated 
more than 45 computer labs nationwide.
    Practical Money Skills for Life is educator-developed and educator-
approved. In fact, at the recent National Education Association's Expo 
2001, more than 94 percent of the educators surveyed graded the program 
an ``A'' or ``B'' and 98 percent said they would recommend the program 
to a fellow educator.
    Visa's commitment to financial literacy extends beyond the fact 
that it is good for business, we also believe it is the right thing to 
do. Our youth are graduating today without the vital life skills 
necessary to ensure a successful life--like how to setup a budget and 
how to save for the future. It is critical that children learn these 
important financial facts of life before leaving home. Money skills are 
learnings a student can take from the classroom to the boardroom.
    Visa thanks the Banking Committee for the opportunity to submit 
comments and we look forward to working with Members of the Committee 
and staff on this important topic.
           U.S. PUBLIC INTEREST RESEARCH GROUP PRESS RELEASE
                           September 5, 2002
    Testimony at a Senate Banking Committee hearing today on aggressive 
credit card industry marketing to college students confirms the 
findings of reports by the State PIRG's that many college students, 
already at risk from massive student loan debts, have their problems 
worsened by deceptive credit card offers.
    Recent PIRG surveys of campus credit card marketing have documented 
that students who apply for cards at campus tables, in return for 
candy, trinkets, or T-shirts, have more cards, higher balances, and 
worse over-the-limit and delinquency problems than other students.
    ``Too often debt burden becomes a ball and chain for student 
borrowers after graduation. Many student borrowers are taking on 
unmanageable levels of debt to finance a college education,'' said the 
State PIRGs' Higher Education Advocate, Ellynne Bannon. Bannon co-
authored a March 2002 report on rising student loan debts, based on an 
analysis of the Department of Education data. That study, ``The 
Burden of Borrowing,'' found the following:

 An estimated 39 percent of student borrowers now graduate with 
    unmanageable levels of debt, meaning that their monthly payments 
    are more than 8 percent of their monthly incomes. In 1999-2000, 64 
    percent of students graduated with student loan debt, and the 
    average debt has nearly doubled over the last 8 years to $16,928.
 Forty-one percent (41 percent) of all graduating seniors 
    carried credit card balances averaging $3,071. More of those 
    students (48 percent) with student loans had credit card debts, 
    which averaged $3,176.

    ``Colleges need to take aggressive action to police the credit card 
industry, which has been under intensive regulatory and legal scrutiny 
for its marketing practices in general, but wants to pitch cards 
indiscriminately to students who may not have jobs or the ability to 
repay and who may already have serious student loan debt problems,'' 
said State PIRG Consumer Program Director Ed Mierzwinski. ``Yet, even 
though the Congress has moved swiftly to take up the credit card 
industry's draconian bankruptcy bill, it has taken no action to rein in 
unfair credit card marketing practices.''
    The State PIRG's urged the Congress to do the following to stop 
unfair credit card practices:

 Pass the Dodd legislation, S. 891, to require that credit card 
    companies either require the same terms of college students they 
    require of everyone else--either ability to repay a card or a co-
    signer--or, at least, require proof that the student has passed a 
    qualified debt education course.
 Pass the broader House proposals, H.R. 1052 and H.R. 1060, 
    introduced by Rep. LaFalce (D-NY), to rein in unfair credit card 
    practices.
 Reject the credit card company-driven bankruptcy conference 
    report, which hurts victims of the recession without addressing any 
    of these problems.

    The PIRG's also recommended that campus administrations establish 
mandatory debt education programs, free from credit card company 
interference, and also ban or strictly regulate credit card marketing 
on campus. ``Letting the credit card companies run your debt education 
program is like letting a tobacco company run your ``Stop Teen 
Smoking'' campaign,'' Mierzwinski added.
    ``We commend Senator Sarbanes for holding this hearing,'' 
Mierzwinski concluded. ``We hope to work with him to ensure that 
college students get a fair deal, not a raw deal, from unscrupulous 
credit card companies.''






