Students will likely have college debt after graduation, but should they have both credit card and student loan debt? I interviewed Beverly Harzog, author of Confessions of a Credit Junkie, about all things college students and credit cards.
Did legislation really stop college students from getting credit cards?
It did put some needed restrictions on offering credit cards to students. For young adults under the age of 21, they have to show sufficient income before they can be approved unless they have a cosigner. The CARD Act also banned gift giving to entice college students to sign up for credit cards. No more free T-shirts to sign up for a credit card. And the CARD Act also prevents card issuers from sending pre-approved offers to anyone under 21 without the individual’s consent.
A 2013 survey by the Consumer Financial Protection Bureau showed that credit card agreements with college has decreased since 2009, the year the CARD Act was signed into law. Most of the provisions became effective in 2010.
Is using a credit card an alternative way to student loans to paying for college in part or in whole?
I do not recommend using credit cards to pay for college. It’s fine to use them to get rewards, but only if you can pay the bill in full by the due date. Student loan debt is stressful, but at least it’s an investment in your future. Credit card debt is “bad debt” and it’s a waste of your money. It would be terrible to graduate with student loan debt and with credit card debt. You don’t want to start your adult life out that way.
What are the dangers for parents cosigning credit cards?
When a parent cosigns for a credit card, they take legal responsibility for the debt. So if the student racks up debt and can’t pay for it, the parent is responsible. The parent can also suffer damage to their credit score if the student uses the card irresponsibly.
What kind of talk/guidelines should parents have with their students before letting them have a credit card? How crucial is this?
Hopefully, parents have been talking to their kids about money management long before they leave for college. It’s very important to talk about credit cards, in particular, because they can be dangerous in the wrong hands. I wrote Confessions of a Credit Junkie to show how irresponsible credit card use can wreak havoc on your life. Even if a parent doesn’t believe in credit card use, they need to educate their kids so they know how to use credit cards responsibly if they choose to apply for a card. When young adults are out on their own, parents won’t be there when they get those offers. So it’s essential to arm your kids with information.
Is it a good idea for parents to use the last month of summer to evaluate their child’s spending habits before handing them the card?
I recommend starting out with a debit card. When your child has that first job in high school, open a checking account and teach your kid how to monitor their checking account and use a debit card. This teaches them how to budget their money and handle plastic. There’s an emotional disconnect when you use plastic because it feels like you’re not really spending money.
You can’t evaluate a child’s spending habits in just one month. Hopefully, you’ll spend their senior year watching them handle a debit card. If you do think they’re ready for a credit card when they go to college, start by making them an authorized user on one of your accounts or getting your child a secured card.
How are credit cards most often used by college students and their families?
I’ve seen folks cosign and one of two things usually happen. It’s either a success or a disaster! I prefer either the authorized user route, a secured card, or a student card. Your choice depends on the maturity level of your child and how savvy they’ve been with their money. At the end of the day, the parent is truly the expert when it comes to making decisions about credit cards and their college-student kids.