To Charge or Not to Charge?

While the Obama administration and members of Congress heralded the new credit card rules that snapped into place earlier this week, the provisions relating to college students are receiving mixed reactions.

President Obama signed into law the Credit Card Act of 2009 last year, but it didn’t take effect until Monday. Experts expect it to help consumers by sheltering them against unfair credit and billing practices. And the new protections for students are meant to help alleviate the massive amount of debt in which many find themselves upon graduation. As it stands now, the average college student leaves school with a credit card debt of more than $4,100, according to a 2009 report from student lender Sallie Mae.

Young people using credit cards can now expect a two-pronged protection:

-People under 21 will not be able to open a credit card account if they do not have a reliable source of funds or a co-signer, like a parent. Previously, you only needed to be 18 to open an account on your own.

-Card companies hocking free t-shirts or pizza to students in exchange for signing up for a card will be no more. The act bans companies from such practices near college campuses or at college events.

Despite their seemingly good intentions, the new regulations are receiving both support and opposition from financial experts and students themselves.

Ashley Badgley, who graduated from Chicago’s Columbia College last fall, says she disagrees with the new age restriction. “When you’re 18, aside from alcohol, you can do everything,” she says. “You can get a $40,000 loan for college.”

Badgley has signed up for two major credit cards through her Chase bank account, one when she was 19 and one when she was 20. “Right now, I don’t depend on them because they are maxed out,” she says. “But there was a time I needed them for daily purchases.”

Supporters of the law say Badgley’s situation is all too common. They hope the new restrictions will help curb the amount of students graduating from college with thousands in credit card debt on top of their student loans. But Badgley, who racked up most of her debt studying abroad and traveling, says she didn’t enter into her credit agreements without doing her homework. She went into her bank and learned about various options before signing up. She adds that there was also familial pressure to get credit cards. “Parents want you to build up credit,” she says. “How are young people supposed to establish credit if you can’t get a credit card?”

John Ulzheimer, president of consumer education at credit.com, echoes Badgley’s sentiments. He says the restrictions on college students are his least favorite part of the new act. “It assumes forcing someone to avoid credit cards will somehow teach them to use credit cards,” he says. “(It assumes) from 18 to 21 they will have some sort of credit epiphany and they’ll wake up and will learn to use credit cards by osmosis. What happens at age 21 that makes someone responsible?”

Ulzheimer adds that by having a parent co-sign, it leaves the adult susceptible to suffering if the student accrues massive debt. Conversely, if the parent trying to co-sign has a bad credit score, the bank will refuse the student.

Sarah Reveles has several credit cards in her name, all of which her mother paid off monthly. She opened the accounts when she was 18 or 19 (she can’t remember) because her mom wanted her to establish a credit score. But her mother was soon behind on the payments. “It just started piling up,” Reveles says. Her mother is now in thousands of dollars of debt.“

Reveles, a student at Arizona State University, says she now supports the age restriction. She says that, like her, many students sign up for cards not thinking about the long-term effects, especially in the first few years of school.

Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, notes that, these days, bad credit can haunt people in places they’d never expect—even the workplace. “A lot of employers look at credit,” she says. “[Students] should anticipate the employer pulling a credit report. It may seem odd, but employers feel how they handle finances is a reflection of how they will perform on the job.”

Plus, she adds, it’s protection for the employer in industries in which the employee will handle money.

Ulzheimer, who teaches classes on credit at various colleges, believes the new restrictions on young people were created arbitrarily, with little research to support them. He says credit card companies are still trying their best to target college students; they’re just no longer on campus. “Going after college students is not anything new,” he says. “There’s evidence that shows if you (the bank) can get one of the first cards in the wallet, people tend to remain loyal over time.”

Kristi Eaton is a staff writer for Campus Progress. She graduated from Arizone State University in 2008.

Related Stories

• Biden Echoes President’s Calls for Accessible, Affordable Education
• MTV Puts College Affordability at the Tips of Our Fingers
• VIDEOS: Obama Addresses Higher Education, Student Loans During Google+ Hangout
• White House, Campus Progress to Host Twitter Q&A on Youth Issues
• VIDEO: The Best Ten Minutes of Obama’s Remarks on College Affordability