While credit card companies are taking steps to reduce lending and are cutting credit limits on some of their best customers, it appears that they are still wooing students and encouraging them to create new credit card accounts.
Some states have become so alarmed over the growing debt incurred by students that they are pushing legislation to crack down on card issuers targeting students.
Texas, California, New York and Oklahoma have already passed laws restricting or regulating the marketing of credit cards on college campuses.
In Illinois, pending legislation would ban free gifts with credit card offers on college campuses and prohibit the selling of student information from colleges to credit card lenders. It would also require financial literacy education for freshmen students at schools that allow credit card marketing.
Lawmakers are concerned that aggressive and often predatory practices by credit card companies are targeting students with little financial sophistication – and plunge them into debt that will be difficult to repay.
In 2008 the U.S. Public Interest research Group completed a study at 40 college campuses. They learned that 25% of students had paid a credit card late fee, 15% had paid an over-limit fee, and 6% had already had one or more credit cards cancelled for nonpayment. This event, of course, puts a 7-year black mark on the student’s credit report, making it difficult for them to obtain needed credit after graduation.
Along with offering free gifts for making application, some credit card issuers are promoting rewards cards geared specifically to youth. The rewards include travel, cash back on bookstore purchases, and merchandise rewards such as CD’s, videos, and movie tickets.
While this attempt at a crackdown is taking place, lawmakers are also taking notice of the need for financial literacy among younger students. Legislation is pending in various states to require financial education in high schools. In Virginia, it has been law since 2006.
The President’s Advisory council on Financial Literacy was created by President Bush in January 2008. As a result of testing conducted last year, it recommends requiring schools to teach financial education in grades K-12, and requiring college students to take a financial literacy course in order to receive federal student loans.
The Council also recommended tax incentives for employers who teach workers about money management, creation of a federal financial literacy website, and making a debit-card-accessible bank account available to every adult American.
The goal of these recommendations is a future generation and a current population armed with sound money management skills to make good decisions for themselves and their families.
