Colleges Pimping Their Students
| July 8, 2009 | Posted by Roshawn Watson under Uncategorized |
Students go to universities to gain an education, to discover their interests, to network, and to pursue degrees in their chosen fields of study. It should be a time to focus on academics and perhaps to have some fun. However, students are increasingly being targeted by predatory credit card lenders. Moreover, instead of safeguarding our students, universities and their alumni associations have elected to assist these card-issuing banks in exchange for additional revenue.
Some Universities in Bed Credit-Card Companies
Recently, BusinessWeek has uncovered over two dozen secret contracts between card-issuing banks and public universities. The main offense is universities are selling students’ personal information, typically to the highest bidding credit-card companies. This allows for the card-issuing banks to target their marketing campaigns to students. For example, the Ohio State alumni association worked out a seven-year, multimillion dollar deal with MBNA where the association provided the bank with email addresses, home addresses, and phone numbers for their 55,000 undergraduates. Under the contract, the card company was allowed to send at least 5 direct-mail marketing campaigns each year and contact students at least three times by phone each year.
These campaigns result in a very raw deal for students, who are often already saddled with tens of thousands worth of student loan debt. Students are particularly vulnerable to late fees and other penalties, given their limited income and experience with handling their own finances. For example, data from Florida State University suggests that their undergraduate students were about four times as likely as alumni to be delinquent on their MBNA credit-card bills in the two quarters in 2005 for which records were made available.
Oh the Money
The financial incentives for universities to participate in some of these deals are so lucrative that many universities blatantly disregard their fiduciary responsibility to students. Some card-issuing banks are willing to pay universities tens of millions to participate. For example, consider the following university-card company deals.
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Florida State’s $10.7 million, seven-year MBNA contract allows “marketing to all students” and at least six direct-mail and telemarketing campaigns a year.
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University of Michigan’s alumni association contract with Bank of America is worth $25.5 million over 11 years.
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University of Tennessee signed a pact with Chase worth $10 million.
Conflict of Interest
In some cases, universities directly benefit from students indebtedness in addition to benefiting from the selling of their students’ personal information. For instance, the a contract between Washington State University and MBNA yielded the school $3 a year for each student account and 0.4% of all sales charged to student cards.
The annual bonuses would be between $50,000 to $100,000, based on the number of new accounts opened and the average outstanding balance held on the high-interest cards: the more debt students carried, the more revenue the alumni association would get.
Such financial alliances create disturbing conflicts of interest. The very university personnel who are entrusted with protecting our students have not only chosen to align themselves with companies that profit off of ensnaring students in debt, but the schools themselves also profit directly from students’ indebtedness. Thus, there is a direct conflict between students’ best interests and the financial well-being of the schools. It’s no wonder why schools are willing to endorse bad deals for students. Consider that the University of Iowa’s alumni association sent a credit-card mailer to students in May 2007, announcing in large bold letters “outstanding financial benefits for students,” including a 4.9% interest rate. “Don’t miss this unique opportunity to show your University of Iowa pride, while you enjoy truly outstanding credit card benefits and services.” The marketing letter was signed by Vince Nelson, alumni president. It was only Iowa students who read the accompanying paperwork who found that the 4.9% rate lasted only six months (teaser-rate) before leaping to 18.24%, a common technique in the credit-card industry.
The University of Iowa’s alumni association received about $1 million a year from card issuer MBNA, accounting for one-fourth of the organization’s operating budget. Similarly, the University of Delaware’s alumni group receives about $300,000 a year–more than 90% of its revenues–for delivering student contact information to BofA.
Where’s The Outrage
There should be outrage and public outcry for our students’ sake. Ed Mierzwinski said it best… “It is unethical for schools to allow a sophisticated industry to have access to their students, [who] have graduated from high school without any financial education or literacy….The playing field is grossly uneven.”
Somehow the message has to get out that it is not okay for universities and their alumni associations to exploit the vulnerable for financial gain.
It was only after negative local press coverage that Iowa stopped providing student information to MBNA last November.
These contracts between universities and card companies are cloaked in secrecy, even in public schools, where open contract laws typically mandate transparency. It is clear that we cannot trust universities and their alumni associations to do the right thing for students. Although the non-disclosure makes scrutinizing these relationships very difficult, we must continue apply public pressure for transparency. Otherwise, the next student whose information they’re selling may be the child of someone we know ourselves.
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
When I read your post I was absolutely outraged. Where is the public outcry, the fury? Have you ever heard of the book Credit Card Nation by Robert Manning? There's a whole chapter devoted to college and high school students and credit card debt. In his book, Manning points out the serious harm financial problems cause these students. "Most Americans assumed that college administrators were providing a safe, nurturing environment where …children would acquire the personal and professional experiences necessary for a rewarding future. Instead,…young lives were being ruined by credit card debt that had led to dropping out of college, family conflicts, bankruptcy, job rejections (due to poor credit history), loan denials, inability to rent apartments, professional school rejection, and even SUICIDE." I personally seethe when thinking about this because I have several college friends who went through bouts of severe emotional distress over their credit card debt. It just disgusts me that credit card companies blatantly refuse to acknowledge or withdraw from their bad practices. Tell me how it's right for a kid making $6.50/hr to be lent enough money by these companies to rack up $10K in debt?!!!! How!!!!
I wrote an article about this when I was in college, and actually talked to the school about it. Basically, every student gives the school the right to distribute certain information about them. At my school, and I'm guessing most others, you can opt out of this. The catch is, it's an all or nothing deal, and if you opt out, then the school cannot give your information to, say, a potential employer that wants to know that you actually graduated from said school.
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FD, I've never heard of this book, but the points you share are right on target. Students are being preyed on. Sheri, you are right that some schools do give you the right to opt out. In addition to the all and none clauses, there's a seperate issue of disclosure (or lack of it). If the schools and the CC's were doing nothing wrong, then why all the secrecy?
Once you've gone through the higher ed system you realize it's all about money. English 101 is the same whether you take it at the local community college, state u., or Harvard. Save your money and find the cheapest way to get your degree.
I am probably a victim of all this with 110k in student loan debt. I had a terrible amount of credit card debt. I thought I could start a business in college and charged inventory on the credit cards. I was pretty screwed when things didnt sell as fast as possible and I have no decent paying job on the way.