A few years ago, college students walking through campus during orientation week might have experienced something like a circus. Free food and giveaways — T-shirts, teddy bears, and baseball caps — in exchange for signing up for a credit card.
“Credit card issuers would pay students to market cards to fellow students in various ways, such as having a table at orientation, during other major events, or on main campus thoroughfares, and hanging posters on bulletin boards throughout campus,” said Mark Kantrowitz, senior vice president at Edvisors, a network of websites offering educational resources.
Lawmakers responded to the aggressive marketing by credit card companies by passing the Credit CARD Act of 2009, changing the way companies could market credit cards to college students, introducing new restrictions and widening disclosure requirements. The act prevented issuers from obtaining a credit report for students under 21, required students under 21 to have a co-signer or supporting information showing the ability to make payments, and prohibited companies from offering tangible incentives to apply for a credit card on or near campus.
“The law eliminated some of the carnival atmosphere associated with credit card promotions on college campuses,” said Kantrowitz.
And for the most part, evidence indicates that the law has helped. Research from the Government Accountability Office found that five out of nine large credit card providers say they no longer actively market their cards to college students. And a recent report from the GAO found that the number of affinity card agreements between issuers and colleges has declined by 41 percent. In fact, four large affinity card issuers representing 91 percent of cardholders reported that they primarily target alumni and no longer market affinity cards directly to students.
But college campuses, full of financially inexperienced young adults, have long been a breeding ground for financial institutions looking for new customers. It is still easier for a college student to get a credit card while they are enrolled than after they graduate, Kantrowitz says. And credit card issuers have found ways to circumvent the requirements.
A recent study by University of Houston Law Center Professor Jim Hawkins found that many of the CARD Act’s provisions haven’t affected credit marketers as lawmakers may have hoped. Hawkins surveyed more than 500 students and examined 300 agreements between issuers and colleges and alumni associations. He found that issuers have launched new initiatives and promotional programs with tangible gifts to attract college students. Perhaps the most troubling finding in Hawkins’ report: 27 percent of students under 21 who were applying for credit cards by themselves listed loans as part of their income to qualify for a credit card.
“Some banks still issue credit cards to students under age 21 by counting the student loan money as an independent means of repaying the credit card debt,” said Kantrowitz.
Kantrowitz says a credit card can be a useful financial tool to college students as long as they use it responsibly — paying off the bill in full each month and not carrying a large balance. The last thing any college student needs is to graduate with a credit card debt in addition to student loan debt, he says. While an issuer’s incentives might seem attractive at first, gifts shouldn’t be the determining factor when signing up for a card.
“The initial offer is usually pretty attractive, especially for a college student who may have limited funds. But students need to look beyond the initial offer and at the details,” said Cathy Mueller, executive director of Mapping Your Future, a resource for career, college, financial aid, and money management information.
Mueller advises college students to understand the terms and conditions of a credit card before signing up, and to be wary about accepting a card just because it has been offered.
“When selecting a credit card, students should be aware of the fees, the interest rate and how it is calculated, and the repayment options and whether there are any grace periods,” said Mueller. “An initial gift for signing up for the card or other special features may not be worth it after you add up all the costs associated with owning the card.”