Colleges Profit By Signing Students Up for Credit Cards

January 06, 2009 11:29 AM
by Jen O'Neill
Some American universities are making valuable revenue from deals with credit card companies, but do these relationships encourage poor financial habits and come at the expense of students?

Campus Credit Cards

A recent article in The New York Times explored the relationship between credit card companies and U.S. universities. It found that in many cases making a profit was more important than ensuring students’ responsible consumption.

According to the Times, banks strike exclusive relationships with college alumni associations and use aggressive on-campus strategies to lure students into signing up for credit cards. Also, many colleges give banks access to students’ names and personal information.

Students at Michigan State, which has a seven-year, $8.4 million contract with Bank of America, voiced their concern to the Times: “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.”

Participating schools say the financial burden created by the current economic climate has placed them in a position where they have to find new ways to raise money, and according to Terry R. Livermore, manager of licensing programs at Michigan State, the money that is raised goes to “scholarships and other programs.”

Background: Out with student loans, in with student credit cards

Every fall, banks lure college students into signing up for credit cards by offering cheap merchandise, gifts and sometimes cash, in exchange for a signature.

Natalie WhilPatterson of The Meridian believes banks prey upon students who need financial “safety nets,” particularly now after the decrease in financial aid, scholarship funds and loans. She says banks use marketing tactics that lead students to believe credit cards will help with their supplementary expenses, including, food, clothing, books and entertainment.

“Many credit cards have employed aggressive marketing and ‘predatory lending’ strategies reminiscent of the practices that lead to the current mortgage crisis,” WhilPatterson states, but they’re not educating students on the long road of credit card debt that could await them.

Impact: Graduating with debt

According to Reuters, a Zogby poll revealed that 25 percent of recent graduates accumulated over $5,000 of credit card debt while in college, with the average being $2,748.

Many students already graduate from college with significant student loan debt, and the addition of high-interest credit card debt can be “crippling” for those entering the workforce.

According to Reuters, for a person who makes minimum payments, it would take nearly 18 years and an additional $2,506.01 in interest (at a rate of 15 percent) to pay off $2,748 of credit card debt.

Additionally, many employers use credit reports during their hiring process and are disenchanted by candidates with poor credit or “consumer” debt, a category that credit cards fall under.

Opinion & Analysis: Predatory practices?

Banks can place spending limits on credit cards issued to students—this can help and provide students with a hands-on approach to managing money and debt. But do students really get the message?

Some states are attempting to create laws that would require credit card companies to educate students about credit and financial decisions before they sign up for the cards.

In fact, in New Jersey, a bill has been proposed that would require credit card companies to register with colleges before being allowed to solicit students on campus every year.

Additionally, the measure would protect students by preventing schools from selling student mailing lists to credit card companies, and from offering free gifts to persuade students to apply for credit cards. Also, if a student acquires a substantial amount of credit card debt, parents of the cardholder would not be responsible for bearing the burden of the debt.

Related Topic: The big business of enticing students

Recent history has seen a number of colleges criticized for alleged unfair financial practices toward students. New York Attorney General Andrew Cuomo has been a catalyst for cracking down on such practices with the student loan industry, as well as for student health care.

Reference: Managing credit card debt


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