Thought marketing plastic on campus was a thing of the past? Not so fast.
Credit card marketers have all but disappeared from college campuses, thanks to new rules from the Credit CARD Act of 2009 that sharply limit their ability to market credit cards to college students. However, two years after the CARD Act went into effect, banks are still on campus. Instead of pushing credit cards, they now lure new customers with college ID cards that double as debit cards.
“College costs are rising and new financial products are being pushed into the marketplace,” says Rich Williams, a higher education advocate for the consumer activist group PIRG. And a special hybrid product — campus debit cards, which aren’t covered by the CARD Act — are taking center stage.
As more colleges are making deals to provide student ID cards that look like credit cards, a fresh debate is brewing between financial services companies and consumer advocates who say some fee-heavy campus cards are presenting new problems for college students.
These new hybrid cards are taking the place of a once-lucrative student market pulled out from under credit card issuers. A few years ago, card issuers commonly paid high sums to universities for the right to set up tables on campuses and offer free pizza and T-shirts to students who filled out credit card applications. The CARD Act all but banned on-campus marketing, forced card issuers to reveal their payment deals with colleges and restricted the availability of cards to those under 21.
Those measures had the intended purpose, drying up on-campus credit card marketing. Now, the on-campus marketing of plastic has morphed. Instead of deals to issue credit cards, deals abound to issue combo ID/debit cards.
ID cards double as debit cards
Campus cards come in multiple forms. Some look just like regular debit cards, except they’re co-branded with a college logo. Others are linked to a student’s college ID card so the student can use the ID to buy books for class or burgers for dinner both on and off campus. Some are prepaid debit cards. Others are standard debit cards linked to a checking account.
The type of campus card students use depends on the financial institution a college chooses to partner with, and that irks consumer advocates.
“Sometimes the contracts are being created that are good for the schools and good for the banks, but not necessarily the students,” says Williams.
Bank fees vary widely among campus card programs and critics say that colleges don’t always choose the cheapest banking option available to cash-poor students. Instead, many colleges are striking exclusive deals that benefit the school’s financial interests — either through direct cost-savings or through lucrative financial agreements — at the expense of students, argue critics.
“In some sense, the college’s [financial] interest is guiding the choice in this, and students aren’t being told that colleges are getting some services or discounted services” in exchange for being exclusive, says Mark Kantrowitz, publisher of Finaid.org and Fastweb.com.
That’s troubling, some consumer activists and parents say. “Even in these tight budgetary times, it is the college’s responsibility to serve the students well and not to use them as a money-making venture for a bank,” says Ellen Rice, a parent of a Western Washington University sophomore who refused to activate his college’s campus debit card and instead received his financial aid by check. “Access to students should not be a commodity that the university sells.”
Schools get a cut or a discount
Revenue sharing programs aren’t unusual and even those colleges that don’t get a cut of the profits still benefit from card issuer-provided services.
“There is some financial compensation to the schools for allowing their students to participate,” says Lowell Adkins, executive director of the National Association for Campus Card Users, a nonprofit educational association. “My understanding is the relationship is often broader than just a campus card program.” For example, a financial institution may also assist the college with managing the college’s treasury, administering payroll or issuing financial aid refunds. “In some cases, the banks are involved in naming athletic facilities,” he adds. “It can be very broad-ranging.”
Adkins says the partnership can be beneficial to everyone involved and campus cards are often popular with students and parents.
The ability to pay for things such as food or clothes with a college ID appears to be especially popular. “I really liked it,” says Sarah Edwards, a 2007 graduate of the University of North Carolina at Chapel Hill, whose student ID was linked to a Wells Fargo account. “I liked the convenience … If you were running out to the dining hall to get something, you didn’t have to take an entire wallet with all your cards.”
Not all observers buy the argument that campus cards are a bad deal for college kids. “The university has the welfare of their students at heart when they make decisions and partnerships,” says Nessa Feddis, vice president and senior counsel for the American Bankers Association trade group. “The students still have a choice. It’s up to them to decide how they want to pay for their banking services.”
However, some consumer advocates say shopping around for debit cards isn’t so easy, so the easiest path for students is to stick with the bank their colleges choose for them. (See 5 smart banking tips for college students.)
“You can’t look at the fees and terms and conditions across different banks easily and figure out which account works for you,” says Susan Weinstock, project director for Pew’s Safe Checking in the Electronic Age Project, which is pushing for a one-page fee disclosure document. “In order to fully understand your checking account, in theory, you would read the disclosures that the bank provides. In our research, we found the median length of those disclosures is 111 pages.”
A lucrative deal for colleges
Students with multifunctional ID cards aren’t required to activate the debit card option on their cards. However, colleges often have a big incentive to sign up as many students as they can. Some consumer advocates wonder if that is creating a conflict of interest for the colleges.
“There are echoes here of the conflict-of-interest scandal” that occurred in 2007, says Kantrowitz. Then, colleges were charged with getting too financially close to the student loan companies they were recommending to students. This time, debit card issuers are providing expensive operational services “at little to no cost,” says Finaid.org’s Kantrowitz.
Or, in some cases, they are providing direct payments to colleges in exchange for access to students.
Wells Fargo, U.S. Bank and PNC Bank are some of the biggest players in the campus card market, with presences at big-name college campuses, including Northwestern University, Carnegie Mellon and Texas A&M. And they appear to offer some of the most lucrative agreements for colleges.
For example, U.S. Bank offered the University of California-Davis a $30,000 signing bonus for its campus card program, according to a contract obtained by CreditCards.com through a public records request. U.S. Bank also agreed to pay an additional $270,000 over nine years and pay up to $300,000 a year in bonuses if enough students signed up for a campus card.
Wells Fargo, meanwhile, offered the University of Nebraska-Lincoln a $250,000 initial signing bonus for its card program. It also agreed to pay the university an extra $300,000 per year for as long as the partnership is active, as well as an additional $15 per student checking account opened with Wells Fargo Bank.
Some of the big players that specialize in issuing campus cards, such as BlackboardPay and Higher One, don’t share revenue with colleges. (Higher One halted its revenue sharing program in 2007, but still has ongoing financial agreements with some colleges they partnered with before, says Higher One spokeswoman Shoba Lemoine.) However, colleges save a bundle in financial-aid processing costs when they partner with these companies on distributing refunds through campus cards or direct deposit.
“We’re talking about $300,000 that [direct deposit] and Higher One saves us,” says Scott Gallagher, a spokesman for Portland State University in Oregon. It’s money they can use elsewhere on campus, he says.
“It is so much more efficient for the college,” adds Bobbie Remias, director of finance and investment at Macomb Community College in Michigan, which also partners with Higher One. “Previously, we were printing checks and it would take a hand cart to take them to the mail room … not only was it costly [and] labor-intensive, it would take days.”
But is it good for students?
The problem, say consumer advocates, is that not only are students steered toward one option. Some campus card programs come with steeper than average fees.
“The rub for students is as college costs [keep] going up, when they’re first starting school, they might be short on cash” and so there’s a big incentive to sign up for a campus card, says PIRG’s Williams. However “that convenience is coming at a cost, and sometimes at a steep cost.” (See a sample of campus card fees.)
Students who choose to get their financial aid refunds deposited to their campus debit card get their money within a day. That can make a big difference for students who depend on it to pay their bills.
“This is the first time I’ve gotten an apartment,” says Dionte Smith, a junior at Florida State University who has a campus debit card linked to a SunTrust account. “If I hadn’t gotten [my financial aid] with the card, then I would not have been able to pay my rent on time.”
Fees pile up
Not all campus cards are alike. For example, on March 1, 2012, SunTrust began charging a $5 monthly fee for using its card. American Express’ new prepaid campus card has few upfront fees, but students who want to load additional cash onto the card must transfer the money from a personal bank account or buy a Greendot MoneyPak for $4.95. Students also have to pay $2 to withdraw cash (after one free transaction per month), no matter which ATM they choose. Other campus card providers, such as Wells Fargo, charge fewer fees but require up to $100 to open an account.
Higher One, in particular, has received criticism for its unusual checking account fees, including a 50-cent PIN-based transaction fee, a $50 “lack of documentation” fee and a $19 abandoned account fee.
The company partners with more than 700 colleges across the country and insists its fees are in line with other banks. “We’ve conducted a comparison of our offering against several national and regional banks and our offering is lower than most of them on average per year,” says Higher One spokeswoman Shoba Lemoine.
However, an analysis by CreditCards.com found that, when you factor in the PIN-based transaction fee and the abandoned account fee, the fees Higher One charges are among the costliest for student accounts.
“The 50-cent debit fee … that’s not normal in the marketplace,” says Williams.
Some colleges, including Portland State University, have negotiated that fee out of their contracts. However, Higher One says the 50-cent debit fee is easily avoided if a student presses “credit” on a transaction instead of entering a PIN.
Can fees be avoided?
Higher One also says its fees are exceptionally transparent. “The fee schedule is very open,” says Lemoine. “It’s always just one click away.”
In addition, says Lemoine, “we conduct educational campaigns on how to avoid the fees. We post videos, we provide a lot of tips.”
Students say the fees aren’t always avoidable. “At first I wasn’t aware of it until I looked online in my account and saw that every time I put in my PIN, there was 50 cents [taken out],” says Trenteka Hampton, a student at Troy University in Troy, Ala. “Fifty cents adds up very fast.”
Not all merchants accept credit transactions, she says. “I know at Dollar Tree, you can’t use credit there with MasterCard. And I know at Wal-Mart, over a certain amount, you have to put in your PIN.”
Finding a free ATM is also a problem, says Hampton, because Higher One ATMs can only be found on campus and she says they are often closed or out of order.
“I have had to pay close to $100 in fees this semester alone,” adds Sharon Sawyer, a sophomore at Santa Fe College in Florida, who also has a Higher One account. “And I haven’t even received the rest of my financial aid.”
A changing competitive landscape
Higher One’s unusual fees have created an opening for newcomers such as BlackboardPay to offer a similar service, with significantly lower fees. “We take the fee schedule from competitors and we take a calculator for the schools and let the schools crunch the numbers,” says Pedro Marzo, director of business development at BlackboardTransact, which offers students a Discover prepaid debit card.
Other companies, such as Heartland Payment Systems and American Express, have also recently entered the campus card market and are positioning themselves as a lower-fee alternative.
However, consumer advocates say students are better off comparison shopping and choosing their own banking services. “A huge number just stick with the bank [their college chooses] and may not be as aware of what the fees are going to be and how that would compare to a local credit union or national banks for comparable fees,” says FinAid.org’s Kantrowitz. “The students need to be aware that the reason why colleges are doing this is to simplify their operation and to save money.”
He adds: “Colleges aren’t going to warn them very strenuously about the risks associated with these cards with the high fees.”