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Starting February 2010, students won’t be able to sign credit card offers in exchange for free pizza — not on college campuses, anyway.
A new federal law passed May 22 as an amendment to the Truth in Lending Act prevents credit card companies from offering college students incentives to sign up for credit cards on or near campuses, or at events sponsored by or related to universities. Titled the Credit Card Act of 2009, the law also requires people younger than 21 to get a signature from their parent or guardian before they can be issued a credit card, and colleges and universities are required to disclose details of deals they make with credit card companies.
Credit card use among college students has jumped during the past five years, according to a 2008 study done by Sallie Mae Inc., a leading student loan company. The study of 280 undergraduate college students ages 18 to 24 found that 84 percent of the respondents had a credit card, compared to 76 percent in 2004. Half of the respondents had four or more cards. The mean balance of the students’ cards was $3,173, and the median debt grew from $946 in 2004 to $1,645 in 2008. The number of freshman arriving on campus with a credit card went from 23 percent in 2004 to 39 percent in 2008, according to the study. Forty percent of the respondents said they charged items to their credit card knowing they didn’t have the money to pay for them.
“Well, I think there generally is a problem here, because I think we don’t teach much about personal finance in the school system,” said UMaine professor of resource economics Gregory K. White.
“Students are brought up, and by the time they really first get into some of the classes about that or where they become aware of it, they already find themselves quite often in debt. And I have very mixed feelings about this whole thing, because on the one hand I think that many people could benefit from a better understanding of how credit works and what the contracts mean and what they’re getting themselves into. On the other hand, I also feel like the law says you’re a responsible adult at age 18, and here we’re finding one little area in which you’re really not quite responsible,” said White.
White said he doubted the law would keep students from signing with credit card companies. He said such companies will find other places where students can be reached, such as malls.
“They’re not going to allow them to solicit on or near campus. The problem with that is, how do you constitute ‘near?’” said Mary Beth Pinto, professor of marketing at the Pennsylvania State University School of Business and researcher at the Center for Credit and Consumer Research at Penn State. “A lot of colleges themselves come up with regulations that say you can’t solicit on campus, but then people just go across the street.”
Pinto said that typically 60 to 70 percent of the students she has researched have credit cards. She said the law only applies to cards issued by banks and does not regulate those issued by retail stores.
“Kids are still going to get a lot of these retail store cards,” Pinto said. “And they have an extremely high interest rate.”
Pinto said retail store credit cards often have interest rates of 20 to 25 percent.
“They’re not going to be able to just send out these pre-screened offers through the mail to college students. … Direct mail is the primary way that students obtain their credit card solicitation. So that’s a positive step, because now they’re not going to be able to get that unless a student calls one of the 1-800 numbers on cards or they can go on the Web site and say, ‘Yes, I’d like an offer sent to me,’” Pinto said.
Pinto said about 94 percent of college students also have debit cards.
“I’ve had students that have had 17 [credit] cards,” Pinto said.
Pinto said she doesn’t believe the law should be extended to retail store credit cards.
“I don’t know that I have a real problem with companies advertising on campus if there’s full disclosure of contracts and what students are signing up for,” White said. “I guess what I’m saying is that I think that the idea that college-age students ought to have access to credit. I just think that there ought to be more education and awareness about how credit works.”
Emily Cain, Orono’s state legislative representative, said she thinks “getting misleading credit card ads off campus is a good thing.”
“I think it’s a start, but it’s not going to solve the problem,” Cain said. “If you’re not also doing something to educate students about being financially responsible then you’re not going to get the job done.”
Cain said Maine has to “put financial responsibility into the education system.”
“The state treasurer’s office actually has a financial literacy effort that they’ve had underway in conjunction with the Maine Bankers’ Association trying to teach them [young Mainers] about financial responsibility,” Cain said.
The University of Maine runs a program called Household Financial Education, which educates students at every grade level about managing money and credit. The program travels to mill closures, kindergarten to high school senior classrooms and UMaine’s economics courses to teach people about their relationship with money, according to UMaine economics professor George Criner. The program is run out of the School of Economics and is funded partially by it, the University of Maine System and the Maine Community Foundation. Students wishing to meet with her about the program can e-mail Sarah Morehead, a graduate student with the program, to schedule group meetings.
Pinto said she believes the law will limit the number of credit cards that people can get. She said the average numbers of students with credit cards and their average debt varies depending on the source of information.
