They may be able to drive a car, vote in an election and be deployed to Iraq, but starting in February, adults under the age of 21 will find it much more difficult to obtain a credit card.
Credit card debt is on the rise among college students. A recent Sallie Mae study put the average credit card debt of a college senior at $4,100, up from $2,900 just five years ago. Congress has stepped in and passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act). While the overall aim of the legislation is to level the playing field between the credit card companies and the consumers, forcing clearer language, longer billing cycles and an option for the card holders to set their own limits, there is a key provision within the act aimed at the under-21 crowd.
Though many states have restricted or outlawed aggressive on-campus marketing by credit card companies, as Jill Norvilitis, associate professor of psychology at Buffalo State College says, “the credit cards find their way into the students hands.”
In response to that fact, the CARD Act will require anyone under 21 years of age to have a co-signer in order to obtain a credit card. Area professionals all agree this is a change that is long overdue, with many saying this is the first step in fixing a problem that needs to include the implementation of some financial literacy education starting at home.
“The ideal way a parent can help out the student is to open up a checking account even when they are still in high school, maybe help them fund it, and eventually introduce them to a debit card,” said Paul Atkinson, president and CEO of Consumer Credit Counseling Service of Buffalo Inc.
“They are only going to get access to what’s in that account and eventually what you’ve got is the chance to graduate to a real credit card with that experience.”
Too often, says Atkinson, finances aren’t discussed and students are sent off to college unprepared for the responsibility of managing their finances and vulnerable to the credit card offers that pour in.
“One of the difficulties we have as a society is that we spend a whole lot of money in remediation for people who get into credit card trouble, but we don’t spend a lot of money on financial literacy education when they are going through middle school and high school,” he said. “If we addressed that, I think you’d find a greater degree of appreciation for the value of credit cards and the risk of them as well.”
College professionals like Norvilitis see the results of those unprepared students on college campuses across Western New York every day.
“When you look at the average debt the students are carrying, it is so high, especially when you consider that the average student has an income around $8,000,” she said.
Norvilitis said those averages may not even tell the entire story. “I see a ton of students who pay their credit cards off each month, who never carry a balance, but then there is the handful of students with balances of $10,000 to $15,000.”
For those students, mounting credit card debt can have far reaching ramifications. Martie Howell is the director of student accounts at Niagara University. Prior to her current post, Howell spent 15 years working in financial aid and says she has seen first hand the damage credit card debt can cause.
“I’ve had a couple of students in the past where their parents wouldn’t pay the bill and they (the student) would put the tuition on a credit card,” Howell said. But whether the debt is from tuition, books, or trips to the mall, the result, she says, is the same.
“What happens is things are fine for a couple of semesters, but then things come to a screeching halt because they have to work so many hours to pay the bill, they don’t have time to study any more, they are late for classes, they eventually lose their financial aid,” she said. “There are far-reaching consequences for a student to go deeply into debt.”
Those consequences too often include bankruptcy. Courtney Quinn is an associate with The Law Offices of Jeffrey Freedman and she says young adults account for a significant portion of the firm’s client base.
“We see students come in with some pretty large credit card debt and on top of that, they are looking at this sort of perfect storm of debt between student loans and credit cards,” she said. Quinn said it isn’t uncommon to see recent college graduates with $20,000 in credit card debt come in to her office struggling to meet their financial obligations.
“I think for a lot of them, as freshman, get a credit card thinking they can pay it off when they get out (of school) but when they are actually out in the workforce, it’s not what they had expected,” Quinn said. Some argue that the rising cost of tuition and books, coupled with the demands of college life, leave little time for students to work, increasing the financial strain and lure of the credit cards. It is something that to Norvilitis has seen at Buffalo State, and she thinks it is part of the financial illiteracy too common among incoming college students.
“Certainly, the interest on a student loan is much lower than a credit card, so they should be doing those things with a student loan,” she said. “At the same time, at the colleges, we take credit card payments for textbooks, so we don’t discourage it in that way.”
The new law won’t eliminate credit cards among those 18 to 21 but supporters hope it will filter out those who aren’t ready to carry a credit card and reduce the ballooning debt students are leaving college with.
Some wonder, with five months before the CARD Act goes into effect, if there will be a rush on the part of the credit card companies to sign up as many students as possible before they become off-limits.
“Number one, a lot of those credit cards are going to come with a cost,” Atkinson said. “Many will come with an annual fee, high interest rates and other problems down the road. To just go out and get a credit card to beat the deadline is kind of foolish.” His warning for young people swiping their plastic with reckless abandon: you may regret those decisions in the near future.
“For a lot of businesses a good credit report is critical to getting a job,” he said. “It’s a snapshot in time for that employer of the respect you have for deadlines and responsibility and for many jobs in the financial services industry, you won’t get the job simply because they don’t want you handling their money if you can’t handle your own.”
Though some may question the logic of restricting the ability of adults living on their own to obtain credit, most, like Howell, support the CARD Act.
“I think it is a really good thing to reign them in a bit,” she said. “They are not being taught any kind of money management at home and this generation is ‘I want it right now.’ They want that instant gratification and you see the results of that.”