subject: College Students and the New Credit Card Landscape [print this page] College Students and the New Credit Card Landscape
In the good old days of credit card marketing, banks would set up tables on the quad and offer college students freebies like water bottles, t-shirts, and candy bars, in exchange for filling out a credit card application. What's more, predicting that these young people would join the work force as professional, the credit card companies didn't mind that students lacked any credit history, because they knew that the average student credit card is held for many years, as the cardholder gradually increases his or her salary and spending power.
The downside, of course, of the making it so easy to get a credit card for students, was that students might get more than one card, and begin using it before fully comprehending the responsibilities that come with carrying credit. Too many students would use their newfound credit limits to fund entertainment, travel, and other purchases that were not paid off at the end of a card's billing cycle. As a result, some students graduated with substantial credit card debt on top of their student loan debt. Sallie Mae conducted a study that showed about 84 percent of all college students having credit cards, with 56 percent of them, having more than four!
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 included provisions that went into effect in early 2010, making it harder for people under 21 to get a credit card without a strong credit history. Of course, most people that age have not lived on their own and developed a history of paying bills on time to establish a credit history. Alternatively, under the new law, students under 21 can still get a credit card but they have to find someone to cosign on the application. This is typically a parent. Understandably, many parents are reluctant to cosign for their children, because if their children fail to make payments on credit card debt, and the cosigner doesn't cover for them, it could damage the cosigner's own credit score.
Credit card companies are now required to get a parent's written permission before raising credit limits on a student's credit card account.
Also, credit card companies cannot market cards by giving away freebies on campus, or advertising in campus newspapers.
Students and their parents can opt to go the prepaid card route. A prepaid card is similar to a checking account debit card, but is not tied to a bank account. Backed by the FDIC and issued by various banks, prepaid cards typically carry a MasterCard or Visa debit brand mark. They can be used for signature or PIN transactions, and even let you withdraw money from an ATM. Like a standard debit card, a prepaid card draws funds from the cardholders account. Funds are put on the card account and replenished in several ways, including direct deposit, Western Union, Greendot MoneyPaks, or by handing over cash to a cashier who then adds that amount to the card. Prepaid cards typically have fees such as a one time activation free (e.g., $9.95) a monthly fee (e.g. $4) and a per transaction fee, such as $1 each time a purchase is made.
Parents can put cash on a prepaid card for a student, helping the student manage his or her money, and still have the safety and convenience of paying with plastic.
