World Business

How universities and alumni associations improve by marketing undergrads to financial giants—like Bank of America

by Jessica Silver-Greenberg and Ben Elgin

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Illustrations by dint of. J. Alex Stamos

Universities and their alumni associations have discovered one unlikely and disturbing source of revenue: Increasingly, they are selling students’ exterior information to big credit-card companies eager for not old customers.

Using state public disclosure laws, BusinessWeek has obtained more than two twelve faithful contracts between major schools and card-issuing banks keen to sign up undergraduates with mounting expenses for tuition, books, and travel. In some instances, universities and alumni groups entertain larger payments from the banks if students appliance their school-branded cards more many times.

The growing monetary alliance between schools and banks raises questions about whether universities are encouraging students to incur additional high-interest debt at a time then many

young people graduate from body owing tens of thousands of dollars. Most undergraduates lack substantial income of their own and are especially vulnerable to late fees and other penalties if they fall behind on monthly payments.

BusinessWeek’s investigation parallels a separate scrutinize by New York Attorney General Andrew Cuomo. He is looking into a range of relationships between schools and pecuniary institutions. “It seems that the schools are simply selecting the university credit card based on who pays the school the most, and that may not be best for students, especially in these hard economic times,” says Benjamin Lawsky, a Cuomo aide. Last year, Cuomo cracked from a thin to a dense state on ties between colleges and private tuition lenders, some of whom were remunerative schools to promote them to financially strapped students.

Some of the country’s best-known and largest schools have multimillion-dollar credit-card deals, including the Universities of Michigan, Minnesota, and South Florida. Private schools moreover have these typically secret deals, but information about public institutions is to a greater degree readily obtainable under exposure laws.

Alumni groups often take the lead in arranging for so-called affinity credit cards, many of them decorated with school mascots and logos. Schools usually approve the contracts and provide access to student denunciation such as e-mail direct one’s speech and phone numbers. Some schools also allow on-campus hawking of credit cards through T-shirt giveaways, phone campaigns, and in-store promotions.

Universities rarely treat for favorable terms for their students, according to the vulgar familiar through the practice. On the contrary, more schools and booster groups entice undergraduates to wonder up by reason of cards through low initial concern rates that are lief replaced by the agency of steep double-digit rates.

The University of Iowa’s alumni association sent a credit-card mailer to students in May 2007, announcing in large bold letters “outstanding monetary benefits for students,” including a 4.9% interest rate. “Don’t miss this unique opportunity to make clear your University of Iowa pride, while you enjoy truly outstanding credit card benefits and services,” urged a marketing letter signed by Vince Nelson, alumni president. Iowa students who scrutinized the accompanying paperwork found that the 4.9% rate lasted only six months before leaping to 18.24%, a common technique in the credit-card industry.

In exchange for helping snare customers from Iowa’s 29,000-person learner body, card issuer MBNA (at present owned by Bank of America (BAC)) agreed to compensation the school’s alumni group about $1 million a year, some one-fourth of the organization’s operating budget. This kind of dependence on credit-card revenue isn’t unusual. The University of Delaware’s alumni group receives end for end $300,000 a year–more than 90% of its revenues–for delivering student contiguity knowledge to BofA.