Students snared by high-interest debt

"They made it sound so easy," said Cabrilo, now a senior majoring in marketing and advertising. "Just sign up, you'll get approved and have access to money. They don't talk about interest rates and what will happen to your credit history."

Average credit card debt among graduating college seniors increased to more than $4,100 last year from $2,900 in 2004, according to a study by SLM Corp. About 85 percent of students have at least one credit card, according to the study, conducted every four years by Reston, Va.-based SLM, also known as Sallie Mae, the largest US student lender.

The Senate may vote on a bill as early as tomorrow that would prevent credit card companies from targeting college students such as Cabrilo by requiring parental consent for a borrower under age 21 unless there is proof of independent income or completion of a financial literacy course. A Senate panel approved the restrictions, which also limit credit card interest rates and fees, in March.

"Credit cards should be a leg-up for college students, not a leg-trap that snares them in unbearable debt," said Senator Charles Schumer, a New York Democrat. "This new legislation will help protect students from unfair lending practices."

Credit card issuers market to students because they want to inspire brand loyalty from a young age and believe parents will step in if their children default, according to Bill Hardekopf, chief executive officer of LowCards.com, a Birmingham, Ala., research firm. The lenders also expect college graduates to have higher-paying jobs, he said.

Many students need the accounts because they don't have sufficient financial aid or enough savings to cover college costs, the Sallie Mae study said. More are turning to credit cards as the gap between financial aid packages and tuition widens, said Ed Mierzwinski, consumer program director at the US Public Interest Research Group in Washington.

Tuition and fees have risen 5.9 percent at four-year private institutions to $25,143 a year and 6.4 percent at public schools to $6,585 since last year, according to the New York- based College Board. Tuition, fees, and room and board surpassed $50,000 a year for the first time in 2007 at George Washington University. Current annual rates at Ivy League schools, such as Harvard University, exceed $45,000.

Fewer private student loans, which often have variable interest rates, and "PLUS" loans are being originated because of stricter underwriting standards, according to Mark Kantrowitz, publisher of FinAid.org, a college funding information website.

Credit card interest rates are often higher than private student loan rates, and funding college costs with credit cards should only be used after exhausting other loans and for necessary expenses, said Kantrowitz. "You should live like a student while you're in school so you don't have to live like a student after you graduate," he said.

Recent graduates who are repaying their debts should make the minimum payment on every loan and apply any remaining money to the loan with the highest rate, Kantrowitz said.

Cabrilo, the senior at the University of North Texas in Denton, worked as a waitress the summer after her freshman year to pay down the balance on her Bank of America card, which currently has a 22 percent interest rate.

Bank of America has different terms for student credit cards and provides an educational component with student lending, said Betty Riess, a spokeswoman for the lender. Initial credit lines for undergraduate students start at $500 and are capped at $2,500, Riess said. She declined to comment on the specifics of Cabrilo's case.