Archive for Sunday, February 28, 2010

Student access to credit tightened

New law forbids some on-campus solicitations

February 28, 2010

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After having to sell his car to his parents and working through school, Nathan Shaffer is still working to pay down his credit card debt.

The Kansas University junior from Wichita said he has three cards now, and at 22 years old, has learned to be more responsible with his purchasing.

“I didn’t even know what I was getting into at the time,” he said. After purchasing a television, hardware supplies to start up a business and electronics on credit cards he signed up for when he was under 21, he’s still trying to pay down more than $4,500 in debt.

A new federal law that went into effect this week will make it more difficult for students to obtain credit cards. Those under 21 who don’t demonstrate an ability to pay their debts will have to get a co-signer.

Companies will be forbidden from some on-campus solicitations, including giving away freebies as an incentive to sign up for a card.

“Once you taste the candy, it’s hard not to buy a few more pieces,” Shaffer said of the instant gratification of credit card purchases. “If there had been a law like that, I probably wouldn’t be in so much debt today. … Maybe I’d be graduating this May with the rest of my class.”

Bob DeYoung, a professor of finance in KU’s School of Business, said the new law will have an impact on the broader community, as well. More information will be available to consumers, he said. Bills will include information on how long it would take to repay the debt by only making minimum payments, and consumers will have more warning before interest rates and fees change, he said.

DeYoung said he didn’t think the new rules would have much of an impact on students getting their first credit cards but would more likely be felt when the time came to apply for a second or third card.

Many college expenses — like the cost of books, for example — make sense for a college student to pay using credit, but many parents would likely balk if their sons or daughters came looking for another card.

“If a student gets in trouble, that’s where the rubber’s going to hit the road,” DeYoung said.

The changes will likely have some downsides, he said, as credit card companies will begin charging higher rates and stated fees.

“Credit card companies will have to make up the lost revenue somehow,” he said.

At Kansas State University, a new financial counseling center provides free help for students in managing their credit cards. No such center exists at KU, but students can seek some help through the Office of Financial Aid.

Jodi Kaus, director of Powercat Financial Consulting at KSU, said she deals with many students who have stumbled into financial trouble — usually from a lack of sticking to a budget, she said.

“College students are just learning how to make wise decisions as credit cards go,” Kaus said. “These changes should help them do that.”

The new law reveals some things that previously may have been hidden to an inexperienced credit card user, Kaus said. For example, she said, consumers would have to opt-in to incur fees for exceeding their credit limit, as opposed to incurring the fees and finding out about them later.

The new financial consulting center has been well-received as a place for students to go for help or to learn ways to build up good credit, Kaus said.

The credit card rules were generally well-received by students on the KU campus this week, with those who had good credit saying the rules seemed to make sense.

And if it reduces solicitations on campus, that’s only a good thing, said James Wong, a sophomore from Overland Park.

“I have enough T-shirts,” he said.

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