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You are here: Home / College & Fraternity Life / College Profits and Credit Card Companies

College Profits and Credit Card Companies

January 9, 2009 by Joe Leave a Comment

College students are among the most marketed to (and scammed) populations on the planet. Many students are in their late teens or early twenties and are just beginning to figure out what it means to live on their own and make major financial decisions on their own. Frankly, I think this is part of the growing up process and making both good and bad decisions will help many of these students learn about the rules of the financial game for when they look at purchasing bigger ticket items like a brand new car or a home.

But one thing bothers the hell out of me and that’s when credit card companies try to hoodwink students into signing up for their product. Sure, this falls into the parameters of learning about the rules of the game, but it’s cheap. The New York Times covered this last Friday in an article entitled, “Colleges Profit as Banks Market Credit Cards to Students.”

If you clicked over to see the article, then I’m sure you noticed the Bank of America table set up at Michigan State University. Anyone who has been to college has seen a similar setup on their campuses – you have a perky representative behind the table enticing students who are walking by to sign-up for their credit card and in return you get a free t-shirt, a gigantic discount at the bookstore, or some other not-really-needed benefit. When I was in college I once signed up for a credit card because they were giving away free t-shirts…which were two sizes too small for me to wear.

Hundreds of colleges have contracts with lenders. But at a time of rising concern about student debt — and overall consumer debt — the arrangements have sounded alarm bells, and some student groups are starting to push back.

The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.

Here at Michigan State, the editors of the student newspaper wrote this fall that “it doesn’t take a giant leap for someone to ask why the university should encourage responsible spending when it receives a cut of every purchase.”

Good for the student newspaper at Michigan State! Keep probing the issue and asking those questions. For example, if Michigan State has this credit card arrangement with Bank of America whereby it profits when students use credit cards (responsibly or not), then with which organization does the university have a contract to teach students how to use credit responsibly? And what are the metrics for either program? In other words, how much has the university generated from its Bank of America relationship versus how much it has spent on teaching its students how to be responsible economic citizens? I’m sure that with Michigan State being a public university that the students can do some digging and find some of this information. The Times article gives this information:

Michigan State University gets $1.2 million a year but is guaranteed at least $8.4 million over seven years, according to its agreement. The contract calls for a $1 royalty to the university for every new card account that remains open for at least 90 days, $3 for every card whose holder pays an annual fee, and a payment of a half percent of the amount of all retail purchases using the cards.

My guess is that the university has no formal relationship to spend any of those millions of dollars on financial education for its students. What a shame? This stuff bothers me because no matter how level-headed you think a college student might be, there is a greater likelihood of them getting into severe credit card debt because of programs like the one above. When I was in college I rang up some $13,000 in credit card debt before I had to have my Mother bail me out (thanks, Mom 🙂 ). It was a costly learning experience for me – though I must admit that I’m much better off financially now then I’ve ever been and it is due, in part, to having racked up such a ridiculous credit card debt while in college.

Oh, and how many times can I quote stories from the New York Times? Geez! For their part, the Times has a series called “The Debt Trap” where they look at the relationship between increased consumer spending and the lenders providing the dollars for that relationship. It’s interesting – go take a look!

Filed Under: College & Fraternity Life, Money, Jobs, & Finances Tagged With: Bad Decisions, Bank Of America, Borrowers, Brand New Car, Campuses, College, Credit, Debt, Free T Shirt, Loan Companies, New York Times, Student Loans

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