Students Become Prey for Cards Charging 18% After Free Lunch

By Alexis Leondis (Source Bloomberg)

May 8 (Bloomberg) -- Irena Cabrilo got a free lunch during her freshman year at the University of North Texas in exchange for signing up for a credit card from Bank of America Corp. Eight months later, she was carrying a $1,500 balance and struggling to pay an 18 percent interest rate.

“They made it sound so easy,” said Cabrilo, now a senior majoring in marketing and advertising. “Just sign up, you’ll get approved and have access to money. They don’t talk about interest rates and what will happen to your credit history.”

Average credit-card debt among graduating college seniors increased to more than $4,100 last year from $2,900 in 2004, according to a study by SLM Corp. About 85 percent of students have at least one credit card, according to the study, conducted every four years by Reston, Virginia-based SLM, also known as Sallie Mae, the largest lender to U.S. students.

The Senate may vote on a bill as early as May 11 that would prevent credit-card companies from targeting college students such as Cabrilo by requiring parental consent for a borrower under age 21 unless there is proof of independent income or completion of a financial literacy course. A Senate panel approved the restrictions, which also limit credit-card interest rates and fees, in March.

“Credit cards should be a leg-up for college students, not a leg-trap that snares them in unbearable debt,” said Senator Charles Schumer, a New York Democrat. “This new legislation will help protect students from unfair lending practices.”

Students Targeted

Credit-card issuers market to students because they want to inspire brand loyalty from a young age and believe parents will step in if their children default, according to Bill Hardekopf, chief executive officer of LowCards.com, a Birmingham, Alabama research firm. The lenders also expect college graduates to have higher-paying jobs, he said.

Many students need the credit-card accounts because they don’t have sufficient financial aid or enough savings to cover college costs, the Sallie Mae study said. More are turning to credit cards as the gap between financial aid packages and tuition widens, said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group in Washington.

Tuition and fees have risen 5.9 percent at four-year private institutions to $25,143 a year and 6.4 percent at public schools to $6,585 since last year, according to the New York- based College Board. Tuition, fees, room and board surpassed $50,000 a year for the first time in 2007 at George Washington University. Current annual rates at Ivy League schools, such as Harvard University in Boston, exceed $45,000.

Fewer Loans

Fewer private student loans, which often have variable interest rates, and “PLUS” loans are being originated because of stricter underwriting standards, according to Mark Kantrowitz, publisher of FinAid.org, a college funding information Web site based in Cranberry Township, Pennsylvania. Parents and graduate students may take PLUS loans, which require good credit and have fixed interest rates, to cover the balance of tuition.

Private education loan originations were $1.5 billion in the first quarter, down from $2.5 billion a year earlier, based on data provided by Sallie Mae.

Credit-card interest rates are often higher than private student loan rates, and funding college costs with credit cards should only be used after exhausting other loans and for necessary expenses, said Kantrowitz. “You should live like a student while you’re in school so you don’t have to live like a student after you graduate,” he said.

Recent graduates who are repaying their debts should make the minimum payment on every loan and apply any remaining money to the loan with the highest rate, Kantrowitz said.
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Prepaid credit card - Advantages and disadvantages

loans and how and where to get them.
Also bad credit and what to do about it.
Bad credit personal loans, mortgage loans, refinance loans, debt consolidation loans, credit repair, credit bureaus and credit reports, and credit cards like VISA
Prepaid credit cards are offering people with low incomes or poor credit ratings a chance to take advantage of a credit card. But what advantages and disadvantages do prepaid credit cards have?

A relatively new form of credit card you so-called pre paid credit card. This differs from other types of credit card because you only have funds available to it on the corresponding clearing account. You need a credit card that is similar to a prepaid phone card first with credit “charge”, then this means the credit card that will be. Basically, the prepaid credit card offers some advantages but also disadvantages for the users and cardholders. The biggest advantage of prepaid credit card is certainly that now customers can use credit cards, which are otherwise due to adverse credit no card in this way would receive. As one means of prepaid credit cards only through any existing credit and no credit claims, can even the holder of a current account balances, this type of credit card use. Since especially abroad and in the Internet is often the only credit card payment option is to have these “new” card of course great advantages of the prepaid credit card.

A second benefit to the cardholder is that it is an overview of the decisions made therein. While using a traditional credit card even once in the sum makes more orders than we had intended, does this by pre-paid credit cards from the outset to avoid, in which only the amount of money in the account, you also have a maximum wants. Since an “overdraft” in the sense of the credit card is not possible, which also provides the customer a security in addition if the prepaid credit card is stolen should turn the advantage to mention that the maximum in the account or located on the card balance has to be.Besides the many advantages there are also a major drawback of the prepaid credit card. While it is certainly positive for some customers is that you use the card only on credit can not see that a few other customers as a big disadvantage to. One is at the disposal of assets, and may take the prepaid credit card is not in the sense of spontaneous, or even for emergency use as you would with a conventional credit card with a certain amount limit is used. For unforeseen orders, the prepaid card is less likely and thus is less flexible than other credit

Those concerned with purchasing online using their credit card, will be increasingly relieved on the so-called prepaid credit cards coming from different financial institutions. But what is behind such an offer?

Prepaid credit cards are actually the same idea basically, almost every owner of a phone should know: The credit card will be charged before use with a certain amount of money charged, then the payments will be processed accordingly. The principle is strongly reminiscent of the method with traditional rechargeable debit cards, however, the advantage of prepaid credit cards in the much wider acceptance. Almost in every place where ordinary credit cards are accepted, you have the possibility to use a prepaid credit card.

Another big advantage compared to ordinary credit cards is the lack Schufa query before issuing the card. Since under the prepaid principle usually no payments can be made to the board on the amount may go, is the lack of polling also perfectly understandable. For many customers, which, because of problems Schufa the issue of a normal credit card is denied, provided by the prepaid card is a suitable alternative to the use of cashless payment. Even as the first credit card in adolescence is the prepaid card as an alternative to cash is certainly recommended.

The comparison of different providers of prepaid cards is very rewarding, since depending on the bank also offered additional benefits. Credit interest rates, an unlimited Aufladebetrag or even negotiating a credit line (if still missing Schufa query) are possible depending on the institution. The annual fee for a prepaid credit card is usually 30 to 50 euros.

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