Recently a huge arrangement involving selling of names and addresses of students and former students to credit card companies – in exchange for big financial kickbacks – came to light. What surprised everyone is that it is not criminal hackers doing the selling, but it is the prestigious schools themselves.
What it means is that if a child of yours is going to one of the nation’s institutions of higher learning – including some of the most elite colleges and universities in the country – that educational institution may be surreptitiously selling private information about them to credit card companies. The same goes for college alumni, whose names also get traded for cash.
These educational institutions are also giving major credit card companies the right to attend campus events by granting them unique and special access to students. The way that scheme works is that colleges and their alumni associations let credit card companies attend events and solicit business from students. If a student signs up for a card, the credit card company assigns royalty payments or commissions to the university. Those payments are based on how often the students use their credit cards, so if you get a card while in college and continue to use it, your university may get bonuses for years – even as you go deeper into debt.
The agreements and arrangements – which have been kept rather quiet until now – have enriched both schools and banks, and that raises troubling questions about the ethical integrity of universities.
During the current economic recession lots of attention has been paid to the mounting debt crisis of college kids, many of whom have tens of thousands of dollars worth of credit card debt by the time they graduate. They are also usually saddled with student loan debt, and in today’s economy it is hard for new graduates to get meaningful employment. So because of financial problems many college kids are pushed toward default and bankruptcy. Colleges and universities are also struggling to attract the funds they need to stay competitive, but it seems that they many of them have learned how to profit off of the potential debt problems of their students by helping credit card issuers gain access to the students and tempt them with easy-to-get plastic.
Congressman Murphy of Pennsylvania, who used to be a professor at the West Point Military Academy, called the practice of schools getting paid for students racking up debt a disgrace. He helped to pen the recent Credit Card Act of 2009 signed into law by President Obama, adding rules that require greater transparency and disclosure regarding this kind of behavior. But very few of the nearly 3,000 4-year colleges in the USA have publicized their credit card company affiliations, so lawmakers are not really sure how many of these schools are involved in this money-making scheme.
But one indication of how widespread the practice is comes from Bank of America. The financial institution is perhaps the biggest player in the student credit card market, and Bank of America said it has contracts with hundreds of schools and alumni associations. Many of those schools also have similar arrangements with other credit card issuing banks, and all of them involved handing over the names, addresses, and phone numbers of students.
More than a dozen documents that were obtained from educational institutions and their alumni groups revealed the arrangements for special access on campus. Banks were given permission, for example, to establish kiosks or booths at sports events where they could advertise their credit card products.
The amounts paid by banks are no small potatoes, either. Bank of America, for example, signed agreements with some colleges that are worth more than $25 million. One elite university signed a contract worth $1 million per year over seven years. So these arrangements are so lucrative that almost resemble the contract amounts offered to professional athletes when they are traded from one team franchise to another.
But the credit card industry says it is doing nothing wrong, and that it is, in fact, providing a valuable service to students. Bank of America, for instance, said that it is just serving the student market to build a long-term customer relationship. Meanwhile schools that are selling access to students and their personal information – without fully disclosing the activity to the students or their parents – claim that they are doing so to attract more money that can be used for scholarships.
There are even some that say that getting students easier access to credit cards helps to teach those student how to be more responsible with their finances – a claim that many consumer advocacy groups believe is ludicrous. If colleges want to teach kids fiscal responsibility, many experts believe, then they should do so in the classroom – not by getting cozy with banks for big, secretive contracts that promise huge profits.
