Credit card advertising targeting college students under 21 just got a little more complicated for American companies with the recent passage of federal legislation banning such ad campaigns from campuses across the nation.

The Credit Card Act of 2009 is designed in part to protect young consumers and became a law in May. The bill will go into effect in February 2010.

This new law will add protective measures for students and make it more difficult for credit card companies to issue cards to students under 21.

Some of these measures include co-signing with someone over the age of 21 and banning advertisements from being on or around campuses.

In the past, credit card companies have used tactics such as offering free items or incentives for students signing up, according to the website CreditCards.com.

Kristin Van Gaasbeck, associate professor of economics, said that it is easy for students to get caught in a trap and never be able to pay off their debt. They start with good intentions but don’t realize the cost that the movie ticket they buy today will actually end up costing more than face value, she said.

The use of credit cards and incurring of debt by students has been increasing. Ben Woolsey, the director of marketing and consumer research for CreditCards.com, said it is estimated that 83 percent of undergraduates had credit cards in 2004 with an average debt of $2,300. This compares to an increase to $3,173 of average debt for 2008, Woolsey said.

“The legislators’ hearts are in the right place,” Van Gaasbeck said. “This legislation is not designed to discriminate against young people.”

Under the new law, a student under 21 will need a co-signer, a parent or other individual over 21, who is willing to be jointly responsible for the debt collected on the card by the student. To qualify without a co-signer, the student will have to submit financial information through an application process and prove that they have independent means to repay any debt built up on the card.

The law will also make it mandatory that institutions of higher education publicly disclose any contract or agreement made with a credit card issuer for the purpose of marketing a credit card to students. Incentives to sign up are no longer allowed if they are on or near a college campus or at a campus sponsored event.

Van Gaasbeck said students’ money habits are generally learned from their families and that education could help them avoid debt and manage money better.

“I think it’s amazing that a student will hand over their social security number in order to get free pizza,” Van Gaasbeck said.

It is necessary to educate consumers so that they are aware of how much credit is costing them and how long it will take to pay it back, she said.

Plugging the previously stated figure of average student debt of $3,173 into a credit card payoff calculator at 18 percent interest and paying the minimum payment of $78.85 per month, this debt will not be paid off for 230 months and $4,241.45 will be paid in interest.

If a payment is made late and the interest rate is increased to 34 percent, which is legal, this same debt would then take 263 months to pay off and the minimum payment would increase to $120.73 per month and $8,440.87 would be paid in interest.

The bill also recommends that colleges offer debt education and counseling sessions in their student orientations.

There is a workshop available called “Money Matters Workshop,” said Mary Shepard, coordinator for the Sac State orientation center. The workshop is offered by the student financial services at the orientation sessions.

Van Gaasbeck said she thinks the law is necessary to “level the playing field” so that consumers get full and plain disclosure from the credit card companies. In the past, the disclosure language was too complicated for the consumer to understand.

Van Gaasbeck said that credit card companies have very sophisticated ways to figure out how to hook people into the credit game. Their goal is to snag the student who is eager to establish credit and makes enough money to pay their minimum payment, but not enough to pay it off in full.

Not everyone agrees that the law will only be beneficial

“In aggregate, the new law should reduce the amount of student credit card debt, which is arguably a good thing,” Woolsey said. “However, responsible students under 21 that would have been capable of properly managing credit will be deprived of the privilege, utility, learning experience and credit building benefits of getting credit in their own name, which is unfortunate.

Angel McCullar can be reached at [email protected].