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TESS VIGELAND: I'm in St. Louis today as part of a Marketplace series called the Road to Ruin. My colleague Amy Scott and I revisited some of the people and places we traveled to last October. That's when the nation was starting to recognize a new financial order was upon us, including a credit crisis. What better place to begin our education about the borrower culture than on a college campus like Washington University, where many people get hooked on credit for the first time.
Light from three-story windows and the buzz of lunchtime conversation filled the student union at Wash-U. What I didn't see there was one of the staples of my college days in the late 80s -- tables of students being paid to hawk credit cards.
A few years ago this university stopped allowing card companies on campus. They didn't want co-eds to be constantly tempted by offers of free T-shirts and football tickets in exchange for signing up for a card. But that hasn't stopped the pipeline from reaching students. The student loan company Sallie Mae reported this week that 84 percent of the college population uses credit cards.
Jennifer Klein: Here's a pledge card. Pass the word around, spread the word to your friends, thanks.
Jennifer Klein and Taylor Poling are seniors. Both hail from Maryland. They were at a table soliciting fellow soon-to-be-graduates to contribute to the senior class gift. I asked if either of them knew their credit score, the number that determines your financial identity for the rest of your life.
Taylor Poling: No.
Jennifer has a debit card. And Taylor has a credit card. She got her first one as a freshman. She says her parents gave her advice on handling credit, and so far it's worked out.
Poling: I make sure that I pay off my credit card every month and so I'm staying on top of what I can in terms of my own finances.
Around the corner senior Jonathan Baude, of Bloomington, Ind., and his buddy Ben Walsh, a junior from Cincinnati, were selling tickets to the student musical "Footloose." I asked if they could tell me either their six degrees of separation from Kevin Bacon, or their credit scores.
Ben Walsh: Nope.
Jonathan Baude: I don't either.
So, O-for-four on the credit score. Both said they probably should know. Ben's had a credit card for about two years. Jonathan has been an authorized user on his parents' credit card since high school and admits he's gone overboard more than once.
Baude: I went through a period where I overused it and they said you're spending too much money. But they never really gave me a limit, I just have a general guilt every time I use it.
Bill Witbrodt: When they land on campus I find that the financial education that they have generally is lacking.
Bill Witbrodt is the director of student financial services at Wash U.
He conducts seminars for students to learn how to use credit wisely, and the consequences if they don't.
Witbrodt: They know about credit cards but the credit score is usually something -- a new concept for them. Their credit score is as important as their GPA.
Anyone who's out of school would tell you the credit score is far more important than your grade point average. And credit card companies know that the college student audience is not only somewhat captive, but potentially lucrative. Steve Fazzarri teaches economics at Wash-U.
Steve Fazzarri: You have young people who are likely to be over time a higher earning group because they're getting more education. So you could see hey let's get these people with our card, our company, early on, let's get them hooked in.
But wait a minute. Let's give credit a little credit. It does give us more choices in how to use our money. And Fazzarri says for college students, it can be a necessity.
Fazzarri: If you have a car on campus that needs repair and you don't have the money in the bank what are you going to do? If the books turn out to be a little more expensive than you expected, what are you going to do? So having access to a modest amount of credit that allows you to smooth your spending relative to your income is something that can greatly improve welfare.
It also allows them to establish a credit history, so they're able to do things like rent an apartment. But that assumes they're responsible with the credit they're given. That Sallie Mae survey I mentioned earlier, it found seniors carry an average of more than $4,000 in credit card debt, and that's up almost 50 percent from just five years ago. Fazzarri suggests that colleges and universities should provide their own form of credit to students and monitor their usage. It's an idea that might benefit someone like Jonathan Baude, who's about to graduate into a world where credit is his only source of support, aside from his parents.
Baude: I'm kind of terrified, because I don't have a job. So I just have this magic card that pays for things.
Ah yes, the magic card. As we'll hear throughout this hour, it's got a not-so-magical history, and can hold a powerful spell over your entire financial life. We've got photos of our students plus some sample handouts from Bill Witbrodt's credit seminars on our website. It's Marketplace.org.