A recent article “The Dirty Secret of Campus Credit Cards” by Jessica Silver-Greenberg in BusinessWeek detailed the agreements between colleges and banks to offer and market affinity credit cards to students, professors and alumni. These affinity cards commonly display the university name and picture a building or design from the school. The agreements, while not necessarily directly through the college but rather through alumni associations, present concerns about whether the wellbeing of the students is being taken into account when these deals are made.
While these agreements may be common and unsuspecting, what is shocking is the exorbitant fees the colleges collect from them.
According to the article, many colleges have multi-year contracts worth up to $20 million. For example, the University of Tennessee signed an agreement that could total $10 million in revenue for the school with Chase (part of JPMorganChase) over the course of the deal. These deals include revenue for the bank’s right to student lists and marketing on campus. They also include royalties in the form of a fee for each card issued to a student, as well as revenue for the amount of spending done on the cards.
But if it appears that the colleges are raking in the money, the banks also have much to gain. For example, a University of Chicago College & University Alumni Card listed on Chase’s Web site offers a 0 percent APR for the first 12 billing cycles, with a minimum 14.24 percent APR afterwards. It also has significant penalties for default or late payment.
The default APR is 32.23 percent and the late payment fee is $39 for balances of $250 and over. Furthermore, a Cornell University Student Card listed on Chase’s Web site offers 0 percent APR for the first six billing cycles before increasing to 18.24 percent. The Cornell card also has a further enticement: Chase will make a contribution for every purchase made on the card to support scholarships and alumni programs for Cornell.
These fees are at the expense of the students who apply for the cards, without having much experience in their terms or in independent money management. According to a Nellie Mae Survey, of the students surveyed, 46 percent claimed they received their first credit card while they were a freshman in college. Moreover, the survey found that college seniors had an average credit balance of $2,850.
According to the article, some colleges have attempted to defend themselves against the controversy surrounding this issue. Virginia Polytechnic Institute and State University said that its affinity credit card agreement was conducted with the alumni association of the college, which is separate from the college. The University of Tennessee said that the revenue from its credit card agreement is mostly used for private scholarships.
It is clear that some college affinity credit cards are marketed at alumni. These credit cards include the title of the Alumni Association. However, other cards are more broad, including the school’s name and pictures of an on-campus building or design, which could conceivably be marketed and attractive to students.
In general, credit card companies have also come under fire for their practices in providing credit to college students. There have been cases of card companies providing students with no income with high credit limits, in some cases as high as $10,000.
Congress has also caught wind of the relationship between credit card companies and college students and the credit card companies’ questionable lending practices. Hearings on this issue are planned. Legislation restricting the amount of credit that could be offered to students is also pending.
However, one thing is certain – banks are doing very well. JPMorganChase’s net income rose to over $14 billion in 2006. Bank of America’s net income rose to over $21 billion last year. Both banks have extensive affinity networks with colleges.
Information from: “Credit Cards Could Trap College Kids if Misused.” CBS News. cbsnews.com. Sept. 12, 2007. “The Dirty Secret of Campus Credit Cards” by Jessica Silver-Greenberg. BusinessWeek. businessweek.com. Sept. 6, 2007. “Majoring in Credit Card Debt” by Jessica Silver-Greenberg. BusinessWeek. businessweek.com. Sept. 4, 2007.