New Credit Card Act May Impact How Students Pay for College

Jan 30, 2010

The Credit CARD Act of 2009 goes into effect this month. The new law is intended to protect young adults and college students from overeager credit card companies. But for the many students who use credit cards to charge their tuition, textbooks, school supplies and other direct education expenses, the law might cause big problems.

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President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009, also known as the Credit CARD Act of 2009, into law by on May 22, 2009. The law, which will go into effect on February 22, 2010, limits how credit card companies charge consumers. It also makes it more difficult for college students to get credit cards.

According to the new law, consumers under 21 will need cosigners aged 21 or older in order to apply for credit cards. If young consumer don't have cosigners, they will need to show independent means of repaying their debt. In other words, they will need to have jobs or consistent income of some sort.

The law also prevents companies from sending unsolicited pre-screened credit card offers to to underage consumers. Other restrictions include the use of give-aways, such as free t-shirts, iPods and other prizes, to those under 21.

credit card act, student credit cards

Students Paying for College with Credit Cards

The Credit CARD Act of 2009 contains some new protections for students who haven't yet learned the importance of fiscal restraint. However, it also has the potential to negatively impact students who depend on their charge cards to get them through school.

A 2009 national study from Sallie Mae found that a rising number of students must use credit cards to cover education expenses. A whopping 92 percent of undergraduate students who had a credit card charged education expenses in 2008. Nearly 30 percent put tuition on at least one credit card. The average student charged more than $2,200 in direct education expenses. In 2004, the average was only $942.

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Source: Sallie Mae Student Credit Card Study

Nearly 90 percent of undergraduate students have at least one credit card, according to that Sallie Mae study. The average is 4.6 credit cards per student. More than half of all college students have four cards or more. Unfortunately, only 17 percent who were surveyed said they paid off the balances on those cards each month. The rest carried balances and paid finance charges.

It is important to note that the Credit CARD Act of 2009 will not prohibit students from charging education expenses or getting credit cards if they have cosigners or independent means to make payments. However, it will undoubtedly put a limit on the amount of charging that goes on in college.

Students who do not have their own credit history or a parent or cosigner whose credit history is good may find it difficult to obtain credit cards in college. They may also have a hard time increasing limits on their cards without the express written permission of the cosigner. The 92 percent of students who charge direct education expenses and the 30 percent who charge tuition, this could mean finding new ways to pay for college.

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