Despite the drop in sales that every retailer experiences post-holiday, the inception of a brand new decade is likely to usher in crowds of college-age shoppers hungry for the latest in brand name merchandise. However, others (including myself) may be equally likely to balk at their astronomical credit card summaries — the unfortunate result of a season of charitable gift-giving.
According to a recent study by Sallie Mae, the average college student has four credit cards and a debt of $3,173. That’s well over the national average reflected by the entire credit card-carrying public.
To help quell the rising debt, the Obama administration passed the Credit CARD Act of 2009, which — among other restrictions — bars non-working young adults under age 21 from obtaining credit cards. Even working 18 to 21 year olds are now required to prove that their income is sufficiently high before they’re considered eligible to own a card.
This has already led to a significant decrease in the use of credit cards among college students and older consumers alike. But even as a 21-year old who’s exempt from this particular statute, I take issue with its unreasonable imposition on fiscally responsible students.
Let’s face it — at some point after graduation, the vast majority of college students will be forced to make several large purchases to prepare for their first years in the work force. The necessary investments could range from the manageable — like a car — to the downright overwhelming — like a condo, house, or four-year graduate program. Most of us won’t have sufficient savings to foot the full bill for any of these necessities and will likely have to apply for a sizeable loan or mortgage.
That said, we can’t ignore the importance of the credit card. Granted, it’s a convenience that we don’t absolutely need in our day-to-day lives, but it’s the only means by which creditors can determine our ability to pay the larger, more essential debts that we’ll inevitably encounter down the road.
Generally, an ideal credit score requires an individual to have several open lines of credit with an average of at least three years. This allows creditors to verify a consumer’s financial means, not only to pay off debt, but to pay it off consistently. This is understandable, considering the risks a bank takes when it approves a sizeable mortgage that won’t be paid back for anywhere from 15 to 30 years. A well-established credit history is a vital means to ensure credit-creditor trust and a low interest percentage on subsequent loans.
Aside from simply establishing a history with creditors, credit cards give students an opportunity to learn important financial lessons the hard way — without burdening ourselves with massive debts. If an average debt of $3,173 seems astronomical to you as a college student, imagine the following scenario: You’ve just completed graduate school and are now looking for a house. Inexperienced with the mores of credit-lending, you go well beyond your means and put 10 percent down on a $200,000 mortgage. Ten years later, you’ve paid $60,000 on the house when an unexpected financial deficit causes you to default on the mortgage. Now, your entire $60,000 investment belongs to the bank, along with your excessive house.
I’m not suggesting that this is a common scenario, but isn’t it better to learn tough lessons with a $3,000 credit line? Sure, you might have to ask mom or dad to help with the bill when all is said and done, but it’s better to gain this valuable experience with small lines of credit so you don’t carelessly accrue massive amounts of debt as an inexperienced consumer.
Most facets of the new credit card law provide numerous protections against consumer exploitation by creditors, but I’ve never been a fan of age-specific restrictions for those over 18. Liberal government may equal big government, but why not simply adopt the “harm reduction” approach espoused by liberals who disapprove of the country’s strict drug laws? It’s more effective to teach college students how to properly use credit cards, rather than ban them outright. It’s not fair to deprive responsible young adults from their right to a credit card, even if they’re a small minority in a population of swipe-happy shoppers.
Timothy Rabb is an LSA junior.