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Credit Card Companies Absent from College Campuses

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They used to be a common sight at college campuses across the country: creditors parked along corridors and in common areas, hawking their credit cards. From freebies to easy credit, college students used to have their pick of credit cards, simply by strolling along at their college campus. Today, however, the atmosphere is decidedly different, with the government pulling in the reigns of the credit card companies when it comes to extending credit to college students.

In fact, the number of new accounts opened through colleges or other such higher learning institutions dropped 17 percent in 2010, according to the Federal Reserve Board. In addition, agreements between colleges and credit card companies were down, too.

The CARD Act Consequences

The drop-off in activity was, no doubt, brought on by the Credit Card Accountability Responsibility and Disclosure (CARD) Act. In particular, the CARD Act included language that limited the ability for credit card companies to market to college students. The CARD Act also limits credit card companies from passing out gifts to college students for opening accounts.

Restrictions through the CARD Act

In addition, the CARD Act also requires credit card companies to disclose, on an annual basis, the agreements they made with colleges and related groups. As a result of these new rules spelled out in the CARD Act, many colleges have canceled their agreements with credit card companies who use aggressive marketing tactics. In fact, over the years, many colleges kept this information quiet, as they were getting paid by credit card companies to provide information about their undergraduates. Now, with advent of the CARD Act and better transparency, colleges are rethinking their relationships with credit card companies.

Linda Sherry, national priorities director for the nonprofit group Consumer Actions says, “Just the ‘sunshine’ on the card agreements called for with the public reports is a great way to shame the universities from profiting off of making students debtors, and it seems to be working.”

The CARD Act, although it has cut down on the rate at which credit card companies market to college students, has yet to keep many college students from taking on credit card debt. It appears that the effects of the recession and the fact that credit card companies are simply being more particular when it comes to approving individuals for credit may have more of an impact on college students and credit than a decreased rate of marketing through college campuses.

The CARD Act and its Impact on College Campuses

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The CARD Act, which was enacted earlier this year, is perhaps the most sweeping credit card legislation in history. And one of the most instrumental parts of this legislation is designed to protect young consumers.

The College Campus Game

For over a decade it was quite common to see creditors sitting at tables lined up along any college campus lawn. In fact, most creditors saw young consumers as a great way to build their businesses. As a result, credit card companies would push easy-to-get student credit cards at college students, complete with plenty of free gifts and incentives.

For most college students it was the first time that they were able to receive credit; therefore, it was quite easy for credit card companies to sign up college students. Heck, in any given day you could apply for multiple cards!

College Students and their Mounting Credit Card Debt

The college-student market was a hit among creditors, and for good reason. According to Sallie Mae, 42 percent of college students carry a credit card. As of 2008, college students graduated with an average credit card debt of $4,100; that an increase from $2,900 from just four years earlier.

Sallie Mae also notes that 69 percent of college freshmen had a zero credit card balance in 2004; that number plummeted to just 15 percent in 2008.

Although there were many college students who used credit cards for useful purposes, such as purchasing text books and school supplies, there were just as many that abused credit, thereby resulting in a great deal of credit card debt, even before they graduated from college.

For years, lawmakers complained that the giveaways and other incentives on college campuses were luring college students into credit cards that they could not handle or afford.

As a result, Congress passed strict regulations regarding college students in its CARD Act. Now, creditors can no longer issue credit cards to college students unless they have the income to back it up. Although this may be inconvenient for college students, it may prove to be gift because college students will no longer be starting their professional lives with mountains of debt.

Why Creditors are now Turning to Parents for Student Credit Cards

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Getting a student credit card used to be as simple as turning the corner of any college campus. Creditors used to camp out and lure students in with special offers and free gifts.

However, given the recent changes to certain credit card laws through the CARD Act, students can no longer just snag a credit card the day they turn 18. In fact, creditors are only granting credit cards to college students if they can prove they have a source of income sufficient enough to pay their bills.

Unless, of course, students get a co-signer; in particular, their parents need to co-sign for the credit card.

A New Approach

As always, creditors have found ways to get around challenges, and student credit cards are no exception. Creditors are now targeting parents of college students for student creditors. In fact, you can be certain that student credit cards will start coming your way if you have a college student under the age of 21.

Parents are now being targeted by creditors because creditors know that parents will be the ones to determine whether their children will receive a student credit card. In particular, many creditors are targeting parents who already have credit cards through a particular credit card company and asking them to take on an additional account in the name of their student.

This direct mail approach may be a highly successful endeavor for credit card companies, as they can avoid marketing to students but nevertheless get to them through their parents.

Should you help your Child get a Student Credit Card?

If you are a parent of a college student, you will want to strongly consider whether it is time for your child to possess a student credit card, as ultimately the student credit card will affect your credit score if payments are not made.

There is no time like the present to teach your child responsible credit card habits, regardless of whether they are college students or not. Take the time to talk to your child about the importance of building a strong credit history, as a student credit card will be able to allow your child to begin building his or her credit history, so that he or she can have a strong credit score by the time college graduation rolls around.