Credit Cards And Campus: A Rough Break Up
"Mom, send money, I need to pay my credit card bill." Your answer? "What credit card?" When your child went off to college, you may not have realized that your child would receive and take advantage of credit cards in their own name. How can these credit card companies offer credit to students without any income? Well, now they won't be able to anymore. The Credit CARD Act of 2009, which came into effect on February 22, includes changes in on-campus credit card marketing and college affinity card agreements.

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According to a report from student loan company Sallie Mae, college students used credit cards more than ever to charge tuition and other direct education expenses. In fact, 84% of undergraduates had at least one credit card. On average, students had 4.6 cards with an average total balance of $3,173.

Only 17% paid off all their cards each month. Another 1% had parents, a spouse or other family member paying the bill. The remaining 82% carried the balances forward incurring the steep finance charges. (Find out how to determine whether your child is ready to handle this financial responsibility in Is Your Teen Ready For A Credit Card?)

Why Students?
Card companies covet the "first-card" prize, which has shown that the first card anyone receives creates a long-term affiliation with that consumer. Issuing cards to college students was a natural step toward achieving this goal. In addition, students have a lot of expenses, and not a lot of experience budgeting and making financial decisions.

The CARD Effects
One of the desired outcomes of the Credit CARD Act is more parental control over their student's spending. No longer will a student under 21 without sufficient income be able to sign up for one or more credit cards incurring insupportable debt. If you are under 21, the law requires you to show proof you can repay the credit card bill yourself or have someone over 21 co-sign on the account.

Banks must also provide a reason for participating on college campus and at university-themed events. Students can no longer depend on the free pizza and other freebies they receive with the pre-approved card coupons designed to entice students to sign up for a credit card. (The Credit Card Accountability, Responsibility and Disclosure Act of 2009 has brought about new rules to help protect you. Find out more in How Your Credit Card Is Changing.)

Colleges Hit Too
The college and university affinity card programs will feel the affect of the Credit CARD Act as well. Alumni associations receive significant royalties from college affinity card contracts. The card issuers joined with alumni associations to promote college affinity credit cards. Alumni associations, like the card issuers, recognize that capturing their students' affinity when they are young creates a long-term relationship. The student credit cards offered the alumni associations a nice way to generate some revenue and capture students' loyalty.

According to an alumni association umbrella organization, only about 5% of the revenue from college affinity cards comes from under 21 students. However, alumni association can receive more than $1 million from these agreements.

The Credit CARD Act calls for the card companies that contract with colleges and universities to issue affinity credit cards to submit a report to the Federal Reserve describing the terms of those contracts by institution. The Fed will compile the reports, issuing one of their own, making the information publicly available.

The Bottom Line
Even though the campus credit card party is over, be on the lookout for new marketing programs. The potential to capture a student's first card is too good to pass up. (You can go to college without going broke, but it may take an unconventional approach. Read 5 Ways To Fund A College Education.)

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