Credit companies write off co-signed cards for students
By Vikki Ramsey Conwell • Bankrate.com

It used to be part of the standard advice for students and others seeking to build or rebuild credit -- get a parent or trusted friend to co-sign your credit card application.

No more. Co-signed cards are becoming a thing of the past, done in by today's easier lending standards.

"We offer a wide variety of products and services, so we can approve most people for some type of product," says Laurie Cole, a spokeswoman for Providian National Bank, a Top 10 credit card issuer based in San Francisco. "There is really no need to have co-signed accounts, and it's something we haven't done we for a long time."

Consumer advocates say it's just as well: co-signed credit cards were never a good idea anyway. Parents who wish to use a training tool to teach their college-age children good money-management habits can still do so, advocates say, by adding them on as authorized users.

Students get their own cards
Not that today's students have any trouble getting credit cards on their own. According to a 1998 study by the Institute of Higher Education Policy, 60 percent of college students had at least one credit card and 20 percent had four or more credit cards. They received an average of 20 credit card applications each semester.

Full-time college students are a very attractive market for credit card issuers, who are tailoring their products to meet the needs of almost anyone. Students control more than $19 billion in discretionary spending, with 40 percent of students working full-time, and 22 percent working 20 to 35 hours per week.

Whether letting students fly solo on credit is a good idea is open to debate.

In a recent survey of 750 college students, most of them say they use credit wisely. According to that 1998 survey conducted for the Institute of Higher Education Policy, 59 percent of students reported that they paid their balances in full and on time every month, compared to 40 percent of the general public. Eighty-two percent said they maintained a balance of $1,000 or less, and 86 percent of students said they pay their own credit card bills.

Others hotly dispute this rosy picture.

A scathing new study from Georgetown University sociologist Robert Manning and the Consumer Federation of America suggests that past studies of students and credit cards have underreported the problem.

That study estimates one in five students at four-year universities carry credit card debt of $10,000 or more. The true size of credit card debt is hidden, the study charges, because part of it gets refinanced with student loans or with private debt consolidation loans.

Teach credit card smarts early
The ultimate responsibility lies in the hands of parents before students enter college, says Suzanne Boas, president of Consumer Credit Counseling Service of Greater Atlanta. Parents should discuss how to handle the pressures of credit and the offers that students will receive from credit card issuers. Also, talk about credit, shop around for the best rates and predetermine what the card will be used for, she says.

Even if co-signed credit cards are becoming rare, parents can still teach money-management skills to their children by adding them as authorized users of the parents' credit card. That way, the children can make -- and pay for -- their own purchases each month, but the parents retain control of the billing statements.

While co-signing for a credit card is becoming less commonplace, co-signing for bigger ticket items such as a car is still common. So are the risks.

There are extreme, isolated cases where it makes sense to co-sign for a loan, but the decision should very carefully discussed and agreed upon between the two parties, says Boas.

"Most adults fail to realize that they are not assuming the obligation just in the event of a disaster. They are equally responsible for the entire debt so it puts them in the role of monitoring the young person's payment performance. That can be especially hard if the child is not under your roof," she says.

As an alternative, CCCS recommends that people make the purchase themselves and initiate a side-contract with the child for repayment of the loan. They should also consider an alternative source of financing.

"Make sure the purchase is a need and not just a want," says Patti Boerger, a spokeswoman for the American Bankers Association. "Look at your own credit and whether it fits in with your budget. Perhaps it can wait until later."

co-signing has risks
For Steve Rhode, president and founder of Debt Counselors of America, co-signing for a credit card or a loan is never a good idea.

"Any time a person needs a co-signer for a loan, that should be a warning that something is wrong with their financial life," says Rhode. "They are saying that I am such a big risk that no one is willing to take a chance on me. If you realize that no one else will take a risk on them, then why are you?

"People don't realize what they're getting into when they think they are just doing a favor for someone," says Rhode. "They are actually putting their name on the line. Never co-sign a loan unless you can afford to make all the payments yourself. You never know when you may have to."

Vikki Ramsey Conwell is a freelance writer based in Georgia

-- Posted: Aug. 9, 1999