Starting Feb. 22, college students won't be tempted with free stuff to sign up for credit cards. That's when new marketing restrictions and other rules will take effect, and the end result should be fewer plastic-driven shopping sprees for consumers below the age of 21.
The average college senior had credit card debt of $4,100 in 2008, up from $2,900 in 2004, according to a Sallie Mae survey. Credit card companies expect young consumers to stay loyal to the first credit card brands that make it into their wallets. The card issuers sometimes get data on students directly from colleges, for a fee.
Students can end up with cards with very high interest rates or big fees that can make it easy to accumulate a lot of debt. The average college student is already awash in credit. Most have four or more cards, and only 17 percent said they always pay off their balances every month, according to Sallie Mae.
Of course, many college students use credit cards responsibly. Andrew Merki, chairman of student consumer advocacy organization the Indiana Public Interest Research Group, notes that some of his classmates use cards for necessary items like textbooks. But consumer advocates say the new credit card rules will protect young consumers by cutting down on unfair or pushy practices.
Under the new rules, credit card companies will no longer be able to give out free gifts in exchange for filled-out credit card applications.
"This is going to make it somewhat less likely that students that are not ready for credit will be tempted into it by easy access or freebies," says Gail Hillebrand, senior attorney for the nonprofit advocacy group Consumers Union, publisher of Consumer Reports magazine. In addition, card issuers will be required to disclose any marketing contracts they have with colleges.
A second big change could prove trickier. Americans under age 21 will be required to prove they have a source of income to pay off any charges, or will need to get a co-signer before they can get a card.
The new rule gives parents a chance to say "no" and teach kids a lesson about money, spending and personal responsibility, says Susan Beacham, chief executive of Money Savvy Generation, which teaches parents on how to talk to their kids about money.
A co-signer -- whether it's a parent or an older friend -- is "agreeing to take personal responsibility for the debt the child incurs," notes Beacham.
That means the cosigner's credit score can get dinged if the cardholder does not pay his or her bills on time. "We don't need to do that to ourselves or give our children that ability."
Hillebrand says she's concerned that students will simply ask older friends or romantic partners to cosign for them.
"Even for adults, it's hard to understand that a single mistake can stay on your credit for seven years," she says, noting that a low credit score can make it more expensive -- or impossible -- to get a loan. "They could sign away their futures."
As an alternative, parents can set up checking accounts for their kids, or get them a debit card that is tied to a pre-funded account. Once the young adult has demonstrated that he or she can be responsible with money, credit card talks can begin.
Then there is the argument that an 18-year-old needs a credit card to build up his or her credit history, in order to qualify for loans in the future. Consumer advocates say it's fine to wait until the consumer is 21, because it takes just six months to a year of credit card usage to build up enough history to develop a score. "There is plenty of time to do that," says Hillebrand. "It's better to have a thin credit record than a crushing debt load."
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