March 17, 2010
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News: Student Options Simply Put
New credit card reform legislation provides Americans with a variety of protective measures. These provisions are aimed at eliminating the predatory and abusive practices of the financial industry. Built in the Credit CARD Act 2009 are provisions that limit the available options for young college students to acquire a credit card. The controversial provision has students in a frenzy and parents pressured into deciding whether to help their student or set his/her free to learn some tuff financial lessons. Proponents of the provision say parents have the opportunity to use available options as a teachable moment.
How does the new credit card act deal with college students? The law doesn't specifically address only students; all individuals under the age of 21 are affected. Under the terms of the Credit Card Act, lenders can no longer issue credit to an individual under the age of 21 unless he/she can show proof that they have the capabilities of repaying the debt. Simply put, the law requires they are employed and have sufficient income. If the student is not in a position to do so, a parent or guardian's signature is required to guarantee payment. But will they? The New York Times says maybe not. A Times survey revealed that some parents don't trust their children enough to co-sign for a credit card. So how do these parents help the student learn financial responsibility while still encouraging them to pursue a higher education?
Credit card companies have responded to the needs of parents and students. Most lenders offer prepaid cards. With a prepaid card, parents can preload a specified amount allowing the student access with a adequately developed budget. Holding the student accountable in managing the budget and staying within the allowable funds, the parent is able to teach the student proper money management. Lenders are also offering a variety of other products where parents have the ability to add additional cards to their accounts with parental controls that help parents monitor their student's spending.