Credit Card Borrowing Tightens for Under-21s

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At first it was just the Best Buy card that Paul Davis used to buy a few Christmas presents -- a couple of iPods and a fly pen.

Then, he said, another credit card company lured him into buying a computer and camera with a $2,000 credit limit and zero interest over 12 months.

"Every day a letter would arrive in the mail, and I would wait for the sweet offers to come," said Davis, then a student at Cape Fear Community College in North Carolina.

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He hoped his work with a photographer would provide extra cash, but when that didn't pan out, he took on another credit card just to pay for basic necessities.

"I'd pay off my credit card, and then I'd have just enough for the rent and use what I had just paid off for food, gas and a pack of smokes," he told

"I was aware of what was going on, but not the depth of my debt," he said, as the interest rate soared to nearly 25 percent and he missed payments. "One week I lived on only bread and honey."

Only a tragedy -- the suicide of a friend -- galvanized Davis to return home from college and face up to reality: He had accumulated $10,000 in debt on five different credit cards.

About 84 percent of all college students have credit cards and 56 percent of them, like Davis, have more than four, according to a national study by Sallie Mae.

In 2008, college seniors graduated with an average credit-card debt of $4,700, a 62 percent increase since 2004. Nearly 20 percent of them carry balances of more than $7,000.

But provisions in the new Credit Card Accountability, Responsibility and Disclosure Act of 2009, which will go into effect in February, seek to rein in that debt, making it harder for students to qualify for credit cards.

Credit Card: 'Magic Piece of Plastic'

"It's kind of like this magic piece of plastic," said Adam Levin, co-founder and chairman of and former New Jersey state consumer affairs director.

"You hand it to someone and they give you something back," he said. "Then 30 to 40 days later, the ugly consequence shows up."

College graduates should be building on their financial future, "not digging themselves out of a hole," said Levin. "Students think it's their GPA that's important, but it's their FICA score."

Credit Card Debt Can Destroy Life

Unpaid debts can destroy students' credit down the road when they want to purchase homes or vehicles.

The new legislation means that students will not be able to charge more than 20 percent of their earnings, and in the event they cannot prove their independent ability to pay, they are required to get a co-signer.

Credit card companies will be required to get a parent's written permission before raising credit limits.

It will also ban the companies from using "freebies" such as T-shirts, food and electronic gadgets to entice students. It will prohibit schools from selling students' names and personal information to credit card lenders.

Lenders also would have to disclose financial agreements between them and borrowers, and have universities offer education programs to incoming freshmen.

"Colleges say you need trigonometry but not life skills," said Levin, who also blames parents for not educating their children about financial intelligence and being wooed by the "siren song" of the credit industry.

"Parents say, 'You are an adult, you got yourself into this mess, now get yourself out,'" said Levin. "But tough love should be exercised before, not after, the fact."

Reaching Out on Facebook, Twitter

But even this law can't stop credit card companies from finding other ways to reach students, deluging their mailboxes with offers and reaching out to them on social networking sites like Twitter and Facebook.

Mark Ortega, a 21-year-old history major at the University of Texas, said he was swayed into getting five credit cards and has accumulated $2,800 in debt.

Ortega mostly bought electronics, "not really anything I need," but only works a 20-hour week in a retail store for $7.50 an hour.

"It was one credit card, then it became two and three," he told "I thought, I'll pay it later, but later never came, and I am paying for it right now."

"I don't use them anymore," Ortega said. "I'm maxed out and was cut off. I haven't been able to make the payments."

His father, a banker, is helping to pay them off.

"But my mother is really angry with me," he said. "It was kind of like a slap in the face, and I learned the hard way."

Ortega, like many others, has college tuition loans totaling $15,000.

"I am going to be 50 years old and still paying off my school loans," he said.

For Laura Yoder, it was the purchase of a dog when she was a senior at the University of Texas that sent her debt skyward.

She put the purchase on her credit card, because she knew her father would say, "No."

But the dog cost her more than the $650 price tag.

"I was graduating in a couple of months and figured I would get a job and pay it down again," she told

The job never materialized as she went on to graduate school because of the recession. Today, Yoder saddled with a $2,500 bill and no way to pay it off.

Debt Isn't Always Evil, Say Experts

But some financial experts say that debt is not a bad thing, if students can learn to handle it properly. And the new law is going to make it harder for those under 21 to get a card and start building their credit.

"You can send a young adult to Afghanistan or Iraq in the military and he can't borrow $300 to $500 -- the law seems silly," said Jim Randel, author of "The Skinny on Credit Cards," one of a series of illustrated books for young people.

"We should teach them to borrow responsibly, and this isn't brain surgery," said Randel. "It's a two-edged sword. You can get into trouble or bring yourself to a whole new level. To say an 18-year-old isn't mature enough doesn't resonate with me."

Students like Paul Davis, who borrowed over their heads, have learned the hard way. At 24, he is still living at home, trying to get back on his feet, hoping to finish his studies at a four-year college after paying off his $10,000 debt.

"I have cut corners somehow and am paying $350 a month," said Davis, whose work as an album designer for a photographer has recently taken off.

His mother kicked in $2,000 and the balance is now down to $1,900, but Davis is still paying 40 percent of his income to wipe out the debt.

"My mom's a trooper, and it's nice to have family to rely on when you make mistakes," Davis said. "But I only fault myself and my lack of judgment."

And his advice to other college students?

"Don't have any credit cards except one for an emergency, and even then, it's debatable what an emergency is," he said. "Learn about your spending and pay it back."

ABC On Campus reporters Xorje Olivares and Kirby Kristen of the University of Texas, and Chris Badders of the University of North Carolina contributed to this story.