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Student credit cards–curse or blessing?

by Indexcreditcards Indexcreditcards
Student credit cards–curse or blessing?

Student credit cards for all who can mist a mirror

A couple of months ago, this blog reported on ways in which credit card companies are continuing to circumvent the Credit CARD Act of 2009 when pushing plastic to those under 21. That legislation supposedly obliged issuers to give cards to young people only with an adult to co-sign the agreement, unless the youngster could show he or she had sufficient independent income to manage the debt.

But when the Federal Reserve drafted the relevant credit card regulations, it allowed issuers to count student loans, grants and scholarships, and even parental contributions as “independent” income, thus defeating one of the clear objectives of the act. At least one of the major card issuers is already saying that any under-21s who claim to have (no proof required) a total annual income of more than $2,000 may be eligible for one of its cards. Is there a single student nationwide who has a clean credit report and who does not qualify?

Student credit cards still pushed on campus

Monday, the Fed released a report to Congress on deals struck between credit card companies and institutions of higher education and their affiliated alumni organizations and foundations. It turned out that 1,044 of these, worth more than $83 million, existed last year. Very nearly three-quarters of that $83 million was accounted for by one issuer, FIA Card Services, which is a subsidiary of Bank of America.

Today’s Washington Post calls these relationships between colleges and credit card companies “an insidious alliance.” And its magnificent conclusion is worth quoting in full:

Look, if we know – because we’ve studied it to death – that many young adults (and older ones, too) don’t have a grasp of basic money management, we should be outraged that institutions of higher learning have entered into these agreements giving access to financially vulnerable students. After all, there’s plenty of time for our young adults to learn to be debtors.

Credit card co-signing too rare?

Three months ago, the National Endowment for Financial Education (NEFE) had Harris Interactive undertake an online poll of parents with kids aged 18-20 years. And it turns out the 61 percent of respondents said that they would not co-sign a credit card application for their offspring. Another 16 percent said they weren’t sure if they would, leaving, presumably, fewer than one-quarter who definitely would.

NEFE was disappointed by the findings. It had funded recent research at the University of Arizona that suggested that “parents have the greatest influence on building positive financial knowledge, attitudes and behaviors in their children.” And the organization regretted that some parents were missing out on a key “teachable moment.”

Credit cards can be good for kids

One reporter who shared NEFE’s disappointment was Dan Kadlec of CBS MoneyWatch. He pointed out earlier this month that while co-signing a credit card application may put you on the hook for your kid’s financial problems, in reality you already are.

He suggested–as this blog has often done in the past–that if you’re seriously convinced that your child is likely to screw up his or her finances, then you could look either at secured credit cards or prepaid debit cards. But he went on to urge that, as long as you’re not slitting your own throat, you should consider a product with low fees, low limits and low rates that has been especially designed for students.

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