A series about the surge in consumer debt and the lenders who made it possible.
Colleges Profit as Banks Market Credit Cards to Students
Bank of America employees on the campus of Michigan State University in
East Lansing, Mich., offered give-aways like water bottles, backpacks,
games and other items, trying to persuade students to sign up for
credit cards and other banking services.
EAST LANSING, Mich. — When Ryan T. Muneio was tailgating with his parents at a Michigan State football game this fall, he noticed a big tent emblazoned with a Bank of America
logo. Inside, bank representatives were offering free T-shirts and
other merchandise to those who applied for credit cards and other
banking products.
Fabrizio Costantini for The New York Times
Bank of America employees on the Michigan State campus offered
giveaways like water bottles, backpacks and games to persuade students
to apply for credit cards and other bank services.
“They did a good job,” Mr. Muneio, 21 and a junior at Michigan State, said of the tactic. “It was good advertising.”
Bank of America’s relationship with the university extends well beyond
marketing at sports events. The bank has an $8.4 million, seven-year
contract with Michigan State giving it access to students’ names and
addresses and use of the university’s logo. The more students who take
the banks’ credit cards, the more money the university gets. Under
certain circumstances, Michigan State even stands to receive more money
if students carry a balance on these cards.
Hundreds of colleges
have contracts with lenders. But at a time of rising concern about
student debt — and overall consumer debt — the arrangements have
sounded alarm bells, and some student groups are starting to push back.
The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.
Here at Michigan State, the editors of the student newspaper wrote
this fall that “it doesn’t take a giant leap for someone to ask why the
university should encourage responsible spending when it receives a cut
of every purchase.”
At Arizona State University,
students set up a table on campus last spring to warn of the danger of
debt and urge students to support limits on on-campus marketing.
The
contracts, whose terms vary but usually involve payments to colleges or
alumni associations that agree to provide lists of students’ names,
have come under harsh criticism in Washington.
“That is absolutely outrageous, the sharing of students’ information with the banks,” Representative Carolyn B. Maloney, Democrat of New York, who oversaw a June hearing on campus credit card marketing, said in a recent interview. “That should be outlawed.”
Fabrizio Costantini for The New York Times
A Fifth Third Bank display offered bottles of water, tuition raffles
and a bicycle as an inducement to get incoming freshmen at Michigan
State University to open credit card and other accounts.
College
campuses are one place that young Americans are introduced to credit
and the possibility of spending beyond their means, a problem now
confronting the nation as a whole. For banks, the relationships are a
golden marketing opportunity. For colleges, they are a revenue source
at a time of declining public funding. And for students, they help pay
the bills and allow more shopping.
But debt incurred in college becomes a serious burden at graduation, especially in a recession in which jobs are scarce. A survey of more than 1,500 college students by US PIRG
in Washington found that two-thirds had at least one credit card.
Seniors with balances had an average debt of $2,623 on their cards.
University officials say that their agreements with card issuers comply with the law and bring in valuable revenue.
“It
provides money for scholarships and other programs,” said Terry R.
Livermore, manager of licensing programs at Michigan State. He said
that the program was aimed primarily at alumni and the university would
not include sharing student information in future credit card
contracts. “The students are such a minuscule portion of this program.”
Jennifer
Holsman, executive director of the alumni association at Arizona State,
said the association tried to teach students about responsible uses of
credit. “We work closely with Bank of America to provide educational
seminars to students in terms of being able to get information about
how to pay off credit cards, how not to keep balances,” she said.
Credit card issuers say that they try to educate students to use cards
responsibly and that the cards they offer on campus have more
restrictive terms than cards offered to alumni.
“The available
credit for undergraduates is capped at $2,500,” said Betty Riess, a
spokeswoman for Bank of America. “We want to take a fair and
responsible approach to lending because we want to build the foundation
for a longer-term banking relationship.”
Ms. Riess said the bank
had agreements with about 700 colleges and alumni associations, making
it one of the biggest, if not the biggest, card issuer on campuses. She
said that only 2 percent of the open accounts under those agreements
belonged to students, but also said it was not possible to determine
what percentage of program revenue resulted from fees and charges on
those student cards.
Stephanie Jacobson, a spokeswoman for JPMorgan Chase,
wrote in an e-mail message that the bank had fewer than 25 contracts
with colleges or alumni associations and that while some of the
contracts gave it the right to ask for and use lists of student names
and addresses, the bank had not done so since 2007.
That may be
because football games present a marketing opportunity that requires no
address information. Abigail D. Molina, a second-year law student at
the University of Oregon, applied in 2007 for a Chase Visa offered at a tent outside a football game. In exchange, she received a blanket.
I mostly wanted the blanket,” Ms. Molina said. She added that this
was her second university credit card. In 1994, when she was an
undergraduate at the university, she applied for a card at a booth on
campus and then accumulated about $30,000 in debt, almost all of it on
the card. In 2001 she filed for bankruptcy. Looking back, she said it
was “shockingly easy” to get the card, even as a first-year student.
Mr. Muneio, the Michigan
State student, said he did not apply for a Bank of America card because
he already had two Visa cards. “The last thing I need is another
account to keep track of.”
Many students are unaware of the
contracts that universities have with credit card issuers and do not
question the presence of marketers on campus or applications in their
mailboxes, despite recent protests on a few campuses.
Sometimes,
the contracts have confidentiality provisions. Universities may try to
distance themselves, stating that the contracts are only between alumni
associations and banks. But the universities provide alumni groups with
lists of current students’ names, addresses and telephone numbers,
which the groups pass on to banks.
The New York Times obtained
information about and, in some cases, copies of contracts between
lenders, public colleges and their alumni associations using open
records requests. Because private colleges are not subject to open
records laws, they are not included.
While most universities contacted for this article did not provide detailed financial information on the contracts — the University of Pittsburgh, for example, confirmed only that it had an agreement — two did share numbers.
The alumni association of the University of Michigan
is guaranteed $25.5 million over the term of its 11-year agreement with
Bank of America. Under the agreement, the association agreed to provide
lists of names and addresses of students, alumni, faculty, staff,
donors and holders of season tickets to athletic events.
Much
of the money goes toward scholarships, said Jerry Sigler, vice
president and chief financial officer of the alumni association. He was
unsure what students were told about the program.
“Students are
generally told how they can opt out of having their information
publicly displayed in directories or provided in response to requests
like this,” Mr. Sigler added. “But it’s not to my knowledge specific to
the credit card program.”
Michigan State University gets $1.2
million a year but is guaranteed at least $8.4 million over seven
years, according to its agreement. The contract calls for a $1 royalty
to the university for every new card account that remains open for at
least 90 days, $3 for every card whose holder pays an annual fee, and a
payment of a half percent of the amount of all retail purchases using
the cards.
For cards that do not have an annual fee, the bank
pays $3 if the holder has a balance at the end of the 12th month after
opening an account, a provision that appears to give the university an
incentive to get cardholders into debt.
A few schools have adopted policies that prohibit sharing student contact information.
Ball
State University’s alumni association, which has a contract with
JPMorgan Chase, does not provide information on students, said Ed
Shipley, executive director of the association. “Who we market to is
our alumni because that’s our purpose,” he said. However, the bank is
permitted to set up marketing tables at athletic events.
The
University of Oregon, whose alumni association also has a marketing
agreement with Chase, stopped providing student addresses as concern
grew about student debt, according to Julie Brown, a university
spokeswoman. The university still permits marketing booths at athletic
events.
Some research suggests that students may be using credit
cards less frequently, in favor of debit cards linked to their bank
accounts. A survey last spring by Student Monitor, a Ridgewood, N.J.,
company that tracks trends on campus, found that 59 percent of
undergraduate students had debit cards, up from 51 percent in 2000.
But
universities have arrangements with banks that offer debit cards too,
perhaps raising some of the same issues that the credit card deals do.
At New Mexico State University, for example, students are given the option of opening a bank account with Wells Fargo if they want to convert their campus identification into a debit card.
The
accounts are not mandatory, said Angela Throneberry, assistant vice
president for auxiliary services at the university. But, she said,
“There’s some revenue sharing that happens as part of this.”
A version of this article appeared in print on January 1, 2009, on page B1 of the New York edition.
Add this to
the list of the country's financial woes: Credit card companies are aggressively
targeting college students, many of whom are naïve about money matters and
vulnerable to predatory offers that can get them permanently mired in debt.
According to an eye-opening survey by the
United States Public Interest Research Group, or U.S. PIRG, which is an advocacy
organization, some students reported receiving hundreds of credit card offers in
a year. The report also described how companies lure cash-starved students with
gifts of clothing and free food. In one flagrant case in Ohio, students who showed
up for the food were required to fill out credit card applications before they
could eat.
A
half-dozen states have placed restrictions on how credit cards can be marketed
at public colleges. Congress is considering sensible bills that would restrict
the amount of credit and the number of cards that students could be offered.
Lawmakers should also focus on the lucrative and often secret deals that
universities and their alumni associations regularly cut with credit card
companies.
Those deals
— which resemble the now outlawed student loan kickback deals — often grant
companies the exclusive right to market to a college’s students. In some cases,
the colleges get a cut of what the students spend, which makes the school a
partner in the plundering of young peoples’ meager assets.
Congress
must insist that these deals be made public and universities and alumni groups
must insist that students be given fair deals from credit card companies.
With
financing from the Ford Foundation, U.S. PIRG has begun a national campaign
urging schools to adopt some common-sense principles that would help shield
students from credit card marketers and financial ruin.
The group
calls on universities to stop selling the names and contact information of
currently enrolled students to credit card marketers. It also says that schools
should ban marketers from using gifts to entice students to sign up for credit
cards, and it urges schools to do more to educate students on managing debt
responsibly.
Most
importantly, the group calls on schools that still decide to cut deals to only
do business with credit card companies that steer clear of commonly used but
unscrupulous credit card terms that take advantage of students. That means an
end to hidden fees or unreasonable penalties, including universal default, under
which interest rates go up when the customer fails to pay a bill not related to
the credit card account.
Schools
need to reform their credit card practices. If they don’t move quickly,
lawmakers must do it for them.
One
thousand professors
from over 300 colleges in all 50 states released a statement declaring their preference for high-quality,
affordable textbooks, including open textbooks, over expensive commercial
textbooks.
Open
textbooks are high
quality open-access textbooks reviewed
and written by academics that can be used online at no cost and printed for a
small cost. Open textbooks are already used at some of the
nation’s most prestigious institutions, like Harvard, Caltech and Yale.
Textbooks cost students an average of $900 per year, which is a quarter of tuition
at an average four-year public university and nearly three-quarters of tuition
at a community college, according to the GAO. Research conducted by The Student PIRGs
identifies publisher tactics as the primary cause of escalating prices.
Bundling textbooks with unnecessary supplements forces students to purchase
items they do not need; unnecessary new editions undermine the used book
market; and withholding critical price information keeps faculty in the dark.
“As faculty members, our top priority is to choose the
textbook that is best for our students. We share concerns about
affordability, and face similar frustrations with publisher practices,” said
Sandra Schroeder, Chair of the American Federation of Teachers Higher Education
Program and Policy Council. “Open textbooks and other affordable options,
when appropriate for a course, are a win-win for everyone.”
Arizona PIRG chapters released the "Campus Credit Card Trap" report, which outlined the unfair marketing practices of the credit industry. Students overwhelmingly support limits on campus credit card marketing, according to the results of the nationwide USPIRG survey of more than 1500 students at 40 colleges in 14 states.
The average student receives nearly 5 credit card offers a month and nearly two in three students reported that they had at least one credit card. Fifty-five percent of cardholding students said they used their card for day-to-day expenses. Reflecting escalating college costs, 55 percent said they charge their books and nearly one-quarter said they pay their tuition with a card. On average, freshmen had a balance of $1,301 and seniors had more than twice that, $2,623.
Credit cards are marketed to students using free gifts and introductory teaser rates. The use of aggressive marketing techniques obscures students' ability to be scrutinizing consumers when considering a credit card contract. Seventy six percent of students reported stopping at tables on campus to apply for credit cards, and nearly one-third were offered a free gift to sign up.
On December 6th, the U.S. House of Representatives passed a 21st Century energy bill that will harness American ingenuity and put us on a path to cleaner, smarter new energy future for America.
This bill is a breakthrough on energy policy and sets the country firmly on a path to increasing clean energy, lowering energy demand, and reducing U.S. dependence on oil.
We're now calling on the Senate to pass this bill quickly and for President Bush to sign it into law.
Highlights of the bill include:
Promote Clean Energy - by following the lead of half the states to establish a national renewable electricity standard, requiring utilities to produce 15% of their electricity from renewable energy sources by 2020. The bill also extends renewable energy production tax credits for four years and investment tax credits for 8 years.
A national renewable electricity standard will substantially reduce global warming pollution while sparking a clean energy boom across the U.S. According to a recent analysis by Environment America, renewable energy development in states with RES policies is already boosting local economies by luring new manufacturing and other skilled jobs. It's projected that the standard would save consumers at least $13 billion and cut 126 million metric tons of global warming pollution per year by 2020 (equal to taking more than 20 million cars off the road).
Reduce U.S. Dependence on Oil - by increasing fuel economy standards for cars and light trucks to 35 mpg by 2020. This would be the first meaningful increase in fuel economy standards in more than 15 years. The provision replaces the current standards with an attribute-based system that gives the auto industry tremendous compliance flexibility by allowing for different mileage requirements per vehicle size. The standards in the Senate bill would save 1.2 million barrels of oil a day in 2020, save consumers $25 billion at the gas pumps, and substantially reduce global warming pollution. With oil prices continuing to set new records above $80 a barrel, Americans want new standards and more efficient vehicles now.
Save Energy - by adopting strong energy-efficiency incentives and standards. Both the House and Senate bills contain legislation that would help Americans save energy in their homes and businesses. These policies include appliance and lighting efficiency standards, tax incentives, and building codes.
On September 7th, 2007, the U.S. Senate and House of Representatives passed
the College Cost Reduction and Access Act by broad bipartisan votes of 79 to 12
and 292 to 97 respectively. The bill now goes to the President who has said he
will sign the legislation into law.
The College Cost Reduction and Access Act is the most meaningful higher
education reform in more than 15 years. The bill addresses the financial
challenges of access and affordability that face American college students. It
provides billions of dollars a year in additional grant aid to low-income students
through the Pell Grant program. It will also help students address the burden
of rising student debt through lower interest rates and a new repayment system.
The bill also trims excessive subsidies that benefit a handful of banks and
directs them to millions of students and families who are working to pay for
college.
The College Cost Reduction and Access Act will:
Increase the maximum Pell
Grant award by $490 for each of the next two school years, by $690 for the
following two school years and by $1,090 for each following year. The Pell
Grant is the nation’s premier college access program, providing grants to
5 million low-income students each year. The maximum Pell Grant is
currently $4,310.
Create an income-based
repayment program that allows borrowers to repay their loans as a
percentage of their income. This new program will protect borrowers with
low salaries from having to make unmanageable payments. As a result
students will be able to make employment and life decisions based on their
values rather than the volume of their debt.
Reduce interest rates on
student loans for more than 5 million low and middle-income student
borrowers receiving subsidized Stafford
loans.
Finance increased education
spending by reducing subsidies to student lenders. Lenders will receive a
reduced rate of return for offering federal student loans and a slightly
reduced reinsurance rate from the federal government. As a result, the
increased grant aid and loan benefits will have no additional cost to
taxpayers.
On July 11th, the U.S. House of Representatives passed the "College Cost Reduction Act of 2007" (HR 2669) by a vote of 273-149. The bill will substantially increase the purchasing power of the Pell Grant, the nation's premiere need-based grant program which benefits millions of low income students, increasing the maximum grant amount by $100 for five years beginning in 2008-9. It will make student loan debt more affordable by cutting the interest rate on student loans in half, to 3.4%, by 2012, and by capping loan repayment amounts to a reasonable percentage of a graduate's income. HR 2669 goes a long way toward solving the college affordability and access crisis in the country.
Today, South Carolina students were hot on the trail of both Democratic and Republican candidates to ask all of the candidates: “What’s Your Plan?” on key issues such as global warming and college affordability.
"Reaching out to young voters is extremely significant being that they are our future leaders. I, along with a number of other members of the South Carolina State Student Association have done our part to get the younger population involved in the electoral process, and now it's time for government officials to do theirs' by reaching out to the younger community and tackling issues that are pertinent to them such as making college more affordable.," said Alesha Brown, University of South Carolina Student Body Treasurer.
Students attended events in Greenville, Columbia, and Orangeburg, speaking in particular with Senator McCain about global warming.
“I am seeing the African American community in Rock Hill become increasingly concerned about global warming, and seeing it as an important moral issue - and it’s socially conscientious people like me that are driving this concern. We hosted a showing of An Inconvenient Truth at my church just two days ago and had one of our largest turnouts ever for such an event. I’ll be watching the debates with this in mind, and paying attentions to what the candidates have to say about Global Warming,” said Willie Lyles III, recent graduate of Winthrop University and Executive Director of the Freedom Center in Rock Hill.
Last weekend, students were hot on the campaign trail of the Presidential candidates from IA to SC, asking candidates to detail their plans on global warming. Students spoke directly to several candidates, including Rudy Giuliani, John Edwards, Mitt Romney, Sam Brownback, Chris Dodd, Mike Huckabee, John Cox, and Joe Biden. See photo gallery.
What’s Your Plan? is a new national campaign to convince Presidential candidates to pay attention to young people and to address key youth issues.
Youth voting power has undergone a significant transformation over the past two election cycles. In 2004, young voter turnout was up 11% over 2000 levels - a rate three times higher than the general population. In 2006, young voter turnout increased by 2 million votes while turnout among all ages only moderately increased. Background on the Millennial Generation.
In 2006, these numbers were a big factor in several tight congressional races in states like Connecticut, Montana, and Virginia. In the close Connecticut 2nd District House race, for example, Congressman Joe Courtney credited his win to his youth outreach program.
The Student PIRGs predict that youth voter turnout will continue to increase in 2008 – and that candidates who have detailed policies on youth-specific issues will win the youth vote in 2008.
Buoyed by rising youth voting power, student leaders here and in all four of the early primary states called upon the presidential candidates to focus on young voters by outlining detailed plans on key youth issues. The national campaign, called “What’s Your Plan?” asks candidates to reach out to youth on two priority issues – global warming and higher education.
Youth voting power has undergone a significant transformation over the past two election cycles. In 2004, young voter turnout was up 11% over 2000 levels - a rate three times higher than the general population. In 2006 young voter turnout increased by 2 million votes while turnout among all ages only moderately increased.
In 2006, these numbers were a big factor in several tight congressional races in states like Connecticut, Montana, and Virginia. In the close Connecticut 2nd District House race, for example, Congressman Joe Courtney credited his win to his youth outreach program.
Students used today’s Earth Day events to highlight their message, pointing to the surge of student activity on global warming on and off campuses this year. Just last week, students played a major role in coordinating the over 1400 “Step It Up” events around the country calling on our leaders in Washington, DC to address global warming issues.
PIRG students in brightly colored What’s Your Plan? t-shirts and signs asked candidates from both parties questions about their plan for global warming in the four early primary states, California, New York, New Jersey, Oregon, and many other locations around the country.
The U.S. House of Representatives
voted to increase the size of the maximum Pell Grant by $260, to $4,310. This
is the first time the size of the Pell Grant has been increased since 2002. The
Pell Grant is the federal government’s premier need-based grant aid program,
providing aid to more than five million low-income
students.
Over the last five years, while
students have paid more for college, the maximum Pell Grant has remained frozen.
As a result students have had to make up the gap between tuition and aid with
more work and larger loans. This increase will start to provide students with
the aid they need to access an affordable college education. To fully restore
the Pell Grant to its historic value, we’re continuing to call for the maximum
to be increased to $5,100 in the coming budget cycle.
The U.S. House of Representatives
voted to increase the size of the maximum Pell Grant by $260, to $4,310. This
is the first time the size of the Pell Grant has been increased since 2002. The
Pell Grant is the federal government’s premier need-based grant aid program,
providing aid to more than five million low-income
students.
Over the last five years, while
students have paid more for college, the maximum Pell Grant has remained frozen.
As a result students have had to make up the gap between tuition and aid with
more work and larger loans. This increase will start to provide students with
the aid they need to access an affordable college education. To fully restore
the Pell Grant to its historic value, we’re continuing to call for the maximum
to be increased to $5,100 in the coming budget cycle.
On
January 18th, by a vote of 264 to 163, the
U.S. House of Representatives passed the Clean Energy Act. The U.S.
PIRG-backed measure closes some tax loopholes for big oil companies, recovers
billions in lost royalties for drilling in public waters, and shifts more than
$14 billion to investments in clean energy.
By harnessing renewable energy sources like wind, solar, and clean biofuels, we
can secure our economy and create jobs. By promoting technologies to save
energy, we can dramatically reduce our dependence on oil and save consumers
money. More than ever, America
needs a new direction on energy policy. With the passage of the CLEAN Energy
Act of 2007, Congress would send a clear message that they are ready to start
solving our energy problems.
On
January 18th, by a vote of 264 to 163, the
U.S. House of Representatives passed the Clean Energy Act. The U.S.
PIRG-backed measure closes some tax loopholes for big oil companies, recovers
billions in lost royalties for drilling in public waters, and shifts more than
$14 billion to investments in clean energy.
By harnessing renewable energy sources like wind, solar, and clean biofuels, we
can secure our economy and create jobs. By promoting technologies to save
energy, we can dramatically reduce our dependence on oil and save consumers
money. More than ever, America
needs a new direction on energy policy. With the passage of the CLEAN Energy
Act of 2007, Congress would send a clear message that they are ready to start
solving our energy problems.
On January 17th, by a vote of 356 to 71, the U.S. House passed, by an
overwhelming bipartisan majority, legislation to lower the interest rates on
student loans over the next five years. According to an analysis by the Student
PIRGs, the move would save the average low or middle-income borrower starting
school in 2007 $2,300 in debt.
“H.R. 5 pays for better benefits for
students by cutting excessive federal subsidies to private lenders,” explained
U.S. PIRG Higher Education Advocate Luke Swarthout. “The bill saves millions of
students thousands of dollars over the life of their loans by eliminating
wasteful subsidies.
The
bill, H.R. 5, will lower interest rates on subsidized Stafford student loans, which are used overwhelmingly by
students from low- and middle-income families. The Senate will likely take up the issue of lower
interest rates as a part of a larger package of higher education policies in the
next several months.
