The old college try flops
for payday lender on campus
By Lucy Lazarony • Bankrate.co

When CampusCash opened near the University of Illinois in Urbana-Champaign last fall, offering quick cash loans to college students, a local community group was ready.

Protesters crashed the payday lender's grand-opening party. As CampusCash offered free pizzas and T-shirts, demonstrators -- one dressed in nothing but a barrel -- passed out brochures and carried signs such as "Do less paperwork. Burn your money yourself." Another sign exclaimed "469%!?!" -- the annual percentage rate on a short-term loan from CampusCash -- beneath a print of Edvard Munch's The Scream.

This year, there's no party to crash. CampusCash has closed its doors in Urbana-Champaign and four of its six locations in the Midwest. College students are giving the payday lender the brushoff.

Rare defeat for booming industry
It's a rare defeat for a controversial industry that is growing like gangbusters. The payday-lending industry has more than 6,000 outlets nationwide and each year it cashes 180 million checks worth more than $55 billion.

Payday lenders let customers get cash now by postdating a check -- for a fee, typically $15 to $30. Say a customer needs $100 and can't wait the two weeks until payday. A lender would give the customer $100 cash in exchange for a $115 check to be cashed a couple of weeks later.

The industry's many detractors say that it's an incredibly expensive form of borrowing that exacerbates the financial woes of low-income Americans. Its defenders say they're providing a valuable benefit to a segment of the population that banks no longer bother to serve.

But when the industry set its sights to target college students, it was the check-cashers who got checked.

"At the time, consumer advocates came out and poisoned students away" from payday loans, says Abby Hans, treasurer of CampusCash. "They didn't give a balanced approach. Our growth stopped and we had to pull out of the market.

"They scared the daylights out of students," Hans says.

Val McWilliams, founder of the Champaign County Predatory Lending Task Force, who organized the protest in Urbana-Champaign, says, "The scare tactic is telling the truth."

APR of 469 percent
CampusCash charges $1.29 interest each day on its loans, so a customer pays $18 to borrow $100 for two weeks. This rate works out to an annual percentage rate of 469 percent.

"In essence, what you're paying for is money on a day-to-day basis, and that seems eminently fair to me," Hans says.

Most payday lenders require customers to have a full-time job and a checking account. CampusCash, the first payday lender to target college students, lends to students with part-time jobs and to those who can provide proof of another source of income -- such as a grant or scholarship, or even money from home.

"It's very hard to think of a situation where that would be the best alternative," says Orlo B. Austin, director of the Office of Student Financial Aid at the University of Illinois.

While many people take out payday loans because they have no alternative, it's different for college students -- they tend to turn to other options when they get in a financial pinch. And last year, everyone from local consumer groups to campus credit unions to student newspapers got the word out on those alternatives to potential CampusCash customers.

Try campus financial aid office
At most colleges and universities, for example, low-cost, short-term loans are available through campus financial aid offices.

At Illinois, any student may borrow as much as $400 for 30 days, interest-free. The loans come with a $3 processing fee, which is waived if a university gaffe is delaying a student's financial aid money.

Students are limited to one short-term loan per semester. While the loans are designed to help students meet "education-related living expenses, books and supplies, or a medical or family emergency," few questions are asked.

"It doesn't make sense to go through 20 questions," Austin says.

Other options for cash-poor students include personal loans from campus credit unions and credit cards -- all which come with considerably lower interest rates than a payday loan. Interest rates on student credit cards range from 11.65 percent to 19.89 percent, according to the most recent survey by Bankrate.com .

There's also that dreaded phone call home. If mom and dad can spare it, students will probably get the money they need -- along with a bit of a lecture.

Maxed out credit cards
Students from lower-income families are in a much tougher spot -- as are students who have maxed out their credit cards.

Vickie Fitzsimmons, associate professor of Family and Consumer Economics at the University of Illinois, has seen her share of stressed-out students.

"They don't want mom and dad to find out. They want to do it themselves. I've seen people in pretty desperate circumstances," Fitzsimmons says.

"I've seen people skip classes to work to pay off debt. I've seen people take second jobs to work to pay off debt."

Half of the students in Fitzsimmons' personal finance class are there "because they are in debt. They've been in trouble. They're working their way out and they know they need more education on this."

She says much of the debt is from credit cards, another hotly debated subject on campus. Lots of times, students sign up for a number of cards to snatch cool freebies such as T-shirts and compact discs.

"I've had students tell me, 'I never intended to use the cards' and the next thing they knew they had them all maxed out," Fitzsimmons says.

The average undergraduate has $1,843 in credit card debt, according to Nellie Mae, a student loan provider. Nine percent have card debts between $3,000 and $7,000. One-fifth of all college students have four or more credit cards.

True size of debt is hidden
A new study from Georgetown University sociologist Robert Manning and the Consumer Federation of America suggests the credit card debt among college students is a much deeper problem than previously reported.

It estimates that a whopping one-fifth of 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.

Plenty of students who are deep in debt and short on cash will be tempted by payday loans, despite their high interest cost, Manning says. It beats having to face the folks or the financial aid department.

Manning explained the student rationale this way: "It's only $20 or $30, and it saves me having to go to my parents, who don't even know I have a credit card."

"It buys them time."

-- Posted: Aug. 27, 1999