6 New Changes To Student Credit Cards
Johnny Debt, a recent college graduate with a four-year degree, is entering the tumultuous job market. Almost 2 million college graduates are unemployed, and the National Association of Colleges and Employers predicts companies will hire 22% fewer college graduates like Johnny. If he does get a job, the average salary of entry level graduates like him is $46,000. (For more, see 5 Sectors Hiring Now.)
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Data provided by Finaid.org for 2008 says that Johnny will enter the workforce with an average student loan debt of $24,186, and USA Today reports that he will graduate with a credit card balance of $4,138 spread over three different cards.
If he does get a job, a significant portion of his income will go toward servicing his college debt. He will join the average American household, which commits 15.93% of its monthly income to servicing debt, according to the Federal Reserve.
CARD Act Helps Protect College Students From Piling Up Debt
With increasing frequency, Americans are being warned to eliminate debt in what is considered the new normal. The Obama Administration passed the Credit Card Accountability, Responsibility and Disclosure [CARD] Act of 2009 attempting to remove the sometimes consumer-unfriendly terms that keep Americans from getting out of debt.
As part of this bill, extensive overhaul was done to protect college-age students from piling up debt as they enter the workforce. We put together six items of the bill that should be welcome news to students and their parents.
1. You Need A Note From Your Parents
For students under age 21, mom or dad will have to co-sign the application. The only exception to this is for those under 21 who can prove that they are able to repay their balance by providing employment verification. Any credit limit increase will also require a co-signer's written approval.
2. No More Freebies
In the past, going to a college campus in the middle of the day meant finding tables set up in high-traffic areas filled with water bottles, t-shirts and advertisements for free pizza. To receive the gifts, the student only needed to apply for a credit card. Under the new law, a credit card company cannot offer free gifts unless its representatives are at least 1,000 feet away from a college campus.
3. No More Secret Deals
Many are surprised to hear that colleges and universities often enter into marketing or promotional agreements with credit card companies. In the past these agreements were not disclosed to the public, but now disclosure is a requirement. These agreements often involve the college or university getting a percentage of the revenue generated by the credit card company. In exchange, the educational institution allows its logo to be placed on the card. Under the new law colleges and universities, as well as alumni associations, must file disclosure statements detailing their promotional agreements.
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4. You're NOT Preapproved
The CARD Act of 2009 now prohibits credit reporting agencies from providing reports on those under 21 to credit card companies unless they are given permission to do so from the individual. This will severely limit the amount of pre-approved credit card offers that college students receive.
5. No More Over-The-Limit Fees
Unless the consumer "opts-in", a credit card company is no longer allowed to charge over-the-limit credit card fees. If the consumer does not opt-in, any charge that would result in a balance above the credit limit would be rejected at the time of purchase. Additionally, the over-the-limit fee cannot exceed the balance that is over the card limit. If a customer is $40 over the limit, the fee cannot exceed $40.
6. Late Fees Capped
For those who occasionally pay their credit card bill late, the late fee cannot exceed $25. Be warned, though, that there is no fee restriction for those who are late more than once in a six-month period.
The Bottom Line
While the new law is designed to protect college students against what may be considered predatory lending by credit card companies, it can't deter a person from making unwise financial choices while in college. (For more, see 7 Expensive Mistakes College Students Make.)
Catch up on your financial news; read Water Cooler Finance: The Ups And Downs Of A Double-Dip Recession.