When he began his college career, Cameron Cox's father encouraged him to get a credit card to start building up a good credit score.
Walking a financial tightrope, Cox has tried to balance paying for tuition and student housing while also setting aside enough money for social excursions, like a trip to the movies or eating out. When Cox heard his campus bookstore would sell the new American Express Campus Edition prepaid credit card for $5, he was drawn in by the idea of building a credit history without the danger of creating a mountain of debt.
With pending legislation on student loan policies raising awareness and debt-phobia on campuses across the nation, American Express is promoting the prepaid card as a no-strings attached method for college students to get the benefits of credit while learning how to budget and spend wisely. The card, which will be sold through Barnes & Noble college book stores, is just the latest offering from credit card companies determined to work around legislation banning them from marketing traditional credit cards on college campuses. Despite the companies' efforts to brand prepaid cards as a safe alternative to credit, some financial experts warn the cards are just another attempt to get students hooked on plastic.
Rachel Cruze, a member of Dave Ramsey's speaker group and the financial guru's daughter, says the Campus Edition card is just an attempt by American Express to "brainwash" credit card companies' most targeted demographic-college students.
Growing up under the tutelage of the Financial Peace University founder, Cruze learned to go through life avoiding debt and credit as much as possible.
"My encouragement for college students is just get away from all prepaid credit cards in general," she said. The Campus Edition card might sound good, but mathematically, it makes no sense, she said: "When you look at it, there's tons of fees attached to it."
Students are most likely to get tripped up by the card's ATM fees-$2 every time they get cash off the card more than once a month. Although the fees can add up quickly, Cox doesn't fear overspending on cash.
"Two dollars isn't a lot compared to some other ATM fees you'll run into, so I think that's reasonable," he said, focusing on the convenience of using the card just about anywhere. "You don't really need cash that often anyway on campus."
Although he appreciates the card's convenience, Cox mainly wants it to so that he can start building a credit history, even though he's not really sure why that's important. Cox's confusion about the importance of credit history is not unusual, an ignorance credit card companies exploit. But the conventional wisdom that every major purchase in life depends on a good credit score is a myth, Cruze said.
"The only way to have a credit score is to have debt," she said, emphasizing the Dave Ramsey anti-debt mantra.
While students might not find themselves in a huge amount of debt using the Campus Edition card, which does not allow overdrafts or monthly fees, the real danger is the psychological game American Express and other credit card companies are playing, Cruze said: "Statistically, they know that if they can get that card into the college students' hand first, they get that card into that student's hand for the rest of their life."
While American Express is promoting its Campus Edition card, U.S. Bank is going a different route by teaming up with North Carolina State University to give incoming students an ID that doubles as a debit card.
Jennifer Gilmore, the marketing and communications director for the school's department of Campus Enterprises, said the opportunity for the new ID came about when the school needed to renew its contract for a banking partner, and U.S. Bank was able to pair the ID cards with a Visa debit card program.
"It's a pretty responsible program for students looking for another way to manage their college expenses," Gilmore said. "Sometimes drawing a circle around funds to be used for a certain thing is a good thing."
Since the ID cards will be accepted anywhere credit cards are accepted, they will be practical for students to use for specific, consistent expenses, like gas or food, she said. And because the cards only give students access to the money in their accounts, they will not be able to spend more than they have, Gilmore said: "The biggest concern with young people and anyone for that matter [is] to use credit wisely. We're not advocating that they go out and run up credit anywhere."
After reading through all of the fine print describing the American Express card's perks and benefits, Cox decided to stick with his bank's debit card, which doesn't cost him anything and comes with overdraft protection. Cruze encourages others to do the same. Debit cards come with fewer fees and operate much like a prepaid card anyway. But no matter how they choose to manage their money, college students must decide their own financial destiny, Cruze said: "You have to be intentional of where your money's going."