Credit Card Marketing at Colleges – Who Profits?

The New York Times is doing a series called “Debt Trap – A series about the surge in consumer debt and the lenders who made it possible.” On New Year’s Day, they did an article that rings so very true to me. If you recall, my credit card debt started with a candy bar offered on college campus.

Since I started blogging, I have come to realize that whenever you get a credit card through another avenue than the credit card company itself, someone is making money from selling that card to you. The same rings true for web sites and blogs that have links to credit cards. It can be a profitable business – the one time I looked at it, some companies were paying up to $50 for every person that signed up for a card.

Thinking back to the displays at my old college, there were always college students manning the booths. I figured that student organizations were the ones behind the applications. But according to the New York Times articles, the colleges themselves can get a very lucrative deal. In some cases, it pays for the college to have a student go into debt and have a balance on their card at all times. Another scenario is that that college receives a percentage of every charge a student makes. Makes my stomach do a little flip – they sure got me!

The contract [for Michigan State University] 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.

[Via NYTimes.com]

So…some colleges are not only allowing the credit card booths on campuses – they are encouraging them! They get a lot of money by doing so. The colleges mentioned in the article say that the revenue is important and sometimes used for scholarships. It doesn’t make much sense to me. And selling student information so credit card companies can market to them? Ugh. I get those alumni credit card offers. I guess my alma mater got a deal as well to sell my information.

I don’t mind colleges making money. But it seems like there could be a better way than targeting young adults with credit card offers. It’s like raiding the young adult cradle.

If interested, here is the link to the entire Debt Trap series at the New York Times.

Posted by Tricia on January 4, 2009 at 10:10 AM in Credit Cards | 13 Comments »
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MoneyMateKate responded:
Posted: January 4th, 2009 at 4:20 pm
Wow, and I thought it was bad that they telemarketed the parents of current students for additional money (”donations”) – like that first $40K or so isn’t enough?? But at least that was overt. This campus credit card thing is sneaky and leaves a bad taste in my mouth. I’m glad this sort of thing didn’t go on back in “my day”, when all I got was a deluge of CC offers from the big banks as soon as I paid my first tuition bill.
Da Big D responded:
Posted: January 4th, 2009 at 7:44 pm
No on is forcing the consumer to sign up. No one is making them live beyond their means. This is capitalism at its best. If PARENTS do not educate their children, it is not the fault of the school, but rather of the parent. At least you son will be well aware of debt, and not fall into the same trap as others have…
Bryan - Frugal Logic responded:
Posted: January 5th, 2009 at 5:15 am
I can see both sides to this argument. Those college kids are probably going to end up with a credit card anyway, so why not let the university benefit. But also credit cards are a bit of a trap when you lack judgement with money, as most young people do.

I think it’s hard to get educated about credit cards when you are young, you have to experience the debt and experience how long it takes to pay it off. That’s when you learn.

I think the key factor here is restricting the limit on their credit card. When credit card companies keep sending out pre-approved limit increases to people who can’t afford to get heavily in debt, that’s the big issue.
Breckrider responded:
Posted: January 5th, 2009 at 7:04 am
I agree with Da Big D. It’s not the credit card company’s or college’s fault. They don’t hold a gun to anybody’s head and force them to sign up. It’s our fault. We sign on the dotted line.

We have to teach our kids. Websites like yours are doing their part to show how detrimental credit card debt is.

Until we accept responsibility for our spending and actions then not much will change.
Kev responded:
Posted: January 5th, 2009 at 9:09 am
Da Big D’s comment: “This is capitalism at its best”

Really?! Do you really believe that?!

My concern isn’t as much with the “where” as much as it is the “who”. They are marketing them on college campuses – to college students. They are marketing high interest credit to group a of people who 1.) Have limited or no income. 2.) Have limited or no credit history. The normal selection-criteria that is put in place for typical applications is eased up for students b/c card issuers want to get them “hooked” early.

It all comes back to the same problem – lending money to people that don’t have the means to repay it. If the housing meltdown and this economy has taught us anything, it is that we are all interconnected. The neighborhood I live in is full of empty houses, the value of my new home has plummeted, my 401K balance is laughable and it all stems from years of handing out money hand over fist to people who can not and will not pay it back. So I completely disagree – those types of lending practices have a negative impact on us all. It’s capitalism at it’s worst…
Tim of The Dollar Dance responded:
Posted: January 5th, 2009 at 11:12 am
It definitely is sad that this is happening. One simple credit card purchase in college is all it takes to start a lifetime of being behind. Great post!
Ian responded:
Posted: January 5th, 2009 at 12:20 pm
To me it is almost sad irony. The banks and card companies marketed to people for years that are on the cusp. One bad thing and they would have a hard time paying it back. So now they cry foul.

It’s sad. Any why the economy, and peoples views are going back to the post depression thinking.

Save then spend.
Cathy Quik responded:
Posted: January 5th, 2009 at 8:26 pm
First off, this is my first comment on your blog Tricia I thought I’d introduce myself before commenting. I’m Cathy and I just started my blog.

Issues of ethics in selling is very interesting. I think that it is nearly impossible to be 100% ethical while making money. It’s wonderful if someone can keep their nose perfectly clean, but I think it is rare.

I hope the following doesn’t make me too unpopular here, but I’m going to partially side with the college.

I think that blame for lousy lending habits should be shared equally between the consumer and the lender. If someone is in college, they are 1. of a high intelligence and 2. an adult. If they make a mistake, they will learn from it much more than if they are protected from it. I’m not sure where the line should be in protecting college students from their own stupid spending mistakes, but I think they should certainly be allowed to have a credit card.

And who doesn’t have a credit card these days? I certainly don’t begrudge anyone for selling credit cards. It is a perfectly legitimate form of payment. Many consumers abuse it, but many don’t. I’d say that a college promoting credit cards is somewhat crass, and in a gray area of ethics, but I think it should be allowed.
thomas responded:
Posted: January 6th, 2009 at 6:43 pm
So, did you think that these card companies were on campus out of goodwill from the campus?

Grouping has always been a part of marketing – get a candy bar for signing up, free tv if you sit through a timeshare presentation.

As stated before, nobody forces you to sign up for a credit card. CC companies provide a service, and you are free to not take part of that service.

Do you think that credit cards should have a warning label like cigarettes? “Spending money you don’t have may lead to financial instability and bankruptcy.”
Tricia responded:
Posted: January 6th, 2009 at 7:45 pm
Even if there was a warning label, I’m sure it’d be so hard to read that you’d need a magnifying glass LOL.

I have issues with providing credit cards to students if they don’t have income. That doesn’t compute. If someone doesn’t have the means to repay – how is that a good business practice?
Kev responded:
Posted: January 7th, 2009 at 8:40 am
I don’t think credit cards should have warning labels on them, but there should definitely be restrictions on who has access to them.

If you want to smoke cigarettes – then you need to be 18.

If you want a credit card – then you can’t be an unemployed college student who is already racking up $20,000.00 dollars plus of education loans a year.

You guys can say what ever you want about “good marketing” and “Nobody is forcing them to sign up”, but come on… If you give people access to things some of them are going to take advantage of it – regardless if it is in their best interest or not. If that’s really the argument you want to make, then you should have no problem with companies like Philip-Morris setting up a booth at a high school. It’s good-marketing after all… Get them hooked early. And what’s the harm – Nobody would be FORCING them to buy a pack of smokes!

Give me a break…
Mike of EZGONE responded:
Posted: January 7th, 2009 at 3:42 pm
As a college student myself at Michigan State University, we are constantly given credit card after credit card. Personally I don’t have one, but i def know a bunch of kids that have them. I will admit it is very tempting to be able to say “well, i don’t have money right now…but i will later!”
steve d responded:
Posted: January 12th, 2009 at 3:01 pm
Your article was right on!! There are so many traps for debt and not enough free sites that help you out. I did run across a website called stimuluspackagejobs.org that give you some free info about “how to do it your self”. The info was informative.