New legislation to ease student credit debt

For college students, staying free from credit card debt has always been an issue, but recent federal legislation may alleviate this problem.
President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act last month. The law is designed primarily to cut down fees associated with credit cards and limit increases in interest rates. But there is another provision that aims at increasing financial responsibility and decreasing debt among young, college-age people.
According to the legislation, beginning in February 2010, credit card applicants under the age of 21 must either prove that they have enough financial independence to deal with debt or provide the signature of a guardian or other adult who is willing to accept responsibility for debt.
The major problem for college students with credit cards is the “buy now, pay later” scenario that leads to long-term debt.
“A lot of people in their 30s go to apply for a credit card and have a lot of difficulty,” said David Mills, a UT finance senior. “They say, ‘Man, I wish I hadn’t run up all that debt in my early 20s.’”
Mills said he thought that the act could help make sure the credit card companies “behave a little better.”
University Federal Credit Union issues many credit cards to new and current UT students, but the company did not have an exact number on hand.
“I know it’s a lot,” said Danny Huynh, a credit union spokesman.
Some students might be content with shifting their debt responsibility to their parents. But some may be attracted to prepaid, reloadable cards. These cards are not issued by banks and do not carry a line of credit. They are essentially debit cards that are not connected to a bank account, and have useful features such as direct deposit and ATM capability, said Jerry Welch, chief executive officer of nFinanSe and an issuer of prepaid cards.
“It’s a walking bank account,” Welch said. “We believe that with this new legislation, pre-paid cards will become the plastic option of choice for 18 million college students.”
Some UT students have much simpler methods of managing their money.  
“I just take out $60 from the ATM at the beginning of the week and hold myself to that,” said Victoria Hopper, UT plan II sophomore. “I don’t really see the need for a card, unless I’m paying for something online.”

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