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March 02, 2013


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Maybe whatever administrator was snookered by promises of riches and now their attention is elsewhere.

Tamara Piety

Good question. Credit card debt is another significant burden on graduates which didn't exist even 30 years ago because this practice was just starting.

Scott Pryor

Thanks for the post and the link to Fed's site. Perhaps it's a question of the target of the marketing for the card. I notice that my alma mater, the University of Wisconsin, does not have an affinity card but it's alumni association does (and brought in nearly $1 million in 2010). I have less concern about these sorts of tie-ins when the group to whom they're pitched are grads and not current students. Of course, the bank and alumni association can start marketing long before graduation which raises the moral/public welfare questions you raise.

Jim Hawkins

That is a good point Scott. I had looked at it earlier, and I found that 37.67% of the agreements were between credit card issuers and undergraduate colleges, 32.67% were with alumni associations, 7.33% were with foundations, 2.00% were with professional schools, and 1.67% were with alumni associations and universities together. 18.67% were with entities that did not fall within one of the other categories. So, my title is a little misleading, but even agreements with non-colleges include student credit cards. In the 300 agreements I looked at, 72.67% included student cards, while the remaining 27.33% are aimed exclusively at alumni or other groups.

Unemployed Northeastern

"My big question is not for students but for colleges: Why are you still partnering up with credit card companies?"

For the same reason that outstanding student loans have increased more than 500% over the last 12 years while college graduate salaries have decreased 11% for men and 7.4% for women during that time. For the same reason that the average price of college has increased 650% over inflation since 1978 (the year federal student loans were initially made *mostly* nondischargeable in bankruptcy) while college grad salaries have only increased about 10% in 2010 dollars since 1973. For the same reason Yale and Penn and other elite schools are SUING their un/underemployed graduates on their Perkins loans (loans only extended to low-income students/families). For the same reason Jack Lew steered NYU kids away from less-egregious federal and non-profit-sourced FFEL loans towards CitiGroup. For the same reason colleges congratulate themselves on holding tuition increases to 4% or 5% in a time of ~1% inflation. For the same reason colleges (and foundations run by student lenders) say that we need millions more college graduates even though only 42% of college graduates held college-level jobs, on average, from 2003 through 2011. For the same reason that 70% of college professors are poorly-paid adjuncts while ever-bloating college administrations and sub-vice-provosts make hundreds of thousands of dollars per year. For the same reason student loans are considered "good debt" even though the NY Fed Reserve estimates that 31% are delinquent and nearly every consumer protection has been removed from them over the decades. For the same reason that Sallie Mae and other for-profits created an enormous securities class out of private student loans (Student Loan Asset-Backed Securities; $2.7 trillion in circulation at their peak). Because MONEY. It's not rocket science.

P.S. I wrote this in a hurry, but can provide cites for all of the figures, if desired.

James Grimmelmann

Unemployed Northeastern, yes, there's MONEY to be made hooking college students on easy but expensive credit. But JIm is asking a second-order question: why the colleges are playing along. The most straightforward theory -- they're being bribed to by their agreements with credit card issuers -- is inconsistent with the Federal Reserve's data, which show that the MONEY flowing to colleges from these agreements is often minimal. So something more than just greed on the part of college administrators has to be at work. Greed plus incompetence, perhaps, or, maybe even a non-greed-based motivation.


Why would a minimal amount of money suggest something other than greed has to be at work?

Unemployed Northeastern

@ Professor Grimmelmann,

I think you'll find that several of my examples involve direct and voluntary conduct by colleges and universities. They are "playing along" because it is profitable to do so. I don't think there needs to be a baseline amount or margin for institutions to follow the profit motive. How much profit is there, after all, for Penn, Yale, George Washington, and other universities with multi-billion dollar endowments to sue their own un/underemployed graduates over Perkins Loans* that have something like a $4500/year or $5000/year lending cap? It makes for lifelong alienation from those students (something schools are supposed to want to avoid), horrid press - it shows that even most elite degrees in the land are occasionally not worth their cost - and even if they secure a judgment, you can't bleed a stone. One graduate of George Washington in the article is sued by his alma mater for just $4000. Yale, with nearly $20 billion in endowment, is suing a graduate over $6,455.* That's a rounding error for Yale. It's insane, but it's happening. Point is, if institutions can be this venal, the percentage of profit isn't really the issue. As I said above, colleges still do the affiliated-credit card deal because it makes them money. The amount of money is irrelevant so long as they get it. I would point out that a quick scan of the linked database shows agreements with several for-profit institutions like the University of Phoenix.

*Federal loans for low-income students that come out of university pockets and are administered by those schools.

**One should note here that Yale had its own home-grown student loan system way back in the 1970's when the school cost about $2,500 per year. It ended in disaster, as no cohort ever fully repaid its balance. Ergo, Yale should know that not all of its debts will be repaid in 2013 when it costs something like $55,000/year.

James Grimmelmann

Fair point UE NE. But where does that leave the 99 institutions in the dataset that made nothing at all? One needs some further explanation for some of the cases: chasing after perceived prestige, or unreflectively emulating peer institutions, or misestimating the returns, or some bureaucratic imperative within the organization. And I would guess that once one has that explanation, it will help in understanding what the rest of the institutions are doing -- and in resisting it.

Unemployed Northeastern

@ Professor Grimmelmann,

Perhaps in the cases were there is no reported lucre for the university, there are other fringe benefits? Under the table payments to the college administrator who set it up, or promise of a future job at the credit card company in question. One thinks back to Jack Lew / NYU / Citigroup. It's cynical, but that doesn't mean it doesn't happen. Or perhaps it is just a disconnect between college presidents who may still think these arrangements make money and the data showing them that it does not. I would liken this to the CEOs at major corporations who were hired decades ago with liberal arts degrees and who spend lots of time praising such educations to the press, completely unaware that the software filters their HR departments use automatically reject applicants with liberal arts degrees. The left hand doesn't know what the right hand is doing, in other words.

Here are some articles I found over on the higher ed websites. Most are from 2009-10, but they speak of lots of money to be made from these affiliations: - Colleges made $84 million in 2009 off credit cards aimed at students and alumni. - $73 million made in 2010 from these affiliations - about the growth of student DEBIT cards that are tied to their student loan balances and come with very hefty transactional fees. - largest recipient of credit card affiliation fees in 2009 was the University of Illinois Alumni Association, which made $3.2 million.

James Grimmelmann

I would add that universities may see it as a way to promote their "brands," itself a symptom of the same attitudinal corruption.

Unemployed Northeastern

"I would add that universities may see it as a way to promote their "brands," itself a symptom of the same attitudinal corruption."

Well, I suppose it is less noxious than, say, building luxury dorms and enticing students to take out a bunch of private student loans to live in them. See , among many other examples.

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