Credit Card Alternatives for College Students

Did the CARD Act kill the college student credit card?

I recently shared my list of the best credit cards for college students.

With school starting up here in the U.S., that post is getting a lot of traffic. This is somewhat surprising because of the recent changes created by the CARD Act.

To get a credit card these days, students (under 21) are either having to show proof of income, or they are required to have a parent co-sign on the account. And on the CitiCards applications, you even have to designate the school you attend, as well as the year you are in (freshman, sophomore, etc.).

Regarding the co-signing, it seems most parents aren't willing to do it. A survey conducted by Western Union and GFK Roper Public Affairs & Media found that 76% of parents are either “not very likely” or “not likely at all” to add their college student as an authorized user on their account.

And as a full-time student, you would be hard-pressed to show enough income to support a credit card. This means many students will need to turn to an alternative to credit cards.

But this shouldn't be an issue as most students are getting used to the alternatives as more and more parents turn away from credit card use.

Here's more from the Western Union study. Potential students were asked,

“considering all of the purchases you have made over the past year, which method of payment have you used most often?”

The students said debit cards (34%), cash (30%), credit cards (25%), and checks (10%).

Percentage of College Students with a Credit Card Drops

Fewer college students are opting for credit cards. A new study from Sallie Mae showed from 2010 to 2012, the number of college students that had their own credit card dropped from 42% to 35%.

I spoke with Missouri State University incoming freshman Hannah Taylor, who is bucking this trend. Taylor said that although she didn’t have a credit card yet, she planned on getting one through the college she was attending.

“When I go to orientation, [the college] give[s] us an opportunity to sign up or get connected with [a credit card offered by the college’s sanctioned bank].”

Her school partners with Missouri-based Commerce Bank. It is not uncommon for banks to partner with colleges to offer banking services to their students.

According to the same study, freshmen, like Taylor, who said she’d use the card for gas and books, are less likely to get a credit card than other students. For example, only 21% of freshmen now have credit cards compared to 60% of seniors.

The obvious cause of this downturn in credit card ownership is the CARD Act, that made it more difficult for banks to market their credit cards on campus. Although, the banks are still finding loopholes to market to students.

But another reason for this downturn in student credit card ownership may be the effectiveness of student financial education. Taylor took a required personal finance class (one semester) in high school, where she learned one important lesson about credit card use: “they told us to not use it unless absolutely necessary”.

Alternatives for College Students

Today I thought I would present some alternatives to the student credit card. If you're a parent of a college student or a student entering college this fall, I'd appreciate your input in the comments below.

Secured Credit Cards

With a secured credit card, money is placed into an account (some what like a savings account), and a line of credit is then given to the card holder based on that deposit.

When you spend with the card, you are not using the funds deposited. You are actually spending on a line of credit based on the amount you have deposited. So, you still need to make a payment on the balance. And you will face interest charges if you do not pay off the entire balance each month.

A lot of people like these cards because they teach kids about interest charges, minimum payments, etc.

Cash Only

You could go really old school and just roll out a wad of cash at the beginning of the semester. Of course, the student will need to devise a plan to store all the cash safely.

Checking Account

This is the method my parents used when sending me off to college. No debit card or credit card. Just checks from a checking account funded by Mom and Dad. From what I remember, it was a bank that didn't have branches in my college town.

So I couldn't get cash unless I went home, or cashed a check at Wal-Mart. Since checks aren't as accepted today, I would think this would make spending pretty difficult for a college student today.

Bank Debit Cards

If you want to take it up another level and give more access, consider a free checking account with a debit card. This will allow students to spend a bit more freely. And of course, students won't be spending money the parent doesn't have.

Prepaid Cards

There is no credit involved with these cards. They are basically prepaid debit-type cards.

The parent loads them up with money, and the student spends the money by using the card just like a debit or credit card. Once the funds are depleted, the cards can be reloaded with more money.

I recently stopped featuring the best free prepaid credit cards as a solution for the unbanked. However, these are ideal for the parent who wants to put spending limits on the student.

Gift Cards

Similar to the prepaid card is the gift card. From my perspective, I don't see a reason to go with this type of card vs a prepaid card unless the goal is to place severe restrictions on student spending. In most cases, these gift cards can't be reloaded. They are basically worthless once the money is spent.

PayPal or Venmo

You can actually get a debit card now which is attached to your PayPal account. So, theoretically, the parent could fund the PayPal account and the student could spend both online (where PayPal is accepted), or anywhere the PayPal Mastercard debit card is accepted.

The only downside to this setup is the money transfer fees that come along with a PayPal account. I'm not sure, maybe a reader can chime in with how this setup could work without fees.

Student Charge Card

One last form of payment to consider here is a charge card. Charge cards act as a small line of credit, where purchases need to be paid back in full each month. American Express recently rolled out a new charge card for younger people called ZYNC from American Express. Most charge cards, like prepaid cards, are going to come with fees.

If you're a college student, which method above are you using? And if you're a parent, which do you plan on using with your college student?

Credit Card Alternatives for College Students

Want My Free 31-Step Money Guide*?

Subscribe for free. Get my guide *31 Days to Improve Your Financial Life, welcome series, and regular Five Things digest. Join 30,000+ other followers.

Powered by ConvertKit


  1. Thanks, Steve!

  2. There are no Transfer or Setup fees with the PayPal Student account…it’s a great deal!

  3. If the CARD act was around when I was in college (which to be honest I’m glad I was the generation before this act) I think I would have to say I would use a charge card. Seems like the closest thing to a credit card. How do they expect students to build credit before they graduate?

  4. myfinancialobjectives says:

    Wow Joe, what a fantastic idea, Kinda sketchy of Discover, but I bet it worked…

    I used a debit card all through college. I also worked all through college so I was fortunate enough to have some cash coming in to sustain my checking account. If I had not had jobs, I’d probably have to have gotten a credit card.

  5. PT I think I had a Discover card waiting on my pillow when I moved into my dorm. The reason they so freely give these out is it’s a pretty sure bet a student is going to run them sky high and come to the parents for the bail out.

    Good tips!