Sallie Mae seeks to fill CARD Act void with student credit cards

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In a move to tap into an underserved market opportunity — but with the potential for political backlash — student lender and consumer banking provider Sallie Mae launched three different cash-back reward credit cards aimed at college students and young adults.

Sallie Mae's credit cards called Ignite, Accelerate and Evolve are designed to promote financial responsibility among younger adults, many of whom represent an untapped segment due to the fallout of the CARD Act of 2009.

The issue Sallie Mae could face is one that got major banks kicked off college campuses a decade ago: targeting young adults (under 21) with revolving credit lines. This segment has largely been forgotten by banks since the CARD Act virtually eliminated card marketing to students and very young adults.

“Provisions in the CARD Act are consistent with our philosophy of responsible lending," said Rick Castellano, vice president of corporate communications at Sallie Mae, in an emailed statement. "Our cards are specifically designed to promote financial responsibility and were co-created with students, parents, and recent graduates. We take many factors into consideration when making a credit decision, including the ability to repay, as outlined by the CARD Act."

Each of the cards has a unique value proposition that is designed based on market research to deliver the most appropriate financial resources and benefits to young adults both during and after college.

"Our Ignite card offers credit lines appropriate for the student population and has built in credit education," Castellano said. "Our priority is to help students build credit responsibly and reward them for it.”

Ignite offers a 1% cash-back reward and, after six months of on-time payments, and unlocks a 25% bonus on cash-back rewards for future purchases. The Sallie Mae Accelerate card features 1.25% cash-back rewards on all purchases and a 25% bonus cash-back when rewards are used to pay down any federal or private student loan. The third card is called Sallie Mae Evolve, which offers 1.25% cash-back rewards on all purchases plus a 25% bonus on rewards for the top two purchase categories in a given billing cycle.

Even though student debt stands at $1.5 trillion, according to the Federal Reserve Bank of New York, there appears to be a potentially lucrative opportunity to help young adults build credit and use card-based rewards to help them pay off student loans.

Since the CARD Act requires anyone under 21 to have a cosigner such as a parent, or be able to prove an independent means of repaying any debt incurred, selling to college students and young adults has become much more difficult and costly. For these reasons most banks have completely eliminated marketing to younger adults. This essentially leaves Sallie Mae with an open field, and the only hurdle is to make sure it remains compliant with the CARD Act requirements.

“We also know from research studies like 'Majoring in Money' which we conducted with Ipsos, that nearly 6 in 10 college students have at least one credit card, and the biggest reason given for getting that first credit card is to build credit," Castellano said. "Our cards are designed to help them do that, responsibly."

Aside from any potential backlash and increased compliance requirements, Sallie Mae still needs to persuade Gen Z and younger millennials who normally eschew credit cards to ditch their debit cards. Based on a recent survey from the financial website Credible, millennials fear credit card debt more than the threat of war and dying.

Sallie Mae is also offering Ignite and Accelerate cardholders the chance to win $10,000 to pay down any of their student loans as part of a sweepstakes taking place each month for a year.

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