In Depth July 17, 2008, 5:00PM EST

The College Credit-Card Hustle

(page 2 of 4)

Iowa stopped providing student information to BofA last November, but only after negative local press coverage. "The amount of marketing to students has always been less than that for alumni," says Chris Bavolack, who served as chief financial officer of the alumni association until early July. Overall, he says, the group is "trying to reduce our dependency on credit-card revenue." Linda Kettner, a spokeswoman for the University of Iowa, says students who take the initiative can request that their contact information not be given to any outside marketers. At the University of Delaware, alumni association President Shante Hastings says the group is also trying to diversify its revenue to rely less on credit-card income.

Banks staunchly defend their campus deals. Many students need cards for large purchases, such as airline tickets, or for emergencies, the banks argue. Credit lines are typically much lower for student accounts, often $2,500 or less, limiting the peril undergraduates face. And students, like all customers, have to sign applications, where they indicate that they understand the credit-card terms.

"FAIR AND RESPONSIBLE"

According to BofA, which dominates the campus market with more than 700 affinity deals, the primary targets are alumni and college sports fans, who hold 96% of the cards. The bank won't disclose how many of those cardholders first signed up as undergraduates. BofA also declines to discuss any specific contracts but says students are just as responsible with credit as older adults. "When it comes to students, we take a fair and responsible approach to lending," says spokeswoman Betty Riess. The bank gives educational material to student customers and doesn't hit them with higher rates for late payments. "Our objective is to create a long-term banking relationship," Riess says.

BofA stresses that it gives credit cards to only half of all student applicants. Nevertheless, many undergraduates obtain more than one card, accumulating substantial overall debt. College seniors on average carry $2,864 in credit-card debt, according to Nellie Mae, a division of student lender SLM Corp (SLM). Two-thirds of college students now graduate owing money on tuition loans, and that debt averages nearly $20,000.

John Kmetz signed up for a Penn State-branded card issued by MBNA after finding the application among his freshman registration materials. The brochure featured the school's famous Nittany Lion mascot, which appealed to Kmetz, whose father and sister attended Penn State before him. "I had a good feeling that if I was using the card, I was giving back [to the university]," he says. By the time he graduated in 2001, he had about $2,000 in debt on the card, which he admits he unwisely viewed as "free money." He had trouble finding work at first and skipped some minimum payments, incurring penalties that caused the debt to grow to $9,500 today. Kmetz, now 29 and living in Watertown, Conn., where he works at a credit union, says his delinquency hurt his credit score and meant that he had to pay 18% on his current car loan, the maximum allowed by state law. In retrospect, he wishes he had never applied for the Penn State card: "I think the school and the credit-card company are taking advantage of students and betting that parents are going to bail kids out."

Penn State's alumni association views the affinity card as a legitimate service and means of raising revenue, says Executive Director Roger Williams. "Credit is not a bad thing," he says. "In fact, you can make an argument that the American way of life is predicated on the generous use of credit."

Others disagree. Creola Johnson, a law professor at Ohio State University who has studied campus credit cards, says: "It is unethical for schools to allow a sophisticated industry to have access to their students, [many of whom] have graduated from high school without any financial education or literacy....The playing field is grossly uneven." Ed Mierzwinski, consumer program director for U.S. Public Interest Research Group, a liberal nonprofit in Washington, faults schools and alumni groups for failing to use their clout to gain better terms on cards for students. "The agreements allow for special access to undergraduate info and repeated contact to undergrads that may not be good for their well-being," he says.

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