New regulations that the federal government hopes will protect college students from excessive credit card debt by making it more difficult for young people to open multiple lines of credit go into effect Monday. The regulations, which fall under the Credit Card Accountability Responsibility and Disclosure Act of 2009, were approved by Congress last May.
The key pieces of the act include the followin:
- Creditors will be prohibited from issuing credit cards to anyone under 21 without the consent of that applicant’s parent or guardian, or proof that the consumer would be able to make the required payments on their own.
- Creditors will be barred from offering students perks, such as coupons or T-shirts and book bags decorated with the companies' logos, for opening a new credit card account at campus events.
- Companies will be required to disclose any existing relationships with colleges and universities annually to the Federal Reserve Board; colleges and universities will be required to disclose any existing relationships with credit card companies as well.
The regulations also included a strong suggestion to institutions of higher education that they provide education and counseling to students who may be struggling with credit card debt, or who may know little about managing credit card usage wisely.
Critics of the act since it was approved say that college students, who take on a slew of new responsibilities once they get on campus, should be treated as adults. For better or worse, students now are more apt to use credit cards to pay for their college expenses, and critics say they shouldn’t meet obstacles when using their credit cards for those costs. (According to a recent survey by student lender Sallie Mae, 84 percent of undergraduates have at least one credit card; 92 percent of those undergraduates use the cards toward college expenses. College students’ average balances are more than $3,100.) Some consumer advocates also say that while it's a good first step toward keeping students from incurring massive amounts of debt, it doesn't do enough, according to an article today in Inside Higher Ed. It fails to include any cap on the interest rate credit card providers can charge, for example.
We have a number of resources available to you about how to avoid credit card debt, make smart decisions about covering your college costs, and managing your money so that you're spending within your means. It may not mean much to you now, but it isn't all that easy to improve upon a credit score. The spending choices you make today will follow you down the line, so ideally, stick to one card if you need one, and if you find yourself in debt, pay off as much as you’re able to each month until you’re done.
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