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College students acquire degrees and debt

NEW YORK (Reuters) - Bryce Petty read about the credit-card reform bill Congress passed this spring, but the bill came a bit too late for her education-related credit woes.

Like thousands of other college and grad-school students, Petty, 28, has found herself in credit trouble after relying on credit cards for living expenses and tuition while in college, and piling up more than $11,000 in credit-card debt.

“I charged up to $1,300 multiple times for my family’s contribution to tuition and registration fees,” Petty said.

She is a member of a fast-growing group -- recent college graduates burdened with massive debts.

However, it’s not much of a surprise, considering that in Petty’s last year at the University of Pennsylvania her tuition, room and board totaled $37,960. This is compared with $31,592 for graduates in 2000, and $17,044 for a member of the class of 1990, according to data from Penn.

Sallie Mae SLM.N released a study in April that found students increasingly use credit cards for tuition. The numbers rose to 30 percent in 2008 from 24 percent in 2004.

College seniors graduated in 2008 with an average credit-card debt of more than $4,100, up from $2,900 in 2004. Nearly 20 percent of them carried balances of more than $7,000, according to the survey.

Petty accumulated debt over five cards that landed her in debt management programs.

“We’re hearing more and more that students are using credit cards to pay for tuition, textbooks and transportation,” said Christine Lindstrom, higher education program director for the U.S. Public Interest Research Group, a consumer advocacy group.

WHERE THERE’S A WILL

Petty got her first card in the early weeks of her freshman year of college, with no credit history or income.

“Somebody with a clipboard said ‘Hey, fill this out’ and I got a $3,100 (credit) limit, that increased every four to six months when I paid on time.”

The Credit Card Accountability, Responsibility and Disclosure Act signed into law in May, would now require co-signers and income verification for students younger than 21 and ban credit-card companies from using “freebies” such as T-shirts, food and electronic gadgets to entice students.

The reform also restricts how issuers can raise interest rates and change fees, but is likely to have little impact on college students, either in terms of lowering their bills or scaling back recruitment of new customers, experts say.

“I don’t buy into the idea that it will dramatically reduce young people’s access to credit cards,” she said. “The vast majority of college students work and have some means to qualify for credit.”

On top of that, even as some universities have tried to raise barriers to on-campus solicitation, credit-card companies have become more astute at overcoming obstacles to entry.

For example, New York University and the University of California, Berkeley, have prohibited marketing in dorms and in bookstore bags, or have limited so-called tabling activities to specific areas, but say it has not stopped the companies from reaching students.

JP Morgan Chase & Co JPM.N, Discover Financial Services DFS.N and Capital One Financial Corp COF.N said they do not market on campuses, but reach students via direct mail or the Internet, including networking sites like Twitter and Facebook, whose users' ages are heavily weighted between 18 and 24.

MISDIRECTED LEGISLATION

Still, some argue that the credit-card legislation exaggerates instances of aggressive marketing and ignores the real cause of deep indebtedness among young Americans -- the soaring cost of higher education.

“Students are becoming a lot more sophisticated at an increasingly younger age. To say that they are being lured by Butterfinger (candy) bars is not the norm,” said Eric Weil, managing partner of Student Monitor LLC, a market research firm. “The real issue is the gap between tuition and federal aid that causes families to borrow more.”

U.S. college students’ average loan debt at graduation in 2009 surged 73 percent to $31,175 over 2003 levels, and the average monthly balance among those students carrying a balance declined 22 percent to $495 in 2009, from $632 in 2003, according to a March study by Student Monitor.

Student Monitor’s numbers include freshman and sophomore cardholders who tend to have lower balances than upperclassmen.

HERE TO STAY

The new credit-card laws are expected to make aggressive marketing less profitable in the short-term, but analysts say credit-card companies will maintain a presence on campuses because connecting with clients while they are in college improves the odds of a long-term and profitable relationship.

“They are an attractive demographic because more education increases the likelihood of getting a job,” said Scott Valentin, a managing director for FBR Capital Markets.

“Everybody’s brand loyalty starts at a very early age,” said Bill Hardekopf, chief executive of lowcards.com, a credit- card resource site. “It might be very easy to keep those students as young, middle-age and then older adults.”

Petty has since paid off her card debt, but was still reeling from her mistakes.

“I have this great Ivy League education, but now I can’t get a loan or apartment without a co-signer,” Petty said. “It’s an ongoing battle that makes me afraid for the future.”

As the new school year approaches, Lindstrom warns against overuse of credit cards and urges students to apply to multiple schools, compare financial aid packages and consider the most economical choice over the most prestigious.

But with skyrocketing education costs, “there should be a stimulus plan for students,” Weil said.

Reporting by Chavon Sutton; additional reporting by Juan Lagorio; Editing by Patrick Fitzgibbons and Maureen Bavdek

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