Advanced Personal Finance

I am not a big fan of credit card companies. In fact, I’m squarely in the ‘anti-credit card company’ camp. I think many of their practices are predatory, their business practices suspect, and their profit outrageous.

That said, I think credit cards are valuable for college kids. In a good fraction of cases, kids attending public colleges need credit cards, and the credit lines they extend, to get through school. And, yes, I’m aware this means graduating college with credit card debt.

A bad idea
I’ve been reading a BusinessWeek series on the use of credit cards by college students (Part 1, Part 2, Part 3, Part 4). I agree with a good bit of what they write (it’s pretty anti-credit card). But in the latest installment of the series, they highlight a piece of proposed federal legislation to limit the amount of credit extended to students to an absurd $500.

The reality of college today is that it is expensive and the cost is rising rapidly - far faster than inflation, in fact. Federal grants are small and hard to come by. Most middle class families must borrow to pay for college.

Most personal finance writers consider student loan debt ‘good’ debt. Regardless, for most middle class families it is a simple necessity, good or bad. But another fact is that subsidized federal loans will often not cover the entire cost of a public school education. Families must fill the gap with something - unsubsidized loans the student takes on, parental loans, IRA withdrawals, second mortgages.

Credit cards and me in college

I personally racked up considerable credit card debt while in school. It began my freshman year. I was astonished to learn a credit card company would give me a card - an 18 year old with no income (this was in the early nineties). And I literally had no experience using one. I was remarkably naive. I was, in a word, the perfect mark.

By the time I graduated, the butchers bill was in the thousands on several cards. At one low point, I paid one card bill with a convenience check from another. It took a couple of years after graduation to get rid of all of the debt.

But I was grateful for the credit I was given. Grateful. Strange thing to say about credit card debt, I know. The sad fact is, credit cards helped me pay my way through college. They helped me get my degree.

I paid for food, gas, and books with my credit cards. That was money I didn’t have. Without credit cards, I may have had to drop out of school - at least temporarily.

Yes, I had a job in college. Yes, I took on student loans. I was even in the Army Reserve where you get paid for attending training once a month. But I couldn’t make ends meet on those alone. I used credit cards to live.
So for all the vitriol spit at credit card companies, for all the former students in serious debt, I think regulating the amount of credit students can get is wrong-headed. I’m all for clear contracts and terms. I’m all for eliminating double cycle billing and universal default. And of course I’m in favor of student education about credit. But if you squeeze a balloon here, it expands there. Limiting credit to students will have unforseen consequences.

And those consequences might be even worse than our college students graduating with credit card debt.

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This entry was posted on Monday, September 10th, 2007 at 8:26 am and is filed under Credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.