Earlier this year, Christine Lindstrom, director of United States Public Interest Research Group’s Higher Education Debt Project, told members of the House Subcommittee on Financial Institutions and Consumer Credit that “our research has documented that students are targeted, indeed, bombarded by credit card company solicitations, in the mail, on the phone and while they are walking across campus.”
While this may have been news to the subcommittee members, it is reality for students across the country, including here at UC Irvine. On Ring Mall, we are offered everything from Starbucks gift cards to pens and mugs in exchange for signing up for a student credit card. At home, we are sent promises of “0 percent APR, Cash Back, Rewards and More,” usually accompanied by the use of many exclamation points.
Credit cards are a fact of life in any modern economy. Under the right circumstances, they provide people with, as Sujit Chakravorti, an economist at the Federal Reserve Bank of Chicago, wrote, “a secure, reliable and convenient means of payment.” They are convenient, offer rewards and protect the consumer, relatively speaking, from fraud.
For a college student, the first credit card is often the only way of building up a credit score — a number that measures creditworth. A strong score makes it easier to buy a house, a car or other large items. Employers increasingly run credit checks on prospective hires; a high score is seen as an indicator of reliability. A credit card is, in many ways, a necessary prerequisite for the functions of modern adult life.
Most students know and understand this. Approximately two-thirds of college students own at least one credit card. A 2008 study by the Student Monitor listed establishing a credit history as the number one reason (67 percent) for getting that first card. Once we get one, we use it. The Government Accountability Office reported that 77 percent of students charge everyday expenses on credit cards, 57 percent charge books and other school supplies and 12 percent use them to pay tuition and fees.
What the vast majority of students do not know is that our colleges or universities often have contracts with specific credit card companies that may put our interests at risk.
These contracts are not anomalies particular to a small subset of schools. The New York Times estimates that hundreds of schools have them. Bank of America, one of the largest players in the industry, has contracts with 700 schools and alumni associations. The exact number of total schools is not known. Only public institutions are required by law to report them. Even then, information is incomplete and difficult to access. The exact terms of these contracts vary from place to place and from company to company, but one of the most common is the school’s agreement to provide the names and addresses of its students to the company in exchange for money. The Times reports that University of Michigan’s Alumni Association will receive at least $25.5 million over 11 years from Bank of America in exchange for information on not only alumni but also current students, faculty, staff and even season tickets holders. Some schools also receive an additional amount for every student who signs with the company.
These arrangements hold clear benefits for both universities and credit card providers. The schools get a new source of revenue at a time when funding is short and costs are rising. The banks get access to a new pool of potential customers and presumably, more money. Students are a particularly valuable group for them. Various studies of consumer behavior show that people tend to be highly loyal to their first provider. Once a bank signs a student up, it has likely gained a customer for life.
For students, however, this cozy relationship between school and lender carries more risks than benefits. Administrations who benefit financially from these arrangements face a conflict of interest between the needs of the lender and those of the student if they cannot be trusted to protect student interests. They cannot be counted on to protect students from deceptive marketing and unfair lending practices. They cannot be counted on, despite whatever assurances offered, to encourage responsible spending practices, especially in cases when the school actually receives additional revenue from the lender when students carry balances on their accounts — a practice that can lead to debilitating increases in interest rates that make paying off the debt highly difficult for the student.
At a time when college students face increases in everything from tuition and fees to textbooks and living expenses, leaving them vulnerable to credit card debt is irresponsible, not to mention a violation of the trust between students and the university. At a time when America’s credit card debt has risen to a record $790 billion and the economy is in a meltdown caused at least in part by irresponsible credit practices, the effects of such behavior have long-term implications for the future of our society. It can only be hoped that pending the passage of legislation in Congress, universities will take a proactive role in reining in the excesses of credit card companies on college campuses and champion the interests of students and society over those of profit.
Send comments to firstname.lastname@example.org. Please include your name, year and major.