Managing Credit: Keeping Students Out of Credit Trouble

Provisions of the CARD Act are aimed at helping students avoid the trap of credit card debt.

As students head off to college for the first time or prepare for their fall return, there’s one thing can be certain will be absent from campus this year; solicitation from credit card issuers. The final components of the White House’s “CARD Act” took effect last Wednesday. Major portions of this installment of legislation focuses squarely on protecting college age students from incurring massive amounts of credit card debt and ruining their credit score.

Aside from educating students about credit and debt, some expect the legislation to help curb student debt.

“There’s a disconnect [among] students with how their actions today will have long lasting effect on their future,” says Justin Draeger, president of the National Association of Student Financial Aid Administrators (NASFAA). “Students are sometimes scrambling to try to meet financial needs and there’s a temptation to go to the easier from of credit available to them,” he adds.

Check out how the legislation will impact students.

No credit cards for minors. Minors must now have a parent or guardian present in order to apply for a credit card. Students under age 21 seeking a line of credit must prove they can afford to repay amounts borrowed by verifying income – or they will need a cosigner.

No unwanted solicitations. Even before hitting the age of 21, many young people, usually college students would receive dozens of emails and letters saying they qualify for a credit card. The legislation puts the kibosh on credit card companies soliciting students.

Limits to money borrowed. Students will now have a $500 credit limit or 20% of the student’s yearly income.

Curtailing college marketing. Credit card issuers are now required to file annual reports with the Federal Reserve detailing all business, marketing and promotional deals with colleges. This includes payments made to the school.

No more freebies. The law clamps down on freebie offers – pizzas, t-shirts, pens – if students sign up for credit cards on or near campus or at college-sponsored events. The Federal Reserve Board issued guidelines defining “near” campus as anything within 1,000 feet of the campus border.

More financial literacy. This is not a required part of the legislation, but the legislation recommends colleges provide credit card and debt education and counseling sessions as a regular part of orientation programs for new students.

For more on paying for student debt check out:

Should you get your Degree in Three Years?

Kids & Money: Paying for College and the Myth of Financial Independence

Economista: How to Pay for Grad School