Thanks so much for the chance to be part of the Faculty Lounge this month. I’ve been reading since it was created, so I am happy to join in. I plan to blog about consumer credit issues–credit cards, title loans, and payday loans.
The Consumer Financial Protection Bureau recently asked students to tell the Bureau about students’ experiences with financial services like debit cards and bank accounts. As the Bureau points out, credit card companies have to disclose their agreements with colleges, but the relationships with these other financial service providers is still pretty murky. My big question is not for students but for colleges: Why are you still partnering up with credit card companies?
There are of course a lot of reasons from a public welfare standpoint that we might think it is bad for colleges to partner with credit card companies, but my question is purely about the business decision. Most colleges make only tiny sums of money from these partnerships, so why do they chance reputational harm or risk losing students who get overburdened by credit card debt?
Because of the CARD Act, the Federal Reserve gets information from credit card companies and colleges (and other college-related organizations like alumni associations) about their partnerships, and the Fed creates a report anyone can view. In 2009, for instance, 604 of the college-related organizations
(57.85%) made less than $10,000 under their agreements with issuers, with 219 making less than $1,000, and 99 making no money at all. The median payment for all of the colleges was $5,891. So, for most organizations, their agreement with the issuer had a negligible effect on their bottom line, compared to say, the tuition of a single student for a single year. Why stay in these relationships? What am I missing?