Student credit card debt is a problem. The average college graduate carries $2,748 in credit-card debt, according to a 2007 survey by student lender Nellie Mae. And nearly one in four graduates leaves school with more than $5,000 in credit-card debt, according to a recent survey by Zogby International that was commissioned by credit reporting agency TransUnion Corp.
Many colleges have tightened rules on credit-card marketing on campus in order to discourage students from racking up huge amounts of debt. Tulane University, Georgia Institute of Technology and the University of South Carolina, for example, forbid credit-card companies from soliciting on campus. The University of Arizona allows only merchants that are sponsored by a university group. To get around the ban on credit cards, some companies are pushing the prepaid debit card.
We’ve talked about prepaid cards before. These prepaid debit cards can come with big fees. Some charge both an activation fee and a fee if there is no activity after 90 days.
The advantages:
- No way to incur debt, the cards are “loaded” with money. Once the “load” limit is reached, no more charges are authorized.
- Parents can monitor spending online
- Cards can be loaded online, so no need to make a trip to the bank
This disadvantages:
- High fees as mentioned earlier in this article
- It’s still possible to get an over-draft
- Students do not build credit history
What to do if you want to help your child build a credit history and avoid pre-paid debit fees? You could get a joint credit card with a limited balance. Your child does not even need to have good credit if you are the primary signatory (however, you need good credit for this). Some credit cards come with a credit limit of $2000 or less. You can also monitor charges online, and even tell the bank to stop authorizing any more charges, should your student get close to the limit. The disadvantages of doing this: if you max out your card, this could affect your credit score. Let me rephrase that, it WILL affect your credit score negatively. You need to weigh this carefully.
Source: College Campuses Cracking Down on Credit Card Marketing, Wall Streel Journal, September 11, 2008.
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1 Best Student Credit Cards // Sep 23, 2008 at 9:41 am
Good post Kristy. I recently published a post on my website about this exact same thing. These credit card company tabling events tout free rewards, free gifts and sign-up bonuses such as Frisbees, iPods, free phone cards, gift certificates, T-shirts and other gifts to grab college students’ attention and to encourage them to sign up for a credit card account. Their high energy, highly invasive approaches seem to be working as nearly 75 percent of all college students now have a credit card in their pocket.
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