Campus cards generate big rewards, but not for cardholders
Deals between banks and schools come under scrutiny
By Fred O. Williams
The multipurpose campus card is a powerful piece of plastic.
It can open doors to university buildings, check out books from the library, get
loaded up with financial aid, plus pay for pizza and other necessities.
It's an ID card, a debit card and a rewards card. But the students
who use it aren't the ones getting the rewards -- colleges are. Schools that sign exclusive deals with banks get
a slice of the banking business that students generate.
Campus cards have drawn complaints about their fees and
captive-audience marketing for years. Now they're catching more heat as concerns
about student debt ratchets up. Federal regulators are drafting new restrictions
and calling on schools to reveal the terms of these card deals with banks.
Nearly 900 colleges with a combined 9 million students issue hybrid ID-and-debit
cards to students, a 2012 study by the U.S. Public Interest Research Group
found. Schools can deposit financial aid into the card-linked accounts quickly,
which is a powerful draw for students.
With banks paying schools for exclusive rights to market
these cards to students, "there is
a clear need for strong rules to address potential conflicts of
interest," U.S. Sen. Robert
Menendez wrote in an Aug. 11 letter to regulators at the Education Department
and Consumer Financial Protection Bureau.
students should not be charged extra fees to access their financial aid
funds," Menendez wrote in his letter, "and schools should not be
steering students toward high-fee products."
Inside campus deals
So how much are colleges collecting from card deals with
banks? Few schools have revealed their agreements with banks, leaving their
financial gains largely a mystery. The U.S. Consumer Financial Protection
Bureau surveyed the 14 schools of the Big Ten conference and found that only
one -- Iowa -- revealed the financial terms of its campus card deal. That's despite
calls for transparency from the National Association of College and University
Judging by the few agreements available, the deals are not small change. The
University of Iowa stands to collect $1.6 million over five years from Hills
Bank and Trust Company, the bank behind the Iowa One card, according to its agreement.
The figure includes a one-time signing bonus of $125,000, annual royalties of
$50,000 a year, branch rent of more than $600,000, plus a cut of swipe fees
that exceed $50,000 a year. Swipe fees are generally paid by merchants who
accept the cards.
Campus card pitfalls
Debit or prepaid accounts linked to a college ID card can be a convenient financial tool for students, but the accounts might come with costly pitfalls.
Many students opt to activate the card's financial account features because it is the fastest way to receive financial aid from the bursar's office. Consumer advocates say to remember that schools are federally required to send you a check instead if you choose, or make an electronic ACH deposit to your bank account.
Here are some of the account features to watch out for when signing up for a campus card's account features:
Surprise fees. Charges for leaving an account inactive, closing an account or failing to keep a
minimum balance can lead to unexpected costs.
Overdraft programs. As with other checking accounts, overdraft privileges that let you withdraw
more money than you have in the account are often a hyper-expensive form of borrowing.
ATMs. A bank's on-campus ATMs are usually fee-free, but they may run out of money at peak times
or be unavailable after hours. Some cards provide three to five fee-free uses of out-of-network ATMs per month; however, the out-of-network bank's
ATM charge will still apply.
Swipe fees. Some cards charge a 50 cent swipe fee for PIN debit transactions. These can add up, but may be avoided by making transactions
via signature debit instead, if the merchant permits.
Monthly fees. Most campus cards -- and off-campus student checking accounts -- have no monthly fee. However, some banks may impose the
fee but waive it for maintaining a specified minimum balance or a minimum monthly amount of direct deposits.
About 30 percent of entering students opted for the Iowa One
debit card features in the past two years, university spokesman Tom Moore said.
With its total student head count of 35,000, according to the U.S. Education
Department, the school's projected revenue amounts to $31.57 a year per average
cardholder, on a running basis.
Asked what the school was doing to protect students from paying
excessive fees, Moore pointed to the open public bidding process the school
used to choose its bank partner, and to the public availability of the agreement
"By being open and transparent, we're laying all the
details out there, so people know what's involved," Moore said. Students
can opt for the debit card or not, although on-campus branches and free ATM use
make the Hills Bank account attractive. And the school puts revenue from the
card deal into a scholarship fund, Moore said, so essentially the money is
going back to students -- just not necessarily the same ones who generated the
Some campus card agreements contain volume-based incentives
-- such as per-student or per-account bounties -- which regulators say are
problematic. Unlike a flat royalty payment for the use of the school logo or
rent for branch space, volume-based payments motivate the school to boost
enrollment in the cards -- whether or not they're the best deal for students.
Financial incentives "created the potential for
conflicts of interest" that could influence college officials to steer
students to expensive cards, the U.S. Education Department concluded in a March
on campus cards.
While Iowa's volume payments are based on swipe fee revenue that's typically
collected from merchants, other campus card deals contain significant per-student
According to a 2004 contract for the NCard at
the University of Nebraska, Wells Fargo agreed to pay the 27,000-student
school $15 annually for each account
opened at the bank by students and staff, provided that a minimum of 15,000
accounts were opened. The bank also paid Nebraska a $250,000 signing bonus and
royalties of $300,000 a year.
The contract, which ran through 2012 with three optional
one-year extensions, also contains provisions that protect account holders. NCard
bank accounts should have the same terms "generally applicable to the same
class of Bank's other customers," the contract says. They also get
fee-free transfers from other bank accounts and free electronic bill payment in
return for enrolling in paperless statements.
At the University of California-Davis, with about 35,000
students, U.S. Bank agreed to pay as much as $650,000 a year in royalties based
on the number of active accounts, according to a 10-year contract
signed in 2009. The maximum payment is based on 20,650 or more accounts, which averages to $31
each. The school also received a $30,000 annual payment, plus $8,333 a month in
rent for branch space. The contract, which U.S. Bank said has been terminated, also gave the bank exclusive rights to operate
a branch on campus.
Agreements between TCF Bank and four Big 10 schools --
Illinois, Michigan, Minnesota and St. Cloud State -- all contain bonuses for
the schools based on the number of active student accounts. However, the amount
of the bonuses, along with other dollar figures, has been blacked out in
agreements that the bank posted online.
Bankers say cards
What do schools say about their rewards deals?
Rather than steering financially unsophisticated students
into expensive cards, as some critics charge, the deals between colleges and
banks provide a controlled financial environment, a leading bankers group said.
In an open letter to the CFPB Aug. 20, the head of the Consumer Bankers
Association objected to the regulator's suggestion that campus cards are risky.
"[R]elationships between banks and schools often
provide students with great benefits by providing much needed financial
literacy, safe and secure debit cards, low or no-fee checking accounts and
access to convenient on-campus branches and ATMs," the letter from CBA
head Richard Hunt said.
Students should stick with the account they already
U.S. Public Interest Research Group
Some schools, however, seem to do just fine without a
deep-pocketed banking partner. In Alabama, Auburn University asked banks to
submit proposals for a campus debit card, but then shelved the idea because of
the uncertainty about future banking rules.
"We decided it was not the time, or the direction we
really wanted to go," said Bob Ritenbaugh, vice president for auxiliary
The lack of a bank-backed campus card isn't hampering students, he said. Auburn's existing non-bank campus card has a
stored-value feature that lets students pay for meals and other on-campus items
with money they've deposited. For more robust financial services, students have
a choice of ATMs from four different banks on campus.
"Students often come to school with a debit card from a
bank," Ritenbaugh said.
Convenience or fee
Experts are split on whether the campus cards emblazoned
with the school logo are necessarily a bad deal -- especially considering that
alternatives for students can be limited. A February report by the Government
Accountability Office found that costs for campus cards were generally in line
with alternatives from mainstream banks, with some exceptions. But some consumer
advocates have a different take.
"Students should stick with the account they already
have," said Christine Lindstrom, program director for higher education at U.S.
PIRG. Although campus cards aren't the only bank accounts that come with fees,
she said, experience with the ins and outs of a particular account can help
students keep banking costs to a minimum.
Lindstrom, who has studied campus cards for years and
testified about them before Congress, says the notion of college students as financial
novices is no longer accurate. The typical student in 2014 is someone well out
of their teens who has had more than one part-time job, and likely has banking
experiences to draw from.
"If they've had [the account] a
little while, they've probably already encountered a fee here and there, and
basically learned avoidance," she said. "Stick with the devil you
Having a campus ID card is required, but signing up for a bank-backed
debit account or stored-value account is optional. Under Education Department
rules, financial aid must be available by check or electronic ACH transfer, not
only as a credit loaded onto a campus-approved bank account. The department is
expected to issue new rules that will take effect by mid-2015 putting other restrictions
on campus cards. A draft proposal indicates that schools will be required to
hand out aid to independent bank accounts just as quickly and easily as they do
to accounts at their partner banks.
In the meantime, there are signs that card issuers are
reining in fees. Higher One, the largest campus card provider, said it has
dropped its inactive account fee, which was a focus of complaints. Company
officials say they expect to pay up to $70 million in refunds and fines under pending
regulatory orders aimed at the company's marketing of OneAccounts. Changes in
the company's business practices could also result.
See related: 3 must-ask questions for multiuse college campus cards
Published: August 25, 2014