Another Prepaid Customer: College Kids

Many colleges are tightening rules on credit-card marketing on campus in order to discourage students from racking up huge amounts of debt, but another kind of card is being pushed on campus: prepaid debit cards, the Wall Street Journal online reported.

But these come with their own set of issues, according to the newspaper.

Among the advantages of prepaid: The cards make it nearly impossible to incur an overdraft or rack up debt.

The disadvantages: They’re often laden with fees, and they offer fewer consumer protections when they’re lost or stolen, the newspaper reported.

This fall, financial-services companies are focusing more of their campus marketing on "prepaid debit cards," which work like standard debit cards except that they aren’t linked to a traditional checking account. Among the issuers aggressively marketing their cards this year are U.S. Bancorp and Wal-Mart.

The cards typically carry hefty fees and offer fewer consumer protections than credit cards. Fees are often charged when the card is activated, when it is used at an ATM and when there’s a lack of transaction activity.

They also offer less protection than credit cards do when a card is lost or stolen. If a missing prepaid debit card is reported within 48 hours, cardholders are not responsible for more than $50 in unauthorized charges.

If reported two to 60 days afterward, cardholders could be held accountable for up to $500 dollars in unauthorized charges. After 60 days, users face losing their entire balance. With a lost credit card, users face a maximum $50 liability, regardless of when the loss is reported, according to the newspaper.

Another drawback: The cards don’t help users establish a credit history, as they are not considered a line of credit. That may hurt students when they look for an apartment or shop for private student loans down the road.

On the plus side, it’s virtually impossible to incur an overdraft with prepaid debit cards.

And students can’t get into thousands of dollars of debt, as they can with credit cards.

The average college graduate carries $2,748 in credit-card debt, according to a 2007 survey by student lender Nellie Mae. And nearly one in four graduates leaves school with more than $5,000 in credit-card debt, according to a recent survey by Zogby International.

Prepaid cards are still making inroads as a growing number of colleges limit how credit cards can be marketed on campus, in order to protect students from runaway debt.

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