Credit card companies cash in on students by pushing plastic on campuses

By Michelle Singletary
Washington Post Staff Writer
Wednesday, October 27, 2010; 8:20 PM

When will we stop pushing plastic on our young adults?

For years, institutions of higher learning and affiliated groups have struck deals with credit card issuers to market their cards to students, many of whom don't have any significant source of income.

Selling this access has been lucrative for schools and groups such as alumni organizations. In 2009, according to the Federal Reserve, 17 credit card issuers made total payments of $83.5 million for the privilege of marketing their products to students, faculty, staff and alumni.

And what did the credit card companies get in return?

Over the years the contracts have been in existence, more than 2 million college-related credit card accounts have been opened. Last year alone, the number of new accounts was 53,164.

In addition to getting access to mailing lists, issuers paid schools and affiliated organizations royalties for accounts opened and fees based on how much people purchased on the cards. So the more debt people piled onto their cards, the more schools collected in cash.

At least we now have a better grasp of these contracts because of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, also known as the Credit CARD Act. The Federal Reserve now has to submit to Congress an annual report that sheds light on the deals struck by credit card companies with postsecondary institutions and their affiliates. The public also gets to see the details. You can view the 1,044 contracts submitted to the Federal Reserve by going to

This is the first comprehensive look at the agreements. But the Fed's report lacks any meaningful commentary or conclusions. We don't know exactly how many of the accounts were opened by undergraduates. Nonetheless, we've got more details of the deals than ever before, so now what?

I know what.

Congress should have the chutzpah to do what New York Attorney General Andrew M. Cuomo did after investigating student credit card marketing practices in his state.

Cuomo, the Democratic nominee for governor, got the State University of New York - with 64 campuses and 465,000 students - to agree that it would not share students' personal information with credit card companies without asking students first. Any deals cut have to be in the best interests of students. Schools also can't conclude a deal in which the school earns a percentage of finance charges imposed on students. If a school has such an agreement, it must stop accepting payments immediately.

"Basically, the transparency should cause colleges to renegotiate these contracts," said Ed Mierzwinski, the consumer program director for the Washington office of the National Association of State Public Interest Research Groups (U.S. PIRG). "What good is having the information if no substantive changes are made to keep credit cards away from students for as long as possible?"


Ideally, schools will take a hard look at the reforms Cuomo extracted and adopt them voluntarily, Mierzwinski said.

Nearly 40 percent of the agreements submitted to the Federal Reserve were between a credit card issuer and schools, and 33 percent were between an issuer and an alumni association.

Three credit card issuers accounted for about 96 percent of all college credit-card agreements. By far the largest player in this game was FIA Card Services, a subsidiary of Bank of America. It submitted 906 college credit-card agreements. Last year, FIA made payments to schools and affiliates totaling almost $62 million. The issuer opened 38,610 new accounts and, as of Dec. 31, 2009, had a total of 1.6 million open college credit card accounts linked to its higher education agreements.

Increasingly, students are using credit cards to pay for education expenses other than books and supplies. Nearly one-third of students charged their tuition in 2008, an increase from 24 percent in 2004, according to study done by Sallie Mae, the largest student lender.

On average, students charged $2,200 in 2008, more than double the average of $942 in 2004. They also had, on average, 4.6 credit cards. At least the CARD Act now requires lenders to make sure consumers under 21 have the income to make required payments or they have to get a co-signer 21 or older who has the ability to do so.

Look, if we know - because we've studied it to death - that many young adults (and older ones, too) don't have a grasp of basic money management, we should be outraged that institutions of higher learning have entered into these agreements giving access to financially vulnerable students. After all, there's plenty of time for our young adults to learn to be debtors.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her e-mail address is Comments and questions are welcome, but because of the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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