Selling Students into Credit-Card Debt

It's a great headline, and though I wish I could claim it, the credit goes to Jessica Silver-Greenberg, who just wrote an eye-opening piece for BusinessWeek on the lucrative "affinity" deals many universities have with credit card issuers.

Jessica reports that virtually every major university has a confidential multimillion-dollar contract with a card issuer. In exchange for big bucks – $10 million or more – card issuers get the exclusive right to market at school events (e.g., football games), plus access to student contact information for direct marketing purposes. The schools can get money for signing the contract, a fee for every student, alum, fan, or professor who sign up for the card, and a percent of charges made to the card.

These private affinity card deals are terrific for the universities and the card issuers. The schools get needed funds on a regular basis without tapping into already existing income streams. And the lenders get access to the all-important "newbies," whose parents will probably bail them out if they get into a jam now … and who will hopefully become repeat customers over the years, coming back again and again to borrow money for cars and homes … and to make money, via mutual funds and other financial products the lender may offer down the road.

But what about the students? What's in their best interest? The conflict of interest is so great, it's likely that schools are negotiating deals that are not at all in their students' interest. The higher the fees and interest rate, for example, the more the schools make from these behind-the-scenes deals, many of which are put in place by alumni associations. There's no public scrutiny and tons of money at stake, so why would a school want to protect or even educate students about the downsides of plastic?

No Regulations
Until something gives, the universities don't have to disclose any of the particulars of their deals with lenders. Even schools primarily financed by taxpayers don't have to say:

•  What the basic provisions of the contract are.
•  Whether or not they get a kickback for each new cardholder.
•  If they rake in a percent of the charges made to the cards.
•  How they use their affinity card haul.

The universities involved in these affinity programs ought to be ashamed of themselves! Others have figured out how to make affinity programs work in ways that benefit the institution and the cardholders. For example, see "A Co-Branded Credit Card that Makes the Grade," right here on the Creditbloggers.com site, written by Gerri Detweiler. So there's no excuse, imho, for the universities. They should craft deals that benefit all, and if they can't, government will have to step in.

But the few attempts that have been made in state legislatures to get a handle on these secret deals have failed. Key passages of bills have been watered down. And while these affinity cards may be discussed in one or another Congressional hearing, it seems to me, if change is going to happen any time soon, it's up to students and alumni. They're the ones who can best pressure the schools to do the right thing, that is, to find ways to benefit both the universities and their students in affinity card contracts.

What do you think?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

 

Comments

[Brenda]

I am a bit shocked after having learned that schools and universities collaborate with credit card issuers in order to trick money out of students. I have thought schools and universities should teach students how to use credit cards and how to avoid debt. but now I see, they don't, as it is not in their interest. Then students should learn everything themselves. And for this they should make many mistakes to learn from. Students can find all about credit cards and the way they work in the Internet. For instance, at http://www.creditcardspecialist.com