Colleges cash in when students use credit cards
State doesn't regulate on-campus marketing

Tim Barker, February 19, 2006

Date: Sunday, February 19, 2006 Section: A SECTION
Edition: FINAL Page: A1
Source: Tim Barker, Sentinel Staff Writer
Colleges cash in when students use credit cards
State doesn't regulate on-campus marketing

For UCF student Charles Hogan, the path to crushing debt was paved by a pizza.
Two years ago, while walking across campus early one day, he was handed a flier promising free food. All he had to do was apply for an MBNA credit card.
He got his pizza. And now he has three cards, with $6,000 worth of debt.
That puts Hogan, 23, at the center of a national debate about whether credit-card companies should be allowed to recruit on college campuses. At risk are tens of thousands of students who are increasingly falling into debt, using student loans to pay credit-card bills, taking second jobs and, in some cases, dropping out of school.
A handful of states, including California, New York and Washington, have passed laws aimed at curtailing campus marketing.
Not Florida. The state's university system offers no formal guidance, leaving administrators free to set their own rules -- rules that allow schools such as the University of Central Florida to make money off students' card purchases.
Through an agreement with MBNA, the university's alumni association gets a cut of every card purchase. In exchange, MBNA has exclusive access to the campus, handing out trinkets and food to catch the attention of students such as Hogan.
The creative-writing senior from Clearwater started with good intentions, wanting only to build his credit score for the future. Though he's the one who let things get out of hand, he feels betrayed by the giveaways -- free ice cream got him a second MBNA card.
"We're college students," he said. "We see free food, we're definitely going to go after it."
The alumni association won't say how much money it gets from the MBNA deal. But Executive Director Tom Messina said it is less than 10 percent of the organization's budget.
And though the group makes money off transactions, he said it gets nothing from balances carried over each month.
"We don't encourage debt. I don't ever want to make money off their debt," Messina said.
Market grows
Critics, however, argue that's exactly what's happening -- at schools in Florida and across the nation, as students use plastic to buy more than they can afford.
"These kids are facing the most sophisticated mass-marketing system in history," said Robert Manning, professor at the Rochester Institute of Technology and author of the book Credit Card Nation.
Manning and others point to studies such as one done last year by student-loan provider Nellie Mae. It showed that 56 percent of seniors carried four or more credit cards, compared with 15 percent of freshmen. The average balance for seniors was $2,864, compared with $1,585 for freshmen.
Still, the average outstanding balance for all students has declined slightly since 2001 to $2,169 from $2,327, according to the study.
The push to reach college students started in the late 1980s, when credit-card companies made their first forays into the lucrative market. Today, bankers say students are among their top customers.
"They tend to be more responsible with credit than the general population," said Tracey Mills, spokeswoman for the American Bankers Association, an industry group.
But that's only because parents often pitch in, say critics who accuse issuers of signing up students, regardless of ability to pay.
"A college student merely has to be breathing," said Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group.
UCF junior Nicole Stancel still wonders how she managed to qualify for four cards while making $100 a week working at the campus library. Now about $2,500 in debt, she is a study in conflict.
She dreams of taking a pair of scissors to her cards. And yet she feels a sense of power as she looks over her small, essentially useless, pile of plastic.
"Someone thought I was responsible enough to have four -- which I obviously wasn't," Stancel said.
There have been numerous national efforts -- including failed legislation by Sen. Christopher Dodd, D-Conn. -- targeting campus marketing. Opponents have pushed to curtail giveaways, force companies to offer financial-literacy training and make students meet the same credit requirements faced by the general population.
Such proposals have met fierce opposition from the banking lobby, which argues that students have the right to make their own choices.
"These are adults who happen to be in college," said Mills, the American Bankers spokeswoman.
Without federal guidelines, college campuses in most states have remained fertile hunting grounds. About 900 universities have enacted restrictions -- but often they only limit who has access.
Universities are getting deals that pay $1 million or more a year -- receiving up to 1 percent of students' charges.
The lure has proved too much for Nova Southeastern University in Fort Lauderdale. The school prohibits card vendors on campus but is now negotiating a deal with an unnamed bank.
It's expected to generate money for scholarships and other programs, while giving students access to banking services. In exchange, the bank will be free to use giveaways to market its cards on campus.
"I have no problem with that. They're offering a service that is convenient to students," said David Dawson, executive director of university relations.
The University of Miami also has an exclusive deal, with Bank of America -- which recently bought MBNA for $34 billion. A university spokeswoman would not discuss the agreement, saying only that it lets the company onto campus several times a semester to solicit students.
Bank spokeswoman Julie Davis downplayed credit-card marketing, saying the company offers all of its services, including checking accounts.
"We don't go out and specifically target students with credit cards," Davis said.
While such deals draw harsh criticism from consumer advocates, educators quarrel among themselves over their own roles in students' lives.
How far, they ask, should a university go to protect students?
Paul Gregg is a UCF finance professor who has been critical of credit-card practices, including the ease with which credit is granted. But he stops short of criticizing the MBNA agreement.
"I would not say that UCF has any blame here," Gregg said. "This is college, not high school. These are young adults."
But others say many students arrive on campus, away from home for the first time, with little preparation for the responsibility of having a credit card.
"We are not here to protect them," said Deborah Thorne, an assistant professor of sociology at Ohio University, which prohibits marketing. "But I don't think we should throw them to the sharks and make money off their ignorance."
`Critical tool'
Fighting that financial ignorance is what Larry Chiang, founder of United College Marketing Services, says his company does.
Every year, it conducts about 10,000 credit seminars on the nation's campuses -- all while trying to get students to apply for credit cards from the companies it represents.
His argument is simple: Credit cards are a critical tool for building a credit history.
"They are dangerous, yes," he said. "But what about the fact that you can qualify for a mortgage a year out of college?"
That's what attracted Fabian Richards, 23, to his first card. The electrical-engineering senior at UCF has used it for a variety of things, including a Colorado ski trip -- but only spends what he has in the bank.
"It's strictly to build credit," Richards said. "I'm very careful with that."
But then there are students such as Cassandra Jean, who also started with good intentions.
Each day for Jean, a 23-year-old UCF senior, starts around 8 a.m. with a phone call that signals the beginning of another onslaught of calls from bill collectors, looking to recover the $3,000 she owes on four maxed-out credit cards.
With a part-time job that leaves her with $100 after paying her rent, Jean is at a loss.
"It's pretty frustrating and stressful," Jean said. "You're reminded every second of every day. They just want their money."

Illustration: BOX: 18%
Students who got first credit card from a campus booth
Students very or extremely anxious about ability to make payments
Students who cite free gift as the reason they applied for a card on campus
SOURCES: 2005 Nellie Mae study, American Bankers Association, U.S. Public Interest Research Group
BOX: Rules vary on marketing in Florida
Florida schools have a wide range of policies regulating campus credit-card marketing.
Virtually every university with a significant athletic program allows credit-card issuers at sporting events. But marketing on campus -- where the customer pool is almost entirely students -- is another matter.
Both the University of Central Florida, through its alumni association, and the University of Miami have exclusive deals with card issuers, allowing them to market on campus.
Here's a look at what some other schools are doing:
Among the strictest in the state -- allowing commercial ventures on campus only if they offer an educational benefit.
"We also want to protect our students from being placed in uncomfortable situations where they feel like someone is always after their time or money," said Cara Meixner, director of student involvement and leadership.
Allows companies only to pass out brochures -- they cannot set up booths to take applications.
"We're not just picking on credit-card companies. It's just the commercialization. We want to keep the campus safe and keep litter down," said Robert Miller, associate vice president for finance and administration.
During the first week of each semester, allows three credit-card companies to set up booths at the student union. Chosen on a first-come, first-served basis, the companies must provide personal-finance literature and make freebies available to everyone, not just those who apply for cards. Such rules are important, said Anse Cates, associate director of business services.
"We would have 15 to 20 credit-card companies on campus every day of the year, and we just don't want that," he said.


This story ran on on February 19, 2006.