Not too long ago, it was pretty common to see credit card companies peddling plastic on college campuses. They’d have tables or booths set up at registration events or student fairs. These guys were so ubiquitous at my campus that I figured they had cut a deal with the school. Turns out that they did.
Hundreds of universities used to allow credit card companies to market their products on campus for a cut of the proceeds, without disclosing the terms of their agreements to students or their families. Schools would take in millions of dollars, while card companies extended credit to unemployed 18-year-olds at orientation.
Congress put the brakes on all of this in 2009 with the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. The law prevented card issuers from marketing on campus, required students under 21 to have a co-signer or parental consent and forced schools to submit their contracts with card companies to regulators.
As a result, the number of colleges and alumni associations sponsoring credit card programs fell by nearly 60 percent between 2009 and 2013, according to a report released Monday by the Consumer Financial Protection Bureau.
The consumer watchdog counted 448 college credit card agreements in effect as of 2013, compared to 1,045 in 2009. Those contracts were worth a total of $42,934,507, roughly half the amount of money schools were earning in 2009. What’s more, half as many students had accounts compared to when the Congress changed the law.
But while colleges have moved away from credit card agreements, they have inked more deals to market debit and prepaid cards that are not subject to the restrictions of the CARD Act. According to the General Accountability Office, at least 852 schools, or 11 percent of colleges and universities, now promote debit or prepaid cards to students.
The cards became a popular way for schools to disburse what are known as credit balances, the money left over when a student’s financial aid award exceeds the tuition and fees owed to their schools. Researchers at the GAO found that most schools not only let students receive federal aid on debit and prepaid cards, but also outsource the processing of that money to their financial partners on the card deal.
The trouble with this set up is that some of these so-called campus cards are riddled with fees that can eat into student aid. Fees on these cards—overdraft or maintenance fees—are comparable with the kinds of charges you’d encounter at a bank, according to the GAO. But some card issuers impose a fee for card purchases using a PIN number rather than a signature—banks don’t charge for that.
GAO researchers couldn’t pin down the total fees students are charged because some companies refused to give up that data. Schools often act as middlemen for their financial partners, pushing students into products, rather than presenting unbiased information about their options, much like they did with credit cards.
Campus card agreements are not public, and they’re hard to obtain. In 2012, however, U.S. Public Interest Research Group Education Fund got hold of an agreement between Ohio State University and Huntington Bank, which gave the school $25 million in payments over 15 years. The deal also included another $100 million in lending and investment.
Lawmakers are uneasy about the relationship colleges have developed with Wall Street. Earlier this year, a group of 65 congressional Democrats, led by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.), introduced legislation to end the payoff system and prevent universities from steering students into payment products. The bill didn’t go far, and is unlikely to be taken up in the next session.
The Department of Education has also tried to step in. In February, the agency took up the campus card issue as part of a broader review of student aid programs conducted by a 15-member panel of consumer advocates and educators. The group couldn’t reach an agreement on what to do, leaving any changes in the hands of the department. The agency said it has no set timeline for completing a rule.
Lack of transparency is a central problem with both the campus cards and credit cards offered by colleges. While the CARD Act stamped out the worse abuses of college credit card contracts, schools are still cagey about posting their agreements online for parents to peruse. The CFPB examined agreements covering 35 schools and found that 80 percent did not make the terms of their credit card agreements readily available.
Although the amount of money schools make from credit card deals has declined, the contracts are still quite lucrative. And instead of schools reaping the rewards, alumni associations are the main beneficiaries of credit card deals these days, representing about half of all agreements. (You may have seen some mailings from your alumni association urging you to sign up for a credit card affiliated with your alma mater, complete with a picture of the campus on the card. Those are the cards.)
Penn State Alumni Association, for example, made $2.8 million from its deal with FIA Card Services, a subsidiary of Bank of America. The behemoth bank, through its subsidiary, dominates the college credit card space with four times as many agreements in effect in 2013 as its closest competitor. Yet the number of those agreement have shrunk, much like the college credit card market as a whole.