Bank of America has been strolling across college campuses, handing out budget-propping fees to alumni associations in exchange for agreements to provide unrivaled access to a trusting and loyal customer base. The perverse agreements encourage universities to earn kickbacks by convincing their already indebted students to use school-branded credit cards to take on even more debt.

According to BofA, which dominates the campus market with more than 700 affinity deals, the primary targets are alumni and college sports fans, who hold 96% of the cards. The bank won’t disclose how many of those cardholders first signed up as undergraduates. BofA also declines to discuss any specific contracts but says students are just as responsible with credit as older adults. “When it comes to students, we take a fair and responsible approach to lending,” says spokeswoman Betty Riess. The bank gives educational material to student customers and doesn’t hit them with higher rates for late payments. “Our objective is to create a long-term banking relationship*,” Riess says.

BofA stresses that it gives credit cards to only half of all student applicants. Nevertheless, many undergraduates obtain more than one card, accumulating substantial overall debt. College seniors on average carry $2,864 in credit-card debt, according to Nellie Mae, a division of student lender SLM Corp (SLM). Two-thirds of college students now graduate owing money on tuition loans, and that debt averages nearly $20,000.

* = “long-term banking relationship” may consist wholly of debt service [Ed.]

Agreements between banks and private universities are private, but public universities can’t hide behind the same veil of secrecy:

• The University of Iowa: In exchange for access to the school’s 29,000 students, Bank of America pays $1 million per year to the school’s alumni association—25% of its operating budget.
• The University of Delaware: Bank of America pays the school’s alumni group $300,000 per year—90% of its operating budget.
• Ohio State: MBNA paid $1.2 million in 2006 for access to 55,000 undergraduates. Ohio State also sold access to faculty, staff, and students’ parents.
• The University of Michigan: Bank of America will pay the alumni association at least $25.5 million over 11 years, including 0.5% of all purchases made on school-branded credit cards. The bank also pays $6 per year for each active student account, and $5 per year for each alumni account.
• The University of Minnesota: Chase will pay the school $360,000 over five years, plus $1 for each new cardholder, and $3 annually for each active cardholder.

The universities don’t always understand why these deals might be criticized as craven and immoral.

Penn State’s alumni association views the affinity card as a legitimate service and means of raising revenue, says Executive Director Roger Williams. “Credit is not a bad thing,” he says. “In fact, you can make an argument that the American way of life is predicated on the generous use of credit.”

Great argument, teach! In fact, you can also make an argument that the subprime meltdown is predicated on the generous use of credit. But let’s not let facts distract from the proud American tradition of cloaking wrongdoing behind sound bites.

Credit isn’t a bad thing, but the credit cards pushed through these exclusive arrangements are burdened with abusive terms. College kids don’t always understand what it means when a 4.9% introductory APR automatically soars to 18.24% after six months. Colleges have a responsibility to promote good financial habits while protecting their students.

Students should also be responsible, not just for understanding that t-shirts are a poor trade for completed credit card applications, but for holding their schools accountable. Student governments should actively press administrators to disclose and dissolve financial ties with credit card companies.

In the meantime, New York Attorney General Andrew Cuomo is focusing the government’s powerful and retributive eye on the shady agreements. Maybe we can get another university ass-kicking to rival that whole corrupt lender thing that recently worked out so well for everyone.

The College Credit-Card Hustle [BusinessWeek]
RELATED: Credit Cards Ensnare Naive College Freshmen
(Photo: Getty)

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