Late last month, Congress passed the largest credit card reform bill in more than 40 years, looking to reform a number of practices which helped lead to consumer finance problems during these harsh economic times.
While general consumers were the main focus of the legislation, the bill also contained a number of stipulations changing how credit card companies interact with students.
The new laws say students younger than 21 years of age can’t get a credit card unless their parents co-sign or they can prove their ability to pay.
Students are also only allowed to borrow $500 or 20 percent of their annual income at one time, depending on which number is larger.
While some critics have argued the bill treats students unfairly by making it more difficult to get credit, Sandy Preston, a University of Nebraska-Lincoln extension educator in Dixon County who specializes in family finance, said she hopes the new regulations will actually make credit card companies treat students more fairly.
In its study, “How Undergraduate Students Use Credit Cards,” Sallie Mae, one of the country’s largest student loan providers, found that around 84 percent of college students have at least one credit card and the average debt among students is $3,173.
Preston said it’s still too early to tell if the need for a co-signer will really lower the number of students with credit cards, but the legislation does have the potential to lower student’s total amount of debt.
High levels of credit card debt can be a big problem for some students, Preston said, mainly because they haven’t really dealt with credit before. Students haven’t had as much experience dealing with future consequences of their actions as adults have, Preston said, so the idea of having to pay back debt isn’t quite real at that point.
“They’re not used to having to pay consequences in the future,” she said. “It’s easy money now for them without realizing the cost in the future.”
Because they don’t always think about paying back their credit, Preston said some students rack up more debt than they can handle. This can lead to late fees and students exceeding their credit limit.
Some credit card companies charge fees as high as $30 for payments that are one day late, Preston said, which is another unanticipated cost for students.
“You add those fees up and credit card bills can increase dramatically,” Preston said.
By requiring a co-signer, the legislation looks to lower student debt by making sure someone watches students’ spending. Jeff Markley, a junior accounting major, said making someone watch their spending isn’t unfair to students, and is actually a good idea.
“As college students, we’re pretty stupid and we’ll get in trouble and we’ll be paying that debt off for a long time,” Markley said. “When you first get a credit card, you should have a parent watch over you so you have responsible spending habits.”
While it can benefit students, Preston said parents should be cautious of co-signing a credit card for their children. Preston said she’s heard of cases where parents have stepped in to help their kids with out of control credit card debt and had their own financial security damaged as a result.
“Ultimately the parent can become liable,” she said.
While the new credit card laws could be a big help to students, Preston said the best way for students to keep their debt low is to be aware of the consequences of using their cards.
“Students need to keep their cards in check because they can have a bigger impact on their future than they realize at the time,” she said.
adamziegler@dailynebraskan.com
NO...THE BEST WAY IS NOT TO HAVE A CREDIT CARD!