The Power Of Plastic
Make Sure you read the last paragraph of this article
Sean Moyer, a National Merit Scholar, hung himself after he racked up more
than $14,000 in debt.
"When you go into college, no one ever teaches you about credit cards and interest rates and monthly payments."
Debbie Alford
(CBS) If the bill for America's love affair with credit cards
came due today, it would cost $600 billion dollars, an expensive
affair.
And now, the power of plastic is seducing the college crowd. Big
profits are at stake, and, believe it or not, colleges are making
millions of dollars for letting banks hawk their credit cards,
right on campus
.
The General Accounting Office is taking a look at all this, as is
Congress and a few states. Under pressure, some colleges are now
kicking banks off campus.
But, as 60 Minutes II Correspondent Vicki Mabrey reported earlier
this year, all this concern comes too late for a mother who lost
her child to the lure of plastic.
Janne O'Donnell repeatedly knocked at her son's door one day only
to find "he had hung himself in the closet," she recalls.
By the time he took his life at age 22, O'Donnell's son, Sean Moyer,
a National Merit Scholar headed for law school, was deep in debt
and desperate.
"It just did not occur to me that you - you would give a credit
card to an 18-year-old, who was at that time making minimum wage,"
she says. "I never thought that he would end up with, I think it
was two Visas, a Discover, a MasterCard. When he died, he had 12
credit cards."
Moyer was more than $14,000 in debt, even though his mother had
already bailed him out once. O'Donnell blames her son, but says
he always worked hard. He had worked since age 16 and had two jobs
when he died. She says he was just naïve, taken in by slick credit
card vendors.
She didn't have to co-sign for him, because he was 18, she says.
"Anybody that has 18-year-olds knows they are not adults. I don't
care what the law says. They are 18 one minute; they are 13 the
other. Here they are in college, their first time away from home.
They're learning to manage their money," O'Donnell says.
It's easier for 18-year-old college students to get credit cards
than ever before.
O'Donnell says her son got credit cards first at the University
of Texas at Dallas. "When we took him to college, they were there,
and they were handing them out.
At the University of Oklahoma, where Moyer transferred when debt
forced him to move back home, credit card vendors were set up all
over the stadium.
Under Cover
Because vendors don't like being videotaped, 60 Minutes II Associate
Producer Todd Stallkamp strapped on a hidden camera and roamed the
campus posing as a student.
CBS
First USA was marketing Visa cards. The vendors weren't shy,
offering T-shirts in exchange for filling out an application.
Read his first-person account.
Every major card company is in the game. For example, at New York
City's John Jay College, American Express cards are hawked across
the street from campus.
Banks argue they're giving young adults a great opportunity to
establish credit early - at interest rates as high as 21 percent
to cover the risks. Bank studies found that more than half of
students pay their complete balance every month. But 60 Minutes
II discovered that many more are going broke. In 1999, a record
100,000 people under age 25 filed for bankruptcy.
America's growing dependency on credit worries University of
Houston Professor Robert Manning, an expert on consumer debt.
"This is simply an industry that's trying to make easy money
at the expense of the future of our young Americans."
The credit line typically extended is for about $500, according
to Manning. "I've seen them go up as high as $10,000 for students
under 21 years old."
"Students are the only market that isn't saturated," Manning says.
"Every year you're talking about anywhere from 25 to 30 percent
new students arriving on campus."
"It wasn't a problem originally when the credit industry was
offering $200, $300, $500 to students," he says.
Credit Report
Prof. Robert Manning's site details his new book, Credit Card
Nation, which has a section on student debt, and includes other
resources and news links.
First USA pays $3 million to get on campus and issue a credit
card with University of Oklahoma's name on it. Hundreds of
colleges are cutting similar deals.
The 10-year contract between First USA and the University of
Oklahoma gives the bank the exclusive right to market its
MasterCard or Visa to the alumni, employees and students.
First USA guarantees the university a minimum payment of $13
million and the school gets four-tenths of 1 percent of every
purchase students charge.
On demand, the university agrees to provide the bank with the
names, addresses and phone numbers of its 21,000 students.
"This is where the university has crossed the line, by accepting
millions of dollars of royalities," Manning says. "The more their
students are in debt, and alumni are in debt, the more money that
they are ultimately going to be able to get in future contracts."
Oklahoma University president David Boren, who signed the contract
with First USA, refused to talk to 60 Minutes II and so did the
bank. Instead the university sent a letter outlining its finance
seminars and saying that its students are 18, "citizens with the
right to vote."
"Why don't we open bars and a whorehouse, too?" O'Donnell asks.
"It's wrong to give people credit they can't handle. There are
other ways to raise funds. You don't prey on people."
First USA has similar contracts with several hundred colleges,
as does its rival MBNA.
Give Them Some Credit
Some financial services Web sites try to teach fiscal wisdom
to young credit card holders. But just how well do they do it?
But vendors need not have a contract. Credit card vendors like
Juliann Pedersen pay schools a few hundred dollars a day to set
up tables and sign up students.
"Many of the schools are very anxious to have us there. They
actually will call us up and ask why we haven't been there...
for a time," Pedersen says.
"We live in a capitalistic society," says Pedersen, who has
worked campuses nationwide for nearly a decade. "Universities
need money to make the schools happen, and we're a profit
center for them."
She fingers the students' "irresponsible behavior."
"That is the whole belief system that they're brought up with
- that it's easy money," Pedersen says, adding, "A credit card
is not free money."
But making sure students take the bait has turned into a science.
60 Minutes II showed Pedersen an industry training manual
indicating her job is to get kids to take the cards.
If the student says, "I'm afraid I may go into debt," the
solicitor is supposed to say, "Now is the perfect time to
learn how to manage credit."
"Many students say they make no money, but their parents
give them $200 a week; they have a car that's paid for with
gas in it," Pedersen says. In addition to college being paid
for, "they have books. They have great haircuts and really
nice jackets and beepers and cell phones and jewelry and really
cool shoes....These kids have no responsibility and no concept
of money."
Parents like Trisha Johnson think that's why banks and
universities should not come between parent and child: "The
parents ought to have a say in how much credit they can have.
And 'cause eventually the parents are probably going to be
paying the bill."
Johnson lost her daughter - Mitzi Pool - when she panicked
over debt. Pool racked up $3,000 on credit cards she got at
the University of Central Oklahoma.
"Ten dollars minimum payment - it'd look easy to anybody,"
Johnson says. "She knew she could handle that....They don't
realize that once the balance gets bigger, that minimum payment's
more."
Pool had worked since she was 14. helping her divorced mother
with the bills. But those lessons in finance didn't keep her
from getting in trouble.
"She called the day before her death, Dec. 1, crying that she'd
just lost her job...and didn't know what she was going to do,"
Johnson says.
Johnson told her daughter they would go over the bills and figure
out something, she recalls. "And she seemed fine...with that."
But inside her dorm room, Pool, then 18, spread her bills over
her bed and hung herself with a rope made from a bed sheet.
"I blame the credit card companies more than anything," Johnson
says. "I don't blame Mitzi....I'm disappointed that she spent the
money like she did."
Debbie Alford, who lived in Pool's dorm and tried to revive her
before realizing she was dead, also wound up deep in debt. "It
wasn't up until I was 21 or 22 that it started getting really
scary, that I knew I was in trouble," Alford says.
Now 24, Alford is working full time and still trying to graduate.
She says banks kept increasing her credit limits, and she kept
charging - clothes, concert tickets and pizzas - until she was
$14,000 in debt and only earning $4,000 a year.
"When you go into college, no one ever teaches you about credit
cards and interest rates and monthly payments," she says. "The
banks know exactly what they're doing."
She filed for bankruptcy. "It's like you're drowning, and...you
can't come up for air....I had no other way out," Alford says.
The University of Central Oklahoma says it no longer has a
credit card contract with MBNA but it does still allow credit
card vendors onto campus, like one 60 Minutes II videotaped
in October.
Many other colleges have banned vendors, but few are giving
up the lucrative contracts.
Long after their deaths, Pool and Moyer received credit card
applications in the mail. Yet the banks that did not require
their parents to co-sign were after them to pay the bills.
"I'm stubborn. I will not pay his debts off," says O'Donnell.
"For the longest time they would call. And we had one say that
if you really wanted to honor you son, you'd pay off the credit
card."
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