Students Wave Goodbye to Credit Cards

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 is going to introduce new protections for students when it goes into effect in February 2010. These include:

• A ban on issuing cards to those under 21 years old, unless they have either a co-signer or proof that they can make repayments
• A ban on the gifts and incentives (free food, T-shirts, Frisbees, and so on) that card issuers “give” to students who fill in credit card applications
• A ban on the marketing of cards on all campuses that are frequented by those under 21

How Bad is Student Credit Card Debt?

In April of 2009, Sallie Mae, which describes itself as “the nation’s leading provider of saving, planning, and paying for education programs,” published the results of a study it conducted in the spring of 2008.

Among the findings were:

• The large majority of undergraduates (84 percent) had at least one credit card, and half of college students had four or more
• At $3,173, the mean balance was the highest since the study began in 1998
• Only 15 percent of new students had a zero balance on their credit card, compared with 69 percent in 2004
• More than 80 percent did not pay off their balance in full each month, and consequently incurred interest charges
• Forty percent of respondents admitted to charging items to their cards, even though they knew that they lacked the funds to pay the bill
• The average credit card debt of a senior on graduation was more than $4,100, up from $2,900 in 2004

A Worrisome Picture

All of this adds up to a disturbing picture of high credit card debt, and irresponsible card usage among the people who will be running this nation in the future. And you can see why legislators want to remove the temptations posed by cards.

But there is another side to this coin.

Punishing the Innocent Along with the Guilty

Perhaps the most obvious argument against greater regulation is that it punishes the innocent–those students who use their cards responsibly–along with the guilty. Of course you can say that effectively banning many students from holding credit cards protects those in the minority who use them inappropriately.

But if that’s the case, why not ban all credit cards? That would protect those in the minority of adults in the general population who use them inappropriately. What’s the difference?

Real Hardship

Of course, credit card debt can cause real hardship. But denying access to credit can have just as damaging effects.

The Sallie Mae study found that 92 percent of respondents put textbooks and other educational necessities on their credit cards. And 30 percent charged tuition. What happens to those students when access to this line of credit is denied them?

And, what happens to the 84 percent who charge food and the 70 percent who charge clothing?

Will some of them go hungry? Will some have to quit education altogether? Will some be driven to take out even more expensive, sub-prime personal loans from unscrupulous lenders? These are all questions that need to be asked to determine whether CARD is really a good deal.

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