In this report, the term “university” includes nonacademic entities such as the university administration, student union, alumni association, athletic departments, and bookstore. These entities may or may not be autonomous (see fig. 1). Student unions are the center of college community life, serving students, faculty, staff, alumni, and guests, and therefore are often the focus of credit card marketing. Alumni associations provide a fund-raising link to graduates, offer financial services to alumni and students, and therefore can be a source of credit card customers. As taxpayer support for universities has diminished relative to other sources of income, universities have sought to raise funds by increasing tuition and fees and becoming more market oriented. Some universities have sought increased revenues through contracts with private companies (e.g., sale of space for advertising at athletic arenas) and increased alumni donations. The credit card industry is a major provider of financial services and a multibillion-dollar industry. According to the American Bankers Association, in the second quarter of 1998 companies that issued Visa and MasterCard credit cards had 335 million accounts, including 186 million active accounts with balances totaling $401 billion. The top-10 credit card issuers held 75 percent of total bank credit card receivables. The preferred marketing technique for potential customers was direct mail— with 3.54 billion pieces of mail sent in 1999—but card issuers also used techniques such as “tabling” on university and college campuses. In addition, some card issuers pursued “affinity relationships” with nonfinancial organizations and institutions, including universities. These relationships often result in a credit card bearing the business or institutional logo and payments from the card issuers based on the number of cards issued, the charges made to the cards, or both. Some credit card issuers are engaged in the practice of extending credit to borrowers who are at a higher risk of default than traditional customers. These issuers are lending to borrowers who are attempting to establish or expand their credit history. Many college students—mostly those who are young, are not employed or have limited employment income, and have no credit history—fall into this category. Bank regulators have noted that these lending activities can present a greater-than-normal risk for financial institutions and deposit insurance funds. Customers, including college students, with limited or no credit history and income will be charged a higher interest rate to compensate for the higher risk of repayment. Banks issuing credit cards are subject to oversight by federal bank regulators to ensure compliance with federal laws and regulations. Federal Reserve staff told us that credit cards issued to college students had not been the focus of bank examinations because they tended to examine the risk of the credit card portfolio as a whole and do not examine subgroups of card holders—especially at banks where the credit card portfolio is a minor portion of their financial business. These officials said that college student credit card portfolios have not been viewed as especially risky, even at banks whose primary business was issuing credit cards. Office of the Comptroller of the Currency (OCC) officials told us that although they have not focused bank examinations on credit cards issued to college students, they do monitor and examine an issuer’s various credit card portfolios—including a review of marketing and acquisition channels, underwriting, and other risk management functions. The portfolio segment of college students typically represented a small portion of the overall portfolio and OCC is not likely to spend additional time on the college student segment. OCC officials told us that if card issuer management reports provided to OCC examiners showed that the college student segment was a significant portion of the credit card portfolio and was growing rapidly or experiencing performance weakness, OCC would devote more resources to a review of the college student segment. Bank regulators review banks’ compliance with laws relevant to credit cards, including regulations governing credit card disclosure and advertising. The Truth in Lending Act, among other things, requires card issuers to disclose key terms and costs in solicitations and applications to open credit and charge card accounts, when an account is opened, and in billing statements. Required disclosures include the periodic rate of interest that will be applied to account balances—expressed as an annual percentage rate—and an itemization of any other finance charges. Special requirements also apply to credit advertisements. The Federal Reserve’s Regulation Z implements the Truth in Lending Act. The information we reviewed revealed consistent views of the advantages and disadvantages associated with using credit cards. For those students who manage their credit responsibly, credit cards provide access to credit and payment conveniences. For those college students who do not manage credit responsibly and have trouble repaying debt, the disadvantages of credit cards can outweigh the advantages, and their credit card debt may be costly and difficult to repay. Card issuers have used lower credit limits and other techniques on a per card basis to constrain the amount of debt that college students can accumulate. The information we reviewed indicated that college students want their own credit cards, both for convenience and to establish a credit history.The conveniences that credit cards offer students include the following: “Cashless” transactions, An interest-free loan from the time of purchase until the payment is due, Cash advances from automated teller machines, The ability to shop by telephone and on-line and make hotel reservations, The chance to purchase items that students might not have the cash to An instant source of credit that is available without filling out forms or undergoing credit checks. Several individuals we interviewed noted that credit cards provide some financial security for students. Unlike cash, a lost or stolen credit card can be replaced; and there are liability limits for fraudulent or unauthorized charges. Credit cards also offer resources in case of emergencies, such as a large car repair bill or airfare home during a family crisis. Some parents approve of their college students having credit cards because they see them as a tool for learning financial responsibility. Some student group representatives and representatives of credit card issuers cited free gifts or bonuses associated with obtaining a card and continued credit card use as advantages to card ownership. Finally, some issuers pointed out that monthly statements can serve as a financial record for students and their families. Gifts or awards associated with credit cards marketed to college students include cash rebates, magazine subscriptions, coupons reducing the price of airplane tickets, discounts or free telephone calls, points toward consumer products, and rebates for a car. For some students, the disadvantages of having a credit card may outweigh the advantages. Some consumer group representatives, debt counselors, and university officials told us that students may not understand the consequences of incurring excessive debt and making payments late. The convenience of credit cards may tempt students to live beyond their means. Consumer and credit counseling groups pointed out that excessive credit card debt and late payments can impair a cardholder’s credit rating and make it more difficult and costly to obtain credit in the future. Credit card issuers emphasize this same point in information they make available to students. Many of these sources also noted that students who pay only the minimum balance each month may not understand the cumulative effect of interest rates. For example, a college student with a credit card loan of $2,000 and an interest rate of 19 percent who pays back the loan at $40 per month will incur interest charges of $1,994 by the time the loan is paid in full. At this rate, it would take 100 months, or over 8 years, to pay back the loan (table 1). Bankruptcy reform legislation that is currently pending before Congress would require such an example to be included in credit billing statements, but at this time no such disclosure is required. There was also general agreement that students may find credit card debt and other debts harder to repay upon graduation than they had anticipated. Parents of college students may or may not have the financial resources to help these students reduce or eliminate credit card and other debt. Some parents may have the resources to help but choose not to provide financial assistance with debt because they want their college student to learn a difficult lesson about financial responsibility. According to the College Board, the average undergraduate with student loans graduated owing $19,400 in 1998 to 1999. College officials and debt counselors also told us that students may overestimate their starting salaries and underestimate their living costs after graduation. According to a 1998 study of college students and credit cards, the potential accumulation of high interest payments on large amounts of credit card debt increases when four or more credit cards are owned, average credit card balances are greater than $1,000, balances are carried over each month, and tuition and fees are charged. At the extreme, excessive credit card debt combined with other financial problems can lead to personal bankruptcy, according to one credit counseling organization. We were unable to determine the number of college students filing for bankruptcy. U.S. Department of Education officials told us that they did not track the number of college students filing for bankruptcy nor did they know of any other organization or study that reported this information. Officials of the Administrative Office of the U.S. Courts and the Executive Office for U.S. Trustees, which have responsibilities regarding bankruptcies, told us that their officials do not collect data on occupational status, including whether someone is attending college. They also told us that although those filing for bankruptcy are asked to report their age and that age information, along with much other information reported by bankruptcy applicants, is not systematically analyzed. American Bankruptcy Institute officials told us that they did not know of studies that tracked the college attendance or age of individuals filing for bankruptcy. We did identify some unpublished academic research that included data on age but not student status. The researchers collected demographic data, including age, from bankruptcy applicants in 1999 and during previous years. Based on their data collection effort using a questionnaire completed by 1,974 individual debtors filing for bankruptcy during the first quarter of 1999 in eight federal judicial districts around the country, the proportion of debtors in bankruptcy for selected age groups during 1999 are displayed in figure 2.