How Universities And Credit Card Companies Make Money Off Of Students
How can an educational institute act in its students' best interest if it stands to make money off of increasing their debt load? The symbiotic relationship between universities and credit card companies is being questioned more than ever by student groups and politicians, writes the New York Times.
Universities say the contracts bring in badly needed funds, although the example in the article—$8.4 million over 7 years to Michigan State in exchange for students' names and addresses—seems hardly worth it once you consider the long term damage done to unprepared students who enmesh themselves in debt, or the black mark against Michigan State now that the public knows that it sold off student contact info.
Banks say they cap credit cards at $2,500, but that's hardly a "low" credit limit for what are essentially unemployed or part-time employeed customers. The Times cites a US PIRG survey that found graduating "seniors with balances had an average debt of $2,623 on their cards."
A spokesman for Michigan State gives the paper an unintentionally telling quote about their concern for students:
“It provides money for scholarships and other programs,” said Terry R. Livermore, manager of licensing programs at Michigan State. He said that the program was aimed primarily at alumni and the university would not include sharing student information in future credit card contracts. “The students are such a minuscule portion of this program.”
But of course none of this would matter if students knew better than to exchange their future financial independence for items as trivial as a tshirt, mug, or blanket. Yes, blanket:
Abigail D. Molina, a second-year law student at the University of Oregon, applied in 2007 for a Chase Visa offered at a tent outside a football game. In exchange, she received a blanket. “I mostly wanted the blanket,” Ms. Molina said.
Please, do not be like Ms. Molina (or like me—I made the same stupid choices in college). Meg's "10 Commandments of Credit" is a good place to start for advice on how to approach credit cards and consumer debt.
"Colleges Profit as Banks Market Credit Cards to Students" [New York Times]
RELATED
"Consumerist's 10 Commandments of Credit"
(Photo: cheri0627)
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Comments:
Oh, are universities supposed to be looking out for students' best interests?
Personally, I see the whole univerity education system the way I see corporations. They're greedy and self-serving. They are selling a product. Their primary purpose is profit and prestige.
So no, I'm not shocked at all that they're trying to make money from the people they're making money from!
I remember getting a Discover Card with a $1500 limit while in my second year of college when I was 19 and making about $60/month making pizzas. I guess I was sort of a poster child as I carried a $500 balance for what seemed like forever until I got my first real job. Then paid it off and learned never to carry a monthly balance. I am no fan of credit card companies, but it did teach me responsibility. If you think you should be maxing out credit cards when you make $60/month you are just retarded.
I went to the University of Wisconsin-Madison. The UW system is considered part of the WI state government, which has some of the loosest open records laws in the nation (which is typically a good thing). You could buy the entire student roster for like $50, which could contain around 40,000 contacts depending on the size of the student body at that time.
@loganmo:
I should add that the school would let you opt out, but then you would not be listed in the university directory.
Credit cards are a valuable lifeline for college students, who often use them to buy essentials like textbooks and food. Consumer advocates like to trot out bimbos who went out and purchased clothing, but I'd argue those types are beyond saving anyhow. Credit serves an incredibly valuable function on campus, where students combine a very reasonable expectation of repayment with a crying need for liquidity. It's the perfect market, and with a few exceptions credit card companies have a mutually beneficial relationship with students.
@pollyannacowgirl: They're looking out for the students' best interests like a farmer looks after his cows' best interests.
Um, I need to nitpick this one...
You're referring to Michigan State, but you're using a picture of the University of Michigan stadium. Different schools...
I always ignored the credit card hawkers. I had enough school shirts.
I did get my first credit card near the end of college, something which should probably be encouraged, since companies are allegedly more willing to take a credit risk on a collegian. But it shouldn't be for a free T-shirt.
And if you're irresponsible with it while in college, you're effed. Especially if you have trouble finding a job after college and/or your parents cut you off in college.
As a graduate, I am more bothered by telephone/mail solicitations to join my school's alumni association. OK...The University of Texas at Arlington is a fine institution (for engineers), it's just not terribly prestigious. The time/money spent soliciting graduates would be better spent serving current students/faculty.
@negative-ground: While I do not disagree with what you have to say, is it necessary to use a term commonly associated with the handicapped or special needs to make your point? This is the same as using racism to make a point, only many of those you are offending aren't as capable of making a stand.
think before you speak. I am certainly not politically correct, but calling things "retarded" is just irresponsible.
Chris I'm so glad you're back, this is the type of stuff I like reading on here.
They had booths set up around the beginning of the school year every year at my college. I ignored them, and all the sketchy credit card offers that came into my mailbox. Sorry, but college kids are old enough to know better. If you're smart enough to get into college, you should be smart enough to realize credit cards aren't free money.
@pollyannacowgirl: Unfortunately the product they sell has been integrated in our society in such a way where if you didn't buy the product, then you're dumb as bricks. Obviously.
I used to fill these out with false information just to get the 3-liter of pop.
Address:
1313 Elm Street, Emerald City OZ 69696
Income: -$14,000 a year (this part was true due to my student loans exceeding my income).
Funnily enough - none of the people checking to make sure I filled it out completely caught that OZ wasn't a state abbreviation.
@ADismalScience: Should we give them credit for Textbooks? Those are price gouged any way most of the time. You're right about the bimbos, though. "OMG CLOTHING!!!" "OMG I HAVE TO PAY FOR IT!?!?!?!?!"
as an undergrad i signed up for one of these for the shirt- but put a fake name. but somehow they must of gotten my real name because now on my credit report that fake name comes up as an alias lol..
@ADismalScience: problem is they're selling student information to gain profit from it while also trying to maintain their prestige.
Last I looked selling information was considered not prestiges.
so while i agree that some students use credit cards for things they deem important. I would argue that colleges should be subsiding their costs to the students by the information they are selling. Instead of increasing their tuition and fees.
Do not even get me started on books which are a huge scam. Some professors are required to tell you to buy them by the school. So many of them hardly use the books. these books costs in the hundreds depending on your major. we should start student advocate groups against the outrages prices books costs these days.
@ADismalScience: That is true, but probably 75% of people I went to college with and people I know now that are in college didn't use them as a lifeline, they became more of a second source of "income" when the paycheck/check from parents/whatever didn't cover things like beer or concert tickets or whatever. Kids just out of highschool for the majority are not mature enough to really understand what it is they're taking on with a credit card. I'm not one for regulation on this type of stuff, but it seems to me that schools should really be more careful with their partnerships.
This reminds me of schools that are trying to get kids to eat healthier, yet they have junk food vending machines everywhere. They justify it because they make money off it from the vendors. They know it's wrong, but the money keeps on coming in...
I believe getting a credit card in college, using it once a year for a small purchase, and paying it in full is important to get a credit rating going for when you leave college and need something, like a mortgage.
Granted, it's bad that colleges aren't required to teach a personal finance course in order to allow the students to get the card. I was required to take public speaking in college, why not personal finance?
@Chris Walters: I think we'll let that slide, you're a newb again :)
BTW is that monkey avatar the monkey from Three Sheets?
"Badly needed funds" could be obtained by diverting some of the athletics revenue to academics. My school's athletic department apparently likes to hog up the school's resources during home games and not give back.
God, These guys lived at VCU outside the student commons. A lot of students would roll right by BUT on hot days they had cute girls with cold sodas so you know they got accounts.
I remember signing up for one to get a shirt and laughed about it as I had plenty of credit and a good job. A couple of years later I lost my sense of humor as I read my credit report while buying a house and had to close a lot of "odd accounts".
Its not a bad thing though as you will learn a lot about companies through this. I learned Chase and Citibank were not to be dealt with and Fleet was crooked along with MBNA. They liked to change rates on a whim.
Now after all those options I still use the same 2 companies I have had since high school: USAA and my credit union. Thats it. They treat me great and I dont have to watch for quick changes.
V
If we feel that children in college cannot make massive financial decisions involving huge quantities of debt, why have we constructed the student loan industry? 2600 in credit card debt spent on trifles seems like a pittance when you consider that it wouldn't pay for a semested in student housing at most colleges. It would scarcely cover a year in books!
People love to bitch about them, but they received educations - something inaccessible to generations before this one if you were too poor to pay yourself. Debt is not inherently bad. The fact that college kids use debt to finance essentials and minor entertainment seems like a good thing to me. They're likely to graduate and repay it easily, and I know that paying off my student CC debt was my first lesson in fiscal prudence. Debt's out there for adults, and nothing teaches like a controlled experiment in college.
@loganmo: That's sickening that a uni would sell their student's info like that just to make a quick buck.
@Skankingmike:
Prestige, not really.
Selling? Well, sort of.
Many state schools (including the one I work for) are required by Open Records laws to make student "directory info" (excepting those who specifically opt out) available at cost (i.e., not much).
And if you know your way around an online directory service, you can get it for free.
Agreed. I allready spent over $50k to get an education from you guys now why would I voluntarilly give you more so you can pay to cover up the lastest misdeeds or various collegiate atheletes.
@ADismalScience: I know what you're saying. I just think the problem is that students go from living at home, all expenses paid (stereotypically) and are suddenly put into a situation where suddenly they have to manage their own expesnses and figure out how to live. I think giving them a free ticket to credit is the wrong way to teach that lesson.
I think student loans are a much different caliber of credit. I think students better understand the costs and the purpose of those loans. They are for college and covering college expenses. Credit cards on the other hand, we swipe them at stores without a second thought. If you swipe without really knowing what that means (paying interest, putting yourself in debt, having to repay debt) it can lead to a lot of trouble. And by having universities promote student debt like that I believe is wrong. Students can go get cards if they wish, but having vendors setup shop at a football game and give away T-shirts as "prizes" for opening up a card is shameful.
Or an even better idea....get rid of the sports programs themselves saving hundrends of millions of dollars. Take it even further and get rid of sports in ALL public schools, except for PE. Being from Texas, sports in schools seem to gain more glory than the academics. Something is seriously wrong when schools are begging for money to buy new computers and academic equipment yet have a overpriced new football stadium paid for by the taxpayers and bonds. Not too mention teachers pay is so low.
Your child want to play sports? Take it after school leagues and pay for it yourself. Don't use my taxes for it.
Shameful how? As I've said, students use credit cards for essentials - food, textbooks, basic supplies, etc. They have little income and have needs that often exceed what they can reasonably earn at part-time jobs. Given the reasonable expectation that a college student will go on to gain full-time employment is seems completely acceptable to give them $2500 in credit to get started with.
Debt is not inherently evil, not even credit card debt. Credit cards serve a valuable function on campus, "shady" marketing be damned.
Sometimes it's not just the University that sells Student information either. When I was at school our Football team sold the student directory containing our school and home addresses to a telemarketing firm to earn money for new uniforms.
(The firm wasn't too bright though, they called every dorm room on campus for years offering to refinance our mortgages.)
I got my credit card my third year of college and didn't use it until my fourth, when my paycheck and debit card weren't going to be enough to cover my plane ticket ride. I knew I'd be able to access savings when I got home, and although I use my card all the time I've never carried a balance or been charged a late fee. I set a budget and stick to it.
I don't know if it's the product of being the only child of single mother, but I've never been frivolous with my hard-earned money. It pains me when college students all get dumped under the same "terrible with credit cards" label.
Good article , Chris. Also worth mentioning...
How the universities have now tied fees and refunds to a captive debit card with a certain bank or CC company that use the Visa/MC logo and force students to use these "for their convenience". I went through this little scam when my daughter started at Dalton State College here in Georgia. Basically,the card that they issue is a fee trap that will almost certainly trip up students (or their parents) while making the issuer (First Student Services) and their accomplices (the college) a lot of unearned money. I actually had a talk with the burser at the school about how patently anti-student this practice is and he basically , politely, told me to piss up a tree. These cards also have the effect of shaping habits for newly emancipated students (pay with the card,it's not money going out of your pocket) and works to condition them to accept getting in over their heads in hock to CC companies.
Lessons learned :
1) Teach your freshman son/daughter BEFORE they leave home that these companies are lying,evil scum. They are greedy bastards that will milk you dry and laugh at your misery.And those are the good ones.
2) Use a seperate checking account (without overdraft privelege) to link to these cards if there is no other alternative so that they cannot debit fees and charges that you don't specifically authorize. Believe me,they will clean you out fast. And good luck getting help from their "education partner"
3) Re- read number one. Lying . Greedy . Bastards.
The University was not trying to make a quick buck. The information was considered a public record, which as a government entity, was required to furnish to anyone making a written request for it. The $50 or so was to cover the cost of collecting and producing the data.
I'm sorry but I don't have much sympathy for students who get into credit card debt. I graduated in 04 with 0 debt while having 3 cards. My friends also had a few cards but didn't carry a balance either. It's a matter of self control and prioritizing.
Errata: It's a Higher One debit card , not First Stdent. That is another kid at another college.My bad.
@ADismalScience: And I guess you were also in favor of payday loan companies charging poor people 300% interest, too.
The bottom line is, credit card companies have no business handing out credit lines to people who have no means of repaying it. Period. These people are being taken advantage of, and if you can't see that, I guess you are the one for whom there is no hope of redemption.
@chiieddy: Personal finance would probably do wonders. I'm an Econ major, and I'm seriously surprised at the number of people in my field that can't even balance their checkbook.
Payday loans aren't an acceptable analogy. Credit cards for students aren't charging 300% interest, are provided to those who have a reasonable expectation of enhanced future cashflow, and have safeguards ($2500 caps as in the OP) to prevent ridiculous overextension. Students have a means to repay - but for the most part they need to defer even the most basic living expenses until after graduation. For students with limited time to work and few other cash resources at home, credit cards present a reasonable means to access liquidity with supervised limits.
@chiieddy: A business class was required at the community college I went to but not personal finance, although they did have some personal finance stuff in that class. The checkbook balancing stuff we learned in high school.
I'm in college...
... but it was 0% interest for over a year that made me get my credit card, not some $5 tshirt.
I think its more like making money off the parents of college students whom they know will run up a bill and then get their parents to bail them out and pay it off. Hey its all good if these students go out and buy a bunch of overpriced stuff then get their parents to bail them out, its good for the economy!
I made the poor decision to sign up for a card to get a free sub at Quizno's. It was an outing! I never planned to use the card, and immediately cancelled it when I actually received it. I couldn't even tell you what the limit was. Now I realize how silly that was, and luckily my credit is just fine. I just got my first real credit card about 8 months ago, which I pay off in full every month. Good credit FTW.
That said, Visa Cloud loooooved calling MY DORM at 8 am Saturday mornings to offer me a card. Who had that phone number? My parents, friends, and MARY WASHINGTON. Got a good education, but had a crappy administration.
Being a recent graduate I know these "$2500" limits rarely go for emergencies. If you consider buying a round of shots at the bar or buying a new LCD TV at Best Buy an emergency, sure.
By the time someone goes to college they should know the dangers of credit cards, it's not some hidden code just revealed. If you are smart enough to get into college, you are smart enough to know that credit cards collect interest and if you don't pay off your balance you will fall further in debt.
@vdragonmpc: For the record, VCU can't do anything about those guys, unfortunately. Same as they can't do anything about the preachers on Shafer Court. It's considered public property.
I agree; please use the correct photo if you are referring to Michigan State.
@slim150:
but somehow they must of gotten my real nameIf you used your real SSN, they reported the name as an alias for that SSN.
My University has a sponsor with US Bank (aka the Devil) and as an orientation leader I could literally hear the lies that the bank employees were telling students (free ATM withdrawals, etc), but in return US Bank paid the cost for all the student IDs for all students (the upwards of $1,000,000) so there was nothing my boss could do to get things changed except to have someone standing by the US Bank table babysitting and listening in to make sure they were telling the truth.