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New Rules Restrict Credit for Students

You can buy cigarettes, porn, lotto tickets, and even a gun when you turn 18. Of course, you can vote and join the military without parental consent as well. But according to new rules recently signed into law by President Obama, you're not responsible enough to use a credit card without getting mommy or daddy's signature first.

While the Credit Card Act of 2009 will enact some welcomed changes to protect consumers from abusive credit-card practices, I'm having a difficult time grasping how restricting credit for those under 21 will actually address the underlying issue of financial education among our youth.

According to the new law, young adults under 21 will need a cosigner in order to qualify for a credit card unless they can prove they have sufficient income to support the level of credit given. But what does "sufficient" income mean? I don't know, and the law doesn't specify how much income is enough or where it must come from to be taken into account.

I expect these types of details will get hammered out in the coming months as credit issuers determine how they will operate within the new regulations before they take effect in February 2010. Co-signer or no co-signer, the new rules do absolutely nothing to educate college students about responsible credit management. And frankly, that's really where our focus should be if we wish to see any sort of fundamental change in how young adults understand and use credit in the future.

Many people still seem to believe the new law will successfully help students avoid massive credit-card debt prior to graduation. That may be true for some, but parents who choose to co-sign for their child's credit card are probably already paying all the bills in the first place. What's left behind are all the hard-working students who struggle to put themselves through school and pay their bills without parental support while they rely on student loans, credit cards, and part-time jobs. Will their minimal part-time incomes be enough to cover the rising cost of tuition, books, and other living expenses? Probably not, so it'll be interesting to see how Congress and the credit card companies define what "sufficient" income will mean when young adults apply for student credit cards.

I suppose I can understand why some students may feel they need the government to protect them from their own naivete. On the other hand, I believe a great deal of hard-working and financially-responsible students will be hurt by restricting their ability to obtain credit, and I think that's a shame.

What do you think of the new rules?

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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Farko's picture

Thank you for the useful information.