Bank Cards: Cozy Deals on Campus

Joining forces with banks, colleges are now cashing in on student debit cards

by Dean Foust

When The University of Minnesota's 52,000 students arrived in early September, they received new "U Cards," a multi-purpose ID that doubles as a library and security card. But the new IDs also have debit and ATM features for students who open a checking account with TCF Financial Corp. (TCB). It was all part of a deal the school struck in exchange for the bank footing the bill and other hefty payments.

What's this relationship worth to TCF? The $15 billion regional bank doesn't disclose many financial details. But already some 80% of students at Minnesota and its sister campus in Duluth have signed up, pumping $50 million into TCF accounts. And it's lucrative enough for TCF to pony up roughly $40 million to the school to extend the deal through 2030. TCF has inked similar arrangements with nine other schools, including the University of Michigan. Those contracts give the bank exclusive entrée to the next generation of potential customers, as well as a nice profit stream today, thanks to ATM surcharges and overdraft fees that run up to $33 a pop. "[Campus services] are a huge marketing arm for us that, quite frankly, makes money," TCF President Neil Brown told institutional investors last year.

In an industry known for its controversial move to push plastic on campuses, it turns out that credit cards were only the start. TCF and other financial-services giants like US Bancorp (USB), Bank of America (BAC), and Wells Fargo (WFC) are finding new ways to profit in the student market. What's more, it's an increasingly symbiotic relationship that benefits colleges as well. Banks and university administrators have become quiet partners in an array of financial arrangements that generate millions for both parties, from ID debit cards to co-branded credit cards.

But critics contend these types of deals are fraught with potential conflicts. It's a sentiment underscored by the recent scandals in which financial aid officers were caught accepting junkets, free meals, and shares of company stock for steering students to certain lenders. "Schools have become too vested in the finances of their students," says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars & Admissions Officers. "It's unfortunate that there are colleges that have begun to view every point of contact with students as a potential profit center."

FUND GENERATORS

Officials at state-supported universities, at least, defend these moves, arguing that at a time of reduced funding from local legislators, the revenue boost and cost savings enable them to preserve academic programs and generate much needed funds for financial aid. For example, the cost of providing student IDs can run as high as $200,000 a year at large public universities. When banks cough up the cash, it spares colleges from making cuts elsewhere. "It's a mutually beneficial relationship," says University of Minnesota spokesman Daniel Wolter of its deal with TCF.

Administrators also point out that financial firms provide services that universities can't handle efficiently. One such area: student payments and reimbursements, which can cost as much as $11 for each old-fashioned paper check that a school issues. That need has created a nice niche for financial firms like Higher One Inc. Founded seven years ago by three Yale University undergrads, the company electronically disburses financial aid and other payments from schools to students, charging schools as little as 10¢ per transaction. It now serves 84 universities.