The College Credit-Card Hustle

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Ohio State's alumni association, acting with the university's approval, agreed in 2002 to a seven-year deal with MBNA. The guaranteed minimum payment over that period was crossed out when the university released the contract in response to a BusinessWeek request. But the alumni group's latest federal filing as a tax-exempt nonprofit shows that it collected $1.2 million in credit-card royalties for 2006. The association provides the bank with e-mail and old-fashioned mail addresses, as well as phone numbers, for 55,000 undergraduates. The bank also receives information about alumni, faculty, and parents of students. Under the contract, the card company may conduct at least five direct-mail marketing campaigns each year. Faculty, staff, and parents are explicitly shielded from any kind of marketing by telephone. But students may be subjected to at least three phone campaigns a year.

Ohio State says it receives payments from its alumni group for use of trademarks and other assets. The school says that some of the money goes to fund financial education for students. "As educators, we know we need to teach students about how they can be financially responsible in life," says spokesman Jim Lynch. The alumni group declined to comment.

It's hard to assess the credit industry's claim that students are just as financially responsible as older consumers. Banks don't release comparative statistics. But figures from Florida State University indicate that at the 31,300-undergraduate school, students were about four times as likely as alumni to be delinquent on their MBNA credit-card bills--more than 9%, vs. more than 2%--in the two quarters in 2005 for which records were made available.

Andy Miller, president of Seminole Boosters, a nonprofit fund-raising arm for Florida State, enthusiastically stands by the deal. "There are too many opportunities to get credit cards, so to not offer yours to undergraduates is silly," he says. Nationally, more than three-quarters of undergrads have at least one credit card, most of which were obtained outside of school-sponsored programs. "Kids who want credit cards are going to get them," Miller says. Florida State's $10.7 million, seven-year contract allows "marketing to all students" and at least six direct-mail and telemarketing campaigns a year. The university had no comment.

IN-STORE PROMOTIONS

At the University of Michigan, where the alumni association has a contract with Bank of America, the group gets 0.5% of purchases made on school-branded cards. In addition, the organization receives $6 a year for every active student account, vs. $5 for each alumnus account. The deal guarantees the Michigan alumni association $25.5 million over 11 years. The group says its card is aimed primarily at alumni and sports fans but maintains that undergrads are treated fairly. BofA "views student accounts as an investment in developing long-term profitable alumni accounts," says Jerry Sigler, the association's chief financial officer. The university didn't comment.

Some campus card deals spell out in detail how schools will help market to their students. The University of Minnesota promises to push a school-branded JPMorgan Chase (JPM) card "in all University retail and athletic venues." The university says it will employ "in-store signage" and "in-bag credit card applications" at campus stores. The school gets $1 for each new cardholder and $3 annually for each active card user, in addition to 0.5% of every purchase made with the cards. The school receives a relatively low guarantee of $360,000 over five years. University spokesman Daniel Wolter says that in contrast to the terms of the contract, Minnesota restricts marketing to sports events.

JPMorgan Chase says it has a "small number" of campus deals and isn't expanding in this area. Spokeswoman Stephanie Jacobson adds that in the past year, Chase has ceased requesting and using student contact data. "We don't believe that's an appropriate way to present these products, which are focused on alumni and other school supporters," she says.