Charge It

Many American colleges make money doing the very thing they often recommend their students avoid: putting kids into credit card debt. According to an article by Ben Protess and Jeannette Neumann in the Huffington Post:

Some of the nation’s largest and most elite universities stand to gain millions of dollars from selling the names and addresses of students and alumni to credit card companies while granting the companies special access to school events….

The schools and their alumni associations are entitled to receive payments that multiply as students use their cards. Some colleges can receive bonuses when students incur debt.

The full depth of arrangements like these is unclear. Bank of America alone has “affinity contracts” with about 700 schools and alumni associations. According to the article “schools can receive royalty payments based on the number of students opening accounts and the amount they spend.” Most of the schools have agreements such that they earn more money when students carry a balance, when they do not pay off their debt in a year. The average college student graduates with $3,173 worth of credit card debt.

As a result of the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama signed in February, banks are no longer allowed to engage in certain aggressive credit card offers. People under age 21 also can’t have credit cards without a cosigner.

According to the article several schools and alumni organizations (at places like the University of Michigan and Brown University) said they no longer market credit cards to their students, “even though their contracts appear to require it.”

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer