Not so many years ago, college freshmen were greeted during orientation week with credit card offers that came with enticing gifts, such as free T-shirts and burritos. The problem with these freebies, according to some consumer advocates, is that they persuaded college students to take out credit cards and take on debt they had no business accumulating. The orientation week burritos, in other words, led to credit card debt indigestion later.
Now, as a result of the Credit Card Accountability Responsibility and Disclosure Act of 2009, those kinds of on-campus marketing techniques have largely dried up. In a new report from the Government Accountability Office published last month, the agency concludes that credit card marketing to college students has gone down, and in some cases, disappeared altogether.
GAO researchers found that five out of nine large credit card providers say they no longer "actively market" their cards to college students, which means no more direct mail or email campaigns or on-campus enticements. A 2013 survey cited in the report found a large decrease in students who say they received a credit card through a direct mail campaign.
If the goal is less credit card use, it seems to be working: The GAO found that students' credit card use seems to have decreased along with the marketing activity. It also found that fewer colleges have special relationships with card providers now, which means fewer affinity cards. Students are still using credit cards and spend an average of $171 a month on them, but most students (72 percent) pay off those cards each month, which means they don't carry a balance. From a consumer perspective, that's the best way to use a credit card -- you get all the benefits of convenience and potential rewards, without the cost of fees or interest.
Restrictions on credit card offerings aren't always a positive development, however. As Rep. Carolyn Maloney, D-N.Y., has pointed out, many stay-at-home moms and dads suddenly found themselves unable to qualify for their own credit cards after the CARD Act of 2009 went into effect. That's because it required credit card companies to consider only individual income, which meant spousal income couldn't be used to secure a credit card. Partly as a result of online petitions, the Consumer Financial Protection Bureau changed that rule last year to allow card companies to consider others' income when approving credit card applications.
[See: 10 Ways Companies Annoy Customers .]
Similarly, Curtis Arnold, founder of cardratings.com , says college students would benefit from a greater emphasis on education about credit card use, as opposed to restrictions on use. "Not nearly enough is being done on the education side," he says. Arnold himself faced $45,000 in credit card debt when he came out of graduate school, which has informed much of his work in the area.
The GAO findings also underscore the importance of financial literacy. Even in the wake of more stringent regulation and less credit card marketing on campus, many college students still use credit cards. And why wouldn't they? Credit cards can be incredibly useful financial tools. They offer an easy way of paying for items as well as protections from identity theft that cash doesn't offer. No wonder the GAO reports that more than half of students get their first credit card even before they start college, as high school students or between high school graduation and their first day of college.
As long as students are using cards, they need to know how to use them wisely, which means avoiding building up debt over time and getting hit with fees and interest. On-campus workshops, school administers and parents can all help them learn those lessons.
[See: 50 Smart Money Moves .]
As for Arnold, he has a daughter who's a freshman in college, and he says he won't allow her to have a credit card in hopes of preventing her from building up debt. That's another solution -- stricter parents.
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