In 2006, 78 percent of college students in the United States had credit cards, and one among every 10 college students carried a balance of over $7,800 in credit card debt. The statistics are staggering and the numbers keep rising, with no end in sight. It is more important now than ever for college students to become more financially responsible.
But it is difficult. Credit cards used to pose the greatest threat to financially vulnerable college students with their exorbitant interest rates. But debit cards are beginning to make their own indelible mark on today’s youth.
If you have $10 in your checking account and you purchase something for $15, this overdrafts your account by $5, which brings your checking account balance to negative $5 and you will then incur an overdraft fee. For this example, let’s say $35, which is fairly average. Now you’re negative $40. No big deal–when you get some more cash, you’ll reimburse your bank. But if you think about it, you have paid what comes out to a 700 percent interest rate on what is essentially a very small loan. No one in their right mind would take a loan from their bank with a 700 percent interest rate.
People don’t think about their overdraft fees in such a way, but they ought to. If you’re one of millions in this country suffering from overdraft penalties, which many of our nation’s low-income individuals are, then consider opening a line of credit at your neighborhood bank. If you compare a 700 percent interest rate to that of a normal line of credit loan, which is about 7 to 8 percent, you can see why banks make it easy for people to overdraft and why there is little leniency in overdraft forgiveness.
Take Portland State’s OneCard, for example. The OneCard makes it simpler for you to receive your financial aid disbursements and refunds and provides you with a free checking account. But that’s not all. This handy card works not only as your student identification card, but also as a debit card. Therein lies the problem.
Have you ever used your OneCard as a debit card? If you have, you’ve noticed that you are charged 50 cents every time you do, no matter how large or small the purchase price is. Suddenly your $1.50 soda just increased in price by a third. And with that handy debit card option you can also overdraft your account and be subjected to an overdraft fee between $28 and $35 over and over again, according to the Portland State Business Affairs Office.
The Portland State Business Affairs Office website says that because students cannot use their OneCards as credit cards, they are not able to fall into debt with the card. If overdrafting isn’t a form of debt, then what is it? “Someday, I hope to learn something at PSU other than new and exciting ways to owe them more money,” said PSU sophomore Zane Fischer, when asked about the debit card feature of his PSU OneCard.
Many students don’t trust the OneCard and refuse to activate their OneCards or even use them as their ID cards, preferring their non-MasterCard ID cards. One student who wished to remain anonymous felt very strongly about the abolition of the OneCard. “How could I trust a debit or ‘ID’ card that I didn’t sign up for that comes with a blank space for a photo? That’s just sketchy,” the student said when asked about the OneCard. Some students have even started a group called “PSU OneCard is a Scam” on the friend networking site facebook.com.
Unfortunately for the folks lacking financial savvy, debit cards have become the new cash. Banks and other financial institutions, like Portland State, know this and love the possibilities for profit.
Remember when a credit card company was in the Park Blocks offering free Subway sandwiches if you signed up for a credit card? At that point they were simply preying on the irresponsible. They wouldn’t offer $6 sandwiches for free if they knew they wouldn’t be making their money back tenfold.
Ask yourself, was the initiation of the OneCard for student convenience or a simple guise to draw money away from their students? The answer is unclear. What is clear is that financial responsibility, though perhaps harder to maintain now than during previous decades, is very important.
It’s presumably fair in our capitalist system for credit card companies to prey on students, but is it fair of the educational institutions to do so as well? Surely not. Whether you agree with the assertion that the PSU OneCard preys on students or not is irrelevant because of the simple fact that they will and do make money from the use of the card. If the OneCard were simply for the students’ convenience, they would not charge you for overdrafting or give you that opportunity in the first place.