The new credit card law that takes effect in nine months will curtail some abusive practices aimed at college students - but not all, according to a published report. A BusinessWeek.com article states that the landmark legislation will protect students from being given more credit than they can afford. It also will protect them from being subjected to sudden rate hikes when the have a co-signer.
However, the article contends that the law does little to rein in the practice of colleges selling students' contact information to credit card companies and making money whenever the students use their cards.
But the most alarming part of the story to me -- and the part that should alarm parents and students alike -- came at the very end. It reported that 30 percent of students charged some portion of their tuition on credit cards! 30 percent!!! Knowing the high interest rates that many cards carry, can you imagine the mountain of debt these students - and their families by extension - are burying themselves in? How many years, or even decades, might it take them to dig themselves out?
It just goes to show, more than ever, how important it is for students and their families to have a solid plan in place that will pay their school tab without putting them in the poor house.
And that, my friends, is what college planning is all about.
Here are some excerpts from the BusinessWeek.com article. I've taken the liberty of highlighting some of the points that jumped out at me. They should jump out at you too.
The bill also addresses some of the worst abuses of credit-card use on campuses. Without a co-signer, full-time college students under 21 will be confined to what amounts to credit-card training wheels, with credit restricted to 20% of a student's income. The presence of a co-signer protects college students from sudden rate increases; under the new law, a student's co-signer has to approve any such hikes.
But the sweeping law, which takes effect in nine months, doesn't address every college credit-card controversy. Most notably it does little to address affinity-card contracts, which encourage colleges and universities to sell students' contact information to credit-card companies. These often confidential contracts bond hundreds of schools across the country with credit-card companies eager to sign up undergraduates. In some cases the school's financial reward increases handsomely when students frequently swipe their cards.
Should Colleges Encourage Borrowing?
Students at the University of Michigan, for example, probably aren't aware that their e-mail addresses and contact information are worth a whopping $25.5 million. That's how much Bank of America (BAC) is paying the Michigan Alumni Assn. over an 11-year affinity-card contract to market school-branded plastic to students, alums, and sports fans. The Michigan Alumni Assn., which forged the deal, gets 0.5% of total purchases racked up on the school-branded cards. And the University of Michigan is hardly alone in inking a contract that rewards it for turning over students' personal information—precious leads in the hunt for new customers.
Such financial alliances, in which participating schools have an incentive to encourage credit-card use, raise questions about the role colleges should play in the credit-card debate. Should schools be entering into these agreements, encouraging students to amass often high-cost debt at a time when tuition costs have ballooned and growing numbers of students struggle to make ends meet? Roughly half of the nation's college students carry at least four cards in their wallets, shouldering an average of $3,173 in debt, according to Sallie Mae (SLM), the student lender that monitors college-debt levels.
College students aren't just swiping their cards to pick up pizza tabs or buy school-spirited sweatshirts. They are increasingly using them for such big-ticket items as college tuition. Just five years ago, 24% of students charged a portion of tuition to a credit card—a number that has grown to about 30%, according to Sallie Mae.
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