Private student loans may soon come under increased federal regulation as Congress takes up legislation that would create a consumer financial protection agency.  The bill moved out of the House Financial Services Committee yesterday and will soon go to a floor vote.

Lenders fought the legislation, but the proposed amendment to exempt student loans from the agency’s oversight was defeated in committee.  A brief but heated debate also arose over whether the agency should also regulate “gap loans” made by private for-profit colleges directly to students to help cover tuition and other expenses.  Ultimately, the panel sided with the schools who argued that new Truth in Lending restrictions already offered students sufficient protection in regards to borrowing from schools.

Student loans are only one of several aspects of lending that would be regulated by the new agency.  They’d be accompanied by mortgages, credit cards, and other bank-based loans.  This comes in addition to legislation that’s already been passed that will limit lenders’ ability to market credit cards to college students.  However, auto financing plans offered by car dealers were exempted and the agency’s role in regulating smaller banks and lending institutions was also limited by amendments.

Backers of the proposed regulatory agency hope that its creation will offer greater protection to consumers, including college students, who find themselves overwhelmed by risky debt or deceptive lending practices.  They hope that they will be able to limit the extremely high interest rates and confusing terms that accompany some private loans.  Student lenders have previously come under fire for questionable lending practices and have paid out large settlements and agreed to new codes of conduct governing their practices of marketing loans to students and offering incentives to colleges to promote their services on “preferred lender” lists.  Private loans have also seen increased regulation this year, with previous student aid legislation requiring them to disclose terms up front, among other steps taken to make their lending practices more transparent.

Posted: under College News, Student Loans.
Tags: college news, credit cards, financial aid news, money management, private loans, Student Loans

Comments (0) Oct 23 2009

The Federal Reserve Board proposed new regulations last week that would prohibit creditors from issuing credit cards to anyone under 21 without the consent of that applicant’s parent or guardian, or proof that the consumer would be able to make the required payments on their own. Those rules would amend some of the provisions in the Credit Card Accountability Responsibility and Disclosure Act of 2009, a bill passed by Congress last May that, among other things, would hinder credit card companies from getting college students to sign up for offers at on-campus booths.

You know you’ve seen it before - the free T-shirt that you probably wouldn’t wear, but was appealing anyway because it was free. All you had to do was sign up for a credit card. An article in The Chronicle for Higher Education when the bill was first moving through Congress described college students as the most targeted population when it comes to new customers for credit card companies.

Critics of the bill then said that college students, who take on a slew of new responsibilities once they get on campus, should be treated as adults. And during a time when students are more apt to use credit cards to pay for college expenses, they shouldn’t meet obstacles when using their credit cards for college expenses. According to a recent survey by student lender Sallie Mae, 84 percent of undergraduates have at least one credit card; 92 percent of those undergraduates use the cards toward college expenses. College students’ average balances are more than $3,100.

So what’s the bigger problem? Having access to credit to pay for college expenses, or preventing college students from accruing large sums of debt?

Credit cards should be used as the last line of defense, and ideally for emergencies only. There are many options out there for you to find money for college that have nothing to do with being faced with high interest rates and exorbitant fees. Do your research to apply for college scholarships and grants that would result in free money to cover your college expenses. Consider a part-time job on campus if you have the time and can balance work and college. And while not as desirable, investigate low-interest student loans to supplement your financial aid package.

If you need to use credit, make sure you’re keeping within a manageable budget, and only charging as much as you’d be able to realistically pay off at the end of the month. The decisions you make now will matter post-graduation, and any decision involving opening a new line of credit should be approached with caution. Stick to one card if you need one, and if you find yourself in debt, pay off as much as you’re able to each month until you’re done. (Don’t be using that card while you’re trying to pay it off, though.) Browse through our site to see more tips on budgeting, how you can avoid mounds of credit card debt, and how to keep your credit card score healthy.

The new regulations would go into effect after Feb. 2010, but the public, credit card industry and others will have a chance to voice their opinions beforehand. Other rules proposed by the Board included:

• Limiting high fees associated with subprime credit cards.
• Prohibiting increases in a credit card interest rate during the first year after an account is opened, and increases in a rate that applies to an existing credit card balance.
• Requiring creditors to obtain consumers’ consents before charging fees for transactions that exceed their credit limits.

Posted: under College Budgets, College and the Economy.
Tags: College and the Economy, College Budgets, credit cards, economy, financial tips, money management

Comments (0) Oct 06 2009

Student loans and credit cards make up the two most dangerous, and often difficult to avoid, debt traps for college students.  While some amount of borrowing for college can make life easier for students, too much debt can make life nearly impossible for graduates.  The same goes for credit cards.  Having a card is great for emergencies and your credit rating, but running up a large balance while in college can really hurt, especially for students who were approved during days of easy credit and are now seeing rates soar and credit limits plummet.

However, Congress is working to make things easier for current credit card holders and also to make the choice of whether or not to open a credit account less nerve-wracking for new college students.  Legislation in both the House of Representatives and the Senate seeks to create a “credit card holders’ bill of rights,” curbing confusing and predatory practices by banks issuing credit cards.  While the bills have received bipartisan support, including a ringing endorsement from President Obama, there is still some concern about possible backlash in the form of even more stringent credit requirements for people who want to open credit card accounts.

Still, picking up a poorly screen printed t-shirt along with a new line of credit with an 18+ percent interest rate is a campus tradition unlikely to be missed by many.  With college students’ credit card debt still on the rise as of 2008 and relief from private loans still nowhere in sight, any new consumer debt protection will likely be welcomed by many college students and recent graduates.

Posted: under College Budgets, College Costs, College in Congress.
Tags: College Budgets, College Costs, College in Congress, credit cards, credit crunch, financial tips, money management, student debt, Student Loans

Comments (0) Apr 30 2009

While an increasing number of college students received financial aid in the 2007-2008 academic year, that calendar year students also ran up more credit card debt.  The average college student owed $3,173 on credit cards in March 2008, compared to $2,169 in 2004.  This information comes from the student lender Sallie Mae, which has been tracking students’ credit card debt since 1998.

The study also found that student credit card debt increases with grade level.  The average freshman owed $2,038 on credit cards, while the average senior owed $4,138.  The money is not just being spent on beer and pizza, either.  According to a supplemental survey by Sallie Mae, the vast majority of students (92 percent) report charging at least one educational expense, such as books, to a credit card.  This figure is also higher than in 2004, as is the percentage of students charging tuition to a credit card, which now stands at nearly 30 percent.  Students reported charging an average of $2,000 in educational expenses to credit cards.

Higher tuition, a poor economy, and difficulty finding private loans may have already pushed these numbers higher for 2009.  With high interest rates and the need to begin repayment immediately, credit cards are one of the worst ways to pay for school.  Scholarship opportunities and federal student financial aid should definitely be explored before students resort to charging tuition to a card.  A variety of grants and scholarships, as well as low interest student loans, can help students avoid credit card debt while in college, and keep their debt from consuming their entire salary when they graduate.  Before you reach for the plastic to pay your campus bills, spend a few minutes doing a free scholarship search.  You may be very glad you did.

Posted: under College Costs, College News, College and the Economy, Tips.
Tags: College and the Economy, College Costs, credit cards, credit crunch, Financial Aid, financial tips, Scholarships, student debt, Student Loans

Comments (0) Apr 16 2009