College is meant to be a time of advanced education and learning but when it comes to personal finance issues, the lessons being taught are few and far between. Even college educated young adults nearly ready to venture out in the real world are often ill-prepared to handle money wisely.
Lucrative Deals Not Uncommon
Not only are high schools and colleges failing at basic personal finance education, it seems colleges are also profiting from this lack of education. Some universities and colleges have very lucrative deals with credit card issuers who want an ‘in’ to solicit to college-aged students.
These deals are profitable for both the credit card companies and the universities that are supporting them. For instance, Michigan State is reportedly linked with Bank of America for a $8.4 million contract for seven years. Through the contract, the university provides access to student contact information and permission to use the university’s logo for promotional purchases. The university makes money for every student that opens a credit card through the bank. Additionally part of the contract allows for the university to make additional money if students carry a balance on the credit card.
Michigan State is not the only college to make deal with the credit card industry. Thousands of institutions of higher education are linked up with credit card companies and the schools defend their association. The logic behind the deals is that the practice is not illegal and brings much needed revenue to the schools for scholarships and other school programs. Others schools claim only the alumni are targets and that students were just a small factor in the contracts.
What Deals Involve
A contract is created between the credit card lender and the university or college. Many colleges with allow for exclusive accessibility to its campus in an effort to market and promote cards to students. Other common inclusions are:
Sales of Student Personal Data
Many contracts include an obligation for the college to provide the bank with names and addresses of the student body.
Piece of the Profits
Schools typically earn $1 every time a student keeps an active credit card account for 90 days. The schools can also earn even more cash for students that carry over balances. If a school agrees to market the credit cards on its own, the banks will often pay upwards of $60 for every card opened via the school’s promotional campaign.
Schools often earn a .04% profit on all retail purchases made on student cards.
Special Incentive Programs
Schools are often required to provide banks with VIP, all-access passes to special school events like football and baseball games or other university-sponsored events.
Most college-aged students are first introduced to credit cards on their college campus if not by their own parents. Without the basic knowledge of how credit cards work or the consequences of running up credit card debt, college students historically have racked up balances they can not afford to pay back, a dangerous financial scenario many students are not able to understand until after graduation when they finally feel the burdens of debt.
It may seem unreasonable to think this is a legal practice but based on the law signed into action by President Obama in 2009 through the CARD Act, the contracts are above board. The current law states:
- The Credit Card Accountability, Responsibility and Disclosure Act prohibited banks from using some of their most aggressive marketing practices on students. For instance, banks can no longer require students to apply for a card to receive promotional gifts such as pizza or sweatshirts.
- Nor can banks supply credit cards to anyone under age 21–most college underclassmen–unless the customer has a cosigner. The law requires only that the co-signer be over 21. The co-signer needn’t be a parent or guardian.
- The law does not prevent credit card companies from paying schools for special access to students.
Advice for Students
Avoid credit card kiosks around campus and only apply for credit cards after you have thoroughly researched and compared rates, grace periods, and rewards incentives. Be sure to read and understand all of the fine print. A credit card can ruin a solid financial foundation if not use properly. Education yourself about how credit cards work before applying for any line of credit.