Credit card companies have been known to offer generous credit limits and 0% introductory rates to their customers, even to college students who have little or no income. When the payments begin to soar, many resort to borrowing even more just to pay for living expenses. Approximately 84% of college students have at least one credit card, with an amazing 56% with more than four accounts, according to Sallie Mae. The study also revealed that the average undergraduate carried $3,173 in credit-card debt last year. Graduates were carrying, on average, $4,138 of credit card debt, a 62% increase from 2004, with almost 20% carrying a balance of more than $7,000. But new laws may change this growing trend.

The new Credit Card Accountability, Responsibility and Disclosure Act of 2009 will go into effect in February, making it much harder for students to qualify for credit cards. The law is designed to foster more “transparency, accountability, and mutual responsibility,” according to the White House. Here’s how the new law affects students:

  • Students will not be allowed to charge more than 20% of their earnings.
  • A co-signer will be required for students under 21 who cannot verfiy their independence.
  • Students will need parental permission to have their credit limit increased.
  • Lenders will no longer be allowed to offer ‘freebies’ to entice students to apply.
  • Rates may not be increased on outstanding balances until a person is 60 days late.
  • Student can regain the initial lower rate by paying on time for the next six months.
  • Schools will be prohibited from selling names and personal information to lenders.
  • Lenders must disclose all financial terms between borrower and lender.
  • More public exposure of contracts between colleges and lenders.
  • Universities will offer education programs to incoming freshmen.

Unintended Consequences
The added difficulty in acquiring a new credit card is not necessarily good news. The rules will make it nearly impossible for college students to begin building their credit history. This will make it harder to buy a new car or home after they graduate. Some financial experts say that debt is not a bad thing, if students can learn to handle it properly. “You can send a young adult to Afghanistan or Iraq in the military and he can’t borrow $300 to $500 — the law seems silly,” said Jim Randel, author of The Skinny on Credit Cards. “We should teach them to borrow responsibly; this isn’t brain surgery,” said Randel.

One unintended hardship for college students is the necessity of using plastic to pay for tuition. More than three-quarters of college students have at least one credit card and 24% have used their cards to help pay their tuition, according to a U.S. Public Interest Group report. College students who lack a financial safety net to assist with expenses might experience some difficulty accessing credit when the new laws go into effect. Vulnerable students are those whose parents or guardians are not able to qualify as co-signers on a credit card application.

While the intent of the legislation is to protect, it presents risks for vulnerable students, says Dr. Karen Gross, president of Southern Vermont College in Bennington, Vt. Gross, who directs New York Law School’s Economic Literacy Consortium. “While the law’s provisions generally address practices that are problematic in the credit card industry, such as sudden interest rate increases, the law presents barriers for students who rely on credit cards.”

Similar Posts:

Share