Campus finance offers evolve
Campus finance offers evolve
College students returning to campus this fall face a serious economic downturn, and for those preparing to graduate and enter the working world, debt accrued from student loans and credit card use will likely be a major worry.
Many of these debt problems have been linked to soaring tuition costs, overuse of credit cards and high interest rates. Financial services providers have also been accused of aggressive marketing tactics that can easily overwhelm new consumers and saddle them with unwanted terms and fees.
“We're seeing young people, on average, graduate with $3,000 in credit card debt, and that's typically on top of the student loan debt that they [also] need to repay,” said Christine Lindstrom, higher education program director of US PIRG, which is the federation of state Public Interest Research Groups (PIRGs). “The credit cards have terrible terms and conditions and all sorts of ‘gotcha' fees.”
The public, increasingly concerned about potential debt problems, has placed financial marketers under more intense scrutiny — sometimes demanding revised tactics. A recent push for more responsible marketing came from New York State Attorney General Andrew Cuomo, who reached an agreement with eight student loan companies on September 9 requiring the companies to adopt more stringent guidelines.
The agreement, which followed a nationwide investigation into loan companies' marketing practices, bans logos and return addresses that make offers appear as though they are from the federal government. Fake checks, false rebate offers on current loans and enticements such as iPods and gift cards are also banned, and lenders are barred from advertising interest rates that are not available to most borrowers. Seven of the companies will also pay a total of $1.4 million into a fund for educating students and their families about the financial aid process.
“These settlements are a major step forward in cleaning up an industry where false and misleading advertising practices have been all too rampant,” Cuomo said in a statement. “It's time for the companies to be held accountable.”
Companies need to be clear and concise when communicating with consumers, added Karin Pellmann, VP of PR for MRU Holdings Inc., a loan company that was not under investigation, but voluntarily adopted Cuomo's new guidelines. “Student loans can be complex, and the better quality information that's out there, the better for consumers,” she said.
Credit cards have also been linked to student debt woes. A recent report, The Student Market for Credit Cards: Issues and Trends, released by research firm Kaulkin Ginsberg, noted that more of this year's college seniors will face financial struggles upon graduation due to higher student credit card debt than in previous years. To counter the toll of these debts on college students, some major universities have restricted on-campus credit card marketing.
Consumers are also taking more debt responsibility on themselves. Mint.com, a year-old online personal finance tool, recently added student loan tracking to its site so users can track their payments. The company promoted the new feature on its site and on college campus sites.
“We've consistently reached out to young people with personal finance education tools that are transparent and intuitive,” said Donna Wells, CMO of Mint.com. “As students head to college, they are faced with one of the biggest financial decisions with very little education. For many, it's the largest amount of debt they will incur until they consider buying a house.”
Mint.com received more than 1 million page views in August and had nearly 50,000 new members sign up that month, all of which has been organic growth, according to Wells. The company has an RSS feed on its blog, optimizes its content for search engines and sends out weekly e-mail blasts that have an “invite-a-friend” link.
Increased vigilance from consumers, schools and consumer protection groups has also forced financial services companies to draw in young customers in new ways. Many companies now push prepaid debit cards, rather than credit cards, to college students. Prepaid cards don't allow students to spend more money than is placed in the account, eliminating the possibility of debt; however, they also don't allow students to establish credit histories. Prepaid cards also often carry daunting withdrawal and non-use fees, but few hold these cards to the same scrutiny as loans and credit cards.
“I don't think there's any direct connection between debit cards and student loans — they're two totally different things,” said Scott Galit, EVP of MetaBank, though he agrees that many prepaid debit cards, like student loans, target the college student market. “It enters into the debate of how you balance getting people into the credit system so they can build credit responsibly, while not getting them overextended and not having anything that is abusive being marketed to them,” he said.
This summer, MetaBank launched Facecard, a prepaid card that targets young consumers with a Facebook page and a Web site at Facecard.com. It is being promoted at 50 colleges this fall. Fees include $1.50 for ATM withdrawals and $4.95 per month if the card is inactive for more than 90 days. Facecard also offers monetary enticements, called “Prewards,” that encourage cardmembers to shop with Facecard's marketing partners.
“Anytime we market anything to anybody, it's important to just be completely transparent about what's going on and how things are being handled in terms of costs,” Galit said. “The burden goes up with young people — the standards are higher, there's no question. That said, there are certainly some very exciting opportunities.”