Fewer college students carry credit cards these days from just a year ago, thanks to provisions found in sweeping legislation from 2009 and the rising popularity of debit and prepaid cards.
Just more than a third of students owned a credit card last year, according to a recent joint survey from Sallie Mae and Ipsos Public Affairs. That's down from 40 percent in 2011 and 42 percent in 2010, the first year the survey collected credit card data.
The largest decline in credit card ownership was among sophomores. In 2010 and 2011, just more than 40 percent of sophomores reported carrying a credit card. Last year, only 28 percent had one. Juniors reported a smaller decline, while ownership levels among freshmen and seniors remained relatively flat, at around 20 percent and 60 percent, respectively.
The overall drop comes after the Credit Card Accountability, Responsibility and Disclosure, or CARD, Act of 2009, went into effect. The act limited how credit card companies could market their credit card on campus and imposed income restrictions on adult applicants under 21. The goal was to reduce punishing credit card debt among young people.
It appears to be helping. The survey found that the average outstanding credit card balance was $755 in 2012, compared with $842 in 2011. The median balance was $196 compared with $289. There were no comparable figures from 2010's survey.
As students shift away from credit cards, credit card companies are turning to debit and prepaid cards to entice younger consumers, says Bill McCracken, CEO of Atlanta-based consumer research firm Synergistics Research Corp.
"The traditional debit card is being more strongly pushed because there are no restrictions on marketing them," he says. "Its cousin, the prepaid card, is being promoted fairly strongly, too, because issuers can still earn fees off them."
Four out of 5 college students carry debit cards, according to the survey, more than twice as many students who hold a credit card. The survey did not ask about prepaid cards, but major banks such as American Express, Chase and Wells Fargo have introduced a prepaid card in the last two years.
McCracken says debit and prepaid cards appeal to parents and students because they can control how much money is loaded onto the card and prevent students from spending more than they have. However, the downside to debit and prepaid cards is that they don't help to build credit history like credit cards do.
"The CARD Act was written in such a way that it is very difficult to build credit before a student gets out of school," he says. "That's the reality of it."
Follow me on Twitter: @JannaHerron