When Can a Student Loan Be 'Income'? When Applying for a Credit Card

Some students report school loans as income to get credit cards, according to a University of Houston Law Center survey.
Some students report school loans as income to get credit cards, according to a University of Houston Law Center survey.

One of the signature elements of the Credit Card Act of 2009 was a provision that required college students under the age of 21 to have either independent proof of income or a co-signer when signing up for a credit card.

But a survey conducted at the University of Houston Law Center found that students were still getting credit cards. And 29% of the under-21-year-old respondents who had signed up for cards since starting school in the fall said that they had used student loan proceeds as part of the income they reported to card issuers when they applied.

But does that make any sense? How is owing money proof that you can pay credit-card obligations? On what planet is being tens of thousands of dollars in debt the same as having income?

In an email, Bank of America (BAC) spokesperson Betty Riess told DailyFinance that "We take a conservative approach and generally do not allow student loan proceeds or financial aid to be used as a source of income to pass independent ability to pay."

Application Confusion

But Bank of America's customer service tells a different story.

I logged onto Bank of America's online student credit card application and chatted with "Kymberly," a Bank of America online customer-support representative who told me that I could indeed use student-loan proceeds as a source of income when applying for a Bank of America credit card. [See a screen shot of our conversation, on the right.]

Reiss called the information I received from online customer service "inaccurate" and apologized for it.

But the online application also doesn't specify whether student loans count as income -- nor does it even hint at making any effort to verify students' reported income. You simply put "your income" in one box, and "other income" in another box. With no explanation of what "other income" might be, it's open to interpretation.

There's also a box for "household income," which says "Your Total Household Income is the sum of the all income within your household that could be used to repay your obligation."

How Can a Loan Count as Income?

Other banks have different instructions for applicants. Elizabeth Fogerty, a spokesperson for Citibank (C), told DailyFinance in an email that "If an under-21 applicant applies for a college-card account, the application explains that income can include full- or part-time employment wages, allowance, stipends, grants or scholarships. Student loans are not included as a source of income."

Susan Stawick, a spokesperson for the Federal Reserve Board, told DailyFinance there's nothing specific in the law or in the staff commentaries on the law that governs whether student loan proceeds can count as income for credit-card application purposes.

But do we really need a law stating that money owed isn't the same as money earned? It reminds me of an old line attributed to Abraham Lincoln: "How many legs does a dog have if you call the tail a leg? Four. Calling a tail a leg doesn't make it a leg."

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Zac Bissonnette's Debt-Free U: How I Paid For An Outstanding College Education Without Loans, Scholarships, Or Mooching Off My Parentswas called the "best and most troubling book ever about the college admissions process" by The Washington Post.