Those fake, flimsy credit cards students get in their mailboxes may be the closest they come to the real thing.
As a 100 percent-mortgage-payment plan turned on the banks giving them out and sent many — like Fannie Mae and Freddie Mac — into bankruptcies that only government money could fix, it’s going to take another $700 billion to bail out all the banks and lenders that have almost lost their entire assets.
The economy, which has struggled to its feet over the past two weeks only to fall back down again, also affects those banks that are left standing.
And as a result, they’re less willing to put money anywhere that might not be safe, Doug Pearce, economics professor and department head, said.
One of those places happens to be college students’ credit cards, he said.
While loans on cars and houses are not very risky if done right — if borrowers don’t make payments, the lending institution can repossess what that loan went toward buying — credit cards are a bit riskier.
“Credit cards are unsecured by anything,” Pearce said. “If someone defaults on a credit card, there’s nothing [companies] can come and grab easily.”
So it’s possible that banks might start reducing that risk by making it harder for students, many of whom don’t have full-time jobs to balance out their spending, to get credit cards.
Banks can change the requirements that enable students to easily obtain credit cards. Although Pearce said banks typically like to entice college students with incentives like low-cost checking — “it will benefit them down the line when students get jobs and they’re more profitable customers” — they might start weighing students’ current risks to their profits more than their future value as customers.
“Banks are simply in a position where they’re going to be tighter on all kinds of credit,” he said. “Many students have part-time jobs, but since the economy is in a rocky position, banks are wondering whether these jobs will still exist.”
To eliminate this risk, banks could start raising applicants’ minimum yearly incomes or require applicants to have zero or very little debt to their names.
If an institution is worried about cash, it “may as well evaluate who their prime customer is going to be,” Geoffrey Benson, a professor in agricultural and resource economics, said.
And with already-high interest rates, which Pearce said he does not expect will change, the hurdles students might have to jump to get their credit cards might be too high to clear.
Natalie Morris, a senior in animal science, hasn’t applied for a credit card, but she said she’s slightly worried about how possible new restrictions on credit cards could impact her life after college.
“If you don’t have a lot of credit history built up, it’s harder to get a card,” she said. “And it doesn’t help that requirements could be more strict.”
She said she plans on building good credit slowly and, if she can’t get a card to do so, investing cash in various locations.
