According to a 2009 study by Sallie Mae, the average credit card balance for college students was $3,173.
Only 15% of college freshman surveyed had a zero balance.
Of overall students, 82% carried a balance and had monthly interest charges. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 put new rules in place to help consumers better understand their credit cards and cut down on unfair practices from credit card companies. Of those rules, there are some that college students should be especially aware of.
Here is a rundown of the CARD Act and its affect on college students:
Proof of Income
Students under 21 need to show proof of income in order to get a credit card on their own. This can come from jobs held, proof of income from investments, or a savings balance that significant enough to pay off credit charges.
Those students that can’t prove income would need a co-signor in order to get a credit card. This means that if the student doesn’t pay, the co-signor (usually a parent) becomes responsible for the debt. If a student with a cosigned card needs a credit increase, the card company will need permission from the co-signor first (this is pretty reasonable sine the co-signor is ultimately responsible for the debt).
No More Free Gifts
Credit companies are well-known to give out gifts on campus to get students to sign up for credit cards.
Everything from t-shirts to frisbees to backpacks and more have been given out (I personally signed up for a card to get a Koosh ball). Under the CARD Act, credit card issuers are no longer allowed to entice students to sign up for a credit card with free gifts on campus or within 1000 feet of campus.
Card companies can’t advertise on campus or within 1000 feet of campus with permission from the college.
There will be better disclosure from colleges and card companies about relationships they have about advertising on campus. [What, you thought those card companies were allowed on campus for nothing?]
How Credit Cards Companies Are Reacting
With these new rules in place, credit card companies are working on new ways to make up for lost profits. Here are some of the things being done:
- Credit card companies may still hand out free stuff. The rules are that a card company can’t give out free gifts and accept applications on location. So what some companies may do is continue handing free gifts but only give out information and applications for their cards without taking the applications. [source: SmartMoney]
- More aggressively market to younger demographics on sites like Twitter and Facebook.
- Appeal to parents to get cards for their kids. Some companies will market credit card offers directly to the parents who are existing customers.
Drawbacks to the New Rules
For those students who would be responsible with a credit card, they are prevented from starting the clock on their credit history (length of credit being one of the factors of a credit score). This could affect the interest rates some students will get for things likes cars or even homes when they are out of college.
Also, some students will lose out on the convenience of having a credit card while at college. It’s not always practical to pay with cash or a debit card.
Are the New Rules Helpful or Fair?
Consider that a college student can vote at 18, join the armed forces at 18, and even drink in some states at 18. But to get a credit card on their own they need to be 21 or prove income. What the rules are basically saying is that a majority of students aren’t responsible enough for a credit card.
Evidence though, shows that college students tend to carry a credit card balance over $3000. The CARD Act is a case where the few who are responsible are sacrificed for those who aren’t.