Credit-card rules tightening on college campuses

Credit-card companies love college students.

They're either cramming their mailboxes with pre-approved offers or setting up booths on campus, offering free T-shirts to any undergrad who will sign on the dotted line.

"Banks have a certain idea that parents will bail them out, or they will graduate and get these really high-paying jobs and be able to handle the bill," said Linda Sherry, a spokeswoman for Consumer Action, a national consumer education and advocacy group based in San Francisco.

While credit-card offers currently are easy to find on any campus and are available to almost anyone who is enrolled, it will become more difficult for college students to get a card six months from now.

A new credit-card law that goes into effect Feb. 22 will prohibit card issuers from lending to anyone under the age of 21 unless that person can prove he can make the payments or get a parent or guardian to co-sign.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 will protect consumers against excessive and obscure fees and interest charges that have kept cardholders mired in debt despite their best efforts to dig themselves out. Among its features are strict rules for issuing cards to those under 21.

"If a student and (his) parents feel they can service the debt or pay off the card in full each month, it might not be a bad idea to get one now because they'll lose the option after February," said Ben Woolsey, director of marketing and research for CreditCards.com in Austin, Texas.

"If handled responsibly, a credit card can help a college student establish and build a credit history, which if it's good will give them access to less expensive credit later when it's time to buy a car or a house or borrow other significant amounts."

The problem is that more and more college students are getting into serious debt that has little to do with their education and more to do with their lifestyle.

A recent Sallie Mae survey showed that the average college student graduates with $4,700 in credit-card debt, which is a 62 percent increase over the 2004 figure of $2,900. It also showed that 84 percent of all college students had at least one credit card and that students had, on average, 4.6 credit cards.

The credit-card offers started hitting Christopher Lin's mailbox when he turned 18, just as he was starting his freshman year at the University of Pittsburgh. At age 21, the rising senior political-science major now carries four major credit cards in his own name with a combined credit limit of about $10,000, although his parents are paying the bills.

"My family told me to apply for them to build up my credit," he said. "I use them for small purchases like eating out. I only spend an amount I can pay back each month so my credit gets built up."

Not all students are aware of how easy it is to go into debt, how interest can work against them and how debt can affect their credit scores. Late payments can lead to high fees and higher interest rates. Maxing out the credit limit can hurt the same way.

Graduating seniors with big credit-card bills not only have a high-interest burden to contend with, but they'll likely also have a lower credit score that will cause them to pay higher interest rates for any loan they might apply for and could even effect their ability to get certain jobs if credit scores are part of the selection process.

Rebekah Lynn, 19, a sophomore majoring in English literature and classics at the University of Pittsburgh, said her parents co-signed for her to receive a credit card at age 16. When she turned 18, however, they took their names off the account and gave her full responsibility.

"I only use it for gas, and I pay it off every month with my savings and my income from a research fellowship," she said of her $1,000-limit credit card.

The credit-card industry last year took steps to curb the abuse of people with bad credit who rent authorized user accounts from people with good credit in order to build their own credit. But the system has since been modified so that children and other close family members can establish and build a positive credit history by having parents co-sign for them or by being added as an authorized user on a parent's credit-card accounts.

The downside of the new law will be that it makes parents directly liable for their children's bills. Also, colleges and universities stand to lose millions in fees they receive from card companies for the privilege of peddling their plastic on campus.

"Some people think this law is a good thing and that all debt is evil," said Jim Randel, author of "The Skinny on Credit Cards." "But my thinking is it's not realistic. Debt is a part of life whether you're buying a car or a home or doing many other transactions where finance is a part of the purchase."

Several consumer groups lobbied hard for the provision regarding young adults because they feel credit-card companies are taking advantage of naive consumers. Randel believes that the act will go a long way in curbing some of the abuses in the credit-card industry but could deprive young people from learning to use credit to their advantage.

"These credit cards are not unlimited," he said. "Most have $500 to $1,000 limits. So, we're not talking about putting young adults in a big hole. We're talking about teaching them to use debt and borrow responsibly. I don't think you do it by telling them they can't borrow $500 until they are 21."

(Tim Grant can be reached at tgrant(at)post-gazette.com.)

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)

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