Credit card companies have always targeted college students. In the 1960s, when it was still legal to do so, they simply issued a new card in the student’s name and mailed it to campus.
That practice was banned when Congress began regulating the credit card industry, but they still aggressively go after those new customers, with the result that the average college student today has more than $3,000 in credit card debt. . This is the highest level since researchers began tracking data in 1998.
Colleges and universities benefit from this aggression, because credit card companies rent space on campus to set up their tables. They offer everything from cash to coupons for pizza and CDs to entice students to fill out application forms on the spot.
Unfortunately, that means students don’t take the time to study the fine print of their offerings. Most, if not all, of these cards come with annual fees, conveniently loaded onto the new card. So the student is in debt before using it to make their first purchase. They may offer low introductory rates, but once the introductory period is over, the rates are at the higher end of what is available today.
So much debt is not only a burden for these students as they begin their new careers, it makes it difficult for them to buy a car, rent an apartment, or even get a job. Because credit scores are partially determined by debt load and how long a consumer has shown responsible debt repayment, they also have low credit scores.
President Obama wants to change all this and is pushing Congress to enact legislation that would make it harder for card issuers to extend credit to anyone under the age of 21. Congress is already considering regulations that will end many of the deceptive practices now employed by credit card companies.
This is in addition to new regulations already approved by federal regulators and set to take effect in July 2010.
If your college student needs a credit card, the best course of action is to carefully study the offers before applying. Compare annual fees, interest rates, and rewards, then choose the best card. Warn your students not to respond to mail-in offers or friendly vendors at tables on their campuses. Keep your credit scores in mind, as they will have a tremendous impact on life’s financial decisions.