Your College and Your Credit Card

I was delighted that the CARD act allows people 18-21 to get a credit card only with a cosigner over 21 because this will severely limit the amount of on-campus recruiting credit card companies can do. However, this is not the only type of shenanigans going down. In his recent article "Colorado Colleges Cash in Big on Credit Deals," David Migoya investigates several colleges and their arrangements with financial institutions. Here is his little chart:

click to enlarge

The benefits for the college can be immense - in this chart alone I see a $75 payout for each new account, 0.7% of all transactions made on the card, up to $550,000 paid in yearly "salary," and lots of vague additional marketing fees. I get it. People see it as some kind of win-win: I make purchases on my credit card and my alma mater gets 0.5% at no cost to me!

Here is the cost to you: choice. As a student, you might tend to trust your college. It's a nonprofit, it wants to educate you, it has your best interest at heart. False. Your college's first priority is your college. Your college is hungry for money, but you already knew that because you're paying tuition. Maybe your college can negotiate with the company to get you a card with a great APR, low fees, and no sneaky tricks. But maybe Visa just offers your college $4.1 million dollars over 7 years and your college accepts a compromise on your behalf. This is simple selling out: lending credit card companies the reputation of a college to hook its students into starting their cycle of debt with Visa, not Mastercard.

I recognize that it's hard for a university to forgo a "free" $550,000 a year. That's a new soccer field! Full ride scholarships for 2 and a half orphans! An endowment for a cotton candy machine to live in the library in perpetuity! I get it. But consider: if the deal looks lucrative for the university, imagine how much money the credit card company makes on the debts of thousands of students for years to come. Maybe Sally Sophomore would have gotten a card with a lower APR if she'd shopped around. But she just got the card in the mail with university logo on it, and she just called to activate it. So easy!

There is an interesting example out of the Colorado list: The University of Colorado, which offers a student ID card tie-in to ATM cards from Elevated Credit Union (formerly U of Colorado Credit Union). The university relations comment: ""For us it's not some bank out of Wilmington, Del., that's saying, 'Hey, get a credit card,' " Ken McConnellogue said." This is obviously a special partnership, since the credit union was originally formed by people affiliated with the university. It's a more closed system, and the money stays local. This is not a credit card at all - only ATM/debit. Anyway, interesting counter example, but overall I'm pretty uncomfortable with schools making product recommendations.