A Credit Card Designed with the College Student in Mind
May 31st, 2009Last week we featured the impact of the credit card legislation recently enacted by Congress, particularly the impact that legislation would have on college students.
Many have noted that for students, the changes represent a “throw the baby out with the bath water” approach. Certainly, college students and credit cards have not been an ideal mix as a universal rule.
One of the changes makes great sense, limiting credit lines to a student’s ability to pay makes perfect sense. But the changes will make credit more difficult to obtain for all individuals.
In what is dubbed as a move to protect students, the new legislation will require those under the age of 21 to have a cosigner to have access to a reasonable credit line. Without one, there will be exceptionally little credit available.
While such a step appears to make sense, the fact is not every student will be able to secure a cosigner. And those unable to obtain adult assistance are likely to be the group of students most in need of a basic credit line to be able to attend college.
Better Approach
Karen Gross, the president of Southern Vermont College in Bennington, Vt., recently offered a simple suggestion that would deal with the propensity for college students to get into credit card difficulties. Gross told Sandra Block of the USA Today that the new rules may well have very negative impacts on low-income students, the group that truly rely on credit cards to help them secure their opportunity for a degree.
She notes that those students that are unsuccessful finding a cosigner may well turn to other borrowing formats when money is short. Though the cosigner process is designed to protect students, those unable to secure a cosigner could end up turning to an even worse form of credit, payday lenders to help with expenses.
Instead, Gross believes it is time to develop a credit card specifically for college students. The concept she proposes allows for credit access but has two globally agreed upon limits that make sense for college age individuals.
She proposes both a limited credit line and an even lower monthly spending cap. Her suggestions were in the vicinity of a $600 credit limit combined with a $250 spending cap.
While those two numbers could be open for debate, such a design makes great sense. First and foremost, it allows low-income individuals limited access to credit even without a cosigner. Second, it would help students get started on a path to learning how to use a card without placing their future at significant risk.
As Gross notes, such a concept “would help students learn to use credit responsibly in ways that would maximize their credit score.”
Legislation Drawing Criticism
The new legislation has been drawing criticism in some circles. The key negative point centers upon the belief that the new regulations will result in higher rates and ongoing fees for those with excellent credit ratings.
But few are speaking out on behalf of college students. Students agreeing with the suggestions of Gross should contact their representative accordingly.
Perhaps with a little push from students Congress could revisit the issue and tweak the legislation accordingly.
