It seems students will go to great lengths for a free lunch (the article about how to get free food in college over on our sister blog, Surviving College Life, has been particularly popular).  What too many don’t understand is that when it comes to credit card marketing, there is no such thing as a free lunch.

The $1500 (+ interest!) Meal

I’ve written before about the ways credit cards lure students in, and was saddened to read a recent article from Bloomberg about a student who signed up for a card to get a free meal .

She was reported as thinking it was a great deal–she just had to sign up for the card, she would get approved, have access to a line of credit and as a bonus, she would get a presumably non-Ramen noodle lunch for free.

Fast forward eight months: she now has a debt of $1,500 that she is struggling to pay off PLUS an 18% interest rate. With her financial situation already on edge, that debt may just keep climbing. Even if it doesn’t, the Bloomberg article calculated that if she makes a regular $50/month payment on that debt, it will still take her all of four years to pay it down. (And by then she’ll probably be paying on student loans as well!)

Congressional Credit Considerations

Stories like the one above are all too common among college students today. Though legally adults at 18, many continue to be naive or uninformed consumers–willing to sign up for a card for a free frisbee or T-shirt, unaware of the strings attached.

Happily, the American government has acted to do something about that. The Senate has recently passed a new bill last week that places restrictions on college students getting credit cards. The bill would:

• Require parental consent for borrowers under age 21, or
• Require proof of financial independence from the student, or
• Require proof that the student had taken a financial literacy course.

The bill also limits the fees and interest rates that can be charged to students.  The downside of the bill is the legislation doesn’t go into effect until February of 2010 so watch out for what credit card companies do to terms in the meantime!

This bill could end up being good protection for our students, many of whom are already struggling with the day to day financial decisions they are faced with.  I’ll keep you posted as new developments arise.

All the best,
Deborah Fox

photo by woodsy