The Institute for Financial Literacy reports that bankruptcies are increasing among college-educated, higher-income earners. So more than ever, it calls into question colleges and universities allowing credit card companies to market to students. Actually, “allowing” doesn’t speak to the true nature of this practice. In fact, card companies pay institutions of higher learning millions of dollars a year for access to student mailing lists.
From 2006 to 2010, the Institute for Financial Literacy surveyed 50,000 people. In 2006, the percentage of bankruptcies filed by college graduates earning more than $60,000 was 5.5 percent. By 2009, that number had grown to 9 percent. When asked why bankruptcy was necessary, overextended credit topped the list.
While it’s not clear if these surveyed college graduates started racking up debt while still in school, chances are good they did, as credit cards are historically so easy for college students to get (the schools see to that). In 2010, credit card companies paid colleges and universities $73 million in exchange for being able to market to students.
Fortunately, Dodd-Frank Financial Reform legislation is now in place to help protect students from what looks and sounds like predatory lending practices. If a student is under 21 years old, qualifying for a credit card means either having a co-signer or proving income sufficient to pay off the balance. Of course, just because they can theoretically afford to pay off the balance doesn’t mean they will. Why not wait until after graduation, when they’ll really be making money? Of course, the problem is that after graduation student loans come due. The prospect of paying off tens of thousands of dollars in student loans is overwhelming enough; adding credit card debt into the mix can be just too much to bear.
If you are considering bankruptcy – college graduate or not – consider all your options first. Though it is certainly the wisest choice in a number of cases, remember the damaging mark it leaves on your credit for up to 10 years. We have a number of bankruptcy resources that can help you decide.