In Case You Missed Me | No credit where it’s not due

I’ve always been skeptical of credit cards. The way I see it, you sign a long document filled with fine print you don’t understand. That fine print gives credit card companies the right to do whatever they want if you miss a payment and, in exchange, you get the ability to shop first and pay later. I’ve heard too many horror stories about piled up interest and debt over the years to be comfortable around these little pieces of plastic.

So when I heard that Congress had passed legislation to protect students from overwhelming debt, I assumed it could only be a good thing. The new federal regulations, which went into effect yesterday, will make it harder for credit card companies to market their product to college students.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 prohibits companies from handing out free food and merchandise on campuses to market a credit card. More importantly, it limits a student’s ability to actually get the credit card. The new regulation requires students under the age of 21 to have a parent co-signer or to prove that they can pay for all expenses.

Now, I am miles away from being an expert in personal finance. But I don’t feel that the way to help students is with less free choice.

According to Sallie Mae, students today are using credit cards more than ever. In 2008, 84 percent of college students had at least one credit card. Ninety-two percent of those cardholders used them for education expenses such as tuition and textbooks. Only 18 percent of those students, however, regularly pay off their monthly balance (or have their parents do it for them). The rest are incurring fees and charges they hardly understand. Forty percent of college cardholders say that they have purchased items on their cards despite knowing they didn’t have the money to pay for it. As Sallie Mae puts it “many college students seem to use credit cards to live beyond their means.”

In order to remedy students’ poor credit card habits, we don’t need less choice; we need more. “If we’re going to restrict student access to credit, you cut off an avenue for students to pay for their education. What replaces it?” Karen Gross, president of Southern Vermont College, told Inside Higher Ed.

We need a bill that prevents credit card companies from being as exploitative as they choose in their fine print. The bill needs a credit limit, said Gross — without a limit on how high companies can retroactively increase fees, there is a strong concern that the new regulations will actually harm students that don’t have parent co-signers.

More importantly, though, students need to be better educated. Generally, education about credit and personal finances is left up to the family (I know mine was). As a result, 84 percent of students in the nationwide Sallie Mae survey indicated that they would like more education when it comes to finances, debt and credit cards. Some would prefer it as they enter college, others during high school.

The bill recommends creating financial orientation programs for incoming college students, though it doesn’t require them. The University should seriously consider the recommendation. Too many students are unaware of the real consequences of their spending. They don’t understand the rights that credit card companies reserve the moment you miss your first full payment. At Penn, a variety of groups help provide training to students who want to learn more about money management. But, despite financial choices being so important, we leave it up to students to educate themselves. An orientation program would help distribute important information as students begin to detach themselves from the comforts of home.

I’ll never totally trust credit card companies. But knowledge is power. The Credit CARD Act limits free choice without effectively preventing the companies from taking advantage of students. Legislation to protect students from drowning in debt is important, but it seems this Act might just miss the mark.

Juliette Mullin is a College senior from Portland, Ore. She is the former Executive Editor of the DP and editor of The Report Card. Her e-mail address is mullin@dailypennsylvanian.com. In Case You Missed Me appears on Tuesdays.

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