If you're the parent of a student in college, you probably aren't worrying too much about getting your son or daughter a new credit card. You have plenty of other things to worry about. Those pictures your son posts on Facebook, in which you hope, but rather doubt, that it's grape soda in that wine glass. Wondering if your financial aid officer will consider bartering a semester of college for the Beanie Babies collection you invested in back in the 1990s.
Didn't the CARD Act stop credit cards on campus?
Besides, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 means that anyone under the age of 21 can't get their hands on a credit card unless they either have a co-signer (you), or prove that they have income. And universities aren't allowed to market on college campuses anymore. Right?
Well, not exactly. The Credit CARD Act doesn't stop credit card companies from marketing on college campuses. What the issuers no longer can do is offer freebies to students. In the past, credit card companies would dangle a free T-shirt in front of a student just for signing up for a credit card, which, if you think about it, is not a great start on the road of fiscal responsibility.
A college-aged kid with very grown-up debt will be less common than it used to be, to be sure. However, according to a report from the Federal Reserve, issuers are still paying big bucks for the privilege of issuing affinity cards. While your under-21 can't get a card today, the issuers still want them to be loyal to their school and their student credit cards once they can.
Which schools got the most credit card money?
The biggest benefactor of the credit card industry in 2010, according to the Fed's study? Penn State Alumni Association by a mile, receiving more than $4.2 million in marketing dollars from FIA Card Services, a subsidiary of Bank of America. The full top 10 list of colleges and the marketing dollars shakes out like this:
- Penn State Alumni Association ($4.2 million from FIA)
- Ex-Students Association of the University of Texas ($2.3 million from FIA)
- Alumni Association of the University of Michigan and the Regents of the University of Michigan ($1.6 million from FIA)
- University of Southern California ($1.5 million from FIA)
- University of Tennessee ($1.4 million from Chase Bank)
- Duke Alumni Association, Inc. ($1.375 million from Chase Bank)
- California Alumni Association and the Regents of the University of California ($1.353 million from FIA)
- Arizona State University Alumni Association ($1.349 million from FIA)
- Arch Foundation for the University of Georgia, Inc. ($1.307 million from FIA)
- General Alumni Association of the University of North Carolina at Chapel Hill ($1.25 million from FIA)
Many of the credit card companies sponsor football games, targeting both the alumni and the current crop of students, and the sponsorship is impossible to miss. For instance, Duke's arrangement requires mentioning Chase at least twice at each football and basketball game. Chase, in their contract, also states that they can install 16 booths at every home game every season "within or on the grounds surrounding Neyland Stadium." They have the right to install six booths at the home basketball games, and two at the home baseball games.
Which bank targets the most colleges and universities?
By far, it's Bank of America's subsidiary, FIA Card Services, that has the greatest number of agreements in place. As the Fed's report points out, at the time of the survey, FIA had 848 credit card agreements, for which they paid colleges $55 million.
That's 15 times as many agreements as the next runner-up: U.S. Bank National Association had 54 agreements in 2010, giving a comparatively paltry $1.8 million to colleges. Chase had 28 agreements, but spent far more on its marketing: $9.1 million.
What do banks get in return?
So what are the colleges giving the credit card companies for the money? As you might expect, among other things, they're shelling out phone numbers (often specifically requesting numbers that are not included on do-not-call lists), email addresses and snail-mail addresses of students and alumni, and, yes, as noted, the issuers are often allowed to come onto the campus to market student credit card offers.
Troubling, or just business as usual?
As with anything, the answer probably depends on one's point of view. Sharon Lechter, the co-author (with Robert Kiyosaki) of the modern-day personal finance classic "Rich Dad Poor Dad," has earned the right to be cynical about colleges and credit cards, considering her son accrued $2,500 in debt during his freshman year in college.
But in spite of that, Lechter sounds pretty encouraged by what has transpired since the Credit CARD Act became law. "The number of credit card accounts among college students fell 17 percent after the CARD Act, and I feel pretty confident saying that was due to not being able to offer free pizza and T-shirts for a kid filling out an application," says Lechter, who is also a CPA and founder of the Paradise Valley, Ariz.-based financial literacy company Pay Your Family First. But she adds, "The issue isn't the credit card. The issue is the lack of (understanding) how to use it."
Lechter says that if colleges are going to help credit card companies market to their students on campus, that may not be so bad, especially if the card has reasonable terms and a low interest rate. But schools need to do a better job of educating their students. "We need to educate young people about how to manage money but also how to make money, as in how to become entrepreneurs," Lechter says. "That's the only way we're going to save this generation."
Agreements with schools don't cover financial literacy
Lechter may have to wait a while for that to happen, however. Among the 1,004 contracts arranged or upheld by universities and colleges in 2010 (all of which are available to peruse on the Federal Reserve site), there are a lot of terms specifying benefits to the parties, but precious few that directly benefit students.
For instance, some agreements give the school $1 from each credit card's annual fee as well as royalties from purchases made on each card. In other agreements, there are provisions that specify everything from the size of a credit card kiosk to how credit cards can "piggyback" in football season ticket-holder mailings.
But there appears to be nothing in the contracts requiring credit card companies to conduct free workshops on campus to teach students how to use credit cards wisely. A student would have to pay for a personal finance class, or rely on parental wisdom, which is not always the best bet.
And for those students who haven't learned how to use a credit card wisely, they - or their parents - often end up paying dearly for that lack of knowledge as well.