Money College: New credit card laws address escalating student debt

Perhaps no area of life affects undergraduate students more than credit. In this article, Money College writer Katie Drews relates the stories of college kids in a credit crunch; please check out Money College's Peter Sachs insights into credit and college here.

Twenty-two-year old Matthew Alonzo juggles so many credit cards that keeping track of payments is like wrestling a nagging homework assignment that never ends.

The senior at Loyola University Chicago is approaching graduation with around $3,500 in credit card debt, spread across five cards. Despite the stress of managing his bills, Alonzo said he never would have been able to get through college without plastic, which he needed for essentials such as books, furniture and plane tickets home to San Antonio, Texas.

With rapidly-growing college costs piled on top of the financial crunch of the recession, students -- including Alonzo -- are depending on credit cards more than ever before, and usually ending up slammed with debt. According to 2009 data from Sallie Mae, students carry an average of 4.6 credit cards and seniors graduate with more than $4,100 in debt, up from $2,900 in 2004.

Recently enacted credit card laws, however, may change student spending habits. As of Feb. 22, any person under 21 desiring a credit card will need a co-signer, unless he or she can prove an income. Also, new guidelines limit the presence of credit card companies on college campuses and ban them from offering freebies with new accounts.

These restrictions could significantly lower the number of young cardholders and limit the escalating amounts of debt that have plagued students in recent years, experts say.

"I think those trends that developed really pushed consumers for some control ... because [the debt] really is a burden to transition to the work world," said Ben Woolsey, director of marketing and consumer research at

Many students charge their expenses throughout school with "the presumption that when they get out of college, they'll get a good job, but that doesn't happen any more," said Kalman A. Chany, author of Paying for College Without Going Broke.

When Katie Wilcox, a 22-year-old St. Louis University grad, moved back home to Germantown, Md., her first priority became tackling the $2,500 debt that she racked up from a semester in Rome and somewhat "irresponsible" spending at school.

Wilcox expected she'd be earning an income right after college to pay off her bills, but it took another six months before she landed a job at a temp agency.

"There were nights when I would literally lie in bed and freak out that I would never pay off this debt," she said.

When Wilcox signed up for her first card as a junior in college, she planned to never spend beyond her means.

But then it just "spiraled out of control."

"It was way too easy to impulsively buy stuff," she said. "You don't think about the paying it later part."

During her senior year, Wilcox wanted to feel independent from her parents, so she didn't ask to borrow money. But she never had any cash coming in--working at an internship that didn't pay- so even buying groceries became a regular charge to her account.

Now Wilcox saves half of every paycheck just for her credit card bills.

"I hate credit cards," she concluded. "When I pay off my debt, I am cutting up my credit card and never owning one again."

Stephanie Herbst, an 18-year-old freshman at University of Minnesota, only carries a debit card and wants to stay away from credit for as long as possible.

Herbst admits that she doesn't know the first thing about credit cards -- an issue that has led many other kids into credit trouble.

"I wouldn't even know where to begin when I got the bill," she said, unsure of what the interests rates actually mean.

As for choosing among the hundreds of card types, Herbst said it is so confusing that "I would probably get whatever was pretty."

Herbst probably couldn't get a card even she wanted one, under the new rules. She lacks a job, and she doesn't think her parents would agree to co-sign, which would put their own credit on the line.

"There's still an avenue for people under 21 to get cards, but there's a higher hurdle now," Woolsey said. "It will remove the temptation of money from younger college students who don't have the experience or the means to handle credit at that age."

Even though credit cards can be handy for emergencies, Chany says, kids need to learn to be savvy with their spending habits.

Sallie Mae recommends sticking to one low-interest rate card and only charging what you can afford to pay in full each month. For those with multiple cards, pay off the card with the highest interest rate first, and make at least the minimum payment on the others. Also, avoid accepting higher credit limits and keep the card in a safe place so that it is used for necessities only.

"Don't end up paying interest on pizza and iPod downloads," the company warns -- even, we assume, if you hold the pepperoni.
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