Your Credit Cards Guide

Any student can tell you that the first thing they get in the mail when they return to campus is a wad of offers from credit card companies. But what most students and their parents did not know until recently was that colleges are behind the effort to get students to sign up for plastic.

Lucrative multi-million dollar contracts give colleges a kickback, so when a student applies for college the university also hopes they will apply for lots of credit cards. Buying all those pizzas or taking out emergency cash advances means big bonuses to colleges that reap as much as a dollar per student. But they can make even more if students carry a lot of debt and don’t pay it off right away.

According to the terms of one such arrangement, for example, Bank America agreed to pay the University of Central Florida $1 for each nonstudent cardholder who carries debt from one year to the next, plus $1 for each currently enrolled student cardholders. But the university earns a $20,000 bonus if the collective debt of those students or former students grows by $900,000 from one year to the next.

Similar contracts have been signed with many major banks and prestigious universities, including lots of taxpayer supported colleges. But credit cards are problematic for college kids. According to an April 2009 study from Sallie Mae, America’s largest student loan, most college seniors carry over $4,000 in credit card debt – in addition to their student loans – even before the graduate and find a job.

Recent credit card reform legislation will force schools to disclose these agreements and new laws require that students under the age of 21 prove that they can make their payments. So some restrictions now apply, but many of these contracts are still in place.

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