Home > Student Loans > 3 Ways the CFPB Can Help Protect Young Consumers

Comments 0 Comments

As the Consumer Financial  Protection Bureau (CFPB) gears up to launch this Thursday, I have a few recommendations on behalf of young adults and college students in America. As we know, many in this generation lack the financial literacy necessary to make educated choices when it comes to credit and managing their money. Banks and lenders sometimes take advantage of this, as well.  Specifically, I have three suggestions that can further protect this demographic:

1. Specify income requirements for student card holders.

The 2009 CARD Act states that banks cannot extend credit cards to those those under the age of 21, unless they have a qualified cosigner and/or an “independent means of repaying.”  Without a clear explanation of what constitutes as “independent means,” some banks are taking advantage of this loophole and citing student loan income as sufficient “means,” when it’s actually debt. In fact, a survey released last fall found 29 percent of students under 21 who obtained a credit card since school began this past fall used student loan proceeds as part of the income reported to credit card companies when applying for the card. It would be best to require applicants to provide pay stubs and a letter of employment to verify they have an “independent means of repaying.”

[Related: What the Credit CARD Act Means for the Under-21 Crowd]

2. Require projected expense budgets from all federal student loan borrowers.

If students had a better sense of their future budgets, they could understand the weight of carrying student loan debt.  Tidewater Community College, in Virginia will soon begin requiring its students to complete two budget worksheets in order to be eligible for student loans. According to USA Today, the school’s federal loan applicants will need to accurately describe their financial situation before and after graduation and explain how they’ll realistically be able to pay back those loans and meet the monthly payment requirements upon graduation. Can this become mandatory across all schools and federal student loan applicants?

[Related: Want a Student Loan? Take the Test First]

3. Provide students with clear sense of how much they will owe upon graduation.

While the federal government discloses the terms and repayment requirements of student loans to borrowers via the National Student Loan Data System, it would be even more helpful to inform prospective borrowers before they agree to their loans, exactly how much their monthly payments will be upon graduation and how much they need to earn in order to comfortably pay that amount back. My advice is that student loan debt should not exceed 10% of one’s monthly budget.

[Featured Product: Looking for credit cards for bad credit?]

Image: Will Folsom, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team