New Legislation's Effects on Student Credit

08.19.09
By Credit.com

With $5,200 in credit card debt and $30,000 in student loans, Hernan Castillo feels trapped. He must continue working in a warehouse to continue paying off his debt, so he can’t even use the accounting degree the loans helped finance.

“Sometimes I wish I had gone to prison instead of college,” Castillo said, quoted by MSNBC blogger Bob Sullivan. “At least I would have learned a trade or two and started being independent once I got out."

Rising Debt
    
According to a study released in April by Sallie Mae, a federally-backed college loan company, the average college student owed $3,173 in college debt in 2008, the highest amount since Sallie Mae started tracking student debt in 1998.

A Big Change

The good news is this is probably the last year when credit card companies will be able to pile onto college campuses and sign students up for new cards in exchange for free Frisbees and t-shirts. The bad news is that college students soon will find it more difficult to use credit cards to manage their bills. The Credit Cardholders' Bill of Rights Act of 2009, signed by President Obama in May, places limits on student credit card debt.

Students under age 21 must:

• Have a co-signer on their credit card applications.
• If they do not have a co-signer, their credit will be limited to either $500 or 20% of the students gross income, whichever is greater.
• A student’s total debt on all his or her credit cards cannot exceed 30% of the student’s annual gross income.

Tips

While the new federal law adds protections for students, it does somewhat limit their financial options. Here are some tips for stretching the collegiate budget:

• Restrain spending. Some costs, like tuition and textbooks, can’t be avoided. Others, like clothes and expensive cell phone data plans, can be. Look carefully at your expenses and see what you can avoid or cut out entirely.
• Pay the whole amount every month, on time. If you can’t pay the whole amount, pay more than the minimum payment required.

 

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Credit card protections aim to help students.