November 3, 2011
Credit Card Use Declines Among Students
Average college loans owed by the class of 2010 surged to $25,250 last year, up 5 percent from class of 2009 balances and up 35 percent from 2004, the Project on Student Debt reported today.
But let’s take a moment to thank Congress for doing something well: helping college students ward off another source of debt troubles, credit cards.
Since the federal Credit Card Act of 2009 restricted card issuers’ once-easy access to students, their credit card balances have dropped to $811, on average, from a record $3,173 in 2009, according to student lender Sallie Mae. Forty percent of college students currently have credit cards, down from 84 percent.
Sallie Mae said the 2009 and 2011 surveys were based on slightly different populations and are difficult to compare. But a downward trend is what the undersecretary of the Massachusetts Office of Consumer Affairs, Barbara Anthony, has also observed when she tours college campuses. Three years ago, a roomful of hands would go up when she asked who had a card. Today, it’s “definitely a minority,” she said.
The drop in card use “was absolutely due to the act,” she said. “I can’t tell you the effect this has had on college campuses in Massachusetts and across the country.”
Two provisions of the act made it more difficult for students to get a card. First, card companies were restricted from giving away freebies such as T-shirts on campus to persuade students to sign up for a card. Second, they must require that young adults under age 21 have a co-signer, unless they can prove they are able to pay their debts.
This clearly counts as progress, particularly at a time another form of debt – student loans – are nearing $1 trillion. But the Card Act was a sledgehammer rather than a scalpel, and it may have hurt some students with legitimate credit needs. Credit cards aren’t always bad, but the law makes it harder for them to get a card if their parents have bad credit.
Problems remain on campus. Gail Hillebrand, who heads the consumer division for the federal Consumer Financial Protection Bureau, said students are getting around the law by finding a friend barely over age 21 to co-sign their credit card applications.
“If you’re 21 or older, don’t sign for your friends,” she said at a recent financial education conference. “If you know any young people, tell them what co-signing means.”